presentation to the portfolio committee on public enterprises 19 september 2007

PRESENTATION TO THE

PORTFOLIO COMMITTEE ON PUBLIC ENTERPRISES

19 September 2007

2

AGENDA

• OPENING REVIEW BY CHAIRMAN FRED PHASWANA

• OVERVIEW OF PERFORMANCE OF TRANSNET MARIA RAMOS

• REVIEW OF FINANCIAL PERFORMANCE CHRIS WELLS

• HUMAN RESOURCES STRATEGY AND PROGRESS PRADEEP

MAHARAJ

• OPERATING DIVISIONS REVIEW CHIEF EXECUTIVE

OFFICERS

• CONCLUSION AND WAY FORWARD MARIA RAMOS

3

OPENING REVIEW: CHAIRMAN OF TRANSNET

The compact with the Shareholder sets out:

• Transnet’s mandate

• The strategic objectives to be attained by Transnet

• The Key Performance Areas and Indicators to measure Transnet’s performance during a certain period

4

SHAREHOLDERS COMPACT: MANDATE

Transnet’s key role is to assist in lowering the cost of doing business in South Africa

and enabling economic growth through providing appropriate ports, rail and pipeline

infrastructure and operations in a cost effective and efficient manner and within

acceptable benchmark standards

“The mandate for Transnet remains as determined by the company’s founding

documents, by prevailing legislation and by this Compact”

5

SHAREHOLDERS COMPACT: STRATEGIC OBJECTIVES

4 KEY AREAS

1. Capital and financial efficiency

Strong balance sheet Appropriate gearing Cost effective funding

2. Operating efficiency & effectiveness

Volume growth (especially GFB) Operating margin improvement Business re-engineering Exit non-core businesses Competitively priced services

3. Infrastructure Investments

Correlation between budget and actual capital spending Implement maintenance plan

4. Development Investment program (ASGISA); logistics cost reduction Skills development BEE

6

SHAREHOLDERS COMPACT: FINANCIAL KPI’s

Performance Area

Key performance indicator

(KPI)/measure 2007 Target

Capital/financial efficiency

EBITDA margin(%) 34.8

Cash interest cover (times) 5,3

Gearing ratio(%) 47.9

CFROI(%) 5.8

Infrastructure investment

% of actual capital expenditure compared to budget expenditure > 90%

% of total maintenance spent compared to budget > 90%

7

CONCLUSION: TRANSNET PERFORMANCE 2006/07

• Pleasing progress made in implementing Transnet’s Strategy

• Significant investment in human and physical capital

• Strong governance and risk processes

• Achieved all the financial objectives – strong balance sheet

• Now focussed on core Businesses – major non-core assets disposed off

• Platform created for future growth and service delivery

MARIA RAMOS

OVERVIEW OF PERFORMANCE OF TRANSNET

9

TRANSNET’S VISION AND MISSION

Transnet is a focused freight transport company delivering:

• Integrated, efficient, safe, reliable and cost effective services which help promote economic growth in South Africa

PROVIDING PROVIDING

Market share

Productivity and profitability

Capacity for customers ahead of demand

IMPROVED IMPROVED

INCREASED INCREASED

10

TRANSNET VALUES

We are:

•Reliable •Trustworthy•Responsive •Safe service provider

TRANSNET’S CUSTOMERS PREFER US BECAUSE:TRANSNET’S CUSTOMERS PREFER US BECAUSE:

OUR EMPLOYEES ARE:OUR EMPLOYEES ARE:

•Ethical •Committed •Safety conscious •Accountable

•Thinking•Disciplined•Results orientated

11

4-POINT TURNAROUND STRATEGY

Strategic Intent

Focused freight transport company

Enabling economicgrowth

4-pointTurnaroundStrategy

Redirecting & re-engineering

the Business

Strategic BalanceSheet Management

Ensure CorporateGovernance &

Risk Management

DevelopHuman capital

Delivering efficient &Competitive services

• Improving efficiencies & effectiveness of core divisions

• Realising port-rail synergies • Customer focus• Infrastructure and maintenance

• Dispose all non-core activities and focus on core business units

• Appropriate rate of return on invested capital (>WACC)

• Post retirement funding

• Optimise cash flow and cash management

• Strategic asset/liability management

• Highest standards of corporate governance

• Improvement in risk management, especially safety in all operations

• Revitalising HR by transforming culture & behaviour of staff.• Be a preferred and sustainable employer.• Focusing on: - Talent management - Leadership - Transformation - Performance and reward management

12

• We chose the monolithic route to mirror the new corporate

strategy and structure of the Company

• To communicate the integrated and customer-centric

approach of the new Company

• Enforcement of the consistent application of the new Transnet

identity throughout the organization

• To present a consistent face to customers as a platform to

build and sustain momentum as Transnet gears itself for

sustainable growth

• To consolidate employee energies, and maximise economies

of scale and brand assets in building Transnet and its unique

offerings, and

• To create a singular platform to leverage and reinforce the

“One Company, One Vision” philosophy

RATIONALE FOR REBRANDING

13

FINDINGS AND RECOMMENDATIONS

• The current name, Transnet, should be retained• Transnet should refresh its brand image to reflect:

- Customer centeredness - Reliability - Cost-efficiency - Transparency - Competitiveness - Flexibility - OD alignment - Improved communication

• Preference for a monolithic or endorsed brand architecture, particularly amongst customers. In particular, customers, preferred one dominating name for Transnet with reference to its ODs to emphasize unity but distinguish between the core businesses

14

NEW TRANSNET BRAND ARCHITECTURE

Supporting businesses: Transnet Properties and Transnet Projects

Discontinued Businesses

15

THE WAY FORWARD: BRANDING

Use the brand to:

• Underpin the growth strategy

• Drive integration

• Support Transnet’s new culture

• Establish Transnet as a leading corporate in South Africa

• Enabling growth by optimising the efficiency and competitiveness of the country’s freight transport and logistics

• Act as a catalyst for the growth of the economy

16

STRUCTURE TO SUPPORT STRATEGY

Discontinued businesses

Freight Rail

Freight Rail

RAILRAIL

RailEngineering

RailEngineering

TRANSNET COMPANY TRANSNET COMPANY

PORTSPORTS

National Ports

Authority

National Ports

Authority

Port Terminals

Port Terminals Pipelines Pipelines

PIPELINEPIPELINE

Operational divisions(continued businesses)

•SA Express

•Transtel Telecoms

•Viamax

•Autopax

•freightdynamics

•Housing Lending Book

•Shosholoza Meyl

•Arivia.kom

•SA Express

•Transtel Telecoms

•Viamax

•Autopax

•freightdynamics

•Housing Lending Book

•Shosholoza Meyl

•Arivia.kom

Discontinued Businesses

Supporting businesses: Transnet Property and Transnet Projects

17

STRATEGY IMPLEMENTATION: ACHIEVEMENTS TO DATE

Investment

On target with 2007 (R11,7 bn) roll out of five-year investment plan•Replacement of assets (R8,2 billion)•Expansion investments (R3,5 billion)

Major projects commenced and spending next five years per Corporate Plan

•New Multi Product Pipeline (NMPP) from Durban to Johannesburg (R9,3 billion; latest estimate R11.2bn)•Widening and deepening of the entrance channel at the Port of

Durban (R2,6 billion)•New container terminal at Durban Pier 1 (R1,3 billion)

18


Investment continued

Major projects commenced and spending next five years per

Corporate Plan•Durban container terminal re-engineering (R1,4 billion)•Cape Town container terminal expansion (R4,2 billion)•Ngqura Container terminal (capacity from 2010 onwards) (R6,1

billion)•Coal line capacity expansion to 86 mtpa (R3,3 billion)•Ore line expansion to 47 mtpa (R3,8 billion)•Acquisition of 404 new locomotives (R4,9 billion)

Project management: Establishment of Transnet Projects •Focus on: Co-ordination, implementation, skills, planning and

delivery

19

Disposal of non-core assets

R20 million and R3 million, respectively

Metropolitan Life (including Kagiso Trust Investments) and Fifth Quadrant respectively

Transnet Pension Fund Administrators (100% - administration and investment services)

R1.8 billionLondon & Regional Consortium

V&A Waterfront Holdings (Pty) Ltd (26%)

R30 millionVAE SA (Pty) LtdVAE Perway (Pty) Ltd (35%)

R70 millionEquity Aviation Services (Pty) Ltd(and employee share scheme)

