presentation to the portfolio committee on public enterprises 19 september 2007
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PRESENTATION TO THE
PORTFOLIO COMMITTEE ON PUBLIC ENTERPRISES
19 September 2007
2
AGENDA
• OPENING REVIEW BY CHAIRMAN FRED PHASWANA
• OVERVIEW OF PERFORMANCE OF TRANSNET MARIA RAMOS
• REVIEW OF FINANCIAL PERFORMANCE CHRIS WELLS
• HUMAN RESOURCES STRATEGY AND PROGRESS PRADEEP
MAHARAJ
• OPERATING DIVISIONS REVIEW CHIEF EXECUTIVE
OFFICERS
• CONCLUSION AND WAY FORWARD MARIA RAMOS
3
OPENING REVIEW: CHAIRMAN OF TRANSNET
The compact with the Shareholder sets out:
• Transnet’s mandate
• The strategic objectives to be attained by Transnet
• The Key Performance Areas and Indicators to measure Transnet’s performance during a certain period
4
SHAREHOLDERS COMPACT: MANDATE
Transnet’s key role is to assist in lowering the cost of doing business in South Africa
and enabling economic growth through providing appropriate ports, rail and pipeline
infrastructure and operations in a cost effective and efficient manner and within
acceptable benchmark standards
“The mandate for Transnet remains as determined by the company’s founding
documents, by prevailing legislation and by this Compact”
5
SHAREHOLDERS COMPACT: STRATEGIC OBJECTIVES
4 KEY AREAS
1. Capital and financial efficiency
Strong balance sheet Appropriate gearing Cost effective funding
2. Operating efficiency & effectiveness
Volume growth (especially GFB) Operating margin improvement Business re-engineering Exit non-core businesses Competitively priced services
3. Infrastructure Investments
Correlation between budget and actual capital spending Implement maintenance plan
4. Development Investment program (ASGISA); logistics cost reduction Skills development BEE
6
SHAREHOLDERS COMPACT: FINANCIAL KPI’s
Performance Area
Key performance indicator
(KPI)/measure 2007 Target
Capital/financial efficiency
EBITDA margin(%) 34.8
Cash interest cover (times) 5,3
Gearing ratio(%) 47.9
CFROI(%) 5.8
Infrastructure investment
% of actual capital expenditure compared to budget expenditure > 90%
% of total maintenance spent compared to budget > 90%
7
CONCLUSION: TRANSNET PERFORMANCE 2006/07
• Pleasing progress made in implementing Transnet’s Strategy
• Significant investment in human and physical capital
• Strong governance and risk processes
• Achieved all the financial objectives – strong balance sheet
• Now focussed on core Businesses – major non-core assets disposed off
• Platform created for future growth and service delivery
MARIA RAMOS
OVERVIEW OF PERFORMANCE OF TRANSNET
9
TRANSNET’S VISION AND MISSION
Transnet is a focused freight transport company delivering:
• Integrated, efficient, safe, reliable and cost effective services which help promote economic growth in South Africa
PROVIDING PROVIDING
Market share
Productivity and profitability
Capacity for customers ahead of demand
IMPROVED IMPROVED
INCREASED INCREASED
10
TRANSNET VALUES
We are:
•Reliable •Trustworthy•Responsive •Safe service provider
TRANSNET’S CUSTOMERS PREFER US BECAUSE:TRANSNET’S CUSTOMERS PREFER US BECAUSE:
OUR EMPLOYEES ARE:OUR EMPLOYEES ARE:
•Ethical •Committed •Safety conscious •Accountable
•Thinking•Disciplined•Results orientated
11
4-POINT TURNAROUND STRATEGY
Strategic Intent
Focused freight transport company
Enabling economicgrowth
4-pointTurnaroundStrategy
Redirecting & re-engineering
the Business
Strategic BalanceSheet Management
Ensure CorporateGovernance &
Risk Management
DevelopHuman capital
Delivering efficient &Competitive services
• Improving efficiencies & effectiveness of core divisions
• Realising port-rail synergies • Customer focus• Infrastructure and maintenance
• Dispose all non-core activities and focus on core business units
• Appropriate rate of return on invested capital (>WACC)
• Post retirement funding
• Optimise cash flow and cash management
• Strategic asset/liability management
• Highest standards of corporate governance
• Improvement in risk management, especially safety in all operations
• Revitalising HR by transforming culture & behaviour of staff.• Be a preferred and sustainable employer.• Focusing on: - Talent management - Leadership - Transformation - Performance and reward management
12
• We chose the monolithic route to mirror the new corporate
strategy and structure of the Company
• To communicate the integrated and customer-centric
approach of the new Company
• Enforcement of the consistent application of the new Transnet
identity throughout the organization
• To present a consistent face to customers as a platform to
build and sustain momentum as Transnet gears itself for
sustainable growth
• To consolidate employee energies, and maximise economies
of scale and brand assets in building Transnet and its unique
offerings, and
• To create a singular platform to leverage and reinforce the
“One Company, One Vision” philosophy
RATIONALE FOR REBRANDING
13
FINDINGS AND RECOMMENDATIONS
• The current name, Transnet, should be retained• Transnet should refresh its brand image to reflect:
- Customer centeredness - Reliability - Cost-efficiency - Transparency - Competitiveness - Flexibility - OD alignment - Improved communication
• Preference for a monolithic or endorsed brand architecture, particularly amongst customers. In particular, customers, preferred one dominating name for Transnet with reference to its ODs to emphasize unity but distinguish between the core businesses
14
NEW TRANSNET BRAND ARCHITECTURE
Supporting businesses: Transnet Properties and Transnet Projects
Discontinued Businesses
15
THE WAY FORWARD: BRANDING
Use the brand to:
• Underpin the growth strategy
• Drive integration
• Support Transnet’s new culture
• Establish Transnet as a leading corporate in South Africa
• Enabling growth by optimising the efficiency and competitiveness of the country’s freight transport and logistics
• Act as a catalyst for the growth of the economy
16
STRUCTURE TO SUPPORT STRATEGY
Discontinued businesses
Freight Rail
Freight Rail
RAILRAIL
RailEngineering
RailEngineering
TRANSNET COMPANY TRANSNET COMPANY
PORTSPORTS
National Ports
Authority
National Ports
Authority
Port Terminals
Port Terminals Pipelines Pipelines
PIPELINEPIPELINE
Operational divisions(continued businesses)
•SA Express
•Transtel Telecoms
•Viamax
•Autopax
•freightdynamics
•Housing Lending Book
•Shosholoza Meyl
•Arivia.kom
•SA Express
•Transtel Telecoms
•Viamax
•Autopax
•freightdynamics
•Housing Lending Book
•Shosholoza Meyl
•Arivia.kom
Discontinued Businesses
Supporting businesses: Transnet Property and Transnet Projects
17
STRATEGY IMPLEMENTATION: ACHIEVEMENTS TO DATE
Investment
On target with 2007 (R11,7 bn) roll out of five-year investment plan•Replacement of assets (R8,2 billion)•Expansion investments (R3,5 billion)
Major projects commenced and spending next five years per Corporate Plan
•New Multi Product Pipeline (NMPP) from Durban to Johannesburg (R9,3 billion; latest estimate R11.2bn)•Widening and deepening of the entrance channel at the Port of
Durban (R2,6 billion)•New container terminal at Durban Pier 1 (R1,3 billion)
18
STRATEGY IMPLEMENTATION: ACHIEVEMENTS TO DATE
Investment continued
Major projects commenced and spending next five years per
Corporate Plan•Durban container terminal re-engineering (R1,4 billion)•Cape Town container terminal expansion (R4,2 billion)•Ngqura Container terminal (capacity from 2010 onwards) (R6,1
billion)•Coal line capacity expansion to 86 mtpa (R3,3 billion)•Ore line expansion to 47 mtpa (R3,8 billion)•Acquisition of 404 new locomotives (R4,9 billion)
Project management: Establishment of Transnet Projects •Focus on: Co-ordination, implementation, skills, planning and
delivery
19
Disposal of non-core assets
R20 million and R3 million, respectively
Metropolitan Life (including Kagiso Trust Investments) and Fifth Quadrant respectively
Transnet Pension Fund Administrators (100% - administration and investment services)
R1.8 billionLondon & Regional Consortium
V&A Waterfront Holdings (Pty) Ltd (26%)
R30 millionVAE SA (Pty) LtdVAE Perway (Pty) Ltd (35%)
R70 millionEquity Aviation Services (Pty) Ltd(and employee share scheme)
Equity Aviation Services (Pty) Ltd (49%)
R250 million (funded by issue of equity of 15% in Neotel (Pty) Ltd via Transpoint Properties (Pty) Ltd)
Neotel (Pty) Ltd (formerly the Second Network Operator)
Transtel Telecom FSNMetro assets
R2 billion (no cash flow – transaction effected by share buy-back)
DepartmentofPublicEnterprisesSouth African Airways (Pty) Ltd (100%)
Price Buyer Businesses disposed
STRATEGY IMPLEMENTATION: ACHIEVEMENTS TO DATE
20
Disposal of non-core assets – Subsequent events
R5,7 billion
