annual financial statements 2015 - transnet · annual financial statements 2015 volume 2 annual...

ANN

UAL FIN

ANCIAL STATEM

ENTS 2015

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ANNUAL FINANCIAL STATEMENTSwww.transnet.net

ANN

UAL FIN

ANCIAL STATEM

ENTS 2015

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ANNUAL FINANCIAL STATEMENTSwww.transnet.net

INTEG

RATED REPO

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INTEGRATED REPORTwww.transnet.net

Performance highlights 1

Approval of the annual financial statements 2

Group company secretary certificate 3

Independent auditor’s report 4

Audit Committee report 8

Report of the Directors 14Accounting policies 44

Annual financial statementsIncome statements 70Statements of comprehensive income 71Disclosure of components of other comprehensive income 72Statements of financial position 73Statements of changes in equity 74Statements of cash flows 75Segmental report 76Notes to the annual financial statements 78Annexure A 122Annexure B 140Annexure C 142Annexure D 144Annexure E 148Annexure F 150Annexure G 151

Abbreviations and acronyms 157

Glossary of terms 158

Corporate information 159

Volume 1The Integrated Report 2015 is the Company’s primary report to all stakeholders.

Volume 2The Annual Financial Statements 2015 include reports of the independent auditors and directors.

Volume 3The Sustainability Report 2015 documents Transnet’s sustainability performance.

CONTENTS

SUSTAIN

ABILITY REPORT 2015

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SUSTAINABILITY REPORTwww.transnet.net

Transnet ’s Integrated Report 2015, Annual Financial Statements 2015 and Sustainability Report 2015 are available in PDF on www.transnet.net and via this QR code on mobile devices.

Feedback on the reports is encouraged.

Throughout the reports, readers are referred to places where they can find more detail on particular topics, using these pointers

IR > Refer to Volume 1 for more information

AFS > Refer to Volume 2 for more information

SR > Refer to Volume 3 for more information

Forward-looking informationAll references to forward-looking information and targets in the 2015 reports are extracted from the 2016 Transnet Corporate Plan approved by the Board of Directors.

Revenueincreased by 8,0% to R61,2 billion.

EBITDAincreased by 8,2% to R25,6 billion.

Capital investmentincreased by 5,7% to R33,6 billion.

Cash generated from operations after working capital changes increased by 21,1% to R30,6 billion.

Gearing of 40,0 % and cash interest cover at 3,6 times.

Overall growth in real volumes of 7,7% to 226,6mt.

PERFORMANCE HIGHLIGHTS

20152014201320122011

3,9 4,

2

3,7

3,7

3,6

CASH INTEREST COVER (TIMES)

Minimum3,0

20152014201320122011

19 4

20

25 8

08

33 4

49 38 8

48 4524

9

B-BBEE SPEND AS PER DTI CODES (R MILLION)

20152014201320122011

EBITDA(R MILLION)

12,9%

20152014201320122011

21 5

04

22 2

59

27 4

71 31 7

66 33 5

65

CAPITAL INVESTMENT(R MILLION)

11,8%

20152014201320122011

37 9

52

45 9

00

50 1

94 5660

6 61 1

52

REVENUE(R MILLION)

20152014201320122011

41,1 41

,9

44,6 45

,9

40,0

GEARING (%)

Maximum50,0

15 7

63

18 8

82

21 0

51 23 6

39 25 5

88

| 1

Transnet’s reporting for 2015 consists of three reports

12,7%

23,8%

Directors’ responsibilitiesThe Board of Directors is required, by the Companies Act, No 71 of 2008 of South Africa (Companies Act), and the Public Finance Management Act No 1, 1999, of South Africa (PFMA), to prepare annual financial statements which fairly present the state of affairs of Transnet SOC Ltd (Transnet or the Company) and its subsidiaries (the Group) as at the end of the financial year, the profit or loss and cash flows of the Company and the Group for the financial year then ended.

In preparing these annual financial statements, the directors are required to:• Select suitable accounting policies and apply them consistently;• Make judgements and estimates that are reasonable and prudent;• State whether applicable accounting standards have been followed; and• Prepare the annual financial statements on the going-concern basis unless it is inappropriate to presume

that the Company and/or the Group will continue in business for the foreseeable future.

The Board of Directors of the Company is responsible for the maintenance of adequate accounting records, maintenance of appropriate systems of internal control as well as the preparation and integrity of the annual financial statements and related information.

Directors’ statementsThe Audit Committee has evaluated the Company and Group annual financial statements and has recommended their approval to the Board of Directors. In preparing the Company and Group annual financial statements, the Company and the Group have complied with International Financial Reporting Standards (IFRS) and the Companies Act. In addition, the Group has complied with the reporting requirements of the PFMA, except as set out in the Report of the Directors on pages 28 to 30.

The Group has used appropriate accounting policies supported by reasonable and prudent judgments and estimates. Judgements and estimates made in the application of IFRS, that have a significant impact on the annual financial statements are disclosed in the notes to the annual financial statements.

The Board of Directors have every reason to believe that the Company and Group have adequate resources and facilities in place to be able to continue in operation for the foreseeable future. Therefore, the Board of Directors is satisfied that Transnet is a going concern and have continued to adopt the going-concern basis in preparing the annual financial statements.

The external auditors, SizweNtsalubaGobodo, are responsible for independently auditing and reporting on the annual financial statements in conformity with International Standards on Auditing. Their unmodified audit report on the annual financial statements, prepared in terms of the Public Audit Act of South Africa, Act No 25 of 2004 (PAA), appears on pages 4 to 7.

The internal audit activities are in accordance with the preapproved internal audit plan. The internal audit plan is reviewed and approved by the Audit Committee annually. Transnet internal audit has executed the internal audit plan during the year and has provided assurance to the Board of Directors as to the state of the internal controls of the Company. Their assessment of the internal controls of the Company is included in the Audit Committee Report. The Audit Committee has reviewed the effectiveness of the Company’s internal controls and considers the systems appropriate for the effective operation of the Company.

The Board of Directors is of the opinion that the Company and the Group have complied with applicable laws and regulations except as disclosed in the Report of the Directors as set out on pages 28 to 30.

The Board of Directors is of the opinion that these annual financial statements fairly present the financial position of the Company and the Group as at 31 March 2015, and the results of their operations and cash flow information for the year then ended.

The annual financial statements have been prepared under the supervision of the Group Chief Executive.

LC Mabaso B Molefe A SinghChairperson Group Chief Executive Group Chief Financial Officer

1 June 2015Johannesburg

I hereby certify that in terms of section 88(2)(e) of the Companies Act, the Company has filed with the Companies and Intellectual Property Commission all such returns and notices for the year ended 31 March 2015, as required in terms of this Act, and that all such returns are true, correct and up to date. However, the Company has been unable to file the latest CoR44 Form due to administrative delays.

ANC CebaGroup Company Secretary


| 32 | Transnet Annual Financial Statements 2015

APPROVAL OF THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2015

GROUP COMPANY SECRETARY CERTIFICATEfor the year ended 31 March 2015

Report on the consolidated financial statements Introduction

We have audited the consolidated and separate annual financial statements of Transnet SOC Ltd and its subsidiaries as set out on pages 44 to 156, which comprise the consolidated and separate statements of financial position as at 31 March 2015, the consolidated and separate statements of comprehensive income, statements of changes in equity and statements of cash flows for the year then ended, and the notes, comprising a summary of significant accounting policies and other explanatory information.

The accounting authority’s responsibility for the consolidated financial statements

The Board of Directors which constitutes the accounting authority is responsible for the preparation and fair presentation of these consolidated and separate annual financial statements in accordance with International Financial Reporting Standards and the requirements of the Public Finance Management Act (PFMA) of South Africa, Act No 1 of 1999 and the Companies Act of South Africa (Companies Act), Act No 71 of 2008 and for such internal control as the accounting authority determines is necessary to enable the preparation of consolidated and separate financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s responsibility

Our responsibility is to express an opinion on these consolidated and separate annual financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated and separate annual financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated and separate annual financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated and separate annual financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated and separate annual financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated and separate annual financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated and separate annual financial statements present fairly, in all material respects, the financial position of Transnet SOC Ltd and its subsidiaries as at 31 March 2015, and their financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the PFMA and the Companies Act.

Other reports as required by the Companies Act

As part of our audit of the consolidated and separate annual financial statements for the year ended 31 March 2015, we have read the Report of the Directors and the Audit Committee Report for the purpose of identifying whether there are material inconsistencies between these reports and the audited annual financial statements. These reports are the responsibility of the respective preparers. Based on reading these reports we have not identified material inconsistencies between the reports and the audited annual financial statements. However, we have not audited these reports and accordingly we do not express an opinion on these reports.

Report on other legal and regulatory requirementsIn accordance with our responsibilities in terms of sections 44(2) and 44(3) of the Auditing Profession Act (APA), we report that we have identified an unlawful act committed by a person responsible for the management of Transnet SOC Ltd which constitutes a reportable irregularity in terms of the APA and have reported the matter to the Independent Regulatory Board for Auditors. The matters pertaining to the reportable irregularity has been described in note 36 to the consolidated and separate annual financial statements.

In accordance with the Public Audit Act of South Africa, 2004 (Act No. 25 of 2004) and the General Notice issued in terms thereof, we have a responsibility to report findings on the reported performance information against predetermined objectives for the selected objectives, compliance with laws and regulations and internal control. We performed tests to identify reportable findings as described under each subheading but not to gather evidence to express assurance on these matters. Accordingly, we do not express an opinion or conclusion on these matters.

Predetermined objectives

We performed procedures to obtain evidence about the usefulness and reliability of the information in the Shareholder’s Compact – Performance Criteria (Performance Information) in the Report of the Directors of Transnet SOC Ltd as set out on pages 17 to 25 of the annual financial statements for the year ended 31 March 2015:

• Annexure A: Strategic deliverables on page 18;• Annexure B: Operational performance on pages 19 to 23;• Annexure C: Social impact on page 23;• Annexure D: Economic impact on page 24;• Annexure F: Capital expenditure on page 24; and• Annexure G: Energy efficiency on page 25.

We evaluated the reported performance information against the overall criteria of usefulness and reliability.

We evaluated the usefulness of the reported performance information to determine whether it was presented in accordance with the National Treasury’s annual reporting principles and whether the reported performance was consistent with the planned objectives. We further performed tests to determine whether indicators and targets were well defined, verifiable, specific, measurable, time bound and relevant, as required by the National Treasury’s Framework for managing programme performance information (FMPPI).

We assessed the reliability of the reported performance information to determine whether it was valid, accurate and complete.

INDEPENDENT AUDITOR’S REPORT TO PARLIAMENT ON TRANSNET SOC LTDfor the year ended 31 March 2015


The material findings in respect of the selected objectives are as follows:

Usefulness of reported performance information

Strategic deliverables – Annexure A of the Shareholder’s Compact

Performance indicators or measures must be well defined by having clear data definitions so that data can be collected consistently and is easy to understand and use. A total of 33% of the performance indicators in this annexure were not well defined, specific and measurable.

The period or deadline for delivery of targets must be specified. A total of 29% of the targets were not time bound.

This was due to the requirements of the National Treasury FMPPI not being embedded into the current process for determining the key performance indicators and targets.

Reliability of reported performance information

We did not identify any material findings on the reliability of the reported performance information for the following objectives:• Annexure A: Strategic deliverables;• Annexure B: Operational performance; • Annexure C: Social impact; • Annexure D: Economic impact; • Annexure F: Capital expenditure; and • Annexure G: Energy efficiency.

Additional matter

Although we identified no material findings on the reliability of the reported performance information for the selected objectives, we draw attention to the following matter below:

Achievement of planned targets

Refer to the information in the Shareholder’s Compact – Performance Criteria (Performance Information) in the Report of the Directors of Transnet SOC Ltd as set out on pages 17 to 25 of the annual report for information on the achievement of the planned targets for the year.

This information should be considered in the context of the material findings on the usefulness of the reported performance information for the selected objectives reported in the Strategic deliverables – Annexure A of the Shareholder’s Compact paragraph in this report.

Compliance with legislation

We performed procedures to obtain evidence that the entity had complied with legislation regarding financial matters, financial management and other related matters. Our findings on material non-compliance with specific matters in key applicable legislation, as set out in the General Notice issued in terms of the PAA, are as follows:

Expenditure management

As disclosed in Annexure E of the annual financial statements, the accounting authority did not take adequate steps to prevent irregular expenditure, fruitless and wasteful expenditure and losses through criminal conduct, as required by section 51(1)(b)(ii) of the PFMA in respect of the items detailed in that annexure.

Internal control

We considered internal control relevant to our audit of the financial statements, annual performance report and compliance with legislation. The matters reported below are limited to the significant internal control deficiencies that resulted in the findings on non-compliance with legislation included in this report.

Financial and performance management

The matters identified and reported under the compliance with laws and regulations section above have arisen due to non-adherence with operational policies in the expenditure, procurement and contract management processes. The controls over these areas have continually been improved since these matters occurred.

Other reportsInvestigations

During the financial year under review, Transnet SOC Ltd initiated investigations into alleged irregularities or fraud. No material findings, other than those disclosed in Annexure E and note 36 of the annual financial statements, were identified relating to investigations during the year. At the reporting date, certain investigations are still on-going.

Agreed-upon procedure engagements

An agreed upon procedures engagement was performed on the National Treasury consolidation template. The report covered the period from 1 April 2014 to 31 March 2015. SizweNtsalubaGobodo Inc.Per Collins Mashishi CA (SA)DirectorRegistered Auditor

20 Morris Street EastWoodmeadJohannesburg1 June 2015

INDEPENDENT AUDITOR’S REPORT TO PARLIAMENT ON TRANSNET SOC LTDfor the year ended 31 March 2015


As required by the PFMA, the Audit Committee report is prepared as prescribed by section 27 of the Treasury Regulations and in line with the recommendations of the third King Report on Corporate Governance for South Africa and its Code of Governance Principles (King III). The Audit Committee performs its duties in accordance with the PFMA and in terms of section 94(7) of the Companies Act.

The terms of reference are set out in the Audit Committee mandate, which is approved by the Board of Directors and is continuously reviewed and updated for changes in legislation, business circumstances and corporate governance practices. The Audit Committee confirms that it has complied with its statutory obligations and discharged its duties in accordance with the mandate.

The role of the Audit Committee is defined in its mandate and cover, amongst others, the following key aspects:• To assist the Board of Directors in discharging its duties relating to the safeguarding of assets and the

evaluation of internal control frameworks within Transnet;• To review and assess the integrity and effectiveness of the accounting, financial, compliance and other

control systems;• To consider the internal and external audit processes and the accounting principles and policies;• To strengthen the independence of the internal and external audit functions to ensure their effectiveness;• To ensure effective communication between the internal auditors, the external auditors, the Board of

Directors, management and regulators;• To ensure compliance and adherence to applicable legal, regulatory and accounting requirements through an

independent review;• To contribute to a climate of discipline and control which will reduce the opportunity for fraud; and• To assist the Board of Directors in discharging its duties as pertains to ICT Governance.

Composition and meetings of the Audit CommitteeThe Audit Committee comprises independent non-executive directors who are duly elected by the Shareholder Representative at the annual general meeting in line with legislative requirements. A total of five (three scheduled, one induction and one special) meetings were held during the year under review and all quorum requirements were accordingly met. The meetings and attendance records are reflected in the table below.

Date of Date of 19 May 14 August 20 October 4 February 5 March Name of member appointment resignation 2014 2014 2014 2015* 2015**

Prior Audit Committee members

Mr IB Skosana (Chairperson)

25 January2011

10 December2014 ü ü ü

N/A

Mr MA Fanucchi6 July2012

10 December2014 ü A ü

Ms NR Njeke6 July2012

1 September2014 ü ü N/A

Ms ZE Tshabalala8 November

201210 December

2014 A ü A

Ms NP Mnxasana31 January

201310 December

2014 ü ü ü

Date of Date of 19 May 14 August 20 October 4 February 5 March Name of member appointment resignation 2014 2014 2014 2015* 2015**

Current Audit Committee members

Mr BG Stagman (Chairperson)

11 December2014 –

N/A

ü ü

Mr GJ Mahlalela11 December

2014 – ü ü

Ms PEB Mathekga11 December

2014 – ü ü

Mr PG Williams11 December

2014 – ü ü

ü Attended.A Absent.N/A Not an Audit Committee member.* Induction meeting.** Special meeting.

Mr BG Stagman was elected as Chairperson on 27 January 2015. The qualifications and experience of the members are detailed in the abridged governance and assurance section in the 2015 Integrated Report. The Chairperson of the Audit Committee has been appointed as a member of the Risk Committee to ensure alignment between these functions.

The Group Chief Executive, the Group Chief Financial Officer, the Chief Audit Executive and other key executive management are required to attend meetings of the Audit Committee. In addition, the representatives from the Office of the Auditor-General of South Africa, Transnet internal audit function together with the external auditors have a standing invitation to attend all Committee meetings. The Transnet internal auditors, the external auditors and management are afforded individual closed sessions with the Audit Committee.

Summary of the main activities undertaken by the Audit Committee during the yearIn line with the PFMA, the Companies Act and King III, the Audit Committee executed the following activities during the year:

External audit

• Reviewed and approved the Group external audit plan, with specific reference to the terms of engagement thereof, the proposed audit scope and approach to Transnet’s risk activities, the effectiveness of the audit and the audit fee.

• Considered with management the quality and effectiveness of the external audit process, areas of special concern, the procedures being developed to monitor and contain risks in those areas, and the audit approach for those areas.

• Approved the guidelines for using the external auditors for non-audit work, pre-approve all the agreements for non-audit services, annually assess the work done to ensure that the independence of the external auditors is retained and ensure full disclosure of these services in the Integrated Report.

• Reviewed, with management, reports and letters received from the external auditors concerning deviations from, and weaknesses in, accounting and operational controls, and ensure that management takes prompt action and that issues are satisfactorily resolved.

• Monitored the relationship between the external auditors and management.• Met with external auditors without management being present.


AUDIT COMMITTEE REPORTfor the year ended 31 March 2015

• Reviewed significant differences of opinion between the external auditors and management on the application of International Financial Reporting Standards (IFRS) and any other applicable accounting standard.

• Noted the independence of the external auditors.• Considered and approved any significant changes proposed in accounting policy, the external audit fee and

budgeted audit fee.• Reviewed significant differences of opinion between the external auditors and management on the application

of the framework for performance information as issued by the National Treasury.• Ensured that there is a process in place for the Committee to be informed of reportable irregularities identified

and reported by the external auditor.• Advised the Board of Directors of potential risks in irregular and fruitless and wasteful expenditure emanating

from procurement practices.

Internal audit

• Provided oversight, evaluated and approved the following Transnet internal audit planning documentation: – The rolling 3-year strategic risk- based internal audit plan; – The internal audit operational plan for the first year of the rolling plan; and – Any other audit plans including the scope of each audit in the annual internal audit plan.

• Reviewed and approved the internal audit mandate annually, which should formally define the purpose, authority and responsibility of the internal audit function.

• Assessed the performance of the Chief Audit Executive and internal audit function.• Ensured that the Chief Audit Executive reports functionally to the Audit Committee.• Ensured that the internal auditors report at all of the Committee’s meetings.• Met with the internal auditors without management being present.• Reviewed written reports furnished quarterly and annually by Transnet internal audit detailing the adequacy

and overall effectiveness of internal control system, the scope and depth of audit coverage and audit recommendations.

• Obtained assurance from management that internal audit findings are addressed.• Reviewed significant differences of opinion between management and the internal audit function.• Evaluated the independence and effectiveness of the internal audit function and ensured that the function is

adequately resourced and has appropriate standing within Transnet.• Reviewed forensic investigation reports and ascertained the implementation of appropriate corrective action.

Risk management

• Received a report from the Chairperson of the Risk Committee in instances where there are any matters which have implications on Transnet’s system of internal control.

• Obtained comfort from the Risk Committee regarding Transnet’s processes for identifying, managing and reporting on risk.

• Provided oversight on financial reporting risks, internal financial controls, fraud and information technology (IT) risks, as they relate to financial reporting.

• Provided oversight of financial and IT controls.• Considered whether there are any matters arising from the review of internal controls and the reports of

internal and external auditors which require the attention of the Risk Management Committee of the Group Executive Committee and/or the Risk Committee.

Compliance

• Reviewed the Group Compliance plan, with specific reference to the procedures for identifying regulatory risks and controlling their impact on Transnet as well as ensuring that Transnet policy complies with relevant regulatory and legal requirements.

• Monitored compliance with the applicable compliance laws, rules and standards and reviewed all reports detailing the extent of compliance.

• Considered reports and letters received from relevant regulatory authorities or supervisors and management’s responses thereto, where they concern matters of compliance and the duties and responsibilities of the Board of Directors of Transnet and/or its subsidiaries and associated companies.

• Requested and considered reports by executive management on measures implemented to ensure adherence with applicable compliance laws, rules and standards.

• Reviewed the compliance policy developed and implemented by management.• Considered adherence to applicable non-binding rules, codes and standards, if adherence thereto would result

in good governance and practice.• Engaged regulators to influence the drafting of legislation and/or obtain regulatory certainty relating to

critical regulatory requirements impacting Transnet’s operations.• Training and awareness session provided to the Executive Committee and the Board of Directors with regards

to Transnet’s regulatory requirements and associated obligations and keeping governance/risk committee members abreast of regulatory developments.

Ethics

• Reviewed the process for handling anonymous calls from the fraud hotline.• Reviewed internal audit reports on ethics management.• Considered Transnet’s systems to monitor compliance with and enforcement of the Code of Ethics.

Other matters

• Reviewed reports from management regarding Transnet’s ability to continue as a going concern and recommended to the Board of Directors that Transnet continues to adopt the going-concern basis in preparing the annual financial statements.

• Provided assistance to the Board of Directors in discharging its duties relating to Transnet’s system of internal controls, risk management, compliance and information and communication technology (ICT) governance.

• Reviewed and monitored Transnet’s compliance with all applicable legislation and regulations, including without limitation, the Companies Act, PFMA, Treasury Regulations and the Income Tax Act No 58 of 1962, as amended.

• Reviewed management’s reports on items of fruitless, wasteful and irregular expenditure as well as losses through criminal conduct in terms of the PFMA.

• Reviewed and recommended the Transnet Treasury Financial Risk Management Framework including treasury activities and the risk management strategies to the Board of Directors for approval.

• Reviewed the materiality framework.• Reviewed and recommended the annual borrowing plan to the Board of Directors for approval.• Reviewed and recommended the Financial and Funding Plan for 2015.• Reviewed and proposed changes to the Delegation of Authority Framework.



Annual evaluation by the Audit CommitteeAs required by the Companies Act, PFMA and King III, the Audit Committee has performed an annual assessment and evaluation of Transnet’s system of internal controls together with the effectiveness of the finance function, including the competency of the Group Chief Financial Officer. The results are presented below.

Assessment of the internal control environment

Based on the engagement with external and internal auditors, together with the review of their reports, the Audit Committee’s overall assessment of Transnet’s internal control environment is presented in the table below.

2015

Risk and controlKey financial processes Key operational processes

component Adequacy Effectiveness Adequacy Effectiveness

Governance Satisfactory Satisfactory Satisfactory Requires improvement

People Satisfactory Satisfactory Satisfactory Requires improvement

Methods and practices Satisfactory Satisfactory Satisfactory Requires improvement

Overall assessment Satisfactory Satisfactory Satisfactory Requires improvement

2014

Risk and controlKey financial processes Key operational processes

component Adequacy Effectiveness Adequacy Effectiveness

Governance Satisfactory Satisfactory Satisfactory Requires improvement

People Satisfactory Satisfactory Satisfactory Requires improvement

Methods and practices Satisfactory SatisfactoryRequires improvement Requires improvement

Overall assessment Satisfactory Satisfactory Satisfactory Requires improvement

The Audit Committee is of the view that the system of internal controls of Transnet are appropriate in terms of:• Meeting the strategic objectives of Transnet;• Evaluating and mitigating the key risks facing Transnet;• Ensuring compliance with applicable laws and regulations;• Ensuring that Transnet’s assets are safeguarded; and• Ensuring that transactions undertaken are correctly recorded in Transnet’s accounting records.

The Audit Committee’s opinion is that there were no material breakdowns in internal control, including operational controls, financial controls and maintenance of effective control systems during the 2015 financial year.

Assessment of the finance function and competence of the Group Chief Financial Officer

The Audit Committee is satisfied with:• The expertise and adequacy of the resources within the finance function of Transnet.• The experience of the senior members of management responsible for the finance function.• The expertise and experience of the Group Chief Financial Officer is appropriate to meet the responsibilities

commensurate with the position.

Recommendation of the annual financial statementsThe Audit Committee has evaluated the annual financial statements for the year ended 31 March 2015 and is of the view that they comply, in all material respects, with the requirements of the PFMA and in the manner required by the Companies Act. The Audit Committee is further satisfied that the annual financial statements have been prepared in accordance with IFRS and that the adoption of the going-concern basis is appropriate.

The Audit Committee is of the opinion that the annual financial statements fairly present the financial position of Transnet as at 31 March 2015, and the results of their operations and cash flow information for the year then ended and has therefore recommended the adoption of these annual financial statements by the Board of Directors.

Mr BG StagmanChairperson of the Audit Committee




IntroductionThe Board of Directors is pleased to present its Integrated Report, in both printed and electronic formats, in line with the requirements of the King III Code on Corporate Governance (King III) and the audited annual financial statements of Transnet SOC Ltd (Transnet or the Company) and its subsidiaries (the Group) for the year ended 31 March 2015.

Ownership and Shareholder’s expectationsTransnet is a public company, wholly owned by the Government of the Republic of South Africa and is the custodian of the country’s rail, ports and pipelines. Transnet is responsible for enabling the competitiveness, growth and development of the South African economy through delivering reliable freight transport and handling services that satisfy customer demand.

As the custodian of ports, rail and pipelines, Transnet has a responsibility to ensure the optimal development of the national freight system. Furthermore, as a responsible corporate citizen and key implementing agent of the developmental state, Transnet is required to conduct its activities in a manner that optimises developmental outcomes such as job creation, skills development, economic transformation, regional integration, industrial capability building and energy efficiency.

Transnet’s Market Demand Strategy (MDS) has completed its third year of implementation. The MDS and its implementation plan are guided by the Statement of Strategic Intent issued by the Minister of Public Enterprises, which defines the overarching objectives of the Company as follows:• Reduce the cost of logistics as a percentage of transportable GDP;• Effect and accelerate modal shift by maximising the role of rail in the national transport task;• Leverage the private sector in the provision of both infrastructure and operations where required;• Integrate South Africa with the region and the rest of the continent; and• Optimise sustainable economic, social and environmental outcomes of all activities undertaken by Transnet.

Board of DirectorsThe composition of the Board of Directors at 31 March 2015 is shown below:Executive directors: B Molefe (Group Chief Executive), A Singh (Group Chief Financial Officer).Independent non-executive directors: LC Mabaso* (Chairperson), Y Forbes, N Moola, PEB Mathekga*, GJ Mahlalela*, ZA Nagdee*, VM Nkonyane*, MR Seleke*, SD Shane*, BG Stagman*, PG Williams*.*Appointments effective 11 December 2014.

Ms NR Njeke resigned from the Board of Directors effective from 1 September 2014. On 10 December 2014, the following independent non-executive directors resigned from the Company: ME Mkwanazi, MA Fanucchi, HD Gazendam, IB Skosana, IM Sharma, ZE Tshabalala, NP Mnxasana and DLJ Tshepe. Summary curricula vitae of each director are set out on pages 24 and 25 of the 2015 Integrated Report.The following matters are covered in the Corporate Governance report included in the Integrated Report:• Board of Directors and Committees mandates, detailed on pages 190 to 198;• Board of Directors and Committees attendance, detailed on page 32; and• Board of Directors evaluation and performance, detailed on page 28.

Strategic overview Over the past three years of the implementation of the MDS, revenue and EBITDA have grown by an average annual rate of 10% and 11% respectively, while rail and container volumes have grown by an annual average rate of 4% and 2% respectively. Over this period, Transnet has invested R92,8 billion directed at maintaining

and renewing the Group’s extensive infrastructure network and equipment fleet and at creating new capacity. This is by far the highest level of investment in the Group’s history and was achieved by diversifying funding sources both in the domestic and international markets, while minimising market, foreign exchange, interest rate, liquidity and refinancing risks. The funding plan was executed through reserves and borrowings and without receiving cash subsidies or guarantees from the Government.

The R336,6 billion investment programme which is the centrepiece of the strategy represents a significant stimulus to job creation, skills development, industrial capacity building, economic transformation and regional integration and is an important component of Government’s counter-cyclical approach to counter the effects of a weak global economy.

Over the past three years, Transnet has invested more than R2,2 billion in skills development. A key focus on engineering, technical and sector-specific skills has resulted in more than 3 000 artisans and 1 000 technicians entering training. Transnet awarded 492 engineering bursaries to undergraduate, masters and doctoral students. Sector specific skills development focussed on marine, rail, and cargo handling remains a key priority and more than 5 900 learners were taken on over the three-year period. This is in addition to the various management and leadership development programmes and courses which are made available to Transnet employees.

Transformation and development of the Group’s supplier base remains a key priority. In the past financial year Transnet recognised Broad-based Black Economic Empowerment (B-BBEE) spend of 105,1% of total measured procurement spend (TMPS) of R43,1 billion. Of this, R9,4 billion was spent on black-owned enterprises and R4,1 billion on black women-owned enterprises.

Transnet is committed to carrying out Enterprise Development initiatives as outlined in the Broad-Based Black Economic Empowerment (B-BBEE) Act. Enterprise Development interventions have the specific objective of assisting and accelerating the development, sustainability and ultimate financial and operational independence of small, medium and micro businesses as defined in accordance with the Department of Trade and Industry Codes. Transnet has spent R336,6 million or 6,3% of net profit after taxation (NPAT) on Enterprise Development as compared to 3,0% of NPAT as required by the B-BBEE Act. This has been spent on providing both financial and non-financial support to black owned Small-Micro and Medium Enterprises (SMME’s).

Transnet’s Supplier Development (SD) programme promotes skills development and the creation and preservation of jobs. It further encourages the transfer of intellectual property and the localisation of supply; and ultimately promotes industrialisation through contractually obligated supplier development plans. Since inception of the programme, total contract value to date amounts to R46,2 billion (2014: R29,4 billion). Supplier Development obligations concluded with suppliers amounts to R17,1 billion or 37,1% of contract value (2014: R10,9 billion or 37,2% of contract value). To date, R10,2 billion or 60,1% (2014: R5,9 billion or 54,3%) of these Supplier Development obligations have been met.

Transnet’s R50 billion contract for the building of 1 064 locomotives has stringent local content, skills development and training commitments as dictated by the SD programme. All the locomotives except 70 will be built at Transnet Engineering plants in Pretoria and Durban. The suppliers have to date complied with and exceeded the minimum local content criteria for rolling stock of 60% for electric locomotives and 55% for diesel locomotives. Transnet Engineering will share approximately 16% of the total build programme, about one third of which will be outsourced to emerging local engineering and manufacturing firms. This will enable Transnet Engineering to create export capability for locomotives and related products and support Transnet Engineering’s transformation into an Original Equipment Manufacturer (OEM) over time. In total, the localisation elements are expected to contribute over R90 billion to the South African economy.

Regional integration of the freight system is a strategic priority and the implementation of the Africa Strategy has gathered pace in recent years. Revenue from over border activities has grown from R2,1 billion in the first year of the MDS to about R2,9 billion in the 2015 financial year. This represents growth in over border activities from 4,2% of revenue in the 2013 financial year to 4,7% in 2015.


REPORT OF THE DIRECTORSfor the year ended 31 March 2015

The investment in port, rail and pipeline infrastructure and operations will radically improve the competitiveness and capacity of the national freight system. Key freight system objectives include a significant shift of long distance freight from road-to-rail, enhanced maritime connectivity, integration of the regional freight system and the creation of capacity ahead of demand. Transnet has made significant gains in these areas over the past three years and this trend is poised to accelerate as the investments made in recent years start to bear fruit.

Growth in rail market share and maritime connectivity, coupled with increased capacity is expected to catalyse a virtuous cycle of increasing freight systems competitiveness, thereby increasing economic growth and development. The MDS will position South Africa as a key logistics hub for the region and establish the country as a leading supplier of raw materials and value added products to global markets.

At the same time, a consistent focus on responsible corporate citizenship will ensure that the Group makes ever-increasing contributions to job creation, skills development, industrial capacity building, economic transformation and regional integration.

OutlookThe performance of the global economy has been mixed, but with a marked deterioration in sentiment about the global economic outlook. Forecasts for economic growth have fallen in the first quarter of 2015, as they have every year since 2011, as the much anticipated recovery fails to take hold. The world gross domestic product (GDP) estimate was revised downwards to 3,4% for 2014 and is forecast to grow by 3,5% for 2015.

Growth in sub-Saharan Africa is however expected to remain strong, estimated at 5,0% in 2014 and forecast to decline slightly to 4,5% in 2015 due to the combined effects of declining commodity prices and the epidemic in Ebola-affected countries. Growth will be driven by sustained infrastructure investment, buoyant service sectors and strong agricultural production, even as oil related activities provide less support. With the African continent accounting for close to 30% of South Africa’s merchandise exports, growth in the region will provide an important pillar for the manufacturing and logistics sectors.

South Africa’s economic performance was significantly impacted by strikes in 2014, which were concentrated in the mining and manufacturing sectors. South Africa’s GDP grew by 1,5% in 2014 and is forecast to grow by 2% in 2015 and 2,1% in 2016 respectively. The main drivers of improved growth are a return to normality and expectations of a pick-up in the global economy from its current lows.

Global trade has performed below expectations for a number of years and this has negatively impacted all segments of the shipping market. Global container volumes grew by an estimated 5,0% in 2014 and are forecast to grow by 5,5% in 2015 with the bulk of this driven by intra-Asian trade. For the domestic market a medium-term average annual growth rate of 4,2% per annum is anticipated after a number of years of very low growth.

The per capita rate of steel consumption among key developing economies relative to developed economies indicates that there is still significant potential growth for steel and steel input materials as countries industrialise and urbanise. World trade of iron ore grew by an estimated 8,4% in 2014. Over the medium term, world iron ore trade is projected to increase at an average annual rate of 3,6% to 2019. The South African market remains very cost-competitive with solid longer-term growth prospects.

Manganese ore consumption is projected to rise at an average annual rate of 4,3% between 2014 and 2019. Global production of manganese ore is also set to rise at 4,9% over the same period. South Africa, endowed with around 80% of global manganese reserves is set to emerge as a key export hub for manganese over the next few years, gaining market share from other international producers.

Concern about the effect of coal use on the environment has prompted many countries to enact measures to reduce the role of coal in the energy mix. While the growth in the world’s coal use is unlikely to be as rapid as other energy sources, it is still expected to play a large role in world electricity generation. Exports from South Africa are projected to increase at an average annual rate of 6,1% to 98mt in 2019.

Performance for the yearMarch March %

2015 2014 change

Revenue (R million) 61 152 56 606 8,0EBITDA (R million) 25 588 23 639 8,2EBITDA margin (%) 41,8 41,8 –Equity attributable to the equity holder (R million) 142 328 97 113 46,6Gearing (%) 40,0 45,9 (5,9)Capital investment (R million) 33 565 31 766 5,7Cash generated from operations after working capital changes (R million) 30 607 25 271 21,1Cash interest cover (times) 3,6 3,7 (2,7)

Detailed commentary on the performance for the year is contained in the 2015 Integrated Report on pages 94 to 98.

Shareholder’s Compact – performance criteriaThe Shareholder’s Compact Key Performance Indicators (KPI’s), which are revised annually by agreement between the Board and the Shareholder Representative, serve as the performance monitoring framework for the Company. Performance against the Shareholder’s Compact 2015 targets, is outlined below, as required by section 55(2) (a) of the PFMA. This performance information has been subjected to audit review and the Company’s auditors have reported their findings in their audit report.

The Company achieved an aggregate volume performance of 98,4%, despite low domestic and global economic growth challenges. Aggregate operational efficiency improved by 16,6% compared to the prior year’s 13,8% with the support of the Transnet value chain co-ordinator (TVCC) initiatives, such as quick recoveries from on-route disruptions, regular customer liaison and improved integrated collaboration between operating divisions to address resource challenges. Measuring the company’s performance against the operational KPI targets of the Shareholder’s Compact Annexure B (including skills development KPIs in Annexure C); 60% of the targets for the 2015 financial year were fully achieved. The performance gap on operational KPIs is mainly attributed to 12 of 22 rail commodities that did not meet their individual budgeted volumes. While commodity by commodity analysis focuses attention on internal and external constraints and identifies required performance improvement interventions, it is important to note that in aggregate, Group weighted volume performance for total freight volumes on rail, ports and pipelines increased from the prior year’s 95,1% to 98,4% due to positive growth in export iron ore, export coal, total petroleum products, vehicles and break bulk.

Export coal and iron ore grew substantially by 12% and 10% respectively year-on-year to 76,3mt and 59,7mt. They also grew by 2% and 3% compared to budget. Product availability improved as key export iron ore customers recovered from the production constraints of prior year. Internal resource availability improved through sustained implementation of the capital expenditure programme and the two commodities also benefitted from operational efficiency improvements supported by the TVCC initiatives. The protracted trend of declining international coal and export prices in 2015 is negatively affecting the outlook for 2016.

When all Shareholder’s Compact Annexures (i.e A, B, C, D, F and G) are considered, the achievement decreases to 58%. Annexure E is excluded from the analysis as it relates to compliance to the Significance and Materiality Framework in terms of section 55 (2) of the PFMA. Transnet notifies the Shareholder Representative where relevant upon acquisition or disposal of an asset that is at least equal to the materiality threshold. Detailed performance against all the other annexures is reported in the quarterly reports to the Shareholder Representative.

A total of 33% of the performance indicators in Annexure A were not well defined, specific and measurable. In addition, 29% of the timelines for delivery of targets were not specified. This was due to the requirements of the National Treasury FMPPI not being embedded into the current process for determining the key performance indicators and targets.



