integrated annual report 2011 - transnet repor… · for the 2011 year, but also contains future...

Integrated Annual Report 2011

Contents

OVERVIEW 1 – 43 Mandate, vision and mission

About this Integrated Annual Report

Achievement against the Shareholder’s expectations

Quantum Leap strategy

Managing sustainability at Transnet

Stakeholder engagement activities

Group structure and performance highlights

Board of Directors

Group Executive Committee

1 2 3 4 8 9 26 38 42

EXECUTIVE STATEMENTS

ANDCORPORATE

GOVERNANCE

44 – 89 Chairman’s review

Corporate governance

Group Chief Executive’s review

Acting Chief Financial Officer’s review

Consolidated value added statement

Consolidated five-year review

46 52 64 76 88 89

OPERATIONAL REVIEWS

90 – 199 Managing human and social capital

Capital investment report

Transnet Freight Rail

Transnet Rail Engineering

Transnet National Ports Authority

Transnet Port Terminals

Transnet Pipelines

92 98 114 134 150 168 186

ANNUAL FINANCIAL

STATEMENTS

200 – 323 Approval of the annual financial statements

Group Company Secretary certificate

Independent auditors’ report

Board Audit Committee report

Report of the Directors

Annual financial statements

Annexure A – Financial risk management

Annexure B – Property, plant and equipment reconciliation

Annexure C – Disposal groups classified as held-for-sale

Annexure D – Subsidiaries, associates and joint ventures

Annexure E – New financial reporting standards and interpretations

issued but not yet effective

202202 203 205 209226294308312314

318

GENERAL INFORMATION

324 – 330 Abbreviations and acronyms

Glossary of terms

Corporate information

326 329IBC

1

2

3

4

Our mandate

The mandate of Transnet SOC Ltd (Transnet or the Company) is to assist in lowering the

cost of doing business in South Africa, enabling economic growth and ensuring security

of supply through providing appropriate port, rail and pipeline infrastructure in a cost-

effective and efficient manner, within acceptable benchmarks.

Transnet’s mandate and strategic objectives are aligned with Government’s New

Growth Path (NGP) and the Statement of Strategic Intent (SSI) issued by the Minister

of Public Enterprises.

Our vision

Transnet is a focused freight transport company, delivering integrated, efficient, safe,

reliable and cost-effective services to promote economic growth in South Africa.

This is achieved by increasing the Company’s market share, improving productivity and

profitability and by providing appropriate capacity to customers ahead of demand, within

affordability limits.

Our mission

The Company is reliable, trustworthy, responsive and safe; its employees are committed,

safety-conscious, ethical, disciplined and results orientated.

Mandate, vision and mission

1

Transnet SOC Ltd Integrated Annual Report 20112

About this Integrated Annual Report

As a requirement of the King Code of Governance for

South Africa (King III), ‘integration’ has been on the

agenda for many South African companies in the past

year. In putting together this report, the Company was

informed by various guidelines, benchmarks and

engagements, including the draft Discussion Paper

issued by the South African Integrated Annual

Reporting Committee. Based on discussions, the

underlying purpose of integration is to optimise the

positive contribution the Company makes to society in

the short, medium and longer term. Integrated

reporting serves to share this information with

stakeholders.

The value of integrated reporting became apparent to

the Company in that it required a focus on key material

impacts, to engage with stakeholders, to clarify the

linkages between sustainability and the core business

and to ensure performance is communicated clearly to

the relevant target groups.

While the Company explored this to some extent

previously, the sustainability programme has gained

additional impetus based on this revised approach.

This is Transnet’s first Integrated Annual Report, and

while the Company has made some progress, ongoing

improvement in processes and output will continue to

be a priority in future years. Together with Transnet’s

commitment to the NGP, this approach will yield

increasing benefit, both internally and in respect of

Transnet ‘s social contribution.

These requirements reflect a step-change in reporting

for Transnet, South Africa and globally, and as a state-

owned company (SOC) Transnet should play a role in

contributing to that shift.

The report includes comparative information on

Transnet’s performance in prior years, with

information disclosed in past Annual Reports being

restated where appropriate.

The report not only reflects performance information

for the 2011 year, but also contains future targets

based on the Company’s strategy, commercial

prospects, policies and procedures.

It must be noted that there are possible variations

between previously stated objectives and present

targets given that a range of variables could impact

future business activities and may have altered targets.

Where possible, reasons for variations are provided.

The consolidated performance information in the

report covers all Transnet’s Operating divisions and

Specialist Units. In addition, detailed Operational

reviews are presented for Transnet Freight Rail

(Freight Rail), Transnet Rail Engineering (Rail

Engineering), Transnet National Ports Authority

(National Ports Authority), Transnet Port Terminals

(Port Terminals) and Transnet Pipelines (Pipelines).

A standalone Sustainable Development Report (SDR)

is written overtly from the perspective of the

sustainability “lens” and is available on the Transnet

website at www.transnet.net. It is intended to be a

more broadly accessible document, rather than

targeting primarily financial stakeholders. The SDR

includes a detailed index in which Transnet responds

to each of the “G3” criteria of the Global Reporting

Initiative (GRI).

Other than the audited annual financial statements,

the Company has not commissioned additional

external assurance of the non-financial information

provided in this report.

Transnet’s first Integrated Annual Report (the report) covers governance, financial, social,

environmental, broader economic performance and provides a high-level overview, clarifying the

linkages between sustainability and the core business, including the sustainability performance

of the Operating divisions for the year ended 31 March 2011. It provides an account of the

Company’s progress to date and offers a forward-looking perspective in terms of future plans

and value-generating strategies.

Structure

1PRODUCTIVITY

AND EFFICIENCY

4FINANCIAL

SUSTAINABILITY

3CAPITAL

INVESTMENT

2VOLUME GROWTH

5HUMAN CAPITAL

8REGULATORY

6STRATEGIC ENABLERS

7SAFETY, HEALTH,

ENVIRONMENT AND QUALITY (SHEQ)

The following icons are used in the report to depict the Quantum Leap focus areas:

Achievement against the Shareholder’s expectations

The Transnet mandate and strategic objectives of the Company over the medium term are set

out in the Shareholder’s Compact between Transnet and the Department of Public Enterprises

(Shareholder Representative).

To ensure alignment of Shareholder expectations and the strategic intent of the Company, key performance indicators

(KPIs) have been identified for the Company and for each Operating division. These KPIs have helped ensure focus on

the priority value drivers in the key areas of the business is maintained. The Board and Group Executive Committee

monitors the performance against these KPIs to ensure that the strategic objectives of the Company is achieved.

Despite the challenging economic environment, Transnet has exceeded most of its Group targets as set out in the

2011 Shareholder’s Compact, which continues to establish a strong platform for future growth. Details regarding the

Operating division KPIs are contained in the Operational reviews and the Report of the Directors.

Operating expenditure

as a percentage of

revenue (%) ≤60 58,5 ≤60

Return on average

total assets (excluding

CWIP) (%) (a) ≥8,0 6,6 ≥8,0

Cash interest

cover (times) ≥3,2 3,9 ≥3,2

Gearing (%) ≤46 41,1 ≤46

Group key performance indicators (KPIs)

2011 TARGET

2011 ACTUAL

2012TARGET

Financial value creation

Infrastructure and maintenance

Human capital

Safety

Capital

investments (%) (b) ≥90 94 ≥90*

Maintenance

costs (%) ≥90 98 ≥90*

Disabling injury

frequency rate

(rate) 0,85 0,98 ≤0,80

Training spend as

a % of personnel

costs (%) 3 – 4 3 ≤3,5

(a) Total average assets (excluding capital work in progress) comprise a combination of revalued assets and depreciated assets as per Transnet’s accounting policies and have been computed as an average for the two years ending 31 March 2010 and 31 March 2011.

(b) Capital investments exclude borrowing costs, includes capitalised finance leases and capitalised decommissioning liabilities.

Note:i) The industrial strike action during May 2010 had a detrimental impact on Transnet’s operations and consequently on certain agreed

KPIs included in the 2011 Shareholder’s Compact. Accordingly, revised targets for 2011 have been agreed with the Shareholder Representative as presented above.

ii) A number of new Shareholder’s Compact KPIs have been added for 2012 that were not reported on in 2011. These include the number of engineering trainees, technicians, artisans and sector specific trainees. In addition, specific KPIs for employment creation and employee fatalities have been added for 2012.

* Not a Shareholder’s Compact KPI in 2012. Internal targets are reflected.

3

Introduction

The Quantum Leap strategy has been aligned to incorporate the requirements of the

NGP and the SSI .

The Quantum Leap strategy is informed by the policy context of the developmental state

and the NGP, and acknowledges the critical role of state-owned companies (SOCs) as

drivers of the developmental state. Accordingly, SOCs need a culture shift from one based

on compliance and process to one focused on delivery and outcomes as well as a closer

and more collaborative relationship with Government departments and other State

institutions. The underlying urgency on volume growth, increased productivity and

efficiency, capital investment, financial sustainability and safety, are the core elements of

the Quantum Leap strategy and continue to inform efforts to improve customer service.

The generic strategic objectives of SOCs can be summarised as contributing to

economic growth through:

The provision of world-class infrastructure and technologies;

The expansion of economic infrastructure;

Job creation and skills development; and

Industrial capacity building through a more strategic approach to

procurement and operations.

Increase productivity and efficiency

1

Volume growth

2

3

Capital investment

4 Financial sustainability

IMPROVINGCUSTOMER

SERVICE

Regulatory

Humancapital

Strategic enablers6

SHEQ

Quantu

m Leap strategy

New Growth Path

Quantum Leap strategy


The rollout of the capital expenditure programme continues to

create capacity ahead of demand, despite the impact of the

economic recession. However, rail operations in Freight Rail

have underperformed on key elements of the Quantum Leap

strategy. Interventions to address these areas have been

developed and the Company is on track to support the drive

for greater operating efficiencies, service levels and customer

responsiveness.

As a SOC, Transnet has formalised a high level commitment to

the NGP. With a focus covering skills, jobs, the ‘green economy’,

localisation through competitive supplier development,

innovation and rural development, these discussions have

enabled Transnet to reflect on how it creates and sustains value

for a range of stakeholders in the short, medium and longer term.

As such, the NGP commitments effectively frame the

sustainability-related contributions for Transnet and together

with the Quantum Leap strategy, will guide and direct the

sustainability performance going forward. The ability of the

Company to contribute value to society is directly aligned with the

operational goals, as contained in the Quantum Leap focus areas.

Transnet’s fundamental approach to job creation is that greater

efficiency and effectiveness of the freight system will encourage

economic growth and thus lead to the creation of jobs.

To support the growth of the Company and the commitments to

the NGP, Transnet plans to increase direct jobs by 4,5% in 2012

and to maximise opportunities for job creation going forward.

The combined effects of Transnet’s operations and capital

investments will contribute to an average increase of

approximately 200 000 direct and indirect jobs over the next

five years.

Transnet is entirely self-funding and does not receive subsidies

from the Government. Consequently, the Company will focus on

volume growth, capital investment, financial sustainability and

continue to generate strong and stable cash flows and access the

debt capital markets for any shortfall in terms of its funding

requirements. It is, therefore, imperative that the Company earns

an appropriate return on invested capital to maintain a strong

financial position and to maintain its investment grade credit

rating. This, in turn, will provide the capacity for Transnet to

maintain and expand its port, rail and pipeline infrastructure and

support the Company’s efforts to improve customer service.

By enhancing efficiency, expanding rail market share, developing

the New Multi-Product Pipeline (NMPP) and increasing port

connectivity and productivity, Transnet contributes significantly

to reduced fuel use per ton of freight, enhanced energy security

and socio-economic development. These are the primary

material impacts and they are positive.

At the same time, in line with the environmental, social and

governance commitments, the Company is striving to achieve

these contributions with zero fatalities, significantly reduced

environmental impacts, exemplary levels of governance and

accountability and with due consideration to the risks and

opportunities emerging in a resource-constrained world.

To achieve the growth and efficiency objectives, the Company

has developed a demanding five-year capital investment plan of

R110,6 billion (excluding capitalised borrowing costs), focusing

on areas where existing infrastructure is inefficient and

contributing to bottlenecks in the freight logistics

transportation system. Transnet’s capital investment plan is

designed to provide maximum support for the NGP objectives to

achieve a responsive economic infrastructure. Transnet will also

work with the Department of Public Enterprises (DPE) to develop

a joint investment planning process to ensure that the Company’s

investment plan is aligned with those of other stakeholders.

Transnet is unable to fund a globally competitive freight

transport system single handed. It is therefore critical for the

Company to leverage private sector participation (PSP) in both

operations and investments. Significant opportunities for PSPs

exist in the container and intermodal space and in the iron ore

and coal segments. Transnet has started engagements with

customers and other logistics operators regarding private sector

investment in rolling stock and terminals and interest from the

private sector has been positive.

Transnet will continue to leverage procurement for the benefit of

the South African economy. Procurement will be effectively

utilised as a tool for industrial capability building and economic

transformation. Local sourcing will comprise approximately 88%

of the total planned capital spend over the next five years. The

focus on local suppliers will benefit Transnet’s supply chain cost

through efficiency improvements, such as reduced turnaround

time and support services. Key focus areas for industrialisation

and supplier development include rolling stock, port equipment

and other infrastructure.

Strategy overview

Since 2009, Transnet has been implementing its Quantum Leap strategy. The Quantum Leap strategy is aimed at

rapidly improving the pace of volume and revenue as well as, significant safety, productivity and efficiency

improvements. By adopting the Quantum Leap strategy, Transnet has sought to refocus the business on what

matters the most; the provision of improved services to its customers.

During the year, the Quantum Leap initiatives delivered meaningful improvements in the port and pipeline

operations, including volume growth and productivity improvements that, together with cost-reduction

initiatives, contributed to improved profitability.


49

Integrating sustainability into the Quantum Leap strategy

This process was initiated during the year through internal dialogues involving various functions including

risk, compliance, finance, environment, safety, human resources, the Transnet Foundation, and the Operating

divisions. This process identified the impacts the Company has on social and natural systems, as well as the

risks and opportunities arising from sustainability-related trends. It is clear that the sustainability drivers

indicated below will combine to create an increasingly volatile marketplace and consequently uncertainty will

impact the Company and will provide the context within which the Quantum Leap strategy and NGP

commitments are implemented.

A materiality process led to the development of a framework of key sustainability concerns. The linkages between these,

the Quantum Leap strategy and NGP commitments are indicated below. These five key areas also form the structure of the

standalone Sustainable Development Report.

KEY AREAS OF INTEGRATION

CREATING SHARED VALUE

LINK TO QUANTUM LEAP AND STRATEGIC INITIATIVES LINK TO NGP

Governance systems that drive accountability.

Builds social capital by promoting trust and accountability.

Safety, skills and a culture of delivery.

Builds human and social capital through personal and career development.

Efficiency, security and reliability.

Builds financial, manufactured and social capital by lowering costs of doing business, enabling economic growth and ensuring security of supply.

efficiency.

Environmental compliance and climate change.

Reduces environmental degradation; supports the protection and restoration of natural capital.

Aligning with priorities of the developmental state.

Builds social capital by addressing disparities and developmental challenges.

challenges.

SUSTAINABILITY DRIVERS RISKS OPPORTUNITIES

Resource constraints.

Climate change and associated response. pressures (including food distribution).

Green economy and increasing awareness of sustainability issues.

requirements.

and compliance.

contribution.

energy.

Continued social disparities.

properties.

skills development, social projects.

localisation and enterprise development.

Geo-political shifts. developmental challenges.


1PRODUCTIVITY AND EFFICIENCY

2VOLUME GROWTH

5HUMAN CAPITAL

6STRATEGIC ENABLERS

7SAFETY, HEALTH, ENVIRONMENT AND QUALITY (SHEQ)

8REGULATORY

4FINANCIAL SUSTAINABILITY

3CAPITAL INVESTMENT

Quantum Leap focus areas*

* Refer to pages 10 to 25 for key highlights and targets for each Quantum Leap focus area.

7

51

Managing sustainability at Transnet

KEY SUSTAINABILITY ACTIONS FOR 2012

Sustainability issues are cross-cutting and pervasive in the business. For this reason, the Company has not

established a separate sustainability division. The approach adopted has been one of co-ordination, seeking

constantly to highlight aspects of stakeholder value creation within the Quantum Leap strategy and NGP

commitments. The Company is currently assessing whether the Quantum Leap strategy, together with NGP

commitments, provide an adequate sustainability framework to work within or whether a separate framework

for sustainability would be preferable.

Either way, Transnet is committed to consolidating its plan of action around sustainability. Accordingly, the

Company will undertake further sustainability processes in the year ahead, both internally and with a range

of external stakeholders. Finalisation of the sustainability strategy is the responsibility of Transnet’s newly

established Board Social and Ethics Committee, which has executive oversight of the Company’s sustainability

performance.

Water quality testing, Durban.


99

Stakeholder engagement activities

At Transnet, relations with a broad range of stakeholders are a key aspect of understanding and managing

the social and environmental business risks. Transnet’s reputation is a vital intangible asset upon which

social trust is built, and the Company’s long-term ability to operate is ensured. While internal sustainability

dialogues are continuing, these have not yet been taken overtly to external stakeholders. Ongoing

engagements with customers, Government, suppliers and others relate to numerous sustainability-related

issues. Accordingly Transnet will continue to engage and respond to concerns and issues raised as illustrated

below. At present, the stakeholder engagement is managed as part of the Reputation Management strategy,

in which structured and systematic plans are outlined to manage Transnet’s reputation, guide stakeholder

engagement processes, and mitigate reputational risks should they arise. The 2011 Integrated Annual Report

and the Sustainability Development Report, are initial steps in exploring an overtly sustainability-based

dialogue with a broader range of stakeholders.

