1 meeting the freight logistics challenge presentation to the portfolio committee on transport maria...

1

Meeting the freight logistics challengePresentation to the Portfolio Committee on Transport

Maria RamosGroup Chief Executive

Transnet Limited

2 August 2007

2

Structure

Context Freight system challenges

– What the NFLS says– What Moving South Africa says– Transnet’s view

• The freight demand model• Demand forecasts• The container value chain

How is Transnet responding to the challenges?– Turnaround Strategy

How has Transnet performed to date?– Progress on the turnaround strategy– Financial performance

Where will we focus going forward?– Integrated objectives– Infrastructure

• Long term• 5 Year Plan

3

Efficient and effective freight logistics is critical to economic growth

Global economic liberalisation and advances in transport and ICT have given rise in recent years to high levels of global sourcing in many production systems

Imports by high-income countries from developing countries have risen from below 15 percent in the 1970s to nearly 40 percent today, and their share is expected to rise to more than 65 percent by 2030 (World Bank, 2006)

Supply chains have emerged as key competitive weapons as goods become increasingly commoditised

This requires our international supply chains to be globally competitive in terms of cost, speed, reliability, flexibility and reach

Transnet is focused on delivering a world class integrated bulk freight Transnet is focused on delivering a world class integrated bulk freight logistics system that will provide local firms with a competitive advantagelogistics system that will provide local firms with a competitive advantage

4

The South African freight system is far bigger than Transnet

This view of the system players ignores the very important role played by This view of the system players ignores the very important role played by shipping linesshipping lines

Source: NFLS, 2005Source: NFLS, 2005

5

Structure








6

What the NFLS says: The problem statement

The freight system in South Africa is fraught with:– Inefficiencies at system and firm level– Structural infrastructure shortfalls and mismatches– A lack of integrated planning

The skills base is deficient Information gaps and asymmetries abound The institutional structure of the freight system is inappropriate and The regulatory frameworks are incapable of resolving the problems in the

industry

7

What the NFLS say: The system challenge

System Challenge Impact

Ageing infrastructure Restricted capacity, Unreliable services, High investment requirements

Low efficiency High cost, Unreliable services, Low service levels

Low collaboration Duplication, Under-utilisation, High costs

Lack of integrated planning Spatial and timing mismatches, Wasted effort and resources

Inappropriate regulatory framework and institutional structure

No ability to change system, Monopoly pricing for “competitive” services, No or low competition

8

Structure








9

What MSA says: Key strategic challenges

Export competitiveness– Lack of alignment for value added exports– Barriers to cross border SADC traffic

System sustainability– High systems cost of domestic freight (externality costs)– Sustainability of the freight industry

High systems costs together with significant resource constraints, create a dynamic of a gradually deteriorating and eventually, financially unsustainable system

10

What MSA says: Lack of alignment makes it difficult to address the challenge

The system lacks proper alignment There has historically been no institution or grouping of institutions with the

function of integrating across the individual components of the system Each component of the system has been managing to its own narrow

objectives Components of the system have therefore maximised against an

unintegrated set of constraints and towards an unintegrated set of objectives

South Africa has been unable to overcome this challengeAn integrated Transnet can go a long way towards overcoming this challenge

11

Structure








12

Transnet’s view of the freight system challenges

The challenges identified by the NFLS and MSA are valid Transnet’s turnaround strategy is aimed at addressing these challenges Transnet has identified additional challenges through the freight demand

model and analysis of the container market

13

Freight demand model

The model was developed in August 2006 to assist with long term capacity planning

A first of its kind in South Africa Modelling risk mitigated through stringent verification procedures which

included:– Utilising multiple sets of economic forecasts– Comparing modeled flows against actual Transnet Freight Rail

(previously Transnet Freight Rail) flows and outputs of SANRAL’s national freight flow model

– Interviews with industry analysts, customers and supply chain experts to confirm forecasts and verify flows for the top 23 commodities comprising more than 90 percent of the total freight demand by weight

Model results were closely aligned with previous assumptions of long term demand for the ports

14

A pareto based combination was adopted. The modelling framework provided a economic structure which was then enhanced with empirical research for 90% of total GDP by weight..