– Cash received
Newshelf 664 (Pty) Ltd“C” Preference share
Approximate R1,0 billion− Cash to be received shortly
Bidvest LtdViamax Pty Ltd (100%)
Fair value of R1,4 billion
– Subject to Competition
Commission approval
FirstRand Bank Ltd Transnet Housing
Loan Book
PriceBuyerBusinesses
STRATEGY IMPLEMENTATION: ACHIEVEMENTS TO DATE
Total proceeds of disposals approximately R10bn
21
Achievements:Focus on:
Change management programmes in place•Organisational culture
HR processes in place to become employer of choice
•Attract critical skills
SPO’s defined for all managers and performance assessed
• Performance management
Skills mapping completed
Leadership development plans
Prioritising skills and succession planning
•Skills demand planning
• Capacity building and skills development
• Talent management
Human capital development
Additional capacity building175 additional engineering bursaries173 students at institutions of technology (to be increased to 300)1 261 additional apprentices in different trades20 Thuthuka bursaries through SA Institute of Chartered Accountants
STRATEGY IMPLEMENTATION: ACHIEVEMENTS TO DATE
•HR Enablement New HR policies, standardised supporting
procedures
22
Re-engineering the business: Vulindlela projects
Second year of implementation
•Improve productivity levels and operational efficiencies
•Orientate businesses towards customers
•Address safety
•Culture of planned maintenance
•Increase in market share – volume growth (especially GFB in Spoornet)
•Savings of more than R2 billion have been achieved since inception
Success/achievements in 2007
•Improved GFB freight flows (3 mt) – current tempo
First year for a decade where volumes did not decrease
•Capacity created on Iron Ore and Coal Line that exceeds current demand from clients
•Increase in monthly port handling capacity at DCT (TEU’s 186 000 vs 158 000)
•Procurement savings of R500 million p.a. and reduction in safety incidents (R200 million)
STRATEGY IMPLEMENTATION: ACHIEVEMENTS TO DATE
23
Efficiency improvement: Transnet Business Intelligence projects (TBI)
• Implementation of TBI projects
-Effective use of technology, world class systems and processes
-Financial management and reporting
-Improving processes and systems that enable information management
• Identified KPI’s across businesses to measure key value drivers
• Benchmarking against international companies to ensure world class performance
• Implemented Key Performance Indicator project to measure:
-Key volume drivers
-KPI performance weekly/monthly
-Performance vs benchmarks – all areas of business
STRATEGY IMPLEMENTATION: ACHIEVEMENTS TO DATE
24
Transnet Second Defined Benefit Fund (TSDBF)
• Active management and leadership from Transnet
• Currently in surplus of R1,7 billion as opposed to being in deficit in 2006 of R1,6 billion (aided
by the sale of MTN shares-M Cell and V&A Waterfront)
• Rule amendments approved by the Minister - Generally to enable bonus amounts to be paid to pensioners to exceed 2%
pension increase (subject to affordability)
• Transnet paid ex-gratia bonuses of R125 million to pensioners- All received an additional 1%- Previously disadvantaged widows and members with >15 years service who
receive low pensions and/or also over 65 years old received additional amounts
STRATEGY IMPLEMENTATION: ACHIEVEMENTS TO DATE
25
Transnet Pension Fund
• Act changes have received presidential approval to enable non-Transnet employees of businesses transferred to Government to remain members
• Rule amendments approved by Minister
• Fund will become multi-employer with new employers guaranteeingthe obligations of its employees and pensioners
• Fund now in substantial surplus (R 2.4 billion of which R 1.1 billion relates to the Transnet sub-fund)
Transnet Retirement Fund
• Act changes have received presidential approval to enable non-Transnet employees of businesses transferred to Government to remain members
• Rule amendments approved by Minister
STRATEGY IMPLEMENTATION: ACHIEVEMENTS TO DATE
26
Economic Regulation
National Ports Act
• Act in place from November 2006
• Places responsibility on NPA to ensure safe, efficient and effective functioning of ports system
• Independent Regulator oversees NPA’s functions, approves tariffs, hears complaints and appeals from port users
• Transnet is investing in systems and capacities to perform additional functions prescribed by legislation
• Interacting with shareholder in certain aspects of Act
STRATEGY IMPLEMENTATION: ACHIEVEMENTS TO DATE
27
Economic Regulation continued
Pipelines
• NERSA (energy regulator), declined Petronet’s application for 5,6% increase • Regulations for, amongst other issues, determining tariff increases not yet
finalised • Transnet engaging with relevant authorities; important that tariff methodology
enables Transnet to earn a fair return on invested capital (> WACC)
STRATEGY IMPLEMENTATION: ACHIEVEMENTS TO DATE
Have formed a regulation policy unit to lead Transnet’s strategy and interactions with the Regulator
28
Risk Management
Operational Risk
• Established a Risk Committee of the Board and appointed a Chief Risk Officer that serves on EXCO
• Appointed GE Human Resources and HR Sub-Committee dealing with human capital in sustaining the turnaround
• Improved safety measures and roll out safety awareness and training programmes
• Reviewed safety procedures and strengthened capacity in problematic areas
• Improved controls and campaign against fraud
STRATEGY IMPLEMENTATION: ACHIEVEMENTS TO DATE
29
Risk Management
Financial Risk
• Financial Risk Framework in place covering all risks (interest, currency, market)
• Asset and Liability Committee ensures that financial risks are effectively managed
• Stringent financial objectives are set to ensure that targeted financial ratios are achieved/maintained
• Improved internal financial and system controls
STRATEGY IMPLEMENTATION: ACHIEVEMENTS TO DATE
30
CAPEX SPENDING FIVE-YEAR PLAN: R78 billion
13%
Pipelines
Port Terminals
12%
NPA
24%
Rail Engineering
5%
Freight Rail
45%
PIPELINEPipelines R10 bn• Multi-product pipeline – R9,3 bn• Gas line upgrading – R0,2 bn
PORTSPort Terminals R9,5 bn• Durban – R0,9 bn• Richards Bay – R0,7 bn• Ngqura – R1,5 bn• Cape Town – R0,4 bn• Saldanha – R2,9 bn
PORTSNPA R18,5 bn• Richards Bay – R0,8 bn• Ngqura – R4,7 bn• Cape Town – R3,8 bn• Durban – R7,6 bn• Floating craft – R0,7 bn
RAILRail Engineering R4,1 bn• Equipment - R2 bn• Upgrade of facilities – R1,1 bn
RAILFreight Rail R34,8 bn• Coal Line – R4,9 bn• Ore Line – R3,8 bn• General Freight – R15,3 bn• Maintenance Capitalisation – R10,8 bn
* Latest estimate R11.2bn
(continuing businesses)
*
31
Annual spending over five years
R12.7 bnR17.5 bn
R21.5 bn
R16.9 bn
R9.4 bn
R78bn
Five-year plan
20122008 2009 20112010
Cumulative
CAPEX FIVE-YEAR PLAN: R78 billion*
RailPortsPipeline and other
*Continuing businesses
32
SHAREHOLDER’S COMPACT
Performance area
Key performance indicator (KPI)/measure Benchmark
2007 Target
2007 Actual Performance
Capital/financial efficiency** EBITDA margin(%) # > 35*** 34.8 40.7 Achieved
Cash interest cover (times)# >5*** 5,4* 5.4 Achieved
Gearing ratio(%) -2007 40 - 50*** 47.9 39 Achieved
-2006 59.0 47 Achieved
CFROI(%) -2007 >6*** 5.8 6.8 Achieved
-2006 4.1 5.8 Achieved
Infrastructure investment
% of actual capital expenditure compared to budget expenditure
-2007
>90% of target
R11 847
million
R11 674
million99%
Achieved
-2006
100% Achieved
% of total maintenance spent compared to budget #
>90% of target
R3 890 million
R5 495 million
141% Achieved
* Including sale of shares
** Discontinued business -SAA, freightdynamics,Viamax and Autopax
*** These benchmarks are the target of performance in the medium term (next three years)
# Key performance indicators not applicable in prior year
33
BROAD-BASED BLACK ECONOMIC EMPOWERMENT
Policy:
• Transnet fully endorses and supports the Government’s Broad-based Black Economic Empowerment Programme and has aligned its policies with the DTI’s Codes of Good Practice which were gazetted on 9 February 2007. (Some alignments need to take place between the DTI Codes and the DoT’s new draft Rail Transport Charter)
• Transnet encourages join ventures with- and sub-contracting to BBBEE companies
Achievements:
• During the 2006/07 financial year, Transnet’s operating divisions spent R10.6 billion externally with suppliers, of which R3.9 billion went to broad based BEE companies, up R600 million from 2006
34
Strategy – BBBEE going Forward:
• Transnet will participate in the Rail Transport Charter workgroup to ensure alignment between the DTI- and DoT scorecards