The company has taken note of this shortcoming and will be engaging with the Department of Public Enterprises to ensure that these requirements are embedded into the targets and agreed with the Shareholder Representative.

Annexure A: Strategic deliverables

Key performance area Key performance indicatorDelivery timeline Actual

Transnet’s Sustainability Framework

• Economic dividends. March 2015 100%• Social dividends. March 2015 100%• Environmental dividends. March 2015 100%

Cost Logistics • Quantify Transnet’s contribution to the total cost of logistics as a percentage (%) of transportable GDP.

April 2014 100%

• 0,5% reduction in total cost of logistics by 2019 as per market demand.

April 2014 0%

Domestic Intermodal Solution

• Quantify and commit to model split target. April 2014

75%• Quantify the fixed infrastructure capacity, operational

performance and financial performance of existence intermodal capacity.

April 2014

• Develop a long term intermodal/container strategy supported by an appropriate infrastructure and funding plan.

April 2014

NMPP Strategy and infrastructure plan

• Develop medium to long-term strategy and infrastructure plans to drive Transnet Pipeline’s market share.

April 2014 50%

Africa Business Development and Regional Intergration

• Develop a short, medium and long-term strategy to improve intra-Africa trade from a transport perspective.

April 2014 88%

• Promote regional connectivity through the integration of the freight rail and maritime infrastructure.

April 2014 31,25%

• Position Transnet Engineering to become the preferred supplier of rolling stock within the African market.

April 2014 45%

Private Sector Particitipation (PSP)

• Delivery of R2,5bn in PSP funding as per the 2013 Corporate Plan.

Subject to PFMA Section 54 Approval.

77%

• Identify clear and sustainable opportunities for PSP. 100%• Identify and develop clear industry solutions within varoius

sectors supported by business cases for approval by the Shareholder.

90%

• Develop defined timeline for implementation of identified PSP opportunities.

100%

• Concession of three branch lines as identified by Transnet and the Department.

Subject to PFMA approval.

0%

Policy and Regulation • Full co-operation with the department to finalise joint positions on rail and maritime policy.

Ongoing. n/a

• On-going compliance with policy and regulation. Ongoing. n/aResearch and Development (R&D) Excellence

• Establishment of R&D Centre of Excellence. April 2014 60%• Quantify how technology has been leveraged to reduce capital

outlay and reduce operating expenditure in all spheres of business.

June 2014 90%

• Quantify how technology has been leveraged to improve productivity in all spheres of business.

June 2014 78%

• Quantify how technology has been leveraged to improve and increase modal shift.

June 2014 91%

• Quantify how technology has been leveraged to increase market share.

June 2014 100%

n/a not applicable.

Annexure B: Operational performanceTransnet Group

2015

Unit of Compact Key performance area Key performance indicator measure target Actual

Financial value creation Return on total average assets % ≥7,8 6,0Cash interest cover (a) times ≥3,2 3,6Gearing % ≤46,7 40,0Operating expenditure as a % of revenue % ≤55,6 58,2

Innovation Research and development cost R million ≥262 83,2

Safety DIFR (for all Transnet operating divisions) Total ratio ≤0,75 0,7Employee fatalities Number 0 4

Productivity Revenue per employee R million ≥0,98 1,1

(a) Subject to Minister of Finance approval to change the cash interest cover condition from 3,3 times to 3,2 times in regard to the foreign borrowing limit conditions.

Transnet Freight Rail

2015

Key performance Key performance Unit of Compactarea indicator measure target Actual

Financial Return on total average assets % ≥11,4 8,3

TariffsRevenue from tariff increases

– General freight business (GFB) % ≤8,7 3,0

Market share Volume Total volumes mt ≥228,4 226,6

Bulk – Export coal mt ≥75 76,3– Export iron ore mt ≥58,1 59,7– Export manganese (PE) mt ≥4,9 5,3– Export manganese (DBN) mt ≥1,2 0,9– Export coal non-RBCT mt ≥6,6 3,8– Eskom coal mt ≥11,5 13,4– Domestic coal mt ≥9,3 7,5– Chrome and ferrochrome mt ≥8,0 5,0– Domestic iron ore mt ≥8,3 7,6– Domestic manganese mt ≥1,9 2,1– Mineral mining mt ≥13,5 15,8– Other mt ≥1,1 1,8

Intermediate manufacturing and manufacturing– Agriculture mt ≥3,7 3,2– Bulk liquids mt ≥2,1 1,6– Iron and steel mt ≥0,6 0,4– Wood and wood products mt ≥2,1 2,5– Fertilisers mt ≥0,1 0,2– Industrial chemicals mt ≥1,2 1,2– Cement mt ≥7,7 7,4– Intermodal wholesale mt ≥10,5 8,9– FMCG long distance mt ≥0,8 0,6– Automotive mt ≥0,4 0,4



Transnet Freight Rail (continued)

2015

Key performance Key performance Unit of Compactarea indicator measure target Actual

Productivity Asset utilisation Manganese Gtkm/Ntkm ≤1,5 1,6Steel and cement Gtkm/Ntkm ≤1,7 1,7Mineral mining and chrome Gtkm/Ntkm ≤1,7 1,6Container and automotive Gtkm/Ntkm ≤3,5 3,4Agriculture and bulk liquids Gtkm/Ntkm ≤2,1 2,1

Locomotive utilisation Export coal Gtkm/loco/m ≥26 868 26 489

Cycle time Export coal Hours ≤56 63,8Export iron ore Hours ≤76 84,8Manganese Hours ≤155,5 190,1

Wagon turnaround time GFB Days ≤10,3 10,6

Density Saldanha Tonkm/Routekm ≥58,1 61,7RBaycor Tonkm/Routekm ≥37,5 41,1Natalcor Tonkm/Routekm ≥7,0 6,5NEastcor Tonkm/Routekm ≥6,8 8,4Sentracor Tonkm/Routekm ≥5,0 4,9Capecor Tonkm/Routekm ≥4,0 4,1NWestcor Tonkm/Routekm ≥4,0 4,5Eastcor Tonkm/Routekm ≥3,0 3,2Southcor Tonkm/Routekm ≥2,9 3,6Northcor Tonkm/Routekm ≥1,7 1,6

Service On-time departure Export coal

Average deviationfrom schedulestimes (minutes)

≤90 0,6Export iron ore ≤60 (24,3)Export manganese ≤160 (75,4)Steel and cement ≤295 (73,6)Mineral mining and chrome ≤90 (41,4)Containers and automotive ≤300 93,9Agriculture and bulk liquids ≤200 132,8

On-time arrival Export coal

Average deviationfrom schedulestimes (minutes)

≤180 170,0Export iron ore ≤225 57,1Export manganese ≤200 183,2Steel and cement ≤325 269,0Mineral mining and chrome ≤140 179,8Containers and automotive ≤380 250,0Agriculture and bulk liquids ≤290 265,3

Transnet Engineering

2015

Key performance Unit of Compact area Key performance indicator measure target Actual

Financial External revenue R million 2 400 1 718

Innovation Research and development cost R million 150 93

Volume growth(a) Train cancellations due to traction GFB % ≤6 1,5Export coal ≤6 3,8Export iron ore ≤6 0,1

Net volume lost due to traction(a) GFB mt ≤7 NR1

Export coal ≤7 NR1

Export iron ore ≤7 NR1

Traction delays GFB ≤40 8Export coal ≤40 12,5Export iron ore % ≤40 11,9

ProductivityLean six sigma impact on business efficiency

Value add per employee R ≥450 000 429 000

Asset turnover Asset turnover Ratio ≥1,3 1,2

Number of defects per products

Number of defects per products Number ≤30 2,5

(a) Transnet should ensure not to lose volumes of more than 4mt, due to traction.NR1 = Not reported. No information available on Transnet Execution Monitoring System.

Transnet National Ports Authority

2015

Key performance Key performance Unit of Compact area indicator measure target Actual

Productivity Anchorage – Durban Hours ≤40 41– Cape Town ≤34 31– Port Elizabeth ≤30 37– Ngqura ≤45 32– Richards Bay ≤80 39

Ship turnaround time(a) Containers

– Durban Hours ≤57 51– Cape Town ≤30 27– Port Elizabeth ≤26 26– Port of East London ≤60 50– Richards Bay ≤109 78– Ngqura ≤45 34

Dry bulk

– Coal (RBCT) Hours ≤46 43– Iron ore (Saldanha) ≤54 46– Manganese (PE) ≤78 70



Transnet National Ports Authority (continued)

2015


Productivity Berth occupancy – Durban % 70 – 80 77– Cape Town 60 – 70 45– Port Elizabeth 55 – 65 52– Ngqura 70 – 80 55

Berth utilisation – Durban % 70 – 80 70– Cape Town 50 – 60 62– Port Elizabeth 55 – 65 42– Ngqura 75 – 85 55

(a) Shipping delays to be quantified and reported on a quarterly basis.

Transnet Port Terminals

2015


Financial Return on total average assets % ≥8 7,9

Tariff increases Average tariff increase (containers) % ≤6 8,1

Productivity Dwell time DCT – Pier 1

– Imports Days ≤3 2,5– Exports Days ≤5 5,3– Transshipment(a) Days ≤10 8,4

DCT – Pier 2

– Imports Days ≤3 1,9– Exports Days ≤5 6,5– Transshipment Days ≤10 8,5

CTCT

– Imports Days ≤3 1,7– Exports Days ≤5 4,2– Transshipment Days ≤15 3,9

Moves per gross DCT – Pier 1 Moves/GCH ≥26 22,2crane hour(b) DCT – Pier 2 (prime

berths 203, 204) ≥28 24,0CTCT ≥32 31,8Ngqura ≥30 26,8

Transnet Port Terminals (continued)

2015


Service delivery Train turnaround time DCT – Pier 1 Hours ≤6 3,3DCT – Pier 2 Hours ≤6 3,3CTCT Hours ≤6 1,0Saldanha(c) Minutes ≤105 112,3Richards Bay Hours ≤12 7,9Port Elizabeth Hours ≤12 9,4

Truck turnaround time DCT – Pier 1 Minutes ≤35 43,8DCT – Pier 2 Minutes ≤35 51,6CTCT Minutes ≤35 17,3Ngqura Minutes ≤35 35,3Richards Bay Minutes ≤35 26,8

(a) Transnet Port Terminals shall not encourage transshipment dwell times of greater than five days. (b) Transnet Port Terminals shall report on moves/GCH for the Ports of Richards Bay and East London on a quarterly basis.(c) Rake process time inside tippler.

Transnet Pipelines

2015

Unit of CompactKey performance area Key performance indicator measure target Actual

Market share Petroleum volumes Billion litres ≥16,8 17,2

Service reliabilityOrdered versus delivered volumes (% of deliveries within 5% of order) % ≥95 100Planned versus actual delivery time (% of deliveries within two hours of plan) % ≥83 84

Operational efficiency Operating cost per Mℓ.km (Nominal R/Mℓ.km) Rand ≤129 120

Capacity utilisation DJP and NMPP – actual usage (Mℓ‑week) Ratio ≥113:152 115:152

Annexure C: Social impactKey performance indicator Unit of measure Target Actual

Training spend % of personnel costs ≥4,4 2,8Technician trainees Number of learners ≥363 563Engineering trainees Number of learners ≥220 254Artisan trainees Number of learners ≥605 613Sector specific trainees Number of learners ≥2176 3 320Jobs created (Transnet permanent employees) Number of jobs ≥4426 2 905Health (Teenage health project) R million ≥13 13,90 Health (Phelophepha I and II) R million ≥93 105,72 Teacher and learner development R million ≥15,6 12,00 Sports development R million ≥35,9 32,40 Container assistance R million ≥10,4 10,43 Transnet employee volunteer programme R million ≥29,9 27,10



Annexure D: Economic impactKey Performance Indicator Unit of Measure Target* Actual

Export promotion % of SD value ≥ 0,5 –Technology transfer/Intellectual property % of SD value ≥ 1 NRInvestment in plant % of SD value ≥ 1 10,13Local content % of total spend ≥ 75 94CSDP/SD value % of contract value subject to SD ≥ 37 37Job creation Number of jobs created TBA NRSkills development % of SD value ≥ 3 2B-BBEE % of TMPS ≥ 60 105,05Black women owned % of TMPS ≥ 3 9,59Black owned % of TMPS ≥ 10 21,73Black youth owned % of TMPS ≥ 0,5 1,56QSE/EME % of TMPS ≥ 10 12People living with disability % of TMPS ≥ 0,25 0,18

* Without PPPFA exemption.NR Not reported.TBA To be advised.

Annexure F: Capital expenditureProjects which have reached the execution phase Estimated

– Front end loading (FEL) 4total costR million Target1 Actual

1. Coal line expansion to 81mt 5 100 32% 35%2. Acquisition of 95 electric locomotives for GFB 2 662 85% 86%3. Acquisition of wagons for MDS2 15 115 100% 100%4. Ngqura Container Terminal Ph2A 1 099 100% 100%5. New Multi-Product Pipeline 23 400 100% 76%6. Reconstruction of sheetpile quaywalls at Maydon Wharf 1 594 15% 60%7. Straddle carrier replacement 1 835 10% 100%8. Acquisition of 465 diesel, 599 electric, 100 electric and

60 diesel locomotives 61 094 2% 37%9. Expansion of the ore line to 82,5mt2 9 500 FEL 3 FEL 2

10. Coal export line expansion to 97mtpa2 4 350 FEL 1 FEL 011. Manganese expansion (excluding rolling stock) to 16mt2 17 000 FEL 4 FEL 412. Swaziland rail link2 5 000 FEL 4 FEL 313. Waterberg expansion to 27mt2 5 090 FEL 4 FEL 314. Deepening of DCT berths2 6 000 FEL 4 FEL 315. Export iron ore line: Capitalisation of infrastructure wagon and

locomotive maintenance2 9 001 100% 100%16. Coal line: Capitalisation of infrastructure, wagon and locomotive

maintenance2 16 029 100% 100%17. General freight rolling stock capacity increase to support the Market

Demand Strategy – wagons upgrade2 15 115 100% 100%18. General freight business: Capitalisation of infrastructure, wagon and

locomotive maintenance2 50 056 100% 100%1 Estimated percentage of completion at year end.2 The estimated total costs are work in progress, subject to the finalisation of the budgeting process.

Annexure G: Energy efficiencyCompact

Electrical energy efficiency Measurement target Actual

Transnet Freight Rail – traction gtk/kWh 1,0% 4,7%Transnet Freight Rail – real estate kWh/m2 3,0% 5,8%Transnet Properties kWh 6,0% 0,8%Transnet Pipelines lkm/kWh 1,0% 5,2%Transnet Port Terminals ton/kWh 1,0% 8,4%Transnet National Ports Authority employee/kWh 2,0% 7,8%Transnet Engineering man-hour/kWh 2,5% 0,2%

Fuel energy efficiency Transnet Freight Rail – traction gtk/litre 1,0% 8,0%Transnet Port Terminals ton/litre 1,0% 10,2%Transnet Engineering man-hour/litre 2,5% 24,5%

Accounting policiesThe accounting policies applied in the preparation of the annual financial statements for the year ended 31 March 2015 are in accordance with IFRS and are consistent with those applied in the prior year except for the adoption of the revaluation policy for rail infrastructure assets as described on page 67.

Judgements made by management in the application of IFRS that have a significant impact on the annual financial statements are disclosed in the accompanying notes to the annual financial statements.

Share capitalThere has been no change in the authorised or issued share capital of the Company during the year. The issued share capital of the Company is 12 660 986 310 ordinary shares of R1 each. Further details pertaining to the Company’s share capital are contained in note 21 of the annual financial statements.

DividendsNo dividend was declared in the current year. The dividend policy is reviewed annually and approved by the Shareholder Representative in the annual general meeting. The main objective is to utilise cash to support the capital investment programme. The policy provides that dividends will be declared to the Shareholder Representative in circumstances where cash cannot be effectively utilised in the business; where retaining cash does not create shareholder value; and provided that appropriate gearing and cash interest cover ratios are maintained.

Divisions, subsidiaries and associate companiesThe Company intends to finalise the liquidation of Spoornet do Brasil Ltda (SdbL) during the course of the next financial year. A detailed list of subsidiaries and associate companies are contained in annexure D to the annual financial statements.

Revaluation of property, plant and equipment The accounting policies of the Company require rail infrastructure, port infrastructure assets, port operating assets and pipeline networks to be carried at revalued amounts. A full revaluation of these assets is conducted every three years, with an index revaluation being performed in the intervening years. During the current year, a full revaluation was performed by independent valuation experts on rail infrastructure and pipeline networks and an index valuation was applied for port infrastructure and port operating assets.



Port facilities

The carrying value of port infrastructure was revalued by R4 442 million (2014: R6 838 million) and port operating assets were revalued by R177 million (2014: R945 million).

Pipeline networks

The carrying value of pipeline networks was revalued by R843 million (2014: R467 million).

Rail infrastructure

In the current financial year, the Group prospectively changed its accounting policy for rail infrastructure assets from the historical cost basis to the revaluation model in accordance with IAS 16 Property, Plant and Equipment. The policy change was as a result of the following factors:• Capital interventions over the last five years have positively impacted on the average age and condition of

the rail infrastructure assets, consequently increasing their value;• To accurately reflect the economic value of the assets to the Group in the statement of financial position;

and• To ensure consistency and alignment across all Transnet Operating divisions with respect to accounting for

infrastructure assets.

The Group applied the depreciated optimised replacement cost and the discounted cash flow methods in assessing the fair value of the assets. Accordingly, the carrying value of rail infrastructure assets was revalued by R49,8 billion to R75,2 billion. Additional details are provided on page 86.

Capital expenditure and commitmentsThe Group’s capital investment for the year ended 31 March 2015 amounted to R33,6 billion (excluding capitalised borrowing costs). This represents a 5,7% increase from the prior year capital investment of R31,8 billion, mainly as a result of accelerating the locomotive, tugs and dredger acquisition programme. The capital investment for the year represents R14,5 billion invested in the expansion of infrastructure and equipment, while R19,1 billion was invested to maintain capacity in the rail and ports divisions.

Further details regarding capital expenditure and commitments are contained in note 30 of the annual financial statements.

FundingAs at 31 March 2015, the Company’s total borrowings amounted to R110,4 billion (2014: R90,4 billion), an increase of R20 billion compared to the prior year.

The following sources of funding were actively utilised in reaching the funding requirement of R23,8 billion for the year; commercial paper, inaugural TN30 and TN40 bonds, private placements and bilateral long-dated loans with an export credit agent and a local life insurance company.

In spite of the additional funding raised, the gearing ratio reduced to 40,0% compared to the 45,9% at 31 March 2014 mainly due to the first time revaluation of rail infrastructure assets. This level is still below the Group’s target range of 50,0%, reflecting the additional capacity available to fund future capital expenditure.

The funding requirement for the next 15 months to 30 June 2016 is R34,6 billion, including the cash buffer of R1 billion. Sufficient facilities are available to Transnet (detailed in the following table) to reduce liquidity risk and thus adopt the going concern assumption.

Sources of funding R billion

Cash on hand at 31 March 2015 6,3GMTN 7,0DMTN 9,3Other loans 7,0Committed facilities 5,0

Total 34,6

Credit rating

Transnet is officially rated by two credit rating agencies, namely, Standard and Poor’s (S&P) and Moody’s. During the year under review, both credit rating agencies, downgraded the sovereign rating. As an SOC, Transnet’s credit rating was affected and hence S&P changed the issuer credit rating to BBB- from BBB in line with the sovereign rating, the rating outlook is stable and the standalone credit profile remained unchanged at bbb+. Moody’s also changed the Transnet issuer rating to Baa1 from A3 with a negative outlook and standalone to baa1 from a3. Moody’s rating is still 2 notches above sub investment grade, whilst S&P is in the last band before sub investment grade. Transnet’s credit rating is depicted below:

Long-term rating category Moody’s Standard & Poor’s

Foreign currency Baa1/Negative outlook BBB-/Stable outlookLocal currency Baa2/Negative outlook BBB+/Stable outlookNational rating A1.za/A2.za zaAA+/zaA-1

Post-retirement benefit obligationsBenefit funds

The Group provides various post-retirement benefits to its active and retired employees, including pension, post-retirement medical and other benefits. The two defined benefit funds, namely the Transnet Sub-fund of the Transport Pension Fund (TTPF) and the Transnet Second Defined Benefit Fund (TSDBF), are fully funded with actuarial surpluses of R3,1 billion (2014: R2,3 billion) and R3,5 billion (2014: R2,6 billion) respectively. Transnet has not recognised any portion of the surplus on these funds, as the fund rules at present do not allow for the distribution of a surplus to the Group.

The Board of Trustees of the TTPF and TSDBF approved the payment of ad hoc bonuses to their beneficiaries, during the year and up until April 2015, amounting to R36 million and R320 million respectively. The total value of ad hoc bonuses paid by the TTPF (since December 2011) and TSDBF (since November 2007) to their beneficiaries amounts to R160 million and R2,2 billion respectively.

These payments continue to supplement the current statutory increase of the beneficiaries of the TTPF and TSDBF to provide pensioners with increases above CPI. In addition to the payments by the TTPF and TSDBF, Transnet has again made an ex gratia payment to its most disadvantaged pensioners of both the TTPF and TSDBF, amounting to R75 million in November 2014. The payment has been made in particular to those pensioners with very low pensions despite long service. This brings the total amount of ex gratia payments made by Transnet to beneficiaries of the defined benefit funds (since July 2007) to R523 million.



SATS pensioners’ post-retirement medical benefit obligations

Transnet is committed to identifying a sustainable long-term solution for the provision of medical scheme benefits to SATS pensioners and their dependants.

The post-retirement medical benefit obligation is approximately R1 billion as at 31 March 2015 (2014: R1,2 billion).

Passenger Rail Agency of South Africa (PRASA)PRASA owed Transnet R1,8 billion at 31 March 2014 and repaid R1,3 billion during the 2015 financial year. Additional services provided to PRASA during the year amounting to R1,2 billion, resulted in an outstanding amount of R1,1 billion at 31 March 2015.

Transnet remains committed to working with PRASA in providing passenger rail services in South Africa.

Compliance and legislationTo the best knowledge and belief of the Directors, the Company has, during the year, complied, in all material respects, with all legislation and regulations applicable to it, except as noted below.

PFMA compliance

Transnet has implemented and maintained sound governance structures and processes in compliance with the provisions of the PFMA. PFMA compliance is one of the key business issues that the Company manages and monitors. This monitoring function is achieved through the following:• an approved PFMA policy and guideline;• an automated reporting process on Cura system;• an accreditation process on the Delegation of Authority Framework, Procurement and PFMA Policy and

Procedures; • intensified PFMA training and awareness programme; • data analytics to detect/prevent potential PFMA violations; • integrated systems and processes; and • a materiality framework that has been established at Group-level with the support of the Shareholder

Representative and cascaded throughout the Company.

Sections 51 and 55 of the PFMA impose certain obligations on the Company relating to the prevention, identification and reporting of fruitless and wasteful expenditure; irregular expenditure; expenditure that does not comply with operational policies; losses through criminal conduct and the collection of all revenue. To comply with the PFMA’s obligations, the Board has a materiality framework, which was approved by the Minister of Public Enterprises, subject to certain conditions.

The Shareholder Representative has determined that the materiality limit for reporting in terms of sections 55(2)(b)(i), (ii) and (iii) of the PFMA is R25 million per transaction.

In terms of this materiality framework, the following item is reported as criminal conduct. This item occurred prior to 2013 and was detected by the Company’s internal processes. The Company is committed to handling alleged governance breaches in a firm and expeditious manner and accordingly commissioned an investigation which revealed that an employee fraudulently gave clients lower rates for the transportation of manganese. The losses arising from criminal conduct as contemplated by the PFMA (as amended) amount to R488 million. The employee was suspended during the investigation, and he later resigned. This matter has been reported to the South African Police Services commercial unit as well as the National Prosecuting Authority. The Board of Directors is confident

that appropriate corrective action has been taken and that the irregularity is no longer in effect. In addition, the Board of Directors is satisfied that all reasonable steps have been taken to prevent further losses to the Company.

PFMA reporting in 2015

Category of reportable items %# R millionNumber of

items

Number of finalised

disciplinaries/criminal cases

Fruitless and wasteful expenditure*** 0,04 23,0 27* 24/7Losses through criminal conduct*** 1,02 519,3 26* 11/600Total irregular expenditure*** 0,06 32,2 31* 15/1

* Represents cumulative reportable items of the same nature.*** Refer to annexure E for further disclosure.

# Reportable items expressed as a % of total expenditure of R50,8 billion, which is net operating expenditure less personnel costs plus capital expenditure.

The above table also reflects the number of finalised disciplinary cases instituted against employees for non-compliance to the PFMA. However, it must also be noted that there are numerous other cases that are still pending finalisation, and are tracked and will be reported in the annual financial statements for the year ending 31 March 2016.

Incidents with R nil values are not included in the reportable numbers, however, the related South African Police Services cases and disciplinary actions are included.

608 criminal cases have been lodged with the South African Police Services and the bulk relates mainly to losses through criminal conduct.

PFMA reporting in 2014

Category of reportable items %# R millionNumber of

items

Number of finalised

disciplinaries/criminal cases

Fruitless and wasteful expenditure 0,02 13,0 32* 21/0

Losses through criminal conduct 0,08 39,9 54* 10/334

Non-collection of revenue*** – 0,8 1 2/0

Total irregular expenditure 0,10 49,6** 18 7/0Less: Irregular expenditure condoned 0,01 (6,8) (4) 0/0

Remaining irregular expenditure 0,09 42,8 14 7/0

* Represents cumulative reportable items of the same nature.** Includes an item under investigation pending finalisation.

*** Refer to annexure E for further disclosure.# Reportable items expressed as a % of total expenditure of R48,1 billion, which is net operating expenditure less personnel costs plus capital

expenditure.

334 criminal cases were lodged with South African Police Services and the bulk related to losses through criminal conduct.



Transnet is committed to prevent and reduce irregular expenditure by embarking on various initiatives to achieve sustainable results. 19 initiatives have been implemented of which 12 have been completed.

Number Initiative Status

1. Updating PFMA policy and guideline. Completed.

2. Roll out of PFMA training to all Operating divisions. Completed.

3. Inclusion of PFMA training in new employee induction manual. Completed.

4. Presentation to Operating Division Exco members. Completed.

5. Migration of PFMA from Cura system to SAP GRC. SAP GRC system feasibility study completed, and roadmap in progress for next phase.

On track.

6. Additional data analytic indicators developed. Completed.

7. (a) Development and implementation of PFMA online training and accreditation – completed.

(b) Accreditation rolled out to all Exco and extended Exco members and manager levels C, D and E completed (Phase 1 and 2).

Roll out preparations to levels F, G and new appointments from level A to E in progress. Targeted roll out July 2015 (Phase 3).

On track.

8. PFMA control self assessment.Development completed. Establishing workaround links for duplicate controls in other processes which currently SAP GRC cannot facilitate.

On track.

9. Training on standard operational procedures at Operating divisions. Completed.

10. Development and implementation of supplier integrity pacts. Completed.

11. Forensics and procurement training on procurement related violations. Completed.

12. Fraud resistance assessments and compliance checks. Completed.

13. Forensics data analytics. Completed.

14. Knowledge sharing with other Public Entities. Completed.

15. Activation of SAP request for quotation functionality across all Operating divisions.Business case prepared and approved, tender awarded and process to be included in the Procurement Pyramid Programme.

On track.

16. Developing and implementing contract lifecycle management system. Contract lifecycle management system upgrade and migration of all contracts into a single repository completed. Integration, user access, linking to purchase order, reporting and tender automation to commence when system is fully functional.

On track.

17. Implementing data quality improvement project for vendor, material and service master data clean ups.

On track.

18. Improvement to data analytics solution to monitor effectiveness and efficiency of ‘Procure to Pay’ process across Transnet.

On track.

19. Compliance review by TIA on adequacy of implementation of delegation of authority on the SAP system.

Completed.

Economic regulation and regulatory reformThe tariffs of two Operating divisions, namely Transnet Pipelines (Pipelines) and Transnet National Ports Authority (National Ports Authority) are regulated by independent regulators. The National Energy Regulator of South Africa (NERSA ) regulates the tariffs of the petroleum pipeline system, storage facility at Tarlton and gas transmission pipeline for Pipelines. The Ports Regulator regulates the tariffs charged by National Ports Authority.

With approximately 19,0% of Transnet’s revenue and 34,0% of its EBITDA impacted by economic regulation, unless the relationships with regulators are managed proactively and strategically their decisions could have a significant impact on investment decisions, investor confidence and ultimately on the execution of the MDS R336,6 billion capital investment plan.

Transnet believes that understanding regulatory issues in extreme detail is a prerequisite not only for anticipating risks and opportunities but also for building mutually beneficial relationships, based on trust and transparency, with the economic regulators. Significant progress has been made between Transnet and the Ports Regulator following recent engagements on the regulatory framework. In the coming months emphasis will be placed on finalising the pricing strategy which would achieve the spirit of the National Ports Act, No 12 of 2005 (Ports Act) whilst at the same time afford National Ports Authority and Transnet the ability to deliver on its MDS and maintain financial sustainability.

The potential for making decisions in determining and setting tariffs that may negatively impact the future sustainability of the MDS remains a key risk for Transnet given the capacity constraints faced by economic regulators, and limited recourse by the regulated entities in the absence of an appeal mechanism. Credible appeal mechanisms need to be put in place and attention needs to be paid to monitoring the performance and decisions of regulators in line with international best practice and benchmarks.

Transnet Pipelines

Petroleum levy and corporatisation of Transnet Pipelines

One of the conditions of the levy, paragraph 6.1.5 of the Grant Funding Agreement, was that Transnet provide the Department of Energy (DoE) with explicit details on the progress in respect of the corporatisation of Pipelines in line with the directive of the Shareholder Representative. Transnet presented to the Department of Public Enterprises (DPE) a brief overview of the key issues that will arise with the corporatisation of Pipelines and highlighted areas for further investigation. On 5 February 2013, the former Chairperson of Transnet wrote to the former Shareholder Representative, requesting him to reconsider the corporatisation of Pipelines and rescind the previous decision as per the letter of 30 April 2010.

On 24 May 2013, the former Shareholder Representative responded to the Chairperson of Transnet stating that he has written to the Ministers of Finance and Energy recommending that the condition for Pipelines to be corporatised be waived at this point in time. The Shareholder Representative however pointed out that in the future there may be a government imperative which needs to be fulfilled and would necessitate the need for the corporatisation of Pipelines. Should this be the case, it may be necessary to resuscitate the issue of corporatisation. Transnet awaits the response from the Ministers of Finance and Energy through the office of the Shareholder Representative.

The potential corporatisation of Pipelines poses significant risks to Transnet, as it could have a material adverse impact on Transnet, both financially and strategically, and could constitute an event of default under some of Transnet’s funding agreements.



Tariffs

On 31 October 2014, Pipelines submitted its 2016 Petroleum Pipeline System Tariff Application to the NERSA. Pipelines filed for an allowable revenue requirement of R3 395 million for the 2016 tariff period, a 15,58% increase in allowable revenue from the 2015 allowable revenue of R2 938 million as set by NERSA.

On 12 March 2015, NERSA decided on Pipelines’ application for the 2016 period. NERSA increased Pipelines allowable revenue to R3 357 million (14,28%) for the 2016 financial year.

Transnet National Ports Authority

The potential corporatisation of Transnet National Ports Authority

The National Ports Act, No 12 of 2005 (Ports Act) provides for the corporatisation of the National Ports Authority. On 17 June 2008, the Government, through the President of the Republic of South Africa, informed Transnet in writing that it would not initiate the corporatisation process and that appropriate amendments to the Ports Act will be considered.

On 28 September 2012, at a National Ports Consultative Committee Meeting (NPCC) held in Cape Town between port stakeholders and the National Ports Authority, the issue of the National Ports Authority corporatisation was tabled. The consensus of the NPCC members, representing the Department of Public Enterprises (DPE), Department of Transport (DoT), Department of Trade and Industry (DTI), port users and the Ports Regulator, was that changes to the section 3(2) of the Ports Act and other relevant sections of the Ports Act be effected.

On 10 January 2013 correspondence was sent to the Shareholder Representative as a recommendation to take the process of legislative review forward in the least cumbersome way possible. To this end, Transnet recommended a one worded amendment to the Ports Act which would have the effect of giving the Shareholder Representative the discretion to corporatise instead of the current obligatory provision in section 3(2) which mandates the Shareholder Representative to corporatise without any discretion in this regard. This can be done by substituting the word ‘must’ with the word ‘may’ in section 3(2) of the Ports Act.

On 10 June 2013, DoT informed Transnet of The National Ports Act Amendment Bill, 2013, which states that section 3 of the principal Act is hereby amended by the substitution of section 3(2) for the following:

‘As soon as this Act takes effect, the shareholding Minster [must] may ensure that the necessary steps are taken for the incorporation of the National Port Authority of South Africa as a company contemplated in subsection 3.’

Transnet awaits the finalisation of this amendment. Transnet is currently conducting a comprehensive review of all aspects of the Ports Act, to be presented to the DPE for discussions with the DoT.

The engagements between Transnet and DPE are aimed at ensuring that the appropriate amendments to the Ports Act are effected. The potential corporatisation of National Ports Authority poses significant risks to Transnet, as it could have a material adverse impact on the Company, both financially and strategically, and could trigger default clauses of Transnet’s funding agreements.

Tariffs

On 1 September 2014, the National Ports Authority submitted its multi-year tariff application to the Ports Regulator. Using the approved multi-year tariff manual, the National Ports Authority’s resultant revenue requirement for the 2016 financial year is R11 208 million. The average multi-year tariff increase amounted to 9,47%.

On 25 February 2015, the Ports Regulator approved the National Ports Authority’s tariffs and granted a 4,8% increase in average tariffs and adjusted the volume forecast to 4,3% resulting in an allowable revenue of R11,1 billion for the 2016 financial year.

The National Environmental Management: Integrated Coastal Management (ICM) Act 24 of 2008 Amendment Bill

The ICM Act contains a number of sections detrimental to Transnet, the most important of which were withheld from coming into effect in order to prevent Transnet losing ownership of Port Assets. The amendment Bill issued by the Department of Environment Affairs (DEA) in December 2011 for comment failed to address these concerns and Transnet continued its engagement with the Department of Public Enterprises (DPE) throughout 2012, attempting to find a solution.

On 7 November 2012, Cabinet approved another version of the Bill (the Bill 2013) for submission to Parliament in 2013. On 21 December 2012, DEA published an Explanation Summary of the Bill 2013 in which it claimed to have addressed Transnet’s concerns. Transnet was advised by Senior Counsel that the current version of the Bill may still result in Transnet losing ownership of its assets in the sea, seashore and seabed within ports. Further to that the loss of ownership of those assets could trigger a default event or be considered to be a material adverse event in respect of Transnet’s existing loan covenants.

The Minister of Public Enterprises was informed of Transnet’s revised submissions to the Portfolio Committee on Environmental Affairs and the Company made a request for the Department of Public Enterprise’s support in Transnet’s Parliamentary engagements on this issue.

The current wording of section 6(4) only protects Transnet’s ownership of port infrastructure constructed prior to the Act coming into effect and does not protect Transnet’s ownership of new infrastructure. On 13 March 2014, Transnet’s Group Chief Executive wrote to the DEA expressing Transnet’s concern with the present wording of section 6(4) and suggesting that it be amended to expressly preserve Transnet’s ownership of channels and basins, as well as port infrastructure and installations to be constructed in the future. The letter also requested the Minister of Environmental Affairs to furnish Transnet with a written exemption which states that Transnet is, from the date of coming into operation of section 11, exempt from the provisions of section 11 in relation to its ownership of installations and infrastructure within ports, including channels and basins, whether constructed before or after section 11 comes into operation. Section 11 stipulates that “ownership of coastal public property vests in the citizens of the Republic and coastal public property must be held in trust by the State on behalf of the citizens of the Republic”.

On 8 May 2015 the Minister of Environmental Affairs exempted Transnet from the application of section 11, read with section 6(4), of the ICM Act to the extent it applies to port infrastructure. The exemption is subject to certain specified conditions and is valid from the date of commencement of section 11 of the ICM Act.

Port of Ngqura Container Licence

On 9 November 2011, the Cabinet directed National Ports Authority to licence Transnet Port Terminals (Port Terminals) to operate the Port of Ngqura for a limited period of three years. This is subject to National Ports Authority beginning a competitive process for the licensing of the Port of Ngqura in accordance with Section 56 of the National Ports Act, 2005 (Act No. 12 of 2005) (the Ports Act). The three-year period commenced upon the receipt of the instruction from the Minister of Transport to National Ports Authority dated 27 January 2012.

On 12 September 2012, Port Terminals presented its proposal to the Policy and Regulation Committee and was requested to further evaluate the risks and strengthen their proposal prior to submission to the Transnet Exco for approval. On 3 October 2012, the Minister of Transport informed the Minister of Public Enterprises of the amendment to the Directive dated 27 January 2012 to permit National Ports Authority to issue four (berths) licences instead of the two (berths) as was directed in the previous Directive.

This Directive in terms of Section 79 of the Ports Act allowed National Ports Authority to issue a licence to Port Terminals to operate the four berths at the container terminal at the Port of Ngqura for a period of three years,



which National Ports Authority did. National Ports Authority then embarked on a section 56 process as per the Directive from the Minister of Transport.

A subsequent Directive was received from the Minister of Transport to suspend the section 56 process for Ngqura Container Terminal, and National Ports Authority complied immediately. A letter was sent to the Minister of Transport requesting clarity on the way forward. The Minister of Transport responded requesting copies of all relevant documentation, which copies were provided by National Ports Authority. A response from the Minister of Transport is awaited.

Freight Rail

The DoT Draft Green Paper on Rail Reform was issued to various stakeholders in April 2012 for comment. Transnet, supported by the DPE, presented its position to DoT and engagements are ongoing to ensure alignment before the Draft Green Paper is submitted to Cabinet.

