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Portfolio Committee on Public Enterprises Transnet Annual Report 31 March 2013 January 2014

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Title: Portfolio Committee on Public Enterprises Transnet Annual Report 31 March 2013 January 2014


1
Portfolio Committee on Public Enterprises Transnet
Annual Report 31 March 2013 January 2014
2
Agenda
Executive summary
Financial results
Capital investment
Volumes and operations
Socio economic and sustainability
Reportable PFMA items
Interim results for 6 months ended September 2013
Conclusion
3
Transnets performance for 2013 shows resilience
despite depressed economic conditions
4
Financial results
5
Financial highlights
2013 R billion 2012 R billion YoY change
Revenue 50,2 45,9 9,4
EBITDA 21,1 18,9 11,5
Cash generated from operations 22,6 20,6 9,6
Capital investment 27,5 22,3 23,4
Key ratios 2013 2012
EBITDA margin () 41,9 41,1
Gearing () 44,6 41,9
Net debt to EBITDA (times) 3,3 3,0
Cash interest cover (times) 3,7 4,2
Return on average total assets (excluding CWIP)() 6,7 6,8
Excluding capitalised borrowing costs,
including capitalised finance leases and
decommissioning restoration liabilities.
Including regulator claw back (7,7 excluding
claw back).
6
Revenue and volumes reflective of market
conditions
TPL
10,6
TPT
9,4
4
12
50 194
45 900
37 952
TNPA
35 610
13
33 592
TFR
50
21
TE
2013
2012
2011
2010
2009
Excluding specialist units and intercompany
eliminations.
3,3
3,8
207,7
201,0
1,2
10,7
8,8
11,3
Containers and automotive
11,9
16,2
4 403
4 352
15,7
4 081
Agriculture and bulk
20,9
3 800
22,0
3 629
Mineral mining and chrome
64,3
59,9
Steel and cement
Iron ore and manganese
Coal
84,3
82,7
2013
2012
2013
2012
2011
2010
2009
7
Operating expense increases kept to minimum with
R2,2 billion cost saving initiatives
7,9
21
Personnel costs
Energy costs
50
10
Material andmaintenance costs
Other operatingexpenses
21
19
2013
2012
2009
2011
2010
10
  • Operating expenses increased by 7,9 to R29,1
    billion mainly due to
  • Material costs increased as a result of higher
    steel prices and increased levels of maintenance
    to support current and future growth in rail
    volumes.
  • Personnel costs increased to R14,5 billion (2012
    R14,1 billion) due to an 8,4 average wage
    increase as well as headcount and training cost
    increases in line with MDS requirements,
    partially offset by a decrease in performance
    related incentive payments.
  • Energy costs increased due to higher electricity
    tariffs from Eskom as well as fuel price
    increases.
  • The increase in operating expenses was limited by
    rigorous cost reduction initiatives amounting to
    R2,2bn.

8
EBITDA growth in excess of GDP
TPL
9
TPT
12,4
11,5
8
21 051
18 882
15 763
14 409
13 200
54
TFR
23
TNPA
6
2010
2009
2013
2012
2011
TE
Excludes specialist units and intercompany
adjustments.
0,8
41,9
41,5
41,1
40,5
39,3
2013
2012
2011
2010
2009
9
Depreciation, derecognition and amortisation, net
finance costs, taxation and profit for the year
11,0
36,4
5 140
3 767
2 878
2 436
1 966
2013
2012
2011
2010
2009
2013
2012
2011
2010
2009
The increase of 11,0 is due to the ramp up in
capital investment over the last 7 years and
depreciation of revalued port facilities and
pipelines.
Net finance costs increased by 36,4 due to
increased borrowings of 25,7 to fund the capital
investment programme.
-6,7
5,4
5 226
2 122
1 980
4 340
1 763
4 184
4 119
1 508
1 492
3 150
2013
2012
2011
2010
2009
2013
2012
2011
2010
2009
The reduction of 6,7 in the taxation charge
primarily relates to non-taxable income on assets
previously written off, but re-recorded to
reflect continued useful lives.