Equity Aviation Services (Pty) Ltd (49%)

R250 million (funded by issue of equity of 15% in Neotel (Pty) Ltd via Transpoint Properties (Pty) Ltd)

Neotel (Pty) Ltd (formerly the Second Network Operator)

Transtel Telecom FSNMetro assets

R2 billion (no cash flow – transaction effected by share buy-back)

DepartmentofPublicEnterprisesSouth African Airways (Pty) Ltd (100%)

Price Buyer Businesses disposed


20

Disposal of non-core assets – Subsequent events

R5,7 billion

– Cash received

Newshelf 664 (Pty) Ltd“C” Preference share

Approximate R1,0 billion− Cash to be received shortly

Bidvest LtdViamax Pty Ltd (100%)

Fair value of R1,4 billion

– Subject to Competition

Commission approval

FirstRand Bank Ltd Transnet Housing

Loan Book

PriceBuyerBusinesses


Total proceeds of disposals approximately R10bn

21

Achievements:Focus on:

Change management programmes in place•Organisational culture

HR processes in place to become employer of choice

•Attract critical skills

SPO’s defined for all managers and performance assessed

• Performance management

Skills mapping completed

Leadership development plans

Prioritising skills and succession planning

•Skills demand planning

• Capacity building and skills development

• Talent management

Human capital development

Additional capacity building175 additional engineering bursaries173 students at institutions of technology (to be increased to 300)1 261 additional apprentices in different trades20 Thuthuka bursaries through SA Institute of Chartered Accountants


•HR Enablement New HR policies, standardised supporting

procedures

22

Re-engineering the business: Vulindlela projects

Second year of implementation

•Improve productivity levels and operational efficiencies

•Orientate businesses towards customers

•Address safety

•Culture of planned maintenance

•Increase in market share – volume growth (especially GFB in Spoornet)

•Savings of more than R2 billion have been achieved since inception

Success/achievements in 2007

•Improved GFB freight flows (3 mt) – current tempo

First year for a decade where volumes did not decrease

•Capacity created on Iron Ore and Coal Line that exceeds current demand from clients

•Increase in monthly port handling capacity at DCT (TEU’s 186 000 vs 158 000)

•Procurement savings of R500 million p.a. and reduction in safety incidents (R200 million)


23

Efficiency improvement: Transnet Business Intelligence projects (TBI)

• Implementation of TBI projects

-Effective use of technology, world class systems and processes

-Financial management and reporting

-Improving processes and systems that enable information management

• Identified KPI’s across businesses to measure key value drivers

• Benchmarking against international companies to ensure world class performance

• Implemented Key Performance Indicator project to measure:

-Key volume drivers

-KPI performance weekly/monthly

-Performance vs benchmarks – all areas of business


24

Transnet Second Defined Benefit Fund (TSDBF)

• Active management and leadership from Transnet

• Currently in surplus of R1,7 billion as opposed to being in deficit in 2006 of R1,6 billion (aided

by the sale of MTN shares-M Cell and V&A Waterfront)

• Rule amendments approved by the Minister - Generally to enable bonus amounts to be paid to pensioners to exceed 2%

pension increase (subject to affordability)

• Transnet paid ex-gratia bonuses of R125 million to pensioners- All received an additional 1%- Previously disadvantaged widows and members with >15 years service who

receive low pensions and/or also over 65 years old received additional amounts


25

Transnet Pension Fund

• Act changes have received presidential approval to enable non-Transnet employees of businesses transferred to Government to remain members

• Rule amendments approved by Minister

• Fund will become multi-employer with new employers guaranteeingthe obligations of its employees and pensioners

• Fund now in substantial surplus (R 2.4 billion of which R 1.1 billion relates to the Transnet sub-fund)

Transnet Retirement Fund

• Act changes have received presidential approval to enable non-Transnet employees of businesses transferred to Government to remain members

• Rule amendments approved by Minister


26

Economic Regulation

National Ports Act

• Act in place from November 2006

• Places responsibility on NPA to ensure safe, efficient and effective functioning of ports system

• Independent Regulator oversees NPA’s functions, approves tariffs, hears complaints and appeals from port users

• Transnet is investing in systems and capacities to perform additional functions prescribed by legislation

• Interacting with shareholder in certain aspects of Act


27

Economic Regulation continued

Pipelines

• NERSA (energy regulator), declined Petronet’s application for 5,6% increase • Regulations for, amongst other issues, determining tariff increases not yet

finalised • Transnet engaging with relevant authorities; important that tariff methodology

enables Transnet to earn a fair return on invested capital (> WACC)


Have formed a regulation policy unit to lead Transnet’s strategy and interactions with the Regulator

28

Risk Management

Operational Risk

• Established a Risk Committee of the Board and appointed a Chief Risk Officer that serves on EXCO

• Appointed GE Human Resources and HR Sub-Committee dealing with human capital in sustaining the turnaround

• Improved safety measures and roll out safety awareness and training programmes

• Reviewed safety procedures and strengthened capacity in problematic areas

• Improved controls and campaign against fraud


29

Risk Management

Financial Risk

• Financial Risk Framework in place covering all risks (interest, currency, market)

• Asset and Liability Committee ensures that financial risks are effectively managed

• Stringent financial objectives are set to ensure that targeted financial ratios are achieved/maintained

• Improved internal financial and system controls


30

CAPEX SPENDING FIVE-YEAR PLAN: R78 billion

13%

Pipelines

Port Terminals

12%

NPA

24%

Rail Engineering

5%

Freight Rail

45%

PIPELINEPipelines R10 bn• Multi-product pipeline – R9,3 bn• Gas line upgrading – R0,2 bn

PORTSPort Terminals R9,5 bn• Durban – R0,9 bn• Richards Bay – R0,7 bn• Ngqura – R1,5 bn• Cape Town – R0,4 bn• Saldanha – R2,9 bn

PORTSNPA R18,5 bn• Richards Bay – R0,8 bn• Ngqura – R4,7 bn• Cape Town – R3,8 bn• Durban – R7,6 bn• Floating craft – R0,7 bn

RAILRail Engineering R4,1 bn• Equipment - R2 bn• Upgrade of facilities – R1,1 bn

RAILFreight Rail R34,8 bn• Coal Line – R4,9 bn• Ore Line – R3,8 bn• General Freight – R15,3 bn• Maintenance Capitalisation – R10,8 bn

* Latest estimate R11.2bn

(continuing businesses)

*

31

Annual spending over five years

R12.7 bnR17.5 bn

R21.5 bn

R16.9 bn

R9.4 bn

R78bn

Five-year plan

20122008 2009 20112010

Cumulative

CAPEX FIVE-YEAR PLAN: R78 billion*

RailPortsPipeline and other

*Continuing businesses

32

SHAREHOLDER’S COMPACT

Performance area

Key performance indicator (KPI)/measure Benchmark

2007 Target

2007 Actual Performance

Capital/financial efficiency** EBITDA margin(%) # > 35*** 34.8 40.7 Achieved

Cash interest cover (times)# >5*** 5,4* 5.4 Achieved

Gearing ratio(%) -2007 40 - 50*** 47.9 39 Achieved

-2006 59.0 47 Achieved

CFROI(%) -2007 >6*** 5.8 6.8 Achieved

-2006 4.1 5.8 Achieved

Infrastructure investment

% of actual capital expenditure compared to budget expenditure

-2007

>90% of target

R11 847

million

R11 674

million99%

Achieved

-2006

100% Achieved

% of total maintenance spent compared to budget #

>90% of target

R3 890 million

R5 495 million

141% Achieved

* Including sale of shares

** Discontinued business -SAA, freightdynamics,Viamax and Autopax

*** These benchmarks are the target of performance in the medium term (next three years)

# Key performance indicators not applicable in prior year

33

BROAD-BASED BLACK ECONOMIC EMPOWERMENT

Policy:

• Transnet fully endorses and supports the Government’s Broad-based Black Economic Empowerment Programme and has aligned its policies with the DTI’s Codes of Good Practice which were gazetted on 9 February 2007. (Some alignments need to take place between the DTI Codes and the DoT’s new draft Rail Transport Charter)

• Transnet encourages join ventures with- and sub-contracting to BBBEE companies

Achievements:

• During the 2006/07 financial year, Transnet’s operating divisions spent R10.6 billion externally with suppliers, of which R3.9 billion went to broad based BEE companies, up R600 million from 2006

34

Strategy – BBBEE going Forward:

• Transnet will participate in the Rail Transport Charter workgroup to ensure alignment between the DTI- and DoT scorecards

• Transnet has had most of its high-value suppliers accredited against the DTI scorecard and will continue to encourage all its tenderers / suppliers to do so

• Having had itself accredited, Transnet scored 56.8 on BBBEE, equating to a “Level 5”, re- cognition level of 80%. A BBBEE Task team has subsequently been created at Transnet Corporate office to improve this score by driving strategy and coordinating all elements of the DTI Scorecard

• Over and above Transnet’s BBBEE and Supplier Development strategies, we will implement a plan for Competitive Supplier Development (“CSDP”) in alignment with our support of AsgiSA. This plan will consider opportunities to develop globally competitive local suppliers (especially from the BBBEE ranks) through various strategic initiatives

BROAD-BASED BLACK ECONOMIC EMPOWERMENT

35

SUBSTANTIAL IMPROVEMENTS IN FINANCIAL PERFORMANCE DEMONSTRATED

Transnet Performance Highlights: Three-Year View

Improvementvs 2004

208%R11,7 bnR3,8 bnCapex (excl. Aviation)

278%R37,4 bnR9,9 bnShareholders equity

53%39%83%Gearing

70%6,8%4,0%Cash flow return on investment (CFROI in real returns)

54%5,4 times3,5 timesCash interest cover

139%40,7%17%EBITDA (%)

78%R8 470mR4 750mOperating profit

2007 Actual

2004 Actual

Measures

Four-point turnaround plan starting point

All measure-ments exceeded

Shareholder Compact

requirements

CHRIS WELLS

FINANCIAL OVERVIEW 2006/07

37

Consolidated income statement

26 03428 214Revenue

2006R million

2007R millionfor the year ended 31 March

• Revenue growth of 8,4%

• Strong volume growth from all divisions except Freight Rail

• Revenue growth of 8,4%

• Strong volume growth from all divisions except Freight Rail

Revenue contribution for 2007 Fin Yr

4%

15%

22%

51%

8%

FreightRail NationalPortAuthority

PortTerminals Piplines

Other

GROUP FINANCIAL RESULTS: 2006/07

38

(15733)(16 726)Net operating expenses

26 03428 214Revenue

2006R million



52%

15%

7%

2%2%

22%

Personnelandbenefits Energy

OperatingLeases Materialcosts

Maintenancecosts Other

• Operating expenses increase by 6,3%

• Operating expenses contain certain once-off costs, notably

• R125 million bonus payout to TSDBF members

• R100 million additional contribution to TPF

• R165 million in respect of provisions

• Adjusting for the above costs, operating expenses would have increased by only 3,8%, well below the inflation rate


39

10 30111 488EBITDA

(15 733)(16 726)Net operating expenses

26 03428 214Revenue

2006R million



EBITDA increased by 12%, margin increased to 40,7% (2006: 39,6%)

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

2003 2004 2005 2006 2007

0

2,000

4,000

6,000

8,000

10,000

12,000

2003 2004 2005 2006 2007

EBITDA (R million)Revenue (R million)

SAA17342

SAA16339

23936

27298

25260

26034

28214

8269

6489

7333

10301

11488

SAA768

SAA953


40

0

10

20

30

40

50

%

2003 2004 2005 2006 2007

Five-year EBITDA Margin Growth

86% growth2

2

17

29 4

0 41


41

• Depreciation and amortisation for the year increased by 39,5%.

• Acceleration of the capital expenditure programme and depreciation on capitalised maintenance in terms of IFRS

• Depreciation and amortisation for the year increased by 39,5%.

• Acceleration of the capital expenditure programme and depreciation on capitalised maintenance in terms of IFRS

(2 163)(3 018)Depreciation & amortisation

10 30111 488EBITDA


26 03428 214Revenue

2006R million




42

The fair value adjustments:

- “C” class preference share

- Increase in the carrying value of investment properties

The fair value adjustments:

- “C” class preference share

- Increase in the carrying value of investment properties

1 1052 189Profit on sale of interest in businesses, impairment of assets,dividends received and fair value adjustments

(2 163)(3 018)Depreciation and amortisation

10 30111 488EBITDA


2603428 214Revenue

2006R million




43

(2 406)(2 437)Net finance costs

9 24310 659Profit from operations before net finance costs

1 1052 189Profit on sale of interest in businesses, impairment of assets,dividends received and fair value adjustments

(2 163)(3 018)Depreciation and amortisation

10 30111 488EBITDA

(15 733)(16726)Net operating expenses

26 03428 214Revenue

2006R million

2007R million

for the year ended 31 March

2.5

2.1 2.

6 3.4

3.5

0

1

2

3

4

2003 2004 2005 2006 2007


Interest cover (times)

• Profit from operations before finance costs increased by 15% to R10,7 billion

• Finance costs remain at similar levels to the prior year and interest cover increased to 3,5 times (2006: 3,4 times)

• The Group’s WACD of 11,9% is high due to legacy debt


44

(2042)(1902)Taxation

(2406)(2437)Netfinancecosts

924310659Profitfromoperationsbeforenetfinancecosts

11052189Profitonsaleofinterestinbusinesses,impairmentofassets,dividendsreceivedandfairvalueadjustments

(2163)(3018)Depreciationandamortisation

1030111488EBITDA

(15733)(16726)Netoperatingexpenses

2603428214Revenue

2006Rmillion

2007Rmillion

for the year ended 31 MarchConsolidated income statement

• Current taxation charge of R0,9 billion and deferred taxation charge of R1,0 billion


45

39,6%40,7%EBITDAmargin(%)

49307404Profitforyear

1021082Profitfortheyearfromdiscontinuedoperations

48286322Profitfortheyearfromcontinuingoperations

332Incomefromassociates

(2042)(1902)Taxation

(2406)(2437)Netfinancecosts

924310659Profitfromoperationsbeforenetfinancecosts

11052189Profitonsaleofinterestinbusinesses,impairmentofassets,dividendsreceivedandfairvalueadjustments

(2163)(3018)Depreciationandamortisation

1030111488EBITDA

(15733)(16726)Netoperatingexpenses

2603428214Revenue

2006Rmillion

2007Rmillion

fortheyearended31MarchConsolidated income statement


46

18

10

22

30

37

0

5

10

15

20

25

30

35

40

2003 2004 2005 2006 2007

65

83

61

46 39

0

10

20

30

40

50

60

70

80

90

2003 2004 2005 2006 2007

Gearing (%)Capital and Reserves (R billion)

1778918703Borrowingsandprovisions

2218922832Non-currentliabilities

2952637433CapitalandReserves

EQUITYANDLIABILITIES

2006Rmillion

2007Rmillionfortheyearended31March

Consolidated balance sheet


47

(a) Restructuringandfundingplaninprogress

(b) FundingmonthlyincludingTransnetsubsidy

2006Rmillion

2007Rmillion

fortheyearended31MarchConsolidated balance sheet

43482422Post-retirementbenefitobligation





348

765

1607

1628

–

336Other

717Transnetemployees

1369SATSPensioners

Post-retirementMedicalBenefits(b)

–TransnetSecondDefinedBenefitFund(a)(fullyfunded)

–TransnetPensionFund(a)(fullyfunded)


48

521707Deferredtaxation






2006Rmillion

2007Rmillionfortheyearended31March


• The deferred taxation liability increase in the year is due to increased temporary differences as a result of:

• Capital expenditure programme• Post retirement benefit obligation• Taxation on increased carrying value of PPE recorded at fair values

• Depreciation changes announced in budget speech by the Minister of Finance to reduce the taxation deprecation periods:

• New rolling stock from 14 years to 5 years, • New quay wall and other port facilities to qualify for deductions over 20 years rather than non-depreciation for taxation purposes


49

7834677254TOTALEQUITYANDLIABILITIES

12932430Liabilitiesclassifiedasheld-for-sale

1369916559Payablesandother

2663116989Currentliabilities

521707Deferredtaxation






2006Rmillion

2007Rmillion

fortheyearended31March



50

9

7 7

10 11

0

2

4

6

8

10

12

2003 2004 2005 2006 2007

78 34677 254TOTAL ASSETS

16 7403 912Assets classified as held-for-sale

3 8745 658Derivative financial assets

7 5889 841Inventory, receivable assets and cash

28 20219 411CURRENT ASSETS

2 019123Long term loans and advances

48 12557 720PPE and other

50 14457 843Non-current assets

ASSETS

2006R million

2007R million

Consolidated balance sheetfor the year ended 31 March

Return on average total assets (%)