• Transnet has had most of its high-value suppliers accredited against the DTI scorecard and will continue to encourage all its tenderers / suppliers to do so
• Having had itself accredited, Transnet scored 56.8 on BBBEE, equating to a “Level 5”, re- cognition level of 80%. A BBBEE Task team has subsequently been created at Transnet Corporate office to improve this score by driving strategy and coordinating all elements of the DTI Scorecard
• Over and above Transnet’s BBBEE and Supplier Development strategies, we will imple- ment a plan for Competitive Supplier Development (“CSDP”) in alignment with our support of AsgiSA. This plan will consider opportunities to develop globally competitive local sup- pliers (especially from the BBBEE ranks) through various strategic initiatives
BROAD-BASED BLACK ECONOMIC EMPOWERMENT
35
SUBSTANTIAL IMPROVEMENTS IN FINANCIAL PERFORMANCE DEMONSTRATED
Transnet Performance Highlights: Three-Year View
Improvementvs 2004
208%R11,7 bnR3,8 bnCapex (excl. Aviation)
278%R37,4 bnR9,9 bnShareholders equity
53%39%83%Gearing
70%6,8%4,0%Cash flow return on investment (CFROI in real returns)
54%5,4 times3,5 timesCash interest cover
139%40,7%17%EBITDA (%)
78%R8 470mR4 750mOperating profit
2007 Actual
2004 Actual
Measures
Four-point turnaround plan starting point
All measure-ments exceeded
Shareholder Compact
requirements
CHRIS WELLS
FINANCIAL OVERVIEW 2006/07
37
Consolidated income statement
26 03428 214Revenue
2006R million
2007R millionfor the year ended 31 March
• Revenue growth of 8,4%
• Strong volume growth from all divisions except Freight Rail
• Revenue growth of 8,4%
• Strong volume growth from all divisions except Freight Rail
Revenue contribution for 2007 Fin Yr
4%
15%
22%
51%
8%
FreightRail NationalPortAuthority
PortTerminals Piplines
Other
GROUP FINANCIAL RESULTS: 2006/07
38
(15733)(16 726)Net operating expenses
26 03428 214Revenue
2006R million
2007R millionfor the year ended 31 March
Consolidated income statement
52%
15%
7%
2%2%
22%
Personnelandbenefits Energy
OperatingLeases Materialcosts
Maintenancecosts Other
• Operating expenses increase by 6,3%
• Operating expenses contain certain once-off costs, notably
• R125 million bonus payout to TSDBF members
• R100 million additional contribution to TPF
• R165 million in respect of provisions
• Adjusting for the above costs, operating expenses would have increased by only 3,8%, well below the inflation rate
GROUP FINANCIAL RESULTS: 2006/07
39
10 30111 488EBITDA
(15 733)(16 726)Net operating expenses
26 03428 214Revenue
2006R million
2007R millionfor the year ended 31 March
Consolidated income statement
EBITDA increased by 12%, margin increased to 40,7% (2006: 39,6%)
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
2003 2004 2005 2006 2007
0
2,000
4,000
6,000
8,000
10,000
12,000
2003 2004 2005 2006 2007
EBITDA (R million)Revenue (R million)
SAA17342
SAA16339
23936
27298
25260
26034
28214
8269
6489
7333
10301
11488
SAA768
SAA953
GROUP FINANCIAL RESULTS: 2006/07
40
0
10
20
30
40
50
%
2003 2004 2005 2006 2007
Five-year EBITDA Margin Growth
86% growth2
2
17
29 4
0 41
GROUP FINANCIAL RESULTS: 2006/07
41
• Depreciation and amortisation for the year increased by 39,5%.
• Acceleration of the capital expenditure programme and depreciation on capitalised maintenance in terms of IFRS
• Depreciation and amortisation for the year increased by 39,5%.
• Acceleration of the capital expenditure programme and depreciation on capitalised maintenance in terms of IFRS
(2 163)(3 018)Depreciation & amortisation
10 30111 488EBITDA
(15 733)(16 726)Net operating expenses
26 03428 214Revenue
2006R million
2007R millionfor the year ended 31 March
Consolidated income statement
GROUP FINANCIAL RESULTS: 2006/07
42
The fair value adjustments:
- “C” class preference share
- Increase in the carrying value of investment properties
The fair value adjustments:
- “C” class preference share
- Increase in the carrying value of investment properties
1 1052 189Profit on sale of interest in businesses, impairment of assets,dividends received and fair value adjustments
(2 163)(3 018)Depreciation and amortisation
10 30111 488EBITDA
(15 733)(16 726)Net operating expenses
2603428 214Revenue
2006R million
2007R millionfor the year ended 31 March
Consolidated income statement
GROUP FINANCIAL RESULTS: 2006/07
43
(2 406)(2 437)Net finance costs
9 24310 659Profit from operations before net finance costs
1 1052 189Profit on sale of interest in businesses, impairment of assets,dividends received and fair value adjustments
(2 163)(3 018)Depreciation and amortisation
10 30111 488EBITDA
(15 733)(16726)Net operating expenses
26 03428 214Revenue
2006R million
2007R million
for the year ended 31 March
2.5
2.1 2.
6 3.4
3.5
0
1
2
3
4
2003 2004 2005 2006 2007
Consolidated income statement
Interest cover (times)
• Profit from operations before finance costs increased by 15% to R10,7 billion
• Finance costs remain at similar levels to the prior year and interest cover increased to 3,5 times (2006: 3,4 times)
• The Group’s WACD of 11,9% is high due to legacy debt
GROUP FINANCIAL RESULTS: 2006/07
44
(2042)(1902)Taxation
(2406)(2437)Netfinancecosts
924310659Profitfromoperationsbeforenetfinancecosts
11052189Profitonsaleofinterestinbusinesses,impairmentofassets,dividendsreceivedandfairvalueadjustments
(2163)(3018)Depreciationandamortisation
1030111488EBITDA
(15733)(16726)Netoperatingexpenses
2603428214Revenue
2006Rmillion
2007Rmillion
for the year ended 31 MarchConsolidated income statement
• Current taxation charge of R0,9 billion and deferred taxation charge of R1,0 billion
GROUP FINANCIAL RESULTS: 2006/07
45
39,6%40,7%EBITDAmargin(%)
49307404Profitforyear
1021082Profitfortheyearfromdiscontinuedoperations
48286322Profitfortheyearfromcontinuingoperations
332Incomefromassociates
(2042)(1902)Taxation
(2406)(2437)Netfinancecosts
924310659Profitfromoperationsbeforenetfinancecosts
11052189Profitonsaleofinterestinbusinesses,impairmentofassets,dividendsreceivedandfairvalueadjustments
(2163)(3018)Depreciationandamortisation
1030111488EBITDA
(15733)(16726)Netoperatingexpenses
2603428214Revenue
2006Rmillion
2007Rmillion
fortheyearended31MarchConsolidated income statement
GROUP FINANCIAL RESULTS: 2006/07
46
18
10
22
30
37
0
5
10
15
20
25
30
35
40
2003 2004 2005 2006 2007
65
83
61
46 39
0
10
20
30
40
50
60
70
80
90
2003 2004 2005 2006 2007
Gearing (%)Capital and Reserves (R billion)
1778918703Borrowingsandprovisions
2218922832Non-currentliabilities
2952637433CapitalandReserves
EQUITYANDLIABILITIES
2006Rmillion
2007Rmillionfortheyearended31March
Consolidated balance sheet
GROUP FINANCIAL RESULTS: 2006/07
47
(a) Restructuringandfundingplaninprogress
(b) FundingmonthlyincludingTransnetsubsidy
2006Rmillion
2007Rmillion
fortheyearended31MarchConsolidated balance sheet
43482422Post-retirementbenefitobligation
1778918703Borrowingsandprovisions
2218922832Non-currentliabilities
2952637433CapitalandReserves
EQUITYANDLIABILITIES
348
765
1607
1628
–
336Other
717Transnetemployees
1369SATSPensioners
Post-retirementMedicalBenefits(b)
–TransnetSecondDefinedBenefitFund(a)(fullyfunded)
–TransnetPensionFund(a)(fullyfunded)
GROUP FINANCIAL RESULTS: 2006/07
48
521707Deferredtaxation
43482422Post-retirementbenefitobligation
1778918703Borrowingsandprovisions
2218922832Non-currentliabilities
2952637433CapitalandReserves
EQUITYANDLIABILITIES
2006Rmillion
2007Rmillionfortheyearended31March
Consolidated balance sheet
• The deferred taxation liability increase in the year is due to increased temporary differences as a result of:
• Capital expenditure programme• Post retirement benefit obligation• Taxation on increased carrying value of PPE recorded at fair values
• Depreciation changes announced in budget speech by the Minister of Finance to reduce the taxation deprecation periods:
• New rolling stock from 14 years to 5 years, • New quay wall and other port facilities to qualify for deductions over 20 years rather than non-depreciation for taxation purposes
GROUP FINANCIAL RESULTS: 2006/07
49
7834677254TOTALEQUITYANDLIABILITIES
12932430Liabilitiesclassifiedasheld-for-sale
1369916559Payablesandother
2663116989Currentliabilities
521707Deferredtaxation
43482422Post-retirementbenefitobligation
1778918703Borrowingsandprovisions
2218922832Non-currentliabilities
2952637433CapitalandReserves
EQUITYANDLIABILITIES
2006Rmillion
2007Rmillion
fortheyearended31March
Consolidated balance sheet
GROUP FINANCIAL RESULTS: 2006/07
50
9
7 7
10 11
0
2
4
6
8
10
12
2003 2004 2005 2006 2007
78 34677 254TOTAL ASSETS
16 7403 912Assets classified as held-for-sale
3 8745 658Derivative financial assets
7 5889 841Inventory, receivable assets and cash
28 20219 411CURRENT ASSETS
