Reading the annual reports of state enterprises (SOEs) is enlightening, but not very fun. Their financial statements show that several of the 26 largest and most familiar entities are close to total failure.
There used to be 28 reports to flip through when Moneyweb first compiled the results from state-owned companies a few years ago, but South African Airways (SAA) and SA Express eventually came to terms with the reality that they were hopelessly bankrupt. SAA last produced audited figures in 2017 before entering the business bailout and SA Express faded away.
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The various sets of results for the 2019/2020 financial year indicate that there might be even fewer reports to read within a few years.
The latest analysis covers results for financial years ending in 2020, as results for many state-owned companies were delayed after the government granted extensions to publication dates due to the Covid-19 pandemic.
These extensions also appeared to have translated into delays in 2021 results, although several of the largest companies, and especially those that issue government bonds, have published their 2021 results on time. Unfortunately, not many results have been published yet.
Read: Will our banks be able to withstand the escalating crisis of state-owned companies?
Half of the 26 SOEs suffered losses in 2020, while eight of the profitable ones reported that profits declined.
The total aggregate loss increased to almost R28 billion compared to less than R8 billion in 2019.
The losses were actually higher by several billion each year, because the calculation had to exclude SAA, which probably posted losses of around R5 billion each year for the last few years.
|Profit and Loss of SOEs in South Africa|
|Acsa||2 005||842||504||1 390|
|DBSA||2 821||2 283||3 097||504|
|Denel||282||-1 084||-1 749||-1 962|
|Eskom||-4 608||-2 337||-20 729||-20 679|
|IDC||2 200||3 224||720||-3 789|
|Land bank||367||254||181||-2 125|
|PetroSA||-1 608||-676||-2 082||-5 579|
|Post Office||-967||-908||-1 174||-1 548|
|press||-928||1 442||-1 685||2 279|
|Edge water||2 414||3 173||2 800||3 837|
|Sanral||-4 962||-260||3 026||1 263|
|Trans-Caledon Tunnel||2 304||2 087||2 200||504|
|Transnet||2 765||4 851||6 047||3 938|
|Total||2 427||14 058||-7 906||-21 932|
Source: compiled from annual reports
Eskom, the biggest of all, reported the biggest loss. The loss of more than 20 billion rand in the year to March 2020 is comparable to that of the previous year and, as in previous years, is mainly due to the interest payable on its very large borrowings.
Eskom actually made a profit of almost R6.7 billion before its massive interest charge of R31.5 billion on its R408 billion in bonds and long-term debt.
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There are many contenders for the worst performance. SABC, PetroSA, Denel and Land Bank suffered huge losses.
PetroSA reported a loss of almost R5.6 billion compared to a loss of just under R2.1 billion in the previous year, and management admitted that the entity is in serious trouble.
The Auditor General drew attention to the large loss and that PetroSA’s total liabilities exceeded total assets by R4.5 billion at the end of the year.
“As indicated in note 35 to the consolidated and separate financial statements, these events or conditions, together with other matters as set forth in this note, indicate that there is a material uncertainty that may cast significant doubts about the entity’s ability to continue as a concern, ”warned the Auditor General.
President Frans Baleni says in his report that the latest loss is the continuation of a series of poor financial results over the past five years. “These sad and disappointing results are not something that PetroSA’s board of directors, management and other employees can be proud to be associated with.
“These results are signs of a company that is descending into an unprecedented crisis and the enormity of underlying business issues that we must honestly face and deal with decisively as stakeholders,” he said.
“PetroSA’s performance during the year under review, coupled with the current tough business realities, heralds more challenging times ahead.
“Without painting an unnecessarily bleak picture, it is important to state in advance that the business-as-usual approach will be of no help if we hope to successfully turn this company into a sustainable business.
“Any hope for a better future requires an honest assessment of the current situation, new mindsets and strong internal commitments to chart a new path for the company,” he said.
“PetroSA is currently at a crossroads, a critical point in the history of the company.
“We have to collectively do everything in our power to save PetroSA and keep it afloat or we will sink together.”
Hopefully, this understanding of the problem has not come too late. Baleni says the natural gas wells that sustained the Mossel Bay plant for two decades are near the end of their lives. Production decreased 26% in 2020 and was expected to fall another 22% in 2021.