Despite increase in depreciation and net finance
costs, profit for the year increased by 5,4 and
an increase of 8,3 in headline earnings.
10
Financial position remains strong
  2013 2012
  R million R million
ASSETS  
Property, plant and equipment 176 921 155 953
Investment properties 7 938 7 732
Other non-current assets 5 123 1 695
Non-current assets 189 982 165 380
Current assets 13 914 12 625
Total assets 203 896 178 005
EQUITY AND LIABILITIES  
Capital and reserves 84 954 79 421
Non-current liabilities 98 543 78 946
Current liabilities 20 399 19 638
Total equity and liabilities 203 896 178 005
11
Assets and borrowings
13,4
25,7
March 2013
Other
Borrowing costs
Depreciation
Revaluation
Additions
March 2012
2013
2012
2011
2010
2009
Including the 2nd GMTN bond issuance to
international investors (largest order book ever
achieved by a South African corporate issue) at
10-year US bond coupon of 4,0.
Increase in assets mainly due to R11,3 billion
invested in the expansions and R16,2 billion
invested in maintaining capacity.
Max
9,0
50
7,7
44,6
6,8
6,7
6,6
41,9
41,1
39,8
37,7
2013
2012
2011
2010
2009
2010
2009
2013
2012
2011
Return on average total assets (including the
impact of Regulator claw back) in line with
expectations due to the intensive capital
investment programme.
The ratio remains within expectations and below
the Groups target range of 50,0, with adequate
capacity to fund future capital investments.
12
Strong operating cash flows supporting investment
grade credit rating
  2013   2012   YoY  
  R million   R million   change  
Cash and cash equivalents at the beginning of the year 1 189   10 876   (89,1)  
Cash flows from operating activities 16 776   17 910   (6,3)  
Cash generated from operations 22 599   20 616   9,6  
Security of supply petroleum levy 1 315   20 616   9,6  
Security of supply petroleum levy 1 315   1 315   -  
Changes in working capital (1 273)   781   (263,0)  
Other operating activities (5 865)   (4 802)   (22,1)  
Cash flows utilised in investing activities (27 241)   (24 661)   (10,5)  
Cash flows from/(utilised in) financing activities 11 874   (2 936)   504,4  
Net increase/(decrease) in cash and cash equivalents 1 409 (9 687) 114,5
Total cash and cash equivalents at the end of the year 2 598   1 189   118,5  
4,2
4,1
3,9
3,7
3,7
Min
3,0
2013
2012
2011
2010
2009
Sources of funding 2013
Sources of funding R billion
GMTN/DFIs/ECAs 10,8
Domestic Bonds and commercial paper 3,2
Bank loans/other 0,6
Total 14,6

Credit rating Long-term foreign currency


Excluding R3,5 billion from the African French
Development Bank and R1,7 billion short-term
financing, which was included in the 2012
financial year funding requirement.