DPE hosted numerous workshops with DoT and Transnet Freight Rail (Freight Rail) for information sharing and alignment. During these meetings, DoT acknowledged the value of the MDS and that the proposed rail policy should not undermine the MDS’s objectives, rather, that it should support or enhance the MDS, the rail policy needs to be explicit about short, medium and long-term interventions over a period of 30 to 40 years. DoT also acknowledged that the policy does not provide sufficient details, and is not explicit in other areas and that more analysis needs to be done in consultation with DPE/Freight Rail/National Treasury.

Following the meeting held on the 23 October 2014 between the Minsters of Transport and Public Enterprises, on 10 November 2014, Transnet’s chairperson sent a letter to the Minister of Public Enterprises providing further comments on the National Rail Policy and the Draft Bill on the Single Transport Economic Regulator.

On 10 March 2015, DPE provided Freight Rail with an update on the following:(1) The Interim Rail Economic Regulator (IRER) Memorandum of Understanding has been signed by the

Ministers of Transport and Public Enterprises; and(2) The Situational Analysis Document on Transport Economic Regulation Bill is currently being reviewed by

DoT and DPE.

Judicial proceedingsThe annual financial statements include a best estimate of expected settlement costs for judicial proceedings entered into by Transnet, as either defendant or plaintiff, where the outcome can be assessed with reasonable certainty. These estimates take into account the legal opinions obtained for the Group. The contingent liabilities of the Group have been disclosed in note 31 to the annual financial statements.

Transnet Pensioner’s Class Action

In the 2014 financial year, Transnet received a Notice of Motion in terms of which two Transnet pensioners applied to the North Gauteng High Court to institute a class action against seven respondents, including Transnet. The applicants sought to institute action for the injection of monies into the Transnet Second defined Benefit Fund and the Transport Pension Fund: Transnet Sub-fund.

On 17 December 2014 the Supreme Court of Appeals issued an order dismissing Transnet’s (and the Pension Funds’) petition for special leave to appeal the certification of the class action, on the grounds that there are no prospects of success on appeal. Transnet took a decision not to appeal the certification any further, but to defend the action on the merits once instituted. The action has not been instituted yet.

Transnet remains confident, based on legal advice, that it will be able to successfully defend the class action.

Going concernThe successful execution of the MDS is critical to Transnet as it forms the basis of future growth for the Group and the South African economy. Consequently the successful execution of the funding strategy and the ability of the Group to meet its commitments to investors are of paramount importance.

Given the dynamic management reporting approach to achieve the agreed financial metrics and improve profitability based on operating and financial indicators, the Board of Directors are confident that the Group will be a going concern for the foreseeable future.

The Board of Directors, having considered all significant variables that may impact the Group’s cash flow requirements, are of the opinion that adequate funding is available. This, together with the fact that the underlying net worth of the Group has increased and is projected to continue to increase over the MDS period, supports the going-concern assumption as appropriate in the preparation of the Group results for the year ended 31 March 2015.

Remuneration Introduction

The remuneration report provides an overview of the Transnet remuneration philosophy and strategic intent and details of specific reward interventions that occurred during the 2015 reporting year for independent non-executive directors, members of the Group and operating divisional executive committees, managers and bargaining unit employees.

Terminology

For the purposes of this report:• The term executives refers to members of the Transnet Group Executive Committee and the operating

divisional executive committees (grade levels A and B),• Management refers to the rest of the management employees (grade levels C to F),• Bargaining unit employees refers to all employees whose conditions of employees are negotiated. This term

includes first line managers, specialists and technicians (grade level G refers to first line manager, specialist and technician and grade levels H to L to the rest of the bargaining unit employees), and

• Junior employees refer to bargaining unit employees on the grade levels below the first line managers, specialists and technicians.

Remuneration philosophy and strategy

Transnet is entering the fourth year of the MDS which entails the achievement of rigorous financial and operational performance objectives over a period of seven years. The successful execution of the MDS, not only serves the interest of Transnet, but will hugely impact the South African economy.

The Human Resources strategy, inclusive of the reward strategy, is designed to facilitate the achievement of the strategic objectives of the MDS. The Transnet remuneration philosophy and framework form an integrated part of the key deliverables of the human resources strategy and therefore the reward strategies remain focused on entrenching a performance driven culture.

The objective of the Transnet reward philosophy is to provide a framework for a fair and transparent reward dispensation that:• Supports the objectives of the business strategy;• Ensures the long-term sustainability of the business;



• Ensures that all employees are paid a fair and competitive salary;• Aims to attract and retain valued employees; and• Ensures that employees are rewarded and recognised for high performance.

The remuneration philosophy for Transnet takes into account the different hierarchical levels informed by complexity, decision making and judgment.

Transnet has clustered these hierarchical levels into three respective categories of employees, summarised as follows:• Executive and management levels;• First line managers, specialists and technicians (grade level G) form part of the bargaining unit; and• Junior employees (grade levels H to L) form part of the bargaining unit.

The objective of the Transnet remuneration strategy is to:• Provide an integrated approach for remuneration management across Transnet that effectively attracts,

motivates, engages and retains the talent required to achieve Transnet’s business objectives;• Align remuneration practices with Transnet’s business strategy thereby ensuring that the remuneration

practices support the business objectives.• Inform remuneration decisions that will be made across Transnet to ensure:

– Remuneration related cost is contained; – Performance is recognised and rewarded; – Performance improvement is incentivised; – Changing business requirements can be accommodated; – Optimal return on expenditure is achieved; – Legal, ethical and best practice standards are adhered to; – The business remains sustainable over the long term; – Compliance with corporate governance and citizenship; and – Compliance with employment and taxation legislation.

The different reward elements are discussed in detail in the paragraphs below:

Guaranteed pay

Transnet remains committed to fair remuneration practices that support the business objectives and create a culture and environment for superior performance and facilitate employee development and retention of critical and key skills.

In general, Transnet strives to align guaranteed remuneration with the market median. The determination of individual remuneration levels is, however, strictly controlled across the business and subject to directives in this regard and also informed by the various collective agreements.

Annual salary increases are informed by an approved mandate obtained from the Remuneration, Social and Ethics Committee of the Board.

Annual increases for management levels are impacted by individual performance scores.

Increases for bargaining unit employees are determined by the outcome of the annual wage negotiation process. The 2015 financial year was the second and last year of the two year wage agreement that Transnet concluded with the recognised unions. Transnet will, in the 2016 financial year, engage labour to again negotiate

a multi-year wage agreement to ensure stability in employee relations and a reduced risk of industrial action.

Transnet does not support interim/ad-hoc salary increases.

It is compulsory for all permanent employees to join the Transnet Retirement Fund, which provides for retirement funding, risk cover and a death benefit.

Bargaining unit employees, who opt to become a principal member of one of the Transnet recognised medical schemes, are eligible to receive a medical subsidy.

Variable pay

Transnet has implemented a short- and a long-term incentive scheme.

The short-term incentive scheme is applicable to all employees and is governed by detailed ground rules, annually approved by the Remuneration, Social and Ethics Committee of the Board. The long-term incentive scheme is applicable to executive and selected senior managers.

The objective of the incentive schemes is to encourage stretch performance and reward performance above target. Individual strategic objectives of management employees are derived from and aligned with key performance indicators as stated in the Shareholder’s Compact.

The detail of the short- and long-term incentive schemes are described in more detail below:

Short-term incentive scheme

The design of the short-term incentive scheme aims to drive the achievement of stretch business targets and to reward employees for this effort.

The bonus pool, funding the payment of the annual short-term incentive, is generated by the achievement of the Transnet “earnings before interest, taxation, depreciation and amortisation” (EBITDA) target. The pool is modified by a productivity measure relating to the key performance indicators as per the Shareholder’s Compact as well as the safety achievement. The non-achievement of productivity and safety targets can reduce the bonus pool with up to 50%.

Employees on management levels qualify for an annual short-term incentive payment provided that the business objectives have been achieved. Eligibility percentages are differentiated based on the grade level of the manager. Management has a higher component of at-risk pay (variable pay) which is dependent on the achievement of set business objectives. Individual bonus percentages are further modified with individual performance assessment ratings.

In addition to the annual component of the short-term incentive scheme, a gain share incentive scheme was implemented for bargaining unit employees. The objective of the gain share is to enhance line of sight between targets and actual performance as well as to ensure internal parity. This provided that the majority of bargaining unit employees could potentially earn:• An annual on-target bonus component, aimed at achieving performance targets with an on-target eligibility

of 10% for junior employees and 12% for first line managers, specialists and technicians; plus• A quarterly gain-share bonus component, which becomes accessible by exceeding the quarterly EBITDA and

relevant secondary measure targets. Employees have the opportunity to gain up to a maximum of 16% per annum when super stretch business targets are exceeded (120% of EBITDA).

The combined annual and gain share components of the short-term incentive scheme allows bargaining unit employees to earn up to a maximum of 26% of annual pensionable salary for junior employees and 28% of annual cost to company package for first line managers, specialists and technicians.



Long-term incentive scheme

Transnet has implemented a long-term incentive scheme. The objectives of the long-term incentive are to sustain the achievement of the Transnet strategy, to retain key talent who ensure the success of the growth strategy, to encourage stretch performance and reward performance above target.

The long-term incentive is designed on a three year rolling basis to ensure sustained business performance and retention over the three year banking period. Participation in the scheme is informed by level of seniority in the organisation, individual performance as well as results from the talent management framework which informs key talent who may participate in the long-term incentive scheme. Individual performance and talent ratings also impact on the vesting of the conditional award.

The long-term incentive scheme has specific clauses dealing with company performance over the banking period and to this effect a Group modifier has been introduced. Return on total average assets (ROTA) (excluding capital work in progress) is used as the Group LTI modifier.

Individual performance management

Transnet has implemented the balanced scorecard performance management methodology for the management category as well as for first line managers, specialists and technicians.

The annual company objectives as per the Shareholder’s Compact are translated into a corporate scorecard and then cascaded to all managers across Transnet. Performance in terms of the corporate as well as individual scorecards forms the basis for the determination of short-term incentive payments and annual increases.

Reward interventions during 2015

Integrated and standardised reward model for bargaining unit employees

Transnet has, since 2007, embarked with the design and implementation of an integrated and standardised reward model for all Transnet bargaining unit employees.

To date, Transnet has implemented four different reward agreements, each addressing a specific category of employees, summarised as follows:• The train movement agreement, implemented in October 2007;• The first line managers, specialists and technicians agreement, implemented in March 2008 and amended in

March 2013;• The artisan agreement, implemented in April 2008; and• The new reward agreement for the rest of the bargaining unit employees, not covered by the other three

reward agreements, implemented in March 2012.

The new reward agreement introduced, standardised grades for jobs/positions in the bargaining unit across Transnet as well as entry level pay points per grade level for permanent bargaining unit employees (except for Port Terminals and National Ports Authority). No agreement was, however, reached on pay scales, i.e. a maximum pay point per grade level was not agreed and thus there was also no agreement on the pay progression methodology to be followed in order to reach the maximum.

During the year, negotiations have progressed to the point where the labour representatives have circulated the draft agreement to their constituents for mandating. The draft agreement includes the maximum pay scales per grade level and performance management as a method for pay progression.

Career advancement for management

As a result of specific challenges experienced with the reward of the management cadre, Transnet is embarking on a reward solution for the management category.

The proposed solution is summarised as follows:• The implementation of a career path framework, differentiating between specialist, managerial and technical

categories of employment;• The introduction of an integrated competency and performance framework to provide for monetary

recognition based on individual growth, development and performance within a job; and• The introduction of specific measures to provide for increased flexibility in the reward approach, that will

continue to ensure sufficient control over the wage cost.

Collective agreement in respect of fixed-term contract employees

The Labour Relations Act (LRA) amendments have introduced fundamental changes to the future way of employing fixed-term contract employees, part-time employees and labour broker employees. The amendments aim to prevent abuse and discrimination of lower earning fixed-term contract employees and part-time employment contracts.

In terms of the amendments to the LRA, those employees earning below the BCEA earnings threshold of R205 433 per annum can only be engaged on a fixed-term contract or successive fixed-term contracts subject to specific employment conditions.

An employer who does not comply with the amendments, runs the risk that the employment of the fixed-term contract employee may be deemed to be of an indefinite basis, in which the event the provision of section 198B(8) may apply. This section provides that if a fixed-term contract is longer than three months, the employee must not be treated “less favourably” than an employee employed on a permanent basis, performing similar work, unless there is a “justifiable reason” for different treatment.

Transnet’s employment realities place the organisation at considerable risk in terms of compliance with the amendments and changes to the LRA. The LRA amendments, however, provided Transnet with an opportunity to conclude a collective agreement and section 198B (2) (c) provides that the provisions described above only apply to the extent that they are not varied in a collective agreement.

Transnet has concluded a collective agreement with labour during December 2014 on the terms and conditions of fixed-term contract employees across Transnet. The collective agreement varies the terms of the LRA amendments.

The signed collective agreement mitigates the impact of the law coming into effect and the cost impact associated with the amendments.

The terms of the collective agreement were implemented with effect from 1 January 2015.



Remuneration for Group Executive Committee members

The guaranteed remuneration of the members of the Transnet Group Executive Committee was adjusted with an average of 6%, allocated based on individual performance rating and market comparison, effective 1 April 2014.

The table below depicts the guaranteed pay of the Group Executive Committee for the 2015 financial year.

Guaranteed pay of Transnet Group Executives

Post-retirement

benefit fund Other Other Total TotalExecutive Committee Salary contributions contributions payments 2015 2014member R000 R000 R000 R000 R000 R000

B Molefe* 6 115 561 – 2 6 678 6 421S Gama 4 632 330 – 97 5 059 4 800M Gregg-Macdonald 2 889 281 – 2 3 172 3 108CA Möller** 1 319 104 – 341 1 764 3 255T Morwe1 3 571 255 6 164 3 996 3 722KC Phihlela 3 328 223 – 84 3 635 3 529A Singh* 4 005 389 – 2 4 396 4 322KXT Socikwa 3 721 340 – 174 4 235 3 995R Vallihu 3 656 289 – 169 4 114 3 880EAN Sishi 2 818 274 – 133 3 225 2 953DC Moephuli 2 715 288 – 2 3 005 2 835S Chetty 2 185 183 – 2 2 370 2 205NJ Mabandla*** 788 77 – 518 1 383 2 520RE Lepule 2 818 274 – 2 3 094 2 919MA Sukati 2 687 226 – 2 2 915 2 062MA Matooane (Dr) 2 363 251 – 30 2 644 523LMH Msagala**** 1 551 151 – 107 1 809 –ZE Lebelo**** 1 441 110 – 107 1 658 –N Silinga**** 1 431 120 – 68 1 619 –

54 033 4726 6 2 006 60 771 53 049

* Group Executives who are members of the Board of Directors.** Retired during the year.*** Resigned during the year.**** Appointed during the year.(Dr) Doctor.1 Retired post year end.

Executive remuneration – variable

The members of the Transnet Group Executive Committee qualify for an annual short-term incentive payment provided that the strategic objectives, as agreed with the Shareholder Representative, have been achieved. Individual bonus percentages are further modified with individual performance assessment ratings.

The eligibility percentages linked to specific business performance achievement is indicated in the table below:

Employment category Grade level

Qualifying percentage

Threshold On-target Maximum

Group Executive Committee A 25% 50% 100%

Extended Executive Committee B 20% 40% 80%

Short- and long-term incentive payments

The short-term incentive payment for the 2015 financial year was based on the actual achievement of the annual EBITDA as well as the productivity and safety modifiers at Group and Operating division levels, which resulted in a reduction modifier of 40% being applied.

The highlights of the business results for the financial year are summarised as follows:• Revenue increased by 8,0% to R61,2 billion;• EBITDA increase by 8,2% to R25,6 billion;• Operating profit increase of 13,4% to R14,6 billion;• Capital investment for the year of R33,6 billion constituting an increase of 5,7% on the prior year;• Cash generated from operations increased by 13,5% to R27,3 billion; and • Gearing at 40,0% and cash interest cover at 3,6 times.

The 2012 conditional award in respect of the Transnet long-term incentive scheme vested at the end of the 2015 financial year. The value of the long-term incentive payment is impacted by the level of achievement of specific company and individual performance objectives.

The members of the Transnet Group Executive Committee were eligible for payment in respect of the long-term incentive scheme based on the ground rules of the scheme.

The payment of these vested amounts took place at the end of April 2015.



The table below reflects the short- and long-term incentive payments for the Group Executives.

LTI LTI STI STI2015 2014 2015 2014

Transnet executive R000 R000 R000 R000

B Molefe* 6 835 – 1 551 2 952S Gama 5 194 2 653 1 153 2 259M Gregg-Macdonald 3 103 2 115 745 1 447CA Möller** 2 953 2 036 309 1 001T Morwe1 3 769 1 964 901 1 297KC Phihlela 3 410 2 381 835 1 645A Singh* 4 505 2 857 1 021 1 989KXT Socikwa 4 158 2 716 976 1 880R Vallihu 4 040 2 199 874 1 781DC Moephuli 2 141 1 199 636 1 336S Chetty 1 567 893 735 1 045NJ Mabandla*** – – – 1 111RE Lepule – – 710 1 361EAN Sishi – – 702 1 353MA Sukati – – 708 1 013MA Matooane (Dr) – – 572 307LMH Msagala**** 1 709 – 644 –ZE Lebelo**** – – 567 –N Silinga**** 636 – 581 –

44 020 21 013 14 220 23 777

* Group Executives who are members of the Board of Directors.** Retired during the year.*** Resigned during the year.**** Appointed during the year.(Dr) Doctor.1 Retired post year end.

Remuneration structure for independent non-executive directors

Independent non-executive directors are appointed by the Shareholder Representative for a three-year term. The Memorandum of Incorporation of the company, however, require that the independent non-executive directors be submitted for re-election for each of the three years at the Company’s annual general meeting.

Among the issues considered by the Shareholder Representative prior to re-election is the individual independent non-executive director’s performance. The new Transnet Board was appointed during December 2014.

The Shareholder Representative approves, in advance, the fees payable to independent non-executive directors. The independent non-executive directors are paid an annual retainer as well as an additional retainer fee for committee membership.

Fees paid to independent non-executive directors are differentiated based on their appointments to the various committees of the Board.

The table below depicts the actual remuneration for the Transnet independent non-executive directors for the financial year.

Other Total TotalFees payments 2015 2014

Independent non-executive directors R 000 R 000 R 000 R 000

LC Mabaso (Chairperson)1 337 1 338 –ME Mkwanazi (Chairperson)2 760 1 761 1 050NR Njeke3 274 – 274 630Y Forbes 691 – 691 653MA Fanucchi2 370 – 370 472NK Choubey4 – – – 98HD Gazendam2 702 – 702 634IB Skosana* 2 432 – 432 551N Moola 493 – 493 472IM Sharma2 434 – 434 551ZE Tshabalala2 456 – 456 574DLJ Tshepe2 493 – 493 630NP Mnxasana2 370 – 370 472PEB Mathekga1 123 – 123 –GJ Mahlalela1 123 – 123 –ZA Nagdee1 123 – 123 –VM Nkonyane1 144 – 144 –MR Seleke1 144 – 144 –SD Shane1 144 – 144 –BG Stagman1 144 – 144 –PG Williams1 123 – 123 –

6 880 2 6 882 6 787

* Director’s fees paid to Kapela Investment Holdings Proprietary Limited.1 Appointed during the year.2 Retired during the year.3 Resigned during the year.4 Resigned during the prior year.

Remuneration, Social and Ethics Committee of the BoardConsistent with the King III report and regulation 43 of the new Companies Act, the Board has established the Remuneration, Social and Ethics Committee to assist in discharging its responsibilities. The mandate outlining the authority delegated to it by the Board includes the purpose of the Remuneration, Social and Ethics Committee, composition, reporting responsibilities, terms of reference and the right of any member to seek and be provided with independent advice at the Company’s expense if such member considers that necessary for the effective execution of his/her fiduciary duties to the Company.

The Committee has an independent role, operating as an overseer and a maker of recommendations to the Board for its consideration and final approval. The Committee does not assume the functions of management, which remain the responsibility of the executive directors, officers and other members of senior management.



Transnet SOC Ltd (the Company) is a company domiciled in South Africa.

The consolidated financial statements for the year ended 31 March 2015 comprise the Company and its subsidiaries (together referred to as the “Group”) and the Group’s interest in associates and joint ventures.

The consolidated financial statements were authorised for issue by the Board of Directors on 1 June 2015.

Statement of complianceThe consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB), interpretations of those standards issued by the International Financial Reporting Interpretations Committee (IFRIC) and applicable legislation.

Critical judgements and estimatesThe preparation of financial statements in accordance with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of equity, assets and liabilities, revenue and expenses.

The estimates and underlying assumptions are based on historical experience, independent experts’ advice and inputs and various other factors that are considered to be reasonable under the circumstances. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

Judgements and estimates made by management in the application of IFRS that have a significant effect on the financial statements are discussed in the relevant accounting policies below and the accompanying notes to the annual financial statements:

Summary of significant accounting policiesBasis of preparation

The consolidated financial statements of the Group (financial statements) are presented in South African Rand, rounded to the nearest million. The financial statements are prepared on the historical cost basis, except for the following assets and liabilities that are stated at fair value: unlisted investments, derivative financial instruments, financial instruments held at fair value through profit or loss, financial instruments classified as available-for-sale and investment properties. Certain classes of property, plant and equipment are carried at revalued amounts.

The financial statements are prepared on the going concern basis.

Except as otherwise disclosed, these accounting policies are consistent with those applied in previous years and are consistently applied throughout the Group.

Basis of consolidationSubsidiaries

Subsidiaries (including consolidated structured entities) are investee entities controlled by the Group. Control exists when the Group (a) has power over the investee, (b) is exposed, or has rights, to variable returns from its involvement with the investee, and (c) has the ability to use its power to affect its returns. The Group has power over an investee when it has existing substantive rights that give it the current ability to direct the relevant activities that significantly affect the returns of the investee. The consolidated financial statements include the results of the Company and its subsidiaries, from the effective dates of acquisition to the effective dates of disposal.

Business combinations

The acquisition method of accounting in accordance with IFRS 3 Business Combinations is applied in accounting for the acquisition of subsidiaries. The cost of an acquisition is measured as the sum of:• the fair value of the assets given up,• the fair value of equity instruments issued and liabilities incurred or assumed at the acquisition date,• for business combinations achieved in stages, the acquisition date fair value of the previously held interest in

the acquiree, and• the amount of any non-controlling interest in the acquiree.

Acquisition related costs such as advisory, legal and accounting fees are recognised in profit or loss in the period in which they are incurred and the services received.

Identifiable assets acquired, liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. Non-current assets acquired in a business combination that are classified as held-for-sale are measured in accordance with IFRS 5 Non-current Assets Held-for-Sale and Discontinued Operations at fair value less costs to sell. The excess of the cost of acquisition over the fair value of the Group’s share in the net identifiable assets acquired and liabilities assumed is recognised as Goodwill and accounted for in terms of the accounting policy on Intangible Assets and Goodwill. If the cost of acquisition is less than the fair value of the net assets acquired, the difference is recognised directly in profit or loss as a gain from a bargain purchase. The interest of the non-controlling shareholders is stated at their proportion of the fair value of the assets, liabilities and contingent liabilities recognised.

When the Group acquires a business, it assesses the identifiable assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date.

If the business combination is achieved in stages, the acquisition date fair value of the Group’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss.

Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability will be recognised in accordance with IAS 39 Financial Instruments: Recognition and Measurement either in profit or loss or as a change to other comprehensive income. If the contingent consideration is classified as equity, it is not remeasured until it is finally settled within equity.

Losses incurred by a subsidiary are attributed to the non-controlling interest even if that results in a deficit balance.

Where there is a change in the interest in a subsidiary that does not result in a loss of control, the difference between the fair value of the consideration transferred or received and the amount by which the non-controlling interest is adjusted is recognised as an equity transaction directly in the statement of changes in equity.

Where there is a change in the interest in a subsidiary that results in loss of control, the Group:• derecognises the assets (including goodwill) and liabilities of the subsidiary,• derecognises the carrying amount of any non-controlling interest,• reclassifies any cumulative exchange differences previously recognised in equity to profit or loss,• recognises the fair value of the consideration received,• recognises the fair value of any investment interest retained,• recognises any surplus or deficit in profit or loss, and• reclassifies the Group’s share of components previously recognised in other comprehensive income to profit

or loss or retained earnings, as appropriate.

Inter-company transactions, balances and unrealised gains on transactions between Group entities are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence that the asset transferred is impaired. All intra-group transactions, balances, income and expenses are eliminated in full on consolidation.


ACCOUNTING POLICIESfor the year ended 31 March 2015

Accounting policies of subsidiaries are changed where necessary to ensure consistency with the policies of the Group.

Investments in subsidiaries are carried at cost less any accumulated impairment losses in the Company financial statements.

Equity accounted investments

Equity accounted investments comprise of the Group’s interest in associates and joint ventures. The Group applies the equity method to these investments and carries them at cost, including goodwill, plus the Group’s share of post-acquisition reserves less any accumulated impairment losses.

Equity accounted income represents the Group’s proportionate share of the post-acquisition profits of the investee and the taxation thereon, net of the Group’s proportionate share of inter-group profits. Losses incurred by associates or joint ventures (including impairment losses) are recognised in the consolidated financial statements until the investment is written down to a nominal value. Thereafter, losses are accounted for only to the extent that the Group is committed to providing financial support to the investee. The carrying amount the investments is reduced to recognise any decline in value.

Any excess of the cost of acquisition over the fair value of the Group’s interest in the joint venture or associate’s net assets is recognised as Goodwill and is included in the carrying value of the investment. If the cost of acquisition is less than the fair value of the net assets acquired, the difference is recognised immediately in profit or loss.

Where the Group transacts with a joint venture or associate of the Group, any unrealised profits and losses are eliminated to the extent of the Group’s interest in the joint venture or associate, except to the extent that the unrealised losses provide evidence that the asset transferred is impaired.

Investments in associates

Associates are entities over which the Group exercises significant influence, but not control or joint control of the financial and operating policies of the entity. Significant influence is presumed in instances where the Group has an equity stake greater than 20% but less than 50% in an entity.

Investments in associates are equity accounted in the consolidated financial statements for the period in which the Group exercises significant influence, except when the investment is classified as held-for-sale, in which case it is accounted for in accordance with IFRS 5 Non-current Assets Held-for-Sale and Discontinued Operations.

Long-term loans to associates, which are part of the long-term investment, are treated as a part of the investment in the associates.

Investments in joint ventures

A joint venture is a contractual arrangement whereby the Group and another party(s) undertake an economic activity that is subject to joint control (i.e. where decisions about the relevant activities require the unanimous consent of the parties sharing control) and the parties to the joint venture have rights to the net assets of the arrangement.

The Group reports its interest in a joint venture using the equity method except when the investment is classified as held-for-sale, in which case it is accounted for in accordance with IFRS 5 Non-current Assets Held-for-Sale and Discontinued Operations.

Separate financial statements

In the Company’s separate financial statements, investments in subsidiaries, joint ventures and associates are carried at cost less any accumulated impairment losses.

RevenueRevenue is recognised at the fair value of the consideration received or receivable from the sale of goods and services in the ordinary course of the Group’s activities. Revenue is shown net of value-added-tax, returns, rebates and discounts and after eliminating inter-group transactions.

The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the Group and when specific criteria have been met for each of the Group’s activities as described below. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specific circumstances of each arrangement.

Where extended payment terms are granted by the Group, whether explicitly or implicitly, the effect of the time value of money is taken into account in the measurement of revenue irrespective of other factors such as the cash selling prices of the goods or services.

Rail transportation services

Revenue from rail freight and related services is recognised in profit or loss when the service is rendered by reference to the stage of completion of transactions as freight moves from the point of origin to destination.

Engineering contracts revenue

Revenue arising from engineering contracts, including maintenance services is recognised when the outcome of the contract can be measured reliably by reference to the stage of completion of the contractual activity. Contract revenue includes the initial amount agreed in the contract plus any variations in contract work, claims and incentive payments receivable less penalties incurred to the extent that it is probable that they will result in revenue and can be measured reliably.

The stage of completion is assessed by reference to surveys of work performed. When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised only to the extent of contract costs incurred in the period that are likely to be recoverable. An expected loss on a contract is recognised immediately in profit or loss.

Ports revenue

Port infrastructure and related services

Ports revenue comprise port dues, light dues, vessel traffic services, berthing services, towage and pilotage and similar services related to the provision of port infrastructure and facilities to clients. The revenue is recognised in the period in which the service is rendered in accordance with the tariff schedule.

Port operations

Port operating revenue comprises freight handling, storage and other services related to the handling and processing of cargo through port terminals. The revenue is recognised when the service is rendered.

Pipeline revenue

Revenue from the transportation of petroleum and gas products is recognised at the point of delivery in the period the service is rendered based on the contractual terms and the related volumes transported. Revenue from the storage and handling of petroleum products is recognised when services are rendered.

Revenue clawback adjustment

Two of the Group’s operating divisions, namely Transnet National Ports Authority and Transnet Pipelines are regulated entities subject to the authority of the Ports Regulator of South Africa and National Energy Regulator of South Africa respectively. Both regulators apply the required revenue approach and the claw back mechanism



in setting future revenues and tariffs. The timing of recognition of certain revenues in these rate-regulated operations reflects the economic impact of the regulators’ decisions regarding future revenues and tariffs arising from the application of the claw back mechanism.

The Group adjusts its revenue from ports infrastructure and related services and pipelines to reflect the under or over-recovery of revenue in the current period that is expected to be recovered or clawed back by the regulators in setting tariffs for future periods. The Group recognises an asset or a liability for the difference between the revenue accrued and the allowed revenue set by the regulator in the current and prior periods, less allowable expenses incurred in generating revenue. The asset or liability is subsequently released as an adjustment to revenue in the periods in which the regulator claws back the amounts through tariff adjustments. The adjustment to revenue is not discounted.

The net effect of over and under-recovery is disclosed as other liabilities in the statement of financial position.

Rental income

Revenue arising from the rental of property is recognised in profit or loss on a straight-line basis over the term of the lease in accordance with the substance of the relevant agreements. Lease incentives granted are recognised as an integral part of the total rental income.

Dividend income

Dividend income is recognised in profit or loss on the date the Group’s right to receive payments is established, which in the case of quoted securities is usually the ex-dividend date.

Government grants

Government grants are recognised at fair value when there is reasonable assurance that the grant will be received and all relevant conditions will be complied with.

Where the grant relates to an expense item, it is recognised as income over the periods necessary to match the grant on a systematic basis to the costs that it is intended to compensate.

Where the grant relates to an asset, the fair value is credited to a deferred income account and is released to profit or loss over the expected useful life of the relevant asset on a straight-line basis.

Transactions giving rise to adjustments to revenue/purchases

The Group accounts for cash discounts and rebates received (given) as follows:• In the case of the Group as a seller, cash discounts and rebates given are estimated upfront and deducted

from the amount of revenue recognised; and• In the case of the Group as a purchaser, cash discounts and rebates received are estimated upfront and

deducted from the cost of inventories purchased.

Finance incomeFinance income is accrued on a time basis, by reference to the principal outstanding and the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to the asset’s net carrying amount.

Finance costsFinance costs comprise interest payable on borrowings calculated using the effective interest rate method, dividends on redeemable preference shares, amortisation of discounts on bonds and foreign exchange gains or losses, less amounts capitalised to qualifying assets.

Capitalised borrowing costs

The Group capitalises borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset, as part of the cost of that asset, until such time that the asset is substantially ready for its intended use. The Group identifies a qualifying asset as one that necessarily takes six months or more to get ready for its intended use.

To the extent that funds are borrowed specifically for the purpose of obtaining a qualifying asset, the Group capitalises the actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of the borrowed funds.

To the extent that a qualifying asset is funded via general borrowings, the Group determines borrowing costs eligible for capitalisation by applying the weighted average cost of borrowings for the period, other than borrowings made specifically for the purpose of obtaining qualifying assets, to the expenditures on that asset.

All other borrowing costs are recognised in profit or loss under finance costs in the period in which they are incurred.

Foreign currencyFunctional and presentation currencies

Items included in the financial statements of each of the Group entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The consolidated financial statements are prepared in South African Rand, which is the Company and Group’s functional and presentation currency.

Foreign currency transactions

Transactions in currencies other than the Group’s functional currency are defined as foreign currency transactions. Transactions in foreign currencies are translated into the functional currency at exchange rates ruling on transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the rate of exchange ruling at the reporting date.

Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated at the exchange rates ruling at the original transaction date. Non-monetary assets and liabilities that are carried at fair value denominated in the foreign currency are translated into the functional currency at the exchange rate ruling when the fair value was determined.

Exchange differences are recognised in profit or loss in the period in which they arise except for:• exchange differences which relate to assets under construction for future productive use, which are included

in the cost of those assets when they are regarded as an adjustment to interest costs on foreign currency borrowings,

• exchange differences on transactions entered into in order to hedge certain foreign currency risks (see below under “Derivative instruments and hedge accounting”), and

• exchange differences on monetary items receivable from or payable to a foreign operating entity for which settlement is neither planned nor likely to occur, which form part of the net investment in the foreign operation and are initially recognised in the foreign currency translation reserve and subsequently recognised in profit or loss on disposal of the net investment.

Financial statements of foreign entities

The financial statements of foreign entities are translated into South African Rand as follows:• Assets and liabilities, at rates of foreign exchange ruling at the reporting date.• Income and expenses at rates approximating the foreign exchange rates ruling at the dates of the

transactions or appropriate average rates.• Equity at historical rates.



Goodwill and fair value adjustments arising on acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the rates of foreign exchange ruling at the reporting date.

On consolidation, exchange differences arising from the translation of the net investment in foreign operations and of related hedges where hedge accounting is applied are recognised in other comprehensive income and presented as a separate component of equity.

On disposal, such translation differences are recognised in profit or loss as part of the gain or loss on disposal.

TaxationIncome taxation on profit or loss for the period comprises current and deferred taxation. Income taxation is recognised in the profit or loss except to the extent that it relates to items recognised in other comprehensive income or directly in equity.

The taxation effect of transactions with shareholders in their capacity as shareholders, including transactions with non-controlling interests, are recognised directly in equity and presented in the statement of comprehensive income.

Current taxation

The charge for current taxation is the amount of income taxes payable in respect of the taxable profit for the current period and any adjustment to taxation payable in respect of previous years. It is calculated using taxation rates that have been enacted or substantively enacted at the reporting date.

Deferred taxation

A deferred taxation liability is recognised for all taxable temporary differences and a deferred taxation asset is recognized for all deductible temporary differences. The following temporary differences are not provided for:• the initial recognition of goodwill;• the initial recognition of assets and liabilities (other than in a business combination), which affect neither

accounting nor taxable profit or loss; and• differences relating to investments in subsidiaries, associates and joint ventures to the extent that it is

probable they will not reverse in the foreseeable future.

The amount of deferred taxation provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities and is calculated using the taxation rates that have been enacted or substantively enacted at the reporting date. Deferred taxation is charged or credited in the profit or loss, except where it relates to items charged or credited to other comprehensive income or recognised directly in equity.

A deferred taxation asset is recognised to the extent that it is probable that future taxable profits will be available to be utilised against the associated unused taxation losses and deductible temporary differences. Deferred taxation assets are reduced to the extent that it is no longer probable that the related taxation benefit will be realised.

Deferred taxation liabilities are recognised for taxable temporary differences associated with investments in subsidiaries, associates and joint ventures, except where the Group is able to control the timing of the reversal of the temporary differences and it is probable that it will not reverse in the foreseeable future.

Deferred taxation assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Group has the legal right to and intends to settle its current taxation assets and liabilities on a net basis.

In terms of the measurement criteria set out in IAS 12 Income Taxes, the Group has assessed its intention at the reporting date on recovering an asset or liability to the extent that this intention influences the rate of taxation to be applied in calculating deferred taxation. In this regard, the Group has recognised deferred taxation as follows:

Land

As land is deemed to be realised through sale, there is no deferred tax effect on the difference between the tax base and the original cost of the land. Deferred taxation is calculated on the difference between the carrying amount and the capital gains taxation (CGT) base cost at the CGT rate.

Asset in respect of which no taxation allowances are granted

No deferred taxation is raised in the case where neither the accounting nor the taxation profit is affected. Where the asset is revalued, deferred taxation is calculated based on the Group’s intention. Where the intention is to sell the asset, deferred taxation is raised at the CGT rate on the difference between the CGT base cost and the revalued carrying amount. Where the intention is to use the asset, deferred taxation is raised at the usage rate on the difference between the taxation base and the revalued carrying amount.

Asset (other than land) carried at cost

Where an asset is carried under the cost model and a taxation allowance is available to be claimed against the asset, deferred taxation is calculated on the difference between the carrying amount and the taxation base at the usage rate.

Asset (other than land) carried at the revalued amount with the intention to use

As the future benefits are expected to flow from the use of the assets, deferred taxation is calculated at the usage rate on the difference between the taxation base and the revalued carrying amount.

Asset (other than land) carried at the revalued amount with the intention to sell

Where the intention is to recover the benefits of the asset through sale, deferred taxation is calculated at usage rate on the difference between the taxation base and the original cost, and at the CGT rate on the difference between the CGT base cost and the revalued carrying amount.

Asset (other than land) carried at the revalued amount with the intention to use and sell

Where the intention is to recover the benefits of the asset through both use and sale, deferred taxation is calculated to reflect this intention. Deferred taxation is calculated at the usage rate on the difference between the taxation base and the original cost, at the CGT rate on the difference between the CGT base cost and the future selling price (residual value), and at the usage rate on the difference between the future selling price and revalued carrying amount.

Investment property (other than land) carried at fair value

Deferred taxation on depreciable investment property (i.e. buildings) carried at fair value is calculated at the usage rate on the difference between the taxation base, where taxation allowances are available, and the original cost, and at the CGT rate on the difference between the CGT base cost and the fair value. Where the depreciable investment property is held within a business model whose objective is to consume substantially all of the asset’s economic benefits over the life of the asset, deferred taxation is calculated at the usage rate on the difference between the taxation base and fair value.