STAKEHOLDER GROUP ENGAGEMENT APPROACH

MAIN AREA OF STAKEHOLDER CONCERN TRANSNET’S RESPONSE

Shareholder and other SOCs

Shareholder’s Compact engagements.Quarterly report, Annual reports and Corporate Plans.SOCs CEO’s, Chairman and Chief Financial Officer forums.

nnual General Meetings.Board engagement with the Shareholder Minister, Deputy Minister and the Director General of DPE.

Shareholder’s Compact.

delivery.

commitments.

Compliance with sound principles of corporate governance.Implementing vigilant risk management and controls. Compliance with the following regulations: Public Finance Management Act, Treasury Regulations, Companies Act. Execution of the Quantum Leap strategy and fulfiling the Company’s mandate. NGP commitments.

Regulators and other Government agencies

Meetings with policy departments and Ministers.Periodic reports and returns to regulatory authorities. Periodic submissions to the relevant Parliamentary Portfolio Committees.

Compliance with all applicable laws, rules and standards.

Customers GCE roadshows.Customer satisfaction feedback and reports.Fact sheets, pamphlets and newsletters.

Improved customer service.

ahead of demand. SHEQ.

Suppliers Transnet Acquisition Council.BEE forums.Publications and site visits.Stakeholder engagement meetings.

Long-term growth opportunities created by:

Supplier development programmes.Governance and ethical conduct, reputation and contract management.Appointment of a procurement ombudsman.

Employees and labour unions

Strategic leadership forum.Internet/Intranet.Memoranda from the GCE.Culture Charter champions.

Assurance of: Sound governance, reputation, ethical transformation and management.Culture Charter scoring process and related initiatives.Transnet wellness programmes.Safety programmes.

The public, financiers and media

Press conferences.One-on-one interviews.Roadshows, media breakfasts.Corporate identity manual.

deliver on its commitments as set out in its Quantum Leap strategy.

investment plans.

investment plans on Transnet’s financial position and credit rating.

Launch of public advertising campaign.Private sector engagement.Investor updates and presentations.Market feedback.

Communities Partnerships, awareness campaigns.Corporate Social Investment Initiatives.

Demonstrating principles of accountability and care.Caring for pensioners through ex gratia (voluntary) payments and potential enhanced benefits.Aim to be an exemplar Company in terms of environmental compliance.



Highlights

Transnet has relentlessly focused on improving

service levels and customer responsiveness over the

past five years. Significant investments were made

in infrastructure and equipment to improve the

condition of assets in order to support the drive for

greater operating efficiencies, service levels and

customer responsiveness. Transnet has not met

certain targets, particularly in respect of rail

operations and safety which was exacerbated by the

three week industrial strike action in May 2010 as

well as derailments.

Transnet’s Quantum Leap strategy is designed

specifically to address these challenges and places

emphasis on achieving quantum leap improvements

in operating efficiency, productivity, reliability,

safety and environmental compliance, including

the restructuring of Freight Rail into business

segments. The successful implementation of the

strategy will result in increased volumes

transported, improved service delivery and better

utilisation of existing assets.

The capital investment programme will continue as

planned, thereby creating the required capacity

ahead of demand and to achieve the anticipated

volume growth.

Key productivity improvements during the year are

outlined alongside.

Refer to Operational reviews for challenges experienced during the year and plans to achieve all the targeted quantum leap improvements.

RAIL

Export coal tons per train increased from

7 400 to 7 900. Reliability remains a concern due to

an ageing fleet.

Record number of containers on rail handled on

Durban/Gauteng Corridor (Natcor) through City Deep.

Delivery of coal to Eskom and jet fuel to OR Tambo

International Airport – critical 2010 Fifa Soccer

World Cup flows.

>94% – Overall wagon availability.

0,38 faults/per million km-Wagon reliability.

PORTS

44% reduction in marine services delays.

Implementation of dual loading at the Port of

Saldanha – 6 959 tons/hour for export iron ore

loading rates.

Achieved a 23,8% improvement in moves per gross

crane hour (GCH) at DCT Pier 1 and has sustained an

average GCH of 29,5 since December 2010.

Despite DCT Pier 2 average GCH for the year being

only 23, the premium berths have improved

significantly due to productivity improvement

initiatives.

PIPELINES

Continued fulfilment of strategic role in the economy

by ensuring security of fuel supply to the inland

market.

Pipelines continued to perform at significantly

improved performance levels (regarding production

interruptions).

11

Looking ahead

6 133

2016

5 975

2015

5 809

2014

5 595

2013

5 400

2012

GTK/loco/month (’000)

ProjectionsTarget

8,58,59,010,0

11,0

Wagon turnaround (days)

20162015201420132012

ProjectionsTarget

General Freight

Four-year CAGR 3,2% Four-year

CAGR 6,2%

The 2012 target for shipping delays for tugs and pilots at all ports is less than 1,8 hours.

National Ports Authority

48

2016

46

2015

44

2014

42

2013

40

2012

TEUs per ship turnaround time (Ngqura) (average hours)

ProjectionsTarget

4443414040

TEUs per ship turnaround time (Durban) (average hours)

20162015201420132012

ProjectionsTarget


CAGR 2,4%

30

2016

30

2015

30

2014

28

2013

26

2012

Moves/GCH – DCT Pier 2(b)

ProjectionsTarget

30

2013

30

2012

30

2016

30

2015

30

2014

Moves/GCH – DCT Pier 1

ProjectionsTarget

Four-year CAGR 3,6%Performance level maintained

45 600

2012

63 394

2013

64 458

2014

64 458

2015

64 458

2016


ProjectionsTarget

68

2016

68

2015

68

2014

68

2013

76

2012

Wagon cycle time (hours)

ProjectionsTarget

Export iron ore

The 2012 target for on time departures is 89(a).The 2012 target for on time arrivals is 152(a).


CAGR 2,7%

1 050

2016

1 040

2015

1 030

2014

1 020

2013

1 010

2012

Meantime between failures (days)

ProjectionsTarget

210

2016

255

2015

290

2014

300

2013

250

2012

Production interruptions – internal (cumulative hours per annum)

ProjectionsTarget

Pipelines

due to the commissioning of the NMPP.


CAGR 4,3%

Port Terminals

The 2012 target for tons loaded per hour at Saldanha Iron Ore

Terminal is 6 896.

(a) Minutes deviation from scheduled time.(b) Premium berths only.

25 023

2016

26 875

2015

24 266

2014

25 942

2013

24 700

2012


ProjectionsTarget

Export coal

The 2012 target for on-time departures is 142(a).The 2012 target for on-time arrivals is 282(a).

5858585858

Wagon cycle time (hours)

20162015201420132012

ProjectionsTarget

Four-year CAGR 0,3% Performance level maintained

rget for on-time departures is 175(a).The 2012 target for on-time arrivals is 227(a).


Petroleum volumes grew by 1,5% compared to 2010 and was marginally above target.This was achieved despite the use of a constrained pipeline system.

increased by 2,2% compared to 2010, but were 3% below target.

strike action during May 2010 as well as operational issues such as cable theft and rolling stock related faults.

improvement in manganese volumes, a 12,0% improvement in domestic coal volumes and a 13,2% increase in containers on rail compared to 2010.

2011 @

VS2010

@ 2,2%2011 VS

2011 target 3,0%

General Freight (mt)

72,178,4 76,0 73,7

2009 2010 2011 2011

by 0,6% to 62,2mt, although 4,3% below target.

the impact of derailments, tippler constraints at Richards Bay Coal Terminal and adverse weather conditions during the third quarter of the year.

line was shut down for an extended period due to delayed maintenance, as a result of the industrial strike action, resulting in a loss of 3,1mt.2011 @

VS2010

@ 0,6%2011 VS

2011 target 4,3%

Export coal (mt)

62,2

2011

65,0

20112010

61,9 61,8

2009

2011 @

VS2010

@ 1,5%2011 VS

2011 target 0,5%

2009

17 216

2010

17 751

2011

17 928

2011

18 025

Petroleum (ml)

Highlights

increased by 3,4% to 46,2mt compared to the prior year.

derailments during the year, as well as capacity constraints at the mines negatively impacted volume growth, resulting in a 3,8% below target performance.

2011 @

VS2010

@ 3,4%2011 VS

2011 target 3,8%

Export iron ore (mt)

48,0

2011

46,2

20112010

36,8

44,7

2009

and the 2010 FIFA Soccer World Cup positively impacted container volumes, which increased by 12,5% compared to the prior year and by 5,8% when compared to target.

volumes were positively impacted by an increase in transshipments.

2011 @

VS2010

@ 12,5%2011 VS

2011 target 5,8%

3 8593 6293 800

Containers (’000 TEUs)

4 081

2011201120102009

2VOLUME GROWTH

13

With the NMPP being commissioned during the 2012 year, certain operational efficiencies are expected to be negatively impacted during the commissioning phase (as with any large project of this nature).

However security of supply is not a risk as Freight Rail will assist in ensuring security of supply with a planned allocation of 10ml/week for petroleum by rail.

General comments:Improving operational efficiency, productivity and service delivery, remains a key focus area, including the immediate restructuring of Freight Rail into business segments to achieve the required service delivery improvements.

thereby creating the required capacity ahead of demand and to achieve the anticipated volume growth. Refer to Operational reviews for plans to achieve the targeted volume growth.

increase by 14,5% to 84,4mt in 2012. Growth in Eskom coal from 7,1mt in 2011 to 14,5mt in 2016 have been planned for, but is dependent on the timing of the Eskom ramp-up.

2012

84,4

2013

91,1

2015

104,4

2016

110,7

2014

99,7

General Freight (mt)

ProjectionsTarget

Four-year CAGR 7,0%

increase by 12,5% to 70mt in 2012. Allocation of capacity to emerging miners.Capacity beyond 81mt will be created through alternative funding models (eg PSPs).

73,0

2013

Export coal (mt)

81,0

2016

81,0

2015

77,0

2014

70,0

2012ProjectionsTarget

Four-year CAGR 3,7%

20 006

2015

19 663

2014

19 147

2013

20 653

2016

Petroleum (ml)

18 002

2012

ProjectionsTarget

Four-year CAGR 3,5%

Looking ahead

increase by 11,7% to 51,6mt in 2012. Allocation of capacity to emerging miners.Capacity beyond 61mt will be created through alternative funding models (eg PSPs).

2012

51,6

2013

59,9

2015

60,7

2014

60,7

2016

60,7

Export iron ore (mt)

ProjectionsTarget

Four-year CAGR 4,1%

increase by 5,8% to 4,3 million TEUs in 2012. Current capacity expansion programmes are in progress at Durban, Ngqura and Cape Town container terminals which will create capacity of 6,1 million TEUs by 2016.

Containers (’000 TEUs)

2012

4 319

2013

4 527

2015

5 069

2014

4 790

2016

5 364

ProjectionsTarget

Four-year CAGR 5,6%


R21,5 billion2011 capital investment (excluding capitalised borrowing costs)

Spend on major projects for the year# R billion

(NMPP) 5,6

maintenance 2,4

maintenance 2,3

Rail and Ports 3,01,4

the coal line 0,9

the iron ore line 0,3

expansion 0,7

Total investment of

R86,8 billion over the past five

years, funded on the strength

of Transnet’s financial

position.

2011 Capital investment byOperating division# (R21,5 billion)

# Excludes capitalised borrowing costs.* Includes inter-company eliminations and other adjustments.

Freight Rail andRail Engineering R12 ,5 billion*

National Ports Authority R2,0 billion

Port Terminals R0,9 billion

Pipelines R6,1 billion

Historical capital investment# (R billion)

21,5

2011

18,4

2010

19,4

2009

15,8

2008

11,7

2007

Highlights

As a SOC, Transnet will continue to play its role to provide responsive

infrastructure that creates appropriate capacity ahead of demand in

the context of affordability, a fair return on invested capital and

supporting economic growth by partnering with the private sector.

The investment plans are aligned to the strategic objectives of the

Company and support the NGP. The capital spending in 2011 was

R21,5 billion. The rolling five-year investment plan of R110,6 billion

for the period 2012 to 2016 is considered to be appropriate to support

the planned volume growth. Other major projects have been

identified to increase capacity in excess of the existing capacity

plans, and the funding thereof will be done in conjunction with the

private sector.

3CAPITAL INVESTMENT

For further details refer to the Capital investment report.


Five-year Capital Investment Plan: 2012 – 2016#

Sishen

East L

Port Elizabeth Mossel Bay

Ngqura

Saldanha

Cape Town

2

1

3

3 3

WESTERN CAPE

NORTHERN CAPE

EASTERN CAPE

FREE STATE

NORTH WEST

GAUTENG

Capital investment in the strategic corridors

CorridorPrimary commodities transported

Five-year capital investment

R billion

Sishen to Saldanha

Capecor

Southcor

Natcor

R Baycor

Maputo Corridor

National*

* National – Unallocated corridor-wide investments.# Excludes capitalised borrowing costs.

2

6

8

5

3

4

7

1

Rail

Ports and Terminals Pipelines

Richards Bay

London

Durban

Maputo

Beitbridge

6

47

5

MPUMALANGA

LIMPOPO

KWAZULU-NATAL

Capital investment by Province

Province

Five-year capital investment

R billion

KwaZulu-Natal

Western Cape

Eastern Cape

Gauteng

Mpumalanga

Northern Cape

North West

Free State

Country wide-executed

centrally

17

13,8

12,1

7,8

14,6 14,9

9,7

12,8

5,9

13,1

5,9

20162015201420132012Target

Replacement (63%)

Expansion (37%)

Projections

Capital investment by Operating division* (R110,6 billion)

Freight Rail R63,7 billion

Rail Engineering R1,6 billion

National Ports Authority R23,2 billion

Port Terminals R5,0 billion

Pipelines R15,1 billion

Specialist Units R2,0 billion

Capital investment plan by commodity* (R110,6 billion)

General Freight R39,0 billion

Export coal R14,6 billion

Export iron ore R10,5 billion

Containers R14,7 billion

Piped products R14,3 billion

Other** R13,3 billion

Bulk R2,5 billion

Break-bulk R1,7 billion

R110,6 billionFive-year capital investment plan (excluding capitalised borrowing costs)

Key projects

PSPs – Potential future opportunities

Looking ahead

Five-year capital investment plan* (R billion)

* Excludes capitalised borrowing costs.** Other includes investments that support commodities

that may span across sectors including the above eg tugs and dredgers support all commodities transported


EBITDA (R billion)

14,4

2010

13,2

2009

12,8

2008

10,7

2007

15,8

2011Actual

15,1

2011Target

Revenue (R billion)

2007

26,9

2008

30,1

2009

33,6

2010

35,6

39,5

2011Target

2011

38,0

Actual

EBITDA margin (%)

2007

39,7

2008

42,6

2009

39,3

2010

40,538,3

2011Target

2011

41,5

Actual

2010

4,1

2007

5,5

2008

6,5

2009

3,7

2011

3,9

3,0Minimum

Cash interest cover* (times)

Actual

Highlights

2011 @

VS2010

@ 4,9%

41,1

2011

39,8

2010

37,7

2009

30,9

20082007

40,850,0

MaximumGearing* (%)

Actual

2011 @

VS2010

@ 1,3%

* Restated.

2011 @

VS2010

@ 6,6%2011 VS

2011 target 3,8%

2011 @

VS2010

@ 1,0%2011 VS

2011 target 3,2%

2011 @

VS2010

@ 9,4%2011 VS

2011 target 4,3%

2011 @

VS2010

@ 1,1%2011 VS

2011 target 1,4%

Return on average total assets (ROTA) (%)

2007

11,1

2008

11,6

2009

9,0

2010

7,7 8,0

2011Target

2011

6,6

Actual


19

36,3

2016

32,1

2015

27,3

2014

23,6

2013

18,1

2012

EBITDA (R billion)

Projections

4,8

2016

3,9

2015

3,4

2014

3,3

2013

3,2

2012

3,0Minimum

Cash interest cover (times)

Projections

Revenue (R billion)

73,7

2016

67,0

2015

60,0

2014

53,3

2013

45,9

2012Projections

Looking ahead

increase in revenue is mainly due to growth in GFB volumes as well as growth in export commodities and maritime container volumes.

The 19,0% four-year CAGR is due to continued cost saving initiatives resulting in future operating expenses being kept lower than revenue increases as well as increased volumes.

the increased volumes will be achieved by executing the capital investment programme as well as operational efficiencies.

coal sectors will continue to generate significant value.

General Freight business are expected to yield positive results.


CAGR 19,0%

37,7

2016

42,8

2015

46,4

2014

46,8

2013

46,8

2012

MaximumGearing (%)

50,0

Projections

The gearing ratio is not expected to exceed the target ratio of 50% over the medium term.

49,3

2016

47,9

2015

45,6

2014

44,2

2013

39,6

2012

EBITDA margin (%)

Projections

Four-year CAGR 5,6%

EBITDA margin is expected to remain >40% over the medium-term.