Parameters: 354 magisterial districts

95 commodity groupings

The total output was compared to the national freight flow model The total output was compared to the national freight flow model (SANRAL) and strong correlation on corridor and rural flows confirmed (SANRAL) and strong correlation on corridor and rural flows confirmed

a high degree of accuracya high degree of accuracy. .

National I-O model

Apportionment - Supply and demand per commodity on a geographical basis

Allocation - Flows per commodity

Actual data – based on publications and personal interviews

Macro-economic data

Macro-economic forecast

Commodity forecasts

Verify with:

• Known flows• Rail data• National freight flow model

15

0.40.5

0.7

2

2.2

2.4

0

0.5

1

1.5

2

2.5

GDP Logistics costs Transport costs Rail freighttonkm

Surface freighttonkm

Road freighttonkm

SA

as

% o

f wor

ld fi

gure

200

4

South Africa is a transport intensive economy

Our long transport corridors is the key reason behind this abnormal Our long transport corridors is the key reason behind this abnormal demand demand

Transport needs to be especially efficient to overcome this challengeTransport needs to be especially efficient to overcome this challenge

Source: Supply Chain Management Centre, University of Stellenbosch

16

Structure








17

Our structural problem with corridors will grow.

Million tons 2006, 2011, 2016, 2021, 2026Likely and high scenario

Gauteng-Lobatse

Gauteng-Beitbridge (incl. Polokwane)

Gauteng-Nelspruit (incl. Witbank)

Gauteng-Durban

Gauteng-East LondonCoastal

Gauteng-Cape Town

Gauteng-Richards Bay

Gauteng-PE

2006 Likely HighRail 2011 54.1 56.8

8.3 2016 67.3 74.6 Road 2021 84.9 99.4

35.0 2026 109.3 134.2


1.5 2016 57.2 62.9 Road 2021 72.3 83.7

35.3 2026 93.7 113.1


2.6 2016 51.9 56.6 Road 2021 63.0 72.1

33.3 2026 77.8 93.5


4.2 2016 28.0 30.9 Road 2021 36.1 42.0

12.2 2026 46.1 56.6


9.2 2016 21.0 22.9 Road 2021 26.2 30.2

5.1 2026 33.4 40.6


3.8 2016 16.2 17.5 Road 2021 20.5 23.1

6.8 2026 26.4 31.1


1.9 2016 15.7 16.9 Road 2021 18.8 21.2

9.5 2026 23.1 27.0


0.4 2016 10.7 11.7 Road 2021 13.4 15.5

6.5 2026 17.3 21.1


0.5 2016 7.6 8.3 Road 2021 9.5 11.0

4.6 2026 12.1 15.0

Growth in the two major corridors can only be addressed with a sustainable intermodal solution

18

The continued absence of an intermodal solution has led to a sudden increase in South Africa’s truck fleet in an attempt to address freight owners’ door-to-door needs

It is important to note that this increase has taken place after the release of the NFLS – the

NFLS therefore did not take this into account

Source: NAAMSA data

Failure to address the corridor challenge will result in corridor gridlockIntermodal solutions provide the most efficient solution

19

Primary flows are completely rail orientated for obvious reasons


Source: Centre for Supply Chain Management, University of Stellenbosch

Domestic manganese

Domestic iron ore

Export coal

Export iron ore

Export manganese

Magnetite

Likely High Growth2006 7.6 2011 10.1 10.7 2016 13.5 15.2 2021 17.9 21.5 2026 24.4 31.2






