State-owned freight logistics group Transnet reported a loss of R8.4-billion for the year to March 31, 2021, and also received an audit qualification for the period relating to its ongoing irregular-expenditure problem.

The loss, which is the first to be reported by the group for more than a decade, was attributed largely to the lockdowns introduced by the South African government at the start of the Covid-19 pandemic, which severely knocked business activity.

Revenue fell by 10.5% to R67.3-billion during the year, while earnings before interest, taxes, depreciation, and amortisation slumped by 42.8% to R19.5-billion as rail, port container and petroleum volumes contracted by 13.7%, 11.5% and 26.4% respectively.

The loss represented a sharp turnaround from the R2.9-billion profit reported in 2020 and arose despite a 14.3% pullback in capital investments, which declined to R15.9-billion.

The long delay in the release of the results, however, was attributed mainly to attempts to have the irregular-expenditure matter settled in a manner that allowed Transnet to avoid the audit qualification.

The delay was also prolonged by a cyber-attack on the company in July, which negatively affected Transnet for a three-week period.

The results presentation itself was also delayed for several hours on October 29 as a result of an unsuccessful attempt by Transnet to have the irregular expenditure ring-fenced from the results such that an audit qualification could be avoided.

In the event, however, no such settlement could be reached with the National Treasury or the Auditor General of South Africa ahead of its annual general meeting.

Transnet, thus, eventually released audited financial results with yet another qualification and reflecting irregular expenditure of R104-billion, down from the R131-billion recorded for 2019/20.

The audit qualification resulted in a breach of loan covenants with an outstanding balance of R19.1-billion as of September 30, 2021, and Transnet said it would engage with affected lenders to request waivers of their right to accelerating debt repayments consistent with the prior years.

A clearly exasperated Portia Derby, who is group CEO, stressed that the qualification was not as a result of any breach of International Financial Reporting Standards, but related instead to a lack of compliance with the Public Finance Management Act (PFMA).

Only South African government departments and State-owned companies are subjected to PFMA rules, which Derby suggested were undermining Transnet’s ability to compete as a business.

She said that it would continue to pursue a “practical” resolution to the irregular expenditure problem, and indicated that Transnet could well issue an updated notice to the market in the coming weeks dealing with the audit qualification.

Despite the group being more than six months into its new financial year, CFO Nonkululeko Dlamini said she could not offer specific details on the current performance of the company, which was once again in a closed period.

However, she indicated that there had been a recovery in the first six months of the current financial year when compared with the same period last year, part of which coincided with South Africa’s harshest lockdown conditions, known as Level 5.

“What we see in the new year is a significant improvement,” Dlamini said, while stressing that there had not yet been a full recovery to pre-Covid conditions.