2 019123Long term loans and advances
48 12557 720PPE and other
50 14457 843Non-current assets
ASSETS
2006R million
2007R million
Consolidated balance sheetfor the year ended 31 March
Return on average total assets (%)
GROUP FINANCIAL RESULTS: 2006/07
51
Abridged consolidated cash flow statement
(5379)(4637)Other
1124413488Cashgeneratedfromoperations
58658851Cashflowfromoperatingactivities
2006Rmillion
2007Rmillion
fortheyearended31March
Cash generated from operations (R million)
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2003 2004 2005 2006 2007
Cash interest cover (times)
0
1
2
3
4
5
6
2003 2004 2005 2006 2007
7178
7040
10089
11244
13488
4,3 3,5
4,8
4,5 5,4
• Cash generated from operations before working capital changes increased by 20% to R13,5 billion
• Net cash generated from operating activities increased by 51% to R8,9 billion
GROUP FINANCIAL RESULTS: 2006/07
52
FUNDING REQUIREMENTS: NEXT 5 YEARS
• ECA umbrella facility
• DMTN program – 30 billion facility rated by Moody’s
• Raise cost effective borrowings at the appropriate tenors
2008-2012 R million
2007R million
40% – 45%39%Gearing
* Funding requirements over 3 years approximately R25 billion
(15 207)*(3 764)Funding requirements
(10 085)(1 860)Loan redemptions
(5 122)(1 904)Cash shortfall
(78 014)(11 674)Gross capital expenditure
69 8058 851Cash flows from operating activities
53
KEY FEATURES OF FUNDING PROGRAM
Key funding objectives:
•Minimize funding costs – Reduce weighted average cost of debt (WACD)
•Financing directly in Rand preferred
•Reduce reliance on government guarantee
•Diversify Transnet’s debt portfolio and lengthen debt maturity profile
•Improve the liquidity position
• Access diverse financing sources for specific projects: Asset backed finance incorporated in ECA facility ECA financing – ECA umbrella facility Development funding Project financing DMTN program for local funding
54
FINANCIAL STRATEGY – FORTHCOMING YEARS
Focus will be on:
Strong control environment
•Reliable, timely and relevant information
Improved operational efficiency
•Managing key performance drivers
•Margins improvement
Capital investment roll out
•Returns exceeding WACC
Funding plan
•Adequately address borrowing requirements
•Reduce the cost of debt
HR STRATEGY
PRADEEP MAHARAJ
56
2007/08 PRIORITIES
HR Enablement
Performance and Reward
Capacity and skills
Culture Change
Talent Managementand
Leadership Development
57
ACHIEVEMENTS AND AGENDA
HR Enablement
Performance and Reward
2006:• Audit and review policies• Standard HR Processes• Improve quality of HR management information
2007:• Implementation of policies across Transnet• Alignment of procedures• New supporting Processes• Standard application of SAP HR modules• Clean-up of employee data
58
Capacity and skills development
Culture
2006:
• Skills demand planning
• Implement Engineering and Technicians bursary programme
• Training centre review
2007:
• Development of a competency based career ladder
• Optimize training delivery through academy management
ACHIEVEMENTS AND AGENDA
59
Talent and Leadership Development
Culture
2006:• Develop Talent Management Framework• Roll-out of Navigator Leadership Development Programme• 2000 leaders identified for training
2007:• Increase talent management capacity• Launch Innovator Leadership Development Programme
ACHIEVEMENTS AND AGENDA
Leadership Philosophy: Leadership for Transformation to enable leaders to achieve particular outcomes to contribute to Transnet’s
successful turnaround and performance excellence
60
Performance and Reward
2006:• Short term incentives• Contract conversions• New reward philosophy• Introduce performance management system
2007:
Critical skills retention• Technicians• Specialists• Artisans• Train drivers
Incentive scheme for train movement
Enhance organisational and
individual performance
Standardise remuneration practices
ACHIEVEMENTS AND AGENDA
61
EXECUTIVE REMUNERATION
•Transnet is currently reviewing the executive reward philosophy
• Benchmark remuneration information for the Executive Management of Transnet is sourced and will encompass:
- Detailed market data schedules per position reflecting all elements of guaranteed and variable pay as well as job size- Awarded and anticipated market pay adjustments- Detailed analysis of short and long term incentive practices
• For this purpose, the services of a leading management consulting firm in South Africa providing local and international employers with remuneration consulting advice have been appointed
• It is planned that a detailed report including factors such as impact of the economy; nature of competition; complexity of industry and strategic freedom to act, will be presented to the Transnet Board of Directors during October 2007
62
2007/8 PRIORITIES
Culture Change
2006:Culture charter wheelLeadership behaviours charterLeadership alignment with strategy
2007:RebrandingTransnet Culture CharterEmployee survey-bottom up approachChange management process to implement
Purpose: The main purpose is the development of a consolidated Transnet Group Culture and Behaviours
which will facilitate the success of the turnaround strategy
63
NUMBER OF EMPLOYEES
Operating Division
Non-bargainin
g Bargaining
Number Fixed terms
Total Employee
s
Transnet Freight Rail 1,765 23,046 661 25,472
Transnet Rail Engineering 719 13,010 1,217 14,946
Transnet Port Terminals 292 4,757 310 5,359
Transnet national Port Authority 908 2,343 148 3,399
Transnet Projects 254 433 6,215 6,902
Transnet Pipelines 94 389 46 529
Transnet H/O 239 32 29 300
Totals 4,271 44,010 8,626 56,907
64
PROFILE TRANSNET EMPLOYEES 2007
White29%
Coloured9%
African58%
Indian4%
Profile of Transnet Permanent Employees 2007 (48,281 )
Male84%
Female16%
65
RACE PROFILE 2001 to 2007
43.1%36.7%
25.9%
35.0%
21.4%
33.0%
43.3%
55.0%
89.7%
79.4%
6.3%
9.0%
8.9%
8.5%
8.1%
9.3%
8.2%
8.6%
8.6%
9.7%
7.5% 15.7%
10.4%
13.0%
7.4%
7.4%
3.4%
3.2%
43.1%38.6%
54.8%
43.6%
63.1%
50.2%45.2%
33.2%
10.5%
0.4%
0.5%
1.4%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2001-Top&SenMngt
2007-Top&SenMngt
2001-Professionals
2007-Professionals
2001-SkilledTechnical
2007-SkilledTechnical
2001-SemiSkilled
2007-SemiSkilled
2001-Unskilled
2007-Unskilled
African Coloured Indian White
66
GENDER PROFILE 2001 to 2007
21.2% 20.2% 20.7%24.1%
16.5%19.9%
9.4%15.9%
2.5% 2.7%
78.8% 79.8% 79.3%75.9%
83.5%80.1%
90.6%84.1%
97.5% 97.3%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2001-Top&SenMngt
2007-Top&SenMngt
2001-Professionals
2007-Professionals
2001-SkilledTechnical
2007-SkilledTechnical
2001-SemiSkilled
2007-SemiSkilled
2001-Unskilled
2007-Unskilled
Female Male
67
EE TARGETS 2007 to 2012
Occupational level Status quo representation
Proposed 2010 representation
Black Female Black Female
Management (101-106) 58% 24% 65% 30%
Professional (108-109) 54% 24% 60% 30%
Skilled technical (610) 51% 18% 60% 25%
Semi-skilled 65% 23% 70% 30%
Unskilled 90% 8% 90% 15%
68
Transnet Targets for Skills per annum
Skills required 2007 2008 2009 2010 2011 2012 Total
Engineer Degree 100 100 100 100 100 100 600
Technician Diploma 300 300 300 300 300 300 1 800
Artisan 800 800 800 800 800 800 4 800
Managers 20 20 20 20 20 20 120
Specialist 143 100 100 100 100 100 643
First-line Management 45 20 20 20 20 20 145
Operations1
878 1 610 1 563 1 561 1 412 1 000 8 024
Grand Total3
286 2 950 2 903 2 901 2 752 2 34017
132
CAPACITY BUILDING OVERVIEW
Transnet’s skills forecast process through detailed workforce planning led to the following skills targets for the period 2007-2012 :
69
PROGRESS TO DATE
Capacity building continues to be integrally involved in the delivery of skills required by Transnet and progress thus far is :-
Entry Levels
• R20 million spend from a CSI perspective in regard to education and development,• Forged a relationship with Denel and have put 50 youth on a Youth Foundation and Schools outreach programme for enhancing the math and science output.• Currently unpacking our approach for the adoption of 10 Dinaledi Schools to further increase the math and science pool of prospective, future learners for Transnet skills programmes
Engineers
• Transnet awarded an additional 98 bursars in 2007 to give us a total of 176 engineering
bursars. We will continue awarding 100 bursars p.a. over the next five years to ensure that we
have a steady outflow and absorption in terms of engineering skills required by the organisation
• Recruitment and development of these bursars has been consolidated to central office to ensure that we
promote standardised, qualitative approaches in terms of skills transfer, remunerations,
allowances, and the general management and administration of the feeder channels.