Capacity expansion should follow well developed systemic patterns

20

Rural traffic in South Africa will pose growth challenges for the second economy


North West

Limpopo

Kwazulu Natal

Free State

Eastern CapeWestern Cape

Northern Cape

Mpumalanga


0.4 2016 10.9 11.9 Road 2021 13.5 15.4

6.8 2026 18.1 19.2


2.8 2016 42.0 45.6 Road 2021 50.3 57.1

27.1 2026 62.9 71.4


8.2 2016 80.6 88.0 Road 2021 97.4 111.3

47.8 2026 122.2 140.8


4.5 2016 74.6 80.9 Road 2021 91.2 103.8

33.4 2026 114.8 136.3 2006 Likely HighRail 2011 232.7 244.1

16.8 2016 289.7 320.3 Road 2021 365.5 427.3

160.1 2026 466.1 578.0 2006 Likely HighRail 2011 37.6 39.4

4.8 2016 47.4 52.1 Road 2021 60.4 69.7

24.7 2026 79.9 92.2


1.9 2016 15.8 17.2 Road 2021 19.1 21.8

9.3 2026 24.4 27.1


2.7 2016 28.8 31.5 Road 2021 35.3 40.5

16.9 2026 45.5 51.4

This is primarily a road demand but rail solutions are possible where infrastructure is already installed

Knowledge about rural traffic will facilitate branch line strategies.

21

0

500

1000

1500

2000

2500

2006 2011 2016 2021 2026

Tons ('000 000)

Demand

Shipped

In the likely scenario, total tonnage shipped will more than double in the next 20 years

Total tonnage demand and shippedLikely scenario


Coordinated action is required by all stakeholders to optimise the investment required to meet this demand

22

0

500

1000

1500

2000

2500

2006 2011 2016 2021 2026

Tons ('000 000)

Demand

Shipped

.... and almost triple in the high scenario


Total tonnage demand and shippedHigh scenario

23

The economy will grow the fastest, by weight, in basic energy related commodities, basic earthworks, building related and food commodities

0 20 40 60 80 100 120 140 160 180 200 220 240 260 280 300 320 340

COALSTONE

IRONOTHER DRY BULK

FUELLIMESTONE

CRUDEPROCESSED FOODS

STEELAUTOMOTIVE

CHROMEOTHER CHEMICALS

CEMENTSUGARWOOD

OTHER BREAK BULKBRICKS

NON-METALLIC MINERAL PRODUCTSINDUSTRIAL CHEMICALS

NON-FERROUS METAL BASIC INDUSTRIESBEVERAGES

PERISHABLESPAPER

MANGANESEMACHINERY AND EQUIPMENT

MAIZEFERTILIZERS AND PESTICIDES

CHEMICAL & FERTILIZER MINERALSMOTOR VEHICLE PARTS AND ACCESSORIESMETAL PRODUCTS EXCLUDING MACHINERY

TRANSPORT EQUIPMENT

Tons('000 000)

Supply/Demand data: Growth in tons – 2006 to 2026


24

But when depicted as a % growth more beneficiated growth is expected

Supply/Demand data: % Growth in tons – 2006 to 2026


25

Salient points

South Africa is a transport intensive economy Freight demand will more than double in the next 20 years The sudden increase in the truck fleet will lead to increasing congestion

throughout the freight system Future freight demand can best be met through the development of

intermodal corridor solutions

26

Structure








27

The container freight system

The container is the core of a highly automated system for transporting freight internationally

Almost all beneficiated goods are transported in containers Maximising opportunities arising from the globalisation of production and

supporting an export led growth strategy requires a world class container freight system

Maritime connectivity and ocean freight rates are the main drivers behind the competitiveness of South Africa’s container supply chains

28

Distribution of costs across value chain

Average Distance

20km 720km 500m 11,200km

Portion oftransportcost

10% 17% 13% 60%60%

Note: Based on case studiesSource: Industry interviews, Portnet, Spoornet, MSA Analysis

Average Distance

20km 720km 500m 11,200km

Portion oftransportcost

7% 12% 13% 68%68%

Exports

Imports

Cross haulageand cartage

Cross haulageand cartage

Inland terminal & trunk leg

Inland terminal & trunk leg PortPort Ocean transportOcean transport

Ocean freight is the biggest determinant of our container supply chain competitiveness

29

Comparison of supply chain costs

Source: Port of Singapore Authority, 2006Source: Port of Singapore Authority, 2006

At around 3,5 Million TEU, South Africa accounts for only 0.75% of the world container market and our market is dominated by two lines