The cash interest cover ratio remains above the target of 3,0 times and is not likely to fall below the target in the medium term.

11,3

2016

10,6

2015

9,4

2014

8,6

2013

6,5

2012

Return on average total assets(ROTA) (%)

Projections

Four-year CAGR 14,8%

Although depreciation, amortisation and derecognition is expected to increase, in line with the capital investment programme, the return on average total assets, four-year CAGR is positive due to improved asset utilisation.


Funding

The objective of the funding plan is to ensure that Transnet has adequate liquidity to meet all its operational

and capital investment funding requirements. The choice of the funding instrument to fund any capital

investment project will be subject to a thorough cost and risk assessment, including smoothing the maturity

profile to avoid undue market risk, refinancing risk and other risks.

Funding strategy

Highlights

Managing and protecting Transnet’s financial position.

Smoothing Transnet’s maturity profile to mitigate refinancing risk.

Exploring innovative and alternative forms of funding (including PSP, PPP, leasing and

project finance).

Using the Domestic Medium-Term Note (DMTN) programme for local funding.

Utilising the various diverse funding sources already established and exploring new

sources. These include Development finance institutions (DFI), export credit agency

(ECA), domestic bank loans and foreign loans.

Issuing bonds internationally under the Global Medium-Term Note (GMTN) Programme.

Inaugural drawdown of US$750 million (R5,1 billion) from the GMTN programme.

Continued tapping of the DMTN programme of R7,7 billion.

Commercial paper issue of R2,0 billion.

Bank loans and asset-backed funding of R1,9 billion.

DFIs and ECA funding of R1,7 billion.

Cost-effective funding resulting in a reduction in the weighted average cost of debt

of <10%.

4FINANCIAL SUSTAINABILITY(continued)

21

Looking ahead

Funding requirements

27,1

2016

22,5

2015

19,8

2014

17,0

2013

16,0

2012

Cash flow from operating activities including security of supply fuel levy (R billion)

Projections

6,5

2016

(3,7)

2015

(8,3)

2014

(7,2)

2013

(20,8)^

2012

Funding requirements (R billion)

Projections

(0,8)

2016

(6,8)

2015

(2,0)

2014

(1,0)

2013

(8,7)

2012

Loan redemptions (R billion)

Projections

(19,8)

2016

(19,4)

2015

(26,1)

2014

(23,2)

2013

(28,1)

2012

Cash flows from investing activities* (R billion)

Projections

*Includes capitalised borrowing costs.

To fund capital investments and loan redemptions.

Next three years R36,3 billion.

Five years R33,5 billion.

R million

Commercial paper 2 600

Domestic bonds 2 650

DFIs, ECAs, domestic and foreign loans 7 650

Total^ 12 900

PROBABLE SOURCES OF FUNDING 2012

^ The funding requirements for 2012 have decreased due to cash on hand at 31 March 2011 of R10,9 billion and increased by the pre-funding buffer of R3 billion, resulting in a net funding requirement of R12,9 billion.


Highlights

HUMAN CAPITAL

1 412 apprentices and 427 engineers in the Company.

Granting of 52 engineering bursaries for 2011.

356 engineering technicians in the internship

programme.

Representation of black (African, Coloured and

Indian) employees improved to 76% of the total

workforce.

Female and people with disabilities still remains a

significant challenge representing 20% and 0,8 %

of Transnet’s workforce, respectively.

Since 2001, Transnet more than doubled its female

employee base from 8,4% to the current 20%.

The availability of appropriate skills across the

Company remains a significant challenge.

STRATEGIC ENABLERS

The Company has embedded the internal CSDP

policies and procedures into the standard business

practices.

Transnet is recognised as the leader in CSDP

execution in South Africa.

Achieved significant CSDP contractual commitments

of up to 50% in localisation as well as significant

skills development and technology transfer.

Created and preserved over 900 jobs and aims to

increase this number significantly in the year ahead.

Some of the key CSDP benefits realised were on the

100 GE locomotives, the GE and EMD locomotive

parts agreements as well as the 32 Class 15E

locomotives.

Transnet has ramped up its BBBEE spend over the past

three years from R6,9 billion to R19,4 billion, which is

75% of total measured procurement spend compared

to a 50% target set by the Department of Trade and

Industry (DTI).

The spend for the year, which is in excess of the

targets set by the DTI, for exempted micro-

enterprises amounted to R1,9 billion, R2,8 billion for

qualifying small enterprises, R3,1 billion for black-

owned businesses and R1,4 billion for black women-

owned businesses.

Key ICT initiatives include the implementation of the

NAVIS system at Port Terminals; implementing the

Asset Stabilisation Programme across the Company,

enabling the optimisation and standardisation of

Human Capital and Payroll via the SAP HCM system.

HUMAN CAPITAL AND STRATEGIC ENABLERS

5 -6

23

Looking ahead

HUMAN CAPITAL

The growth and efficiency required over the next

five years is supported by an intensive and

accelerated skills development plan.

The key focus will be on the development of

managerial, supervisory and technical skills.

Plan to increase the number of trained artisans by

an additional 500 in 2012.

Sector-specific skills development is focused on

marine, rail and cargo with an annual internship

target of 1 500 learners.

To support the growth of the Company and the NGP

commitments, Transnet plans to increase direct jobs

by 2 562 and to create 333 331 indirect jobs in the

supplier industries in the year ahead.

Aim to improve the female employee base to 25% and

align representivity of people with disabilities to the

national averages for the economically active

population (EAP).

Continue with the implementation of appropriate

HR strategies.

Continue integrating EE strategies and interventions

with the Culture Charter.

STRATEGIC ENABLERS

Improve industrial capability building and economic

transformation in South Africa to achieve the NGP

targets.

Transnet’s Supplier Development strategy strives to

leverage off the planned infrastructure spend of

R110,6 billion over the next five years to develop new

manufacturing and service capabilities and capacity

through local content and skills development.

Transnet aims to localise its supply of imported

manufactured goods and/or services to a reasonable

level via CSDP in three key focus areas: rolling stock,

port equipment and infrastructure.

Reduce import leakage by 1% per annum.

BBBEE target to remain greater than 70%.

Implementation of a common ICT Enterprise

Architecture model that facilitates the integration

of operational processes and systems across

the Company.

Integrate planning, scheduling and forecasting

processes across the Operating divisions thereby

increasing visibility across the value chain (ports,

rail, pipeline, customers and suppliers).


Highlights

SHEQ

The total number of employee fatalities was 12 for

the year, compared to eight in the prior year.

Employee fatalities have decreased by more than

50% over the past five years.

Transnet’s DIFR deteriorated to 0,98 in the current

year compared to 0,88 in the prior year.

There has been an increase in reported noise-

induced hearing loss (NIHL) cases during the year,

which had an adverse impact on the DIFR, and is

receiving continued attention.

Continued to improve and implement measures to

prevent, minimise, rectify and manage

environmental impacts associated with Operations.

Positive response of the Department of

Environmental Affairs to the progress achieved at

the Port Elizabeth Manganese Terminal.

Following extensive analysis, the asbestos clean-up

programme began in 2010.

Developed short and medium-term plans to address

waste, air quality and water quality management.

Development of a Company-wide climate change

strategy was initiated during the year.

REGULATORY

Closer alignment with NERSA resulting in certainty

in terms of the applicable regulatory framework.

Difference with the Ports Regulator on tariff

determination for National Ports Authority due to the

lack of an approved tariff methodology.

Establishment of an interim Rail Regulator.

Statutory compliance including King III compliance

and PFMA compliance.

SHEQ AND REGULATORY7 -8

25

Looking ahead

REGULATORY

Continue to engage relevant stakeholders and the

Ports Regulator on an appropriate tariff methodology.

Continue to interact with NERSA to maintain the

professional association and to address any

regulatory challenges.

Continue role as an active participant in processes

affecting regulatory frameworks, and implement a

regulatory reporting system to establish policy

certainty and to facilitate future reforms and tariff

application processes.

SHEQ

Continued focus on safety and strive for zero

fatalities.

Target Group DIFR of <0,80 for 2012.

Minimal environmental incidents for 2012 through

audits and implementing environmental management

systems.

Implementation of safety plans and standards to

improve overall strategy.

Reduced cost of losses and reduction in number of

safety incidents.

Compliance and safety audits.

Noise surveys will continue to take place, equipment

will be reengineered where possible, and medical

check-ups and best hearing protective equipment will

be issued to those exposed.

The Board will continue its support and commitment

to the ERM framework and process by maintaining a

strong and visible oversight.

Re-certification of all ports in terms of ISO 14001.

Develop green energy suppliers through leveraging

Transnet’s procurement programme.

Reduce Transnet’s carbon footprint and electricity

consumption by 5% in 2012.

Finalise outstanding environmental assessments and

implement environmental rehabilitation plans.

Following the completion of the Transnet carbon

footprint assessment the following will be completed

in 2012:

innovation.


Number of employees 2011

49 078

Group external revenue (R billion)

30,1

2008

26,9

2007

35,6

2010

33,6

2009 2011

39,5

Target

38,0

2011Actual

Transnet is a public Company, wholly owned by the Government of the Republic of South

Africa. As the owner and operator of South Africa’s major transport infrastructure,

Transnet is responsible for ensuring that the country’s freight transportation system

operates according to benchmark standards and supports economic growth in the country.

Return on average total assets (ROTA) (%)

7,7

2010

9,0

2009

10,2

2008

11,1

2007

8,0

2011Target

2011

6,6

Actual

Group EBITDA (R billion)

13,2

2009

12,8

2008

10,7

2007

14,4

2010 2011

15,1

Target

15,8

2011Actual

Depreciation and amortisation (R billion)

4,8

2009

3,8

2008

3,0

2007

6,1

2010 2011

7,4

Target

7,2

2011Actual

Group capital investment* (R billion)

18,4

2010

19,4

2009

15,8

2008

11,7

2007

22,8

2011Target

2011

21,5

Actual

Group Disabling injury frequency rate (DIFR) (weighted)

0,88

2010

1,09

2009

1,25

2008

1,30

2007

0,85

2011Target

2011

0,98

Actual

2011 @

VS2010

@ 6,6%2011 VS

2011 target 3,8%

2011 @

VS2010

@ 18,0%2011 VS

2011 target 3,4%

2011 @

VS2010

@ 6,6%2011 VS

2011 target 1,4%

2011 @

VS2010

@ 9,4%2011 VS

2011 target 4,3%

2011 @

VS2010

@ 16,6%2011 VS

2011 target 5,8%

GROUP STRUCTURE AND PERFORMANCE HIGHLIGHTS

* Excludes capitalised borrowing costs.

27

Transnet Freight Rail (Freight Rail) is focused on

transporting bulk and containerised freight along its

approximately 20 500 kilometre rail network, of which

1 500 kilometres comprises heavy haul export lines.

During 2011, Freight Rail transported 182,1 mt of freight

for export and domestic customers. Its main business lines

are the export coal line, the export iron ore line and the

General Freight business. Refer to Operational reviews for

further details.

Transnet Rail Engineering (Rail Engineering) consists

of eight product focused business units which provide

services ranging from refurbishment, conversion and

upgrades, to the manufacturing of rail-related rolling

stock. Whilst this Operating division is largely focused

on supporting Freight Rail, it is also focusing on growing

its external customer base. Refer to Operational reviews

for further details.

Transnet National Ports Authority (National Ports

Authority) is responsible for the safe, efficient and

effective functioning of the national ports system,

which it manages in a landlord capacity.

The National Ports Authority is also a provider of port

infrastructure and marine services at all commercial

ports in South Africa. Refer to Operational reviews for

further details.

Transnet Port Terminals (Port Terminals) owns and

operates 16 cargo terminal operations situated across

seven South African ports. It provides cargo handling

services for the container, bulk, automotive and break-

bulk sectors. Refer to Operational reviews for further

details.

Transnet Pipelines (Pipelines) transports a range

of petroleum products and gas through 3 000 kilometres

of underground pipelines traversing five provinces,

thereby ensuring the security of supply of petroleum

products to the inland market, especially Gauteng.

Pipelines is gearing itself for the full commissioning

of the New Multi-Product Pipeline (24-inch trunk line)

by December 2013. Refer to Operational reviews for

further details.

Overview 2011 Operating division highlights^*

RAIL ENGINEERING

NATIONAL PORTS AUTHORITY

PORT TERMINALS

PIPELINES

FREIGHT RAIL

58,8% external

revenue

51,7% EBITDA

58,3% capital

investment

1,7% external

revenue

7,3% EBITDA

2,5% capital

investment

19,3% external

revenue

37,2% EBITDA

9,4% capital

investment

16,7% external

revenue

13,9% EBITDA

4,0% capital

investment

3,0% external

revenue

4,4% EBITDA

28,2% capital

investment

In order to achieve Transnet’s mission and vision, the Company is structured as follows#:

^ Operating division highlights as a % of Transnet.* Excludes intercompany.# Supported by Specialist Units.


PRODUCTIVITY AND EFFICIENCY

lengths to harness haulage capability. By year-end, Freight Rail was operating several larger trains on a weekly basis, including anaconda container trains, manganese trains and heavier coal trains.

increased from 7 400 to 7 900.

locomotives and the implementation of the Concept 39 train plan continue to contribute to improvements in locomotive efficiencies and wagon turnaround time on the export iron ore line.

VOLUME GROWTH

its highest ever annual volumes of 627 825 TEUs during the year.

increased by 13,2% compared to 2010.

iron ore of: 1,024mt for the week ending 5 September 2010; 1,060mt for the week ending 26 September 2010; 1,070mt for the week ending 24 October 2010 and 1,094mt for the week ending

volumes compared to 2010.

CAPITAL INVESTMENT

R12,5 billion.

Model C30ACi locomotives from General Electric.

locomotives of the 100 new Class 43 diesel locomotives at its plants in the USA. The remaining 90 locomotives will be assembled by Rail Engineering at its manufacturing facility in Koedoespoort.

FINANCIAL SUSTAINABILITY

to R22,3 billion, while operating expenses were up 7,7% to R14,5 billion, driven mainly by 16,0% increase in maintenance and materials costs and a 25% increase in electricity tariffs.

of 1,6mt as well as a change in the commodity mix to higher revenue per unit commodities resulted in a 12,3% increase in General Freight revenue.

HUMAN CAPITAL

in Training’ programme contracted for an 18 – 24 month period, 36 were successfully placed in permanent positions.

programme was successfully launched and implemented.

personnel costs was 2,2% in 2011.

STRATEGIC ENABLERS AND SHEQ

12% due to various initiatives being implemented.

have reduced by 25% due to the

upgrades.

damage to key railway assets and injuries.

29,8% compared to the prior year.

REGULATORY

a transport economics analysis of South Africa’s freight rail challenges and will propose an optimal configuration of the freight rail system to facilitate rail reforms.

0,94

2010

1,3

2009

1,3

2008

0,94

2011Target

Disabling injury frequency rate (DIFR)

1,22

2011Actual

7,4

2010

5,7

2009

5,1

2008

8,1

2011Target

EBITDA (R billion)

8 ,1

2011Actual

23,6

Target20112010

20,620,8

2009

16,0

2008

External revenue (R billion)

22,3

2011Actual

9,7

2010

8,6

2009

9,2

2008

11,6

2011Target

Capital investment* (R billion)

12,5

2011Actual

Highlights


23 665

2011 @

VS2010

@ 8,3%

2011 @

VS2010

@ 10,1%

2011 @

VS2010

@ 29,0%

FREIGHT RAIL


29

0,73

2016

0,74

2015

0,77

2014

0,82

2013

0,88



20,4

2016

18,0

2015

15,6

2014

13,0

2013

10,8


EBITDA (R billion)

44,9

2016

40,6

2015

36,4

2014

31 ,8

2013

27,5



10,6

2016

11,6

2015

13,3

2014

13,5

2013

14,7



Looking ahead


capital and maintenance programme implementation, operational processes and improved operational discipline in execution will all contribute to better asset utilisation and operational efficiencies.

implementation of customer-based resources, infrastructure and execution models to improve service reliability and efficiencies in asset utilisation.

on the export coal line is not yielding the expected benefits. A 10% improvement is required to achieve the expected 58-hour turnaround time.

departures and arrivals.

increased infrastructure reliability.

VOLUME GROWTH

approximately 206mt of export and domestic commodities in 2012, with anticipated volumes of 252mt by 2016.

increase, with a focus on exports through Maputo and other cross-border rail traffic.

CAPITAL INVESTMENT

Investment Programme to address operational constraints, improve allocation to specific growth market segments, and to create capacity for emerging miners.

for 2012 amounts to R14,7 billion and R63,7 billion over the next five years (excluding capitalised borrowing costs).


is R27,5 billion.

due to the expected volume growth and tariff increases in line with contractual agreements.

HUMAN CAPITAL

grow to approximately 25 900 in 2012 and 28 920 by 2016. This growth in employees is for train drivers, operational, technical and engineering positions, in line with NGP commitments.

spent per annum on training, development of employees and building leadership competence.


country-wide asbestos and hydrocarbon pollution elimination programmes will reduce pollution and liability exposures.

REGULATORY

(DoT) on numerous initiatives to establish policy certainty and to facilitate rail reform.



