Spoornet Strategy, Business Turnaroundand Investment Plan

18 May 2005

Portfolio Committee on Public Enterprises

Strategic Intent

A Freight Railway that satisfies the needs of our Customers

• Enabler of Economic Growth

• Facilitates Trade Growth by

increasing South Africa’s competitiveness• Reduces the cost of doing business by transferring

traffic from road to rail • Develop Skills

Strategic Direction Strategic Rail Track Map

2010DesiredFuture

SPOORNET

2005Current State

ofSPOORNET

Stabilise theBusiness

ImproveOperationalEfficiency &

Customer Service

ImproveBusiness

Performance

Volume &Market Share

Growth Sustainable BusinessPosition in

RailIndustry

SeparateInfrastructure & Operations

Regain CredibilityStrategic

Investment

Divestment ofNon-Core

Non-FreightBusiness Activities

Major Business Turnaround

NetworkExtensive and complexexport lines, main lines

and feeder lines

Shrunk network focussed on core corridors

Volumes

88mv General Freight 75mv Coal

32mv Iron Ore

160mv General Freight 86mv Coal

41mv Iron Ore

Revenue R14 billion R35 billion

Operating Margin

Declining margins6.2% Vastly improved margins

Return on Net Assets

Extensive assets with low returns

0.0%

Shrunk asset base, focussed investment with improved

returns

Return on Equity

Poor returns 0.1%

Improved returns and shareholder value creation

11.5%

Spoornet Now Spoornet in 2010

Strategy Wheel

Freight railway that satisfies the

needs of our Customers

• Leadership & Employee Capability Development

• Skills Profile Audit• Training Strategy – Feeder

Channel• Core technical and

operational skills• Change Leadership• Customer Service

Orientation• Embed Structures• Retention Strategy• Output based

remuneration

• Increase volumes & Customer Satisfaction

• Meet & exceed Customer demands

• Joint planning with customers

• Corridor Optimisation Projects

• Collaboration Projects• Customer Segmentation• Value Propositions for

Commodities, Clusters & Corridors

• Customer Care Centre• Market Capture Strategy

• Clear strategic direction• Business Planning &

performance management

• World-class brand• Significant cost

reduction and new pricing model

• Divestment & Private Sector Participation

• Risk Management & Corporate Governance

• Procurement & BEE

• Capacity expansion to precede future demand

• Fleet Plan – Standardisation, reliability & availability of rolling stock

• Right technology & methods of working

• Rail Operators licence & Rail Safety Management System

• Safe working & operating environment

• Scheduled Railway• Optimising & Stabilising Train Plan

• Standard operating practices & processes• Comprehensive cross-functional Operations Plan

Market PlanCommodity Flows and Road–Rail Share

Projected Growth 2003to 2020 40%

Road RailRoad Rail73% 27%73% 27%

Dominant Commodities

• Maize• Processed foods• Coal

Includes Gauteng - Polokwane & Gauteng- Beitbridge

Projected Growth 2003to 2020 40%

Road RailRoad Rail90% 10%90% 10%

Dominant Commodities• Processed foods• Chemicals & Fertilizer minerals

• Gold & Uranium Maputo

Beitbridge

Gauteng

Lobatse

Walvis Bay

Cape Town Port Elizabeth

Durban

East LondonProjected Growth 2003

to 2020: 38%

Road RailRoad Rail82% 18%82% 18%

Domestic Export/ImportDomestic Export/Import84% 16%84% 16%

Dominant Commodities

• Stone Quarrying• Limestone• Processed foods• Fuel & Petroleum products

2003 corridor stats:Projected Growth 2003

to 2020: 31%

Road RailRoad Rail91% 9%91% 9%

Domestic Export/ImportDomestic Export/Import90% 10%90% 10%

Dominant Commodities

• Processed foods• Maize• Chemicals• Wood and wood products

2003 corridor stats:Projected Growth 2003

to 2020 : 39%2003 corridor stats:Road Rail92% 8%92% 8%

Domestic Export/Import90% 10%90% 10%

Dominant Commodities• Processed Food• Maize• Chemicals• Iron Steel and ferro- alloys• Railway equipment• Motor Vehicles