Dividends tax

Dividend tax is levied at a rate of 15% on dividends paid to a shareholder. The tax is levied on the date of a dividend payment, which is deemed to be the date on which the dividend accrues to the shareholder. Dividend Tax is withheld by the company paying the dividend. An exemption from dividend tax is provided for, inter alia, where the beneficial owner is the Government.



Property, plant and equipmentProperty, plant and equipment are stated at cost, or revalued amount, less accumulated depreciation where appropriate and any accumulated impairment losses.

Recognition and measurement

Cost includes expenditure that is directly attributable to the acquisition of the asset, borrowing costs capitalised to qualifying assets and adjustments in respect of hedge accounting where applicable.

Assets under construction are stated at cost less any accumulated impairment losses. The cost of self-constructed assets includes the cost of materials, direct labour, the initial estimate, where relevant, of the costs of dismantling and removing the items and restoring the site on which they are located, qualifying borrowing costs, any adjustments in respect of hedge accounting and an appropriate proportion of production overheads.

Where components of an item of property, plant and equipment have a cost that is significant in relation to the total cost of the item and have different useful lives, they are accounted for as separate components of property, plant and equipment and depreciated separately over their respective useful lives.

Spare parts, stand-by and servicing equipment held by the Group are classified as property, plant and equipment if they meet the definition in IAS 16 Property, Plant and Equipment. Otherwise, they are classified as inventory.

Assets carried under the revaluation model

Rail infrastructure, pipeline networks, port infrastructure and port operating assets are carried at revalued amounts. Formal revaluations are performed every three years by independent experts applying internationally acceptable and appropriately benchmarked valuation techniques such as the depreciated optimised replacement cost and modern equivalent asset methods. Appropriate indices are applied in the intervening periods to ensure that the assets are carried at fair value at the reporting date. The revaluation is limited to the lower of the fair value determined per the revaluation method and discounted future cash flows.

Revaluation surpluses that arise are recognised in other comprehensive income and are accumulated in the revaluation reserve in equity, except to the extent that they reverse a revaluation decrease for the same asset previously recognised in profit or loss, in which case the surplus is credited to the profit or loss to the extent of the decrease previously recognised. A decrease in the carrying amount arising on the revaluation of an asset is recognised as an impairment loss in profit or loss to the extent that it exceeds the balance, if any, held in the revaluation reserve relating to a previous revaluation of that asset. On the subsequent sale or retirement of a revalued asset, the attributable revaluation surplus included in the revaluation reserve is transferred to retained earnings.

Subsequent costs

The Group recognises in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item when that cost is incurred and it is probable that the future economic benefits embodied within the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other costs are recognised in the profit or loss as expenses when incurred.

Costs of major repairs and overhauls of those units are capitalised as separate components of the asset if the recognition criteria are met.

Depreciation

Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives (or the term of the lease, if shorter) of each component of an item of property, plant and equipment, including major spare parts and servicing equipment. Land and assets under construction are not depreciated. Major repairs and overhauls are depreciated over the remaining useful life of the related asset or to the date of the next major repair or overhaul,

whichever is shorter. Depreciation commences when the asset is available for use. Assets are depreciated over the following periods:

Asset class Years

Buildings and structures 10 – 50Buildings and structures components 5 – 25Permanent way and works 3 – 95Rail infrastructure 3 – 95Aircraft including components 8 – 15Pipelines including network components 6 – 75Port infrastructure 12 – 100Floating craft including components 5 – 40Port operating equipment including components 3 – 40Rolling stock 30 – 60Rolling stock components 25 – 60Containers 10 – 20Vehicles 3 – 15Machinery, equipment and furniture 3 – 50

The useful lives, depreciation methods and the residual values of assets are reviewed and adjusted annually, if appropriate. Changes resulting from this review are accounted for prospectively as a change in accounting estimate.

Items of property, plant and equipment are derecognised when they are either disposed of or when no further economic benefits are expected to flow from their use or disposal. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is calculated as the difference between the sales proceeds (if any) and the carrying amount of the asset and is recognised in profit or loss.

Investment propertiesInvestment properties are properties held to either earn rentals and/or for capital appreciation (including properties under construction for such purposes) and are initially measured at cost, including transaction costs. Subsequent to initial recognition, investment properties are carried at fair value. Gains and losses arising from changes in the fair value of investment properties are recognised in profit or loss in the period in which they arise. Rental income from investment properties is accounted for as described under the accounting policy on Revenue.

Where an item of property, plant and equipment is transferred to investment property following a change in its use, any difference arising at the date of transfer between the carrying amount of the item immediately prior to transfer and its fair value is treated as a revaluation and the accounting policy on revaluation of property, plant and equipment is applied.

If an investment property becomes owner-occupied, it is reclassified as property, plant and equipment and its fair value at the date of the reclassification becomes its deemed cost for subsequent accounting purposes.

Some properties comprise a portion that is held to earn rentals or for capital appreciation and another portion that is held for use in the production or supply of goods or services or for administrative purposes (owner occupied). If these portions could be sold separately or leased out separately under a finance lease, the Group accounts for the different portions separately as investment property or property, plant and equipment. If the portions are not separable, the entire property is only classified as investment property if an insignificant portion is owner occupied; otherwise the entire property is classified as property, plant and equipment.

The Group has areas where multiple buildings are on a single erf or multiple erfs defined as one area called a precinct. Certain buildings may be owner occupied and others rented to third parties or vacant. For classification purposes, a precinct, station or intermodal hub is assessed in its entirety and is classified as investment property if the relevant criteria are met.



Properties which were acquired for administrative purposes but are currently vacant or occupied by a third party tenant with a long term lease in excess of five years are classified as investment property even though there may be no plans to dispose of the assets. If the lease term is less than five years, the asset is not classified as investment property. If the criteria in IFRS 5 Non-current Assets Held-for-Sale and Discontinued Operations are met, the asset is classified as Non-current Assets Held-for-Sale.

The Group’s intention in respect of back of port properties is for the Group to hold these properties strategically for future development. Until the future strategic purpose of these properties is formalised through the relevant governance structures, they shall be held for capital appreciation.

For valuation purposes the external rentals within the precinct, station or intermodal hub as well as for back of port properties are used as the basis to determine the fair value of these properties using the normalised income method of valuation which entails the capitalisation of the normalised net annual income from the property.

Intangible assets and goodwillSoftware and licences

Software and licences are recognised and measured at cost less accumulated amortisation and any accumulated impairment losses.

Costs associated with researching or maintaining computer software programmes are recognised as an expense as incurred. Costs that are directly associated with the development of identifiable software products controlled by the Group that will probably generate economic benefits beyond one year and for which the costs can be measured reliably, are recognised as intangible assets. Direct costs include the software development employee costs and an appropriate portion of relevant overheads. Costs relating to the acquisition of licences are capitalised and amortised on a straight-line basis over the licence period when available for use.

Research and development

Research costs, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, are recognised in the profit or loss in the period in which they are incurred. Development costs, arising from the application of the research findings to a plan or design for the production of new or substantially improved products and processes are recognised as an intangible asset if, and only if the Group can demonstrate all of the following:• The technical feasibility of completing the intangible asset so that it will be available for use or sale;• Its intention to complete the intangible asset and use it or sell it;• Its ability to use or sell the intangible asset;• How the intangible asset will generate probable future economic benefits;• The availability of adequate technical, financial and other resources to complete the development and to use

or sell the intangible asset; and• Its ability to measure reliably the expenditure attributable to the intangible asset during its development.

The expenditure capitalised includes the cost of materials, direct labour and an appropriate portion of overheads.

Pre-feasibility and feasibility study expenses are classified and accounted for as either research or development costs in accordance with the above criteria.

Development costs previously recognised as an expense are not recognised as an asset in a subsequent period.

Subsequent expenditure

Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is recognised in profit or loss as incurred.

Amortisation

Intangible assets with an indefinite useful life and intangible assets not yet available for use are carried at cost less any accumulated impairment losses. These assets are not amortised but are tested for impairment at each reporting date.

Intangible assets with a finite useful life are carried at cost less accumulated amortisation and any accumulated impairment losses. Amortisation is recognised on a straight-line basis over their estimated useful lives. The estimated useful life and amortisation method are reviewed at the end of each annual reporting period, with the effect of any changes in the estimate being accounted for on a prospective basis. The estimated useful lives for the current and comparative periods are as follows:

Asset class Years

Software 5Licences term of the licence

Goodwill

Goodwill that arises on the acquisition of interests in subsidiaries, joint ventures and associates is initially measured at cost, being the excess of the cost of the acquisition over the net fair value of the Group’s share in the identifiable assets acquired and liabilities assumed.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill in respect of subsidiaries is tested for impairment annually as well as when there is an indication of impairment. For the purpose of impairment testing goodwill is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit from the business combination, irrespective of whether other assets or liabilities of the acquiree are allocated to those units (refer Impairment of non-financial assets). Any impairment losses recognised are not subsequently reversed.

Goodwill arising on acquisition of interests in joint ventures and associates is included within the carrying amount of the investment and is not tested separately for impairment on an annual basis (i.e. it is assessed for impairment as part of the investment in associate or joint venture when indicators of impairment exist). Goodwill arising on the acquisition of subsidiaries is presented separately in the statement of financial position.

Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.

Gain from a bargain purchase

A gain from a bargain purchase represents the excess of the net fair value of the Group’s share in the identifiable assets acquired and liabilities assumed over the cost of the acquisition.

The gain is recognised immediately in profit or loss, but only after a reassessment of whether all assets and liabilities of the acquiree have been identified and the fair values of all the assets acquired, liabilities assumed and the consideration given up.

Servitudes

Servitudes arising from a binding agreement that meet the definition of an intangible asset are recognised either as a separate intangible asset or as part of the related item of property, plant and equipment. Servitudes are recognised as part of property, plant and equipment where the tangible asset is considered to be the more significant element of the combined asset.



Impairment of non-financial assetsThe carrying amounts of the Group’s tangible and intangible assets, other than investment property, non-current assets held-for-sale, inventories and deferred taxation assets are reviewed at each reporting date to determine whether there is any indication of impairment. If such an indication exists, the recoverable amount of the individual asset is estimated to determine the extent of the impairment loss (if any). Where an asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash generating unit to which the asset belongs. The Group considers its five operating divisions or segments per the segmental report as separate cash generating units for the purposes of impairment testing.

Goodwill, intangible assets with an indefinite useful life and intangible assets not yet available for use are tested for impairment annually and whenever there is an indication that the asset may be impaired.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease to the extent of the balance in the revaluation reserve relating to that asset. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit (group of units) and then to reduce the carrying amount of the other assets in the cash-generating unit (group of units) on a pro-rata basis.

Calculation of recoverable amount

The recoverable amount of an asset is the higher of the asset’s fair value less costs to sell and its value-in-use. Fair value less costs to sell is determined by ascertaining the current market value of the asset and deducting any costs relating to the realisation of the asset. In assessing the value-in-use, the expected future cash flows from the asset are discounted to their net present values using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset (and the operating division to which that asset belongs) for which the future cash flows have not been adjusted. For an asset that does not generate independent cash flows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

Reversal of impairment

An impairment loss in respect of goodwill, whether recognised at an interim reporting date or at year end, is not reversed in subsequent periods.

In respect of other assets, a previously recognised impairment loss is reversed if the recoverable amount increases as a result of a change in the estimates previously used to determine the recoverable amount, to an amount not higher than the carrying amount that would have resulted, net of depreciation or amortisation had no impairment loss been recognised. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

Financial instrumentsRecognition

Financial assets and financial liabilities are recognised in the statement of financial position when the Group becomes party to the contractual provisions of the instruments. The Group applies trade date accounting for “regular way” purchases and sales of financial assets.

Classification

The Group classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables, available-for-sale and held-to-maturity. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are financial assets held for trading and financial assets specifically designated into this category on initial recognition.

A financial asset is classified as held for trading if it is acquired principally for the purpose of selling in the short-term, is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking or is a derivative (unless it is designated as a hedging instrument in an effective hedge or is a financial guarantee contract).

Financial assets or liabilities may be designated as at fair value through profit or loss on initial recognition when:• the designation eliminates or significantly reduces a measurement or recognition inconsistency that would

otherwise arise from measuring financial assets or liabilities, or recognising gains and losses on them on different bases, or

• a group of financial assets, financial liabilities or both are managed, and their performance evaluated, on a fair value basis in accordance with a documented risk management or investment strategy, and information about groups of financial instruments is reported to the Group’s key management personnel on that basis, or

• financial instruments contain one or more embedded derivatives that significantly modify the cash flows resulting from those financial instruments.

The fair value designation, once made, is irrevocable.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than those designated on initial recognition as “at fair value through profit or loss” or as “available for sale”. Loans and receivables are included in current assets, except for maturities greater than twelve months after the end of the reporting period which are classified as non-current assets. The Group’s loans and receivables comprise ‘trade and other receivables’ and cash and cash equivalents in the statement of financial position.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets that are either designated into this category at initial recognition or not classified in any of the other categories. They are included in non-current assets unless the investment matures or management intends to dispose of it within twelve months of the end of the reporting period, in which case they are included in current assets.

Held-to-maturity financial assets

Held-to maturity financial assets are non-derivative financial assets with fixed or determinable payments and a fixed maturity that the Group has the positive intention and ability to hold to maturity, other than assets that are included in the other categories above.



Measurement

Financial instruments are initially recognised at their fair value plus, in the case of a financial asset or a financial liability not carried at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability.

The best evidence of the fair value of a financial instrument at initial recognition is the transaction price, i.e. the fair value of the consideration given or received, unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument (i.e. without modification or repackaging) or based on a valuation technique whose variables include only data from observable markets. Where the transaction price does not provide the best evidence of fair value at initial recognition and a valuation technique which includes some inputs that are not market observable is applied, the financial instrument is initially measured at fair value and any difference between the fair value and the transaction price is subsequently recognised in profit or loss on the basis of the individual facts and circumstances of the transaction but not later than when the valuation is supported wholly by observable market data or when the financial instrument is derecognised.

Subsequent to initial recognition these instruments are measured as set out below:

Investments

After initial recognition, investments in the Group’s market-making portfolios in both bonds and money market instruments, which are classified as held-for-trading, as well as those classified as available-for-sale, are measured at fair value. Fair value is the market value for listed investments or either the market value of a substantially similar investment or the present value of expected future cash flows of the net asset base for unlisted investments. Gains or losses on investments held-for-trading are recognised in profit or loss.

Other long-term investments that the Group is able to and intends to hold to maturity are subsequently measured at amortised cost using the effective interest rate method, less any impairment losses. Amortised cost is calculated taking into account any transaction costs and discount or premium on acquisition or settlement.

Derivative instruments and hedge accounting

The Group uses derivative financial instruments, which include futures, forward exchange and currency option contracts, cross currency and interest rate swaps and commodity and interest rate options to hedge its exposures arising from operational, financing and investment activities.

In accordance with the Group’s Financial Risk Management Framework, the Group does not trade in derivative financial instruments for speculative purposes.

Derivatives embedded in other financial instruments or non-derivative host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of host contracts and the host contracts are not carried at fair value through profit or loss. The Group assesses whether an embedded derivative is required to be separated from the host contract and accounted for as a stand-alone derivative when the Group first becomes a party to the contract. Subsequent reassessment is only performed by the Group if there is a change in the terms of the contract that significantly modifies the cash flows that otherwise would be required under the contract.

Subsequent to initial recognition, derivative financial instruments are measured at fair value. The fair value adjustments are recognised directly in the profit or loss (unless the derivative is designated as a hedging instrument in a cash flow hedge, refer below). The fair value of interest rate swaps is the estimated amount that the Group would receive or pay to terminate the swap at the reporting date, taking into account current interest rates and the current creditworthiness of the swap counterparties. The fair value of the forward exchange contracts is their quoted market price at the reporting date, being the present value of the quoted forward price.

The Group applies fair value and cash flow hedge accounting to qualifying hedge relationships in accordance with IAS 39 Financial Instruments: Recognition and Measurement by designating certain derivatives as hedges of the variability in the fair value of recognised assets, liabilities or unrecognised firm commitments (fair value hedges) or hedges of the variability in cash flows attributable to particular risks associated with recognised assets, liabilities or highly probable forecast transactions (cash flow hedges). At the inception of the hedge relationship, the relationship between the hedging instrument and the hedged item is documented, along with the risk management objectives and strategy for undertaking the various hedge transactions. Also at the inception of the hedge relationship and on an ongoing basis, the Group assesses whether the hedging instrument is highly effective in offsetting changes in fair value or cash flows of the hedged item.

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognised in profit or loss immediately, together with any changes in the fair value of the hedged asset, liability or unrecognised firm commitment that are attributable to the hedged risk.

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is initially recognised in other comprehensive income and accumulated in the cash flow hedge accounting reserve in equity. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss.

The amounts initially recognised in other comprehensive income and included in equity are reclassified from equity to profit or loss in the period(s) in which the hedged item affects profit or loss and are included in the same line as the hedged item. However, where the forecast transaction that is hedged results in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously accumulated in equity are transferred from equity and included in the initial cost or other carrying amount of the non-financial asset or non-financial liability.

Hedge accounting is discontinued when the Group revokes the hedging relationship, the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting.

Long-term loans and advances

Long-term loans and advances are measured at amortised cost, using the effective interest rate method, less any impairment recognised.

Trade and other receivables

Trade and other receivables, which generally have 30 to 90-day terms, are carried at amortised cost. An allowance for impairment is recognised in profit or loss when there is objective evidence that the asset is impaired. The allowance is measured as the difference between the carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.

An allowance account is used to record impairment losses. If subsequently the Group is satisfied that no recovery is possible, the amount is written off against the financial asset directly with a corresponding reduction in the allowance account.

The Group may renegotiate terms for financial assets that would otherwise be past due or impaired in instances where the debtor provides evidence of the ability to meet the obligations in terms of the renegotiated terms. The impact of the renegotiated terms is recognised by an adjustment to the allowance for impairment for these financial assets.

Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and on hand, and instruments which are readily convertible, within 90 days, to known amounts of cash and are subject to an insignificant risk of change in value. Cash and cash equivalents are measured at amortised cost.

For the purposes of the consolidated cash flow statements, cash and cash equivalents include bank overdrafts.



Financial liabilities

After initial recognition, financial liabilities other than financial liabilities at fair value through profit or loss are subsequently measured at amortised cost using the effective interest method.

Market-making bond portfolio

Financial liabilities at fair value through profit or loss are measured at fair value and the resultant gains and losses are recognised in profit or loss.

Financial liabilities designated at fair value through profit or loss represent a portion of the Group’s bonds that are part of the Group’s market making portfolio. The Group makes a market in its bonds to ensure that the bonds remain attractive to investors. Positions in the Group’s bonds are hedged with opposite positions in Government or Corporate bonds. These bonds are managed and their performance is evaluated on a fair value basis in accordance with the Group’s risk management strategy. Buybacks on bonds are performed on a first-in-first-out (FIFO) basis.

Interest-bearing borrowings

Interest-bearing borrowings are recognised initially at fair value less related transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost. Any difference between cost and redemption value is recognised in the profit or loss over the period of the borrowings on an effective interest basis.

Trade payables and accruals

Liabilities for trade and other amounts payable which are settled within normal terms are stated at amortised cost.

Impairment of financial assets

An assessment is made at each reporting date to determine whether there is objective evidence that a financial asset or group of financial assets may be impaired. Objective evidence of impairment includes such factors as significant financial difficulty experienced by the debtor, breach of contract by the debtor, concessions granted to the debtor by the Group to restructure payment terms, probability of bankruptcy or financial reorganisation of the debtor, and observable data indicating a measurable decrease in estimated future cash flows from a group of debtors even though the decrease cannot yet be identified with individual debtors in the portfolio.

If evidence of impairment exists, the estimated recoverable amount of the asset (or group of assets) is determined and an impairment loss is recognised for the difference between the recoverable amount and the carrying amount as follows:• For financial assets held at either cost or amortised cost – the carrying amount of the asset is reduced to its

discounted estimated recoverable amount (present value of estimated future cash flows, discounted at the original effective interest rate), and the resulting loss is recognised in profit or loss for the period. Receivables with a short duration are not discounted. Assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period of 30 days, as well as observable changes in national or local economic conditions that correlate with default on receivables.

• For available-for-sale financial assets – where a decline in the fair value of an available-for-sale financial asset has been recognised in other comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss that was previously recognised in other comprehensive income is removed from equity and recognised in profit or loss for the period even though the financial asset has not been derecognised.

An impairment loss in respect of a held-to-maturity security or a receivable carried at amortised cost is reversed through profit or loss if the subsequent increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognised. The impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined if no impairment loss has been recognised.

An impairment loss in respect of an investment in an equity instrument classified as available-for-sale is not reversed through profit or loss. An impairment loss in respect of a debt instrument classified as available-for-sale is reversed through profit and loss if its fair value increases and the increase can be objectively related to an event occurring after the impairment loss was originally recognised in profit or loss.

An impairment loss in respect of an unquoted equity instrument that is not carried at fair value because its fair value cannot be measured reliably, whether recognised at an interim reporting date or at year end, is not reversed in subsequent periods.

Offset

Where a legally enforceable right of offset exists for recognised financial assets and financial liabilities, and there is an intention to settle the liability and realise the asset simultaneously, or settle on a net basis, all related financial effects are offset.

Financial liabilities and equity

Financial instruments issued by the Group are classified as either financial liabilities or equity according to their substance and the definitions of financial liabilities and equity.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instruments are recognised at the fair value of the proceeds received, net of direct issue costs.

Gains and losses on financial instruments

Net gains or net losses on:

Available for sale financial assets are determined with reference to quoted share prices on the stock exchange and represent fair value adjustments that are recognised in other comprehensive income. Dividends are recognised in profit and loss when the right to receive payment is established. Impairment losses are recognised in profit or loss.

Loans and receivables and financial assets held-to-maturity represent impairment losses or reversal of impairment losses, interest earned on outstanding balances and gains or losses on derecognition. These gains or losses are recognised in profit or loss under finance costs.

Financial assets and liabilities held-for-trading represent fair value adjustments as a result of the mark-to-market of the instruments using market inputs, and gains or losses on derecognition. Interest is included in the fair value adjustments. These gains or losses are recognised in profit or loss on the fair value line.

Financial liabilities designated as at fair value through profit and loss represent fair value adjustments as a result of the mark-to-market of the instruments using market inputs, and gains or losses on derecognition. Interest is included in the fair value adjustments. These gains or losses are recognised in profit and loss on the fair value line.

Financial liabilities at amortised cost represent the amortisation of discounts on or premiums given/received, interest costs as well as any gains or losses on derecognition. These gains or losses are recognised in profit or loss under finance costs.



Valuation of financial instruments

Derivatives

The fair values of derivative financial assets and liabilities are determined based on the net present values of all future cash flows, discounted at the prevailing market interest rates at the reporting date. Fair value includes non-performance (i.e. credit) risk. Only observable market data is used (no estimates) when constructing the curves and basis swap adjustments are added to provide for liquidity in the market. Black-Scholes principles are used to value options.

Bonds

The fair value of bonds designated at fair value through profit or loss is determined by applying the Johannesburg Securities Exchange (JSE) and Bond Exchange South Africa (BESA) closing rates with the SA Bond formula.

Other non-derivative financial assets and liabilities

The fair values of other non-derivative financial assets and liabilities are determined based on the net present values of all future cash flows, discounted at the prevailing market interest rates at the reporting date. Fair value includes non-performance (i.e. credit) risk.

Short term financial assets and liabilities

The carrying amounts of financial assets and liabilities with a maturity of six months or less are assumed to approximate fair value.

Derecognition

Financial assets (or a portion thereof) are derecognised when the Group’s rights to the cash flows expire, or when the Group transfers substantially all the risks and rewards related to the financial asset or when the Group loses control of the financial asset. On derecognition, the difference between the carrying amount of the financial asset and proceeds receivable and any prior adjustment to reflect fair value that had been reported in equity are included in profit or loss.

Financial liabilities (or a portion thereof) are derecognised when the obligations specified in the contract are discharged, cancelled or expire. On derecognition, the difference between the carrying value of the financial liability, including related unamortised costs, and settlement amounts paid is included in profit or loss.

InventoriesInventories are stated at the lower of cost and estimated net realisable value. Net realisable value represents the estimated selling price in the ordinary course of business, less all estimated costs of completion and selling.

Cost is determined as follows:• Raw materials and consumable stores are stated at weighted average cost.• Manufactured goods and work in progress are stated at weighted average cost valued at raw material cost

plus direct labour cost and an appropriate portion of related manufacturing overhead cost, based on normal capacity.

A provision for inventory obsolescence is raised to write down inventory to net realisable value based on a physical count and inspection of inventory items which is performed at least annually and takes into account the age, condition and usage rates of the inventory.

Write-downs to net realisable value and other inventory expenses are recognised in profit or loss in the period in which they arise.

Construction contractsConstruction contract balances represent the gross unbilled amount expected to be collected from customers for contract work performed to date. They are measured at cost plus profit recognised to date less progress billings and recognised losses. Cost includes all expenditure related directly to specific projects and an allocation of fixed and variable overheads incurred in the Group’s contract activities based on normal operating capacity.

Construction work in progress is presented as part of trade and other receivables in the statement of financial position. Where payments received from customers exceed the income recognised, the difference is presented as deferred income in the statement of financial position.

Non-current assets classified as held-for-sale and discontinued operationsNon-current assets and disposal groups are classified as held-for-sale if their carrying amount will be recovered principally through a sale transaction rather than continuing use. This condition is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification.

Immediately before classification as held-for-sale, the measurement of the assets (and all assets and liabilities in a disposal group) is brought up-to-date in accordance with applicable IFRS. Then, on initial classification as held-for-sale, non-current assets and disposal groups are recognised at the lower of carrying amount and the fair value less costs to sell.

Impairment losses on initial classification as held-for-sale are recognised in profit or loss, even where the assets were carried at revalued amounts. The same applies to gains and losses on subsequent measurement. A gain or subsequent increase in fair value less costs to sell may not exceed the cumulative impairment losses previously recognised in terms of IFRS 5 Non-current Assets Held-for-Sale and Discontinued Operations or IAS 36 Impairment of Assets.

Non-current assets classified as held-for-sale are not depreciated or amortised whilst classified as such.

A discontinued operation is a component of the Group’s business that represents a separate major line of business or geographical area of operations or is a subsidiary acquired exclusively with a view to resell.

Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held-for-sale, if earlier. A disposal group that is to be abandoned may also qualify as a discontinued operation.

Where assets or disposal groups classified as held-for-sale are not disposed of within the one-year requirement of the standard, and management believes that the delay was caused by events or circumstances beyond the Group’s control and there is sufficient evidence that the Group remains committed to its plan to sell the assets or disposal groups, such asset or disposal groups will continue to be classified as held-for-sale.

Share capitalIncremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of taxation, from the proceeds. Incremental costs directly attributable to the issue of new shares for the acquisition of a business are recognised in profit or loss in the period in which they are incurred.

When share capital is repurchased, the amount of the consideration paid, including directly attributable costs, is deducted from equity. Repurchased shares are classified as treasury shares and presented as a deduction from the total equity until they are cancelled, reissued or disposed of.

Dividends are recognised as a liability in the period in which they are declared.



Employee benefitsThe Group operates several defined benefit funds and a defined contribution fund. The assets of each scheme are held separately from those of the Group and are administered by the schemes’ trustees. The defined benefit funds are actuarially valued for accounting purposes by professional independent consulting actuaries on an annual basis.

Defined contribution fund

The Group’s contributions to the defined contribution fund are recognised in profit or loss in the period to which they relate.

Defined benefit funds

The benefit costs and obligations under the defined benefit funds are determined separately for each fund using the projected unit credit method.

The service cost and net interest on the net defined benefit liability or asset are recognised in profit or loss. Where the benefits of a plan are amended or curtailed, the change in the present value of the net defined benefit obligation relating to past service by the employees is recognised in profit or loss in the period of the amendment.

Re-measurements of the net defined benefit liability or asset, comprising actuarial gains and losses, the effect of changes in the asset ceiling (where applicable) and the return on the plan assets (excluding interest) are recognised in other comprehensive income in the period in which they arise.

The post-retirement benefit obligation recognised in the statement of financial position represents the present value of the defined benefit obligation less the fair value of any plan assets. Any asset resulting from this calculation is limited to any economic benefits available in the form of refunds from the plans or reductions in the future contributions.

Post-retirement medical benefits

Post-retirement medical benefits are provided by the Group to qualifying employees and pensioners. The medical benefit costs are determined through annual actuarial valuations by independent consulting actuaries using the projected unit credit method. Actuarial gains or losses are recognised in line with the policy described above.

Short- and long-term benefits

The cost of all short-term employee benefits, such as salaries, bonuses, housing allowances, medical and other contributions is recognised in profit or loss in the period in which the employee renders the related service.

The Group’s net obligation in respect of long-term service benefits, other than pension plans and post-retirement medical benefits is the amount of future benefit that employees have earned in return for their service in the current and prior periods.

Termination benefits

Termination benefits are payable whenever an employee’s employment is terminated before the normal retirement date or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it has demonstrated its commitment to either terminate the employment of current employees according to a detailed formal plan without possibility of withdrawal or to provide termination benefits as a result of an offer made to encourage voluntary redundancy.

LeasesGroup as a lessee

Leases of property, plant and equipment where the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Finance leased assets and the related liabilities recognised at the commencement of the lease term at the lower of the fair value of the leased property and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges so as to achieve a constant periodic rate of interest on the remaining balance of the liability. The corresponding rental obligations, net of finance charges, are recognised in other long term payables.

The interest element of the finance lease payment is recognised in the profit or loss or capitalised to qualifying assets over the lease period if the relevant criteria are met. Any contingent rentals are charged as expenses in the period in which they are incurred. Property, plant and equipment acquired under a finance lease is depreciated over the shorter of the asset’s useful life and the lease term.

Leases where the lessor retains a significant portion of the risks and rewards of ownership are classified as operating leases. Payments made under operating leases, net of any incentives received from the lessor, (including contracts with fixed escalation clauses), are charged to the profit or loss on a straight line basis over the period of the lease.

The Group capitalises all leasehold improvements and depreciates them over their useful life or the remaining period of the lease (if shorter).

Group as a lessor

When assets are leased out under a finance lease, the Group de-recognises the leased asset and recognises the net investment in the lease as a receivable. The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income. Lease income is recognised over the term of the lease using the net investment method, which reflects a constant periodic rate of return.

Assets leased to third parties under operating leases are included under property, plant and equipment (or investment property where applicable) in the statement of financial position. They are depreciated over their expected useful lives on a basis consistent with similar owned property, plant and equipment. Rental income (net of any incentives given to the lessee) is recognised on a straight-line basis over the lease term.

Sale and leaseback

Where a sale and leaseback agreement is classified as a finance lease, any excess of the sale proceeds over the carrying value is deferred and recognised in the profit or loss over the period of the lease.

Where a sale and leaseback agreement is classified as an operating lease and the transaction took place at fair value, any excess or deficit of the sale proceeds over the carrying values of the assets sold is recognised in the profit or loss in the year in which it arises. If the deficit is compensated for by future lease payments at below market price, the deficit is deferred and amortised in proportion to the lease payments over the period for which the asset is expected to be used. If the sale price is above fair value, the excess over fair value shall be deferred and amortised over the period for which the asset is expected to be used.

Determining whether an arrangement contains a lease

The Group ensures that the following two requirements are met, in order for an arrangement transacted by the Group to be classified as a lease in terms of IAS 17 Leases:• The fulfilment of the arrangement is dependent on the use of a specific asset or assets (whether explicitly or

implicitly stated in the contract), and



• The arrangement conveys the right to use the asset(s); i.e. the arrangement conveys to the purchaser (lessee) the right to control the use of the underlying asset. This will be the case if any one of the following conditions are met:

– The purchaser has the ability or right to operate the asset or direct others to operate the asset in a manner it determines while obtaining or controlling more than an insignificant amount of the output or other utility of the asset.

– The purchaser has the ability or right to control physical access to the asset while obtaining or controlling more than an insignificant amount of the output or other utility of the asset.

– There is only a remote possibility that parties other than the purchaser will take more than an insignificant amount of the output or other utility of the asset and the price that the purchaser will pay for the output is neither contractually fixed per unit of output nor equal to the current market price per unit at the time of delivery.

The Group’s assessment of whether an arrangement contains a lease is made at the inception of the arrangement, with reassessment occurring in the event of limited changes in circumstances as specified by IFRIC 4 Determining whether an arrangement contains a lease.

ProvisionsProvisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Where the effect of time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-taxation rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount in subsequent financial periods is recognised as an expense in profit or loss under finance costs.

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that the reimbursement will be received and the amount of the receivable can be measured reliably.

Warranties

A provision for warranties is recognised when the underlying products or services are sold. The provision is based on historical warranty data and a weighting of all possible outcomes against their associated probabilities.

Restructuring

A provision for restructuring costs is recognised when the Group has a detailed formal plan for the restructuring and the Group has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement that plan or announcing its main features to those affected by it. Restructuring provisions only include those direct expenditures which are necessarily entailed by the restructuring and not associated with the ongoing activities of the Group. Future operating costs are not provided for.

Decommissioning and environmental liabilities

Decommissioning liabilities

A provision for the dismantling and removal of an item of property, plant and equipment and restoring the site is recognised when the Group has a present obligation (legal or constructive) to decommission the asset and restore the site on which the asset is located and a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the cost to dismantle and remove the item and rehabilitate the site and may change from year to year taking into account the changes in intended use of the asset, new techniques and know-how in rehabilitating affected sites, estimated risks and uncertainties surrounding the obligation and the time value of money. These estimates are reviewed at least annually.

The initial estimate of costs to decommission an asset, the obligation for which arises as a result of either having acquired or constructed the asset or as a consequence of having used the asset in the current and/ or prior periods for purposes other than to produce inventories is capitalised as part of the cost of the asset. Where the obligation arises as a result of having used the asset to produce inventories, the decommissioning costs are recognised as part of the cost of the inventory.

The effect of subsequent changes to assumptions in estimating an obligation for which the provision was recognised as part of the cost of the asset is adjusted against the cost of the asset unless the asset is carried under the revaluation model.

Where the asset is carried under the revaluation model, changes in the provision are accounted for as follows:• A decrease in the decommissioning liability is recognised in other comprehensive income and increases the

revaluation surplus within equity, except that is recognised in profit or loss to the extent that it reverses a revaluation deficit on the asset that was previously is recognised in profit or loss,

• An increase in the decommissioning liability is recognised in profit or loss, except that it is recognised in other comprehensive income and reduces the revaluation surplus within equity to the extent of any credit balance existing in the revaluation surplus in respect of that asset.

Environmental liabilities

In accordance with the Group’s environmental policy and applicable legal requirements, a provision for environmental rehabilitation in respect of clean-up costs is recognised in profit or loss when the Group has a present obligation (legal or constructive) as a result of a past event and a reliable estimate can be made of the amount of the obligation.

The Group’s environmental obligations arise from legislation which requires the Group to remove waste material and remediate land contaminated by asbestos, ferromanganese, manganese, mixed soil (including chrome, sulphur and manganese), fuel and rubble.

A number of factors are considered in determining the amount of the obligation, including:• The extent of the contamination,• The cost per ton/square metre/kilometre of removal and disposal of the contamination, including

transportation costs where applicable,• The cost of rehabilitation of the identified areas of contamination, and• The costs for the removal and replacement of asbestos roof sheeting and cladding on buildings.

The above estimates are reviewed at least annually and the effect of subsequent changes thereto is recognised prospectively in profit or loss as a change in accounting estimate.



Onerous contracts

A provision for onerous contracts is recognised when the unavoidable costs of meeting the Group’s obligations under a contract exceed the economic benefits expected to be received under the contract.

Other provisions

Other provisions such as third-party claims, freight insurance, customer claims and leave pay provisions are recognised when they meet the recognition requirements as per IAS 37 Provisions, Contingent Liabilities and Contingent Assets.

Contingent liabilities

Contingent liabilities are (a) possible obligations of the Group that arise from past events whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group, or (b) present obligations that arise from past events and it is either not probable that an outflow of resources embodying economic benefits will be required to settle the obligation or the amount of the obligation cannot be measured with sufficient reliability. Contingent liabilities are not recognised in the financial statements but are disclosed in the notes to the financial statements unless the probability of occurrence is remote.

Contingent assets

Contingent assets are possible assets of the Group that arise from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. Contingent assets are not recognised in the financial statements and are only disclosed in the notes to the financial statements where an inflow of economic benefits is probable.

Financial guarantees

A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of the debt instrument. The Group recognises financial guarantee contracts initially at fair value. Subsequently these are recognised at the higher of:• The amount determined in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets,

and• The amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance

with IAS 18 Revenue.

Legal claims

A provision for legal claims is recognised when all the recognition criteria for provisions above are met and is based on legal opinion, taking into account the risk and uncertainties surrounding the obligation.

Compensation receivableCompensation receivable from third parties such as insurance companies in respect of assets that are impaired, lost or given up or for any other loss incurred is recognised in the profit or loss when, and only when, it is virtually certain that the payment will be received and the amount can be measured reliably.

Segment disclosureFor management purposes, the Group is organised into five operating divisions based on their products and/ or services, which form the basis of reporting segment information in accordance with IFRS 8 Operating Segments. Further information on the operations of the operating divisions is available in the Operational Review report.

The operating segments are identified on the basis of internal reports that the Group’s chief operating decision-maker reviews regularly in allocating resources to segments and in assessing their performance. Reportable segments are identified based on quantitative thresholds of revenue, profit or loss and assets.

Transfer prices between operating segments are on an arm’s length basis, similar to transactions with third parties. Inter-segment revenues are eliminated upon consolidation and reflected in the “elimination of inter-segment transactions” column of the segment report.

Related party transactionsTransactions with related parties are conducted on an arm’s length basis similar to transactions with third parties.