Four-year CAGR 7,8%


25 900



0,7

2010

0,8

2009

1,2

2008

1,1

2011Target

EBITDA (R billion)

1,2

2011Actual

1,3

2010

1,4

2009

1,1

2008

1,3

2011Target


0,7

2011Actual

Highlights


successfully upgraded by Rail Engineering.

award for the transformation of logistics, yielding an inventory reduction of R800 million in 18 months.

availability by 0,5%.

whilst locomotive reliability deteriorated by 15,4% as a result of an ageing fleet.

VOLUME GROWTH

delivering all in record time.

the 100 new Class 43 General Electric diesel locomotives for Freight Rail, resulting in the largest CSDP agreement being signed in South Africa to date.

coach customers slowed volume growth.

CAPITAL INVESTMENT

R532 million.

in the planned completion of key projects due to unforeseen circumstances such as theft and adverse weather conditions.

successfully launched during the year, with an investment of R27 million in equipment to facilitate prompt reaction for the clearing of derailments.


R9,3 billion.

mainly due to programmes in support of Freight Rail’s fleet expansion plans and volume growth.

R661 million mainly due to a lower number of PRASA coach upgrades performed.

HUMAN CAPITAL

personnel costs was 3,5% in 2011.

labour interventions during the year as part of the ‘Relationship By Objectives’ (RBO) joint initiative between management and labour.

being implemented throughout all the regions within Rail Engineering.

STRATEGIC ENABLERS, SHEQ AND REGULATORY

year, enabling the industry as a whole to improve skills levels and to develop new enterprises to manufacture components.

shortages of critical components challenged the sustained availability of rolling stock.

rolled out to eliminate waste and variation in all aspects of operations.

year without injuries.

14,8% compared to the prior year.


2008

1,31

2009

1,15

2010

0,81

Target2011

0,76

2011

0,93

Actual

0,4

2010

0,6

2009

0,8

2008

0,6

2011Target


0,5

2011Actual


13 001

2011 @

VS2010

@ 48,4%

2011 @

VS2010

@ 71,8%

2011 @

VS2010

@ 41,5%

RAIL ENGINEERING


31

0,67

2016

0,68

2015

0,71

2014

0,75

2013

0,80

2012Target


Projections

1,2

2016

1,3

2015

1,2

2014

1,1

2013

1,3


EBITDA (R billion)

1,5

2016

1,5

2015

1,5

2014

1,5

2013

1,0



0,4

2012

0,2

2016

0,3

2015

0,3

2014

0,4



Looking ahead


improve fleet availability and reliability.

continue to reduce turnaround times and improve quality.

reliability to benchmark levels to support Freight Rail’s planned volume growth.

VOLUME GROWTH

growth.

CAPITAL INVESTMENT

R445 million and total capital expenditure over the five-year period amounts to R1,6 billion.

investment in machinery, equipment and furniture at R279 million and investment in buildings and structures at R166 million.


strengthen partnerships with OEMs with the aim of enhancing existing skills and knowledge and creating new market opportunities.

continent with the view to increase external revenue.

to increase by 12,3% from R9,3 billion in 2011 to R10,5 billion in 2012.

volume growth.

HUMAN CAPITAL

skills.

Six Sigma competencies.

creation to meet the NGP commitments.

STRATEGIC ENABLERS, SHEQ AND REGULATORY

supported by providing locomotive upgrade and maintenance services for the branch lines.

fatalities as well as no major environmental incidents.

lease activities.


Four-year CAGR 2,0%



13 190



2011

1,24

2010

1,22

2009

2,17

2008

1,0

2011Target


0,80

Actual

5,6

2010

5,3

2009

5,2

2008

5,6

2011Target

EBITDA (R billion)

5,9

2011Actual

6,8

2010

6,6

2009

6 ,4

2008

7,2

2011Target


7,3

2011Actual

3,2

2010

4,2

2009

2,7

2008

3,4

2011Target


2,0

2011Actual

Highlights


and berthing services) were significantly reduced.

towage was implemented in Cape Town, Richards Bay and Durban.

initiatives were implemented, including a dual loading process at the Port of Cape Town.

VOLUME GROWTH

to 2010.

CAPITAL INVESTMENT 3 Trailing Suction Hopper

Dredger was brought into operations, enhancing depth management capabilities within the ports.

entrance channel at the Port of Durban was completed during the year.

Terminal ahead of demand has allowed the Port to attract new business.


R3,6 billion compared to 2010 mainly due to improved container volume growth.

42,6% annually to R472 million due to increased automotive imports and export volumes.

compared to the prior year due to increased global demand for iron ore.

HUMAN CAPITAL

appointed, addressing the skills shortage.

in 2010 to 5,4% in 2011.


improvement from 1,24 in the prior year.

incidents at the ports during the year.

REGULATORY

from the Ports Regulator, and was awarded a 4,49% increase.

determination can be explained by the lack of an agreed tariff methodology.


3 535

2011 @

VS2010

@ 7,4%

2011 @

VS2010

@ 5,3%

2011 @

VS2010

@ 37,1%



33

0,74

2016

0,75

2015

0,76

2014

0,77

2013

0,80



10,1

2016

9,2

2015

8,3

2014

7,8

2013

7,0


EBITDA (R billion)

12,3

2016

11,3

2015

10,2

2014

9 ,3

2013

8 ,4



5,3

2016

5,2

2015

7,0

2014

3,3

2013

2,4



Looking ahead


include achieving 2 000 coal tons per ship turnaround time (STAT hour) at Richards Bay; and 3 078 iron ore tons per STAT hour at Saldanha.

following TEUs per STAT hour: Durban (40), Port Elizabeth (36), Ngqura (40) and Cape Town (27).

ports and the current towage (tug) capacity continues to challenge the ability to meet demand.

on improving the overall operational efficiency of marine resources ie towage, pilotage, berthing and vessel traffic services.

VOLUME GROWTH

investment programme supports and drives volume growth.

expected to increase by 5,8%; dry bulk sector is expected to achieve growth of 4,7% and break-bulk is expected to increase by 18,4%.

CAPITAL INVESTMENT

R2,4 billion (excluding borrowing costs) and cumulatively R23,2 billion over the next five years.

management programme to ensure the timeous replacement of marine craft.


opportunities for volume growth.

an increase of 14,2% compared to 2011.

the tariff determination methodology results in significant cash flow risk for National Ports Authority.

HUMAN CAPITAL

Ports’, will continue to review its capacity and programmes to ensure quality delivery of skills.

infrastructure skills in the job market, as well as the legislative prescribed time requirements to qualify as trained marine related resources, continues to be a challenge.


domestic market to attract volumes from BEE/SMME customers and new market entrants in key sectors through incentives and trade facilitation for terminal accessibility.

reduce safety incidents to less than 27.

by March 2012 and working towards all ports achieving compliance in terms of acceptable environmental standards.

REGULATORY

embark on the deemed licence conversion process and active engagement with the Ports Regulator and Port Consultative Committees.

and the Ports Regulator on an appropriate tariff methodology.


Four-year CAGR 9,8%



3 748



0,71

2010

0,85

2009

0,93

2008

0,69

2011Target


0,51

2011Actual

1,6

2010

1,7

2009

1,8

2008

1,8

2011Target

EBITDA (R billion)

2,2

2011Actual

5,2

2010

5,0

2009

4,8

2008

5,7

2011Target


6,4

2011Actual

2011

2,4

2010

3,1

2009

2,0

2008

1,3

2011Target


0,9

Actual

Highlights


per gross crane hour (GCH) performance at the Durban Container Terminal (DCT) – Pier 1. The terminal has sustained a rolling average GCH of 29,5 since December 2010.

achieved an annual average GCH of 25 for 2011 against a target of 24, despite the terminal being under construction and operating a dual operation of both straddles and rubber tyred gantry cranes (RTGs) for most of the year.

year being only 23, the premium berths have improved significantly during the latter half of 2011 due to productivity improvement initiatives.

VOLUME GROWTH

from the prior year to 4 016 564 TEUs.

Richards Bay were lower than expected due to a lack of rail capacity and tippler constraints.

CAPITAL INVESTMENT

R866 million.

year included R131 million for the Durban Container Terminal reengineering project, R253 million for the Cape Town Container Terminal, and R79 million for the Port and Rail Phase 1 C expansion in Saldanha.


23,2% to R6,4 billion.

of 35,0% compared to the prior year of R1,6 billion.

HUMAN CAPITAL

11,3% due to efficiency improvements and the filling of only critical positions.

skills training (mainly mentorship programmes) in 2011, which translates to 3,7% of personnel costs.

personnel costs have increased from 15,1% to 15,9%.


developed and implemented with planned maintenance reflecting 95% compliance.

meantime to repair (MTTR) have demonstrated corresponding improvements.

0,71 in 2010.

compared to 2010 and was higher than target.

employee fatality at the Durban RoRo and Agri Terminal.

REGULATORY

plan and minimum control framework for the National Ports Act.


5 867

2011 @

VS2010

@ 23,2%

2011 @

VS2010

@ 35,0%

2011 @

VS2010

@ 63,4%

PORT TERMINALS


35

0,51

2016

0,52

2015

0,54

2014

0,57

2013

0,62



4,6

2016

4,0

2015

3,3

2014

2,7

2013

2,2


EBITDA (R billion)

10,5

2016

9,5

2015

8,6

2014

7,6

2013

6,7



0,9

2016

0,7

2015

0,7

2014

1,0

2013

1,7



Looking ahead


Maintenance Engineers will help to address challenges on equipment reliability.

forward due to interventions and will unlock both capacity and volumes, which will drive increased revenues.

currently contribute to a loss of between four and seven GCH per month and are now being managed on a daily basis to ensure that this loss is minimised.

VOLUME GROWTH

Ngqura Container Terminal (NCT) will increase capacity to 800 000 TEUs based on design assumptions.

continue to be affected by a lack of rail capacity and the poor reliability of current operational equipment at the port.

CAPITAL INVESTMENT

will be invested to sustain existing operations and the remaining R1 billion (19%) will be invested to increase capacity to achieve growth initiatives over the next five years.

Saldanha Iron Ore Terminal to increase the capacity of the plant to 60,7mt.


opportunities, strategic partnerships and pursuing corridor optimisation strategies.

capacity on the Richards Bay corridor.

by negotiating contractual agreements with potential new shipping lines.

HUMAN CAPITAL

and ‘operator’ mentorship programmes in 2012.

Operations in line with operational needs.


Wharf MPT.

management partner to assist in the management and operation of the Cape Town Cold Storage Facility.

Improvement Plan’ and utilise the ‘Golden Safety League’ to improve overall safety controls.

continual improvement to minimise systemic non-conformances.

remain a challenge, especially in Richards Bay and Port Elizabeth, with specific reference to dust emissions, soil and groundwater contamination.

REGULATORY

current legislation of the National Commercial Ports Policy and the National Ports Act is that it does not adequately address the role of a SOC in a developmental state.

relevant stakeholders on the National Commercial Ports Policy to achieve alignment with Port Terminals’ strategy.





6 292



Highlights


economy by ensuring security of fuel supply to the inland market.

volumes through optimally managing the capacity usage of the pipeline system.

interruptions.

extended to ensure that the inland market is supplied.

VOLUME GROWTH

and collaboration with Freight Rail ensured that all 2010 FIFA Soccer World Cup targets were met and that the OR Tambo International Airport always had jet fuel available.

transported in a capacity constrained pipeline network.

CAPITAL INVESTMENT

telemechanical upgrade projects.

of the NMPP into the network was successful. Park-Alrode and Alrode-Langlaagte sections of the pipeline were commissioned by 31 May 2011.


award for the best internal financial control environment in Transnet for the year.

increased by 5,5% from R1,3 billion to R1,4 billion.

mitigate the lower than expected tariff increase in 2011.

HUMAN CAPITAL

1,2% against a target of 1,5%.

4,0% compared to a target of 6,0%.

a challenge.

STRATEGIC ENABLERS

enhanced to ensure that Pipelines continues to meet its obligation in terms of security of supply.

SHEQ

the year, three of which resulted from unauthorised activities by third parties in the servitudes causing damage to the pipelines.

to the prior year.

REGULATORY

R4,5 billion over three years, commencing in 2011, for the ‘security of supply’ requirement of the NMPP.

tariff setting, which comprises an integrated (bundled) system application.

0,54

2010

1,44

2009

0,88

2008

0,95

2011Target


0,33

2011Actual

0,7

2010

1 ,0

2009

1,0

2008

0,9

2011Target

EBITDA (R billion)

0,7

2011Actual

1,2

2010

1,5

2009

1,3

2008

1,5

2011Target


1,1

2011Actual

3,1

2010

2,8

2009

0,9

2008

5,4

2011Target


6 ,1

2011Actual


567

2011 @

VS2010

@ 3,6%

2011 @

VS2010

@ 0,9%

2011 @

VS2010

@ 98,1%

PIPELINES


37

Looking ahead


the reduction of “lost time”, thereby ensuring that the pipeline is operated with minimum lost time and improved volume throughput.

VOLUME GROWTH l/w

share from road in the 4th quarter of 2012.

NMPP into operation as and when planned.

CAPITAL INVESTMENT

line of the NMPP and ensure successful commissioning.

– The estimated cost of the NMPP has increased from R15,5 billion to R23,4 billion due to increases in the cost of the terminals, pumpstations and project management. The increase is related to additional scope, schedule changes and higher than initially budgeted for costs.

– The NMPP construction is progressing according to the revised plan with operationalisation of the

Completion of the entire project is still expected to be by December 2013.

maintenance plan to mitigate risks and address findings of the “special intelligent pigging” survey.

requirements.


application and the final regulatory decision for future tariffs.

cost-reduction initiatives.

HUMAN CAPITAL

personnel costs is expected at 7,0% in 2012.

and improved retention of key skills by March 2012.

STRATEGIC ENABLERS

requirements of the NMPP.

and guide operational skills requirements.

SHEQ

management system (EMS) for all sites.

associated with the handling of hazardous products and will ensure that operational practices are enhanced to reduce environmental impacts.

reduction in the number of safety incidents to less than 23 in 2012.

REGULATORY

maintain the professional association and to address any regulatory challenges.

processes affecting regulatory frameworks, and implement a regulatory reporting system to facilitate future tariff application processes.

0,78

2016

0,83

2015

0,95

2014

0,95

2013

0,80



3,2

2016

2,9

2015

2,1

2014

1,9

2013

1,1


EBITDA (R billion)

4,1

2016

3,8

2015

3,0

2014

2,7

2013

1,8


External revenue# (R billion)

1,6

2016

0,7

2015

2,9

2014

3,8

2013

6,1







650

# Includes clawback and levy.


Board of Directors

3

4

1Mr ME Mkwanazi Chairman

(Non-executive)

Date of appointment 2010

QualificationsBSc (Mathematics and Applied Mathematics) and BSc (Electrical Engineering).

Area of expertiseCorporate governance, engineering and strategy.

Other directorships and trusteeshipsBefore the Wind Investments 53; Marble Gold 237 (Pty) Ltd;

Mkwanazi Investment Holdings (Pty) Ltd; Saatchi and Saatchi (Pty) Ltd; Ukhamba Bricks and Quarry (Pty) Ltd; Born Free Investments 402; Hulamin Ltd; Stefanutti & Stocks Holdings; and Shamsko Projects.

2Mr B Molefe Group Chief Executive


QualificationsMaster of Business Leadership; Postgraduate Diploma in Economics; and BCom (Accounting and Economics).

Area of expertiseFinance, management and leadership.

Other directorships and trusteeships

Karibu Holdings (Pty) Ltd; Karibu Capital (Pty) Ltd; Karibu Real Estate Investments (Pty) Ltd; and Lion of Africa Fund Managers.

3Mr A SinghActing Chief Financial

Officer


QualificationsBAcc and CA(SA).

Area of expertiseFinancial and business.

Other directorships and trusteeshipsComazar (Pty) Ltd; Crosskeys Security Services (Pty) Ltd; Owner-Driver Management (Pty) Ltd; Protekon (Pty) Ltd; Freight Logistics International; Transhold Properties (Pty) Ltd; and Transnet Retirement Fund.

4Mr MA FanucchiNon-executive


QualificationsMSc Engineering Management; GDE; and BSc Engineering (Mech) Industrial.

Area of expertiseLogistics, supply chain management and business management.

5Mr HD GazendamNon-executive


QualificationsBA; BProc; Dip Labour Relations; AEDP; EDP; and UCLA.

Area of expertiseLabour relations, HR management, remuneration and corporate governance.

Other directorships and trusteeshipsToyota SA (retired from Board in 2009 after 15 years); and currently serving as Trustee on several pension/provident funds, trusts and foundations. Transnet Second Defined Benefit Fund.

6Ms NBP GcabaNon-executive


Qualifications

Area of expertiseLegal and corporate governance.

Other directorships and trusteeshipsTransnet Retirement Fund Property Trust; Transnet Second Defined Benefit Fund; and Partnership – Spoor & Fisher Attorneys.


1 2

5

6 78

9

7Mr MP MalunganiNon-executive


QualificationsBCom; Advanced Management Programme and Leadership Development Programme.

Area of expertiseEntrepreneurship, business strategy, corporate governance and investment banking.