• Transnet GPM and the OD’s are currently busy with a recruitment drive in terms of the 100 Engineers and 300
Technicians p.a. that Transnet requires. The focus of the drive will be on
exploiting our present relationships with Universities and Universities of Technology to obtain
the “best” candidates available in the market. We will also adopt a rigorous assessment process
for the candidates.
70
Technicians
• At present we have 200 Technicians who are on a bursar programme or serving internship within the organization. Transnet has a history of absorbing more than 95% of these candidates into full time employment with the organization • Progress has also been made in terms of consolidating this area of capacity building under central office. • The recruitment drive will facilitate progress in achieving the annual intake of 300
Artisans
• We have 1261 Artisans in our apprenticeship schools. This is approximately a 40% increase in our year on year intakes. The candidates are predominantly from FET’s with N2 qualifications. The target is approximately 800 apprentices pa. until 2012. • The on-the-job training framework has been adopted and being piloted
Specialist
• Transnet has instituted a Graduate in Training programme that targets commercial graduates. The graduates are taken through a structured two-year programme and absorbed by our OD’s in line with their expertise. Transnet will be employing 25 candidates p.a into this programme until 2012.• Currently concluding the intake of 12 GIT’s for Supply Chain and HR• In addition Transnet sponsors 20 TOPP students – program to develop mainly black charter accountants
Managers and First Line Supervisors
• First line managers and Managers will be internally allocated through the Talent management process and be developed through the Leadership Development programmes• We have launched our leadership programmes which targets approximately 1800 management employees for 2007.
PROGRESS TO DATE
71
Operations – Rail
• Currently there is a 62% achievement in terms of priority skills (Movement, Control and Yards) target for 2007. • Delegation of candidates from Train Movement and Infrastructure maintenance will also attend training in Australia and India. The key objective is to build organizational operational and technical competence in the train driving, create a pipeline of critical skills in the operational and technical arena; learning from international best practice and forging partnerships.
Operations - Maritime
• The Marine pilot training is currently done in partnership with STC. A process is underway to ensure that the training will be delivered locally (Port Academy) as from 2008.• A sufficient number of delegates have been indentured into the Tugmaster and Marine Engineering Officer (CMEO) skills pipelines
Operations – Port Operations
• Currently there is a 71% achievement in terms of priority skills (OLE’s, Cargo Co- ordinators and AV Drivers) target for 2007.
PROGRESS TO DATE
TRANSNET FREIGHT RAIL
SIYABONGA GAMA
FREIGHT RAIL OPERATES IN 14 CORRIDORS IN 3 REGIONS
Source: Spoornet NOC
Touwsrivier
Mid Ilovo
Plaston
Kelso
Eshowe
Utrecht
Hawerklip
NaboomspruitMiddelwit
Vierfontein
Sishen
Saldanha
Cape Town
East London
Port Elizabeth
Mosselbaai
Bredasdorp
ProtemStrandSimonstad
StellenboschFranschhoek
Bitterfontein
Porterville
Atlantis
Prins Alfred Hamlet
RiversdaleKnysna
Calitzdorp
George
Ladysmith
AvontuurPatensie
Klipplaat
Oudtshoorn
Rosmead
Kirkwood
AlexandriaPort Alfred
CookhouseSomerset East
Noupoort
De Aar
Prieska
Upington
Kakamas
Naroegas
Worcester
Sakrivier
CalviniaHutchinson
Kootjieskolk
Beaufort West
Belmont
Douglas
Hotazel
Warrenton
Pudimoe Makwassie
Mafikeng
Ottosdal
Vermaas
Schweizer-Reneke
KlerksdorpOrkney
Coligny
Bultfontein
Whites
Westleigh
Bloemfontein
Aliwal North
Sannaspos
Dreunberg
Springfontein
Koffiefontein
HofmeyerSchoombee
JamestownBarkley East
Maclear
Tarkastad QamataQueenstown
Blaney
Bethulie
Seymour
Umtata
FortBeaufort
Amabele
Maseru
Marquard
Ladybrand
Bethlehem
Wolwehoek
Lichtenburg
Warden
Harrismith
Bergville
Kokstad
Matatiele
HardingPort Shepstone
Durban
Kranskop
RichmondUnderberg
Stanger
NkwaliniRichards Bay
VryheidHlobane
Moorleigh
Ladysmith
Roossenekal
SteelpoortGraskop
MachadodorpBelfast
Lothair
Komatipoort
Baberton
Phalaborwa
Messina
Louis Trichardt
Soekmekaar
ZebedielaVaalwater
Nylstroom
J’burg
PretoriaO/fontein
Ellisras
Northam
CharlestownVrede
Potchestroom
Empangeni
Donnybrook
Greytown
Franklin
Kimberley
Marble Hall
Standerton
Bethal
B/plaas
Simuma
Mandonela
Winburg
Theunisen
ChroomvalleiDrummondlea
VirginiaGlen H
HiltonCopperton
Cullinan
Rayton
Uitenhage
Klawer
Thabazimbi Pietersburg
NorthcorCapecorSouthcorNatalcorR.BaycorN.WestcorEastcor (Maputo)N.EastcorSishen-SaldanhaSentracorSouth East CorWestcorFreestateNamibia
Beit Bridge
Howick
Nakop
Postmasburg
Erts
Manganore
Palingpan
Rustenburg
Hoedspruit
Glencoe
Newcastle
Arlington
Witbank
Ogies
Breyten
Krugersdorp
Welverdiend
Sentrarand
Welgedag
Kroonstad
GolelaAncona
Central
East
West
74
Iron ore
Tra
nsp
ort
ati
on
of
Rail f
reig
ht
PeopleTotal = 25 270 Employees transferred toRail engineering
Facilities22 277 km rail network 1500km heavy haul linesConnectivity to all ports
RevenueR 14 574m
EBITDAR 3 737m
Coal line
General Freight
Discontinued Shosoloza Meyl Blue Train
BUSINESS OVERVIEW
75
We have taken successful actions to stabilise the business and have structured and sequenced the path to world class
Stabilise and analyse Re-engineer and transform Perform and grow
2005 2007 2008 2009 2012
Regain Credibility
Strategic investment for better performance
Volume and market share growth
Motivated, value-adding employees
2005: Inefficient, shrinking, and unprofitable
Operating loss of R21 million
2012: Scheduled, efficient, and profitable
Operating profit of R5.7 billion
New operating principles
New leadership and organisational structure
Defined corporate strategy
Safety-first mindset
Skill and capability improvements
Divestment of non-core business
Investment of capital for sustainability
Improved operational
performance
76
Drive high yield general freight growth• Key account plans for strategic accounts• Yield management• Collaboration projects
Freight Rail Strategic Objectives
“The what”
“The how”
WE CRAFTED OUR CURRENT BUSINESS PLAN AROUND FIVE KEY OBJECTIVES, SUPPORTED BY A NUMBER OF STRATEGIC INITIATIVES
‘Safety first’ programme
Safety•Transform Freight Rail into a safe railway
Capital investment and optimisation programme
Creating Capacity•Invest to maintain, replace and increase capacity
Customer ServiceDelivery •Retain the desired customer base and improve service delivery
The people project and governance initiatives• Enterprise Performance• Enabling Programme
Leadership & Employee Capability•Optimise human capital deployment and development
Corridor optimisation roll-out programme
Scheduled Freight Railway•Implement efficiency improvements
77
CORE OPERATING DIVISION PERFORMANCE
Freight Rail contribution to Group EBITDA 33%
EBITDA (R million)Revenue (R million)
4%
%▲
14 574
2007
2 910
2006
3 73728%14 055Freight Rail
2007%▲2006
Operating divisions
33%
67%
• 4% increase in revenue.