Change in accounting policy: revaluation of rail infrastructure assetsDuring the financial year, the Group changed its accounting policy for rail infrastructure assets from the historical cost basis to the revaluation model in accordance with IAS 16 Property, Plant and Equipment in order to better reflect the value of these assets to the Group, the value being consumed through use and the future capital required to maintain or replace these assets going forward.

The fair value of the assets was assessed using the depreciated optimised replacement cost and the discounted cash flow methods. Consistent with Group policy on revaluation, the fair value recognised in the financial statements was limited to the lower of the two valuation methods in order to ensure that the assets are not carried at amounts in excess of their recoverable amounts.

Accordingly, the carrying value of rail infrastructure assets was revalued by R49,8 billion to R75,2 billion (refer note 9). The new policy was applied prospectively.



Company Group

2014 2015 2015 2014R million R million Notes R million R million

56 570 61 114 Revenue 1 61 152 56 606

(32 952) (35 546)Net operating expenses excluding depreciation, derecognition and amortisation 2 (35 564) (32 967)

23 618 25 568Profit from operations before depreciation, derecognition, amortisation and items listed below 25 588 23 639

(10 736) (10 951) Depreciation, derecognition and amortisation 3 (10 951) (10 736)

12 882 14 617 Profit from operations before the items listed below 4.1 14 637 12 903 (110) (964) Impairment of assets 4.2 (964) (107)

37 1 Dividends received 4.3 – – (388) (162) Post-retirement benefit obligation expense 4.4 (162) (388) 264 136 Fair value adjustments 5 136 264

Income from associates and joint ventures 13 9 14

12 685 13 628 Profit from operations before net finance costs 13 656 12 686 (5 911) (6 287) Finance costs 6 (6 287) (5 917)

346 212 Finance income 7 221 366

7 120 7 553 Profit before taxation 7 590 7 135 (1 953) (2 279) Taxation 8 (2 288) (1 964)

5 167 5 274 Profit for the year 5 302 5 171

Company Group


5 167 5 274 Profit for the year 5 302 5 171 Other comprehensive income

6 118 39 745Net items that will not be reclassified subsequently to profit or loss 39 745 6 118

8 507 55 205Items that will not be reclassified subsequently to profit or loss 55 205 8 507

8 269 55 175 – Gains on revaluations 55 175 8 269 238 30 – Actuarial gains on post-retirement benefit obligations 30 238

(2 389) (15 460)Taxation relating to components that will not be reclassified subsequently to profit or loss 8.1 (15 460) (2 389)

865 170Net items that may be reclassified subsequently to profit or loss 168 870

1 195 236Items that may be reclassified subsequently to profit or loss 234 1 200

– –– Exchange differences on translation

of foreign operations (2) 5 1 195 236 – Gains on cash flow hedges 236 1 195

(330) (66)Taxation relating to components that may be reclassified subsequently to profit or loss 8.1 (66) (330)

6 983 39 915Other comprehensive income for the year, net of taxation 39 913 6 988

12 150 45 189 Total comprehensive income for the year 45 215 12 159


INCOME STATEMENTSfor the year ended 31 March 2015

STATEMENTS OF COMPREHENSIVE INCOMEfor the year ended 31 March 2015

Company Group


Items that will not be reclassified subsequently to profit or loss

5 951 39 723 Net gains on revaluation reserve 39 723 5 951

8 269 55 175 Gains on revaluations 55 175 8 269

467 843 – Gain on revaluation of pipeline networks 22 843 467 7 783 4 619 – Gain on revaluation of port facilities 22 4 619 7 783

– 49 805 – Gain on revaluation of rail infrastructure 22 49 805 –

26 (60)– Decommissioning restoration liability

adjustment 22 (60) 26

27 9– Gain on revaluation of land, buildings

and structures 22 9 27 (34) (41) – Loss on revaluation of other investments 22 (41) (34)

(2 318) (15 452) Taxation effect of revalued items 8.1 (15 452) (2 318)

167 22Net actuarial gains on post-retirement benefit obligations 22 167

238 30Actuarial gains on post-retirement benefit obligations 22 30 238

20 14– Actuarial gain on the Transport Pension Fund:

Transnet Sub-fund 32.1.2 14 20

10 (1)– Actuarial (loss)/gain on the Transnet Top

Management Pension 32.1.4 (1) 10

21 (82)– Actuarial (loss)/gain on the Transnet Workmen’s

Compensation Act Pensioners 32.1.4 (82) 21

65 (11)– Actuarial (loss)/gain on the Transnet SATS

Pensioners medical benefits 32.2.1 (11) 65

122 110– Actuarial gain on the Transnet employees

medical benefits 32.2.2 110 122

(71) (8) Taxation effect of net actuarial gains 8.1 (8) (71)

Items that may be reclassified subsequently to profit or loss

865 170 Net gain on cash flow hedging reserve 170 865

1 195 236 – Gains on cash flow hedges 22 236 1 195 (330) (66) – Taxation effect of cash flow hedge gains 8.1 (66) (330)

– –Net movement on foreign currency translation reserve 22 (2) 5

6 983 39 915 Other comprehensive income for the year 39 913 6 988

Company Group


AssetsNon-current assets

207 322 287 166 Property, plant and equipment 9 287 166 207 322 8 572 9 074 Investment properties 10 9 074 8 572

972 1 273 Intangible assets 11 1 273 972 3 3 Investments in subsidiaries 12 9 9 Investments in associates and joint ventures 13 113 105

7 346 7 622 Derivative financial assets 14 7 622 7 346 29 24 Long-term loans and advances 15 24 29

716 669 Other investments and long-term financial assets 16 669 716

224 969 305 840 305 941 225 062

Current assets 3 241 3 343 Inventories 17 3 343 3 241 7 769 8 328 Trade and other receivables 18 8 332 7 774

58 3 770 Derivative financial assets 14 3 770 58 67 708 Other short-term investments 16 708 67

3 508 6 121 Cash and cash equivalents 19 6 264 3 633

14 643 22 270 22 417 14 773 238 81 Assets classified as held-for-sale 20 81 238

14 881 22 351 22 498 15 011

239 850 328 191 Total assets 328 439 240 073

Equity and liabilitiesCapital and reserves

12 661 12 661 Issued capital 21 12 661 12 661 84 264 129 453 Reserves 22 129 667 84 452

96 925 142 114 Attributable to the equity holder 142 328 97 113

Non-current liabilities 2 968 2 771 Employee benefits 23 2 771 2 968

82 993 93 076 Long-term borrowings 24 93 078 82 995 46 25 Derivative financial liabilities 14 25 46

1 890 1 937 Long-term provisions 25 1 937 1 890 25 209 43 087 Deferred taxation liabilities 26 43 087 25 209

4 615 4 955 Other non-current liabilities 16 4 955 4 615

117 721 145 851 145 853 117 723

Current liabilities 14 329 18 780 Trade payables and accruals 28 18 808 14 357

7 449 17 299 Short-term borrowings 29 17 299 7 449 12 34 Current taxation liability 38 17

37 45 Derivative financial liabilities 14 45 37 816 848 Short-term provisions 25 848 816

2 561 3 220 Other current liabilities 16 3 220 2 561

25 204 40 226 40 258 25 237

239 850 328 191 Total equity and liabilities 328 439 240 073


DISCLOSURE OF COMPONENTS OF OTHER COMPREHENSIVE INCOMEfor the year ended 31 March 2015

STATEMENTS OF FINANCIAL POSITIONas at 31 March 2015

Issued capital

R million

Revalua-tion

reserve R million

Foreign currency

translation reserve

R million

Actuarial gains and

losses R million

Cash flow hedging reserve

R million Other

R million

Retained earnings

R million Total

R million

CompanyOpening balances at 1 April 2013 12 661 31 760 – 1 965 161 250 37 978 84 775 Total comprehensive income for the year – 5 951 – 167 865 – 5 167 12 150

Balances at 31 March 2014 12 661 37 711 – 2 132 1 026 250 43 145 96 925

Profit for the year – – – – – – 5 274 5 274Other comprehensive income for the year – 39 723 – 22 170 – – 39 915Transfer to retained earnings – (8) – – – – 8 –


GroupOpening balances at 1 April 2013 12 661 31 760 (5) 1 965 161 249 38 163 84 954 Total comprehensive income for the year – 5 951 5 167 865 – 5 171 12 159


Profit for the year – – – – – – 5 302 5 302Other comprehensive income/(loss) for the year – 39 723 (2) 22 170 – – 39 913Transfer to retained earnings – (8) – – – – 8 –

Balances at 31 March 2015 12 661 77 426 (2) 2 154 1 196 249 48 644 142 328

Company Group


18 695 23 647 Cash flows from operating activities 23 666 18 709

24 032 27 261 Cash generated from operations 34.1 27 280 24 043 1 235 3 326 Changes in working capital 34.2 3 327 1 228

25 267 30 587 Cash generated from operations after working capital changes 30 607 25 271

(5 870) (6 128) Finance costs 34.3 (6 128) (5 870) 301 196 Finance income 34.4 205 321

26 101 Taxation refunded 34.5 91 16 (238) (220) Settlement of post-retirement benefit obligations (220) (238) (791) (889) Derivatives settled and raised (889) (791)

(31 838) (36 714) Cash flows utilised in investing activities (36 715) (32 067) (17 364) (19 867) Investment to maintain operations (19 868) (17 593)

(18 480) (19 049) Replacements to property, plant and equipment (19 049) (18 480) (500) (392) Additions to intangible assets (392) (500) (100) (154) Borrowing costs capitalised (154) (100)

189 298Proceeds on the disposal of property, plant and equipment 298 189

1 – Proceeds on the disposal of investment properties – 1 192 – Net proceeds on the return of capital from subsidiary – –

37 1 Dividend income – – 5 7 Net receipts of long-term loans and advances 7 5

1 292 (578) Net (increase)/decrease in other investments (578) 1 292

(14 474) (16 847) Investment to expand operations (16 847) (14 474)

(13 286) (14 516) Expansions – property, plant and equipment (14 516) (13 286) (1 188) (2 331) Borrowing costs capitalised (2 331) (1 188)

14 393 15 680 Cash flows from financing activities 15 680 14 393

22 380 34 113 Borrowings raised 34 113 22 380 (7 987) (18 433) Borrowings repaid (18 433) (7 987)

1 250 2 613 Net increase in cash and cash equivalents 2 631 1 035 2 258 3 508 Cash and cash equivalents at the beginning of the year 3 633 2 598

3 508 6 121 Total cash and cash equivalents at the end of the year 34.6 6 264 3 633


STATEMENTS OF CHANGES IN EQUITYfor the year ended 31 March 2015

STATEMENTS OF CASH FLOWSfor the year ended 31 March 2015

All otherNational Total for segments Elimination of

Ports Port reportable and other intersegment Total Freight Rail Engineering Authority Terminals Pipelines segments adjustments** transactions

R million R million R million R million R million R million R million R million R million

For the year ended 31 March 2015External revenue* 37 410 1 718 8 489 9 706 3 241 60 564 588 – 61 152Internal revenue 348 10 652 1 229 6 5 12 240 3 245 (15 485) –Total revenue 37 758 12 370 9 718 9 712 3 246 72 804 3 833 (15 485) 61 152Energy costs (4 813) (216) (440) (526) (217) (6 212) (162) – (6 374)Maintenance costs (1 173) (227) (260) (301) (83) (2 044) (61) 1 991 (114)Material costs (963) (5 744) (76) (407) (11) (7 201) (24) 5 210 (2 015)Personnel costs (11 567) (4 613) (1 909) (3 523) (351) (21 963) (1 847) 5 513 (18 297)Other costs (3 001) (825) (719) (1 989) (280) (6 814) (4 242) 2 292 (8 764)

Earnings before interest, taxation, depreciation, derecognition and amortisation (EBITDA) 16 241 745 6 314 2 966 2 304 28 570 (2 503) (479) 25 588Depreciation, derecognition and amortisation (6 951) (268) (1 447) (1 615) (642) (10 923) (240) 212 (10 951)Impairment of assets (460) – (45) (58) (94) (657) (307) – (964)Dividends received and income from associates and joint ventures – – – – – – 9 – 9Fair value adjustments and post-retirement benefit obligation expense (76) (33) 233 (43) (12) 69 (95) – (26)Finance costs (2 826) (338) (1 781) (522) 138 (5 329) (9 080) 8 122 (6 287)Finance income 15 (5) (4) 8 10 24 8 319 (8 122) 221Profit before taxation 5 943 101 3 270 736 1 704 11 754 (3 897) (267) 7 590Total assets## 168 238 11 861 78 325 18 993 36 346 313 763 28 093 (13 498) 328 358Total liabilities 89 354 7 111 42 811 10 358 21 071 170 705 23 075 (7 669) 186 111Capital expenditure*** 25 173 1 026 2 874 1 237 2 793 33 103 941 (479) 33 565Cash generated from operations after working capital changes 13 583 1 845 5 981 2 236 2 645 26 290 4 317 n/a 30 607EBITDA margin (%) 43,0 6,0 65,0 30,5 71,0 39,2 n/a n/a 41,8Number of employees 29 445 11 719 4 189 7 061 630 53 044 2 462 n/a 55 506For the year ended 31 March 2014External revenue* 34 111 1 616 8 727 8 531 3 099 56 084 522 – 56 606Internal revenue 300 11 737 1 190 4 15 13 246 2 763 (16 009) –Total revenue 34 411 13 353 9 917 8 535 3 114 69 330 3 285 (16 009) 56 606Energy costs (4 543) (221) (399) (520) (206) (5 889) (142) – (6 031)Maintenance costs (1 370) (261) (296) (306) (73) (2 306) (74) 2 171 (209)Material costs (949) (6 521) (85) (358) (11) (7 924) 60 5 052 (2 812)Personnel costs (10 732) (4 708) (1 767) (3 124) (318) (20 649) (1 625) 5 645 (16 629)Other costs (2 393) (756) (690) (1 768) (178) (5 785) (3 847) 2 346 (7 286)Earnings before interest, taxation, depreciation, derecognition and amortisation (EBITDA) 14 424 886 6 680 2 459 2 328 26 777 (2 343) (795) 23 639Depreciation, derecognition and amortisation (6 999) (246) (1 354) (1 566) (639) (10 804) (124) 192 (10 736)Impairment of assets (11) – (22) (236) (7) (276) 169 – (107)Dividends received and income from associates and joint ventures – – – – – – 14 – 14Fair value adjustments and post-retirement benefit obligation expense 114 3 468 20 5 610 (734) – (124)Finance costs (2 412) (393) (1 525) (449) (44) (4 823) (8 306) 7 212 (5 917)Finance income 53 – 4 6 6 69 7 509 (7 212) 366Profit before taxation 5 169 250 4 251 234 1 649 11 553 (3 815) (603) 7 135Total assets## 99 733 11 206 72 454 19 042 32 324 234 759 16 736 (11 660) 239 835Total liabilities 61 752 6 774 38 048 10 055 19 373 136 002 13 152 (6 194) 142 960Capital expenditure*** 25 115 975 1 188 1 651 3 377 32 306 254 (794) 31 766Cash generated from operations after working capital changes 22 131 1 179 7 716 1 291 1 974 34 291 (9 020) n/a 25 271Net cash surplus/(shortfall) 10 (85) 2 338 (74) 26 2 215 (1 180) n/a 1 035EBITDA margin (%) 41,9 6,6 67,4 28,8 74,8 38,6 n/a n/a 41,8Number of employees 29 225 12 428 3 823 6 624 621 52 721 1 950 n/a 54 671* Revenues from segments below the quantitative thresholds are attributable to two operating segments of Transnet. Those segments include

Transnet Property that manages internal and external leases of commercial and residential property and Transnet Capital Projects.** Other adjustments include the Corporate Centre functions.*** Excludes capitalised borrowing costs and intangible assets, includes capitalised finance leases and capitalised decommissioning liabilities.## Excludes assets classified as held-for-sale.


SEGMENTAL REPORTfor the year ended 31 March 2015

Company Group

2014 2015 2015 2014R million R million R million R million

1. Revenue53 961 59 682 Rendering of services 59 720 53 997

1 446 1 555 Rental income 1 555 1 44610 6 Finance income from lending activities 6 10

1 077 836 Construction contracts (refer note 27) 836 1 077

56 494 62 079 62 117 56 53076 (965) Revenue claw back adjustment (965) 76

56 570 61 114 61 152 56 606

Refer to the Segmental Report for the split of revenue streams.

2. Net operating expenses excluding depreciation, derecognition and amortisation

334 308 Accommodation and refreshments 308 334923 1 099 Electronic data costs 1 099 923

6 031 6 374 Energy costs 6 374 6 031406 439 Health and sanitation 439 406232 240 Insurance 240 232209 114 Maintenance costs 114 209

1 681 1 970Managerial and technical consulting fees (refer note 4.1) 1 970 1 681

2 812 2 015 Material costs 2 015 2 8121 854 2 482 Operating leases (refer note 4.1) 2 482 1 854

16 629 18 297 Personnel costs 18 297 16 629106 117 Printing and stationery 117 106

(54) (156)Profit on disposal of property, plant and equipment (refer note 4.1) (156) (54)

186 193 Promotions and advertising 193 186100 83 Research and development costs (refer note 4.1) 83 100843 926 Security 926 843313 301 Telecommunications 301 313

99 82 Transport 82 99248 662 Other costs 680 263

32 952 35 546 35 564 32 967

Company Group


3. Depreciation, derecognition and amortisationDepreciation and derecognition (refer annexure B)

7 775 7 802Depreciation and derecognition – Owned assets at historic cost 7 802 7 775

11 11 Aircraft 11 11110 111 Floating craft 111 110754 859 Land, buildings and structures 859 754652 736 Machinery, equipment and furniture 736 652892 944 Permanent way and works 944 892

5 295 5 067 Rolling stock and containers 5 067 5 29561 74 Vehicles 74 61

2 593 2 760Depreciation and derecognition – Owned assets revalued portion 2 760 2 593

– – Rail infrastructure* – –607 612 Pipeline networks 612 607

1 986 2 148 Port facilities 2 148 1 986

197 198Depreciation and derecognition – Leased assets at historic cost 198 197

24 28 Machinery, equipment and furniture 28 2422 3 Permanent way and works 3 22

151 167 Rolling stock and containers 167 151

10 565 10 760 10 760 10 565

Amortisation of intangible assets (refer note 11)171 191 Software and licenses 191 171

10 736 10 951 Total depreciation, derecognition and amortisation 10 951 10 736

*Revalued as at 31 March 2015.


NOTES TO THE ANNUAL FINANCIAL STATEMENTSfor the year ended 31 March 2015

Company Group


4.1 Profit from operations before impairment of assets, dividends received, post-retirement benefit obligation expense, fair value adjustments and income from associates and joint venturesis stated after taking into account the following amounts:

Auditors’ remunerationGroup auditors

50 59 Audit fees – current year 59 5035 33 Audit fees – prior year 33 3512 14 Fees for audit related and other services 14 12

5 2 Expenses 2 5

102 108 108 102

1 681 1 970 Managerial and technical consulting fees 1 970 1 681Operating lease charges

1 025 1 162 Land, buildings and structures 1 162 1 025717 889 Vehicles 889 717

70 66 Rolling stock 66 7042 365 Other 365 42

1 854 2 482 2 482 1 854

(54) (156) Profit on disposal of property, plant and equipment (156) (54)

100 83 Research and development costs 83 100

Directors’ and executives’ emoluments (full details are disclosed in the Report of the Directors)

19 25 Executive directors 25 197 7 Non–executive directors 7 7

79 94 Senior executives 94 79

105 126 126 105

4.2 Impairment of assets

177 442 Property, plant and equipment (refer annexure B) 442 1773 – Associates and subsidiaries

(30) (2) Long–term loans and advances (refer note 15) (2) (30)(40) 524 Trade and other receivables 524 (40)

110 964 964 107

Company Group


4.3 Dividends received

36 – Dividends from subsidiary1 1 Dividends from associate

37 1

4.4 Post–retirement benefit obligation expense33 25 Transport Pension Fund: Transnet Sub–fund 25 33

– – Transnet Second Defined Benefit Fund – –6 6 Transnet Top Management Pension 6 6

32 36 Transnet Workmen’s Compensation Act pensioners 36 32

56 47Transnet SATS Pensioners’ post–retirement medical benefits 47 56

58 51 Transnet employees’ post–retirement medical benefits 51 58

203 (3)Other post–retirement and medical benefits (refer note 23) (3) 203

388 162 162 388

5. Fair value adjustments(372) (137) Derivative fair value adjustments (refer note 14) (137) (372)

647 315Fair value adjustment of investment property (refer note 10) 315 647

(11) (42) Fair value adjustments on firm commitments (42) (11)

264 136 136 264

6. Finance costs49 (2) Net foreign exchange (gain)/loss on translation (2) 55

(39) 126 Interest factor on clawback (refer note 16) 126 (39)31 35 Discounts on bonds amortised (refer note 24) 35 3115 16 Finance lease obligation 16 15

7 143 8 597 Interest cost – Financial liabilities at amortised cost 8 597 7 143

7 199 8 772 Gross finance costs 8 772 7 205(1 288) (2 485) Borrowing costs capitalised* (2 485) (1 288)

5 911 6 287 6 287 5 917

* The weighted average capitalisation rate on funds borrowed generally is 9,2% per annum (2014: 9,74% per annum).



Company Group


7. Finance income244 169 Interest received – Bank deposits 178 264

57 27 Interest received – Loans and receivables 27 5745 16 Interest received – Held-to-maturity 16 45

346 212 221 366

8. TaxationSouth African normal taxation

(66) (73) – Current year (64) (59)Deferred taxation (refer note 26)

2 019 2 352 – Current year 2 352 2 019Foreign taxation

– – – Current year – 4

1 953 2 279 2 288 1 964

% % Reconciliation of taxation rate % %28,00 28,00 Standard rate – South African normal taxation 28,00 28,00(0,57) 2,17 Adjustment for differences 2,14 (0,47)

1,73 1,45 Expenses not included for taxation purposes 1,45 1,92(0,53) (0,01) Exempt local dividends – –(0,84) 1,69 Adjustment to current year deferred taxation charge 1,65 (1,46)(0,93) (0,96) Release on prescription of taxation return (0,96) (0,93)

27,43 30,17 Effective rate of taxation 30,14 27,53

8.1 Taxation recognised in other comprehensive incomeArising on the taxation effects of items recognised in other comprehensive income:

(135) (225)Gain on revaluation of pipeline networks and decommissioning restoration liability (225) (135)

(2 181) (1 294) Gain on revaluation of port facilities adjustment (1 294) (2 181)– (13 945) Gain on revaluation of rail infrastructure (13 945) –

(8) (1) Gain on revaluation of land, buildings and structures (1) (8)

6 13Loss on revaluation of investments to market value (ALL Group Ltd) 13 6

(330) (66) Gains on cash flow hedges (66) (330)(71) (8) Actuarial gain on post–retirement benefit obligations (8) (71)

(2 719) (15 526) Total taxation recognised in other comprehensive income (15 526) (2 719)

Company Group


9. Property, plant and equipment (refer annexure B)Property, plant and equipment is stated at historical cost except for pipeline networks, port facilities and rail infrastructure, which are stated at revalued amounts.

207 322 287 166 Net book value 287 166 207 322

295 979 398 250 Gross carrying value 398 250 295 979(88 657) (111 084) Accumulated depreciation and impairment (111 084) (88 657)

Comprising:Historical cost

164 176 163 058 Gross carrying value 163 058 164 176

157 171 – Aircraft 171 1572 270 2 462 – Floating craft 2 462 2 270

24 057 25 919 – Land, buildings and structures 25 919 24 0578 109 9 253 – Machinery, equipment and furniture 9 253 8 109

28 897 766 – Permanent way and works* 766 28 89769 278 76 378 – Rolling stock and containers 76 378 69 278

1 049 1 057 – Vehicles 1 057 1 04930 359 47 052 – Capital work in progress 47 052 30 359

(37 883) (36 457) Accumulated depreciation (36 457) (37 883)

(120) (131) – Aircraft (131) (120)(594) (690) – Floating craft (690) (594)

(5 105) (5 910) – Land, buildings and structures (5 910) (5 105)(4 374) (5 013) – Machinery, equipment and furniture (5 013) (4 374)(5 853) (101) – Permanent way and works* (101) (5 853)

(21 266) (23 974) – Rolling stock and containers (23 974) (21 266)(571) (638) – Vehicles (638) (571)

(1 129) (1 276) Accumulated impairment (1 276) (1 129)

(1) (1) – Floating craft (1) (1)(164) (168) – Land, buildings and structures (168) (164)(155) (205) – Machinery, equipment and furniture (205) (155)

(43) (1) – Permanent way and works* (1) (43)(544) (648) – Rolling stock and containers (648) (544)

(5) (39) – Vehicles (39) (5)(217) (214) – Capital work in progress (214) (217)

125 164 125 325Net book value of property, plant and equipment stated at historic cost 125 325 125 164

* Rail infrastructure was part of permanent way and works in the prior year. Rail infrastructure was revalued for the first time as at 31 March 2015.



Company Group


9. Property, plant and equipment (refer annexure B) continuedRevaluation

131 803 235 192 Gross carrying value 235 192 131 80330 714 32 063 – Pipeline networks 32 063 30 714

101 089 108 808 – Port facilities 108 808 101 089– 94 321 – Rail infrastructure** 94 321 –

(48 616) (72 268) Accumulated depreciation (72 268) (48 616)(11 927) (12 884) – Pipeline networks (12 884) (11 927)(36 689) (40 348) – Port facilities (40 348) (36 689)

– (19 036) – Rail infrastructure** (19 036) –(1 029) (1 083) Accumulated impairment (1 083) (1 029)

(252) (290) – Pipeline networks (290) (252)(777) (750) – Port facilities (750) (777)

– (43) – Rail infrastructure** (43) –

82 158 161 841Net book value of property, plant and equipment stated at revalued amounts 161 841 82 158

207 322 287 166 Total net book value 287 166 207 322Land, buildings and structuresA register of land, buildings and structures is available for inspection at the Company’s registered offices.During the year, the Group transferred R194 million (2014: R5 million) from/to investment properties to/from property, plant and equipment. The fair values of these properties are deemed cost for subsequent accounting in accordance with IAS 40 Investment Property.Rolling stock

667 639Included in rolling stock assets are capitalised leased assets with a carrying value of 639 667These assets were part of a sale and lease back arrangement giving rise to a finance lease entered into in 1997. The present value of the lease commitments has been settled in full.Pipeline networksAn external revaluation was performed during the year by Arthur D. Little Inc., an independent firm of professional valuers on the basis of the modern equivalent net asset value. In the current year a full revaluation resulted in a net increase of R843 million (2014: R467 million) to the carrying value of the Group’s pipeline networks, which has been adjusted accordingly.Fair value hierarchy

– – Level 1 – quoted prices in active markets – –– – Level 2 – significant observable inputs – –

18 535 18 889 Level 3 – significant unobservable inputs* 18 889 18 53518 535 18 889 18 889 18 535

15 610 15 418The historic cost carrying values of these assets amount to 15 418 15 610

* Refer to annexure F for more detail regarding the measurement of level 3 fair values.

** Rail infrastructure was part of permanent way and works in the prior year. Rail infrastructure was revalued for the first time as at 31 March 2015.

Company Group


9. Property, plant and equipment (refer annexure B) continuedPort facilitiesIn the current year, index valuations limited to the discounted cash flow (DCF) were applied to port infrastructure and resulted in an increase of R4 442 million (2014: R6 838 million). An index valuation applied to port operating assets resulted in an increase of R177 million (2014: R945 million).

The estimated replacement cost of port infrastructure assets that are subject to revaluation amounted to R60,1 billion (2014: R57,9 billion), however the revaluation was limited to the present value of future discounted cash flows, amounting to R58,7 billion (2014: R54,5 billion).

The fair value of port infrastructure assets based on the discounted cash flow method is sensitive to changes in the discount rate and terminal growth rates. The rates applied in the valuation at 31 March 2015 were 11,95% and 2,29% respectively (see Annexure F). For example, a 1% increase/ (decrease) in the discount rate would result in the fair value decreasing/(increasing) by R6,2 billion/ (R7,6 billion). Similarly, a 1% increase/(decrease) in the terminal growth rate would result in the fair value increasing/(decreasing) by R4,5 billion/(R3,7 billion).

Fair value hierarchy– – Level 1 – quoted prices in active markets – –– – Level 2 – significant observable inputs – –

63 623 67 710 Level 3 – significant unobservable inputs* 67 710 63 623

63 623 67 710 67 710 63 623

21 110 21 659 The historic carrying values of these assets amount to 21 659 21 110




Company Group


9. Property, plant and equipment (refer annexure B) continuedRail infrastructureDuring the year the Group adopted a policy to revalue its rail infrastructure assets in accordance with IAS 16 Property, Plant and Equipment. The assets were revalued based on the depreciated optimised replacement cost method, limited to the discounted cash flows generated by the assets in order to ensure they are not carried at amounts in excess of their recoverable amount.

The revaluation resulted in an increase in the carrying amount of the assets of R49,8 billion. The new policy was applied prospectively.

The estimated replacement cost of rail infrastructure assets based on the depreciated optimised replacement cost method is in the range of R271 billion to R343 billion. However, in accordance with Group accounting policy, the revaluation was limited to the present value of discounted future cash flows amounting to R75,2 billion.

The discounted cash flows valuation is sensitive to changes in key inputs such as the discount rate and operating cash flows. For example, a 0,1% change in the discount rate would change the asset value by R2,4 billion, while a 1% change in EBITDA results in a R2,7 billion change in the asset value.

Fair value hierarchy– – Level 1 – quoted prices in active markets – –– – Level 2 – significant observable inputs – –– 75 242 Level 3 – significant unobservable inputs* 75 242 63 623

– 75 242 75 242 63 623

22 335 25 437 The historic carrying values of these assets amount to 25 437 21 110


9. Property, plant and equipment (refer annexure B) continuedUseful lives and residual valuesIn terms of IAS 16 Property, Plant and Equipment, the useful lives and residual values of property, plant and equipment must be reviewed at each reporting date. The useful lives are estimated by management based on historic analysis, benchmarking and other available information. The residual values are based on the estimated recoverable amount from disposal of the asset at the end of its economic life.

Residual valuesDuring the year, management conducted their annual assessment of residual values on existing assets. The exercise resulted in a change in the residual values of the rolling stock and railway component of the permanent way assets. The residual values are based on scrap steel prices obtained during the financial year. This resulted in a reduction in annual depreciation expense of R36,4 million (2014: R17,4 million).

Useful livesRolling Stock – LocomotivesThe locomotive useful lives were re-assessed in relation to the locomotive phase out plan over the next 20 years based on expected deliveries of the new locomotives. The exercise resulted in a decrease in the useful lives of old locomotives and an increase in the useful lives of refurbished locomotives. The result was a net decrease in annual depreciation expense of R142,4 million (2014: R432,0 million).

Rolling Stock – WagonsThe wagons useful lives were re-assessed in relation to demand planning and conditions assessment performed by the fleet owners on the whole population of the wagons. These detailed reviews were not performed in the prior financial year and the changes of useful lives with the majority of wagons decreasing resulted in net increase of annual depreciation of R48,0 million (2014: Rnil).

Rolling Stock – Wagons maintenanceConsistent with the prior year, all wagons sub components that had capitalised expenditure incurred on them in the current year had their useful lives re-assessed and increased accordingly in accordance with the maintenance plans per wagon type. The exercise resulted in a reduction in annual depreciation expense of approximately R809,0 million (2014: R115,0 million).

Assets with less than two years remaining useful lifeManagement identified assets that had a remaining useful life of eighteen months or less that were still in use and which the Group intend to continue utilising beyond the estimated useful life. The exercise resulted in an extension in useful lives to 24 months and a reduction in annual depreciation expense of R20,4 million (2014: R8,5 million).

The above adjustments were accounted for prospectively.



Company Group


10. Investment properties7 938 8 572 Fair value at the beginning of the year 8 572 7 938

(5) 194Transferred from/(to) property, plant and equipment (refer annexure B) 194 (5)

647 315 Recognised in income statement (refer note 5) 315 647(1) – Disposals – (1)(7) (7) Transferred to assets classified as held–for–sale (7) (7)

8 572 9 074 Fair value at the end of the year 9 074 8 572

Fair value hierarchy– – Level 1 – quoted prices in active markets – –– – Level 2 – significant observable inputs – –

8 572 9 074 Level 3 – significant unobservable inputs* 9 074 8 572

8 572 9 074 9 074 8 572


The fair value of the Group’s investment properties at 31 March 2015 was arrived at on the basis of valuations carried out at that date by Transnet Property valuers.

The valuations, which conform to the Property Valuers Profession Act, No.47 of 2000, were arrived at by capitalising the first year’s normalised net operating income at a market derived capitalisation rate.

Various assumptions were made in order to derive the net present value of the future cash flows. These assumptions were arrived at after wide consultation with subject matter experts.

The more critical assumptions made were:• Future cash flows were based on the after taxation

market related rentals per investment property.• The capitalisation rate used to discount cash flows

for the purposes of determining present value was the market related return rate adjusted to reflect the appropriate risk profile of each individual property.

• Capitalisation rates ranged between 9,5% and 20,0% for the various properties.

The gross property rental income earned by the Group from its investment properties, which are leased out under gross operating leases, amounted to R1 555 million (2014: R1 446 million).

Direct operating expenses arising on investment properties during the year amounted to R452 million (2014: R377 million).

No material direct expenses (including repairs and maintenance) arising on investment property, that did not generate rental income during the period were incurred.

Company Group


11. Intangible assets972 1 273 Intangible assets 1 273 972

2 184 2 512 Cost 2 512 2 184(1 212) (1 239) Accumulated amortisation (1 239) (1 212)

Comprising:Finite life intangible assets

972 1 273 Software and licenses: carrying value 1 273 972

2 184 2 512 Cost 2 512 2 184

1 588 2 184 Balance at the beginning of the year 2 184 1 588500 392 Additions 392 500

1 3 Borrowing costs capitalised 3 1(13) (164) Disposals (164) (13)

108 97Transfers from property, plant and equipment (refer annexure B) 97 108

(1 212) (1 239) Accumulated amortisation and impairment (1 239) (1 212)

(1 054) (1 212) Balance at the beginning of the year (1 212) (1 054)13 164 Disposals 164 13

(171) (191) Amortisation (refer note 3) (191) (171)

972 1 273 1 273 972

Software and licenses are assessed as having a finite life and are amortised on a straight–line basis over a period of three to five years.

12. Investments in subsidiaries (refer annexure D)

3 3 Shares at carrying value392 391 Amounts owing by subsidiaries

395 394(392) (391) Provision for impairment and losses

3 3



Company Group


13. Investments in associates and joint ventures (refer annexure D)

9 9 113 105

10 9 Balance at the beginning of the year 105 93Equity accounted earnings 9 14

– – Dividends received (1) (1)(1) – Repayments of loans – (1)

9 9Directors’ valuation of unlisted investments in associates and joint ventures 113 105

Income from associates and joint ventures 9 14

14. Derivative financial assets and liabilitiesBoth the Company and the Group use approved financial instruments, in particular forward exchange contracts, cross–currency swaps and interest rate swaps to hedge the financial risks associated with underlying business activities. All derivative financial instruments have been measured at fair value with the resulting gain or loss taken to the statement of comprehensive income.

7 404 11 392 Derivative financial assets 11 392 7 404

3 855 7 404 Opening balance 7 404 3 8552 850 3 160 Fair value adjustments 3 160 2 850

699 828 Derivatives raised and settled 828 699

83 70 Derivative financial liabilities 70 83

85 83 Opening balance 83 8590 48 Fair value adjustments 48 90

(92) (61) Derivatives raised and settled (61) (92)

2 760 3 112 Net fair value adjustments 3 112 2 760

(372) (137) Derivative fair value adjustments (refer note 5) (137) (372)(1 067) (2 321) Finance costs (2 321) (1 067)

4 199 5 570Recognised in other comprehensive income (refer note 22) 5 570 4 199

Company Group


14. Derivative financial assets and liabilities continuedComprise the following financial instruments:

7 346 7 622 Non–current assets 7 622 7 346

6 – Forward exchange contracts – 67 340 7 622 Cross–currency swaps and options 7 622 7 340

58 3 770 Current assets 3 770 58

18 13 Forward exchange contracts 13 1840 3 757 Cross–currency swaps and options 3 757 40

46 25 Non–current liabilities 25 46

46 25 Forward exchange contracts 25 46

37 45 Current liabilities 45 37

37 45 Forward exchange contracts 45 37

Fair value hedges of firm commitmentsThe Group entered into fair value hedges of the foreign exchange risk on firm commitments of the Group to import items of property, plant and equipment. The Group settles the contract price of these items by making pre-determined progress payments (in foreign currency) to the relevant suppliers as specified milestones are achieved.

At 31 March 2015, the Group held a series of forward exchange contracts as hedging instruments for this purpose. These hedges were assessed to be effective. The ineffective portion of the hedge has been recorded in profit and loss.

The fair values of these forward exchange contracts held as hedging instruments at 31 March 2015 are as follows:

(2) 8Currency bought forward – United States Dollar profit/(loss) 8 (2)

(57) (65) Currency bought forward – Euro loss (65) (57)

The net fair value gain/(loss) recognised in profit and loss on these fair value hedges during the year was Rnil (2014: Rnil). This net fair value adjustment comprised of a loss of R42 million (2014: R11 million) with respect to foreign exchange risk on the firm commitments, and a gain of R42 million (2014: R11 million) on the forward exchange contracts.

The nominal values of these forward exchange contracts at 31 March 2015 are as follows:

Currency bought forward – Rand equivalent16 – Australian Dollar – 16

367 478 United States Dollar 478 367286 308 Euro 308 286



Company Group


14. Derivative financial assets and liabilities continuedCurrency bought forward – foreign currency

2 – Australian Dollar – 234 41 United States Dollar 41 3415 19 Euro 19 15

Cash flow hedgesCross-currency interest rate swapsOn 31 March 2015, the Group was party to cross-currency interest rate swap contracts which are designated as cash flow hedges of the foreign exchange rate and interest rate risks associated with foreign currency-denominated borrowings listed below.