Other directorships and trusteeshipsPeu Group (Pty) Ltd;Phumelela Gaming and Leisure Ltd;Asili Investments (Pty) Ltd;Coral Lagoon Investments 225 (Pty) Ltd;Ematini Game Lodges (Pty) Ltd;Dipcivils (Pty) Ltd;Dipcivils Properties (Pty) Ltd;Dip Plant (Pty) Ltd;Dip Developments (Pty) Ltd;Great North Building Supplies;Intsika Enablement Trust;Intsika Investment Trust;Investec Ltd;Investec Bank Ltd;Investec Asset Management Holdings (Pty) Ltd;Investec Plc;Investec Security Purchase Share Scheme 2003;

Investments (Pty) Ltd;

Investments Trust;Klaprops 80 (Pty) Ltd;Klaprops 81 (Pty) Ltd;Klaprops 82 (Pty) Ltd;

Klaprops 83 (Pty) Ltd;Klatrade 452 (Pty) Ltd;Klatrade 200022 (Pty) Ltd;Lazarus Car Hire (Pty) Ltd;Lazarus Motor Company (Pty) Ltd;Malazvis Property Holdings (Pty) Ltd;Malungani Building Supplies CC;Malungani Family TrustMalungani Sanitary & Hardware Supplies CCMangeke Estate (Pty) Ltd;Masana Networking (Pty) Ltd;Masana Technologies (Pty) Ltd;Masana Telecommunications (Pty) Ltd;Matini Game Lodge (Pty) Ltd;Mpindo (Pty) Ltd;Ndzhakeni Investments (Pty) Ltd;New Adventure Shelf 165 (Pty) Ltd;Nkanyi Game Lodge (Pty) Ltd;Nkanyi Private Game Reserve (Pty) Ltd;Northern Diamond News Group (Pty) Ltd;Nungu Game Lodge (Pty) Ltd;

Nungu Private Game Reserve (Pty) Ltd;Phumelela Gaming and Leisure Ltd;Plot 93 Roodekrans (Pty) Ltd;Portfolio Business Television Productions (Pty) Ltd;PPC SBP Consortium

Pretoria Portland Cement Company Ltd;Pytprops 180 (Pty) Ltd;Stabilid Holdings (Pty) Ltd;Southern Lights Investments 2709 (Pty) Ltd;Suddaby Investments (Pty) Ltd;Tiyani Property Consortium (Pty) Ltd;Umlimi Holdings (Pty) Ltd;

(Pty) Ltd;

Energy (Pty) Ltd;

Ltd; andW P Malungani and Sons Management Services (Pty) Ltd.

8Mr BD MkhwanaziNon-executive


QualificationsBachelor of Administration; Post-graduate Diploma in Marketing; Programme for Management Development; Graduate Diploma in Company Direction; Certificate in Managing Finance and Strategic Management and MBA.

Area of expertiseBusiness, finance, strategy, human resource development and corporate governance.

Other directorships and trusteeshipsSouthern African Shipyards (Pty) Ltd;Hlahlindlela Investments (Pty) Ltd;Directorship/TrusteeshipUnigas (Pty) Ltd; andOceanmasters (Pty) Ltd.

9Ms T MnyakaNon-executive


QualificationsBachelor of Social Science; Masters in Town and Regional Planning; Diploma in Project Management; Certificate in Project Management; and Project Leadership Certificate.

Area of expertiseEconomic planning and development, international trade and business consulting.

Other directorships and trusteeshipsBlack Management Forum National; Deputy President; Business Unity South Africa (BUSA) – Manco member (Board); Durban Chamber of Commerce

President and Board member; South African Chamber of Commerce and Industries – Council member; BMF – Investment – Board

Advisory Commission – member.

39

1011

1213

10Mr MP Moyo Non-executive


QualificationsBAcc (Hons); CA(SA); CA

Diploma in Tax Law; and Advanced Management Programme.

Area of expertiseFinancial/business.


Limited (Chairman); Transnet Second Defined Benefit Fund (Chairman); Amabubesi Financial Services Group (Pty) Ltd;

Amabubesi Financial Services Holdings (Pty) Ltd; Amabubesi Capital (Pty) Ltd; Amabubesi Capital Technologies (Pty) Ltd; Amabubesi Consulting Services (Pty) Ltd; Amabubesi Health Care (Pty) Ltd; Amabubesi Health Services (Pty) Ltd; Amabubesi Investments (Pty) Ltd; Amabubesi Property Holdings (Pty) Ltd; Bulawayo Electrical Supplies (Pty) Ltd; Clorpique 149 (Pty) Ltd; Corridor Infrastructure Development Holdings; Dartingo Trading 161 (Pty) Ltd; Lexshell 713 Investments (Pty) Ltd;

Liberty Group Limited, Liberty Holdings Limited; Mtha-We-Mpumelelo Investments; Pinnacle Technology Holdings; Plexus Fundamental

STS Trust; Utafutaji Trading 36 (Pty) Ltd; and Worldwide Capital Limited.

11Ms NR Ntshingila Non-executive


QualificationsBA; MBA; andDiploma in Advertising.

Area of expertiseMarketing.

Other directorships and trusteeshipsGolden Dividend 456 (Pty) Ltd; Kantar South Africa (Pty) Ltd; Ntinta Investment; Ogilvy South Africa (Chief Executive Officer); Old Mutual Life Assurance Company South Africa) Ltd; Old Mutual Life Holdings (South Africa) Ltd; and PWC CSI Board.

12Ms N Moola Non-executive


QualificationsBachelor of Business Science; CFA Charterholder.

Area of expertiseEconomics and strategy.

Other directorships and trusteeshipsMercedes-Benz South Africa.

40 Transnet SOC Ltd Integrated Annual Report 2011

Board of Directors (continued)

14

1516

17

13Mr IM Sharma Non-executive


QualificationsBSc (Hons).

Area of expertiseStrategy, business, international trade, management and global economy.

Other directorships and trusteeshipsGMT Concepts; Blackstone Resources and Nulance Investments.

14Mr IB Skosana Non-executive


QualificationsBCom, BCompt (Hons); CA(SA); Certificate in the Theory of Accountancy (CTA); and Advanced Management Programme.

Area of expertiseLeadership, strategy and finance.

Other directorships and trusteeshipsAbscido Investments (Pty) Ltd;Bond Choice (Pty) Ltd;Cloudberry Investments 8 (Pty) Ltd;CQS Performance Solutions (Pty) Ltd;CQS Technology Holdings (Pty) Ltd;FDB Eiendoms-beleggings cc; Kapela Bond Investments (Pty) Limited;Pradella Investments (Pty) Ltd;Tascali Investments 5 (Pty) Ltd;TNS Research South Africa (Pty) Ltd; andTNS Research Surveys (Pty) Ltd.

15Ms E TshabalalaNon-executive


QualificationsBCom; International Licentiate Diploma of Banking; and Postgraduate Diploma in Labour Relations.

Area of expertiseBusiness and strategy

Other directorships and trusteeshipsPresidential Advisory Council on BEE (Council Member); Port Shepstone Harbour Development Company (Chairperson of the Board); African Academy for CADD training (Trustee); and Moral Regeneration Movement (Trustee).

16Ms DLJ Tshepe Non-executive


QualificationsBProc; LLB; and LLM.

Area of expertiseLegal and corporate governance.

Other directorships and trusteeshipsCheadle Thompson & Haysom Inc; Cheadle Thompson & Haysom Legal Administration Trust; Boardroom Alliance (Pty) Ltd; Boardroom Alliance Black Equity Trust; and National Children’s Rights Committee.

17Ms ANC CebaGroup Company

Secretary


QualificationsBProc; and LLB

Other directorships and trusteeshipsPremier Soccer League (PSL) – Alternate Chairman of the Disciplinary Committee and member of the PSL Audit and Risk Committee.

41

12 3

4 5 67

1 Mr M Gregg-Macdonald

Group Executive:

Planning and Monitoring

Year joined Transnet 2001

QualificationsBCompt (Hons) and CA(SA).

Area of expertiseFinancial and general management.

2Ms V Dunjwa Chief Risk Officer


QualificationsMSc (Engineering); Graduate Diploma Civil Engineering; BA (Chemistry), and Certificate:Executive Women Development Programme.

Area of expertiseEnterprise risk management.

3Mr SI Gama Chief Executive:



QualificationsBCom; Banking Diploma; Advanced Executive Programme; and Postgraduate Diploma in Company Direction.

Area of expertiseBusiness leadership, finance, ports, railways, transformational/turnaround strategy.


listed; Mafumbuka Investment Holdings (Pty) Ltd; and Centre for Logistics and Transport, University

(non-profit).

4Mr B Molefe Group Chief Executive


Qualifications Master of Business Leadership; Postgraduate Diploma in Economics; and BCom (Accounting and Economics).

Area of expertiseFinance, management and leadership.


(Trustee); Karibu Holdings (Pty) Ltd;Karibu Capital (Pty) Ltd; Karibu Real Estate Investments (Pty) Ltd; and Lion of Africa Fund Managers.

5Mr T Morwe Chief Executive:

Transnet National Ports

Authority


Qualifications BA Economics; Advanced Programme for Chief Executive Officers; and Executive Programme in Logistics: Transportation Management.

Area of expertise Transport and logistics.


and Investment; Commercial Cold Storage (Pty) Ltd; and Bulk Connections (previously Durban Coal Terminal).

6Mr CA Möller Chief Executive:

Transnet Pipelines


QualificationsCivil Engineering (BSc, BEng) and BCom (Hons).

Area of expertise Engineering and pipeline operations.

42 Transnet SOC Ltd Integrated Annual Report 2011

Group Executive Committee

8

9

10

11

12

13

7Ms M Moses Group Executive:

Transnet Capital

Projects


QualificationsBA and Management Advancement Programme.

Area of expertiseBusiness.

Other directorships and trusteeshipsPublic Investment Corporation; Government Employees’ Pension Fund; and Thusanang Trust.

8Mr KC PhihlelaGroup Executive:

Commercial


QualificationsEngineering, MBA and Executive development.

Area of expertiseEngineering and operations.

Other directorships and trusteeshipsMarine Data Systems (Pty) Ltd; B2B Africa (Pty) Ltd and Tru-South Group.

9Mr A Singh Acting Chief Financial

Officer


Qualifications BAcc and CA(SA).

Area of expertiseFinancial and business.

Other directorships and trusteeshipsComazar (Pty) Ltd; Crosskeys Security Services (Pty) Ltd; Owner-Driver Management (Pty) Ltd; Protekon (Pty) Ltd; Freight Logistics International; Transhold Properties (Pty) Ltd; andTransnet Retirement Fund.

10Mr KXT Socikwa Chief Executive:



QualificationsBCom and LLB.

Area of expertiseLegal and commercial.

Other directorships and trusteeshipsInvestec Bank Ltd; RAM Hand-to-Hand Couriers; The Brand Union SA (Pty) Ltd; and Southern Palace Investments.

11Ms Z Stephen Group Executive:

Corporate Services


QualificationsBProc; LLB and Higher Diploma in Company Law.

Area of expertiseLegal, Corporate Governance and Risk Management.

Other directorships and trusteeshipsTransnet Retirement Fund.

12Mr R Vallihu Chief Executive:

Transnet Rail

Engineering


Qualifications BSc (Hons) and MBA.

Area of expertiseStrategy and engineering.

13Mr R Wolfenden Chief Audit Executive:

Transnet Internal Audit


QualificationsBCompt; MBA and CIMA.

Area of expertiseFinance, Corporate Governance, Internal Control and Strategy.

Other directorships and trusteeshipsErnst & Young Advisory Services.

43


Executive statements and corporate governance

1

EXEC

UTIV

E ST

ATEM

ENTS

AND

CO

RPOR

ATE

GOVE

RNAN

CE


Chairman’s review

Introduction

Revenue for the year increased 6,6% to R38,0 billion

compared to the prior year, despite the impact of

the industrial strike action on most of our key

operations, including the General Freight business

and our ports. Encouragingly, our cost containment

initiatives continued to have the desired impact

with a R2,1 billion saving for the year. As a result,

our operating costs were marginally up by 4,7% to

R22,2 billion compared to the prior year. Our key

measure of profitability, earnings before interest,

taxation, depreciation and amortisation (EBITDA)

increased by an impressive 9,4% to R15,8 billion

compared to the prior year.

Pipelines and Port Terminals continue to record

strides towards benchmark standards while Freight

Rail, still requires management attention.

Our record-breaking capital investment

programme, a key element in our drive to boost

efficiency and create capacity ahead of demand,

was R21,5 billion, with R11,4 billion spent on

expansion and the remainder being allocated to

the maintenance of existing capacity. This was

supported by a comprehensive funding programme,

which raised R18,4 billion.

However our celebration must be tempered with the

knowledge that 12 of our employees lost their lives

in the course of their duties this year. This is a

devastating loss for the Company and we convey

our deepest condolences to their families and

friends. Whilst we have made significant progress in

recent years to improve safety and security across

all our Operating divisions, the year’s sorrowing

This has been both a challenging and rewarding year for all of us at Transnet. We have progressed with the implementation of the Company’s approved Quantum Leap strategy and in some cases, exceeded expectations. Crucially, the foundation has been laid for the Company to play a meaningful role in accomplishing the rigorous goals articulated by our Shareholder – the Government of the Republic of South Africa. The suggestion that the building blocks we are laying down today will impact future generations, may be considered pedestrian. However, in our case, it is also a truism that will resonate down the years.

events have shown us that we must remain ever

vigilant to ensure the safety of our people. The

reality of the loss, and the challenge of preventing

any further loss of life, will continue to occupy our

minds as we look to the new year.

Also challenging for us was the period of

uncertainty caused by the various acting

appointments. The Company was guided by

an Acting Group Chief Executive and an Acting

Chairman of the Board for nearly 20 months.

This was far too long and was exacerbated by

the suspension and eventual dismissal of

Mr Siyabonga Gama, the Chief Executive of

Freight Rail. We are all pleased that this matter has

been resolved with the reappointment of Mr Gama.

This decision followed from the Board’s assessment

that the sanction of dismissal was very harsh,

especially given that he had not been found guilty

of corruption or dishonesty. We can now focus on

the urgent operational issues before us.

Economic review

Overall global gross domestic product (GDP) is

expected to grow 2,5% in 2011, before improving to

2,8% in 2012 as the drag on activity from

restructuring in high-income countries eases

somewhat. Global inflation is expected to remain

uncertain, which may encourage central banks to

continue with quantitative easing and to maintain

low interest rates.

From a South African macro-economic perspective

a few factors place pressure on business. Soaring

oil prices, propelled in part by political upheavals in

Mr Mafika Mkwanazi.

OUR FIRST

Integrated Annual

Report.

SHAREHOLDER EXPECTATIONS

Pleasing financial

performance and

progress in

executing the

Quantum Leap

strategy.

47

the Middle East and North Africa, as well as western

military intervention in Libya, directly impact

fuel costs.

Electricity and water provision costs are among the

cost categories that are still subject to fairly high

increases in 2011. The increase in water and

electricity prices, as well as those of other

municipal services, could place renewed upward

pressure on inflation.

The future impact of wage cost increases is of

particular concern. Average wage levels increased

in 2010, particularly due to strikes aimed at driving

higher wages for workers. According to Reserve

Bank figures, the nominal remuneration per worker

increased by 15,8% during the first half of 2010. If

wages increase at similar levels in 2011, employers

will certainly come under strain.

Economic outlook

Domestic GDP growth is expected to accelerate to

around 3,7% in 2011, driven mostly by stronger

commodity prices and higher consumer expenditure

as consumers finally break free from the shackles

of the recession. Disposable incomes are expected

to be higher due to lower interest rates and higher

wage settlements in 2010. Credit extension is

expected to increase in 2011 as corporate income

increases and consequently investments by the

corporate sector increase. Additional catalysts for

South Africa’s growth could be the support and

implementation of economic policies such as the

NGP and the Industrial Policy Plan driven by

Government, as well as fixed investments by

public institutions, including Transnet, and the

private sector.

Global context

It is widely accepted that a competitive logistics

network is the backbone of international trade. It

is also globally accepted that logistics has a major

impact on economic activity. Consequently,

governments world-wide, including ours,

increasingly view improved performance of the

logistics system as an important policy objective for

sustainable development. A country’s integration

into the global trading system is highly dependent

on the increased efficiencies of its logistics

infrastructure. At the same time, the quality and

availability of trade-related infrastructure in

developing countries have been identified as major

constraints to their performance and

competitiveness in international trade.

According to a 2010 report by the World Bank:

“Connecting to Compete: Trade Logistics in the

Global Economy”, countries at the same level of

per capita income, but with better logistics

performance, experience better additional

economic growth of 1% and 2% in trade compared

to their counterparts. The report concludes that

developing countries like South Africa should invest

prudently in improving their trade logistics

infrastructure and systems to boost recovery from

the global economic crisis and to emerge stronger

and more competitive.

Encouragingly, the report identified that South

Africa outperforms other upper middle income

countries in terms of logistics, as it has a higher

logistics performance score than would be

expected of a country with a commensurate income

level. The World Bank has rated South Africa

28th out of a total of 155 countries, with a score of

3,46 in terms of the performance of its logistics

system. This renders South Africa the highest

performer among upper middle income countries.

Previously, South Africa ranked 24th, reflecting

the strides other countries are taking in improving

their performance.

Our freight system must address a variety of

challenges if it is to play a meaningful role in

increasing the competitiveness of the domestic and

regional economies. Foremost among these

challenges is the need for a more integrated

regional freight system to foster greater intra-

Africa trade and to improve connectivity between

the regional freight network and the global network.

