Transnet outlines ‘low-road’ investment scenario amid demand uncertainty

2nd August 2016

By: Terence Creamer

Creamer Media Editor

  

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State-owned freight logistics group Transnet reports that its multibillion-rand capital expenditure (capex) plan, which has already been rephased in response to weaker-than-expected market demand, could be further moderated under what it terms a “low-road scenario”.

Outlining its revised capital plan in its recently released 2016 integrated report, the group shows that, under its official 2017 plan, it will invest R277.8-billion over the seven-year period to 2023 and between R340-billion to R380-billion over the next ten years.

Capex of R22.8-billion is planned for the current financial year, which is lower than the nearly R30-billion invested last year and well below the peak of R33.6-billion recorded in the 2015 financial year. Capex then rises steadily from R36.2-billion in the 2018 financial year to a peak of nearly R50-billion in 2022.

However, the report also provides insight into a ‘low-road scenario’, which shaves R22.9-billion from the seven-year investment plan and lowers the overall budget for the period to R254.9-billion. Under the scenario, spending is moderated materially in 2017 to 2021, whereafter its rises steeply to peak at R54.3-billion in 2023.

Transnet stresses that its will continue to focus on its much-vaunted Market Demand Strategy (MDS), which includes major investments into its commodity corridors, but that the MDS has been rephased into a “longer-term rolling investment plan to better align capacity creation with expected demand” to mitigate risks.

“The Group is reacting to changing market conditions in an agile way to protect important ratios until growth returns,” the reports stated, cautioning that a reduction in earnings associated cash flows from operations could result in it breaching its self-imposed gearing limit of 50% and its three-times cash interest cover.

“Should this scenario materialise, Transnet will respond by optimising and deferring capital investment from 2017 onwards in response to reduced infrastructure utilisation and capacity demand over the medium term.”

Under this low-road scenario it would defer capital projects by a further R2.8-billion in 2017, followed by a 25% reduction in the three years thereafter. “From 2023 onwards, we anticipate having the available capacity to spend additional capital.”

The report reveals that, in “response to the high probability and expected impacts of economic risks”, a Group Project Office has also been set up to create the foundation for volume-driven capital planning from 2016 onwards.

Edited by Creamer Media Reporter

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