The costs of alternative raw materials for the plant are too high and PetroSA cannot afford an exploration and drilling program to find new reserves.
Baleni said another option would be to acquire another business, but PetroSA does not have the capital for that either.
Assets and liabilities of state-owned companies
|Acsa||32 125||9 001||23 124|
|Armscor||3 465||613||2 852|
|ATNS||3 337||438||2 899|
|Broadband infraco||1 289||2 607||-1 318|
|CSIR||2 453||1 381||1 072|
|DBSA||100 465||62 888||37 577|
|Denel||8 525||10 803||-2 278|
|Eskom||823 223||637 155||186 068|
|IDC||112510||64 439||48 071|
|Land bank||46 199||43 636||2 563|
|PetroSA||14 394||18 858||-4 464|
|PHOTO||3 912||654||3 258|
|Post Office||11 067||7 395||3 672|
|press||82046||57 972||24 074|
|Edge water||33 533||7 908||25 625|
|SABC||6 183||3 189||2 994|
|Sanparks||5 642||2 597||3 045|
|Sasria||8 921||1963||6 958|
|Sentech||4 287||1 991||2 296|
|Trans-Caledon Tunnel||24 776||22 699||2,077|
|Transnet||336 225||205 998||130 227|
|Total||2 137 216||1303 024||834 192|
Source: compiled from annual reports
Denel is on the ropes too, he’s basically bankrupt.
Its losses increased to almost R2 billion in 2020 and its liabilities (R10.8 billion) exceed its assets (R8.5 billion) by more than R2 billion. This was the case also in 2019, when stockholders’ equity was negative R1.7 billion.
In addition, the financial statements should be read with caution. The auditor’s report reads in part: “I was unable to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on these consolidated and separate financial statements.”
The Land Bank’s loss of more than R2.1 billion can be attributed to asset impairments of R1.8 billion, mainly as a result of bad debts.
The Passenger Rail Agency SA (Prasa) deserves a special mention.
The reported profit of R2.28 billion in financial year 2020 is not as good as it seems when you consider that it received government subsidies of about R8.4 billion.
It earned only R1 billion for the transfer of passengers and R726 million for the rental of commercial spaces in the stations.
Prasa Chairman Leonard Ramatlakane said in his shareholder report that Prasa is “too important to fail.”
“As a board, management and employees, we have no choice but to repair this important organization and bring it to order.
“Failure would be detrimental to our people, customers, employees, and the economy; therefore, it is not an option, ”he wrote.
He said that the public perception of Prasa continues to be poor for a number of reasons, including the audit opinion rejected by the Auditor General, reckless business decisions by top management leading to disastrous consequences, little or no consequences for management, and compliance failures throughout the organization and inadequate record keeping (in some cases, no records).
Thandeka Mabija, Prasa’s acting CEO in 2020, reiterated that Prasa’s rail performance has declined dramatically in recent years, with commuter services at their lowest performance levels.
“During the reporting year, train punctuality was 62.34% and 9% for Metrorail and Mainline Passengers Services (MLPS), respectively. 21.17% of trains scheduled for Metrorail and 23% for MLPS were canceled, with an average delay of more than 40 minutes on Metrorail services and more than 150 minutes on MLPS, ”he said.
In fiscal year 2014, Metrorail carried 543 million paying passengers, but this has dropped to just 125 million in 2020. MLPS carried only 205,793 passengers in 2020.
“The unavailability and unreliability of rolling stock and infrastructure, key enablers of regular, reliable and punctual rail services, can no longer guarantee that rail is the backbone of public transportation,” he said.
The Auditor General listed 99 concerns with financial statements and the accounting system, and his comment occupies an unprecedented 16 page total in Prasa’s annual report.
The billions paid for Spanish locomotives that did not fit on the local tracks, commissioned by an engineer with false titles, are still on the books as irregular expenses from previous years. The total figure is 28.6 billion rand.
Armscor also deserves a special mention. It made a profit, after receiving a government grant of 1.15 billion rand.
Of interest is that it paid R1.12 billion in salaries and related employee costs to earn revenue of R450 million. According to the annual report, Armscor employed 1,555 people to earn this income.