Projected Growth 2003to 2020 38%

Road RailRoad Rail

77% 23%77% 23%

Dominant Commodities

• Maize• Fuel & petroleum products

Projected Growth 2003to 2020: 40%

Road RailRoad Rail85% 15%85% 15%

Domestic Export/ImportDomestic Export/Import90% 10%90% 10%

Dominant Commodities

• Processed foods• Coal• Chemicals• Beverages• Fruit produce

2003 corridor stats:

53(57)

19(15)

17(12)

3(6)

5(9)

Resource and Investment PlanIron Ore Export Line

04/05 05/06 06/07 07/08 08/09 09/10

Demand (Mv) 29 32 33 36 41 41Locomotive Requirements 109 111 116 103 107 81Wagon Requirements 2727 2890 2984 3129 3377 3377

Locomotives (9E, Diesels and New) And Wagons

Actions Sustain I nvestment

04/ 05 to 09/ 10

Expansion Investment

04/ 05 to 09/ 10

Total I nvestment

04/ 05 to 09/ 10

Total I nvestment

04/ 05 to 27/ 28

Locomotives Upgrade remaining 9E locomotives

Outsource maintenance of diesel locomotives – Pilot Project

761.8 834.0 1 595.7 1 588.7

Wagons Upgrade 1 000 CR5 wagons (85 – 100 ton payload)

137.7 592.9 730.6 1 120.0

Infrastructure Transmission Lines and substations

Extend all loops to accommodate 342 wagons

Formation repair / upgrade

368.0 805.5 1 173.5 1 252.5

Total 1 267.5 2 232.4 3 499.9 3 961.2

Resource and Investment PlanCoal Export Line

04/05 05/06 06/07 07/08 08/09 09/10

Demand (Mv) 71 75 81 83 86 86

Locomotive Requirements 231 236 249 253 259 243

Wagon Requirements 7257 7623 7714 7540 7534 7534

Locomotives (11E, 7E, 10E, Diesels And New) And Wagons

Actions Sustain Investment

04/ 05 to 09/ 10

Expansion Investment

04/ 05 to 09/ 10

Total I nvestment

04/ 05 to 09/ 10

Total I nvestment

04/ 05 to 14/ 15

Locomotives Upgrade remaining 11E’s

Recruitment and retention of relevant skills

Procurement of new locomotives

2 607.3 813.6 3 421.0 4 190.9

Wagons Implementation of electronically controlled pneumatics (ECP) and distributive power (DP)

1 079.0 657.1 1 736.1 1 915.8

Infrastructure Upgrade running lines Upgrade yards Upgrade power supply

806.0 1 500.9 2 306.9 3 471.1

Total 4 492.3 2 971.6 7 463.9 9 577.8

Resource and Investment PlanGeneral Freight Lines

04/05 05/06 06/07 07/08 08/09 09/10

Demand (Mv) 83 88 106 116 133 160

Locomotive Requirements

2 345 2 305 2 497 2 514 2 673 2 982

Wagon Requirements 80 398 91 490 99 055 113 160 119 210

Actions I nvestment Locomotives Radical Enhancement of the locomotive distribution and

allocation system Fast track DI IS (Data Integrity) project – Track and Trace

locomotive location Implement stable train plan (Loco Plan and Maintenance

Plan) Accelerate upgrade programs Deployment of upgraded locomotives (18E, 7E, 10E) on

strategic corridors Procurement of long haul locomotives (100 wagon trains) Procurement of dual voltage and diesel locomotives Recruitment and retention of relevant technical skills

R6 617m

Resource and Investment PlanGeneral Freight Lines

*This figure is based on demand of 110Mv. The impact of the increase to 160Mv is currently being analysed

Actions I nvestment Wagons Conversion of Spoorbarber C bogies to D-type

bearings Renewal of high speed Mark I I I bogie sub-

frames Wagon Fleet Renewal and Modernisation

R6 130m

Infrastructure Electrify 80km track in Mozambique Replace overhead traction steelwork and

foundations : Merrivale – Estcourt Resignalling : Kamfersdam – Postmasburg

R3 528m*

Total General Freight Lines: Corridor Targeted Investment R16 275m

Thank you

“One Team One Vision”