30

Structure








31

Transnet 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

32

Transnet values

We are:Reliable TrustworthyResponsive 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

ThinkingDisciplinedResults orientated

33

Four-point turnaround plan

Enabling economicgrowth

Enabling economicgrowth

Four-pointTurnaround

Strategy

Redirecting and Re-engineeringthe Business

Redirecting and Re-engineeringthe Business

Strategic BalanceSheet ManagementStrategic Balance

Sheet Management

Ensure CorporateGovernance &

Risk Management

Ensure CorporateGovernance &

Risk Management

DevelopHuman Capital

DevelopHuman Capital

Delivering efficient &competitive servicesDelivering efficient &competitive services

• Revitalising HR by

transforming culture

and behaviour of staff• Be a preferred and

sustainable employer• Focusing on:

- Talent management

- Leadership

- Transformation

- Performance and

reward management

• Highest standards of corporate governance

• Improvement in risk management, especially safety in all operations

• 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

• Improving

efficiencies and

effectiveness of core

divisions • Realising port-rail

synergies • Customer focus• Infrastructure and

maintenance

Focused freight transport company

Focused freight transport company

Strategic intent

Strategic intent

34

Structure to support strategy

Discontinued businesses

Transnet Freight

Rail

Transnet Freight

Rail

RAILRAIL

Transnet Rail

Engineering

Transnet Rail

Engineering

TRANSNET COMPANY TRANSNET COMPANY

PORTSPORTS

National Ports

Authority

National Ports

Authority

Transnet Port

Terminals

Transnet Port

TerminalsTransnet PipelinesTransnet Pipelines

PIPELINEPIPELINE

Operational divisions(continued businesses)

• SA Express

• Transtel Telecoms

• Viamax

• Autopax

• freightdynamics

• Housing Loan Book

• Shosholoza Meyl

• Arivia.kom

• SA Express

• Transtel Telecoms

• Viamax

• Autopax

• freightdynamics

• Housing Loan Book

• Shosholoza Meyl

• Arivia.kom

Discontinued Businesses

Supporting businesses: Property, Capital Projects

35

Structure








36

Strategy implementation: achievements to date

Capital investment to address infrastructure challenges 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)

•Widening and deepening of the entrance channel at the Port of Durban

(R2,6 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 Capital Projects •Focus on: Co-ordination, implementation, skills, planning and delivery

37

Strategy implementation:

achievements to date

Disposal of non-core assets to refocus the business

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 ConsortiumV&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 FSN

Metro assets

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

Department of Public EnterprisesSouth African Airways (Pty) Ltd (100%)

Price Buyer Businesses disposed

38

Disposal of non-core assets – Subsequent events

R5,8 billion

– Subject to certain conditions

Newshelf 664 (Pty) Ltd“C” Preference share

Approximate R1,0 billion− Subject to Competition

Commission approval

Bidvest LtdViamax Pty Ltd (100%)

Fair value of R1,4 billion

– Subject to Competition

Commission approval

FirstRand Bank Ltd Transnet Housing

Loan Book

PriceBuyerBusinesses


39

Achievements:Focus on:

Change management programmes in place Organisational culture

Career planning and remuneration Recruitment and retention

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


40

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 Transnet Freight Rail)

•Savings of more than R2 billion have been achieved since inception Success/achievements in 2007

•Improved GFB freight flows (3 mt)

•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)


41



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

42



Transnet Second Defined Benefit Fund (TSDBF)

Active management and leadership from Transnet

Currently in surplus of R1,9 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 submitted to the Minister for approval

• Generally to enable bonus amounts to be paid to pensioners to exceed 2% pension increase (subject to affordability)

Transnet to pay ex-gratia bonuses of R125 million to pensioners

• All to receive an additional 1%

• Previously disadvantaged widows and members with >15 years service who receive low pensions and/or also over 65 years old receive additional amounts

43

Transnet Pension Fund Act Amendment Bill

Bill passed by Parliament enables non-Transnet employees of businesses transferred to other Government agencies to remain members – awaiting Presidential approval

