dpe presentation to portfolio committee on soe perfomance against agreed kpi’s for 2006/07

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1 DPE PRESENTATION TO PORTFOLIO COMMITTEE ON SOE PERFOMANCE AGAINST AGREED KPI’S FOR 2006/07 SEPTEMBER 2007

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DPE PRESENTATION TO PORTFOLIO COMMITTEE ON SOE PERFOMANCE AGAINST AGREED KPI’S FOR 2006/07 SEPTEMBER 2007. Flow of Presentation. Evolution (Phases 1 & 2) Process Components SOE Performance Against Agreed KPI’s for 2006/07. Evolution. Phase 1: - PowerPoint PPT Presentation

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Page 1: DPE PRESENTATION TO PORTFOLIO COMMITTEE ON SOE PERFOMANCE AGAINST AGREED KPI’S FOR 2006/07

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DPE PRESENTATION TO PORTFOLIO COMMITTEE ON SOE PERFOMANCE

AGAINST AGREED KPI’S FOR 2006/07

SEPTEMBER 2007

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Flow of Presentation

• Evolution (Phases 1 & 2)

• Process

• Components

• SOE Performance Against Agreed KPI’s for 2006/07

Page 3: DPE PRESENTATION TO PORTFOLIO COMMITTEE ON SOE PERFOMANCE AGAINST AGREED KPI’S FOR 2006/07

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Evolution

• Phase 1:– Initially voluminous and difficult to interpret – Resultant lengthy conclusion process– KPIs primarily balance sheet focused due to SOE financial

difficulties – Lack of performance and output target focus– Limited review

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Evolution

• Phase 2: – Slim compact format adopted with emphasis on

performance and output targets– Obligation to mirror mandate and strategic intent

statement– KPIs to cascade down to SOE subsidiaries– Compact reviewed annually – limited tweaking of strategic

objectives with amendments focused on KPIs– Compact a live document

Page 5: DPE PRESENTATION TO PORTFOLIO COMMITTEE ON SOE PERFOMANCE AGAINST AGREED KPI’S FOR 2006/07

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Flow of Presentation

• Evolution• Process• Components• SOE Performance Against Agreed KPI’s for 2006/07

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Process

• Annual agreement between Executive Authority (Minister) and Accounting Authority (SOE Board)

• Key Performance Measures & Indicators determined from Corporate Plan

• Shareholder Compact negotiated• Quarterly Performance Reporting and Monitoring against

agreed indicators• Annual Performance Reporting and Monitoring against

agreed indicators• Annual Review and renegotiation

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Process

Corporate Plan

Annual Report and AFS

AGM + Strategic Meeting

Shareholder Compact

Quarterly Reports

Policy

Proposed KPIs

Negotiated KPIs

Reporting on Performance

Annual report on Performance

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Flow of Presentation

• Evolution• Process• Components• SOE Performance Against Agreed KPI’s for 2006/07

Page 9: DPE PRESENTATION TO PORTFOLIO COMMITTEE ON SOE PERFOMANCE AGAINST AGREED KPI’S FOR 2006/07

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Components - Clauses

• Interpretation;• Functions of shareholder compact;• Mandate;• Strategic objectives;• Key performance indicators and evaluation;• Period of compact;• Appendice:

Key performance indicators

Generic

Review annually

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Components - Generic KPIs

• Capital Efficiency• Financial Efficiency• Operating Efficiency and Effectiveness• Gearing Ratios• Developmental objectives

– ASGI-SA– Skills development– Broad Based Black Economic Empowerment– Strategic Supplier Development

• SOE Strategy / Maturity Specific:– Investment (Capacity Delivery)– Infrastructure Investment– Sales– Revenue Increases

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SOE Compacts 2006/2007

• Signed SC• Transnet • Eskom • Denel • Safcol (Process KPIs)

• Not signed • SAA (then not within DPE portfolio)• Alexkor (Land claim process)

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SOE Compacts 2007/2008

(Phase 3)

• Compacts extended in width (All SOE) and depth (Extended Performance Indicators and Targets).