The borrowings being hedged are; two loans from the Japan Bank for International Cooperation (JBIC) for JPY14,1 billion and JPY3,5 billion respectively, the American Family Life Assurance Company of Columbus (AFLAC) Japan Branch for JPY15 billion, African Development Bank (AfDB) for USD287 million, Export Development Canada (EDC) for USD80 million, a US Dollar bond for USD750 million (TNUS16), a USD Dollar bond for USD1 000 million (TNUS22) under the GMTN programme, a loan from KFW Ipex Bank for EUR49 million, and two loans from Bank of Tokyo Mitsubishi (BTMU) for USD300 million and USD200 million respectively.

Under the hedge for the first tranche of the JBIC loan, the Group pays 11,46% fixed (ZAR) and receives LIBOR +1,48% (JPY). Under the hedge for the second tranche of the JBIC loan, the Group pays 9,91% fixed (ZAR) and receives LIBOR +1,48% (JPY). Under the hedge for the AFLAC loan, the Group pays 12,22% fixed (ZAR) and receives 2,70% fixed (JPY). Under the hedge for the AfDB loan the Group pays 8,69% fixed (ZAR) and receives LIBOR + 1,75% USD). Under the hedge for the EDC loan the Group pays 7,47% fixed (ZAR) and receives LIBOR + 1,75% (USD). Under the hedge for the TNUS16 bond, the Group pays 10,4% fixed (ZAR) and receives 4,5% fixed (USD). The TNUS22 bond was hedged in two equal parts of USD500m each. Under the hedge for the first tranche of the TNUS22 bond, the Group pays 8,98% fixed (ZAR) and receives 4% fixed (USD). Under the hedge for the second tranche of the TNUS22 bond, the Group pays 8,935% fixed (ZAR) and receives 4% fixed (US dollar). Under the hedge for the KFW-Ipex loan the Group pays 9,635% fixed (ZAR) and receives 6 month Euribor plus 1,3% (EUR). Under the hedge for the first tranche of the BTMU loan, the Group pays 8,942% fixed (ZAR) and receives LIBOR plus 1,25% (USD). Under the hedge for the second tranche of the BTMU loan, the Group pays 8,97% fixed (ZAR) and receives LIBOR plus 1,25% (USD).

The terms of the cross-currency interest rate swaps closely match those of the foreign currency-denominated borrowings they hedge and were assessed as highly effective hedges. The amount of ineffectiveness recognised in profit and loss for the year with respect to these hedges was a R54 million loss (2014: R439 million loss, the 2014 amount was largely due to the inclusion of credit risk in the measurement of the swaps for the first time). The amount recycled to profit and loss to offset the hedged risks was R5 334 million credit (2014: R3 004 million credit), included in finance costs.

The cash flows are projected to occur semi-annually in February and August until February 2021 on the JBIC hedge, semi-annually in May and November until November 2019 on the AFLAC hedge, semi-annually in February and August until February 2016 on the TNUS16 bond hedge, semi-annually in February and August until August 2018 on the AfDB hedge, semi-annually in May and November until November 2018 on the EDC hedge, semi-annually in July and January until July 2022 on the both tranches of the TNUS22 bond hedge, semi- annually in March and September until March 2019 on the KFW-Ipex Bank swap.

Company Group


14. Derivative financial assets and liabilities continuedThe fair values of the cross-currency interest rate swaps at 31 March 2015 are as follows:

369 291 JBIC 291 340259 230 AFLAC 230 249

1 142 1 337 AfDB 1 337 1 129162 252 EDC 252 155

2 690 3 766 TNUS16 3 766 2 5973 168 5 295 TNUS22 5 295 2 865

50 (87) Euro (87) 50– 770 BTMU 770 –

The nominal amounts of the cross-currency interest rate swaps at 31 March 2015 are as follows:

20 346 25 261 South African Rand 25 261 20 34635 482 32 556 Japanese Yen 32 556 35 482

2 219 2 617 United States Dollar 2 617 2 21950 50 Euro 50 50

Option contractsThe cash flows have occurred in the period between 18 April 2011 and 18 June 2012.The Group’s operating activities expose it to volatility in the cost of fuel, in particular diesel. To mitigate this risk, the Group enters into commodity (gas oil) option contracts to hedge the exposure. Hedge accounting is not applied to these hedges.

45 –The fair values of these option contracts at 31 March 2015 amounts to – 45

15. Long-term loans and advances29 24 24 29

4 29 Balance at the beginning of the year 29 4(5) (7) Repayments (7) (5)

30 2 Reversal of impairment (refer note 4.2) 2 30

Comprising:27 22 Employee housing and other loans 22 27

2 27 Balance at the beginning of the year 27 2(5) (7) Repayments (7) (5)

30 2 Reversal of impairment (refer note 4.2) 2 30

2 2 Other loans and advances 2 2

2 2 Balance at the beginning of the year 2 2

29 24 24 29



Company Group


16. Other investments, long-term financial assets and other liabilities

716 669 Other financial assets 669 716

716 669Total long-term investments and long-term financial assets 669 716

67 708Short-term portion of other investments including investments under resale agreement 708 67

67 708 Total short-term investments 708 67

3 794 3 741 Security of supply petroleum levy 3 741 3 7944 28 Other 28 4

3 798 3 769 3 769 3 798

707 807 Deferred income Transnet National Ports Authority 807 707

3 038 2 934 Balance at the beginning of the year 2 934 3 038(2 007) 102 Unwinding of prior year claw back 102 (2 007)1 942 649 Additional claw back raised 649 1 942

(39) 126 Interest factor on claw back (refer note 6) 126 (39)

2 934 3 811 3 811 2 934(2 227) (3 004) Less: Short-term portion classified as current liabilities (3 004) (2 227)

110 379 Deferred income Transnet Pipelines 379 110

403 377 Balance at the beginning of the year 377 403(176) (334) Unwinding of prior year claw back (334) (176)150 548 Additional claw back raised 548 150

377 591 591 377(334) (216) Less: Short-term portion classified as current liabilities (216) (334)

67 4 Add: Long-term portion classified as non-current asset 4 67

4 615 4 955 Total other non-current liabilities 4 955 4 615

2 561 3 220 Total other current liabilities 3 220 2 561

Company Group


17. InventoriesAt weighted average cost

1 931 2 081 Maintenance material 2 081 1 931469 171 Consumables 171 469183 285 Finished goods 285 183116 111 Work–in–progress* 111 116

(237) (179) Provision for stock obsolescence** (179) (237)

2 462 2 469 2 469 2 462

At net realisable value786 883 Maintenance material 883 786

43 39 Consumables 39 43(50) (48) Provision for stock obsolescence (48) (50)

779 874 874 779

3 241 3 343 Total inventories 3 343 3 241

* Included in work in progress are costs for construction contacts in progress (refer note 27).

** The increase in the provision for stock obsolescence is due to slow moving items assessed at the end of the current financial year. No items of inventory have been pledged as security as at 31 March 2015 (2014: R nil).

18. Trade and other receivables6 080 6 299 Trade receivables – net of allowances for credit losses 6 300 6 081

590 427Amounts due from customers under construction contracts (refer note 27) 427 590

32 57 Retention debtors (refer note 27) 57 321 065 1 543 Prepayments and other amounts receivable 1 546 1 069

2 2 Short–term portion of loans and advances 2 2

7 769 8 328 8 332 7 774



Company Group


18. Trade and other receivables continuedRisk profile of allowances for credit losses (Refer annexure A)Low risk

(644) (965) Opening balance (965) (644)(322) (153) Raised (153) (322)

1 419 Utilised 419 1

(965) (699) Closing balance (699) (965)

Medium risk(43) (29) Opening balance (29) (43)(23) (135) Raised (135) (23)

– 3 Utilised 3 –37 – Disposal – 37

(29) (161) Closing balance (161) (29)

High risk(348) (385) Opening balance (403) (364)

(72) (19) Raised (19) (72)35 27 Utilised 27 33

(385) (377) Closing balance (395) (403)

Total allowances for credit losses(1 035) (1 379) Opening balance (1 397) (1 051)

(417) (307) Raised (307) (417)36 449 Utilised 449 3437 – Disposal – 37

(1 379) (1 237) Closing balance (1 255) (1 397)

19. Cash and cash equivalents3 508 6 121 Cash and cash equivalents* 6 264 3 633

3 508 6 121 6 264 3 633

* Included in cash and cash equivalents are restricted benevolent accounts amounting to R146 million (2014: R138 million).

Company Group


20. Assets classified as held–for–sale and liabilities directly associated with assets classified as held–for–sale (refer annexure C)Non–current assets classified as held–for–sale

148 30 Property, plant and equipment 30 1486 8 Investment properties 8 6

84 43 Other investments 43 84

238 81 81 238

21. Issued capitalAuthorised

30 000 30 000 30 000 000 000 ordinary par value shares of R1 each 30 000 30 000

Issued

12 661 12 66112 660 986 310 ordinary par value shares of R1 each (2014: 12 660 986 310). 12 661 12 661

The unissued share capital is under the control of the South African Government, the sole shareholder of the Company.

Capital managementThe Board’s policy is to maintain a strong capital base to maintain investor, creditor and market confidence to support future growth of the business. Capital efficiency is measured in terms of returns on equity and the asset base, as well as the gearing ratio, which is monitored by the Board. The capital structure of the Group consists of equity attributable to the equity holder, the South African Government, comprising issued capital, non–distributable reserves and retained earnings as disclosed in notes 21 and 22. Other than loan covenants, Transnet SOC Ltd is not subject to any other externally imposed capital requirements.

Based on the significant capital investment plan of the Company, as well as its revenue generating ability, the target gearing ratio will remain below the 50% limit that forms part of the Shareholder’s Compact with the Shareholder Representative (2015: actual 40,0%).

There were no changes to the capital management approach during the year.



Company Group


22. Reserves37 711 77 426 Revaluation reserve 77 426 37 711

4 435 5 218 Revaluation of pipeline networks 5 218 4 435

3 942 4 435 Balance at the beginning of the year 4 435 3 942467 843 Revaluation during the year 843 467

26 (60) Decommissioning restoration liability adjustment (60) 26

46 831 51 448 Revaluation of port facilities 51 448 46 831

39 048 46 831 Balance at the beginning of the year 46 831 39 0487 783 4 619 Revaluation during the year 4 619 7 783

– (2) Transfer to retained earnings (2) –

– 49 805 Revaluation of rail infrastructure 49 805 –

– – Balance at the beginning of the year – –– 49 805 Revaluation during the year 49 805 –

917 920 Revaluation of land, buildings and structures 920 917

890 917 Balance at the beginning of the year 917 89027 9 Fair value movement during the year 9 27

– (6) Transfer to retained earnings (6) –

74 33ALL Group Ltd (refer Annexure D) – revaluation of investment to market value 33 74

108 74 Balance at the beginning of the year 74 108(34) (41) Fair value movement during the year (41) (34)

(14 546) (29 998)Deferred taxation impact of items relating to revaluation reserve (29 998) (14 546)

Company Group


22. Reserves continued

2 132 2 154Actuarial gains on post–retirement benefit obligations 2 154 2 132

2 971 3 001Gross actuarial gains on post–retirement benefit obligations 3 001 2 971

2 733 2 971 Balance at the beginning of the year 2 971 2 733238 30 Gains arising during the year 30 238

(839) (847) Deferred taxation impact of net actuarial gains (847) (839)

– – Foreign currency translation reserve (2) –

– – Balance at the beginning of the year – (5)– – (Losses)/gains arising during the year (2) 5

1 026 1 196 Cash flow hedging reserve 1 196 1 026

1 419 1 655 Gross cash flow hedging reserve 1 655 1 419

224 1 419 Balance at the beginning of the year 1 419 2244 199 5 570 Gains arising during the year 5 570 4 199

(3 004) (5 334) Transfer to foreign exchange differences (5 334) (3 004)

(393) (459)Deferred taxation impact of items relating to cash flow hedging reserve (459) (393)

250 250 Other reserves 249 249

250 250Share of pension fund surplus (retained for application against pensioners) 249 249

43 145 48 427 Retained earnings 48 644 43 334

37 978 43 145 Balance at the beginning of the year 43 334 38 163– 8 Transfer to retained earnings 8 –

5 167 5 274 Profit for the year attributable to the equity holder 5 302 5 171

84 264 129 453 129 667 84 452



Company Group


23. Employee benefits1 668 1 583 Post–retirement benefit obligations 1 583 1 668

1 959 1 668 Balance at the beginning of the year 1 668 1 959185 165 Income statement charge 165 185

(238) (220) Settlements during the year (220) (238)(238) (30) Actuarial gains (30) (238)

Comprising:

– –Transport Pension Fund: Transnet Sub–fund (refer note 32.1.2) – –

– – Transnet Second Defined Benefit Fund (refer note 32.1.3) – –76 73 Transnet Top Management Pension (refer note 32.1.4) 73 76

440 508Transnet Workmen’s Compensation Act pensioners (refer note 32.1.4) 508 440

689 623Transnet SATS Pensioners’ post–retirement medical benefits (refer note 32.2.1) 623 689

463 379Transnet employees post–retirement medical benefits (refer note 32.2.2) 379 463

1 668 1 583 1 583 1 668

Various assumptions have been applied by management and actuaries in the calculation of post–retirement benefit obligations.

The assumptions and their sensitivities are disclosed in note 32.

75 – Other post–retirement and medical benefits – 75

176 173 Balance at the beginning of the year 173 176203 (3) Income statement movement (refer note 4.4) (3) 203

(206) (170) Utilised during the year (170) (206)

173 – – 173(98) – Less: Short–term portion classified as current liabilities – (98)

807 861 Leave pay 861 807

1 743 1 950 Balance at the beginning of the year 1 950 1 743686 784 Accruals made during the year 784 686


1 950 2 082 2 082 1 950(1 143) (1 221) Less: Short–term portion classified as current liabilities (1 221) (1 143)

Company Group


23. Employee benefits continued418 327 Incentive bonuses 327 418

1 096 1 856 Balance at the beginning of the year 1 856 1 0961 555 1 049 Accruals made during the year 1 049 1 555

(795) (1 393) Utilised during the year (1 393) (795)

1 856 1 512 1 512 1 856(1 438) (1 185) Less: Short–term portion classified as current liabilities (1 185) (1 438)

2 968 2 771 Total employee benefits 2 771 2 968

Other post-retirement and medical benefitsIncluded in total employee benefits is an amount of Rnil (2014: R128 million) for the restructuring of the SATS pensioners’ medical subsidy and Rnil (2014: R75 million) relating to an ex gratia payment to disadvantaged Transnet Second Defined Benefit Fund and Transport Pension Fund: Transnet sub-fund pensioners.

Leave payRelates to accrual for unutilised leave at year-end. The leave is expected to be taken over the next two financial years and is calculated based on employee total cost to Company.

Incentive bonusesAccrual for incentive bonuses in terms of the incentive bonus scheme.



Company Group


24. Long-term borrowings (refer annexure A)82 993 93 076 93 078 82 99566 768 82 993 Total long–term borrowings at the beginning of the year 82 995 66 77015 724 19 423 Raised 19 423 15 724

2 827 3 748 Foreign exchange movement 3 748 2 82731 35 Amortisation of discount (refer note 6) 35 31

(2 357) (13 123)

Current portion of long–term borrowings redeemable within one year transferred to short–term borrowings (refer note 29) (13 123) (2 357)Unsecured liabilities

53 069 66 760 Rand denominated 66 760 53 06946 429 49 982 Bonds at nominal value 49 982 46 429

(561) (483) Unamortised discounts (483) (561)45 868 49 499 Bonds at carrying value# 49 499 45 868

7 201 17 261 Other unsecured liabilities* 17 261 7 20127 554 35 183 Foreign currency denominated 35 183 27 55418 410 21 031 Bonds at nominal value 21 031 18 410

(125) (115) Unamortised discounts (115) (125)18 285 20 916 Bonds at carrying value† 20 916 18 285

9 269 14 267 Other unsecured liabilities 14 267 9 2694 727 4 256 Secured loans** and capitalised finance leases^ 4 258 4 7294 727 4 256 Rand denominated 4 256 4 727

– – Foreign currency denominated 2 2

85 350 106 199 Total long-term borrowings 106 201 85 352

(2 357) (13 123)

Current portion of long–term borrowings redeemable within one year transferred to short–term borrowings (refer note 29) (13 123) (2 357)

82 993 93 076 93 078 82 995# Rand denominated secured Eurorand bonds bear interest

between 10,0% and 13,5% and are repayable in 2028 and 2029 (refer annexure A).

The rand denominated unsecured and non-guaranteed GMTN bond is redeemable on 13 May 2021 and bears interest at 9,5%.

The rand denominated unsecured and non-guaranteed bonds are redeemable between 10 June 2016 and 9 October 2040 and bear interest at a rate between 7,21% and 10,8%.

† Foreign currency bonds are denominated in United States Dollar, is redeemable between 10 February 2016 and 26 July 2022, and bears interest at a rate between 4,0% and 4,5%.

Foreign currency unsecured loans are denominated in Japanese Yen and United States Dollar , bears interest at rates between 1,389% and 2,7%, and is repayable between 1 August 2018 and 20 February 2021.

* Rand denominated unsecured domestic loans bear interest at rates ranging between 7,758% and 10,95%. These liabilities are repayable over periods between 15 March 2019 and 19 July 2032.

** Rand denominated secured loans bear interest at rates ranging between 6,55% and 8,85% with floating rates linked to JIBAR. These liabilities are repayable over periods between 30 April 2020 and 15 September 2023.

^ Rand denominated capitalised finance lease liabilities bear interest at rates ranging between 11,25% and 16,93% with all rates fixed. These liabilities are repayable over periods between 2015 and 2028.

Company Group


25. Provisions1 890 1 937 Comprising 1 937 1 890

1 902 1 890 Total provisions at the beginning of the year 1 890 1 902

552 1 289Provisions raised during the year and unwinding of discounts 1 289 552

(739) (1 210) Provisions utilised (1 210) (739)175 (32) Short–term provisions classified as current liabilities (32) 175

340 359 Third–party claims 359 340

189 340 Balance at the beginning of the year 340 189368 235 Provisions made during the year 235 368


33 34 Customer claims 34 33

44 33 Balance at the beginning of the year 33 44– 1 Provisions made during the year 1 –

(11) – Utilised during the year – (11)

2 026 2 076 Decommissioning and environmental liabilities 2 076 2 026

2 037 2 026 Balance at the beginning of the year 2 026 2 037

33 170Provisions made during the year and unwinding of discounts 170 33


24 24 Restructuring 24 24

29 24 Balance at the beginning of the year 24 29(5) – Utilised during the year – (5)

283 292 Other 292 283

594 283 Balance at the beginning of the year 283 594151 883 Provisions made during the year 883 151


2 706 2 785 Total provisions 2 785 2 706

816 848Less: Short–term provisions classified as current liabilities 848 816

340 359 Third party claims 359 34033 34 Customer claims 34 33

160 163 Decommissioning and environmental liabilities 163 160283 292 Other 292 283

1 890 1 937 Long–term provisions 1 937 1 890



25. Provisions continuedVarious assumptions are applied in arriving at the carrying value of provisions that are recognised in terms of the requirements of IAS 37 Provisions, Contingent Liabilities and Contingent Assets.

Management further relies on input from the Group’s lawyers in assessing the probability on matters of a contingent nature. Contingent liabilities are disclosed in note 31.

Third-party claimsThis provision represents the best estimate of known third party claims together with an allowance for claims incurred but not yet reported based on historical experience.

Customer claimsThis provision represents claims made by customers arising from non-performance on contracts or damage to goods in transit. Settlement of claims are expected in the following year.

Decommissioning and environmental liabilitiesThis is a provision for the dismantling and removal of an asset as a result of the requirement to restore the site on which the asset is located. The provision has been computed by discounting future cash flows.

In accordance with the Group’s environmental policy and applicable legal requirements, a provision for environmental rehabilitation in respect of clean-up costs is recognised when it meets the recognition requirements for provisions. The provision includes the estimated rehabilitation costs for the historical contamination caused by asbestos as well as costs for the rehabilitation caused by ferromanganese, manganese, mixed soil (including chrome, sulphur and manganese) fuel and rubble contamination.

Environmental provisions for the remediation of soil contaminated areas have been raised. These include provisions for the removal of asbestos, ferromanganese, manganese, mixed soil (including chrome, sulphur and manganese) fuel and rubble. These obligations arise from environmental legislation requiring Transnet to remove this waste material and remediate the land. Transnet engaged external consultants to perform risk assessments on identified areas of contamination and the Group’s related rehabilitation obligation. A number of factors were considered in determining the obligation, which included:• The extent of the contamination.• The cost per ton/per running line kilometre of removal and disposal of the contamination.• The costs of rehabilitation of the identified areas of contamination.• The costs estimated for the removal and replacement of asbestos roof sheeting and cladding on buildings.

RestructuringProvision for restructuring costs in terms of strategic plans.

Company Group


26. Deferred taxation liabilities25 209 43 087 Comprising: 43 087 25 209

20 471 25 209 Opening balance 25 209 20 4712 019 2 352 Income statement charge (refer note 8) 2 352 2 0192 719 15 526 Raised in other comprehensive income 15 526 2 719

Analysis of major categories of temporary differences6 689 8 133 Deferred taxation assets 8 133 6 689

957 892 Provisions 892 9571 693 1 523 Employee benefit obligations 1 523 1 6932 146 2 694 Revenue received in advance and deferred income 2 694 2 146

925 701 Capitalised lease liability 701 925295 266 Doubtful debts 266 295673 2 002 Estimated taxation loss 2 002 673

– 55 Other 55 –

31 898 51 220 Deferred taxation liabilities 51 220 31 898

164 149 Deferred expenditure 149 16431 390 50 403 Property, plant and equipment 50 403 31 390

25 207 Future expenditure allowance 207 25265 461 Cross–currency swaps 461 265

54 – Other – 54

25 209 43 087 Net deferred taxation liability 43 087 25 209

No deferred taxation asset has been raised in respect of secondary taxation on companies credits available as they are unlikely to be utilised given the capital requirements of the company and the change in regime from secondary taxation on companies to a withholding taxation on dividends, from which the Company is exempt.



Company Group


27. Construction contractsContracts in progress at the statement of financial position date:

1 634 1 199Construction costs incurred plus recognised profits less losses to date 1 199 1 634

(1 045) (778) Less: progress billings (778) (1 045)

589 421 421 589

Recognised and included in the financial statements:Income statement

1 077 836 Contract revenue (refer note 1) 836 1 077

Statements of financial position

590 427Amounts due from customers under construction contracts (refer note 18) 427 590

32 57 Retention debtors (note 18) 57 32

Contract revenue is recognised when the completed stage has been signed off as proof of quality satisfaction by the external customer.

28. Trade payables and accruals3 456 3 572 Trade payables 3 576 3 460

10 873 15 208 Accruals 15 232 10 897

5 118 8 601 Accrued expenditure 8 625 5 142111 82 Deposits received 82 111

1 592 1 787 Accrued interest 1 787 1 592675 967 Personnel costs 967 675393 991 Revenue received in advance 991 393

98 – Other post-retirement and medical benefits (refer note 23) – 981 143 1 221 Leave pay (refer note 23) 1 221 1 1431 438 1 185 Incentive bonus (refer note 23) 1 185 1 438

305 374 SARS - value added taxation 374 305

14 329 18 780 18 808 14 357

Company Group


29. Short-term borrowings

2 357 13 123Current portion of long-term interest-bearing borrowings (refer note 24) 13 123 2 357

5 092 4 176 Other short-term borrowings 4 176 5 092

7 449 17 299 17 299 7 449

Other short-term borrowings relate to the market making portfolio and comprises the Group’s position on bonds and other financial instruments.

The short-term borrowings bear interest at rates between 1,389% and 10,95%, are repayable between April 2015 and March 2016 and are not guaranteed.

30. Commitments:30.1 Capital commitments*

54 26 Contracted for in US Dollars 26 54107 21 Contracted for in Euros 21 107

140 880 68 391 Contracted for in SA Rands 68 391 140 88022 14 Contracted for in various other currencies 14 22

141 063 68 452 Total capital commitments contracted for 68 452 141 063171 090 268 149 Authorised by the Directors but not yet contracted for 268 149 171 090312 153 336 601 336 601 312 153

Total capital commitments are expected to be incurred as follows:

30 613 33 592 Within one year 33 592 30 613182 158 205 815 After one year, but not more than five years 205 815 182 158

99 382 97 194 After five years, but not more than seven years 97 194 99 382312 153 336 601 336 601 312 153

These capital commitments will be financed utilising net cash flow from operations, debt capital markets, project finance and the use of operating leases.* Excludes capitalised borrowing costs of R18 371 million

(2014: R18 894 million).



Company Group


30. COMMITMENTS continued30.2 Operating lease commitments

Future minimum rentals under non–cancellable leases are as follows:Land, buildings and structures

138 143 Within one year 143 138423 489 After one year, but not more than five years 489 423296 244 More than five years 244 296857 876 876 857

Aircraft, machinery, equipment, furniture and motor vehicles

102 117 Within one year 117 102246 180 After one year, but not more than five years 180 246

1 5 More than five years 5 1349 302 302 349

Security and maintenance contracts90 62 Within one year 62 9022 17 After one year, but not more than five years 17 22

112 79 79 112Other

34 66 Within one year 66 3412 5 After one year, but not more than five years 5 12

– 21 More than five years 21 –46 92 92 46

The operating leases relate mainly to leases of vehicles from McCarthy, Bidvest and other companies. These leases have varying terms. On certain leases, contingent rent is payable for vehicles that exceed the fixed kilometres on a monthly basis.

30.3 Finance lease commitmentsThe finance leases relate to the Kimberley De Aar transmission line and computer equipment. These finance leases have a lease term ranging between three to 15 years. The interest rates vary from 11.25% to 16.93%.

Future minimum lease payments under finance leases together with the present value of the net minimum lease payments are as follows:

Machinery, equipment and furniture35 40 Within one year 40 3566 69 After one year, but not more than five years 69 6698 86 More than five years 86 98

199 195 Total minimum lease payments 195 199(100) (88) Amount representing finance charges (88) (100)

99 107 Present value of minimum lease payments 107 99

Company Group


30. COMMITMENTS continued30.3 Finance lease commitments

Included in the financial statements as:21 27 – Current borrowings 27 2178 80 – Non-current borrowings 80 78

99 107 107 99

30.4 Lease rentals receivableFuture minimum rentals under operating leases are as follows:Property

1 588 1 996 Within one year 1 996 1 5884 961 5 973 After one year, but not more than five years 5 973 4 9617 397 7 855 More than five years 7 855 7 397

13 946 15 824 15 824 13 946

Other24 24 Within one year 24 24

– – After one year, but not more than five years – –– – More than five years – –

24 24 24 24

The lease rentals relate mainly to land and buildings. These are mainly short-term rentals with an escalation varying from 8,0% to 10,0%.

31. Contingent liabilities and guarantees

225 369Various contingent liabilities where no material losses are expected to materialise 369 225

45 14Various contingent assets where the inflow of economic benefits is probable, but not virtually certain 14 45



32. Post-retirement benefit obligationsThe Group offers pension benefits through two defined benefit pension funds and one defined contribution fund. The Group also offers post-retirement medical benefits to its employees. Specific retirement benefits are offered to top management and under the Workmen’s Compensation Act. The following sections summarise the relevant components of the pension benefits and post-retirement medical benefits. (All amounts disclosed are equal for Company and Group unless otherwise stated).

32.1 Pension benefitsTransnet has three pension funds, namely the Transnet Retirement Fund; Transport Pension Fund and Transnet Second Defined Benefit Fund. Except for the Transnet Retirement Fund, actuarial valuations are performed annually in accordance with IAS 19 Employee Benefits. The Transnet Pension Funds are governed by the Transnet Pension Fund Act, No. 62 of 1990, as amended.

32.1.1 Transnet Retirement FundThe fund is structured as a defined contribution fund and all employees of the Group are eligible members of the fund. There were 55 496 members at 31 March 2015 (2014: 65 443). Actuarial valuations are performed annually to determine the financial position of the fund. The last actuarial valuation was performed as at 31 March 2014 and the actuaries were satisfied with the status of the member’s credit account as at that date. The total contributions to this fund constitute member contributions of R997 million (2014: R896 million) and employer contributions of R983 million (2014: R886 million).

32.1.2 Transport Pension Fund: Transnet Sub-fundThe fund is a defined benefit pension fund. The fund has been closed to new members since 1 December 2000. Members are current employees of Transnet who elected to remain as members of the fund at 1 November 2000 and pensioner members who retired subsequent to that date.

Members of the Fund are entitled to minimum benefits as per the Pensions Fund Second Amendment Act, 2001, as set out in Section 14A of the Act. This minimum benefit is defined in Section 14B (2)(a) of the Act as the fair value equivalent of the present value of the member’s accrued deferred pension calculated at a prescribed rate of discount.

The Transnet Pension Fund Amendment Act, promulgated in the latter part of 2007, changed the name of the fund with effect from 11 November 2005 to the Transport Pension Fund. This Act restructured the Transport Pension Fund (formerly the Transnet Pension Fund) into a multi - employer pension fund. From the date this Act came into operation, all existing members, pensioners, dependant pensioners, liabilities, assets, rights and obligations, of the Transport Pension Fund, were attributed to three Sub-funds, with Transnet as the principal employer for one of the Sub-funds. In terms of these Act amendments a Sub-fund in the name of South African Airways (Pty) Ltd was also established as at 1 April 2006, with South African Airways (Pty) Limited as the principal Employer of that Sub-fund, and a further Sub-fund in the name of the South African Rail Commuter Corporation Ltd (now Passenger Rail Agency of South Africa) was established with effect from 1 May 2006, with the South African Rail Commuter Corporation Ltd as the principal employer of that Sub-fund.

All active members and pensioner members relating to South African Airways (Pty) Ltd and the South African Rail Commuter Corporation Ltd were assigned to these new Sub-funds. The Transport Pension Fund therefore comprises three independent and separate Sub-funds, each with their own principal employer. An employer’s liability to the Transport Pension Fund is limited to those attributable to its members, pensioners and dependent pensioners assigned to its Sub-fund.

There were 4 866 members and pensioners at 31 March 2015 (2014: 4 975). The fund gives members the option to transfer to the Transnet Retirement Fund twice a year. Altogether, 37 members opted to transfer to the Transnet Retirement Fund in the current year (2014: 13). The effect of this transfer is noted below.

Group

2015 2014

R million R million

32. Post-retirement benefit obligations continued32.1.2 Transport Pension Fund continued

An actuarial valuation was performed as at 31 March 2015 based on the projected unit credit method. The principal actuarial assumptions used are as follows:

Discount rate 8,47% 8,65%Inflation rate 6,59% 6,37%Salary increase rate 7,59% 7,37%Pension increase allowance 2,00% 2,00%

The results of the actuarial valuation are as follows:Benefit liabilityPresent value of obligation (3 051) (3 072)Fair value of plan assets 6 132 5 364

Surplus 3 081 2 292Unrecognised asset (3 081) (2 292)

Net asset/(liability) recognised in the statement of financial position – –

The liability recognised for this fund relating to the Company amounts to Rnil (2014: Rnil).

The surplus was not recognised as the rules of the fund do not provide for the surpluses to be distributed.

Net expense recognised in profit or lossService cost (23) (31)Net interest income 196 124

173 93Less: interest on asset limit (198) (126)

(25) (33)

Actual return on plan assets 1 110 481Total remeasurements recognised in other comprehensive income for the year 14 20

– net actuarial gain 605 438– interest on asset limit 198 126– asset not recognised (789) (544)

Movements in the net asset/(liability) recognised in the statement of financial positionOpening net asset 2 292 1 748Loss as above (25) (33)Remeasurements – actuarial gain 605 438– interest on asset limit 198 126Contributions paid by employer 11 13

Closing net asset 3 081 2 292Asset not recognised (3 081) (2 292)




Group

2015 2014

R million R million

32. Post-retirement benefit obligations continued32.1.2 Transport Pension Fund continued

Reconciliation of movement in benefit liabilityOpening benefit liability (3 072) (3 487)Service cost (23) (31)Contributions by members (7) (9)Interest cost (255) (240)Actuarial (loss)/gain (54) 321

– change in economic assumptions (39) 393– experience adjustments 23 (36)– bonus award to pensioners (38) (36)

Benefits paid 314 360Expenses 2 2

(3 095) (3 084)Transfer to the retirement fund 44 12

Closing benefit liability (3 051) (3 072)

Reconciliation of movement in fair value of plan assetsOpening fair value of plan assets 5 364 5 235Interest income 451 364Actuarial gain 659 117Contributions by employer and members 18 22Benefits paid (314) (360)Expenses (2) (2)

6 176 5 376Transfer to the retirement fund (44) (12)

Closing fair value of plan assets 6 132 5 364

The estimated contributions by both employer and members for the year beginning 1 April 2015 amount to R18 million (2014: R22 million).

Sensitivity analysisClosing benefit liability based on changes in the discount rate:7,47% (2014: 7,65%) 3 335 3 3569,47% (2014: 9,65%) 2 807 2 828

Closing benefit liability based on changes in the inflation rate:5,59% (2014: 5,37%) 2 999 3 0257,59% (2014: 7,37%) 3 106 3 124

The major categories of plan assets as a % of total plan assets are:Equity – local and international 67% 73%Property – –Bonds 33% 27%Cash – –

Total 100% 100%

Group

2015 2014

R million R million

32. Post-retirement benefit obligations continued32.1.3 Transnet Second Defined Benefit Fund

The fund was established on 1 November 2000 for the benefit of existing retired members and qualifying beneficiaries. The fund includes the spouses of black pensioners who retired from Transnet between 16 December 1974 and 1 April 1986 (previously reported under the Black Widows Pension Fund before 31 March 2010). There were 20 723 members at 31 March 2015 (2014: 22 592). This excludes widows and children of pensioners, as well as the black widows. The all inclusive membership is 59 320 at 31 March 2015 (2014: 62 504). The entire obligation relates to Transnet SOC Ltd.

The actuarial valuation was based on the projected unit credit method. The principal actuarial assumptions used are as follows:Discount rate 8,09% 8,46%Pension increase allowance 2,00% 2,00%

The results of the actuarial valuation are as follows:

Benefit liabilityPresent value of obligation (13 611) (14 470)Fair value of plan assets 17 085 17 036

Surplus 3 474 2 566Unrecognised asset (3 474) (2 566)


The surplus was not recognised as the rules of the fund do not provide for the surpluses to be distributed.

Net expense recognised in profit or lossService cost – –Net interest income 195 149

195 149Less: interest on asset limit (195) (149)

– –

Actual return on plan assets 1 962 809Total remeasurements recognised in other comprehensive income for the year – –

– net actuarial gain 713 160– interest on asset limit 195 149– net asset not recognised (908) (309)

Movements in the net asset/(liability) recognised in the statement of financial positionOpening net asset 2 566 2 257Profit or loss as above – –Remeasurements – actuarial gain 713 160– interest on asset limit 195 149

Closing net asset 3 474 2 566Asset not recognised (3 474) (2 566)




Group

2015 2014

R million R million

32. Post-retirement benefit obligations continued32.1.3 Transnet Second Defined Benefit Fund

Reconciliation of movement in benefit liabilityOpening benefit liability (14 470) (16 168)Interest cost (1 025) (995)Actuarial (loss)/gain (29) 495

– change in economic assumptions 222 987– experience adjustments 50 (180)– bonus award to pensioners (301) (312)

Benefits paid 1 913 2 198

Closing benefit liability (13 611) (14 470)

Reconciliation of movement in fair value of plan assetsOpening fair value of plan assets 17 036 18 425Interest income 1 220 1 144Actuarial gain/(loss) 742 (335)Benefits paid (1 913) (2 198)

Closing fair value of plan assets 17 085 17 036

The estimated contributions by both employer and members for the year beginning 1 April 2015 amount to R Nil (2014: R Nil).

Sensitivity analysisClosing benefit liability based on changes in discount rate:7,09% (2014: 7,46%) 14 427 14 6089,09% (2014: 9,46%) 12 876 12 941

Equity 27% 26%Property 1% 1%Bonds 67% 69%Cash and net current assets 5% 4%

Total assets at market value 100% 100%

32. Post-retirement benefit obligations continued32.1.4 Top Management Pension and Workmen’s Compensation Act pensioners

The Top Management Pensions are additional benefits to top up pensions received to eliminate the effects of any early retirement and resignation penalties applied under the Group’s existing pension fund schemes to management appointed prior to 1 April 1999. There were 383 members at 31 March 2015 (2014: 391). The entire obligation relates to Transnet SOC Ltd.

The Workmen’s Compensation Pension Fund Act benefit relates to the pension benefits that the Company pays to current and former employees who were disabled whilst in service prior to the corporatisation of Transnet in 1990. There were 1 178 members at 31 March 2015 (2014: 1 241).

Actuarial valuations for both benefits were performed to determine the present value of the obligations based on the projected unit credit method. There are no plan assets held to fund these obligations.

The following summarises the components of expense and liability recognised in the financial statements together with the assumptions adopted.

Group

2015 2014

R million R million

Top Management PensionThe principal assumptions in determining the benefits are as follows:Discount rate 7,72% 8,36%Inflation rate 5,91% 6,38%Salary increase rate 6,91% 7,38%Pension increase allowance 2,00% 2,00%

Benefit liabilityPresent value of obligations (73) (76)

Liability recognised in the statement of financial position (73) (76)

Net expense recognised in profit or lossInterest cost (6) (6)

(6) (6)

Actuarial (loss)/gain recognised in other comprehensive income for the year (1) 10

Reconciliation of movement in benefit liabilityOpening benefit liability (76) (89)Expense as above (6) (6)Actuarial (loss)/gain (1) 10

– change in economic assumptions (4) 10– experience adjustments 3 –

Benefits paid 10 9

Benefit liability at year-end (73) (76)

The estimated contributions (based on current year contribution) for the year beginning 1 April 2015 amount to R9 million (2014: R9 million).