• Total volumes 176,6 mt (2006:178,1 mt) - GFB 79,6 (2006: 79.8) - Iron ore 30,0 (2006: 29,6) - Coal 67,0 (2006: 68,7)
• Volumes negatively impacted by - Customer’s production constraints, - Capacity constraints - Derailments
• 3% decrease in operating cost compared to prior year – improvements from the re-engineering programme
• Capital expenditure R7,4 billion
78
Freight Rail
*Capitalisedoperatingexpenditure
(R million)
3 265285%848COPEX*
2 23082%1 225Maintenance per income statement
(R million)Maintenance
2 073
2006
5 495165%Total expenditure
2007%▲
63•Propertymaintenanceinterventions
100•Ballastcleaning
16•Coaches
633•Infrastructure
2 453•Rolling stock
CORE OPERATING DIVISION PERFORMANCE
79
KPI’s – FREIGHT RAIL
2006Actual
2007Target
2007Actual
Performance
Financial
Revenue (Rmillion) 14 055 16 478 14 574 Not achieved*
EBITDA (Rmillion) 2 910 3 715 3 737 Achieved
Infrastructure
Capital expenditure (Rmillion) 3 809 7 253 7 387 Achieved
Efficiency
Volume – iron ore (mt) 29.6 32.8 30.0 Not achieved*
Volume – coal (mt) 68.7 74.0 67.0 Not achieved*
Volume – general freight (mt) 79.8 81.0 79.6 Not achieved
*Non-achievement primarily due to lack of iron ore and coal to rail
80
TRANSNET FREIGHT RAIL: ACTION PLANS TO CREATE CAPACITY AND IMPROVE SERVICE DELIVERY
Capacity creation
5 Year Investment Plan 404 locomotives
• General Freight (262) • Coal (110)• Ore-line (32)
Efficiency improvement Vulindlela initiatives – 1.5mV improvement in General Freight
Volumes Transnet Rail Engineering -Improved availability and reliability
of all wagon and loco fleets
Sufficient capacity to meet demand from Iron ore and Coal exports
Improved service delivery Stabilised the operational platform General Freight tempo to date is at a level + 82mV per annum -
strong growth compared to previous year Improved service delivery to identified key account customers
TRANSNET RAIL ENGINEERING
RICHARD VALLIHU
82
LocomotivesRunning MaintenanceUpgradingRefurbishment
Pro
du
ct
focu
sed
bu
sin
esses
sp
ecia
lizi
ng
in
Main
ten
an
ce People
Total = 13 729Increase by 114% dueto 6 253 MaintenanceIntegration
Facilities7 Centres150 sites
RevenueR 7 317m
EBITDAR1 088m
WagonsRunning MaintenanceUpgradingConversionsNew Build
CoachesRunning Maintenance Shosholoza MeylUpgrading
Other Rail Rolling Stock
Refurbishment of rail rolling stock relatedComponents (wheels, traction motors etc.)
BUSINESS OVERVIEW
83
BUSINESS OVERVIEW CUSTOMER MANAGEMENT
TransnetFreight Rail
Freight RailMainline Services
AfricanMarkets
Locomotives BusinessWagons BusinessWagon Build
Coach Business
SARCCMetrorail
• Wheels
• Rotating Machines
• Rolling Stock Equip
• Tarpaulins
Customers Main Internal Support
84
RAILWAY ENGINEERING STARTED VARIOUS INITIATIVES TO SUPPORT THE GROWTH STRATEGYFROM FREIGHT RAIL
How to support
Freight Rail
Transnet Rail freight objectives
Transnet Rail engineering support
Safety
Customer ServiceDelivery
Buildingaleantaskforcewithastrongfocusonleadershipcapabilitiesandcorecompetencies
Leadership & Employee Capability Scheduled Freight
Railway
Creating Capacity
• Geographic alignment of maintenance facilities with corridor strategy.
• Mobile maintenance crews.• Adherence to Scheduled
Maintenance
Strategic focus on:
• Maintenance of assets servicing high yield commodities
• Technology and capacity upgrades of assets • Development of new rolling stock products and
services for enhanced service
Improvement in reliability of rolling stock through:
• Application of world class maintenance practices • Technology upgrades (E.g. Fitment of roller
bearings and air brakes).• Application of standard operating procedures
(e.g. PPE)
• Optimization of maintenance processes• Faster turn-around time in maintenance facilities• Implement preparation depots• Capacity increase through upgrading and
modernisation of rolling stock. • Build A-shed depots in yards• Improved feeding and de-feeding in depots and
yards
85
91%
9%
CORE OPERATING DIVISIONSPERFORMANCE
Rail Engineering contribution to Group EBITDA 9%*
*Mainlyinternalandeliminatedonconsolidation
Operating divisions
1 08847%7387 31790%3 845Rail Engineering
EBITDA (R million)Revenue (R million)
%▲ 2007 2006 2007%▲2006
• Revenue increase mainly due to integration of Spoornet maintenance operation.
• Locomotive reliability and availability exceeded targets
• Annual number of wagon maintenance lifting increased from 12 000 to 20 000
• • Record production of 1 022 new iron ore
and coal wagons
• Capital expenditure R623 million
86
KPI’s – RAIL ENGINEERING
2007Target
2007Actual
Performance
Financial
Revenue (Rmillion) 5 241 7 317 Achieved
EBITDA (Rmillion) 1 118 1 088 Not achieved*
Infrastructure
Capital expenditure (Rmillion)
375 623 Achieved
Efficiency
Locomotive reliability General freight 43 43 Achieved
(faults per million km) Coal 61 54 Achieved
Iron ore 30 41 Not achieved
Locomotive availability (%)
General freight 82 85 Achieved
Coal 88 85 Not achieved
Iron ore 81 86 Achieved
*Internal profit mainly – focus is primarily on productivity
87
TRANSNET RAIL ENGINEERING : ACTION PLANS TO CREATE CAPACITY AND IMPROVE SERVICE DELIVERY
Capacity creation
Investment 5 year plan Replacement /expansion of equipment/infrastructure to create capacity
Machinery and equipment (R1.7bn) Rotable components (R0.8bn) Buildings/structures for expanding operations (R0.9bn) Efficiency improvements in all areas of operations
Improved service delivery Wagon liftings increased from 12 000 to 20 000 in 2006/07 (18 000
liftings planned for 2007/08) Locomotive availability for coal improved from 85.2% in 2006/07 to
86% currently Locomotive reliability remains a challenge and numerous action plans
are being implemented to improve reliability e.g. mobile teams (average locomotive fleet age is 29 years)
TRANSNET NATIONAL PORT AUTHORITY
KHOMOTSO PHIHLELA
Transnet National Ports Authority is responsible for the safe, efficient and effective economic functioning of the national ports system which it manages, controls and administers on behalf of the South African Government
BUSINESS OVERVIEW
90
OPERATIONAL STRUCTURE
Transnet National Ports Authority provides services within a Infrastructure and Maritime environment;
• Infrastructure:
– Own, manage, control and administer ports;
– Plan, provide, maintain and improve port infrastructure;
– Port tariff authority that determines and charges fees for
provision of infrastructure and port services;
– Controller of operations/services within the port.
• Maritime:
– Marine Operations – Provide Tug Services, Pilotage,
Berthing Services;
– Lighthouse Services – Provide, maintain and operate
lighthouses and other aids to navigation around the
coast of South Africa;
– Ship Repair Facilities – Provision of repair facilities for
ships calling at ports;
– Dredging Services – Maintenance dredging and
hydrographic surveys;
– Harbour Master – Port Control and Vessel Traffic
Services.