• Ability to measure quarterly performance greatly increased

Compacts 2006/2007

Compacts

2007/2008

Compacts

2008/2009

Eskom Eskom Eskom

Transnet Transnet Transnet

Denel Denel Denel

Safcol Safcol Safcol

Alexkor Alexkor

PBMR [PIM] PBMR

SAA SAA

Infraco

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Flow of Presentation

• Evolution• Process• Components• SOE Performance Against Agreed KPI’s for 2006/07

(Safcol)

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Safcol

Mandate

Core business is the conduct of forestry, timber harvesting, timber processing and related activities, both domestically and internationally.

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Safcol

• At the time the Shareholder Compact and KPIs for SAFCOL were being developed, an in-depth review of the future of the company was in progress. The review was instructed by the Minister in April 2006.

• As a result, at the time of KPI development, no decision had been taken on the future role and strategy for the company and thus it was not clear at that time which KPIs would be needed in future Compacts. For this reason, an “Interim Shareholder Compact” was agreed, which contained “Interim KPIs”, and which it was expected would be significantly revised after the decision on the future role of the company. These Interim KPIs were intended to:

– ensure that performance data was prepared and reported, using an appropriate and consistent definition

– obtain base-line data for certain KPIs which were likely to be needed in the following year

– establish performance targets for certain fundamental measures, such as the presence or absence of “good forest management”

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Safcol

• In order for the KPIs and performance data to be meaningful, they must be defined very precisely and that definition must be applied consistently over time. Failure to do this will render the KPIs at least less helpful, potentially meaningless and potentially open to manipulation.

• Note that, as a result of the decision confirmed by Cabinet in March 2007 that KLF should be transferred to the private sector and that SAFCOL should be wound-up, the new Compact for 2007-08 includes KPIs relating to those transactions. Such KPIs were deliberately not included in the 2006-07 Compact.

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Safcol

• Specific mandate for 2007/2008:

- Complete the transfer to the private sector of Komatiland Forests (Pty) Ltd in accordance with the Transaction Guidelines;

- Maintain sustainable management and value of forests and other assets until transfer is completed;

- Reform the system used for sale of sawlogs;

- Assist the Shareholder Representative with the sale of IFLOMA;

- Prepare for an orderly winding up.

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Flow of Presentation

• Evolution

• Process

• Components

• SOE Performance Against Agreed KPI’s for 2006/07

(Denel)

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Denel

Mandate• Denel’s mandate is to supply strategic defence capabilities to the SANDF (and

the SAAF) and to act as a catalyst for advanced manufacturing in the broader economy.

Strategic Objectives• Strategic Role• Capital and financial efficiency• Investment• Consolidation• Capability Improvements and Operational Efficiency• Developmental Objectives

Key Performance IndicatorsSee next slide

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Denel

KEY PERFORMANCE INDICATORS TARGET ACTUAL

Financial Indicators

Capital/financial efficiencyo EBIT Margino RONA% (before tax)

-13.7%-55%

-12.2%-63.1%

Investment (Capacity delivery)o CAPEX / Revenue%o Product Development

12.4%3%

3.6%2.5%

Measurable Indicators

Disposal of non-core businesses and assets 5 remaining disposals realising R394.2m in income

3 non-core businesses were disposed of realising income of R247m. Total accumulative income to date = R413m.New processes for SPP and Cosource transactions underway.Sale of land at ORTIA to ACSA at an advanced stage and will realise income of R606m.

