Annual Report 2006 Presentation to Portfolio Committee on Public Enterprises October 10 2006

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Annual Report 2006Presentation to Portfolio
Committee on Public EnterprisesOctober 10 2006
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Contents of presentation

• Strategy confirmation and structure
• Strategy implementation
• Financial results 2005/2006
• Discontinued operations
• Pension fund update
• Post-balance sheet events
• Conclusion and questions

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• Strategy confirmation
• and structure

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Strategy confirmation and structure
Strategy
Enabling economicgrowth
Focused freight transport company
TRANSNET COMPANY
Structure
Operational divisions(continued businesses)
PORTS
National Port Authority
SA Port operations
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Strategy Four-point turnaround plan
Lower cost of doing business
Targetedsectors

• Redirect
• re-engineer
• the business
• Re-engineer core business
• Corporate HO restructure
• Operational synergies
• Customer focus
• Infrastructure development

• Corporate governance
• and risk management
• Shareholders compact
• Memo and articles of association
• IFRS
• Legal review
• EWRMF

4-Point turnaround plan

• Human capital
• development
• Skills audit and matching
• Recruitment and retention
• Skills and training
• Performance management
• Career management
• Succession
• planning

• Balance sheet restructuring
• Pension fund deficit
• Transfer SAA to government
• Disposal of non-core businesses

Economic development
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Strategy implementation Progressmade
Corporate governance and risk management

• Progress summary
• Major re-engineering program Vulindlela
  underway
• Commenced with roll out of R64,5
  billioninvestment plan
• Disposal of non-core assets
• Established governance structures and risk
  programmes implemented
• Comprehensive HR strategy

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Strategy implementation (continued)

• Restructuring the balance sheet
• Exit of non-core assets
• PFMA approval obtained for the disposal of
  non-core assets
• Businesses sold

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SAA (suspensive conditions)

• PFMA approval
• International air services council approval
• Air services licensing council approval
• Third party contractor approval
• Listing of SAA as schedule 2 public entity in
  terms of the PFMA
• Passing of special resolution by Transnet
• Amendment of Articles of Association
• Share buy back

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VA Waterfront sale

• Sold to LR Consortium for R7.04 billion (cash)
• Black Cape-based investors hold 23.1
• 2 set aside for VA black staff
• Winner selected from 9 short-listed bidders
• Selection based on
• - Price 85 points
• - BEE 10 points
• - Employee retention 5 points

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VA sale (what it means)

• LR committed to further development more
  investment jobs in the Waterfront
• LR pledged to guarantee existing jobs for at
  least two years
• Process regarded as fair and reasonable by
  KPMG, independent process advisers
• Process outcome welcomed by unsuccessful bidders
  as being good for SA
• Sale subject to Reserve Bank and Competition
  authority approval

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Viamax, freightdynamics TPFA

• Following businesses are on the market RFPs are
  underway
• Viamax - to be completed end-October 2006
• freightdynamics - list of recommended bidders
  approved
• TPFA data rooms are being created

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Strategy implementation (HR)

• The successful implementation of Transnets
  turnaround strategy lies fundamentally in
  creating a work environment where our people can
  excel
• Human capital strategy
• Completed redesign and staffing of corporate
  centre
• Introduced a talent management programme
• Begun capacity building exercise for operational
  requirements and skills demand study for medium
  term
• Introduced a new reward and performance
  management system and the roll out has begun
• Introduced a leadership development programme
• Redefined partnership with labour for the
  transformation of Transnet

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Strategy implementation (HR)

• Transnet supports all transformation instruments
  of Government
• Transformation is a business imperative
• We are committed to implementing the initiatives
  of EE BBBEE Acts
• Transnet submitted their EE Reports to the
  Department of Labour for the 2005 Reporting
  Period as required
• DoL acknowledged receipt of the 2005 reports, and
  provided feedback to the business units by
  indicating their overall score-card rating as
  well as progress made to date on EE targets
• Transnet has copies of the reports submitted,
  and the acknowledgment of receipts

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Strategy implementation (EE)

• Transnet complied with the EE Act and its
  regulations when it submitted its reports
• (in the 2005 reporting year there was no
  requirement for a consolidated EE report for the
  group this has only been introduced for the
  2006 reporting year)
• Transnet has made significant progress in
  achieving equitable representation across its
  divisions
• EE is a strategic initiative driven by the
  Transnet EXCO and is intimately aligned with the
  organisational transformation process