Rule amendments approved by Minister of Public Enterprises with the concurrence of the Minister of Finance

Fund will become multi-employer with new employer guaranteeingobligations of its employees

Fund now in substantial surplus (R1,1 billion)


44

Economic Regulation National Ports Act

• Act in force from November 2006• Places responsibility on Transnet National Ports Authority to ensure safe,

efficient and effective functioning of ports system• Independent Regulator oversees Transnet National Ports Authority’s functions,

approves tariffs, hears complaints and appeals from port users • Transnet is investing in systems and capabilities to perform additional functions

prescribed by legislation • Interacting with shareholder on certain aspects of Act

Pipelines • NERSA (energy regulator), declined Transnet Pipelines’s application for 5,6%

increase • Methodology for pipeline tariffs not yet approved by NERSA • Transnet engaging with relevant authorities; important that tariff methodology

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


Put in place a special committee to manage Regulation

45


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

46



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

47

Transnet performance highlights: three-year view

Achieved 99% of budget (Target: >90%)

208%R11,7 bnR11,8 bnR3,8 bnCapex (excl. Aviation)

–278%R37,4 bn–R9,9 bnShareholders equity

Improvement against compact 19%

53%39%48%83%Gearing

Exceeds compact by 17%70%6,8%5,8%4,0%Cash flow return on investment (CFROI – real return)

Exceeds compact by 2%54%5,4 times5,3 times3,5 timesCash interest cover

Exceeds compact by 16%139%40,7%35%17%EBITDA

Exceeds compact by 21%78%R8 470 mR7 022 mR4 750 mOperating profit

Performance vs Corporate Plan/Compact 2007

Improvementvs 2004

2007 Actual

2007 Compact

2004 Actual

Measures

48

Structure








49

Financial results 2007

39,6%40,7%EBITDA margin (%)

4 9307 404Profit for year

1021 082Profit for the year from discontinued operations

4 8286 322Profit for the year from continuing operations

332Income from associates

(2 042)(1 902)Taxation

(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)(16 726)Net operating expenses

26 03428 214Revenue

2006R million

2007R million

for the year ended 31 March

Consolidated income statement

50

Financial results 2007

0

10

20

30

40

50

%

2003 2004 2005 2006 2007

Five-year EBITDA Margin Growth

86% growth2

2

17

29 4

0 41

51

Core operating division

performance

Transnet Freight Rail contribution to Group EBITDA 33%

EBITDA (R million)Revenue (R million)

4%

%▲

14 574

2007

2 910

2006

3 73728%14 055Transnet Freight Rail

2007%▲2006

Operating divisions

67%

33%

• 4% increase in revenue.

• Total volumes 176,6 mt (2006:178 mt) - GFB 79,6 (2006: 79,7) - 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

52

91%

9%

Core operating divisions

performance

Transnet Rail Engineering contribution to Group EBITDA 9%*

* Mainly internal and eliminated on consolidation

Operating divisions

1 08847%7387 31790%3 845Transnet Rail Engineering


4%

%▲

14 574

2007

2 910

2006


2007%▲2006

• Revenue increase mainly due to integration of Transnet Freight Rail 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

53


performance

60%

40%• Increase in revenue mainly due to volume increases - Containers 14% - Vehicles 25%

• Capital expenditure R1 026 million

• Berth occupancy 66% (2006: 58,9%)

Transnet National Ports Authority contribution to Group EBITDA 40%

4 6279%4 2426 10712%5 438Transnet National Ports Authority



4%

%▲

14 574

2007

2 910

2006


2007%▲2006

Operating divisions

54


performance

86%

14%

Transnet Port Terminals contribution to Group EBITDA 14%

Operating divisions

1 56131%1 1934 09814%3 585Transnet Port Terminals




4%

%▲

14 574

2007

2 910

2006


2007%▲2006

• 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)


55


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

Transnet Pipelines contribution to Group EBITDA 8%

Operating divisions

9318%8601 21815%1 060Transnet Pipelines

1 56131%1 1934 09814%3 585Transnet Port Terminals




4%

%▲

14 574

2007

2 910

2006


2007%▲2006

56

Financial results 2007Consolidated balance sheet

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 millionfor the year ended 31 March