Sales Order coverage ratio of 69%

49.4% as at 31 March 2007.Increased to 75% as at 30 April 2007

R1 869m in exports -27.8% growth

R1 720m in exports - 10.8% growth

Cost reductionsRevenue per Head – Revenue/Headcount (R m)

R0.5m R0.4m

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Denel

KEY PERFORMANCE INDICATORS TARGET ACTUAL

Improvement of governance and risk management policies and systems

Compliance with the Protocol on Corporate Governance and the PFMA

Substantial improvement in policies and systems. However, some areas still require improvement. Denel needs to avoid future reportable irregularities

Compliance with legislation Compliance with the PFMA, BBBEE Act, Employment Equity Act and the LRA

Substantial improvement in compliance with legislative frameworks. New equity appointments.Some areas still require improvement.

Best Endeavour Indicators

Progress towards consolidation of the business and the establishment of manufacturing clustersSubstantive progress made

Progress to be reported only

Philippi and Somchem plants were merged. The Corporate Office was relocated to the Irene Campus. Where the cost of consolidation was found to be prohibitive, it was decided not to pursue this.

Other cost reduction initiatives Initiatives undertaken and the results thereof

OPEX ratio decreased from 42% to 38%. Cost of sales as a percentage of sales decreased from 105% to 77%.

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DenelKEY PERFORMANCE INDICATORS TARGET ACTUAL

Partnerships with foreign and local companies Progress on partnership negotiations

Partnerships were concluded with Saab in Aerostructures and Carl Zeiss in Optronics. PFMA application for merger with ATE in UAV’s received in 2007/08. Negotiations with a third strategic partner at an advanced stage.

Other measures taken to improve capabilities Management interventions

Initiatives to improve programme management and supply chain practices undertaken eg. internal auditors concluded a review on contract management.

Closure of non-viable businesses Substantive progress made

See above

Sales 1. Percentage of revenue from sales (including SANDF sales)2. Significant new contracts signed with clients abroad

1. Domestic sales as percentage of total sales was 48%. Major local contracts include Oryx, Acrobat, Hoefyster and A-Darter.2. Export contracts included Umkhonto (Finland), A-Darter (Brazil) and contracts with the UAE

Contract management and delivery – alignment of scope, specifications and costs

Substantive progress made in reducing slippages on contractsInformation on the reduction of backlogs where possible (e.g. DSA)

Internal audit and international equity partners (where relevant) reviewed processes and controls. Upgrading of applicable programme management and ERP software completed.Backlogs on the Top Shells contracts reduced at DSA.Substantial improvement required in contracting and contract management.

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Denel

Improvements in the 2007/08 Proposed Shareholder Compact

• The Strategic objectives have been consolidated and streamlined for the 2007/08 Compact:– Strategic and economic role in South Africa– Financial and operational efficiency – Consolidation and equity partnerships – Developmental objectives

• The financial KPI’s have been expanded to enable improved monitoring of Denel’s performance (particular attention has been paid to monitoring Denel’s debt position as it is entering the market to raise its remaining funding requirements): – Profitability ratios– Management effectiveness– Liquidity ratios– Cash Cycle Days– Order Coverage– Investment– Debt and Gearing

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Denel

Improvements in the 2007/08 Proposed Shareholder Compact (contd.)

• Business performance indicators include:– Measurable indicators: Export sales, cost reductions, exit of non-viable and non-

core businesses, improvements in governance and risk management policies and systems and compliance with legislation.

– Best endeavour indicators: Consolidation of the business and the establishment of manufacturing clusters, equity partnerships and local collaborative partnerships, alignment of product lines to strategy, the management of major programmes, contract management and contracting improvements and reductions in the overall liability under the A400M programme.