51

Abridged consolidated cash flow statement

(5379)(4637)Other

1124413488Cashgeneratedfromoperations

58658851Cashflowfromoperatingactivities

2006Rmillion

2007Rmillion

fortheyearended31March

Cash generated from operations (R million)

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2003 2004 2005 2006 2007

Cash interest cover (times)

0

1

2

3

4

5

6

2003 2004 2005 2006 2007

7178

7040

10089

11244

13488

4,3 3,5

4,8

4,5 5,4

• Cash generated from operations before working capital changes increased by 20% to R13,5 billion

• Net cash generated from operating activities increased by 51% to R8,9 billion


52

FUNDING REQUIREMENTS: NEXT 5 YEARS

• ECA umbrella facility

• DMTN program – 30 billion facility rated by Moody’s

• Raise cost effective borrowings at the appropriate tenors

2008-2012 R million

2007R million

40% – 45%39%Gearing

* Funding requirements over 3 years approximately R25 billion

(15 207)*(3 764)Funding requirements

(10 085)(1 860)Loan redemptions

(5 122)(1 904)Cash shortfall

(78 014)(11 674)Gross capital expenditure

69 8058 851Cash flows from operating activities

53

KEY FEATURES OF FUNDING PROGRAM

Key funding objectives:

•Minimize funding costs – Reduce weighted average cost of debt (WACD)

•Financing directly in Rand preferred

•Reduce reliance on government guarantee

•Diversify Transnet’s debt portfolio and lengthen debt maturity profile

•Improve the liquidity position

• Access diverse financing sources for specific projects: Asset backed finance incorporated in ECA facility ECA financing – ECA umbrella facility Development funding Project financing DMTN program for local funding

54

FINANCIAL STRATEGY – FORTHCOMING YEARS

Focus will be on:

Strong control environment

•Reliable, timely and relevant information

Improved operational efficiency

•Managing key performance drivers

•Margins improvement

Capital investment roll out

•Returns exceeding WACC

Funding plan

•Adequately address borrowing requirements

•Reduce the cost of debt

HR STRATEGY

PRADEEP MAHARAJ

56

2007/08 PRIORITIES

HR Enablement

Performance and Reward

Capacity and skills

Culture Change

Talent Managementand

Leadership Development

57

ACHIEVEMENTS AND AGENDA

HR Enablement


2006:• Audit and review policies• Standard HR Processes• Improve quality of HR management information

2007:• Implementation of policies across Transnet• Alignment of procedures• New supporting Processes• Standard application of SAP HR modules• Clean-up of employee data

58

Capacity and skills development

Culture

2006:

• Skills demand planning

• Implement Engineering and Technicians bursary programme

• Training centre review

2007:

• Development of a competency based career ladder

• Optimize training delivery through academy management


59

Talent and Leadership Development

Culture

2006:• Develop Talent Management Framework• Roll-out of Navigator Leadership Development Programme• 2000 leaders identified for training

2007:• Increase talent management capacity• Launch Innovator Leadership Development Programme


Leadership Philosophy: Leadership for Transformation to enable leaders to achieve particular outcomes to contribute to Transnet’s

successful turnaround and performance excellence

60


2006:• Short term incentives• Contract conversions• New reward philosophy• Introduce performance management system

2007:

Critical skills retention• Technicians• Specialists• Artisans• Train drivers

Incentive scheme for train movement

Enhance organisational and

individual performance

Standardise remuneration practices


61

EXECUTIVE REMUNERATION

•Transnet is currently reviewing the executive reward philosophy

• Benchmark remuneration information for the Executive Management of Transnet is sourced and will encompass:

- Detailed market data schedules per position reflecting all elements of guaranteed and variable pay as well as job size- Awarded and anticipated market pay adjustments- Detailed analysis of short and long term incentive practices

• For this purpose, the services of a leading management consulting firm in South Africa providing local and international employers with remuneration consulting advice have been appointed

• It is planned that a detailed report including factors such as impact of the economy; nature of competition; complexity of industry and strategic freedom to act, will be presented to the Transnet Board of Directors during October 2007

62

2007/8 PRIORITIES

Culture Change

2006:Culture charter wheelLeadership behaviours charterLeadership alignment with strategy

2007:RebrandingTransnet Culture CharterEmployee survey-bottom up approachChange management process to implement

Purpose: The main purpose is the development of a consolidated Transnet Group Culture and Behaviours

which will facilitate the success of the turnaround strategy

63

NUMBER OF EMPLOYEES

Operating Division

Non-bargainin

g Bargaining

Number Fixed terms

Total Employee

s

Transnet Freight Rail 1,765 23,046 661 25,472

Transnet Rail Engineering 719 13,010 1,217 14,946

Transnet Port Terminals 292 4,757 310 5,359

Transnet national Port Authority 908 2,343 148 3,399

Transnet Projects 254 433 6,215 6,902

Transnet Pipelines 94 389 46 529

Transnet H/O 239 32 29 300

Totals 4,271 44,010 8,626 56,907

64

PROFILE TRANSNET EMPLOYEES 2007

White29%

Coloured9%

African58%

Indian4%

Profile of Transnet Permanent Employees 2007 (48,281 )

Male84%

Female16%

65

RACE PROFILE 2001 to 2007

43.1%36.7%

25.9%

35.0%

21.4%

33.0%

43.3%

55.0%

89.7%

79.4%

6.3%

9.0%

8.9%

8.5%

8.1%

9.3%

8.2%

8.6%

8.6%

9.7%

7.5% 15.7%

10.4%

13.0%

7.4%

7.4%

3.4%

3.2%

43.1%38.6%

54.8%

43.6%

63.1%

50.2%45.2%

33.2%

10.5%

0.4%

0.5%

1.4%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2001-Top&SenMngt

2007-Top&SenMngt

2001-Professionals

2007-Professionals

2001-SkilledTechnical


2001-SemiSkilled

2007-SemiSkilled

2001-Unskilled

2007-Unskilled

African Coloured Indian White

66

GENDER PROFILE 2001 to 2007

21.2% 20.2% 20.7%24.1%

16.5%19.9%

9.4%15.9%

2.5% 2.7%

78.8% 79.8% 79.3%75.9%

83.5%80.1%

90.6%84.1%

97.5% 97.3%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2001-Top&SenMngt

2007-Top&SenMngt

2001-Professionals

2007-Professionals



2001-SemiSkilled

2007-SemiSkilled

2001-Unskilled

2007-Unskilled

Female Male

67

EE TARGETS 2007 to 2012

Occupational level Status quo representation

Proposed 2010 representation

Black Female Black Female

Management (101-106) 58% 24% 65% 30%

Professional (108-109) 54% 24% 60% 30%

Skilled technical (610) 51% 18% 60% 25%

Semi-skilled 65% 23% 70% 30%

Unskilled 90% 8% 90% 15%

68

Transnet Targets for Skills per annum

Skills required 2007 2008 2009 2010 2011 2012 Total

Engineer Degree 100 100 100 100 100 100 600

Technician Diploma 300 300 300 300 300 300 1 800

Artisan 800 800 800 800 800 800 4 800

Managers 20 20 20 20 20 20 120

Specialist 143 100 100 100 100 100 643

First-line Management 45 20 20 20 20 20 145

Operations1

878 1 610 1 563 1 561 1 412 1 000 8 024

Grand Total3

286 2 950 2 903 2 901 2 752 2 34017

132

CAPACITY BUILDING OVERVIEW

Transnet’s skills forecast process through detailed workforce planning led to the following skills targets for the period 2007-2012 :

69

PROGRESS TO DATE

Capacity building continues to be integrally involved in the delivery of skills required by Transnet and progress thus far is :-

Entry Levels

• R20 million spend from a CSI perspective in regard to education and development,• Forged a relationship with Denel and have put 50 youth on a Youth Foundation and Schools outreach programme for enhancing the math and science output.• Currently unpacking our approach for the adoption of 10 Dinaledi Schools to further increase the math and science pool of prospective, future learners for Transnet skills programmes

Engineers

• Transnet awarded an additional 98 bursars in 2007 to give us a total of 176 engineering

bursars. We will continue awarding 100 bursars p.a. over the next five years to ensure that we

have a steady outflow and absorption in terms of engineering skills required by the organisation

• Recruitment and development of these bursars has been consolidated to central office to ensure that we

promote standardised, qualitative approaches in terms of skills transfer, remunerations,

allowances, and the general management and administration of the feeder channels.