Our mandate

Our mandate is threefold: (i) to assist in lowering

the cost of doing business in South Africa, thereby

enabling economic growth; (ii) to ensure security of

supply through the provision of appropriate port,

rail and pipeline infrastructure; and (iii) to manage

operations in a cost-effective and efficient

manner within acceptable standards. Our mandate

is intrinsically aligned with the NGP and the SSI

as agreed with the Minister of Public Enterprises

– our Shareholder Representative.

Cabinet has adopted the NGP as a basis for policy

making and has positioned Transnet and all SOCs at

the forefront of the country’s developmental state

aspirations. The NGP targets South Africa’s limited

capacity and capital to create opportunities for

maximising sustainable employment. We have

committed to assist our Shareholder in reaching

these national objectives, by targeting a defined

number of direct and indirect jobs over the next five

years; supporting economic growth; and addressing

income levels and inequality whilst contributing to

the green economy.

Accordingly, we have modified our strategic focus

areas, as outlined in the Quantum Leap strategy,

to reflect our commitments in terms of the NGP.

TRANSNET CONTINUES TO DRIVE

its capital

investment

programme.

MEANINGFUL OPERATIONAL IMPROVEMENTS

in the port and

pipeline

operations.

CONTINUED

FOCUS ON SAFETY, HEALTH AND ENVIRONMENT


Chairman’s review (continued)

This has shaped our sustainability commitments,

which are increasingly being integrated into our

strategic initiatives. We are already using our

capital investment programme and the Company’s

extensive buying power to drive significant supplier

development, procurement localisation and skills

development. This applies to the acquisition of

locomotives, cranes and other assets.

These commitments must be achieved in an

operational context that is fully attentive of the

environmental, social and governance challenges

that face our Company. While these are significant

challenges, particularly those relating to safety,

health and pollution, I commend the ongoing efforts

of our teams to prioritise and address them, and to

report on progress accordingly.

We also strive to meet our Shareholder’s national

objective of transforming the economy through

broad-based black economic empowerment

(BBBEE), CSDP and skills development.

Commitment to good corporate governance

The Board is committed to the continued adherence

to principles of good corporate governance, as

outlined in the King Code of Governance in South

Africa (King III). It is encouraging to note that our

governance practices comply with the code, as our

Company continues to apply both the letter and

spirit of sound corporate governance throughout

the business.

In accordance with King III, we are publishing our

first Integrated Annual Report. This has

necessitated that our governing structure applies

its Group-wide ‘collective mind’ to assess how

environmental, social and governance issues affect

our business and to report on the issues most

material to our stakeholders. We commend the

movement towards integrated reporting, noting

that it supports the shifts underway in respect of

our NGP commitments. In addition to this Integrated

Annual Report, we are publishing a standalone

Sustainable Development Report for the first time.

The process has required some reflection and

learning, and we look forward to enhancing this

effort, following feedback from our stakeholders.

Accordingly, in addition to the following

Committees already in existence, namely the

Corporate Governance and Nominations

Committee; Board Audit Committee; Remuneration

Committee; and the Board Risk Committee, we have

added the Board Social and Ethics Committee and

the Board Acquisitions and Disposals Committee.

The Board Social and Ethics Committee aligns the

business with our obligation to continually pursue

good corporate citizenship. This encompasses our

positive contribution in respect of environmental

and social issues in the short, medium and longer

term. The Committee’s primary function is to

monitor management’s activities with regards to

matters relating to human and social capital. By

extension, it will provide oversight of the full

spectrum of our sustainability initiatives. The Board

Acquisitions and Disposals Committee provides

oversight in significant acquisitions and disposals,

and guides the Company in promoting supplier

development and fostering possible private sector

partnerships.

For further details refer to the Corporate

Governance report.

Appointment of the new Board of Directors and Group Chief Executive

On 13 December 2010, with the exception of

three Directors who remained with the Company

for continuity, all the Directors on the Board were

appointed by the Shareholder Representative,

the Minister of Public Enterprises. The Board

currently comprises 16 Directors with

14 independent Non-executive Directors, including

the Chairman.

Mr Chris Wells, who had been Acting in the position

of Group Chief Executive, previously indicated that

he would not be offering his candidature for the

vacant position, resigned from the Board during the

year. He remained with the Company until the end of

the financial year to be of assistance to the Board

and myself.

In an effort to create stability within the Company,

the Board took an extraordinary governance step Student welding at the school of engineering – Koedoespoort.

49

and tasked me with the additional responsibility of

assuming the Group Chief Executive’s role. This was

a temporary arrangement, until the Company could

identify a permanent candidate to fill the position

of Group Chief Executive.

In line with the Shareholder’s directive, the Board

embarked on a competitive process to fill the Group

Chief Executive position. This process was

facilitated by the Corporate Governance and

Nominations Committee, which I chaired with

the assistance of a reputable executive search

company. The Board recommended three potential

candidates to the Shareholder for appointment.

More than 60 quality candidates expressed their

interest in the position. The Shareholder Minister’s

recommendation of Mr Brian Molefe was ratified by

Cabinet on 16 February 2011.

We could not have wished for a better candidate.

Mr Molefe is a seasoned professional, who, as Chief

Executive of the Public Investment Corporation

(PIC), successfully oversaw an unprecedented

growth in assets under management from

R308 billion to just under R1 trillion between 2003

and 2010. He is one of South Africa’s leading

proponents of black advancement. His academic

accolades include a Master of Business Leadership

and a Bachelor of Commerce (BCom) degree from

the University of South Africa (Unisa) as well as a

postgraduate Diploma in Economics from the

University of London.

In addition to his academic and practical experience

in leading large corporations, he has 16 years’

experience in the civil service including senior

positions at the National Treasury, where he was

responsible for managing the Government’s debt

portfolio, a crucial skill given our funding

requirements. The Board has confidence in

Mr Molefe’s capability.

Economic regulation

Two of our Operating divisions, National Ports

Authority, which is the ports landlord division,

and Pipelines together account for approximately

22% of our total revenue. Both Operating

divisions are subject to economic regulation.

The National Energy Regulator of South Africa

(NERSA) sets tariffs for Pipelines, while the Ports

Regulator of South Africa (Ports Regulator)

regulates National Ports Authority.

The potential for regulators to impact the Company

adversely in determining and setting tariffs that

may negatively affect the future sustainability of

the Company, remains a key risk for Transnet.

Economic regulators are hamstrung by capacity

constraints and the regulated entities have limited

recourse to reverse their decisions in the absence

of an appeal mechanism. It is, therefore, necessary

that credible mechanisms of appeal be instituted,

and that regulators’ performance and decisions be

monitored in line with international best practice

and benchmarks.

Transnet acknowledges the importance of

researching complex regulatory issues and paying

acute attention to legislative detail, not only to

anticipate risks and opportunities, but also to build

mutually beneficial relationships with economic

regulators, based on trust and transparency.

NERSA has regulated Pipelines for several years. It

is pleasing to note that the parties have reached a

position of convergence in implementing relevant

tariff structuring principles. Consequently, we

anticipate that there will now be fewer disparities

between our petroleum pipeline tariff applications

and the Regulator’s future decisions. This will

provide greater certainty for the Operating division

to undertake capital projects as well as the

investors that fund these projects.

Port of Nqgura.

APPOINTMENT

Mr Brian Molefe

as Group

Chief Executive

resulting in

stability and

cohesion at

Executive level.

IMPROVED

Regulatory

certainty for

Pipelines.

A CHALLENGE

The tariff structure

for National Ports

Authority.

NEW GROWTH PATH

Transnet’s

adoption,

commitment and

alignment to the

Quantum Leap

strategy.


Chairman’s review (continued)

Following National Ports Authority’s 2011/12 tariff

application for an 11,91% increase in tariffs, the

Ports Regulator determined a tariff increase of

4,49%. The outcome translates to an estimated

0,3% tariff increase after adjusting for the revenue

clawback over a two-year period. Overall, the

difference in the tariff determination can be

attributed to the lack of an approved tariff

methodology by the Ports Regulator, resulting in

uncertainty for the business and jeopardising key

aspects of the capital investment programme.

National Ports Authority submitted a discussion

paper on the proposed tariff methodology to the

Ports Regulator in July 2010. The Regulator

indicated in the Record of Decision that the tariff

methodology will be reviewed to guide subsequent

tariff applications, which will hopefully provide

more certainty.

Transnet supports economic regulation, provided

that it facilitates legislative certainty and allows for

a fair return on invested capital.

Corporate social Investment (CSI)

Over the past five years Transnet has made bonus

payments amounting to R338 million mainly to

Transnet Second Defined Benefit Fund (TSDBF)

pensioners with relatively low pensions and long

service as well as certain other pensioners of the

TSDBF.

Transnet is considering a number of options to

provide enhanced benefits to pensioners of the the

TSDBF and the pensioners of the Transport Pension

Fund: Transnet Sub Fund (TPF) in future. Any

potential enhancements will only be implemented

once the necessary rule amendments to these

funds are gazetted and when an appropriate

funding solution is formulated.

Our CSI spend exceeds R150 million a year, the

majority of which is concentrated in The Transnet

Foundation (Foundation). The Foundation continues

to surpass our expectations and has led to a

substantial improvement in the quality of life for

many in South Africa. Notable examples include:

Phelophepa Primary Healthcare Train

Phelophepa is a custom-built mobile clinic which

provides affordable primary healthcare services to

disadvantaged rural communities. As Transnet’s

largest flagship CSI project, the train assisted

approximately 250 000 people with healthcare, eye

care, dental care, counselling services and outreach

programmes during the year. Due to Phelophepa’s

success, the Board approved an investment in a

second Phelophepa train which is expected to be

completed in 2012. This will effectively double and

replicate the success of the first train.

Containerised Assistance Programme

Old or damaged freight containers are converted

into satellite police stations in areas critically

impacted by crime, or where security services are

lacking. Containers are also used to create multi-

purpose centres and educational facilities. The

containers are fitted with solar energy and air-

conditioning and can be erected within a short space

of time. Since the programme’s inception in 2000,

about 30 facilities have been constructed for social,

safety and security needs in the rural areas. These

facilities benefit about 120 000 people per annum.

This programme has a strong strategic business fit

as it aligns with other key sustainability focus areas:

containers.

around the Company’s assets.

facilitates the growth of other aspects of

community, such as business development,

education, health and job creation.

mitigation through the use of solar power, and

reduced construction materials.

Sharp Minds!

The Get Ahead in Life Programme: supports the

development of scarce skills in science, engineering

and technology. Our 2009 learner group achieved a

92% pass rate in Maths, Science and English.

Following this success, the 2010 learner intake was

increased from 367 to 450, and educator enrolment

was extended from 160 to 310. Saldanha dual loading.

+ R150 MILLION ANNUALLY

CSI spend, the

majority of which is

concentrated in

the Transnet

Foundation.

51

Sports development portfolio

Identifies talent and develops excellence in sport

amongst the targeted rural youth. During the year

approximately 50 000 learners across the five

poorest regions in South Africa participated. In

addition, 90 educators were trained and accredited

as coaches in netball, soccer and athletics.

Arts and culture portfolio

Seeks to establish arts and culture as a viable

economic means for its participants. Key

programmes focus on craft, theatre and choir music.

For further details refer to the Sustainable

Development Report.

Appreciation

On behalf of the Transnet family, I would like to take

this opportunity to thank our Shareholder

Representatives, Minister Malusi Nkanyezi Gigaba,

his deputy Mr Benedict Dikobe Martins, Director-

General Mr Tsediso Matona and their teams for the

guidance and support they have provided

throughout the year. Thank you also to Parliament’s

Portfolio Committee on Public Enterprises under

the leadership of its Chairman Mr Peter Maluleka

for the oversight role they have played in guiding

our activities to meet our mandate.

We thank our customers, funders and investors,

who are our partners on this journey towards

creating a world-class logistics infrastructure.

Thank you also to our colleagues in the Rail Safety

Regulator, NERSA and the Ports Regulator of South

Africa, the Department of Transport, Department

of Environmental Affairs and The Department

of Energy.

Prof Geoff Everingham, the former Acting Chairman

of the Board of Directors, and the former Acting

Group Chief Executive, Mr Chris Wells, deserve our

warmest appreciation for steering this Company

through some of the most challenging times in its

history. We wish them well in their future

endeavours. We also extend our gratitude to the

previous Board Members and wish them all

prosperity for the future.

We are also grateful to the leadership of our

recognised unions, the South African Transport and

Allied Workers Union (Satawu) and United Transport

and Allied Trade Union (Utatu) for their role in

ensuring cordial relations with our employees.

Given that our infrastructure spans across all

provinces of the country, we thank the different

communities upon which we have imposed and who

have allowed us generous access to make a

difference for the benefit of future generations.

I also want to take this opportunity to salute

colleagues who have played a vital role as mentors

in our business this year. These include our former

Minister, Ms Barbara Hogan and the former

Chairperson of the Portfolio Committee on Public

Enterprises, Ms Vytjie Mentor.

To conclude, I thank wholeheartedly our 49 078

colleagues, without whom this Company would not

exist. We look forward to a productive and fruitful

year together.

Mr ME Mkwanazi

Chairman

10 June 2011

Johannesburg

Port of Port Elizabeth.


Introduction

As a public entity, Transnet is subject to the

provisions of the Public Finance Management Act

No 1, 1999, of South Africa (PFMA).

The PFMA requires the Board to act with fidelity,

honesty, integrity and in the best interests of the

Company in managing its financial affairs.

During the year, Transnet Internal Audit performed

a corporate governance review to assess the

maturity of corporate governance practices against

Transnet’s governance framework, including

applicable provisions of the PFMA.

Transnet Internal Audit concluded that Transnet’s

governance position is “advanced”, meaning that the

governance maturity and effectiveness is at a level

where activities are consistently applied and well

understood by management and employees across

the Company. The areas that were rated as

“advanced” are, amongst others:

in response to the mandate and taking into

consideration risks facing the Company

and Transnet’s risk appetite;

facilitate appropriate decision-making; and

organisational strategy and ensuring that

corrective action is taken when appropriate.

Corporate governance defines and directs the responsibilities of Transnet’s Board of Directors (Board), the Group Executive Committee, officers, managers and other internal stakeholders. Through effective governance the Company sets objectives, develops plans for achieving them and establishes procedures for monitoring performance. Furthermore, Transnet’s policy framework specifies ethical practices and provides for the protection of stakeholder interests. Effective corporate governance requires ongoing commitment. The Company, therefore, attempts to apply the letter and spirit of sound corporate governance principles to all corporate decisions and actively drives the associated ethos of high culture standards to all levels of the Company.

Corporate governance

However, there is marginal room for enhancement

to introduce leading practices in certain key areas.

The Company continues to strive towards a

governance maturity level that will position

Transnet as a leader in corporate governance.

Areas identified by Transnet Internal Audit as

requiring further improvement have already been

addressed. These included (but were not limited to)

filling vacancies at Board level, increasing focus on

compliance, refining the manner in which the Board

discharges its responsibility for establishing a

governance framework, as well as establishing a

Company plans on reaching a “Leading” position by

the end of 2012.

In compliance with the requirements of the PFMA,

the Board concludes an annual Shareholder’s

Compact with the Shareholder Representative.

The Shareholder’s Compact contains Shareholder

expectations in the form of predetermined

objectives and key performance information, and

ensures that the Board and the Shareholder

Representative are aligned in their understanding

and acceptance of strategic objectives. Progress on

performance is regularly reviewed by the Board and

reported to the Shareholder Representative

quarterly. This continuous engagement with the

Shareholder Representative ensures strategic

alignment and serves as an early warning

mechanism.

Port of Ngqura.

SIGNED SHAREHOLDERS’ COMPACT

ensures the

Board and the

Shareholder

Representative are

aligned in their

understanding and

acceptance of

strategic

objectives.

53

Code of ethics

The Company promotes a culture of principled and

ethical behaviour in all aspects of the business.

Values are entrenched through an approved and

employee behaviour in all internal and external

stakeholder relations. The Code is reviewed

annually and commits the Company’s Directors and

employees to the highest standards of ethical

behaviour. All management employment contracts

make reference to this Code. Transnet’s service

providers, suppliers and trade partners are also

In instances where an employee breaches the Code,

the necessary disciplinary action is instituted in

terms of the Company’s Disciplinary Code and

Procedures.

Transnet’s approach to compliance

Transnet is an “early adopter” of leading practice in

establishing a formal compliance function and

framework. This is evidenced by the Company’s

Board approving the Group Compliance Policy in

November 2006. As is the case with all Company

policies, the Group Compliance Policy is reviewed

bi-annually and updated when necessary. This policy

forms the foundation for the Transnet Compliance

Framework.

The Company considers non-compliance with

legislative requirements as a key risk as it not only

exposes Transnet to fines and civil claims, but can

also lead to loss of operational authorisations and

reputational harm.

To mitigate this risk, Transnet has established a

compliance function which identifies, assesses and

monitors critical controls associated with

regulations, statutory licences, codes and

standards applicable to the Company. Compliance

issues are reviewed both centrally at the Group’s

Corporate Centre and within the Operating

divisions.

The Board Audit Committee is charged with

reviewing the Company’s Compliance Plan, which

details procedures for identifying regulatory risks

and monitoring compliance with applicable laws,

rules and standards.

Fraud risk management plan

Transnet manages fraud risk exposure through its

Fraud Risk Management Plan (the Plan), as required

by regulation 29.1.1 of the Treasury Regulations

prescribed under the PFMA. The Plan has been

effective since 2009.