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Flow of Presentation

• Evolution

• Process

• Components

• SOE Performance Against Agreed KPI’s for 2006/07

(Eskom)

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Mandate

• Key role – assist in lowering the cost of doing business in S.A and enabling economic growth through providing appropriate infrastructure and ensuring system reliability in a cost effective, efficient manner & within acceptable benchmark standards

Transnet

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Performance Area Key Performance Indicator Measure Target 2006/7

Actual 31 March 2007

Capital / Financial Efficiency

Economic Operating Profit Budget (R’m) 7 173 8 431

Infrastructure Investments (Capacity delivery)

Managed by Capital Expansion Division

Generation Capital expenditure Budget (R’m) 6 058 7 034

Transmission Capital expenditure Target (R’m) 1 000 1 166

Generation capacity installed & commissioned Target (MW) 1 041 1 065

Transmission lines installed Target (Km) 410 430

Transmission MVA installed Target (MVA) 500 1 000

Distribution Capital expenditure Budget (R’m) 2 888 3 430

Operating Efficiency & Effectiveness

Major Incidents Plan 1 Deg 1 1 Deg 1 & 1 Deg 2

System Minutes Lost (≤ 1 min) Plan (SML) 3.9 3.67

Unplanned Capability Loss Factor (UCLF) Plan (%) 4.5 4.4

System Average Interruption Duration Index (SAIDI)

Plan 52.8 49.7

Rand/Megawatt Hour (R/MWh) (before embedded derivative)

Budget 167.26 162.5

Skills Development Eskom Trainees / Bursars Target 4 000 4 236

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• Economic Operating Profit (EOP)• Measures the economic operating profit created by the business after

paying for the use of capital (including working capital) to the providers thereof. Minimum return required from the business should result in EOP being zero. This minimum required return (opportunity cost) includes a charge for the capital employed to produce the outputs. EOP is derived from the following calculation:

Operating Profit XXXAdd Depreciation XXXEBITDA XXXLess Economic Tax (XXX)EBITDA After Tax XXXLess Total Capital Charge on Assets (XXX)Economic Profit XXXX Add EBITDA After Tax XXX Less Capital Charge for Working Capital (XXX)Economic Operating Profit (EOP) XXXX

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• Generation Capital ExpenditureThis is the capital expenditure that will be spent by Capital Expansion Department (CED) on behalf of Generation Division on new generation capacity projects and other generation projects in accordance with the enabling agreement between CED and line divisions.

• Transmission Capital ExpenditureThis is the capital expenditure that will be spent by Capital Expansion Department (CED) on behalf of Transmission Division including the design and construction of new transmission networks and major extensions and strengthening of the existing grid major transmission projects in accordance with the existing enabling agreement.

• Distribution Capital ExpenditureThis is capital expenditure spent on distribution infrastructure managed within the Distribution Division. This captures capital expenditure on new customer connection, refurbishment, strengthening and continuous business improvement (electrification is excluded)

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• Generation capacity installed & commissionedThis is the nominal number of megawatts installed and commissioned within the financial year. This does not track the number of megawatt sent out or the maximum capacity demand which is always less than the nominal amount installed.

• Transmission lines installedThis is the number of kilometres of transmission lines installed within one financial year. This includes kilometres of line that are installed and commissioned and those that are not yet commissioned within the financial year.

• Transmission MVA installedThis is the total transform capacity measured in MVA installed within one financial year.

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• Major Incidents A major incident is an interruption incident that results in the loss of 1 system minute or more. The measure is scored on the basis of the degree of severity of these events. The degree of severity of a major interruption is defined internationally as follows:[Severity Degree 1: System minutes lost ≥ 1 and smaller than 10] [Severity Degree 2: System minutes lost >10 and < 100] [Severity Degree 3: System minutes lost ≥ 100] This measure tracks the number of significant interruption incidents.

• System Minutes Lost (≤ 1 min)This measure is the sum of system minutes lost per incident over a 12 month moving window. Only system minute events less than 1 system minute are counted in this index. This measure describes the underlying performance (severity of the load interrupted) over a 12-month period. Major events are excluded from this measure.

• Unplanned Capability Loss Factor (UCLF)This measure indicates the effectiveness of plant programmes and practices in maintaining systems available for safe electrical generation. It is defined as the ratio of the unplanned energy losses during a given period of time, to the reference energy generation, expressed as a percentage. Unplanned energy loss is energy that was not produced during the period because of unplanned shutdowns, outage extensions, or unplanned load reductions due to causes under plant management control.