• Transnet GPM and the OD’s are currently busy with a recruitment drive in terms of the 100 Engineers and 300

Technicians p.a. that Transnet requires. The focus of the drive will be on

exploiting our present relationships with Universities and Universities of Technology to obtain

the “best” candidates available in the market. We will also adopt a rigorous assessment process

for the candidates.

70

Technicians

• At present we have 200 Technicians who are on a bursar programme or serving internship within the organization. Transnet has a history of absorbing more than 95% of these candidates into full time employment with the organization • Progress has also been made in terms of consolidating this area of capacity building under central office. • The recruitment drive will facilitate progress in achieving the annual intake of 300

Artisans

• We have 1261 Artisans in our apprenticeship schools. This is approximately a 40% increase in our year on year intakes. The candidates are predominantly from FET’s with N2 qualifications. The target is approximately 800 apprentices pa. until 2012. • The on-the-job training framework has been adopted and being piloted

Specialist

• Transnet has instituted a Graduate in Training programme that targets commercial graduates. The graduates are taken through a structured two-year programme and absorbed by our OD’s in line with their expertise. Transnet will be employing 25 candidates p.a into this programme until 2012.• Currently concluding the intake of 12 GIT’s for Supply Chain and HR• In addition Transnet sponsors 20 TOPP students – program to develop mainly black charter accountants

Managers and First Line Supervisors

• First line managers and Managers will be internally allocated through the Talent management process and be developed through the Leadership Development programmes• We have launched our leadership programmes which targets approximately 1800 management employees for 2007.

PROGRESS TO DATE

71

Operations – Rail

• Currently there is a 62% achievement in terms of priority skills (Movement, Control and Yards) target for 2007. • Delegation of candidates from Train Movement and Infrastructure maintenance will also attend training in Australia and India. The key objective is to build organizational operational and technical competence in the train driving, create a pipeline of critical skills in the operational and technical arena; learning from international best practice and forging partnerships.

Operations - Maritime

• The Marine pilot training is currently done in partnership with STC. A process is underway to ensure that the training will be delivered locally (Port Academy) as from 2008.• A sufficient number of delegates have been indentured into the Tugmaster and Marine Engineering Officer (CMEO) skills pipelines

Operations – Port Operations

• Currently there is a 71% achievement in terms of priority skills (OLE’s, Cargo Co- ordinators and AV Drivers) target for 2007.

PROGRESS TO DATE

TRANSNET FREIGHT RAIL

SIYABONGA GAMA

FREIGHT RAIL OPERATES IN 14 CORRIDORS IN 3 REGIONS

Source: Spoornet NOC

Touwsrivier

Mid Ilovo

Plaston

Kelso

Eshowe

Utrecht

Hawerklip

NaboomspruitMiddelwit

Vierfontein

Sishen

Saldanha

Cape Town

East London

Port Elizabeth

Mosselbaai

Bredasdorp

ProtemStrandSimonstad

StellenboschFranschhoek

Bitterfontein

Porterville

Atlantis

Prins Alfred Hamlet

RiversdaleKnysna

Calitzdorp

George

Ladysmith

AvontuurPatensie

Klipplaat

Oudtshoorn

Rosmead

Kirkwood

AlexandriaPort Alfred

CookhouseSomerset East

Noupoort

De Aar

Prieska

Upington

Kakamas

Naroegas

Worcester

Sakrivier

CalviniaHutchinson

Kootjieskolk

Beaufort West

Belmont

Douglas

Hotazel

Warrenton

Pudimoe Makwassie

Mafikeng

Ottosdal

Vermaas

Schweizer-Reneke

KlerksdorpOrkney

Coligny

Bultfontein

Whites

Westleigh

Bloemfontein

Aliwal North

Sannaspos

Dreunberg

Springfontein

Koffiefontein

HofmeyerSchoombee

JamestownBarkley East

Maclear

Tarkastad QamataQueenstown

Blaney

Bethulie

Seymour

Umtata

FortBeaufort

Amabele

Maseru

Marquard

Ladybrand

Bethlehem

Wolwehoek

Lichtenburg

Warden

Harrismith

Bergville

Kokstad

Matatiele

HardingPort Shepstone

Durban

Kranskop

RichmondUnderberg

Stanger

NkwaliniRichards Bay

VryheidHlobane

Moorleigh

Ladysmith

Roossenekal

SteelpoortGraskop

MachadodorpBelfast

Lothair

Komatipoort

Baberton

Phalaborwa

Messina

Louis Trichardt

Soekmekaar

ZebedielaVaalwater

Nylstroom

J’burg

PretoriaO/fontein

Ellisras

Northam

CharlestownVrede

Potchestroom

Empangeni

Donnybrook

Greytown

Franklin

Kimberley

Marble Hall

Standerton

Bethal

B/plaas

Simuma

Mandonela

Winburg

Theunisen

ChroomvalleiDrummondlea

VirginiaGlen H

HiltonCopperton

Cullinan

Rayton

Uitenhage

Klawer

Thabazimbi Pietersburg

NorthcorCapecorSouthcorNatalcorR.BaycorN.WestcorEastcor (Maputo)N.EastcorSishen-SaldanhaSentracorSouth East CorWestcorFreestateNamibia

Beit Bridge

Howick

Nakop

Postmasburg

Erts

Manganore

Palingpan

Rustenburg

Hoedspruit

Glencoe

Newcastle

Arlington

Witbank

Ogies

Breyten

Krugersdorp

Welverdiend

Sentrarand

Welgedag

Kroonstad

GolelaAncona

Central

East

West

74

Iron ore

Tra

nsp

ort

ati

on

of

Rail f

reig

ht

PeopleTotal = 25 270 Employees transferred toRail engineering

Facilities22 277 km rail network 1500km heavy haul linesConnectivity to all ports

RevenueR 14 574m

EBITDAR 3 737m

Coal line

General Freight

Discontinued Shosoloza Meyl Blue Train

BUSINESS OVERVIEW

75

We have taken successful actions to stabilise the business and have structured and sequenced the path to world class

Stabilise and analyse Re-engineer and transform Perform and grow

2005 2007 2008 2009 2012

Regain Credibility

Strategic investment for better performance

Volume and market share growth

Motivated, value-adding employees

2005: Inefficient, shrinking, and unprofitable

Operating loss of R21 million

2012: Scheduled, efficient, and profitable

Operating profit of R5.7 billion

New operating principles

New leadership and organisational structure

Defined corporate strategy

Safety-first mindset

Skill and capability improvements

Divestment of non-core business

Investment of capital for sustainability

Improved operational

performance

76

Drive high yield general freight growth• Key account plans for strategic accounts• Yield management• Collaboration projects

Freight Rail Strategic Objectives

“The what”

“The how”

WE CRAFTED OUR CURRENT BUSINESS PLAN AROUND FIVE KEY OBJECTIVES, SUPPORTED BY A NUMBER OF STRATEGIC INITIATIVES

‘Safety first’ programme

Safety•Transform Freight Rail into a safe railway

Capital investment and optimisation programme

Creating Capacity•Invest to maintain, replace and increase capacity

Customer ServiceDelivery •Retain the desired customer base and improve service delivery

The people project and governance initiatives• Enterprise Performance• Enabling Programme

Leadership & Employee Capability•Optimise human capital deployment and development

Corridor optimisation roll-out programme

Scheduled Freight Railway•Implement efficiency improvements

77

CORE OPERATING DIVISION PERFORMANCE

Freight Rail contribution to Group EBITDA 33%


4%

%▲

14 574

2007

2 910

2006

3 73728%14 055Freight Rail

2007%▲2006

Operating divisions

33%

67%

• 4% increase in revenue.