A3/-
BBB/-
13
Capital investments
14
Capital investment over last 6 years totalling
R125 billion
23,4
Other
27,5
Piped products
22,3
21,5
19,3
18,4
15,8
Portcontainers
GFB
Exportiron ore
4
2011
2010
2009
2008
2013
2012
Bulk
Export coal
Maintain R16,2 billion
Expansion R11,3 billion
Rail 67 R18,3bn
Ports 14 R3,9bn
Pipelines 10 R2,8bn
Engineering and other 9 R2,5bn
15
Major capital deliveries during the year
Asset type Quantity Quantity Quantity Quantity
Acquisitions 2013 Cumulative Cumulative Outstanding
Locomotives
110 Class 19E dual voltage 16 110 110 -
100 Class 43 GE Diesel 62 100 100 -
43 Class 43 Diesel 20 20 20 23
32 Class 15E Electric 16 16 16 16
Wagons Quantity Quantity Quantity Quantity
General freight 2 481 17 470
Export coal 696 1 300
Asset type Quantity
Port infrastructure Port infrastructure
Tandem lift Ship-to-shore cranes for Durban Container Terminal 7
Mobile harbour cranes (Durban MPT and Maydon Wharf) 6
Haulers and trailers (Durban MPT and Maydon Wharf) 38
Reach stackers (Durban MPT and Maydon Wharf) 8
Haulers and Trailers (Richards Bay MPT) 30
Haulers and Trailers for Ngqura Container Terminal 30
Ship loader (Richards Bay) 1
Ship un-loader (Richards Bay) 1
Asset type Quantity Quantity Quantity
Rail refurbishment Infrastructure Rail refurbishment Infrastructure Rail refurbishment Infrastructure Rail refurbishment Infrastructure Rail refurbishment Infrastructure
Rail replacements Rail replacements 715km 5 690 5 690
Screening Screening 560km 4 770 4 770
Sleepers Sleepers 487 119 3 572 881 3 572 881
Asset type Stage of completion Stage of completion
Pipeline infrastructure Pipeline infrastructure Pipeline infrastructure
Coastal terminal Coastal terminal 57
Inland terminal Inland terminal 79
Asset type Quay length (metres) Basin chart datum
Port Infrastructure Port Infrastructure Port Infrastructure
Cape Town Container Terminal 1 132 (15,5)
This represent the quantities that are
projected for delivery in the next seven years.
The projected quantities for export coal wagons
is zero for 2014 and 1 300 for the two years
thereafter.
16
Volumes and operations
17
Volumes and operations
Rail - General freight business (GFB)
GFB volumes increased modestly by 1,6mt to
82,6mt. Further details on key GFB commodities
are provided on the next slide.
2,0
82,6
81,0
78,4
73,7
72,1
2013
2012
2011
2010
2009
On-time arrivals (minutes delayed)
On-time departures (minutes delayed)
-0.3
Scheduled railway philosophy is being implemented
with no deterioration in key KPIs. Locomotive
utilisation declined by 3.8 due to older and
less reliable locomotives being utilised while
waiting for the roll-out of new locomotives.
-1.4
434
350
356
357
280
284
311
265
184
165
2013
2012
2011
2010
2009
2013
2012
2011
2010
2009
GTK/loco/month (000)
-3.8
5 239
5 167
5 121
4 973
4 722
2012
2011
2010
2009
2013
18
GFB volumes (mt)
10,5
21,6
3,2
8,4
10,7
16,2
15,7
7,6
8,8
Excluding export iron ore line
2013
2012
2013
2012
2013
2012
Marginal growth is mainly due to the decline in
global demand and slowing customer production.
Volume growth is attributable to higher than
expected demand for manganese exports and
capacity being created.
Growth in market share arising from the
road-to-rail modal shift.
0,7
-5,0
-5,0
15,1
15,0
22,0
11,9
20,9
11,3
Excluding export coal line
2012
2013
2013
2012
2013
2012
Decline is mainly to the slowdown in economic
growth that affected demand from customers.
Decline is a result of the migration to NMPP and
a slow start to the grain season.
Growth was negatively impacted by the economic
slowdown and a two month shutdown of the Ressano
Garcia line. However, Eskom volumes increased by
22.
19
Volumes and operations
Rail - Export coal
Export coal achieved 69,2mt, which could have
been higher were it not for the decline in export
coal prices and TFR challenges at the Overvaal
tunnel.
2,2
69,2
67,7
62,2
61,9
61,8
2013
2012
2011
2010
2009
On-time arrivals (minutes delayed)
On-time departures (minutes delayed)
Delays in on-time arrivals improved by 11,5 and
on-time departures improved by 1,4 due to
improved planning and yard count downs
reconfirming the scheduled railway
philosophy. Locomotive utilisation improved by
4,8 due to the deployment of new locomotives and
improved scheduled infrastructure maintenance.