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HR (EE)
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What does Transnet look like? Current EE
representation June 06

Profile of Transnet Employees June 2006 (n48116)
White 20.71
Indian 3.45
0.22 of Employees at Transnet are living with a
disability
African 56.96
Coloured 18.88
22.5 of females are White
Female 14.44
Male 85.56
Note Data is for Transnets Core Business Units,
NPA, Spoornet, Petronet, Protekon, Transwerk,
Corporate Centre, Transnet Foundation,
Esselenpark
Note Data is for Transnets Core Business Units,
NPA, Spoornet, Petronet, Protekon, Transwerk,
Corporate Centre, Transnet Foundation,
Esselenpark and Transtel SS
Note Data is for Transnets Core Business Units,
NPA, Spoornet, Petronet, Protekon, Transwerk,
Corporate Centre, Transnet Foundation,
Esselenpark and Transtel SS
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How do our Core BUs look like?
Transnet Representation for Black and Female
Employees
61.39 of Top Senior Mngt (101-106)
38.61
46.71
53.29 of Professionals (108-109)
52.23
47.77 of Skilled Technical Employees (610)
21.03
78.97 of Semi skilled employees
3.19
Female Employees at Transnet
96.81 of Unskilled employees
Black Employees at Transnet
Note Data is for Transnets Core Business Units
NPA, Spoornet, Petronet, Sapo, Protekon,
Transwerk, Corporate Centre, Transnet Foundation,
Esselenpark Note Black is the collective term
for African, Coloured and Indian employees
Note Data is for Transnets Core Business Units,
NPA, Spoornet, Petronet, Protekon, Transwerk,
Corporate Centre, Transnet Foundation,
Esselenpark and Transtel SS Note Black is the
collective term for African, Coloured and Indian
employees
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Transnet Preferential Procurement
Not all Units were able to report on WBE, DPBE
and SMME due to different Financial Systems being
used. Efforts will be made to enable split
reporting in future Discretionary Spend"
fluctuates due to budgetary considerations /
available spend and types of "BEE-able"
commodities / services procured, etc.
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Strategy implementation

• Corporate governance and risk management
• Shareholder compact completed and approved by
  Board awaiting approval from Shareholder
• Revised articles of association approved by
  Board awaiting Shareholder approval
• Litigation and material contracts due diligence
  completed
• Enterprise Wide Risk Management Framework
  completed
• Key risks identified and monitored for each
  operating division
• Internal audit (outsourced) now fully functional
  focusing on
• Control environment /compliance reviews
• Transaction audit (a comprehensive payroll audit
  completed)
• Assessment of major projects and special
  investigations
• Developed and completed a fraud prevention plan,
  core values,
• ethics statements and contracts for all employees

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Capex spending five-year plan
Planned spending over next five years (core
businesses) R64,5 billion

• Petronet R4,9 billion
• Multi-product pipeline DJP (R4,2 billion)
• Gas line upgrading (R0,4 billion

• Transwerk R2,6 billion
• Equipment

• Sapo R6,3 billion
• Mainly capacity increases
• Durban (R1,5 billion)
• Richards Bay (R1,0 billion)
• Ngqura (R1,2 million)
• Cape Town (R0,9 billion)
• Saldanha (R0,6 billion)

• Spoornet R31,5 billion
• Coal line (R8 billion)
• Ore line (R2,7 billion)
• General freight (R10,8 billion)
• Maintenance capitalisation (R8,1 billion)

• NPA R18,6 billion
• Upgrade and expansion
• Durban (R8,7 billion)
• Cape Town (R3,9 billion)
• Ngqura (R2,5 billion)
• Richards Bay (R1,4 billion)

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Transnet core businesses five years gross
capital investment budget
Financial years
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Salient features 2006
ACHIEVING PERFORMANCE OBJECTIVES
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• Financial Results 2006

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Financial results 2006
Consolidated income statement
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Transnet operating profit margin(after
impairment before fair value adjustment)
HIGHEST MARGIN IN LAST SEVEN YEARS
Transnet Group (Including discontinued operations)
Average previous6 years 5,8
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Performance measures against budget
Continuing operations Includes an amount of
R681m relating to capitalised maintenance
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Spoornet performance 2006 versus 2005
Operating profit