• Total volumes 176,6 mt (2006:178,1 mt) - GFB 79,6 (2006: 79.8) - Iron ore 30,0 (2006: 29,6) - Coal 67,0 (2006: 68,7)

• Volumes negatively impacted by - Customer’s production constraints, - Capacity constraints - Derailments

• 3% decrease in operating cost compared to prior year – improvements from the re-engineering programme

• Capital expenditure R7,4 billion

78

Freight Rail

*Capitalisedoperatingexpenditure

(R million)

3 265285%848COPEX*

2 23082%1 225Maintenance per income statement

(R million)Maintenance

2 073

2006

5 495165%Total expenditure

2007%▲

63•Propertymaintenanceinterventions

100•Ballastcleaning

16•Coaches

633•Infrastructure

2 453•Rolling stock


79

KPI’s – FREIGHT RAIL

2006Actual

2007Target

2007Actual

Performance

Financial

Revenue (Rmillion) 14 055 16 478 14 574 Not achieved*

EBITDA (Rmillion) 2 910 3 715 3 737 Achieved

Infrastructure

Capital expenditure (Rmillion) 3 809 7 253 7 387 Achieved

Efficiency

Volume – iron ore (mt) 29.6 32.8 30.0 Not achieved*

Volume – coal (mt) 68.7 74.0 67.0 Not achieved*

Volume – general freight (mt) 79.8 81.0 79.6 Not achieved

*Non-achievement primarily due to lack of iron ore and coal to rail

80

TRANSNET FREIGHT RAIL: ACTION PLANS TO CREATE CAPACITY AND IMPROVE SERVICE DELIVERY

Capacity creation

5 Year Investment Plan 404 locomotives

• General Freight (262) • Coal (110)• Ore-line (32)

Efficiency improvement Vulindlela initiatives – 1.5mV improvement in General Freight

Volumes Transnet Rail Engineering -Improved availability and reliability

of all wagon and loco fleets

Sufficient capacity to meet demand from Iron ore and Coal exports

Improved service delivery Stabilised the operational platform General Freight tempo to date is at a level + 82mV per annum -

strong growth compared to previous year Improved service delivery to identified key account customers

TRANSNET RAIL ENGINEERING

RICHARD VALLIHU

82

LocomotivesRunning MaintenanceUpgradingRefurbishment

Pro

du

ct

focu

sed

bu

sin

esses

sp

ecia

lizi

ng

in

Main

ten

an

ce People

Total = 13 729Increase by 114% dueto 6 253 MaintenanceIntegration

Facilities7 Centres150 sites

RevenueR 7 317m

EBITDAR1 088m

WagonsRunning MaintenanceUpgradingConversionsNew Build

CoachesRunning Maintenance Shosholoza MeylUpgrading

Other Rail Rolling Stock

Refurbishment of rail rolling stock relatedComponents (wheels, traction motors etc.)

BUSINESS OVERVIEW

83

BUSINESS OVERVIEW CUSTOMER MANAGEMENT

TransnetFreight Rail

Freight RailMainline Services

AfricanMarkets

Locomotives BusinessWagons BusinessWagon Build

Coach Business

SARCCMetrorail

• Wheels

• Rotating Machines

• Rolling Stock Equip

• Tarpaulins

Customers Main Internal Support

84

RAILWAY ENGINEERING STARTED VARIOUS INITIATIVES TO SUPPORT THE GROWTH STRATEGYFROM FREIGHT RAIL

How to support

Freight Rail

Transnet Rail freight objectives

Transnet Rail engineering support

Safety

Customer ServiceDelivery

Buildingaleantaskforcewithastrongfocusonleadershipcapabilitiesandcorecompetencies

Leadership & Employee Capability Scheduled Freight

Railway

Creating Capacity

• Geographic alignment of maintenance facilities with corridor strategy.

• Mobile maintenance crews.• Adherence to Scheduled

Maintenance

Strategic focus on:

• Maintenance of assets servicing high yield commodities

• Technology and capacity upgrades of assets • Development of new rolling stock products and

services for enhanced service

Improvement in reliability of rolling stock through:

• Application of world class maintenance practices • Technology upgrades (E.g. Fitment of roller

bearings and air brakes).• Application of standard operating procedures

(e.g. PPE)

• Optimization of maintenance processes• Faster turn-around time in maintenance facilities• Implement preparation depots• Capacity increase through upgrading and

modernisation of rolling stock. • Build A-shed depots in yards• Improved feeding and de-feeding in depots and

yards

85

91%

9%

CORE OPERATING DIVISIONSPERFORMANCE

Rail Engineering contribution to Group EBITDA 9%*

*Mainlyinternalandeliminatedonconsolidation

Operating divisions

1 08847%7387 31790%3 845Rail Engineering


%▲ 2007 2006 2007%▲2006

• Revenue increase mainly due to integration of Spoornet maintenance operation.

• Locomotive reliability and availability exceeded targets

• Annual number of wagon maintenance lifting increased from 12 000 to 20 000

• • Record production of 1 022 new iron ore

and coal wagons

• Capital expenditure R623 million

86

KPI’s – RAIL ENGINEERING

2007Target

2007Actual

Performance

Financial

Revenue (Rmillion) 5 241 7 317 Achieved

EBITDA (Rmillion) 1 118 1 088 Not achieved*

Infrastructure

Capital expenditure (Rmillion)

375 623 Achieved

Efficiency

Locomotive reliability General freight 43 43 Achieved

(faults per million km) Coal 61 54 Achieved

Iron ore 30 41 Not achieved

Locomotive availability (%)

General freight 82 85 Achieved

Coal 88 85 Not achieved

Iron ore 81 86 Achieved

*Internal profit mainly – focus is primarily on productivity

87

TRANSNET RAIL ENGINEERING : ACTION PLANS TO CREATE CAPACITY AND IMPROVE SERVICE DELIVERY

Capacity creation

Investment 5 year plan Replacement /expansion of equipment/infrastructure to create capacity

Machinery and equipment (R1.7bn) Rotable components (R0.8bn) Buildings/structures for expanding operations (R0.9bn) Efficiency improvements in all areas of operations

Improved service delivery Wagon liftings increased from 12 000 to 20 000 in 2006/07 (18 000

liftings planned for 2007/08) Locomotive availability for coal improved from 85.2% in 2006/07 to

86% currently Locomotive reliability remains a challenge and numerous action plans

are being implemented to improve reliability e.g. mobile teams (average locomotive fleet age is 29 years)

TRANSNET NATIONAL PORT AUTHORITY

KHOMOTSO PHIHLELA

Transnet National Ports Authority is responsible for the safe, efficient and effective economic functioning of the national ports system which it manages, controls and administers on behalf of the South African Government

BUSINESS OVERVIEW

90

OPERATIONAL STRUCTURE

Transnet National Ports Authority provides services within a Infrastructure and Maritime environment;

• Infrastructure:

– Own, manage, control and administer ports;

– Plan, provide, maintain and improve port infrastructure;

– Port tariff authority that determines and charges fees for

provision of infrastructure and port services;

– Controller of operations/services within the port.

• Maritime:

– Marine Operations – Provide Tug Services, Pilotage,

Berthing Services;

– Lighthouse Services – Provide, maintain and operate

lighthouses and other aids to navigation around the

coast of South Africa;

– Ship Repair Facilities – Provision of repair facilities for

ships calling at ports;

– Dredging Services – Maintenance dredging and

hydrographic surveys;

– Harbour Master – Port Control and Vessel Traffic

Services.

Port

Elizabeth

Saldanha

Cape Town

East London

Richards

Bay

Durban

Ngqura

Mossel Bay

• Cargo segments:– Containers– Automotive– Bulk– Dry bulk– Liquid bulk

91

PORTS AUTHORITY: STRATEGIC OBJECTIVES

2005 - 2006

Ports Authority

• South Africa a regional leader in port management and operational expertise• Imports and exports are the key driver of volume growth• Medium to long term growth prospects remain favourable• SA ports under threat as new port developments in the region capture market share• Transshipment opportunities• Complementary ports that offer specialised services to natural hinterlands• Marine services competency• Ability to invest and create port infrastructure capacity• The Ports Act and a new regulatory environment

Improve vessel and

cargo turnaround

1

Improve productive

use of assets

3

Increase the Market 4

Enterprise-wide Risk

Management5

Develop human capital and skills to

achieve objectives

6

Planning to lead growth

2009 - 20122007/2008

Strategic Objectives

• Sustained infrastructure capacity provision, ahead of growth demands • Integrated planning for port infrastructure• Safe and secure world-class port system, preserving the environment• Competitive and efficient port system that drives volume growth• Growing, productive and committed workforceA Port system

leading growth demands

Provision of Port

Infrastructure ahead of demand

2

Safe, efficient and effective functioning of the port system

92

GROWTH STRATEGY

Aimed at leading and

growing trade through the SA

ports

The guiding principles of our Growth Strategy are :

Efficiency : Improving efficiency of port services to best meet demand

Competitiveness : To support and enhance competitiveness of the port authority’s port and related service offers

Partnership : Working with stakeholders in the logistics chain to ensure delivery of world-class port services