-11.5
-1.4
289
468
234
375
209
206
332
309
152
248
2013
2012
2011
2009
2010
2012
2011
2013
2010
2009
GTK/loco/month (000)
4,8
24 998
23 845
14 728
14 173
13 505
2010
2012
2013
2011
2009
2012 onwards excludes GFB locomotives coal line.
20
Volumes and operations
Rail - Export iron ore
Export iron ore volumes increased by 6,9 to 55,9
mt despite industrial action at the mines,
unplanned mine shutdowns and depressed commodity
prices resulting in customer cancellations.
6,9
55,9
52,3
46,2
44,7
36,8
2009
2013
2012
2011
2010
On time departures and arrivals deteriorated by
9,0 and 5,3 respectively compared to prior year
due to post commissioning teething problems at a
key mine. Locomotive utilisation improved by
10,3 mainly due to the new, more powerful and
energy efficient 15E locomotives.
On-time arrivals (minutes delayed)
On-time departures (minutes delayed)
5,3
9,0
2009
2013
2012
2011
2010
2009
2012
2011
2010
2013
GTK/loco/month (000)
10,3
2009
2013
2012
2010
2011
21
Volumes and operations
Ports - Containers
Container volumes increased by a marginal 1,2
due to subdued economic growth, despite the R1
billion automotive and container export rebate
programme to promote economic activity.
1,2
2013
2012
2011
2010
2009
DCT Pier 1 was negatively impacted by
unauthorised labour action during the year,
resulting in a decrease to 23 GCH for the
year. DCT Pier 2 achieved a 21,7 increase to 28
GCH due to new equipment. Ngqura Container
Terminal achieved a 6,6 increase to 32 GCH and
Cape Town Container Terminal achieved a 10,0
increase to 31 GCH through integrated planning
and enhanced maintenance.
TEUs per STAT hour Durban (number)
TEUs per STAT hour Ngqura (number)
17,8
24,4
Not operational for full year
2013
2012
2011
2010
2009
2013
2012
2011
2010
2009
GCH DCT Pier 2 (number)
GCH DCT Pier 1 (number)
-14,8
21,7
2013
2012
2011
2010
2009
2013
2012
2011
2010
2009
22
Volumes and operations
Pipelines
Volumes declined by 5,1 mainly due to the Natref
shutdown and subdued domestic demand for
petroleum products.
-5.1
2013
2012
2011
2010
2009
The NMPP capacity utilisation improved
substantially from 40Ml/week towards the end of
2012 to 51Ml/week in 2013. The DJP continued to
be utilised in support of the relatively new
NMPP. Pipelines operating costs cost per Ml.km
increased by 15,3 as a result of operating two
pipelines (DJP and NMPP) for the full year.
Operating cost per Ml.km (Real R/Ml.km)
NMPP Capacity utilisation (Ml/Week)
27,5
15,3
51
40
Not operational
2013
2012
2011
2010
2009
2013
2012
2011
2010
2009
23
Safety
Disabling injury frequency rate (DIFR) DIFR deteriorated compared to the prior year, mainly as the result of a single incident of 66 cases of food poisoning experienced at the School of Rail during October 2012.
Employee fatalities (Numbers) Sadly, the company recorded nine employee fatalities during the year Five of the fatalities resulted from motor vehicle accidents. Three of the fatalities were as a result of criminal activities where employees were attacked and fatally injured whilst on duty. One fatality resulted from health related conditions.
Public fatalities (Numbers) There were 125 public fatalities reported for the year. Trespassers in the rail reserve account for 53, whilst 23 of these fatalities were due to level crossings incidents.
1,09
0,98
0,74
0,72
0,65
13,8
2013
2012
2011
2010
2009
2
2013
2012
2011
2010
2009
25
2009
2013
2011
2010
2012
24
Socio economic and sustainability
25
Created 28 493 direct and indirect jobs
  • Transnet achieved and exceeded its targets for
    black employees across all occupational levels.