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• System Average Interruption Duration Index (SAIDI)This measure is the average interruption duration for all customers served during the 12 month period.SAIDI = Sum of customer interruption durations (total hrs / customer / year)Total number of connected customers

Rand/Megawatt Hour (R/MWh) (before embedded derivatives)Measures the cost per unit of energy sold. R/MWh = Interest (include fair value) + Operating costs (includes abnormal) + Primary Energy X 100External sales – GWh

• Eskom Trainees / BursarsThis indicator tracks the number of learnerships that have been registered with the Eskom learnership programme in the current financial year. This indicator includes both the 18.1 (employed by Eskom) and 18.2 (unemployed) learners.

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Transnet

• EIBT Margin• Return on Average Capital Employed

CAPITAL & FINANCIAL EFFICIENCY KPI’S INTRODUCED IN 2007/08

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Transnet

• Distribution• System Average Interruption Frequency Index (SAIFI)

OPERATIONAL KPI’S INTRODUCED IN 2007/08

Page 35: DPE PRESENTATION TO PORTFOLIO COMMITTEE ON SOE PERFOMANCE AGAINST AGREED KPI’S FOR 2006/07

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Flow of Presentation

• Evolution• Process• Components• SOE Performance Against Agreed KPI’s for 2006/07

(Transnet)

Page 36: DPE PRESENTATION TO PORTFOLIO COMMITTEE ON SOE PERFOMANCE AGAINST AGREED KPI’S FOR 2006/07

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Mandate

• Key role – assist in lowering the cost of doing business in S.A and enabling economic growth through providing appropriate ports, rail and pipeline infrastructure and operations in a cost effective, efficient manner & within acceptable benchmark standards

Transnet

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Transnet

Strategic Objectives

• Capital & Financial efficiency• Operational Efficiency & Effectiveness• Infrastructure Investments• Development Objectives

Page 38: DPE PRESENTATION TO PORTFOLIO COMMITTEE ON SOE PERFOMANCE AGAINST AGREED KPI’S FOR 2006/07

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Transnet

2006/07 SKPI’S

TARGET ACTUAL

Capital / financial efficiency

Ebitda margin (%)

Cash interest cover (times)

Gearing ratio (%)

Cfroi (%)

34.8

5.3

47.9

5.8

40.7

5.4

39

5.4

Infrastructure investments

% of actual capital expenditure compared to budgeted expenditure

% of total maintenance spent compared to budget: spoornet

>90%

>90%

99

125

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Transnet

OPERATING EFFICIENCY & EFFECTIVENESS

Tariff (%)

Target

Tariff

(%)

Actual*

Volume activity (%)

Target

Volume activity (%) Actual*

Total (%)

Target

Total (%)

Actual*

Total core 3.3 4.0 11.5 4.0 15.2 8

Spoornet 3.1 5 10.9 (2.5) 14.3 3.7

NPA 2.9 1.3 3.7 15.5 6.7 12.0

SAPO 3.9 6.4 8.8 8.6 13.0 14.0

Petronet 2.0 2.5 6.8 8-14 8.9 15.0

Transwerk 4.3 ** 28.6 ** 34.1 90.0

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Transnet

2006/07 KPI’S

KPI ACHIEVED

CAPITAL / FINANCIAL EFFICIENCY

INFRASTRUCTURE INVESTMENTS

REVENUE INCREASE – TARIFF AND VOLUMES (GROUP & DIVISIONAL LEVEL)

x

Transnet achieved the capital/financial efficiency and infrastructure investment targets

X = Revenue objective not achieved due to Spoornet’s underperformance. Division experienced capacity, constraints, derailments and customer-related problems

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Transnet

2007/08 SKPI’s

• Capital/financial efficiency- Ebitda margin (%)- Cash interest cover (times)- Gearing ratio (%)- Cfroi (%)