Rebalancing our revenue by increasing real estate income

Infrastructure capacity

Efficiency : port

management and port

operations

Enhancing ports’

position as gateways for

trade

1

2 3

Por

t Auth

ority

Str

ateg

y

93

60%

40%• Increase in revenue mainly due to volume increases - Containers 13% in TEU’s - Vehicles 18% in units

• Capital expenditure R1 026 million

• Berth occupancy 66% (2006: 58,9%)

NPA contribution to Group EBITDA 40%

4 6279%4 2426 10712%5 438NPA


%▲ 2007 2006 2007%▲2006

Operating divisions


94

KPI’s - NPA

2007Target

2007Actual

Performance

Financial


EBITDA (Rmillion) 4 383 4 627 Achieved

Infrastructure

Capital expenditure (Rmillion) 1 964 1 026 Not Achieved

Efficiency

Berth Occupancy (%) 58.9 66 Achieved

95

TRANSNET NPA: ACTION PLANS TO CREATE CAPACITY AND IMPROVE SERVICE DELIVERY

• Capacity creation at the Ports ahead of time:

Investment 5 year plan:

Durban: Widening and deepening of entrance channel (R3bn) to enable future growth

Pier 1 resurfacing and berth deepening (R1bn) to create capacity Remodelling of Maydon Wharf (R3.5bn) Car terminal to increase capacity from 10 000 parking bays to 14 000

parking bays total cost of project is R0.66bn of which R0.18bn relates to NPA Cape Town container terminal expansion to increase capacity from 700 000

teu’s to 1 400 000 teu’s. Total cost of project R4.2bn of which R2.7bn relates to NPA

Ngqura: - New container terminal with capacity of 800 000 teu’s. Total costs of project R7.9bn of which R3.8bn relates to NPA

4 Berths for bulk/ore

• Sufficient capacity to support future growth in imports/exports

TRANSNET PORTS TERMINALS

TAU MORWE

97

BUSINESS OVERVIEW

•Transnet Port Terminals manages 15 cargo terminal operations situated across 6 South African ports with a staff compliment of 5,049

• Operations are divided into four cargo sectors Containers Dry Bulk Break Bulk Automotive

• Transnet Port Terminals provides an efficient and reliable service to a wide spectrum of customers including shipping lines and cargo owners

98

TRANSNET PORT TERMINALS STRATEGIC OBJECTIVES

Joint ventures and partnerships to gain skills and processes and to retain and grow the revenue

Port Terminals Strategic Objectives

“The what”

“The how”

Cost maps to understand costs per unit per commodity Business Process re-engineering

Contain operating costs per unit of

volume to an increase of less than

CPIX cost increases

Strategic investments that inform and support growth initiatives

Create capacity ahead ofdemand

Enter into strategicpartnerships to exploit new

business opportunities that

grow our revenue base

Productivity improvement and initiatives to increase capacity and grow revenue

Maintain our market dominance

by ensuring we are recognized as

an efficient and cost competitive

operator

Corridor approachPort –rail service packages

Understand customer requirements,

translate these into consistent and

personalised service offerings that

exceed their expectations

Talent management, skills recruitment and selection

Create a performancemanagement culture and skills base that enables theexecution of SAPO businessplan

99

WE HAVE TAKEN SUCCESSFUL ACTIONS TO STABILISE THE BUSINESS AND HAVE STRUCTURED AND SEQUENCED THE PATH TO WORLD CLASS

Stabilise and privatise

Re-engineer and transform Perform and grow

2000 2004 2007 2009 2012

KeepPort T

erminals in Transnet

Strategic investment for

better performance

Volume and market share

growth

Corridor performance

2000 – concession and

close shop

2012: Double capacity and

Revenue base to

R8.9bn

Financial results:

R50m loss

Business Turnaround and prepare to sell

Defined corporate strategy

Operational improvement

and efficiencies

Injected Skills and developing existing people

New leadership and

organisational structure

Investment of capital for

sustainability

Customerfocus and

stakeholder management

Financial results: R1,3bn

Motivated, value-adding employees

3

100

86%

14%

Port Terminals contribution to Group EBITDA 14%

Operating division EBITDA (R million)Revenue (R million)

%▲ 2007 2006 2007%▲2006

156131%1 1934 09814%3 585Port Terminals

• Revenue increase 14% vs 2006

- Containers (13% in TEU’s)

- Automotive (18% in Units)

- Bulk (2% in tons)


• Revenue increase 14% vs 2006

- Containers (13% in TEU’s)

- Automotive (18% in Units)

- Bulk (2% in tons)



101

KPI’s – PORT TERMINALS

2007Target

2007Actual

Performance

Financial


EBITDA (Rmillion) 1 543* 1 561 Achieved

Infrastructure

Capital expenditure (Rmillion) 1 415 1 740 Achieved

Efficiency

Moves per crane hour Durban container terminal

20 17 Not achieved

Cape town container terminal

20 21 Achieved

Moves per ship hour Durban container terminal

32 33 Achieved

Cape town container terminal

33 33 Achieved

Tons loaded per hour Iron ore terminal 4 349 3 951 Not achieved**

*Adjusted to be consistent with bonus costs

** As a result of ship loader failure and lack of iron ore for export

102

TRANSNET PORT TERMINALS: ACTION PLANS TO CREATE CAPACITY AND IMPROVE SERVICE DELIVERY

• Capacity creation:

Investment 5 year plan New container terminal at Pier 1 (Durban) to create additional capacity

of 720 000 teu’s (R1.8bn) Durban container expansion and replacement (R1,4bn) to create

additional 600 000 teu’s Ngqura container terminal (additional 800 000 teu’s) Cape Town container terminal (additional 700 000 teu’s)

• Improved service delivery

DCT: Improved teu’s handled from 158 000 to 186 000 per month in 2006/07. Currently for the past 5 months DCT averaged 180 000 teu’s per month. The moves per ship working hour increased from an average of 33 to 38 peaking at 80 moves per ship working hour

PIPELINES

CHARL MOLLER

104

BUSINESS OVERVIEW

• Transnet Pipelines (Pipelines) can best be described as an energy carrier. We transport a range of petroleum products and gas though 3000km of strategic underground pipelines traversing five provinces.

The pipeline network consists of 4 main lines: a Multi-product line, the Crude oil pipeline, Gas pipeline and Jet-fuel pipeline plus a network of pipelines mainly in the Gauteng area of South Africa

• Pipelines plays an important role in ensuring the secure supply of petroleum products in South Africa. It currently transports approx 17bn litres of petroleum products and 14m gigajoules of gas annually. Products currently transported by Pipelines include methane rich gas, crude oil, aviation turbine fuel, diesel and various grades of petrol (ULP and LRP)

• Clients consist of major oil companies operational in SA: BP, Chevron, Engen, Sasol Oil, Sasol Gas, Shell and Total

105

1. Cash flush2. 500 Employees3. Limited Capacity available4. Informal Regulation (DME)5. Volumes transported: 17bl/a6. Interruptible production

process7. Total Net Assets : R5,4 billion8. Annual turnover : R1,2 billion

1. Cash Constrained 2. 500 650 Employees3. Capacity constrained4. Developing formal Regulation5. Volumes transported :Maximum

18 bl/a6. Interruptible production process7. Total Net Assets : Changing8. Annual turnover : Increasing

1. Cash transition2. 700 Employees3. Capacity in abundance4. Formal Regulation (NERSA)5. Volumes transported upwards of

22 bl/a 6. Uninterrupted production process

(Trunkline and Terminals)7. Total Net Assets : R20 billion8. Annual turnover : R2,4 billion

CHARACTERISTICS

PETRONET WE KNEW

NEW TRANSNET PIPELINES

BRIDGING PLAN

COMPLETION OF NMPP

FULL REGULATION

PREPARE PIPELINES FOR NMPP ERACASH SURVIVAL

CHALLENGES07/08 08/09 09/10 1

0/11

Transnet pipelines will grow into a totally new business over the next five years. We are presently in the period of transition as depicted below

2011 ONWARDS

TRANSNET PIPELINES’ STRATEGY FOR GROWTH

106

Our strategic Objectives are now focused on moving towards the bigger Transnet Pipelines business beyond 2011 - from a small, constrained division to a bigger and growing division of Transnet Limited