Port
Elizabeth
Saldanha
Cape Town
East London
Richards
Bay
Durban
Ngqura
Mossel Bay
• Cargo segments:– Containers– Automotive– Bulk– Dry bulk– Liquid bulk
91
PORTS AUTHORITY: STRATEGIC OBJECTIVES
2005 - 2006
Ports Authority
• South Africa a regional leader in port management and operational expertise• Imports and exports are the key driver of volume growth• Medium to long term growth prospects remain favourable• SA ports under threat as new port developments in the region capture market share• Transshipment opportunities• Complementary ports that offer specialised services to natural hinterlands• Marine services competency• Ability to invest and create port infrastructure capacity• The Ports Act and a new regulatory environment
Improve vessel and
cargo turnaround
1
Improve productive
use of assets
3
Increase the Market 4
Enterprise-wide Risk
Management5
Develop human capital and skills to
achieve objectives
6
Planning to lead growth
2009 - 20122007/2008
Strategic Objectives
• Sustained infrastructure capacity provision, ahead of growth demands • Integrated planning for port infrastructure• Safe and secure world-class port system, preserving the environment• Competitive and efficient port system that drives volume growth• Growing, productive and committed workforceA Port system
leading growth demands
Provision of Port
Infrastructure ahead of demand
2
Safe, efficient and effective functioning of the port system
92
GROWTH STRATEGY
Aimed at leading and
growing trade through the SA
ports
The guiding principles of our Growth Strategy are :
Efficiency : Improving efficiency of port services to best meet demand
Competitiveness : To support and enhance competitiveness of the port authority’s port and related service offers
Partnership : Working with stakeholders in the logistics chain to ensure delivery of world-class port services
Rebalancing our revenue by increasing real estate income
Infrastructure capacity
Efficiency : port
management and port
operations
Enhancing ports’
position as gateways for
trade
1
2 3
Por
t Auth
ority
Str
ateg
y
93
60%
40%• Increase in revenue mainly due to volume increases - Containers 13% in TEU’s - Vehicles 18% in units
• Capital expenditure R1 026 million
• Berth occupancy 66% (2006: 58,9%)
NPA contribution to Group EBITDA 40%
4 6279%4 2426 10712%5 438NPA
EBITDA (R million)Revenue (R million)
%▲ 2007 2006 2007%▲2006
Operating divisions
CORE OPERATING DIVISION PERFORMANCE
94
KPI’s - NPA
2007Target
2007Actual
Performance
Financial
Revenue (Rmillion) 5 915 6 107 Achieved
EBITDA (Rmillion) 4 383 4 627 Achieved
Infrastructure
Capital expenditure (Rmillion) 1 964 1 026 Not Achieved
Efficiency
Berth Occupancy (%) 58.9 66 Achieved
95
TRANSNET NPA: ACTION PLANS TO CREATE CAPACITY AND IMPROVE SERVICE DELIVERY
• Capacity creation at the Ports ahead of time:
Investment 5 year plan:
Durban: Widening and deepening of entrance channel (R3bn) to enable future growth
Pier 1 resurfacing and berth deepening (R1bn) to create capacity Remodelling of Maydon Wharf (R3.5bn) Car terminal to increase capacity from 10 000 parking bays to 14 000
parking bays total cost of project is R0.66bn of which R0.18bn relates to NPA Cape Town container terminal expansion to increase capacity from 700 000
teu’s to 1 400 000 teu’s. Total cost of project R4.2bn of which R2.7bn relates to NPA
Ngqura: - New container terminal with capacity of 800 000 teu’s. Total costs of project R7.9bn of which R3.8bn relates to NPA
4 Berths for bulk/ore
• Sufficient capacity to support future growth in imports/exports
TRANSNET PORTS TERMINALS
TAU MORWE
97
BUSINESS OVERVIEW
•Transnet Port Terminals manages 15 cargo terminal operations situated across 6 South African ports with a staff compliment of 5,049
• Operations are divided into four cargo sectors Containers Dry Bulk Break Bulk Automotive
• Transnet Port Terminals provides an efficient and reliable service to a wide spectrum of customers including shipping lines and cargo owners
98
TRANSNET PORT TERMINALS STRATEGIC OBJECTIVES
Joint ventures and partnerships to gain skills and processes and to retain and grow the revenue
Port Terminals Strategic Objectives
“The what”
“The how”
Cost maps to understand costs per unit per commodity Business Process re-engineering
Contain operating costs per unit of
volume to an increase of less than
CPIX cost increases
Strategic investments that inform and support growth initiatives
Create capacity ahead ofdemand
Enter into strategicpartnerships to exploit new
business opportunities that
grow our revenue base
Productivity improvement and initiatives to increase capacity and grow revenue
Maintain our market dominance
by ensuring we are recognized as
an efficient and cost competitive
operator
Corridor approachPort –rail service packages
Understand customer requirements,
translate these into consistent and
personalised service offerings that
exceed their expectations
Talent management, skills recruitment and selection
Create a performancemanagement culture and skills base that enables theexecution of SAPO businessplan
99
WE HAVE TAKEN SUCCESSFUL ACTIONS TO STABILISE THE BUSINESS AND HAVE STRUCTURED AND SEQUENCED THE PATH TO WORLD CLASS
Stabilise and privatise
Re-engineer and transform Perform and grow
2000 2004 2007 2009 2012
KeepPort T
erminals in Transnet
Strategic investment for
better performance
Volume and market share
growth
Corridor performance
2000 – concession and
close shop
2012: Double capacity and
Revenue base to
R8.9bn
Financial results:
R50m loss
Business Turnaround and prepare to sell
Defined corporate strategy
Operational improvement
and efficiencies
Injected Skills and developing existing people
New leadership and
organisational structure
Investment of capital for
sustainability
Customerfocus and
stakeholder management
Financial results: R1,3bn
Motivated, value-adding employees
3
100
86%
14%
Port Terminals contribution to Group EBITDA 14%
Operating division EBITDA (R million)Revenue (R million)
%▲ 2007 2006 2007%▲2006
156131%1 1934 09814%3 585Port Terminals
• Revenue increase 14% vs 2006
- Containers (13% in TEU’s)
- Automotive (18% in Units)
- Bulk (2% in tons)
• Capital expenditure R1 740 million
• Revenue increase 14% vs 2006
- Containers (13% in TEU’s)
- Automotive (18% in Units)
- Bulk (2% in tons)
• Capital expenditure R1 740 million
CORE OPERATING DIVISION PERFORMANCE
101
KPI’s – PORT TERMINALS
2007Target
2007Actual
Performance
Financial
Revenue (Rmillion) 4 052 4 098 Achieved
EBITDA (Rmillion) 1 543* 1 561 Achieved
Infrastructure
Capital expenditure (Rmillion) 1 415 1 740 Achieved
Efficiency
Moves per crane hour Durban container terminal
20 17 Not achieved
Cape town container terminal
20 21 Achieved
Moves per ship hour Durban container terminal
32 33 Achieved
Cape town container terminal
33 33 Achieved
Tons loaded per hour Iron ore terminal 4 349 3 951 Not achieved**
*Adjusted to be consistent with bonus costs
** As a result of ship loader failure and lack of iron ore for export
102
TRANSNET PORT TERMINALS: ACTION PLANS TO CREATE CAPACITY AND IMPROVE SERVICE DELIVERY
• Capacity creation:
Investment 5 year plan New container terminal at Pier 1 (Durban) to create additional capacity
of 720 000 teu’s (R1.8bn) Durban container expansion and replacement (R1,4bn) to create
additional 600 000 teu’s Ngqura container terminal (additional 800 000 teu’s) Cape Town container terminal (additional 700 000 teu’s)
• Improved service delivery
DCT: Improved teu’s handled from 158 000 to 186 000 per month in 2006/07. Currently for the past 5 months DCT averaged 180 000 teu’s per month. The moves per ship working hour increased from an average of 33 to 38 peaking at 80 moves per ship working hour
PIPELINES
CHARL MOLLER
104
BUSINESS OVERVIEW
• Transnet Pipelines (Pipelines) can best be described as an energy carrier. We transport a range of petroleum products and gas though 3000km of strategic underground pipelines traversing five provinces.