Ongoing awareness around the ‘Tip-Offs

Anonymous Hotline’ forms an integral part of

Transnet’s anti-fraud and anti-corruption efforts,

as outlined in its Fraud Risk Management Plan. Tip-

Offs are directed to the Fraud Working Group

Committees within the Operating divisions, which

Officers of the respective Operating divisions.

Tip-Offs Anonymous Hotline statistics

Details (number) 2009 2010 2011 Total

Hotline allegations 741 631 846 2 218

Other allegations 76 69 123 268

Total allegations 817 700 969 2 486

– Founded 156 136 183 475

– Unfounded 647 386 492 1 525

– In progress 14 178 294 486

Total disciplinary 190 76 185 451

– Acquitted 4 1 1 6

– Dismissed 11 10 14 35

– Final warning 25 41 42 108

– Resigned 15 – 14 29

– Verbal warning 87 10 16 113

– In progress 48 14 98 160

[email protected]

08800003056


Corporate governance (continued)

between 2010 and 2011 can be attributed to the

implementation of the initiatives under the Fraud

Risk Management Plan 2011 which included fraud

awareness and education campaigns with

respect to the whistle-blower mechanism.

(HR) allegations that are being reported through

the Tip–Offs Anonymous Hotline, ie grievance-

confidence and faith in the whistle-blower

mechanism as there is appropriate and timely

feedback provided to callers on all matters

reported through this mechanism.

been approved and the implementation of the

activities therein has commenced throughout

the Company.

The initiatives under the Fraud Risk Management

Plan for 2012 will minimise the negative impact of

fraud, corruption and or other economic crimes,

thus ensuring enhanced and sustainable

performance.

Conflicts of interest

The Companies Act, 2008 (Companies Act) codifies

the fiduciary duties of Directors. It prescribes the

use of position and the approach to privileges, and

guards against the use of confidential information

to further personal gain or to improperly benefit

another person.

In instances where a member of the Board has any

direct or indirect personal or private business

interest, he/she must withdraw from the

proceedings when the matter is considered by the

Board and its Committees, unless the Board

determines that the member’s interest in the

matter is trivial or irrelevant.

Formal registers for Declarations of Interest and

Related Party Disclosures by the Board and its

Committees are maintained by the Group Company

Secretary.

In addition, the Company requires all employees to

sign Confidentiality and Declaration of Interest

forms when adjudicating on procurement contracts.

Governance structure

Board of Directors

The Board’s primary mandate is to ensure the

sustainable and successful continuation of business

activities by providing strategic direction to

Transnet. Non-executive Directors are appointed to

the Board by the Shareholder Representative,

generally on a three-year term, which is confirmed

annually at the annual general meeting. The

Chairman of the Board engages continuously with

the Shareholder Representative, who is the final

arbiter on Board succession plans and approval

of transaction applications in accordance with

the provisions of Section 54 of the PFMA.

Board composition

The Company’s Articles of Association provide that

there shall not be less than 10 and not more than

18 Directors, of whom not less than eight shall be

Non-ex

Directors. With the exception of three Directors

retained for continuity, all the Non-executive

Directors on the Board were appointed by the

Shareholder Representative on 13 December 2010.

The Board currently comprises 16 Directors, of

whom the majority (14) are Non-executive Directors,

including the Chairman.

Transnet National Ports Authority personnel at the Port of Durban.

FRAUD RISK MANAGEMENT PLAN FOR 2012

To minimise fraud,

corruption and

other economic

crimes.

Ensuring that

Transnet will

achieve enhanced

and sustainable

performance.

55

The Non-executive Directors are largely

independent and have diverse skills, experience

and backgrounds. They are principally free from

any business relationship that could hamper their

objectivity or judgement in terms of the business

and activities of the Company. All the Non-

executive Directors have unrestricted access to

information, documents, records and property of

the Company in the interest of fulfilling their

responsibilities as Non-executive Directors. The

Non-executive Directors contribute a variety of

skills, business acumen, independent judgement

and experience on various issues, including

strategy, performance and general leadership,

operational understanding of the Company.

The Board has direct, unfettered access to the

Company’s external auditors, professional

advisors, and internal auditors, and to the advice

and services of the Group Company Secretary.

The Group Company Secretary is tasked with

assisting the Board with the induction of new

Directors, and Director orientation. During

induction, Directors receive copies of prior Board

papers and the most recent strategy document.

The Board performs site visits to the Operating

necessary.

are separate, except for a short period between

16 December 2010 and 2 March 2011. The

Chairman, Mr Mkwanazi, is an independent

Non-executive Director. He was appointed as

Non-executive Chairman on 13 December 2010.

Mr Wells

tendered his resignation from the Board on

15 December 2010. Accordingly, the Board

delegated the powers, duties and authority of the

Board, with effect from 16 December 2010, until

As required by the current Company’s Articles of

Association and pursuant to the recruitment and

selection process conducted by the Board, and in

accordance with the guidelines issued by the

of the Company on 17 February 2011.

Mr Mkwanazi continued with delegated powers until

2 March 2011. Mr Molefe was delegated with

executive powers on 3 March 2011.

Mr Wells, remained with the Company until 31 March

2011, to assist Mr Mkwanazi in an advisory capacity

and to facilitate the handover to Mr Molefe.

Whilst the Company has been in the unsatisfactory

position of operating with many officers in acting

capacity, there has been no adverse impact on the

Company.

In addition to the corporate governance framework,

the Company is committed to complying with all

legislation, regulations and best practices relevant

to the Company.

BOARD OF DIRECTORS

16 Board Directors.

13 Non-executive

Directors including:

1 Chairman;

2 Executive

Directors.

Wagon bogie for 26 and 30 ton axle load.



Schedule of attendance at Board of Directors’ meetings from 1 April 2010 to 13 December 2010

Director

Date

22/4 20/5(Special)

9/6 27/8 12/10(Special)

21/10 26/11

(Acting Chairman) � � � � � � �

� � � � � � �

Ms NBP Gcaba � � � � � � �

A A � � � � �

� � � � � � �

Ms NR Ntshingila A � � � � A �

Mr MP Moyo � � � � � � �

� � � � A � �

A A � � � A A

� � � � A � �

Mr A Singh � � � � � � �

Schedule of attendance at Board of Directors’ meetings from 13 December 2010 to 31 March 2011

Director

Date

15/12(Special)

25/1(Special)

1/2(Special)

11/2(Special)

16/2

� � � � �

� – – – – –

� � � � �

� � A � �

Ms NBP Gcaba � � � � �

� � A A �

� � � � �

� � � � �

A � � � A

Mr MP Moyo � � � � �

� � � � �

A � A A A

Ms NR Ntshingila � A � A A

A � � A �

� � � � �

� � � � �

Mr A Singh � � A � �

Board induction and information

A formal induction programme introduces Non-

executive Directors to the Company’s business

environment, risk management procedures,

strategy, governing framework, sustainability

issues and fiduciary duties as contained in the

PFMA and the Companies Act. Non-executive

Directors are regularly kept abreast of relevant

Company matters. The Company conducted a Board

Induction session between 24 and 25 January 2011.

Further Committee Induction sessions were

arranged for the respective Committees.

When the Board and Committee meetings are

convened at different operating sites, Non-

executive Directors have an opportunity to engage

more actively with the Operating divisions.

Concise management reports are provided to the

Board as pre-reading material prior to Board

KEY

�

Present.

AApologies.

Resigned during

the year.

Appointed during

the year.

�

Appointed

17 February 2011.

Maternity leave

from 10 February

until 5 June 2010.

Medical leave

from 10 January

until 30 June

2011.

57

management letter to the Board to keep Non-

executive Directors abreast of Company

developments in the months when there are no

scheduled Board meetings.

Remuneration

Remuneration for Non-executive Directors is

approved in advance by the Shareholder

Representative and confirmed at the Annual

General Meeting.

The Remuneration Committee receives

independent remuneration guidance regarding the

appropriate remuneration for Non-executive

Directors. During the year, a benchmark study was

performed of Non-executive Directors

remuneration. The study concluded that the Board

compensation is comparable to the benchmarks.

It was, therefore, recommended that fees would

not be increased in 2011.

The Remuneration Committee recommends annual

Directors and considers associated performance

measures and benefits when assessing

remuneration.

Group Company secretariat function

The Group Company Secretary is responsible for

developing systems and processes to enable the

Board to discharge its functions efficiently and

effectively. The Group Company Secretary prepares

the annual plan for the Board and its Committees in

conjunction with the Chairman and advises the

Board on corporate governance issues, the

requirements of the Companies Act and other

relevant legislation. The Board has access to the

services and advice of the Group Company

Secretary.

Board committees

The Board has six committees to assist it in carrying

out its role and responsibilities, namely:

Committee.

The last two Committees are newly formed, with

effect from 25 January 2011.

Purpose of the newly established Committees

Board Social and Ethics Committee

Board in areas of responsible corporate citizenship

and the Company’s ethical relationship to society.

The Committee manages the Company’s legal and

moral obligations within its economic, social and

natural environment, and guides the objectives and

standards of the Company’s conduct and activities.

The function of the Committee is to monitor the

Company’s activities, specifically with regard to

matters relating to human, social and natural

capital. It assesses measures and reviews the

Company’s performance, standing and goals in

respect of:

services;

public relations, and compliance with consumer

protection laws);

The Committee aims to ensure that the Company’s

procurement policies and standards are aligned

with applicable regulatory requirements, and have

due regard for the social and ethical standards and

objectives of the Company.

Board Acquisitions and Disposals Committee

The Committee shall:

approval by the Board, policies and procedure

manuals that are legally compliant (where

applicable) and provide for an appropriate

procurement and provisioning system which is

fair, equitable, transparent and cost-effective;

towards full compliance in procurement policies

and practices to sustain a compliance culture;

compliance and advise the Board of potential

risks in irregular and fruitless and wasteful

expenditure emanating from procurement

practices;

make recommendations to the Board;

potential private sector participation models;

and

award of tenders in accordance with the

Company’s Delegation of Authority Framework.



Committee composition

Appropriate Committee structures have been established in line with legislative requirements and

business imperatives. These Committees continue to operate appropriately and assist the Company in

comprehensive control improvement and sound governance.

Corporate Governance and Nominations Committee

Schedule of attendance at meetings from 1 April 2010 to 13 December 2010

Director

Date

12/4 5/8 26/11

� � �

� � �

� � �

� A �

� � �

Schedule of attendance at meetings from 13 December 2010 to 31 March 2011

Director

Date

7/1(Special)

23/1 (Special)

1/2(Closed)

3/2 7/3(Special)

� � � � �

� � � � �

� A � � �

� � � � �

� – – – – �

Board Audit Committee

Schedule of attendance at meetings from 1 April

2010 to 13 December 2010

Director

Date

19/4 3/6 5/8 20/10

(Chairman) A � � �

(Acting Chairman) � � � �

� A � �

Ms NNA � � � �

Schedule of attendance at meetings from

13 December 2010 to 31 March 2011

Director

Date

9/2 31/3

(Chairman) � �

� �

� �

� A

� �

KEY

�

Present.

AApologies.

Resigned during

the year.

Appointed during

the year.

�

Appointed

17 February 2011.

Maternity leave

from 10 February

until 5 June 2010.

�

Medical leave

from 10 January

until 30 June

2011.

Acting Chairman.

59

Remuneration Committee

Schedule of attendance at meetings from 1 April

2010 to 13 December 2010

Director

Date

8/6 29/9 26/11

(Chairman) � � �

Ms NBP Gcaba � A �

� � �

Ms NR Ntshingila � � �



Director

Date

1/2(Special)

14/2

Ms NR Ntshingila (Chairman) � �

A �

Ms NBP Gcaba � �

A �

� �

Board Risk Committee


1 April 2010 to 13 December 2010

Director

Date

13/4 30/6 30/9 25/11

(Chairman) � � � �

Prof GK

� � � �

Ms NNA

Matyumza � � � �

Mr MJ Hankinson � � � �

A � A A

Board Social and Ethics Committee

Schedule of attendance at the meeting from

25 January to 31 March 2011

Director

Date

30/3

�

�

�

�

Schedule of attendance at the meeting from


Director

Date

3/2

�

�

Ms N Moola �

�

A

Board Acquisitions and Disposals Committee


25 January to 31 March 2011

Director

Date

23/2(Special)

30/3

(Chairman) � �

A �

� �

� �

� �



Delegation of Authority

King III advocates that the Board should appoint the

for the Delegation of Authority. A revised

Delegation of Authority Framework was approved

on 1 August 2010.

The Delegation of Authority Framework records the

nature and extent of the authorities delegated by

Committee as well as other Authorities, in order to

implement certain actions on behalf of the

Company.

The Delegation of Authority Framework applies

to all employees of the Company, including its

Operating divisions and Specialist Units. It does not

apply to any of the Company’s subsidiaries. The

Boards of Directors of subsidiaries will prepare the

requisite Delegations of Authority for those

subsidiaries.

The exercise of the Delegation of Authority shall

not be in conflict with the following:

strategy and/or Funding Plan of the Company as

approved by the Board from time to time;

Finance for the delegation of the power to borrow

money or issue a guarantee, indemnity or

security, or enter into any other transaction that

binds or may bind the Company to any future

financial commitment in terms of Section 66 of

the PFMA.

Matters reserved for Board decision

While through a detailed documented delegations

process, the management of the Company is

Board of Directors. The following matters, amongst

others, are expressly reserved for decision-making

by the Board.

Financial

budgets, the borrowing strategy and of any

subsequent material changes in strategic

direction;

interim reports, as well as the declaration of

dividends;

policies or practices;

of the acquisition or disposal of a significant

shareholding in the Company; and

of the acquisition or disposal of a significant

asset.

Statutory and administrative

and Articles of Association of the Company to the

Shareholder;

external auditor of the Company;

respect of pension and provident funds, having a

material effect on the actuarial liabilities of

those funds; and

Secretary.

Regulatory

Company’s rights issues, public offers, capital

issues or issues of convertible securities

including shares or convertible securities issued

for acquisitions;

placing documents, listing particulars, rights

offers or takeover or merger documents; and

of any ordinary or special resolutions in respect

of the Company.

Human resources

in the composition of the Board Committees as

the Board may appoint from time to time;

recommended by the Remuneration Committee

and approved by the Shareholder; and

the rules applicable to any such scheme and any

amendment to such rules as recommended by the

Remuneration Committee, for submission to the

Shareholder, if applicable.

61

Schedule of attendance at Group Executive Committee meetings from 1 April 2010 to 31 March 2011

Director

Date

15/4

17/5

27/5

24/6

27/7

26/8

23/9

18/1

0

1/11

(SP

)

18/1

1

13/1

2

15/1

2 (S

P)

27/1

7/2

(SP

)

15/3

� � � � � � � � � � � A – – –

– – – – – – – – – – – � � � –

Mr B Molefe� – – – – – – – – – – – – – – �

Mr P Maharaj � � � � � � � � � � � A � � �

Mr VD Kahla � � � � � � � � � � – – – – –

Ms Z Stephen – – – – – – – – – – – – � � �

Ms V Dunjwa � � � � � � � � � � � � � A �

Ms M Moses � � A A � � � � � � � � � � �

Mr R Vallihu � � � � � � � A � � � � � � �

Mr T Morwe � � � � � � A � � � � � � � �

Mr K Phihlela � � � � � � � � � � � � A � A

Mr CA Möller � � � � � � � � � � � � � � �

Mr KXT Socikwa � � � � � � A � � � � � � � �

Mr A Singh � � � � � � � � � � � � � � �

Mr M Gregg-Macdonald � � � � � � � � � � � � � � �

� A � � A � � � A � – – – – –

– – – – – – – – – � � � � A �

The Board delegated the powers, duties and authority of the Group Chief Executive to the Chairman of the Board with effect

from 16 December 2010 until 2 March 2011.

EXTENDED EXECUTIVE AND SENIOR MANAGEMENT

Delegation of authority

Mr SI Gama Mr R Vallihu Mr T Morwe Mr KXT Socikwa Mr CA Möller

freight rail rail engineering national ports authority

port terminals pipelines

DIVISIONAL EXECUTIVE COMMITTEES

Group Chief Executive

Mr B Molefe

Finance

Committee

Mr A Singh#*

Capital

Investment

Committee

Mr A Singh#*

NMPP Governance Steering

Committee

Mr B Molefe*

Risk

Management

Committee

Ms V Dunjwa*

Human

Resources

Committee

Ms Z Stephen*

Commercial

Committee

Mr K Phihlela*

Public Policy and Regulation Committee

Ms Z Stephen*

GROUP EXECUTIVE COMMITTEE

* Chairpersons of the respective Committees.

# Acting.

KEY

�

Present.

AApologies.

Resigned during

the year.

Resigned

subsequent to

year end.

Appointed during

the year.

�

Appointed

17 February 2011.

SP

Special.



Appointments

Committee and finalised the Acting positions of the

and Specialist Units. The only senior officer

currently in an Acting position is the Chief Financial

Officer. The Corporate Governance and

Nominations Committee is tasked to manage the

Chief Financial Officer selection process in

accordance with the Company’s Articles of

Association.

The following executive appointments have been in

effect from 1 April 2011:

Officer: Freight Rail.

National Ports Authority.

Officer: Port Terminals.

Commercial.