9

7 7

10 11

0

2

4

6

8

10

12

2003 2004 2005 2006 2007

Return on average total assets (%)

57

Financial Results 2007

(5 379)(4 637)Other

11 24413 488Cash generated from operations

5 8658 851Cash flow from operating activities

2006R million

2007R million

for the year ended 31 March

Abridged consolidated cash flow statement

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

7 1

78

7 0

40

10

08

9

11

24

4

13

48

8

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

58

Structure








59

Integrated and coordinated action between the port, rail and pipeline systems is necessary to meet the challenges by:

Implementing a high performance rail corridor backbone for the country that will start to recapture corridor market share from road and provide the capacity to meet the long term demand for freight in the economy.

Operating the ports in a complementary manner to make the port system more efficient, increase maritime connectivity and reduce ocean freight rates

Integrating physical, financial and information flows along the port-rail-pipeline supply chain to ease the administrative burden of trade and create greater visibility and responsiveness within industry supply chains.

Formulating and implementing integrated service strategies for key customer segments to realise the synergies of the port, rail and pipeline systems.

Enhancing the connectivity of the South African freight system with the regional freight system

60

Integration is well advanced in Transnet as can be seen from the following examples

Integrated port and rail masterplan Integrated freight infrastructure solution for the Port of Ngqura Integrated solution for Toyota Focus on corridor performance management

In all these cases, a fragmented approach would yield a sub-optimal solution

61

Structure








62

Ports and rail master plans

Informed by the freight demand model and stakeholders Corridor approach adopted in the development of the plans Ensures integrated port and rail planning and investment Ports are clustered into three regional groupings ensuring that the

associated coastal regions are assured of both bulk and general cargo facilities

Infrastructure strategy premised on creating capacity ahead of demand

Corridor solutions are expensive and risky. This risk can be managed through coordinated and complementary action between the port, rail and pipeline

systems

63

Future core rail infrastructure

Ore line upgrade to 93 million tons in 3 stages

Extension of Loops and electrification upgrade CT - Kimberly

Upgrade signalling, power supply and electrification Kimberly - Gauteng

Bellville Intermodal Hub Upgrade

Loop extensions and power supply upgrade

Loop extensions and electrification Bloemfontein - Springfontein

Upgrade axle load, Glencoe - Gauteng

New industrial line:

Durban – Richards Bay, Richards Bay - Ermelo

Coal Line capacity upgrade to 92 Million tons

Gauteng Freight Ring

Sentrarand rail hub development

64

An integrated approach to container capacity

Transnet’s capacity strategy for containers is premised on a complementary system of ports

This creates flexibility within the system and optimizes investment Creating capacity ahead of demand is critical to ensure the reliability of the

system

65

Container capacity plan: Western Ports

-

1,000,000

2,000,000

3,000,000

4,000,000

2005 2010 2015 2020

EXISTING CT CONTAINER TERMINAL CAPACITY

Container terminal expansion (2011)

Shortfall in stacking capacity due to

expansion project (EIA) approval delays, to be

supplemented by inland stacking

capacity

12%

10%

8%

For 12% growth scenario further capacity to be provided by

additional 2 berths in Cape Town or container expansions in Saldanha

(2019)

TE

U V

OL

UM

ES

& C

AP

AC

ITY

YEARS

66

-

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

2005 2010 2015 2020

Existing DCT Capacity

Pier One (2008)

Capacity shortfall possibly supplemented

by Ngqura (2010 – 2013)

Bayhead & RHB 600 series

developed in parallel ( 2013)