  • Female representation is growing steadily.
    However, significant challenges in attracting
    female employees in an operations heavy
    environment still exist especially at semi and
    unskilled levels.

A representative workforce.
Skills development, capacity building and job creation.
Corporate social investment spending of R132 million. Phelophepa I and II Healthcare train programme, including Teenage Health programme (R53.2 million). Educator Development programme targeting the following regions Makana in Eastern Cape, Motheo in Free State, Moretele in North West, Mtubatuba and Durban South in KZN (R10,1 million). Orphan Youth Programme - Providing educational and general support (R2,1 million). South African Football Association (SAFA)/Transnet Football School of Excellence (R10,1 million). Rural and farm schools sport development programme (R10,5 million). Environmentally friendly container infrastructure to targeted communities (R5,4 million). Phelophepa I and II Healthcare train programme, including Teenage Health programme (R53.2 million). Educator Development programme targeting the following regions Makana in Eastern Cape, Motheo in Free State, Moretele in North West, Mtubatuba and Durban South in KZN (R10,1 million). Orphan Youth Programme - Providing educational and general support (R2,1 million). South African Football Association (SAFA)/Transnet Football School of Excellence (R10,1 million). Rural and farm schools sport development programme (R10,5 million). Environmentally friendly container infrastructure to targeted communities (R5,4 million).
Designated Categories () 2012 2013
Black 78,5 80,5
Females at Group Exco 30,0 41,7
Females at Extended Exco 37,8 37,3
Females below Extended Exco 22,0 23,8
PWDs 0,9 1,4
Key Performance Indicator Unit of measure Target Actual
Training spend of personnel costs Rand value 4,0 R846 million 4,4 R864 million
Engineering trainees Number of learners 120 122
Technician trainees Number of learners 300 315
Artisan trainees Number of learners 500 866
Sector specific trainees Number of learners 1 800 2 160
Protection officers Number of learners 800 815
Direct jobs created (Transnet employees) Number of jobs 4 048 3 804
25
26
BBBEE spend of 88 per DTI codes and local
supplier industry supported through CSDP
initiatives
Broad-based black economic empowerment and local supplier industry development.
Broad-based black economic empowerment and local supplier industry development.
BBBEE spend of TMPS
BBBEE categories spend of TMPS
Actual
Target
BWO
BO
QSE
EME
8,0
88
85
80
75
3,0
70
65
2013
2012
2011
2013
2012
2011
Competitive Supplier Development Programme (R
million)
2013
2012
21
33
37
17 065
7 239
4 046
14 066
5 428
2 964
Total contract value
Committed CSDP obligation
Actual CSDP obligation delivered
26
27
Reduced energy consumption and carbon emissions
-3,4
-2,0
3,8
4,4
4,3
3,7
2013 
2012
2013 
2012
151 139 MWh electricity regenerated by new 19E
15E locomotives.
Road-to-Rail 2013 Top 10 commodity volume gains
on rail reduced the transport sectors carbon
emissions by 206 540 tCO2e.
28
Audit opinion, Controls and PFMA
29
2013 Internal Control, Audit Opinion and PFMA
  • Audit Opinion Internal Audit
  • Based on the reviews executed by Transnet
    Internal Audit (TIA), their overall assessment of
    the effectiveness of the system of internal
    controls and risk management for the year is as
    follows
  • In the opinion of the Audit Committee, the
    internal controls of the Company are considered
    appropriate in terms of
  • Meeting the strategic objectives of the Company
  • Evaluating and mitigating the key risks facing
    the company
  • Ensuring compliance with applicable laws and
    regulations

30
PFMA Reportable items for 2013 and Items
reported internally below the materiality
threshold
  • The Shareholder Representative has determined
    that the materiality limit for reporting in terms
    of sections 55(2) (b) (i), (ii) and (iii) of the
    PFMA is R25 million per transaction. In terms of
    this materiality framework, one item is reported
    as irregular expenditure.