Sensitivity analysisClosing benefit liability based on changes in discount rate:6,72% (2014: 7,36%) 77 818,72% (2014: 9,36%) 68 71

Closing benefit liability based on changes in the inflation rate:4,91% (2014: 5,38%) 73 766,91% (2014: 7,38%) 73 76



Group

2015 2014

R million R million

32. Post-retirement benefit obligations continued32.1.4 Top Management Pensions and Workmen’s Compensation Act

pensioners continuedWorkmen’s Compensation Act pensioners fundThe principal assumptions in determining the benefits are as follows:Discount rate 8,33% 8,62%Pension increase 6,47% 6,36%Inflation rate 6,47% 6,36%




(36) (32)

Remeasurements recognised in other comprehensive income for the year (82) 21

Reconciliation of movement in benefit liabilityOpening benefit liability (440) (481)Interest cost (36) (32)Actuarial (loss)/gain (82) 21

– change in economic assumptions (17) 21– experience adjustment (65) –

Benefits paid 50 52

Benefit liability at year-end (508) (440)


Closing benefit liability based on changes in the inflation rate:5,47% (2014: 5,36%) 462 3927,47% (2014: 7,36%) 561 489

32.1.5 HIV/Aids benefitsTransnet Group offers certain assistance to employees diagnosed with Aids. The related data is not sufficient to actuarially value any liability the Group may have in this regard.

32. Post-retirement benefit obligations continued32.2 Post-retirement medical benefits

SATS Pensioners’ post-retirement medical benefitsThe SATS pensioners are the retired employees of the former South African Transport Services (SATS) and their dependants. The liability is in respect of pensioners and their dependants who have elected to belong to the Transnet in-house medical scheme, Transmed, whose membership is voluntary. Transnet subsidises the medical contribution costs at a flat contribution of R800 per principal member per month.

Transnet employees post-retirement medical benefitsThis includes the current and past employees of Transnet who are members of Transnet accredited medical schemes, namely Transnet’s in-house medical aid, Transmed Medical Fund, Bestmed, Bonitas, Discovery Health and Sizwe. Membership is voluntary.

Transnet subsidises members at a flat contribution of R213 per month per member family.

To enable the Company to fully provide for such post-retirement medical liabilities, since April 2000, actuarial valuations are obtained annually. There are no assets held to fund the obligation.

Analysis of benefit expenseThe following summarises the components of the net benefit expense recognised in both the statement of comprehensive income and statement of financial position as at 31 March 2015 for both SATS pensioners and Transnet Employees. The projected unit credit method has been used for the purposes of determining the actuarial valuation for both the funds.

Group

2015 2014

R million R million

32.2.1 SATS pensionersDiscount rate 7,92% 8,46%




(47) (56)

Actuarial (loss)/gain recognised in other comprehensive income for the year (11) 65

Reconciliation of movement in benefit liabilityOpening benefit liability (689) (832)Interest cost (47) (56)Company contributions 124 134Actuarial (loss)/gain (11) 65

– change in economic assumptions (15) 65– experience adjustment 4 –

Closing benefit liability (623) (689)

The medical inflation has no impact on the aggregate current service cost and interest cost and the benefit liability. However, the assumed discount rate has an impact. The sensitivity of the obligation to a change in the assumed discount rate of 7,92% (2014: 8,46%) on the present value of the obligation is as follows:


The estimated contribution (based on current year contribution) for the year beginning 1 April 2015 is R124 million (2014: R134 million).



Group

2015 2014

R million R million

32. Post-retirement benefit obligations continued32.2.2 Transnet employees

Discount rate 7,92% 8,46%



Net expense recognised in profit or lossService cost (14) (20)Interest cost (37) (38)

(51) (58)

Actuarial gain recognised in other comprehensive income for the year 110 122

Reconciliation of movement in benefit liabilityOpening benefit liability (463) (557)Expense as above (51) (58)Member and Company contributions 25 30Actuarial gain 110 122

– change in economic assumptions (28) 122– experience adjustments 138 –

Closing benefit liability (379) (463)

Transnet subsidises members at a flat contribution of R213 per month per member family. The medical inflation has no impact on the aggregate current service cost and interest cost and the benefit liability. However, the assumed discount rate has an impact. The sensitivity of the obligation to a change in the assumed discount rate of 8,46% (2014: 8,46%) on the present value of the obligation is as follows:

Sensitivity analysisClosing benefit liability based on changes in discount rate:6,92% (2014: 7,46%) (409) (504)8,92% (2014: 9,46%) (351) (427)

The estimated contribution (based on current year contribution) for the year beginning 1 April 2015 is R25 million (2014: R30 million).

Exposure to risksThe risks faced by Transnet as a result of the post-employment pension obligations can be summarised as follows:• Inflation: The risk that future CPI inflation is higher than expected and uncontrolled;• Longevity: The risk that pensioners live longer than expected and thus their pension benefit is payable for longer

than expected;• Open-ended, long-term liability: The risk that the liability may be volatile in the future and uncertain;• Future changes in legislation: The risk that changes to legislation with respect to the post-employment liability may

increase the liability for the company; and• Future changes in the taxation environment: The risk that changes in the tax legislation governing employee

benefits may increase the liability for the company.

The plan assets held by the Transnet Pension Fund: Transnet Sub-fund and the Transnet Second Defined Benefit Fund are primarily invested in equities and bonds. This exposes the funds to a slight concentration of market risk. If the plan assets are not adequate or suitable to fund the liabilities of the funds (and the nature thereof), Transnet will be required to fund the deficit, hence exposing it to risks on the investment return.

33. Related party transactionsTransnet is a Schedule 2 Public Entity in terms of the Public Finance Management Act (PFMA). It therefore has a significant number of related parties including other State-owned entities, Government departments and all other entities within the national sphere of Government. The Group has utilised the database maintained by the National Treasury to identify related parties. A list of all related parties is available at the National Treasury website: www.treasury.gov.za, or at the Company’s registered office.In addition, the Company has a related party relationship with its subsidiaries (see annexure D). The Group and Company have related party relationships with its associates (see annexure D) and with its directors and senior executives (key management).Unless otherwise disclosed, all transactions with the above related parties are concluded on an arm’s length basis.Furthermore, neither the Group nor any of its related parties is obligated to procure from or render services to their related parties.Transactions with related entitiesServices rendered to related parties comprise of principally transportation services. Services purchased from related parties comprised principally of energy, telecommunications, information technology and property related services.The following is a summary of transactions with related parties during the year and balances due at year-end according to Transnet’s records:

Company Group


Services rendered390 1 650 Major public enterprises 1 650 390

1 203 404 Other public enterprises 404 1 203969 978 National Government business enterprises 978 969

28 27 Associates 27 286 7 Subsidiaries

2 596 3 066 3 059 2 590Services received

2 171 2 411 Major public enterprises 2 411 2 171628 322 Other public enterprises 322 628440 880 National Government business enterprises 880 440

3 239 3 613 3 613 3 239Amount due from/(to)

298 391 Major public enterprises 391 298132 95 Other public enterprises 95 132

(1 374) (2 200) National Government business enterprises (2 200) (1 374)– 1 Associates 1 –

(944) (1 713) (1 713) (944)During the year the Group reversed R319 million (2014: R178 million) in relation to provisions and write-offs of bad debts on related parties and at year-end the Group had a provision of R485 million (2014: R744 million) against debtors pertaining to related parties.Transactions with key management personnelLoans to key management are included in “Long-term loans and advances” (refer note 15).Details of key management compensation are set out in the Report of Directors of the annual financial statements.

None of key management has or had significant influence in any entity with whom the Group had significant transactions during the year.



Company Group


34. Cash flow information34.1 Cash generated from operations

7 120 7 553 Profit before taxation 7 590 7 1355 870 6 128 Finance costs (refer note 34.3) 6 128 5 870

(346) (212) Finance income (refer note 34.4) (221) (366)(37) (1) Dividend income – –

11 425 13 793 Elimination of non–cash items 13 783 11 404

10 736 10 951– Depreciation, amortisation and derecognition

(refer note 3) 10 951 10 736328 53 – Increase in provision for employee benefits 53 328

3 –– Impairment of loss making subsidiaries and associates

(refer note 4.2) – –

(70) 522– Impairment of trade and other receivables and loans

and advances (refer note 4.2) 522 (70)

177 442– Impairment of property, plant and equipment

(refer note 4.2) 442 177(333) 1 018 – Movement in provisions 1 018 (333)

– Income from associates and joint ventures (note 13) (9) (14)(1 565) (2 876) – Fair value adjustments on derivatives (2 876) (1 565)2 933 4 215 – Unrealised foreign exchange losses 4 215 2 933

(54) (156)– Profit on sale of property, plant and equipment

(refer note 2) (156) (54)31 35 – Discount on bonds amortised (refer note 6) 35 31

(82) (60) – Provision for inventory obsolescence (60) (82)(41) (38) – Release of firm commitments (refer annexure B) (38) (41)

(647) (315)– Fair value adjustment of investment property

(refer note 5) (315) (647)9 2 – Other non–cash items 1 5

24 032 27 261 27 280 24 043

34.2 Changes in working capital241 (42) (Decrease)/increase in inventories (42) 241

(1 486) (1 083) Increase in trade and other receivables (1 082) (1 486)2 480 4 451 Increase in trade and other payables 4 451 2 473

1 235 3 326 3 327 1 228

34.3 Finance costs5 911 6 287 Finance costs 6 287 5 917

(49) 2 Net foreign exchange gain/(loss) on translation 2 (55)39 (126) Interest factor on claw back (126) 39

(31) (35) Discounts on bonds amortised (35) (31)

5 870 6 128 6 128 5 870

34.4 Finance income346 212 Finance income 221 366(45) (16) Interest received – Held-to-maturity (16) (45)

301 196 205 321

Company Group


34. Cash flow information continued34.5 Taxation refunded

(52) (6) Balance at the beginning of the year (11) (56)72 73 Taxation as per income statements 64 61

6 34 Balance at the end of the year 38 11

26 101 91 16

34.6 Cash and cash equivalents3 508 6 121 Total cash and cash equivalents at the end of the year 6 264 3 633

35. Headline earnings5 167 5 274 Profit for the year attributable to equity holder 5 302 5 171

(54) (156)Profit on disposal of property, plant and equipment (refer note 4.1) (156) (54)

(647) (315)Fair value adjustments on investment properties (refer note 5) (315) (647)

177 442Impairment of property, plant and equipment (refer note 4.2) 442 177

3 – Impairment of associates and subsidiaries (refer note 4.2) – –

4 646 5 245 Headline earnings before taxation effects 5 273 4 647

Taxation effects15 44 Profit on disposal of property, plant and equipment 44 15

121 59 Fair value adjustments on investment properties 59 121(50) (124) Impairment of property, plant and equipment (124) (50)

(1) – Impairment of associates and subsidiaries – –

4 731 5 224 Headline earnings 5 252 4 733

36. Reportable irregularityThe Company’s external auditors reported an irregularity in terms of Section 45(1) of the Auditing Profession Act, 2005 (No.26 of 2005) to the Independent Regulatory Board for Auditors. The irregularity relates to an alleged acceptance of R300 000 by a senior official of the Company from a service provider to influence a settlement agreement between the Company and the service provider.

The Company subsequently commissioned an independent forensic investigation on the matter and the investigation is not yet finalised. The investigation thus far indicates that there is no evidence linking the payment of the R300 000 to the senior official of the Company to the settlement agreement with the service provider, as was alleged. Over and above commissioning a forensic investigation the matter was reported to the South African Police Services for further investigation, as the Board of Directors considers it continued success to be dependent on the consistent enforcement of, and adherence to, principles of the highest standard of corporate governance and ethics.



IntroductionThe Group has a centralised Treasury function which performs a supporting role to the Transnet Operating divisions and is tasked with the following three main objectives, namely:• Ensuring that the Group is cost-effectively and timeously funded in support of the Group’s Market Demand

Strategy (MDS), which are mainly executed by the Operating divisions;• Manage both financial and operational risks; and • Lower the overall cost of doing business and add value to the overall business of Transnet.

All of these objectives should be performed in a professional and ethical manner in line with Transnet’s governance framework.

PoliciesThe Financial Risk Management policies are contained in a Board approved Financial Risk Management Framework (FRMF). The objective of the FRMF is to provide clear guidelines to effective risk management by ensuring that:• Risks are independently identified, assessed, quantified, mitigated and monitored regularly; • Mitigating hedging strategies are developed and implemented;• The effectiveness of hedging strategies are monitored monthly; and • Risk exposures are performance measured and formally reported to appropriate authorities.

The FRMF is approved by the Board on an annual basis and is aligned with the Group Enterprise Wide Risk Management Framework (ERM), the Treasury Regulations in terms of PFMA, Public Finance Management Act 1 of 1999 (as amended) (PFMA), King III Code and the Protocol on Corporate Governance, Charter of Best Practice of the Association of Corporate Treasurers of South Africa (ACTSA) and other applicable legislation and regulations.

Apart from the requirements of the FRMF, Treasury must operate within the limits as contained in the Transnet Delegation of Authority Framework (DOA) as approved by the Board.

Risk philosophyThe overall risk management philosophy of Transnet SOC Ltd is to the extent possible, avoid undue risks and manage business risks effectively. However, given the nature of Transnet’s business and Market Demand Strategy (MDS), it is not always possible to avoid risks all together. In pursuit of its business, the Group is exposed to a myriad of risks including but not limited to market, credit, liquidity and operational risks. The long term viability, continued success and reputation of Transnet are critically dependent on the credibility of risk management, and commitment to applying leading practice in risk management.

Risk profile and risk managementFinancial risk assessment and analysis are disclosed on a monthly basis to the Group Treasurer, the Group Chief Financial Officer, the Group Finance Committee (FINCO) and the Group Executive Committee (EXCO). Group EXCO is responsible for reporting financial risk exposures to the Transnet Board of Directors at scheduled Board meetings.

The Group’s business operations expose it to liquidity, credit, and market risk (comprising foreign currency, commodity, interest rate and other price risk), which are discussed under the headings below. Given the level of volatility in the markets, Treasury will continuously manage all risks very closely so as to implement risk mitigating initiatives timeously when required.

Liquidity risk

Liquidity risk exposures arise mainly as a result of the Group’s seven year Market Demand Strategy (MDS) and operational expenditure programme, the redemption of loans and daily operational cash requirements. The Group has established a liquidity risk management policy with the following main objectives:• To manage the contractual maturity gap between assets and liabilities;• To manage current and projected cash flows;• To maintain an adequate level of cash holdings;• To diversify funding sources and have funding programmes available to reduce reliance on particular sources

to support effective liquidity risk management;• To spread the maturity of debt issues to reduce refinancing risk; • To do pre-funding of major capital redemptions to mitigate liquidity risk; and• Where needed, extend the debt portfolio to match the underlying assets.

During the past financial year, Transnet has used the following funding programmes extensively to mitigate liquidity risk exposures; the Domestic Medium Term Note programme (The total value of the DMTN programme is R55 billion. Total Bonds and Commercial Paper issued under the DMTN programme was R3,6 billion and R5,5 billion respectively); Export Development Agencies R7,0 billion. The total value of the Global Medium Term Note programme is USD6 billion and has not been utilised during the 2015 financial year. The total funding raised from Development Finance Institutions was R5,2 billion and R3,8 billion from syndicated and bank loans.

Certain thresholds, which are a combination of available cash, committed and uncommitted bank facilities, minimum cash liquidity buffer and the pre-funding of major loan redemptions are minimum requirements of the approved policy to further ensure effective liquidity risk management. Capital market investments are only allowed if there is a requirement to ring fence cash for longer periods on a specific project, or as a result of a condition stipulated by a Regulator. The intention is always to keep the investment until maturity to avoid any capital losses.

Transnet also produces a “seven year cash flow projection” as part of the annual MDS strategy update. These provide Treasury with a good estimate of the Group’s future funding requirements per financial year.

Additional thresholds have been included in the past financial year to ensure committed facilities are diversified across different markets as well as inclusion of important liquidity risk ratios from a rating agency perspective.

Counterparty risk

Counterparty risk exposures arises mainly as a result of the investment of operational cash on hand, surplus cash due to pre-funding strategies, positive fair market values of derivative hedging instruments and guarantees issued by counter parties to mitigate financial risks in supply agreements. The Group’s main objectives of its counterparty risk policies are:• To mitigate counterparty risk exposures;• To diversify counterparty risk exposures;• To set limits for the different types of counterparty risk exposures; and • To ensure that financial transactions are done with approved high credit quality counterparties.

The counterparty risk policy of the Group is fully aligned with the requirements of the Treasury Regulations as referred to in the PFMA:• Selection of counterparties through credit risk analysis;• Establishment of investment limits per institution;


ANNEXURE Afor the year ended 31 March 2015

• Establishment of investment limits per investment instrument;• Monitoring of investments against limits;• Re-assessment of investment policies on a regular basis;• Re-assessment of counterparty credit risk based on credit ratings; and• Assessment of investment instruments based on liquidity requirements.

Financial assets that potentially subject the Group to concentrations of credit risk consist primarily of operational cash balances, call investments, short-term deposits, money market fund investments and positive fair market values of derivatives and trade receivables. The Group’s exposures to counterparty risks in respect of all Treasury related transactions are confined to credible counterparties and are managed within Board approved credit limits. Limits are reviewed and approved by the Board Audit Committee on an annual basis. Trade receivables are presented net of impairments. It is Treasury’s policy to perform ongoing credit evaluations of the financial position of its counterparties. Guarantees are issued under specific powers granted in terms of section 66 of the PFMA, and in accordance with a Board approved Delegation of Authority Framework (DOA).

Investments and hedging transactions are only allowed with international counterparties that are local authorised dealers with a minimum international long-term issuer default credit rating of A- (Fitch Ratings) or A- (Standard and Poor’s) or A3 Moody’s and domestic counterparties with a minimum national long-term credit rating of A- (zaf) (Fitch Ratings) or A- (Standard and Poor’s) or A3 Moody’s and approved by the Board Audit Committee as an approved counterparty. In addition to this the counterparty must have a minimum short-term credit rating of F-1 (Fitch Ratings) or P-1 (Moody’s) or A-1 (Standard and Poor’s) to qualify for cash type of investments. No more than 40% of overall cash available may be invested with counterparties in the A rating category and is limited to 33% per investment type per counterparty. Money Market Funds are utilised as the major investment vehicle for surplus cash due to its diversified risk profile and enhanced return.

Market risk

This will be discussed under the following headings: Foreign currency, Commodity, Interest rate and other price risk.

Foreign currency risk

Foreign currency risk arises mainly as a result of the Group’s MDS and operational expenditure programmes, where goods are imported from foreign countries and are exposed to currency fluctuations as well as the raising of funding in a foreign currency. Transnet’s main objectives of its foreign currency risk policies are:• To mitigate foreign currency risk exposures;• To bring certainty about future Rand cash flows ; and• To insulate the Group’s statement of comprehensive income against exchange rate fluctuations.

Transnet’s policy only allows un-hedged foreign currency risk exposures limited to 0,5% of annual operational budget and 1% of annual capital expenditure budget. All foreign currency risk exposures are hedged within the guidelines of the Board approved FRMF and DOA as soon as the supplier and funding agreements are signed. It is the Group’s preference to enter into Rand based supplier and funding agreements, if this can be achieved at an acceptable cost, with no FX risk recourse to Transnet. If this approach is not cost-effective, Transnet will then hedge on its own financial position. No pooling of hedging across different exposure types is allowed and hedging is done per project exposure. The foreign currency position is monitored on a monthly basis, by obtaining the net foreign currency position in all the major currencies i.e. US Dollar (USD), EURO, Pound Sterling (GBP) and Japanese Yen (JPY) and other foreign currencies. Foreign currency risk exposures are fully hedged until maturity with vanilla hedging instruments after careful consideration and analysis of the taxation, financial

risk, accounting, operational and system implications. Hedge accounting is applied to all major structures to minimise volatility in the statement of comprehensive income and the performance is monitored monthly by the Hedge Accounting Committee which is a sub-committee of FINCO to ensure proper implementation and adherence to guidelines.

Commodity risk

Commodity risk refers to the potential variability in Transnet’s budget owing to the changes in commodity prices such as Brent crude oil, steel, iron ore and others. Only fuel risk exposures are actively monitored by Treasury on a regular basis and are hedged in terms of the Board approved FRMF and DOA. Major customer agreements in respect of the General Freight Business (GFB) of the Group are structured in such a way that tariffs can be adjusted to compensate for changes in fuel prices (Brent and Exchange rates), steel prices and electricity and do provide some natural risk offset. Only the un-hedged portion on fuel will be considered for hedging purposes in terms of approved policies. The Board approved FRMF requires the utilisation of vanilla type hedging instruments that are highly liquid with a maximum tenor of eighteen months and the underlying used in a hedging strategy must have a very high correlation with the actual product consumed. The purpose of fuel hedging is to protect the Group’s annual approved fuel budget. Where practically possible from a cost perspective, the Operating divisions’ preference is to enter into fixed Rand contracts with suppliers as a risk mitigation against fluctuation of commodity prices over the tenors of the contracts.

Interest rate risk

This refers to the potential variability in Transnet’s financial condition owing to changes in interest rate levels. The Group’s borrowing programme, investments in interest-bearing instruments and derivative financial instruments create an exposure to this risk. The Group’s main objectives in managing interest rate risk are as follows: • Manage the ratio of floating rate exposures versus fixed rate exposures;• Reduce the weighted average cost of debt (WACD) to ensure the gap to prevailing market rates is reduced;• Take advantage of interest rate cycles;• Support the business strategy in so far as interest rates are concerned;• Minimise the negative impact of adverse interest rate movements on the Group’s net income, cash flows and

external finance cost budget within an acceptable risk profile; • Minimise the market making cost of the Group’s repo facilities granted to the external market making panel

under the DMTN programme; • Manage the basis risk exposure where interest rate risk is netted between investments and borrowings; and• Manage the duration of the debt portfolio (including derivatives) to try and achieve alignment with the

duration of the average payback periods of assets.

The Group measures interest rate risk by calculating the impact of fair value movements on derivatives and floating rate loans and running cash flow at risk scenarios and extreme sensitivities to determine the impact against the annually approved external finance cost budget in respect of existing liabilities and new funding requirements per financial year. All foreign currency interest rate risk exposures are hedged to Rand as soon as agreements are concluded. The Group’s Treasury is allowed to manage the fixed/floating interest rate risk exposure within Board approved ranges.

Other price risk

The only other market risk the Company and Group is exposed to, is equity price risk. Equity price risk is the risk of fair value changes in future cash flows of a financial instrument as a result of changes in the underlying share price. Transnet do not trade in equities and the only exposure of this nature at report date was an equity investment in Brazil which is listed on the Brazilian Stock Exchange.



Liquidity risk

Bonds at carrying and nominal values:

Transnet issues domestic bonds listed on the Johannesburg Securities Exchange (JSE), Luxembourg Stock Exchange and the London Stock Exchange (LSE). The following bonds were in issue at 31 March 2015 for the Company and the Group.

2015 2014

BondRedemption

date

Coupon rate

%

Carrying value

R million

Nominal value

R million

Carrying value

R million

Nominal value

R million

Domestic Rand bonds TN17 14 Nov 17 9,25 6 858 7 000 6 813 7 000TN20 17 Sept 20 10,50 7 243 7 000 7 277 7 000TN23 6 Nov 23 10,80 7 307 7 000 7 327 7 000TN25 19 Aug 25 9,50 5 573 5 437 5 285 5 143TN27 14 Nov 27 8,90 6 392 7 000 6 370 7 000TNF30(1) 9 Oct 30 6,82 1 051 1 021 – –TNF401 9 Oct 40 10,75 1 267 1 238 – –TNF16 FRN 10 Jun 16 7,21 3 286 3 286 3 286 3 286TNF18 FRN 22 Aug 18 7,40 1 500 1 500 1 500 1 500TNF20U FRN2 14 Apr 20 7,57 1 000 1 000 – –

Total domestic Rand bonds 41 477 41 482 37 858 37 929

Foreign Rand bonds TNZA21 13 May 21 9,50 5 000 5 000 5 000 5 000Euro 13,5% 20283 18 Apr 28 13,50 1 957 2 000 1 955 2 000Euro 10% 20293 30 Mar 29 10,00 1 065 1 500 1 055 1 500

Total foreign Rand bonds 8 022 8 500 8 010 8 500

USD bonds TNUS16 10 Feb 16 4,50 9 096 9 107 7 871 7 890USD bonds TNUS22 26 July 22 4,00 12 037 12 142 10 414 10 520

Total foreign currency bonds 21 133 21 249 18 285 18 410

Total bonds in issue at year-end 70 632 71 231 64 153 64 839(1) The TN30 and TN40 Rand bonds are new bonds issued under the DMTN programme on 9 October 2014. (2) The TNF20U FRN is a floating rate note issued under the DMTN programme on 14 April 2014.(3) These Bonds are guaranteed by the Government of the Republic of South Africa, and the company paid R1,2 million in guarantee fees

(2014: R1,2 million). The amounts in the above table are all in respect of bonds held at amortised cost.

Concentration of liquidity risk

The sources of funding are tabled below. Altogether 67% of the borrowings are widely held (2014: 73%):

Company Group


1 641 604 ABSA Bank Ltd 604 1 6412 534 2 196 African Development Bank 2 196 2 5341 531 1 519 American Family Life Assurance Co. (AFLAC) 1 519 1 5311 052 971 Export Development Canada 971 1 0521 585 1 441 French Development Bank 1 441 1 5851 000 6 992 Investec Bank Ltd 6 992 1 0002 117 644 KFW IPEX_Bank GmbH/RMB/China Construction Bank 644 2 117

- 1 701 Libfin 1 701 –2 407 2 125 Nedbank Ltd 2 125 2 4072 858 4 004 RMB/Division of FirstRand Bank Ltd 4 004 2 8581 100 1 900 Standard Bank Corporate Investment Bank 1 900 1 100

507 441 Standard Bank London 441 5073 882 3 485 Sumitomo Mitsui Banking Corporation 3 485 3 8822 090 7 849 The Bank of Tokyo Mitsubishi Ltd. 7 849 2 090

66 036 74 397Various holders of Transnet Bonds and Commercial Paper, widely held, and traded* 74 397 66 036

102 106 Other 108 104

90 442 110 375 110 377 90 444

* Includes bonds held at amortised cost R70 632 million, commercial paper R3 644 million and repo liabilities R121 million (2014: Includes bonds held at amortised cost R64 153 million, commercial paper R1 783 million and repo liabilities R100m).

Funding plan

Over the next seven years Transnet will raise R125,6 billion from the market which is just above a third of Transnet’s R336,6 billion capital investment plan.

Target Projections Total

2016 2017 2018 2019 2020 2021 2022R million R million R million R million R million R million R million R million

Loan redemptions (11 212) (7 753) (11 510) (6 010) (3 502) ( 9 767) (6 303) (56 057)

Total funding requirement (27 796) (23 138) (33 713) (21 330) (9 916) (10 279) 619 (125 553)

The following schedule depicts the probable sources of funding to be used by Transnet over the next four financial years, which will be driven by the Group’s business strategy, liquidity, investor/lender appetite as well as pricing.


Commercial paper 2 500 2 000 2 700 2 000Domestic bonds 5 000 5 000 5 000 5 000DFIs/ECAs/GMTN 15 000 12 000 22 000 10 300Bank loans/other 5 300 4 100 4 000 4 000

Total funding 27 800 23 100 33 700 21 300



Contractual maturity analysis

The following are the contractual maturities of financial liabilities, including interest payments and excluding the impact of netting arrangements as at 31 March 2015 for the Company and the Group:

Carrying value 2015

R million

Contractual cash flows

2015R million

0 to 12 months

R million

1 to 2years

R million

2 to 3 years

R million

3 to 4 years

R million

4 to 5 years

R million

More than

5 yearsR million

Non-derivative financial liabilities Bonds (Company and Group) (70 632) (117 060) (14 850) (8 448) (12 114) (5 904) (4 342) (71 402)Secured bank loans Company (4 143) (5 608) (796) (793) (791) (778) (767) (1 683)Secured bank loans Group (4 145) (5 610) (796) (795) (791) (778) (767) (1 683)Unsecured bank loans (Company and Group) (31 729) (42 569) (5 424) (6 253) (6 166) (6 432) (5 032) (13262)Commercial paper (Company and Group) (3 644) (3 754) (3 754) – – – – –Other short-term borrowings (Company and Group) (227) (227) (227) – – – – –

Total borrowings Company (110 375) (169 218) (25 051) (15 494) (19 071) (13 114) (10 141) (86 347)

Total borrowings Group (110 377) (169 220) (25 051) (15 496) (19 071) (13 114) (10 141) (86 347)

Trade payables and accruals Company2 (15 033) (15 033) (15 033) – – – – –Trade payables and accruals Group2 (15 061) (15 061) (15 061) – – – – –

Derivative financial liabilities (Company and Group)Cross-currency swaps1 – – – – – – – –Forward exchange contracts used for hedging (45) (64) (40) (20) (4) – – –

Outflow (614) (633) (537) (84) (12) – – –Inflow 569 569 497 64 8 – – –

Other forward exchange contracts (12) (4) (4) – – – – –

Outflow (220) (220) (155) (64) (1) – – –Inflow 208 216 151 64 1 – – –

Total derivative financial liabilities (57) (68) (44) (20) (4) – – –1 Cross-currency swaps are all in the money.2 Trade payables and accruals exclude employee benefits and Vat related accruals.

Contractual maturity analysis continuedThe following are the contractual maturities of financial liabilities, including interest payments and excluding the impact of netting arrangements as at 31 March 2014 for the Company and the Group:

Carrying value 2014

R million

Contractual cash flows

2014R million

0 to 12 months

R million

1 to 2years

R million

2 to 3 years

R million

3 to 4 years

R million

4 to 5 years

R million

More than

5 yearsR million

Non-derivative financial liabilities Bonds (Company and Group) (64 153) (109 627) (5 291) (13 217) (8 071) (11 715) (5 494) (65 839)Secured bank loans Company (4 592) (6 672) (819) (834) (855) (840) (822) (2 502)Secured bank loans Group (4 594) (6 674) (821) (834) (855) (840) (822) (2 502)Unsecured bank loans (Company and Group) (19 711) (23 333) (5 914) (3 058) (3 349) (3 237) (2 943) (4 832)Commercial paper (Company and Group) (1 783) (1 828) (1 828) – – – – –Other short-term borrowings (Company and Group) (203) (199) (199) – – – – –

Total borrowings Company (90 442) (141 659) (14 051) (17 109) (12 275) (15 792) (9 259) (73 173)

Total borrowings Group (90 444) (141 661) (14 053) (17 109) (12 275) (15 792) (9 259) (73 173)

Trade payables and accruals Company2 (10 670) (10 670) (10 670) – – – – –Trade payables and accruals Group2 (10 698) (10 698) (10 698) – – – – –

Derivative financial liabilities (Company and Group)Cross-currency swaps1 – – – – – – – –Forward exchange contracts used for hedging (21) (52) (28) (14) (8) (2) – –

Outflow (732) (764) (559) (138) (55) (12) – –Inflow 711 712 531 124 47 10 – –

Other forward exchange contracts (62) (41) (19) (14) (8) – – –

Outflow (322) (323) (138) (114) (71) – – –Inflow 260 282 119 100 63 – – –

Total derivative financial liabilities (83) (93) (47) (28) (16) (2) – –1 Cross-currency swaps are all in the money.2 Trade payables and accruals exclude employee benefits and Vat related accruals.



Credit riskMaximum exposure and analysis of exposures to credit risk

The following maximum exposures to credit risk existed at year end in respect of financial assets:2015 2014

Carrying value

R million

Neither past due

nor impairedR million

Past due but not

impairedR million

ImpairedR million

Carrying value

R million

Neither past due

nor impairedR million

Past due but not

impairedR million

ImpairedR million

CompanyTrade receivables– Low risk 4 337 4 207 130 (699) 5 547 3 919 1 628 (965)– Medium risk 1 417 1 225 192 (161) 761 725 36 (29)– High risk 1 029 482 547 (377) 394 312 82 (385)

6 783 5 914 869 (1 237) 6 702 4 956 1 746 (1 379)

Other amounts receivable** 1 109 689 420 (26) 802 542 260 (53)Investments – current 708 708 – – 67 67 – –Long and short-term loans and advances* 26 26 – – 31 31 – –Loans to subsidiaries and associates 3 3 – – 2 2 – (392)Guarantees issued 157 – – – 81 – – –Investment and price risk*** 19 841 – – – 18 087 – – –

GroupTrade receivables– Low risk 4 338 4 167 171 (699) 5 548 3 920 1 628 (965)– Medium risk 1 417 1 225 192 (161) 761 725 36 (29)– High risk 1 029 482 547 (395) 394 312 82 (403)

6 784 5 874 910 (1 255) 6 703 4 957 1 746 (1 397)

Other amounts receivable** 1 112 692 420 (26) 806 546 260 (53)Investments – current 708 708 – – 67 67 – –Long and short-term loans and advances* 26 26 – – 31 31 – –Guarantees issued 157 – – – 81 – – –Investment and price risk*** 19 841 – – – 18 087 – – –

* Long-term advances (Company and Group) R24 million (2014: R29 million) Short-term advances (Company and Group) R2 million (2014: R2 million)

** Reconciliation to note 18. Company Group Other amounts receivable R1 109 million (2014: R802 million) R1 112 million (2014: R806 million) Prepayments R434 million (2014: R263 million) R434 million (2014: R263 million) Prepayments and other amounts receivable R1 543 million (2014: R1 065 million) R1 546 million (2014: R1 069 million)

*** Investment risk includes call and fixed deposits as well as money market funds. The high investment exposure for 2014 and 2015 is the result of pre-funding done to minimise liquidity risk to fund the capital expenditure programme.

Low risk: No guarantee is required from the customer.Medium risk: 50% – 75% guarantee required from the customer.High risk: In such instances, customers are required either to provide 100% guarantee or transact on a cash basis only.The balances for other receivables and loans and advances are not disaggregated for internal reporting purposes.Price risk: The risk that financial derivatives and bond transactions have to be closed-out at a market value loss as a result of the unfavourable movements in market rates.Bond issuer risk: The risk that an issuer of bonds will not be able to fulfil its financial obligations on maturity date in accordance with the terms and conditions of the bond issues.

IFRS 7 Financial Instruments: Disclosure, defines credit risk as the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. As such Transnet will suffer financial losses on guarantees issued as the Group would be required to make good the failure by a third party to discharge an obligation. Credit enhancements in the form of title deeds and pension fund cessions for loans and advances and deposits and guarantees in respect of amounts included in trade and other receivables and loans and advances, are held by the Group. The Group took possession of some collateral during the current financial year amounting to R1,4 million (2013: Rnil).

The following represents the ageing of the carrying value of financial assets past due but not impaired at 31 March 2015 for the Group and Company:

1 – 30 days 31 – 60 days Greater than 60 days

Past due

Low risk

Medium risk

High risk

Past due

Low risk

Medium risk

High risk

Past due

Low risk

Medium risk

High risk

2015Trade receivables 241 44 94 103 126 22 25 79 543 106 73 364Other receivables 357 357 – – 41 41 – – 22 22 – –

2014Trade receivables 339 292 28 19 269 265 4 – 1 138 1 071 4 63Other receivables 198 198 – – 16 16 – – 46 46 – –

Guarantees and deposits to the value of R495 million were held as collateral (2014: R551 million).

The following financial assets have been specifically impaired for the Company and Group at year end:

2015 2014

R millionTrade

receivablesOther

receivablesTrade

receivablesOther

receivables

CompanyLow risk 246 – 123 6Medium risk 204 – 30 –High risk 51 – 297 –

GroupLow risk 247 – 123 6Medium risk 204 – 30 –High risk 51 - 297 –

Financial assets have been impaired based on the age of the debt and the inability to recover these specified assets. Guarantees and deposits amounting to R252 million (2014: R143 million) were held with respect to these. Payment terms were renegotiated with certain counterparties in respect of trade receivables during the year.

Concentration of credit risk

The Company’s and Group’s 12 most significant customers (South African industrial enterprises) comprise 53% of the trade receivables carrying amount at 31 March 2015 (2014: 54%).

The following diagram reflects the distribution of credit risk, expressed in terms of long-term credit ratings, excluding guarantees and trade receivables. The exposures below include cash investments (call, fixed deposits and money market funds), price risk exposures and operational bank balances.



Market riskForeign currency risk

The Company’s and Group’s net long (short) foreign currency risk exposures as at 31 March 2015 are reflected below (expressed in notional amounts).

2015 2014

USD

US$/m

JPY

¥/m

EUR

€m

AUD

AU$/m

Other

currencies

exposure in

USD US$/m

USD

US$/m

JPY

¥/m

EUR

€m

AUD

AU$/m

Other

currencies

exposure in

USD US$/m

Foreign currency bonds (1 750) – – – – (1 750) – – – –Unsecured bank loans (867) (32 556) (50) – – (469) (35 482) (50) – –Brazil equity investment* 4 – – – – 8 – – – –

Gross financial position exposure (2 613) (32 556) (50) – – (2 211) (35 482) (50) – –Exposures for future expenditure (39) – (15) – – (34) – (15) (2) (2)

Gross foreign currency exposure (2 652) (32 556) (65) – (1) (2 245) (35 482) (65) (2) (2)Forward exchange contracts 39 – 15 – 1 34 – 15 2 2Cross-currency swaps 2 617 32 556 50 – – 2 219 35 482 50 – –

Net uncovered exposure 4 – – – – 8 – – – –

Sensitivity analysis

The table below shows the impact on profit and loss (non-hedge accounted transactions) of a stronger and weaker Rand for the Company and Group, as a result of fair value movements of cross-currency interest rate swaps and forward exchange contracts.