Additional capacity required for 12%

growth scenario at 2017 is currently

under review

12%

10%

8%

TE

U V

OL

UM

ES

& C

AP

AC

ITY

YEARS

Container capacity plan: Eastern Ports

67

Container capacity plan: Central Ports

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

2005 2010 2015 2020

EXISTING PE TERMINAL CAPACITY

Surplus capacity to handle overflow volumes from

Durban from 2010 - 2013

New Ngqura 4 berth container terminal

2008

For 12% growth additional capacity required at 2016

12%

10%

8%

TE

U V

OL

UM

ES

& C

AP

AC

ITY

YEARS

68

Structure








69

Capex spending five-year plan: R78 billion*

13%

12%

24%

5%

45%

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

PORTSTransnet Port 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

PORTSTransnet

National Ports Authority 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

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

RAILTransnet Freight RailR34,8 bn• Coal Line – R4,9 bn• Ore Line – R3,8 bn• General Freight – R15,3 bn• Maintenance Capitalisation – R10,8 bn

* Continuing businesses

70

12,8

Annual spending over five years

R12.7 bnR17.5 bn

R21.5 bn

R16.9 bn

R9.4 bn

R78 bn

Five-year plan

20122008 2009 20112010

Cumulative

Capex five-year plan: R78 billion*

RailPortsPipeline and other

* Continuing businesses

71

5 Year Infrastructure Investment Plan

Port

Elizabeth

East London

Maputo

Gauteng Mega

Industrial Zone

Sishen

Beit Bridge

Richards

Bay

DurbanSaldanha

Gauteng-Cape Town

Investment (Rbn)

NPA

SAPO

Spoornet

Total

3.800.600.204.60

Gauteng - Durban

Value (Rbn)

NPA

SAPO

Spoornet

Petronet

Total

8.00

9.40

2.200.61

20.21

Sishen-Saldanha

Investment (Rbn)NPA

SAPO

Spoornet

Total

3.053.807.15

0.30

Gauteng-Richardsbay

Value (Rbn)NPA

SAPO

Spoornet

Total

4.947.34

1.401.00

Gauteng-PE/East London/NgquraSpoornet - Other

Value (Rbn) Investment (Rbn)

NPA 4.8SAPO 1.5Spoornet 1.15Total 7.45

Gauteng-Maputo

Investment (Rbn)Spoornet

Total

0.26

0.26

Cape Town

Investment (Rbn)NPA

SAPO

Spoornet

Petronet

Transwerk

Other

Total

23.90.64.1

Countrywide/not asigned

0.7

1.1031.00

0.6

5 Year Infrastructure Investment Plan5 Year Infrastructure Investment Plan

72

Funding requirements: Next 5 years

• ECA umbrella facility

• DMTN program – R30 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

73

Funding requirements: Next 5 years

20011/12 R million

2010/11R million

9 144388Funding requirements

(197)(2 327)Loan redemptions

6466Proceeds from disposals and other investments

(9 404)(12 714)Gross capital expenditure

18 68115 363Cash flows from operating activities

2008/09R million

(4 981)

(220)

140

(17 480)

12 579

* Including sale of “C” Preference shares** Redemption of T004 bond

2009/10R million

(7 938)

(2 287)

301

(21 481)

15 529

2007/08R million

(11 820)

(5 054)**

2 516

(16 935)

7 653*

74

Challenges next 3 years

Grow the business •Volumes/activities •Efficiencies and reliability improvements •Customer satisfaction•Providing safe services

Roll out of investment plan •Replace assets and capacity creation•Roll out of Transnet Business Intelligence project (TBI)

Risk Management and Corporate Governance•Safety of people and freight•Complying with environmental requirements•Strengthening internal controls

WE ARE DEDICATED TO FULFILLING OUR VISION AND MISSION:

• To deliver on our commitment to our customers and co-operation with all stakeholders

• To play a leading role in the transport and logistic sector to support economic growth in South Africa and fulfil the role required by the Shareholder

WE ARE DEDICATED TO FULFILLING OUR VISION AND MISSION:

• To deliver on our commitment to our customers and co-operation with all stakeholders

• To play a leading role in the transport and logistic sector to support economic growth in South Africa and fulfil the role required by the Shareholder

75

Thank you

1 meeting the freight logistics challenge presentation to the portfolio committee on transport maria...

Documents

south african freight

bulk freight logistics

system players

effective freight logistics

industry slide

low competition slide

competitive advantage

year plan slide