  • Irregular Expenditure - Expenditure in excess of
    the approved budget without the necessary
    approval.
  • The total expenditure to a service provider for
    the procurement of container handling equipment
    was exceeded by more than 10 without prior
    approval being obtained as required by the
    procurement procedures. Three written warnings
    have been issued and management will determine if
    further disciplinary actions are required pending
    the outcome of additional investigations. Value
    was derived by the Company as a result of the
    additional cost of R30 million, and R700 000 was
    refunded by the supplier subsequent to the
    initial forensic investigation. Refresher
    procurement training and awareness is also
    underway to ensure relevant stakeholders are
    aware of the requirements contained in clause
    2.5.1.1 of the Procurement Procedures Manual
    (PPM).

Amounts classified as fruitless and wasteful and
irregular expenditure as well as losses through
criminal conduct, below the materiality limit are
reported internally to the Group Executive
Committee and the Board to ensure that control
weaknesses are identified and that corrective
action is taken. Represents cumulative
reportable items of the same nature, and the
numbers in brackets represent prior year. The
above table also reflects the disciplinary steps
taken against employees for non-compliance to the
PFMA. It reflects the number of finalised
disciplinary cases instituted against employees.
However, it must also be noted that of the 31
disciplinary actions pending at the time of
above reporting, 25 (Criminal conduct - 1
Fruitless wasteful expenditure - 12 and
Irregular expenditure 12) actions have
subsequently been finalised to date. The
remaining 6 cases are in progress.
Category of reportable items R million Number of Incidents Number of finalised disciplinary /criminal cases
Fruitless and wasteful expenditure 17.5 (89.6) 52 (186) 14/2 (62/0)
Losses through criminal conduct 37.5 (76.9) 72 ( 35) 18/340 (2/173)
Irregular expenditure 230.8 (195.5) 47 ( 27) 18/0 (10/0)
31
PFMA actions to reduce violations
Pursuant to the significant increase in and
on-going reportable PFMA incidents resulting
mainly from non-compliance with Procurement
Policies and Procedures, the Company has made a
commitment in 2012/13 to prevent/reduce such
irregular expenditure by embarking on various
initiatives to achieve a sustainable solution. 15
initiatives were undertaken in 2013/14 to
decrease fruitless wasteful and irregular
expenditure, and 10 have been completed and 5
carried over to 2014/15.
32
September 2013 Interim Results
33
Highlights of the interim results for the 6
months ended September 2013
TRANSNET INTERIM RESULTS 2013
34
Financial highlights September 2013 Interim
Results
Sept 2013 R billion Sept 2012 R billion change
Revenue 28,5 24,9 14,3
EBITDA 12,0 10,1 19,3
Profit for the period 2,9 1,7 71,2
Cash generated from operations after working capital 11,3 9,8 15,2
Capital investment 11,2 12,8 12,8
Key ratios Sept 2013 Sept 2012
EBITDA margin () 42,3 40,5
Gearing () 44,7 44,2
Cash interest cover (times) 3,4 3,3
Return on average total assets (excluding CWIP)() 7,5 6,9
Excluding capitalised borrowing costs,
including capitalised finance leases and
decommissioning liabilities.
Excluding Ports Regulator clawback (7,6
including clawback Sept 2012 6,0).
TRANSNET INTERIM RESULTS 2013
35
Conclusion
  • Despite the economic challenges Transnet reports
    robust performance, underpinned by
  • Growth in volumes despite depressed economic
    environment.
  • Financial stability.
  • Improvement in operational efficiencies and
    productivity.
  • The achievement on numerous socio-economic
    initiatives and supplier development.
  • Enhanced reputation of the Company both
    internally and externally.
  • The 2013 performance has set a solid platform to
    continue with the execution of the Market Demand
    Strategy in the years ahead.

35
36
Thank you and questions
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