• Financial
• Turnover increased by 4 to R14,4 billion
• Capex spending R3 809 million in 2005/2006 and
  R31,5 billion over the next five years
• Operational
• Total volumes transported increased by 0,5 to
  182mt
• Iron-ore line volumes achieved 29,6mt (increase
  of 5 over 2004/2005)
• Coal line volumes transported was68,7mt
  (increase of 2,7 over 2004/2005)
• General freight volumes decreased by 2,7 to
  83,8mt over the year

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Includes a net amount of R681m for
capitalisation of maintenance under IFRS
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NPA performance 2006 versus 2005

• Financial
• Turnover increased by 11 to R5,5 billion
• Capex spending R783 million in 2005/2006 and
  R18,6 billion over the next five years
• Operational
• Bulk volumes increase 6 due to increased demand
  for coal, iron-ore (China) and other commodities
• Full container imports grew 9 while exports did
  not reflect growth due to currency strength,
  competition and quality issues
• All ports were accredited as being ISPS code
  compliant

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SAPO performance 2006 versus 2005

• Financial
• Turnover increased by 9 to R3,6 billion
• Capex spending R776 million in 2005/2006 and
  R6,3 billion over the next five years
• Operational
• Container volumes increased by 7 and is
  expected to further increase by 8 in 2005/2006
• Breakbulk volumes dropped 5 due to competition
  and the trend towards containerisation
• Volumes in automotive sector reflected strong
  growth due to the rands stability and local
  manufactures securing export contracts
• A record 28,8mt was exported through the Saldanha
  iron-ore terminal

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Petronet performance 2006 versus 2005

• Financial
• Turnover increased by 4 to R1,1 billion
• Capex spending R224 million in 2005/2006 and
  R4,9 billion over the next five years
• Operational
• Petronet successfully complied with the clean
  fuels requirements in January 2006
• De-bottlenecking project became operational in
  October 2005 resulting in an 18 improvement on
  the constraints
• Existing refined products pipeline (DJP) is
  running at close to capacity while crude line
  feeding Natref is operating at 75

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Transwerk performance 2006 versus 2005

• Financial
• Turnover increased by 28 to R3,8 billion
• Capex spending R189 million in 2005/2006 and R2,6
  billion over the next five years
• Operational
• Output achieved during the year which entails
  refurbishing, upgrading, building and modifying
• 7 213 wagons
• 316 locomotives
• 550 coaches
• 2 113 traction motors
• 62 830 wheel pairs

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SAA Financial performance 2006 versus previous
two-years three-year view
Turnover
Operating profit
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Financial results 2006
Consolidated balance sheet
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Financial results 2006 (continued)
Consolidated balance sheet (continued)
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IFRS Impact on 2004/2005
Financial statement prepared under IFRS with
effect from 1 April 2004
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Retirement benefit obligations
Consolidated balance sheet
Unfunded liabilities

• Restructuring and funding plan in progress
• Funding monthly including Transnet subsidy

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Financial results 2006 (continued)
Abridged consolidated cash flow statement
Note 1 Effective 28 increase after adjustment
for the decrease in SAA operational cash flow of
R1,7 billion
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Funding requirements Next five years
Includes Promissory Note R2bn and T004 R5.5bn
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Post-balance sheet events

• SAA sale agreement signed
• Metrorail sale agreement signed
• Sale process launched for Viamax, TPFA and
  freightdynamics
• Second network operator (Neotel)
  Telecommunications assets to be sold
• SAX overall PFMA approval (conditions being
  discussed)

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Summary

• Sound financial performance for the year
• R64,5 billion investment program underway
• Vulindlela project underway that will deliver
  significant improvement in efficiencies,
  profitability, productivity, cost reductions and
  customer service
• Disposal of non-core entities has begun and will
  be complete by December 2006

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Conclusion

• Progress to date is pleasing but still
  significant challenges ahead
• The sustainability of the turnaround achieved to
  date and future improvements can only be achieved
  through relentlessly driving the implementation
  of the strategies
• Our optimism for the future is based on the
  commitment of management and staff to focus on
  priorities and work as a team to deliver

WE THEREFORE MOVE INTO THE FUTURE WITH CONFIDENCE
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Thank you