• Infrastructure investments (capacity delivery)- % of actual capital expenditure compared to

budgeted expenditure- % of total maintenance spent compared to budget: Spoornet

• Revenue targets – tariff (%) increase and volume (%) increase at group and divisional level

• Our focus now shifts from primarily financial to a mix of financial and operational targets

• Note: KPI’s remain the same as for 2006/07; 2006/07 targets form the base, new targets to be agreed where required

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Transnet

• Transnet freight rail• Traffic volume in tonnes• Staff productivity (net ton kilometres / number of staff)• Net ton average / average # of locomotives• Net ton average / average # of wagons• Net operating cost / net ton kilometer• Wagon turnaround (days)• On-time arrival (%) at yard nearest the customer sidings

OPERATIONAL KPI’S INTRODUCED IN 2007/08

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OPERATIONAL KPI’S INTRODUCED IN 2007/08

• NPA• Annual volumes of cargo and growth per cargo type• Cargo throughput per metre of quay• Berth occupancy (%)• Ship waiting time

Transnet

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Transnet

OPERATIONAL KPI’S INTRODUCED IN 2007/08

• SAPO• Volume of cargo p.a• Crane productivity• Ship productivity (working time only)• Ship productivity (total time at berth)• Yard productivity• Labour productivity

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Flow of Presentation

• Evolution• Process• Components• SOE Performance Against Agreed KPI’s for 2006/07

(SAA)

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Mandate

• African airline with global reach• Serve wide range of routes – focus on limited number of

profitable routes into major continents• Increase African routes• Only serve heavily trade routes in South Africa

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Year ended - March 07

Actual Budget Variance

Capacity

Passenger Available Seats (ASK) 33,671 31,771 1900

Traffic

Revenue passenger kilo's (millions) 25,381 21,751 3630

Revenue passenger (thousands) 7,727 6.902 825

Cargo- Tons flown (thousand) 202 175 (27)

Utilisation

Passenger Load Factor % 75 68 7

Yield (R/RPK)-Passenger 0.56 0.54 0.02

PAX Revenue (R mil) 14,230 11,713 2517

Yield (R/ASK)-Total airline income 0.61 0.64 (0.03)

Unit cost (R/ASK’s) 0.64 0.63 0.01

Due to the unbundling of SAA from Transnet, a Shareholders’ Compact between DPE and SAA was not concluded for 2006/07. KPI’s for the current financial year are cited in the following table .

The focus for the department is to monitor performance against the Turnaround Plan devised with the assistance of the Seabury Consulting Group and to this end a team comprising official from National Treasury and DPE has been setup.

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Flow of Presentation

• Evolution• Process• Components• SOE Performance Against Agreed KPI’s for 2006/07

(PBMR)

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Mandate

• Successful commercialisation of pebble bed technology for world energy market

• Preferred global provider of standardised nuclear energy systems, fuel and life cycle support

• Performance oversight via PIM• Project phase – development of demonstration plant• Shareholder compact to be concluded 2008/2009

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Flow of Presentation

• Evolution• Process• Components• SOE Performance Against Agreed KPI’s for 2006/07

(Infraco)

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Infraco

• To expand the availability and affordability of access to electronic communications, including to underdeveloped and underserviced areas, in accordance with the Electronic Communications Act and commensurate with international best practice and pricing, through the provision of –

(a) electronic communications network services; an

(b) electronic communications services.

Mandate

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Infraco

• Currently subsidiary of Eskom Enterprises

• Department has the agreement of Eskom Enterprises to monitor performance of Infraco on the following KPIs:- EBITDA Margin (%)

- Cash Interest Cover (Times)

- Gearing Ratio (%)

- ROA (%)

- ROE (%)

SKPIs

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Conclusion

• 2007/2008 – compact process greatly improved• Negotiation of compacts with majority of SOE• Increased depth and width of compact content proving

invaluable performance tool• Ongoing identification and negotiation of KPIs following

shareholder strategic objectives and market changes

• Majority of KPIs achieved by SOE for 2006/2007