TRANSNET PIPELINES’ STRATEGY FOR GROWTH

Ensuring Sustainable Business Support Systems

Finalise rules

Obtain all licences

Embed sound

relationship

Optimally manage Capacity

Ensuring highest quality of maintenance

Full alignment: Regulation

Fit for purpose SAP and Telecontrol features

Effective and Efficient Employee Capabilities • New look skill-set

for Pipelines beyond 2010• New Operations and

Terminals• Huge Pipeline and

Equipment

• Bridging Plan until 2010 (DRA’s & DIC)• Complete and Commission NMPP by Q3 2010

Pipelines’Strategic Objectives

Develop new business portfolio

• Expanding terminals• Run depots for clients• Optimisation of facilities

Ensuring a sustainable and legally compliant set of older assets and getting to grips with challenges of NMPP

107

INDIANOCEAN

FYNNLAND

HOWICK

LADYSMITH

BETHLEHEM

VOLKSRUST

NEWCASTLEKROONSTAD

KLERKSDORP

WITBANKKENDAL

WALTLOOPRETORIA WEST

SECUNDA

STANDERTON

ALRODE

COALBROOKSASOLBURG

SCHEEPERSNEK

MAHLABATINI

HILLCREST

TARLTON

LESOTHO

NATAL

FREESTATE

GAUTENG

ø406,4 (16”)

ø323,8 (12”)

QUAGGA

ø457,2 (18”)

N

RUSTENBURG

MAGDALA

NORTH - WESTMPUMALANGA

KWAZULU /

AIRPORT

VRYHEID

RICHARDS BAY

BHT

AFRICA

MEYERTON

VAN REENEN

DUZI

INGOGO

WILGE

LANGLAAGTE

FORT MISTAKE

EMPANGENI

VREDE

MOOIRIVER

“T”

JAMESON

ø502 (20”)

ø457,2(18")

ø323,8 (12”)

Ø168,3 (6”)

Ø219,1 (8”)

Ø219,1 (8”)

ø323,8 (12”)

Ø219,1 (8”)

Ø406,4 (16”)

Ø457,2 (18”)

Ø457,2 (18”)

ø323,8 (12”)

Ø457,2 (18”)

DURBAN

DOUBLE PUMP STATION

DELIVERY STATIONS / METERS

PUMP STATIONS

REFINED PRODUCTS

CRUDE OILGAS

AVTUR

NOT IN USE

ø323,8 (12”)

ø457,2 (18”)Ø406,4(16”)

PARK

ø457,2 (18”)

ø406,4 (16”)

ø323,8 (12”)

CAPE TOWN

DURBAN

GAUTENG

SOUTH AFRICA RICHARDS BAY

LESOTHO

SECUNDA

INTAKE STATIONS

FUTURE NMPP PIPELINES

FUTURE PUMPSTATIONS

FUTURE TERMINALS

Ø

MNGENI

ELARDUS PARK

MAP OF TRANSNET PIPELINES’ NETWORK

(ALSO INDICATING THE ROUTE AND POSITION OF THE NEW MULTI-PRODUCTS (NMPP)

108

CORE OPERATING DIVISIONS PERFORMANCE

92%

8%

• 15% increase in revenue vs 2006 - Petroleum volumes (8,1%) - Gas (14,6%) - Tariff increase 2,5%

• Capital expenditure R310 million

• Board approval to commence with the Multi Product Pipeline subject to certain governance issues being resolved

Pipelines contribution to Group EBITDA 8%

Operating division


%▲ 2007 2006 2007%▲2006

9318%8601 21815%1 060Pipelines

109

KPI’s - PIPELINES

2007Target

2007Actual

Performance

Financial


EBITDA (Rmillion) 860 931 Achieved

Infrastructure

Capital expenditure (Rmillion) 226 310 Achieved

Efficiency

Total operating costs per Ml km of product conveyed (R)

43.5 38.6 Achieved

110

TRANSNET PIPELINES: ACTION PLANS TO CREATE CAPACITY AND IMPROVE SERVICE DELIVERY

• Capacity creation: Investment 5 year plan

New pipeline (NMPP) to increase capacity to meet future demand (2010 onwards) at an estimated cost of R11.2bn

Improved throughput on existing lines (DRA and DIC initiatives) to create additional capacity until NMPP completed

• Sufficient capacity will be created up to 2030 with a yoy growth volume of 5%

MARIA RAMOS - CONCLUSION

112

THE FOUR-POINT TURNAROUND PLAN WAS DEVELOPED TO STABALISE TRANSNET



Delivering efficient &competitive services

Delivering efficient &competitive services

Four-

point

Turn-

around

Strategy

Redirecting

and Reengi-

neering

the

Business

Redirecting

and Reengi-

neering

the

Business

Strategic

Balance

Sheet

Managemen

t

Strategic

Balance

Sheet

Managemen

t

Ensure

Corporate

Governance

& Risk

Managemen

t

Ensure

Corporate

Governance

& Risk

Managemen

t

Develop

Human

Capital

Develop

Human

Capital

Growing a focused freight

transport company

Growing a focused freight

transport company

Strategic intentStrategic intent

Transnet situation in 2004/05

•Lack of clear strategic direction

•Weak financial performance and controls

•Unfocussed and inefficient business structure – significant non-core investments

•Low morale: Lack of investment in Human Capital

•Poor risk management and governance

•Lack of capital investment

1 2 3 4

113

FROM FOUR-POINT TURNAROUND TO FOUR-POINT GROWTH STRATEGY

• Priority corridors

• Integrated commercial management

• Cross-divisional operational integration

• Efficient asset utilisation

• Planned maintenance in all divisions

• Cost effective procurement

• Shared services

• Integrated capital, operations, and financial customer planning

• Focused investment for growth

• Capital portfolio optimisation

• Strategic asset/liability management

• Funding strategy

• Delivery on safety performance

• Complying to the highest standards of corporate governance

• Enterprise risk management

• Enterprise performance management (EPM)

• Accelerate implementation of HC strategy

• Talent management including critical skills

• Remuneration based on performance against strategic outcomes

• Value and culture

Reengi-neering –integration, productivity and efficiency

Capital optimisation and financial management

Safety, risk and effective governance

Human capital execution

Growth through:

114

SUMMARY OF STRATEGY

• Drive cross-divisional capital projects and capacity planning

• Focus Vulindlela on integrated cross-functional corridor rollout

• Implement integrated commercial management

• Implement focused management reporting and EPM

• Efficient asset utilisation

• Enhance safety, risk and governance

• Accelerate HC strategy implementation

115

THE SHAREHOLDER MANDATE IS ADDRESSED WITHIN THE NEXT HORIZON OF THE TRANSFORMATION PROCESS

Transformation horizons for a networked organisation

• Accelerate HC strategy implementation

• Implement integrated commercial management

• Long-term capacity planning

• Focus Vulindlela on integrated, cross functional corridor rollout (using ‘standardised” improvements)

• Improve cross-divisional capital projects and financial planning

• Implement focussed management reporting, KPI analysis and Enterprise Performance Management (EPM)

• Best practice CAPEX

• Funding strategy

• Develop customer services (e,g,. capacity management and supply chain integration products)

• Strategic organisational initiatives

• Develop and implement long term network improvement concepts

• Achieve world-class performance levels

• Build long term stakeholder relationships

• Explore international expansion

‘Stabilise the core’

‘Optimise and extend growth’

‘Expand competitive advantage’Current

position

‘Stop the bleeding’

• Financial restructuring

• New freight strategy and disposal of non-core assets

• Restructure corporate centre

• Create HC strategy

• Risk and governance

• Implement critical infrastructure projects

• Launch Vulindlela to stabilise key operational functions and capture productivity

• Implement critical capability building

• Complete disposals

• Shareholder Compact

116

THERE ARE SEVEN MAJOR LEVERS FOR GROWTH

• Roll out of Capex plan: Optimal integration and allocation across divisions

• Increase in investment to create capacity

1

• Vulindlela re-engineering initiatives

• Productivity/efficiency improvement

2

• Safety

• Human capital

• Embedding safety culture in organisation (ERM)

• Navigator and Group HC programmes

Key drivers for successMajor levers

• Integrated commercial management• Customer focus and orientation3

• Integrated commercial management• Sustainable service delivery4

• Volume growth and optimal asset utilisation

• Financial strength and sustainability

5

6

7

Key enablers

117

THE END

presentation to the portfolio committee on public enterprises 19 september 2007

Documents

transnet slide

transnet performance

compact slide

transnets performance

increased slide

chairman of transnet

key performance areas

service delivery slide