2015 2014

Currency

Currency

exposure

in millions

of currency

Fair value

R million

Impact

of Rand

strength-

ening

R million

Impact

of Rand

weakening

R million

Currency

exposure

in millions

of currency

Fair value

R million

Impact

of Rand

strength-

ening

R million

Impact

of Rand

weakening

R million

AUD – – – – – – – –EUR (18) (11) (15) 15 (22) (70) (19) 19JPY – – – – – – – –USD (2) – (2) 2 (2) (1) (3) 3

Totals (11) (17) 17 (71) (22) 22

Hedge accounting is applied to 99% of currency hedges where structures are designated either as fair value hedges or cash flow hedges as detailed in note 14. The sensitivity analysis above includes the impact of fair value movements on derivatives that are part of effective hedge accounting, hence the analysis is on the net balance, after the offsetting effect of the hedged item and hedging instruments. The sensitivity analysis was calculated using a 95% confidence

■ AAA 2 417,19■ A+ 8 461,52■ A 2 086,27■ AA 4 891,01■ AA- 1 984,68

Money market funds

■ AAA 480,82■ A+ 6 198,18■ A 137,66■ AA 11 209,60■ AA- 51,50

Money market funds 9,67

March2015

TRANSNET RISK PERLONG-TERM RATING(R million)

TRANSNET RISK PERLONG-TERM RATING(R million)

March2014

■ A+ 777.41■ A 2 086,27■ AA 2 017,27■ AA- 1 984,68■ AAA 2 224,63

TRANSNET RISK (INVESTMENTS)PER LONG-TERM RATING – 2015(R million)

TRANSNET RISK (DERIVATIVES)PER LONG-TERM RATING – 2015(R million)

■ A 7 684,11■ AA 2 873,73■ AAA 192,00■ JSE 0,00

■ A+ 51,01■ A 137,66■ AA 9 266,82■ AA- 51,50■ AAA 128,18■ Money market funds 9,67

TRANSNET RISK (INVESTMENTS)PER LONG-TERM RATING – 2014(R million)

TRANSNET RISK (DERIVATIVES)PER LONG-TERM RATING – 2014(R million)

■ A+ 6 147,17■ A 1 942,77■ AA 352,64



interval over a 90 day horizon, and assumes all other variables remain unchanged. Basis swap adjustments have been added to the curves when doing the sensitivities to ensure that a more accurate market value is reflected that also take market liquidity into account.

Value at risk (fx)

The value at risk (VaR) for direct committed capital and operational exposures and the Brazilian equity investment is R4 million (2014: R8 million). VaR calculates the maximum pre-taxation loss expected (or worst case scenario) on a position held, over a 90 day horizon given a 95% confidence level and is used on a limited basis at Transnet. The VaR methodology is a statistically defined, probability-based approach that takes into account, inter alia, market volatilities relative to a position held. The Group uses historical simulation and the model assumes that historical patterns will repeat into the future and does not take extreme market conditions into account.

Foreign exchange rates

The mid rates of exchange against Rand used for conversion purposes were:

2015 2014

US Dollar 12,1422 10,5192Japanese Yen 0,1012 0,1021Euro 13,0261 14,4876Australian Dollar 9,2499 9,7518

Interest rate risk

The Company’s and Group’s exposure to fixed and floating interest rates on financial liabilities is as follows:

Company Group

2014

R million2015

R million2015

R million2014

R million

(72 915) (81 583) Fixed rate liabilities (81 585) (72 917)(18 255) (27 968) Floating rate liabilities (27 968) (18 255)

(91 170) (109 551) Total* (109 553) (91 172)

* These values include the repo liability of R121 million (2014: R100 million), which have a maturity term of one week.

The exposure to floating interest rates on foreign financial liabilities before swaps is R12 662 million (2014: R7 911 million) for the Company and Group, but the full foreign currency loan portfolio has been swapped to a fixed rand interest rate risk exposure by means of cross currency interest rate swaps and is included above under fixed rate liabilities. The Board approved a targeted range of fixed interest rates that may be managed to enable management to utilise interest rate yields.

Sensitivity analysis

The sensitivity analysis below reflects the interest rate impact on the finance cost budget for the 2016 financial year in respect of existing liabilities and new funding requirements.

2016 2015

Impact

Shift+100bp

R million

Shift-200bp

R million

Shift+250bp

R million

Shift-500bp

R million

Shift+500bp

R million

Shift+100bp

R million

Shift-200bp

R million

Shift+250bp

R million

Shift-500bp

R million

Shift+500bp

R million

Finance cost impact (increase)decrease (Company and Group) (421) 491 (877) 1 403 (1 637) 163 740 (125) 1 316 (605)

The impact on profit and loss of higher foreign interest rates on the Company and Group is insignificant, as all foreign debt has been swapped to a fixed Rand interest rate risk.

Price riskThe Group has an exposure to equity price risk on the Brazilian Stock Exchange. At year end, the quoted value of the Group’s investment in Brazil was R42 million (2014: R84 million). Management believes that the foreign exchange exposure on this investment is significantly greater than that of equity price risk and as such the sensitivity for this investment has been included in the foreign currency risk net position and VaR calculations.

Commodity price risk (fuel)

The table below shows the cash flow at risk scenarios against the approved fuel budget for the 2016 financial year at various levels of Brent crude and USD/ZAR ($/R) exchange rates as at 31 March 2015 (excluding energy levies): Amounts are in R million.

Performance to budget

31 March 2015 $/R10,54 $/R11,00 $/R11,85 $/R12,50 $/R13,16

Brent @ $43 804 767 699 647 594Brent @ $50 676 633 555 495 434Brent @ $55 574 528 441 375 308Brent @ $67 345 288 183 103 21Brent @ $75 191 128 10 (79) (171)

The table below shows the cash flow at risk scenarios against the approved budget for the 2015 financial year at various levels of Brent crude and USD/ZAR ($/R) exchange rates as at 31 March 2014 (excluding energy levies). Amounts are in R million.

Performance to budget

31 March 2014 $/R9,43 $/R10,74 $/R 10,80 $/R11,80 $/R12,06

Brent @ $91 358 153 145 (11) (51)Brent @ $95 299 86 76 (85) (127)Brent @ $107 106 (134) (145) (279) (306)Brent @ $115 (23) (258) (265) (380) (410)Brent @ $123 (147) (348) (355) (478) (510)



Classification, fair values and analysis of financial instruments

Categories of financial instruments

Company Group

2014

R million2015

R million2015

R million2014

R million

Financial assets

11 344 15 157Loans and receivables (including bank and cash, trade and other receivables) 15 304 11 474Fair value through profit and loss

7 404 11 392 – Derivatives held for hedging 11 392 7 404Financial liabilities

101 210 125 408Liabilities measured at amortised cost (including trade and other payables) 125 438 101 240Fair value through profit and loss

83 70 – Derivatives held for hedging 70 8399 106 – Finance lease liabilities 106 99

Except as detailed in the following table, the directors consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the financial statements approximate their fair values:

Company Group

2014 2015 2015 2014

Fair

value

R million

Carrying value

R million

Fair value

R million

Carrying value

R million

Fair value

R million

Carrying value

R million

Fair value

R million

Carrying value

R million

80 602 90 343 99 316 110 269 Borrowings 99 318 110 271 80 604 90 34595 99 69 106 Finance lease obligations 69 106 95 99

Fair values of financial instruments

The table below provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree of market observability of the inputs of the fair value.• Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for

identical assets or liabilities. • Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level

1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category of instrument consists mainly of derivatives concluded for risk management purposes.

• Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

Level 1R million

Level 2R million

Level 3R million

TotalR million

2015Financial assets at FVTPL* Derivative financial assets used for hedging (Company and Group) – 11 392 – 11 392

Financial liabilities at FVTPL*Derivative financial liabilities used for hedging (Company and Group) – 70 – 70

2014Financial assets at FVTPL* Derivative financial assets used for hedging (Company and Group) – 7 404 – 7 404

Financial liabilities at FVTPL*Derivative financial liabilities used for hedging (Company and Group) – 83 – 83

* FVTPL – Fair value through profit and loss.

Measurement of fair values

The table below shows the valuation techniques used in measuring level 2 and level 3 fair values, as well as the significant unobservable inputs used.

Financial instruments measured at fair value Valuation technique

Significant unobservable inputs

Inter-relationship between significant unobservable inputs and fair value measurement

Cross-currency swaps used for hedging*Forward exchange contracts used for hedging*

Discounted cash flow method using market yield curves to first project cash flows and then discount these cash flows using the Monte Carlo simulation model, incorporating market inputs that were observable, probabilities of default, recovery rates and expected future exposures per counterparty. Not applicable. Not applicable.

Fuel hedging options*Black-Scholes using market inputs and adjusted for features specific to fuel options. Not applicable. Not applicable.

Issued bonds**Bonds were priced at fair values using quoted market prices. Not applicable. Not applicable.

Other financial liabilities***/**

Loans were valued using risk free yield curves adjusted for credit risk of counterparties. Not applicable. Not applicable.

* Fair values include market observable credit valuation adjustments (CVA).** Fair values include market observable debit valuation adjustments (DVA).*** Other financial liabilities include borrowings and finance lease obligations.

Transfers between level 1 and 2

There were no transfers in either direction between level 1 and 2 in both the current financial year and in 2014.

Level 3 fair values

Reconciliation and transfers out of level 3: There were neither level 3 inputs nor transfers in either direction in both the current financial year and in 2014.



The net gains and losses on financial instruments are detailed below:

Company

Net gain/(loss) R million

2015Liabilities measured at amortised cost* (refer note 6) (8 632)Loans and receivables and held to maturity investments (refer note 7) 212Liabilities held for trading** (refer note 5) (137)


Group

Net gain/(loss) R million



* The net loss on financial liabilities measured at amortised cost consist mainly of interest expense after offsetting against effective cash flow hedges.

** The net (loss)/gain on Company and Group financial assets and financial liabilities held for trading is a R137 million loss (2014: R372million). These are held for hedging purposes.

Transnet’s credit rating

Transnet is officially rated by Standard and Poor’s (S&P) and Moody’s Investors Service. The Company maintained its investment grade rating for the year ended 31 March 2014 as follows:

Rating category Standard & Poor’s Moody’s

Foreign currency BBB- Baa1Local currency BBB+ Baa2National rating zaAA+/zaA-1 A1.za/A2.zaRating outlook Stable Negative

On 7 November 2014, Moody’s downgraded the issuer rating to Baa1/negative outlook from A3, following a downgrade of the sovereign to Baa2. Deterioration in Transnet stand-alone credit profile (FFO/debt and FFO + interest/interest ratios) was also sighted, hence BCA (Baseline Credit Assessment) also lowered to baa1 from a3. The negative outlook reflects concerns of the rating agency on the ability of Transnet to execute MDS under a sustained weaker macro-economic environment.

On 11 March 2015 an annual rating meeting with Standard and Poor’s was held and indications were that the ratings remain unchanged. The review of the sovereign ratings is scheduled for 12 June 2015; hence, because of the application of the GRE criteria, a change in the sovereign ratings might affect the rating of Transnet. The credit rating report on Transnet will be issued in July/August after the release of Transnet’s annual financial results and the sovereign rating review.



Land, Machinery, buildings equipment Permanent Rail Rolling Capital 31 March 31 March

Floating and and way Pipeline Port infra- stock and work-in- 2015 2014 Aircraft craft structures furniture and works networks facilities structure* containers Vehicles progress Total Total

R million R million R million R million R million R million R million R million R million R million R million R million R million

Company and GroupBalance at the beginning of the year Historical cost and revaluation 157 2 270 24 057 8 109 752 30 714 101 089 28 145 69 278 1 049 30 359 295 979 246 537 Accumulated depreciation (120) (594) (5 105) (4 374) (86) (11 927) (36 689) (5 767) (21 266) (571) – (86 499) (67 478)Accumulated impairment – (1) (164) (155) – (252) (777) (43) (544) (5) (217) (2 158) (2 138)

Opening net carrying value at 1 April 37 1 675 18 788 3 580 666 18 535 63 623 22 335 47 468 473 30 142 207 322 176 921

Current year movements Replacements – 32 30 79 – – 19 – 459 3 18427 19 049 22 244 Expansions 14 – 28 16 – – 13 – – 2 14 443 14 516 9 486 Acquisition through lease – – – – – – – – – – – – 36 Disposals – – (5) (1) – – (1) – (72) – (57) (136) (129)Depreciation (11) (111) (829) (763) (15) (612) (2 148) (837) (4 940) (74) – (10 340) (10 099)Derecognition – – (30) (1) – – – (95) (294) – – (420) (466)Revaluation – – 9 – – 843 4 619 49 805 – – – 55 276 8 277 Impairment- historical cost and revaluation – – – (63) – (38) 27 – (335) (33) – (442) (177)Transferred to intangibles assets – – – (49) – – – – – – (48) (97) (108)Transfers from/(to) non-current assets classified as held-for-sale – – 80 – – – – – 32 – – 112 4 Transfer (to)/from investment property – – (192) – – – – – – – (2) (194) 5 Foreign exchange adjustment – – – – – – – – (12) – – (12) (117)Borrowing costs capitalised – 7 5 – – – – – – – 2 470 2 482 1 287 Release of firm commitment – – – – – – 12 – – – 38 50 158 Transfer from capital work-in-progress to assets – 168 1 957 1 237 13 161 1 546 4 034 9 450 9 (18 575) – –

3 96 1 053 455 (2) 354 4 087 52 907 4 288 (93) 16 696 79 844 30 401

Closing carrying value 40 1 771 19 841 4 035 664 18 889 67 710 75 242 51 756 380 46 838 287 166 207 322

Made up as follows: Historical cost and revaluation 171 2 462 25 919 9 253 766 32 063 108 808 94 321 76 378 1 057 47 052 398 250 295 979 Accumulated depreciation (131) (690) (5 910) (5 013) (101) (12 884) (40 348) (19 036) (23 974) (638) – (108 725) (86 499)Accumulated impairment – (1) (168) (205) (1) (290) (750) (43) (648) (39) (214) (2 359) (2 158)

Closing carrying value at 31 March 40 1 771 19 841 4 035 664 18 889 67 710 75 242 51 756 380 46 838 287 166 207 322

*Rail infrastructure was part of permanent way and works in the prior year.


ANNEXURE Bfor the year ended 31 March 2015

Disposal groups classified as held-for-sale

Notes2015

R million2014

R million

Company and GroupAssets classified as held-for-saleProperty, plant and equipment a 30 148 Investment properties b 8 6 Other investments c 43 84

Total 81 238

Notes to disposal groups classified as held-for-sale

Company Group

2014 2015 2015 2014 R million R million R million R million

a. Property, plant and equipment 158 148 Net carrying value at the beginning of the year 148 158

( 6) (6) Disposals (6) ( 6)

( 4) (112) Transferred (to)/from continuing operations

(refer annexure B) (112) ( 4)

148 30 30 148

b. Investment properties 3 6 Fair value at the beginning of the year 6 3

(4) (5) Disposals (5) (4) 7 7 Transferred from continuing operations 7 7

6 8 8 6

c. Other investments 114 84 Balance at the beginning of the year 84 114 ( 30) (41) Fair value movement during the current year (41) (30)

84 43 43 84


ANNEXURE Cfor the year ended 31 March 2015

Subsidiaries

Effective holding Voting

power held Shares at cost Interest of holding

company net profit/(loss) Interest of holding

company indebtedness Accumulated

impairment and losses

2015 %

2014 %

2015 %

2015 R million

2014 R million

2015 R million

2014 R million

2015 R million

2014 R million

2015 R million

2014 R million

Local subsidiariesTransport logisticsKN Viamax Logistics (Pty) Ltd^ – 100 – – – – – – – – – Viaren (Pty) Ltd† 100 100 100 – – – – – – – –

Property holdingsTranshold Properties (Pty) Ltd# 100 100 100 – – – – – – – –

Insurance captive cellsGuardrisk Insurance Company Ltd*** 100 100 100 3 3 21 19 – – – –

Social responsibilityTransnet Foundation Trust‡ 100 100 100 – – – – – – – –

Foreign subsidiariesTransport logisticsAfrican Joint Air Services Ltd (Uganda)# 57 57 57 – – – ( 6) 391 392 391 392 Spoornet do Brasil Ltda (Brazil) 100 100 100 – – (1) 8 – - – –

3 3 20 21 391 392 391 392

# Dormant.† In liquidation. ‡ In dissolution.* Deregistered.^ Liquidated.*** Previously named Spoornet Guard Risk.


ANNEXURE Dfor the year ended 31 March 2015

Associates and joint ventures^

Effective holding Shares at cost Interest of holding company

indebtedness Accumulated impairment

and losses Share of post-acquisition

reserves Total

Principal activity 2015

% 2014

% 2015

R million 2014

R million 2015

R million 2014

R million 2015

R million 2014

R million 2015

R million 2014

R million 2015

R million 2014

R million

AssociatesCommercial Cold Storage (Ports) (Pty) Ltd Storage and bondage 30 30 – – 1 1 – – 16 13 17 14 Comazar (Pty) Ltd# Transport logistics 32 32 13 13 8 8 21 21 – – – – Mossel Bay Waterfront Development (Pty) Ltd*

Property development and management – 15 – 2 – – – 2 – – – –

Experience Delivery Company (Pty) Ltd Managing agent 11 11 – – – – – – – – – –

RainProp (Pty) LtdProperty development and management 20 20 – – 2 2 – – 72 68 74 70

Joint venturesGaborone Container Terminal Container terminal 36 36 6 6 – – – – 16 15 22 21

19 21 11 11 21 23 104 96 113 105

^ Incorporated in the Republic of South Africa, unless stated otherwise.# Dormant.* Deregistered.

Summarised financial information of significant associates

Commercial Cold Storage

(Ports) (Pty) Ltd

2015R million

GaboroneContainer

Terminal2015

R million

RainProp(Pty) Ltd

2015R million

Financial positionTotal assets 67 62 1 041Total liabilities 12 2 678

Results of operationsRevenue 72 15 183Profit for the year 11 2 61


ANNEXURE Dfor the year ended 31 March 2015

Disclosure of irregular expenditure, fruitless and wasteful expenditure, losses through criminal conduct and losses through non-collection of revenueThe following information relates to both Company and Group.

2015 2014R million R million

Irregular expenditure*Opening balance – –Add: Irregular expenditure – current year 32,2 49,6Less: Amounts condoned – (6,8)

32,2 42,8Less: Amounts recoverable (not condoned) – –Less: Amounts not recoverable (not condoned) 32,2 42,8

Irregular expenditure awaiting condonation – –

Analysis of expenditure awaiting condonation per age classificationCurrent year – –Prior year – –

Total – –

2015R million

Details of irregular expenditure – current year

IncidentDisciplinary steps taken/(criminal proceedings)

Contract costs exceeded 9/(0) 10,8Contracts expired 1/(1) 14,5Procurement and capital expenditure procedures not adhered to 4/(0) 3,7Delegation of authority contravened 1/(0) 3,2

32,2

Details of irregular expenditure condonedIncident Condoned by (condoning authority)Delegation of authority contravened Group Chief Executive –

Details of irregular expenditure recoverable (not condoned)IncidentNone –

Details of irregular expenditure not recoverable (not condoned)IncidentContract costs exceeded 10,8Contracts expired 14,5Procurement procedures not adhered to 3,7Delegation of authority contravened 3,2

32,2


Fruitless and wasteful expenditure*Fruitless and wasteful expenditure 23,3 13,6Less: Amounts recovered (0,3) (0,6)

23,0 13,0

2015R million

Details of fruitless and wasteful expenditure


Incentive overpayment on gainshare 0/(0) 18,7Interest 0/(0) 2,4Other 24/(7) 1,9

23,0


Losses through criminal conduct*Losses through criminal conduct 519,3 41,7Less: Amounts recovered – (1,8)

519,3 39,9

2015R million

Details of losses through criminal conduct


Theft of cables and copper 0/(306) 20,0Theft of signals, perway and equipment 3/(140) 8,0Alleged fraud and corruption** 2/(3) 488,0Other 6/(151) 3,3

519,3


Losses through non collection of revenue – 0,8Less: Amounts recovered – –

– 0,8* The Shareholder Representative has determined the materiality limit for reporting in terms of section 55(2)(b)(i), (ii), and (iii) of the PFMA at

R25 million per transaction. Refer to the Report of the Directors for reporting in terms of the materiality framework.** This item relates to a alleged fraudulent activity by an employee which occurred in the prior years.


ANNEXURE Efor the year ended 31 March 2015

Measurement of level 3 fair valuesThe table below shows the valuation techniques and significant unobservable inputs applied in measuring level 3 fair values for assets at 31 March 2015.

Asset Group Valuation technique Significant unobservable inputs Range (weighted average)

Pipeline networks Modern equivalent asset value • Physical condition• Remaining useful life

rr

Discounted cash flow • Discount rate 10,60%

Port facilities Depreciated replacement cost • Composite PPI* – local input – imported equipment

114,2124,1

Depreciated optimised replacement cost**

• Physical condition• Remaining useful life • Residual value• Availability• Design capacity

rrrrr

Discounted cash flow • Discount rate• Terminal growth rate

11,95%2,29%

Rail infrastructure Depreciated optimised replacement cost**

• Physical condition• Remaining useful life • Residual value• Availability• Design capacity

rrrrr

Discounted cash flow • Discount rate 12,09%

Investment property Yield methodology • Capitalisation rate 12% – 20% (16%)

* Base year = 2000. ** The depreciated optimised replacement cost method values assets at the amount it would cost to replace the asset with a technologically modern

equivalent new asset with similar service potential (i.e. capacity, functionality and remaining useful life), taking into account the age and physical condition of the asset and allowing for any differences in the quantity and quality of output and in operating costs.

r The significant input was taken into consideration in the valuation process. However, a range or weighted average thereof is not applicable.

New financial reporting standards and interpretations issued but not yet effectiveThe following new or revised international financial reporting standards, amendments and interpretations of those standards which are applicable to the Group are not yet effective for the year ended 31 March 2015 and were not applied in preparing these financial statements:

Standard or interpretation Detail Effective date

IAS 1 (Amendment) Presentation of financial statementsMaterialityThe amendment clarifies that the entity should not aggregate or disaggregate information in a manner that obscures useful information, for example, by aggregating items that have different characteristics or disclosing a large amount of immaterial detail.

Disaggregation and subtotalsThe amendment clarifies that it may be necessary to disaggregate some of the line items specified in IAS 1. Disaggregation is required where it is relevant to an understanding of the entity’s financial position or performance.The revised standard will be applied retrospectively and will not have a material impact on the Group’s financial statements.

Annual periods beginning on or after 1 January 2016.

IAS 16 and IAS 38 (Amendment)

Property, plant and equipment and intangible assetsRevaluation method – proportionate restatement of accumulated depreciation/amortisationThe amendment clarifies that when an item of property, plant and equipment is revalued, the gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount.With the amendment, the split between gross carrying amount and accumulated depreciation is treated in one of the following ways:• Either the gross carrying amount is restated in a manner consistent with

the revaluation of the carrying amount, and the accumulated depreciation is adjusted to equal the difference between the gross carrying amount and the carrying amount after taking into account accumulated impairment losses,

• The accumulated depreciation is eliminated against the gross carrying amount of the asset.

Annual periods beginning on or after 1 July 2014.

Acceptable method of depreciation and amortisationIAS 16 was amended to clarify that depreciation of an item of property, plant and equipment based on revenue generated by using the asset is not appropriate.The amendment to IAS 38 establishes a rebuttable presumption that amortisation of an intangible asset based on revenue generated by using the asset is inappropriate. The presumption may only be rebutted in certain limited circumstances, namely;• Where the intangible asset is expressed as a measure of revenue, and• Where it can be demonstrated that revenue and the consumption of the

economic benefits of the intangible asset are highly correlated.The amendments will be applied retrospectively and will not have a material impact on the Group’s financial statements.



ANNEXURE Ffor the year ended 31 March 2015

ANNEXURE Gfor the year ended 31 March 2015


IAS 19(Amendment)

Employee benefitsContributions from employees or third partiesIAS 19 was amended to clarify the accounting for contributions made to a defined benefit plan by employees or third parties. The amendment permits contributions that are independent of the numbers of years of service to be recognised as a reduction in the service cost in the period in which the related service is rendered instead of allocating the contributions to periods of service using the projected unit credit method.


Discount rates for post-employment benefit obligationsThe amendment clarifies that when determining discount rates for post-employment benefit plans emphasis is placed on the currency that the liabilities are denominated in and not the country where they arise.The amendments will be applied retrospectively and will not have a material impact on the Group’s financial statements.


IAS 24 (Amendment) Related party disclosuresThe definition of a ‘related party’ has been amended to include a management entity that provides key management personnel services to the reporting entity, or to the parent of the reporting entity either directly or through a Group entity.The reporting entity is not required to disclose the compensation paid by the management entity to the management entity’s employees or directors, but is required to disclose the amounts charged to the reporting entity by the management entity for services provided.The revised standard will be applied retrospectively and will not have a material impact on the Group’s financial statements.


IAS 27 (Amendment) Separate financial statementsEquity Method in Separate Financial StatementsThe amendment allows entities to account for investments in subsidiaries, joint ventures and associates in their separate financial statements:• at cost, or• in accordance with IFRS 9, or• using the equity method as described in IAS 28.The amendment also clarified the definition of separate financial statements.The revised standard will be applied retrospectively and will not have a material impact on the Group’s financial statements.

Annual Periods beginning on or after 1 January 2016.

IAS 40 (Amendment) Investment propertyRecognition of Investment Property upon acquisitionThe amendment clarifies that judgment is required to determine whether the acquisition of investment property is the acquisition of an asset, a group of assets or a business combination in the scope of IFRS 3, and that this judgment is based on the guidance in IFRS 3 Business Combinations.The revised standard will be applied retrospectively and will not have a material impact on the Group’s financial statements.



IFRS 3 (Amendment) Business combinationsMeasurement of contingent considerationThe amendment requires that contingent consideration which is classified as an asset or a liability is to be measured at fair value at each reporting date.

Accounting for joint arrangementsThe amendment clarifies that IFRS 3 does not apply to the accounting for the formation of joint arrangements. It also clarifies that the scope exemption only applies to the separate financials of the joint arrangement.The revised standard will be applied prospectively and will not have a material impact on the Group’s financial statements.

Annual Periods beginning on or after 1 July 2014.

IFRS 5 (Amendment) Non-current assets held-for-saleChange to a plan of sale or distributionThe amendment clarifies that, when an asset is reclassified from ‘held for sale’ to ‘held for distribution’ or vice versa this does not result in a change to a plan of sale and therefore shouldn’t be accounted for as such. The amendment also further expands on guidance paragraphs that a change to a plan of sale should be applied to an asset that ceases to be held for sale but is not reclassified as held for distribution.The revised standard will be applied prospectively and will not have a material impact on the Group’s financial statements.


IFRS 7 (Amendment) Financial instruments: disclosureServicing contractsThe amendment requires that all types of continuing involvement in transferred assets to be disclosed. It further provides guidance on what “continuing involvement” means.

Interim financial statementsThe amendment states that “disclosure-offsetting financial assets and financial liabilities” is not required for all interim periods except where required by IAS 34.The revised standard will be applied retrospectively and will not have a material impact on the Group’s financial statements.


IFRS 8 (Amendment) Operating segmentsAggregation criteria for operating segments disclosureThis amendment requires entities to disclose the judgments made by management in applying the aggregation criteria. The disclosures include:• a brief description of the segments which have been aggregated,• the economic indicators which have been assessed in determining that the

aggregated segments share similar economic characteristics, and• reconciliation of segment assets to the entity’s assets when segment assets

are reported.The revised standard will be applied prospectively and will not have a material impact on the Group’s financial statements.





IFRS 9 (New) Financial instrumentsIFRS 9 requires all recognised financial assets to be measured either at amortised cost or fair value, depending on the business model under which they are held and the cash flow characteristics of the instrument. Debt instruments held with the principal objective to collect contractual cash flows (principal and interest) are generally measured at amortised cost, while all other debt instruments and all equity instruments are measured at fair value.Derivatives embedded in host contracts that are financial assets are no longer required to be bifurcated if they are not closely related to the host contract. Instead, the entire contract is assessed for measurement either at amortised cost or at fair value depending on the business model and cash flow characteristics as stated above. Derivatives embedded in contracts that are not financial assets, including financial liabilities still need to be assessed to determine whether they should be accounted for separately.The new standard removes the cost exemption for unquoted equity instruments and contains additional disclosure requirements for financial liabilities, as well as derecognition of financial instruments.


Hedge Accounting New hedge accounting requirements have been included in IFRS 9 aimed at better aligning the accounting with how entities undertake risk management activities when hedging financial and non-financial risk exposures.The standard will be applied retrospectively, subject to the standard’s transitional provisions. The impact on the Group’s financial statements has not yet been estimated.

ImpairmentThe new impairment provisions in IFRS 9 replace the incurred loss model in IAS 39 with an expected loss model. It will no longer be necessary for a credit event to have occurred before credit losses are recognised.The new impairment model aims to provide users of financial statements with more useful information about an entity’s expected credit losses on financial instruments by requiring entities to recognise expected credit losses at all times, including at inception, and to update the amount of expected credit losses recognised at each reporting date to reflect changes in the credit risk of the financial instruments.The new standard will be applied retrospectively and could have a material impact on the Group’s financial statements. The Group has not yet quantified the potential impact of the new standard on the Group.


IFRS 10 and IAS 28 (Amendment)

Consolidated financial statements and investments in associatesApplying the consolidation exceptionThe amendments clarify the application of the consolidation exception for investment entities and their subsidiaries by clarifying that the exception from preparing consolidated financial statements is available to intermediate parent entities which are subsidiaries of investment entities.

Subsidiaries which act as an extension of an investment entityThe amendments clarify that an investment entity should consolidate a subsidiary which is not an investment entity and whose main purpose and activity is to provide services in support of the investment entity’s investment activities.

Equity accounting for investments in associates and joint venturesThe amendment allows entities which are not investment entities, but have an interest in an associate or joint venture which are investment entities, a policy choice when applying the equity method of accounting. The entities may choose to retain the fair value measurement applied by the investment entities associates or joint ventures, or to unwind the fair value measurement and instead perform a consolidation at the level of the investment entities associates or joint ventures.Sale or contribution of assets between an investor and its associate or joint ventureThe amendments resolve a current inconsistency between IFRS 10 and IAS 28 where currently the accounting treatment depends on whether the non-monetary assets sold or contributed to an associate or joint venture constitute a ‘business’.The revised standard will be applied prospectively and will not have a material impact on the Group’s financial statements.

Annual Periods beginning on or after 1 January 2016.

IFRS 11 (Amendments)

Joint arrangementsAccounting for acquisitions of interest in joint operationsThe amendments require an investor to apply the principles of business combination accounting when it acquires an initial or additional interest in a joint operation that constitutes a ‘business’.The revised standard will be applied retrospectively and will not have a material impact on the Group’s financial statements.


IFRS 13 (Amendment)

Fair value measurementMeasurement of short-term receivables and payablesThe amendment allows entities to continue to measure their short-term receivables and payables without a stated interest rate and without discounting, provided that the effect of not discounting is immaterial.The scope of the IFRS 13 portfolio exception states that entities are permitted to measure the fair value of a group of financial assets and financial liabilities with offsetting risk positions on a net basis if certain conditions are met.Furthermore IFRS 13 was amended to clarify that the portfolio exception which allows an entity to measure the fair value of a group of financial assets and financial liabilities on a net basis, applies to all contracts (including non-financial contracts) within the scope of IAS 39 or IFRS 9.The revised standard will be applied prospectively and will not have a material impact on the Group’s financial statements.





IFRS 15 (New) Revenue from contracts with customersThe new IFRS will replace IAS 18 Revenue and related interpretations. The main principle of the new standard is that an entity recognises revenue to reflect the transfer of goods and services to customers and the amount expected from that transfer. This is achieved through a five step process as follows:1. Identifying the contract(s) with a customer,2. Identifying the performance obligation(s) in the contract,3. Determining the transaction price,4. Allocating the transaction price to performance obligation(s) in the

contract(s), and5. Recognising revenue when (or as) the entity satisfies the performance

obligation(s).The revised standard will be applied retrospectively and could have a material impact on the Group’s financial statements. Early adoption is permitted. The Group has not yet quantified the potential impact of the new standard on the Group.


The financial reporting standards, amendments or interpretations listed below are currently not applicable to the Group and will have no impact on the Group’s financial statements:

Standard or interpretation Title Effective date

IFRS 2 (Amendment)

Share based paymentDefinition of ‘vesting condition’The standard has been amended to clarify the definition of ‘vesting condition’ by separately defining ‘performance condition’ and ‘service condition’.


IFRS 14 (New) Regulatory deferral accountsReporting requirements for regulatory deferral account balancesThis standard specifies the financial reporting requirements for ‘regulatory deferral account balances’ that arise when an entity provides goods or services to customers at a price or rate that is subject to rate regulation.IFRS 14 is an interim solution for rate-regulated entities that have not yet adopted IFRS.


$/R USD/ZAR

AFD Agence Française de Developpement – French Development Bank

AfDB African Development Bank

B-BBEE Broad-based Black Economic Empowerment

HIV/Aids Acquired immune deficiency syndrome

AUS Australian Dollar

bp basis point

CGT capital gains taxation

CSDP competitive supplier development programme

DCT Durban Container Terminal

DEA Department of Environmental Affairs

DIFR disabling injury frequency rate

DMTN Domestic Medium-Term Note

DOT Department of Transport

DPE Department of Public Enterprises

EBITDA earnings before interest, taxation, depreciation and amortisation

ECA Export Credit Agency

EIMS Enterprise Information Management Services

FMPPI Framework for Managing Programme Performance Information

FMCG Fast moving consumer goods

GBP Pound Sterling

GCH gross crane moves per hour

GDP gross domestic product

GMTN Global Medium-Term Note

GRC Governance, Risk and Compliance

IAS International Accounting Standards

IASB International Accounting Standards Board

ICM Act Integrated Coastal Management Act, No 24 of 2008

IFRIC International Financial Reporting Interpretations Committee

IFRS International Financial Reporting Standards

JBIC Japan Bank for International Cooperation

JPY Japanese Yen

King III King III Report on Governance for South Africa – 2009

KPI key performance indicator

LTI long-term incentive scheme

MDS Market Demand Strategy

mℓ/km million litres per kilometre

mt million tons

Nersa National Energy Regulator of South Africa

NPAT net profit after taxation

OEM original equipment manufacturer

Ports Act National Ports Act, No 12 of 2005

PPPFA Preferential Procurement Policy Framework Act

Prasa Passenger Rail Agency of South Africa

PSP Private Sector Participation

ROTA return on total average assets

SD Supplier Development

SOC State-owned Company

SMMEs Small, Medium and Micro Enterprises

STAT ship turnaround time

STI short-term incentive scheme

STS ship-to-shore

TEU twenty-foot equivalent unit

TMPS total measured procurement spend

TSDBF Transnet Second Defined Benefit Fund

TTPF Transport Pension Fund: Transnet Sub-Fund

TVCC Transnet value chain co-ordinator

USA United States of America

USD US Dollar

WACC weighted average cost of capital

WACD weighted average cost of debt

ZAR South African Rand



ABBREVIATIONS AND ACRONYMS

Asset turnover (times)

Revenue divided by total assets (total assets excluding capital work-in-progress).

Total average assets

Total assets, where ‘average’ is equal to the total assets at the beginning of the reporting year plus total assets at the end of the reporting year, divided by two.

Cash interest cover (times)

Cash generated from operations after working capital changes, divided by net finance costs (net finance costs includes finance costs, finance income and capitalised borrowing costs from the cash flow statement).

EBITDA

Profit/(loss) from operations before depreciation, amortisation, impairment of assets, dividend received, post-retirement benefit obligation (costs)/income, fair value adjustments, income/(loss) from associates and net finance costs.

EBITDA margin

EBITDA expressed as a percentage of revenue.

Equity

Issued capital and reserves.

Debt (for gearing calculation)

Long-term borrowings, short-term borrowings, employee benefits, derivative financial liabilities plus overdraft less other short-term investments, less derivative financial assets and less cash and cash equivalents.

Gearing

Debt expressed as a percentage of the sum of debt and Shareholder’s equity.

Headline earnings

As defined in Circular 2/2013, issued by the South African Institute of Chartered Accountants, separates from earnings all items of a capital nature. It is not necessarily a measure of sustainable earnings.

Operating profit

Profit/(loss) from operations after depreciation and amortisation but before impairment of assets, dividends received, post-retirement benefit obligation (costs)/income, fair value adjustments, income/(loss) from associates and net finance costs.

Operating profit margin

Operating profit expressed as a percentage of revenue.

Return on total average assets

Operating profit expressed as a percentage of total average assets (total average assets exclude capital work-in-progress).

Total assets

Non-current and current assets.

Total debt

Non-current and current liabilities.

Transnet SOC Ltd

47th Floor, Carlton Centre150 Commissioner StreetJohannesburg2001

Incorporated in the Republic of South Africa.Registration number 1990/000900/30.

Executive directors

B Molefe (Group Chief Executive). A Singh (Group Chief Financial Officer).

Independent non-executive directors

LC Mabaso* (Chairperson), Y Forbes, GJ Mahlalela*, PEB Mathekga*, N Moola, ZA Nagdee*, VM Nkonyane*, MR Seleke*, SD Shane*, BG Stagman*, PG Williams** Appointments effective 11 December 2014.

Group Company Secretary

Ms ANC Ceba

47th Floor, Carlton Centre, 150 Commissioner Street, Johannesburg, 2001.

PO Box 72501, Parkview, 2122, South Africa.

Auditors

SizweNtsalubaGobodo Inc., 20 Morris Street East, Woodmead, Johannesburg, 2191.

The internal audit function has been outsourced to SekelaXabiso (Pty) Ltd, Nkonki Inc and KPMG Services (Pty) Ltd.

SekelaXabiso (Pty) Ltd1st Floor Building 22BThe Woodlands Office Park20 Woodlands DriveWoodmeadJohannesburg

Nkonki Inc 3 Simba RoadSunninghillJohannesburg

KPMG Services (Pty) Ltd85 Empire RoadParktownJohannesburg

CORPORATE INFORMATION


GLOSSARY OF TERMS

160 | Transnet Annual Financial Statements 2015

NOTES

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