The pipeline network consists of 4 main lines: a Multi-product line, the Crude oil pipeline, Gas pipeline and Jet-fuel pipeline plus a network of pipelines mainly in the Gauteng area of South Africa
• Pipelines plays an important role in ensuring the secure supply of petroleum products in South Africa. It currently transports approx 17bn litres of petroleum products and 14m gigajoules of gas annually. Products currently transported by Pipelines include methane rich gas, crude oil, aviation turbine fuel, diesel and various grades of petrol (ULP and LRP)
• Clients consist of major oil companies operational in SA: BP, Chevron, Engen, Sasol Oil, Sasol Gas, Shell and Total
105
1. Cash flush2. 500 Employees3. Limited Capacity available4. Informal Regulation (DME)5. Volumes transported: 17bl/a6. Interruptible production
process7. Total Net Assets : R5,4 billion8. Annual turnover : R1,2 billion
1. Cash Constrained 2. 500 650 Employees3. Capacity constrained4. Developing formal Regulation5. Volumes transported :Maximum
18 bl/a6. Interruptible production process7. Total Net Assets : Changing8. Annual turnover : Increasing
1. Cash transition2. 700 Employees3. Capacity in abundance4. Formal Regulation (NERSA)5. Volumes transported upwards of
22 bl/a 6. Uninterrupted production process
(Trunkline and Terminals)7. Total Net Assets : R20 billion8. Annual turnover : R2,4 billion
CHARACTERISTICS
PETRONET WE KNEW
NEW TRANSNET PIPELINES
BRIDGING PLAN
COMPLETION OF NMPP
FULL REGULATION
PREPARE PIPELINES FOR NMPP ERACASH SURVIVAL
CHALLENGES07/08 08/09 09/10 1
0/11
Transnet pipelines will grow into a totally new business over the next five years. We are presently in the period of transition as depicted below
2011 ONWARDS
TRANSNET PIPELINES’ STRATEGY FOR GROWTH
106
Our strategic Objectives are now focused on moving towards the bigger Transnet Pipelines business beyond 2011 - from a small, constrained division to a bigger and growing division of Transnet Limited
TRANSNET PIPELINES’ STRATEGY FOR GROWTH
Ensuring Sustainable Business Support Systems
Finalise rules
Obtain all licences
Embed sound
relationship
Optimally manage Capacity
Ensuring highest quality of maintenance
Full alignment: Regulation
Fit for purpose SAP and Telecontrol features
Effective and Efficient Employee Capabilities • New look skill-set
for Pipelines beyond 2010• New Operations and
Terminals• Huge Pipeline and
Equipment
• Bridging Plan until 2010 (DRA’s & DIC)• Complete and Commission NMPP by Q3 2010
Pipelines’Strategic Objectives
Develop new business portfolio
• Expanding terminals• Run depots for clients• Optimisation of facilities
Ensuring a sustainable and legally compliant set of older assets and getting to grips with challenges of NMPP
107
INDIANOCEAN
FYNNLAND
HOWICK
LADYSMITH
BETHLEHEM
VOLKSRUST
NEWCASTLEKROONSTAD
KLERKSDORP
WITBANKKENDAL
WALTLOOPRETORIA WEST
SECUNDA
STANDERTON
ALRODE
COALBROOKSASOLBURG
SCHEEPERSNEK
MAHLABATINI
HILLCREST
TARLTON
LESOTHO
NATAL
FREESTATE
GAUTENG
ø406,4 (16”)
ø323,8 (12”)
QUAGGA
ø457,2 (18”)
N
RUSTENBURG
MAGDALA
NORTH - WESTMPUMALANGA
KWAZULU /
AIRPORT
VRYHEID
RICHARDS BAY
BHT
AFRICA
MEYERTON
VAN REENEN
DUZI
INGOGO
WILGE
LANGLAAGTE
FORT MISTAKE
EMPANGENI
VREDE
MOOIRIVER
“T”
JAMESON
ø502 (20”)
ø457,2(18")
ø323,8 (12”)
Ø168,3 (6”)
Ø219,1 (8”)
Ø219,1 (8”)
ø323,8 (12”)
Ø219,1 (8”)
Ø406,4 (16”)
Ø457,2 (18”)
Ø457,2 (18”)
ø323,8 (12”)
Ø457,2 (18”)
DURBAN
DOUBLE PUMP STATION
DELIVERY STATIONS / METERS
PUMP STATIONS
REFINED PRODUCTS
CRUDE OILGAS
AVTUR
NOT IN USE
ø323,8 (12”)
ø457,2 (18”)Ø406,4(16”)
PARK
ø457,2 (18”)
ø406,4 (16”)
ø323,8 (12”)
CAPE TOWN
DURBAN
GAUTENG
SOUTH AFRICA RICHARDS BAY
LESOTHO
SECUNDA
INTAKE STATIONS
FUTURE NMPP PIPELINES
FUTURE PUMPSTATIONS
FUTURE TERMINALS
Ø
MNGENI
ELARDUS PARK
MAP OF TRANSNET PIPELINES’ NETWORK
(ALSO INDICATING THE ROUTE AND POSITION OF THE NEW MULTI-PRODUCTS (NMPP)
Page 107
108
CORE OPERATING DIVISIONS PERFORMANCE
92%
8%
• 15% increase in revenue vs 2006 - Petroleum volumes (8,1%) - Gas (14,6%) - Tariff increase 2,5%
• Capital expenditure R310 million
• Board approval to commence with the Multi Product Pipeline subject to certain governance issues being resolved
Pipelines contribution to Group EBITDA 8%
Operating division
EBITDA (R million)Revenue (R million)
%▲ 2007 2006 2007%▲2006
9318%8601 21815%1 060Pipelines
109
KPI’s - PIPELINES
2007Target
2007Actual
Performance
Financial
Revenue (Rmillion) 1 154 1 218 Achieved
EBITDA (Rmillion) 860 931 Achieved
Infrastructure
Capital expenditure (Rmillion) 226 310 Achieved
Efficiency
Total operating costs per Ml km of product conveyed (R)
43.5 38.6 Achieved
110
TRANSNET PIPELINES: ACTION PLANS TO CREATE CAPACITY AND IMPROVE SERVICE DELIVERY
• Capacity creation: Investment 5 year plan
New pipeline (NMPP) to increase capacity to meet future demand (2010 onwards) at an estimated cost of R11.2bn
Improved throughput on existing lines (DRA and DIC initiatives) to create additional capacity until NMPP completed
• Sufficient capacity will be created up to 2030 with a yoy growth volume of 5%
MARIA RAMOS - CONCLUSION
112
THE FOUR-POINT TURNAROUND PLAN WAS DEVELOPED TO STABALISE TRANSNET
Enabling economicgrowth
Enabling economicgrowth
Delivering efficient &competitive services
Delivering efficient &competitive services
Four-
point
Turn-
around
Strategy
Redirecting
and Reengi-
neering
the
Business
Redirecting
and Reengi-
neering
the
Business
Strategic
Balance
Sheet
Managemen
t
Strategic
Balance
Sheet
Managemen
t
Ensure
Corporate
Governance
& Risk
Managemen
t
Ensure
Corporate
Governance
& Risk
Managemen
t
Develop
Human
Capital
Develop
Human
Capital
Growing a focused freight
transport company
Growing a focused freight
transport company
Strategic intentStrategic intent
Transnet situation in 2004/05
•Lack of clear strategic direction
•Weak financial performance and controls
•Unfocussed and inefficient business structure – significant non-core investments
•Low morale: Lack of investment in Human Capital
•Poor risk management and governance
•Lack of capital investment
1 2 3 4
113
FROM FOUR-POINT TURNAROUND TO FOUR-POINT GROWTH STRATEGY
• Priority corridors
• Integrated commercial management
• Cross-divisional operational integration
• Efficient asset utilisation
• Planned maintenance in all divisions
• Cost effective procurement
• Shared services
• Integrated capital, operations, and financial customer planning
• Focused investment for growth
• Capital portfolio optimisation
• Strategic asset/liability management
• Funding strategy
• Delivery on safety performance
• Complying to the highest standards of corporate governance
• Enterprise risk management
• Enterprise performance management (EPM)
• Accelerate implementation of HC strategy
• Talent management including critical skills
• Remuneration based on performance against strategic outcomes
• Value and culture
Reengi-neering –integration, productivity and efficiency
Capital optimisation and financial management
Safety, risk and effective governance
Human capital execution
Growth through:
114
SUMMARY OF STRATEGY
• Drive cross-divisional capital projects and capacity planning
• Focus Vulindlela on integrated cross-functional corridor rollout
• Implement integrated commercial management
• Implement focused management reporting and EPM
• Efficient asset utilisation
• Enhance safety, risk and governance
• Accelerate HC strategy implementation
115
THE SHAREHOLDER MANDATE IS ADDRESSED WITHIN THE NEXT HORIZON OF THE TRANSFORMATION PROCESS
Transformation horizons for a networked organisation
• Accelerate HC strategy implementation
• Implement integrated commercial management
• Long-term capacity planning
• Focus Vulindlela on integrated, cross functional corridor rollout (using ‘standardised” improvements)
• Improve cross-divisional capital projects and financial planning
• Implement focussed management reporting, KPI analysis and Enterprise Performance Management (EPM)
• Best practice CAPEX
• Funding strategy
• Develop customer services (e,g,. capacity management and supply chain integration products)
• Strategic organisational initiatives
• Develop and implement long term network improvement concepts
• Achieve world-class performance levels
• Build long term stakeholder relationships
• Explore international expansion
‘Stabilise the core’
‘Optimise and extend growth’
‘Expand competitive advantage’Current
position
‘Stop the bleeding’
• Financial restructuring
• New freight strategy and disposal of non-core assets
• Restructure corporate centre
• Create HC strategy
• Risk and governance
• Implement critical infrastructure projects
• Launch Vulindlela to stabilise key operational functions and capture productivity
• Implement critical capability building
• Complete disposals
• Shareholder Compact
116
THERE ARE SEVEN MAJOR LEVERS FOR GROWTH
• Roll out of Capex plan: Optimal integration and allocation across divisions
• Increase in investment to create capacity
1
• Vulindlela re-engineering initiatives
• Productivity/efficiency improvement
2
• Safety
• Human capital
• Embedding safety culture in organisation (ERM)
• Navigator and Group HC programmes
Key drivers for successMajor levers
• Integrated commercial management• Customer focus and orientation3
• Integrated commercial management• Sustainable service delivery4
• Volume growth and optimal asset utilisation
• Financial strength and sustainability
5
6
7
Key enablers
117
THE END
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