Specific statutory requirements impacting the governance environment of Transnet

Companies Act, 2008

Since the promulgation of the Companies Act,

Transnet has used the window of opportunity prior

to the Act’s commencement to develop controls to

ensure compliance with the Act. The Company

continues to review its structures and governance

arrangements to ensure alignment with the Act.

Transnet’s draft Memorandum of Incorporation is

currently being reviewed to align it to the Act.

In terms of Section 24 of the Act, a Records

Management Policy has been developed and

implemented.

Further, in aligning to the Companies Act, a Board

and constituted in terms of the Regulations to the

Companies Act.

King III, 2009

Transnet is listed as a Schedule 2, major public

entity in terms of the PFMA. The Company

undertook a maturity and compliance self-

assessment against the requirements of King lll,

the Public Finance Management Act, and the

Companies Act.

The mandates of the various Board Committees were

reviewed for adequacy and aligned with King III.

The Transnet ‘compliance maturity model’ was used

as a basis to assess the maturity of the Company’s

compliance framework and to identify areas

needing attention. The maturity self-assessment

indicated a ‘desired state’ which has subsequently

been adopted in leading governance arrangements.

With the Company having focused on the effective

implementation of the PFMA in prior years, the

assessment revealed substantial compliance with

many of the King lll principles. The assessment

further showed that the Company’s compliance

model had attained a “leading” maturity status,

when reviewed against PFMA requirements.

Action plans are being developed to address areas

needing attention. One such plan aims to formalise

information technology (IT) governance structures,

thereby addressing IT risks, and compliance with

business processes and IT initiatives. As from

November 2010, the Chief Information Officer was

invited to attend the Board Risk Committee and

Port of Saldanha.

COMPLIANCE

King III

New Companies Act

PFMA

National Ports Act

63

Board Audit Committee meetings. This helps to

promote sound accountability in managing IT risks.

IT governance has been included as a standing item

on the Gro

agendas, with a focus on IT controls, compliance with

IT laws, IT expenditure, IT projects, and protection of

information. The different areas of IT governance

responsibility would, however, be delegated to the

Board Audit and the Board Risk Committees.

Although the Company continues to engage a wide

range of stakeholders, a formal stakeholder

engagement policy is currently being prepared in

accordance with King III requirements. The

stakeholder engagement policy will allow for:

der identification, including a database

to capture stakeholder details;

nd recording of stakeholder

issues within the database; and

ities for addressing and responding to

stakeholder issues.

The Public Finance Management Act, 1999

The purpose of the PFMA is to ensure transparency,

accountability, and sound management of the

revenue, expenditure, assets and liabilities of public

entities. It determines requirements in terms of

audit committees, internal controls, internal audits,

risk management, Chief Financial Officers’ duties,

corporate reporting, corporate planning,

Shareholder’s Compacts, strategic planning and

budgets.

In terms of Section 49, every public entity must

have an accounting authority, which must be

accountable for purposes of the Act. If the Board is

the controlling body, that Board is the Accounting

Authority. Section 51 of the Act provides for the

general responsibilities of accounting authorities.

An accounting authority for a public entity must

take effective and appropriate steps to prevent

irregular expenditure and expenditure which does

not comply with the operational policies of the

public entity. It must also take effective and

appropriate disciplinary steps against any

employee of the public entity that commits an act

which undermines the financial management and

internal control system of the public entity or

permits an irregular expenditure or fruitless and

wasteful expenditure.

The Accounting Authority has certain responsibi-

lities to keep full and proper records of the financial

affairs of the public entity, as well as to submit

annual reports within certain designated times.

In the event of any inconsistency between the

provisions of the PFMA and any other legislation,

the PFMA will prevail.

Please refer to the Approval of the annual financial

statements, Board Audit Committee report and the

Report of Directors’ for further details.

The National Ports Act, 2005

The National Ports Act, 2005 (the Act) provides for

the administration of ports by the Transnet National

Ports Authority (The Authority). However, the Act

treats The Authority, currently an Operating division

of Transnet, as a separate entity with specific

powers. The main function of the National Ports

Authority is to own, manage, control and administer

ports to ensure their efficient and economic

functioning. The activities of The Authority are

monitored by the Ports Regulator to ensure that it

performs its functions in accordance with the Act.

There are current deliberations between Transnet

proposed amendments to some provisions of the

Act, particularly the removal of the sections that

require corporatisation of the National Ports

Authority as well as the sections that contemplate a

separate Board for the National Ports Authority.


Transnet’s mandate with the Shareholder,

represented by the Department of Public

Enterprises (DPE), is focused on the provision of

world-class infrastructure and technology; the

expansion of infrastructure to support and enable

economic growth; job creation and skills

development; and the building of industrial capacity

through a strategic approach to procurement and

operations. These activities are integrally aligned

with the NGP, which has been adopted by the

Government as the basis for all policy making.

The Company is self-funding as it does not receive

any financial assistance from the State. Since 2004,

Transnet has not received any subsidies for its

fund-raising programmes in the debt capital

markets. Transnet must, therefore, earn an

appropriate rate of return on invested capital to

maintain a strong financial position, which will

enable it to access markets for funding at cost

effective levels.

Introduction

The results for the year, as reflected in our first

Integrated Annual Report, show laudable

operational and financial achievements.

Regrettably, our successes were marred by a series

of safety incidents, which resulted in the deaths of

12 of our colleagues. Any employee fatality in the

course of duty is unacceptable to us. On behalf of

all at Transnet, I wish to convey our deepest

condolences to their families and friends. We

undertake to intensify our efforts to ensure the

safety of all our colleagues.

On a positive note, we have seen encouraging

performances from our ports and pipelines

operations against their targets. We have made

significant progress in boosting capacity through

our record-breaking capital investment programme.

Transnet is a public company wholly owned by the Government of the Republic of South Africa and incorporated in terms of the Companies Act. As the owner of South Africa’s transport and logistics backbone, Transnet is a focused operator of a network of rail freight, underground petroleum and gas pipelines and commercial ports throughout the country.

Group Chief Executive’s review

However, Freight Rail, our largest Operating

division, has underperformed on key elements

of our Quantum Leap strategy. This Operating

division requires urgent management interventions

to ensure that it is refocused on customer service

as well as operational efficiencies to increase

volumes, especially on the General Freight

business. Crucially, the safety of our employees,

our assets and those of our customers requires

increased focus.

Despite the challenges we face, the Company is on

track to delivering on its mandate and playing a

significant role in the Shareholder’s developmental

state objectives. Accordingly, we have taken the

lead in implementing the CSDP, a Government

initiative to localise the production of machinery in

partnership with original equipment manufacturers

(OEMs). We are also committed to the advancement

of black economic empowerment mainly through

our procurement processes.

Our R110,6 billion capital investment programme

to rejuvenate our rail, ports and pipelines and

infrastructure continues to gather momentum in

line with our commitment to create capacity ahead

of demand.

Leadership team

Transnet’s performance was somewhat hindered

by the lack of a permanent Executive team in place,

largely due to a series of prolonged litigation

efforts involving Freight Rail’s Chief Executive,

Mr Siyabonga Gama. Most Executives, both at Group

and Operating divisional levels, were in acting

capacities for almost two years pending the

finalisation of this matter. The resulting uncertainty

negatively affected staff morale and reduced

productivity.

Mr Brian Molefe.

COMMITTED

to the advancement

of black economic

empowerment and

the NGP.


Finalised and

added the Planning

and Monitoring

Portfolio.

65

My first task upon joining the Company was,

therefore, to finalise the Executive team, with the

exception of the position of the Chief Financial

Officer. This position is subject to a Board process

as determined by the Company’s Articles of

Association and will be finalised as soon as all

governance processes have been carried out.

The structure of the Group Executive Committee

has remained largely unchanged, except with the

addition of a newly created portfolio, namely

Planning and Monitoring. This function, headed by

Mr Mark Gregg-Macdonald, is responsible for all our

long-term infrastructure planning activities, freight

demand forecasts, corporate planning as well as

ensuring that the commitments made to the

Shareholder as contained in the Compact and the

Corporate Plan are met.

Each member of the Executive Committee has

finalised their key performance targets in line with

our mandate and key performance areas (KPAs)

contained in the Shareholder’s Compact and

Corporate Plan. They are required to provide

guidance to their teams as soon as possible to allow

every member of the 49 078 strong workforce to

improve operations by focusing on efficiency,

productivity, customer service and safety in line

with the Quantum Leap strategy. In addition, the

activities and performance of the Group Executive

Committee members will be monitored on an

ongoing basis, as per the mutually agreed KPAs and

strategic performance objectives.

With regards to the make-up of the Operating

divisions, we opted to leave them unchanged,

leaving these structures to the discretion of the

relevant executives. The only exception was Freight

Rail, which clearly required the most attention. We

reconfigured Freight Rail’s operations along major

business segments to ensure accountability and

visibility as we strive to improve volumes and

operational efficiency. The major business units are

iron ore and coal with the General Freight business

split into the following sectors: Manganese,

containers and automotives, cement and steel,

mineral mining and chrome as well as wagon load

(agriculture, steel and Africa). Each of these

business segments has an Operating head that

reports to the Freight Rail Chief Executive.

Strategy update

Our Quantum Leap strategy has been refocused to

encompass our commitments to the NGP objectives.

This has enabled us to clarify our sustainability

efforts, with the recognition that many of the

commitment areas, such as jobs, skills, efficiencies,

innovation, procurement localisation, rural

development and environmental issues within the

‘green economy’ reflect our ability to contribute

positively to society. The process and effects of

refocusing the Quantum Leap strategy have

confirmed that our operational goals are directly

aligned with key sustainability challenges in

South Africa.

Our analysis of sustainability trends, which includes

policy developments and responses to resource

constraints, increased consumption and ongoing

skills disparities, indicates both risks and

opportunities for the business. We have sought to

integrate an awareness of these issues into this

report – our first Integrated Annual Report. We also

see our strategic initiatives taking account of

increasingly challenging sustainability scenarios.

While sustainability goals are clearly aligned with

our core business, we acknowledge that more effort

is required to ensure these goals are delivered with

zero fatalities, significantly reduced environmental

impact and the highest levels of accountability. We

continue to consolidate sustainability management

across the Group.

Financial performance

Despite the impact of a severely disruptive three-

week strike by our unionised employees in May

2010, we achieved a 6,6% increase in revenue to

R38,0 billion from the prior year’s R35,6 billion.

Our key measure of profitability, earnings before

interest, taxation, depreciation and amortisation

(EBITDA) increased to R15,8 billion, 9,4% up from

the prior year’s R14,4 billion. This takes our EBITDA

margin to 41,5%.

Encouragingly, our cost-reduction initiatives,

launched two years ago, continue to yield satisfying

results. As a result, operating costs increased by an

impressive 4,7% to only R22,2 billion.

Depreciation, derecognition and amortisation of

assets for the year increased by 18% to R7,2 billion

compared to the prior year.

Consequently, profit from operations after

depreciation, derecognition and amortisation

increased by 3,1% to R8,6 billion from R8,3 billion

in 2010.

Net profit for the year from continuing operations

amounted to R4,2 billion compared to R3,2 billion in

the prior year.

Further details are set out in the Acting Chief

Financial Officer’s review.

Operational review

Freight Rail

This Operating division experienced a challenging

year, with most major commodities performing below

expectations in terms of volumes transported, and

safety and efficiency performances being below par.

These factors were exacerbated by leadership

REVENUE

FREIGHT RAIL

increased by 8,6%

to R22,6 billion.

RAIL ENGINEERING

internal revenue

increased by 24,9%

to R8,7 billion.


increased by 8,0%

to R8,1 billion.

PORT TERMINALS

increased by 23,2%

to R6,4 billion.

PIPELINES

decreased by 3,6%

to R1,13 billion.


Group Chief Executive’s review (continued)

uncertainty, with more than 50% of executive

positions being held in an Acting capacity.

Derailments, cable theft, rolling stock failure and

non-availability, as well as sabotage related to the

three-week industrial strike action were some of the

reasons for these disappointments.

The General Freight business, which encompasses

the transportation of all commodities except iron

ore and coal, was up 2,2% to 73,7mt, while export

coal volumes increased by 0,6% to 62,2mt, thereby

not meeting the 65,0mt target. Iron ore did not

meet the target of 48,0mt but still reflected

continued improvement, as evidenced by

successive weekly throughput records: 1,024mt for

the week ending 5 September 2010; 1,060mt for

the week ending 26 September 2010; 1,070mt for

the week ending 24 October 2010 and 1,094mt

week ending 2 January 2011. Our biggest challenge

is to maintain these achievements.

Freight Rail should, however, be commended for its

performance on delivery of coal to Eskom and jet

fuel to OR Tambo International Airport, which were

both identified as 2010 FIFA Soccer World Cup

critical flows. The former achieved record levels.

Other highlights include a 32,9% improvement in

manganese exports and a 13,2% increase in

containers on rail. These achievements, albeit

modest at times, confirm that as a Company, we are

capable of performing at standards comparable to

the best in the world.

Revenue for the year was up 8,6% to R22,6 billion,

while operating expenses were up 7,7% to

R14,5 billion.

Rail Engineering

Our engineering unit, with Freight Rail accounting

for more than 92% of its business, recorded

internal revenue of R8,7 billion, and R661 million

from external customers. The increase is due to

higher maintenance demand from Freight Rail.

Maintenance programmes for locomotives and

wagons are undertaken to support volume growth.

All availability and reliability targets for rolling

stock, apart from the Coal line locomotives, have

been met or exceeded, which impacted positively

on service delivery of Freight Rail.

During the year, Rail Engineering assembled

Electromotive Diesel’s 50 Class 39-200 diesel

locomotives in Pretoria. These were delivered to

Freight Rail in record time. Production of 90 of the

100 new Class 43 locomotives from General Electric

– the largest CSDP agreement to date – has

commenced at the division’s Koedoespoort

facilities in Pretoria.

Ports Authority

Our ports landlord division recorded an 8,0%

increase in revenue to R8,1 billion due to a 54,0%

increase in automotive volumes and a 12,5% rise in

container volumes. Operating expenses grew by

16,3% to R2,2 billion.

National Ports Authority requested a tariff

adjustment of 11,91% from the Ports Regulator

of South Africa but was awarded a disappointing

4,42% tariff increase. One of the key differences in

the tariff determination between National Ports

Authority’s application of the Record of Decision

relates to the Ports Regulator’s introduction of a

revenue clawback mechanism. Whilst only a partial

clawback has been effected for 2012, the outcome

of the decision translates to an estimated 0,3%

tariff adjustment. The difference in tariff

adjustment determination can be explained by the

lack of an agreed tariff methodology.

Port Terminals

The Operating division, which operates our 16 cargo

terminals throughout the country, reported a 23,2%

increase in revenue to R6,4 billion due to an overall

increase in volumes led by a 52,8% increase in

automotive volumes and a 11,4% increase in

container volumes.

Operationally, Port Terminals achieved a 23,8%

improvement in moves per gross crane hour (GCH)

for its DCT Pier 1. The terminal has sustained a

world-class average GCH of 29,5 since December

2010 and is expected to maintain this average

throughout the year. The Cape Town Container

Terminal achieved an annual average GCH of 25 for

the year against a target of 24, despite the terminal

being under construction and operating a dual

operation of both straddle carriers and rubber

tyred gantries (RTGs) for most of the year. This

performance is expected to continue until the

terminal is operating as a fully fledged RTG

operation with the optimal staffing levels.

DCT Pier 2 achieved an average GCH of 23 for the

year. This is mainly due to the number of

breakdowns in straddle carriers and cranes.

The terminal is receiving significant management

attention and various alternatives to boost

productivity are being considered, including the

possible acceleration of the

container terminal’s fleet renewal programme,

including the acquisition of STS cranes. Due to the

implementation of certain interventions, average

performance has already improved to 24,5 GCH

since December 2010.

PORT TERMINALS

Durban Container

Terminal (Pier 1)

has sustained a

world-class average

GCH of 29,5 since

December 2010

and is expected

to maintain this

average in the

year ahead.

67

Pipelines

Pipelines continued to fulfil its strategic role in

the economy by ensuring security of supply of

petroleum products to the inland market. This is

evidenced by meeting the increased demand and

logistical challenges, resulting from the 2010 FIFA

Soccer World Cup. Volumes grew by 1,5% in the year

due to the optimal use of a constrained system.

Revenue for the year decreased by 3,6% to

R1,13 billion (2010: R1,17 billion) due to a revenue

clawback of R264 million. Operating expenses have

decreased by 7,7% compared to the prior year.

Refer to the Operational reviews for further details.

Enterprise risk management

Transnet’s Enterprise Risk Management (ERM)

framework is in line with industry best practise,

King III and the global leading practice, ISO 31000,

2009 risk management standard. King III provides

further clarity on the

role of the Board and that of other governance

committees for the management of risks. Transnet

has a well-established Board committee focusing

on risk management. The Group Risk Committee

(Group RiskCo) remains effective and constantly

challenges management to ensure the ERM process

is embedded within the Company.

We have a dynamic process to manage, monitor

and update the risks faced by the Group and is

supported by risk management information

systems. It is imperative that the Company is

constantly aware of the changing risks, and risk

profiles that could impact the growth of the

Company, and the economy of the country.

A holistic view and broadening the outlook of risk

management as an organisation will bring about a

holistic management of material risks – those likely

to shut down the Company if ignored. This is where

ERM brings about a holistic and consistent framework

to manage risks across Transnet at all levels.

In reviewing the Group’s key risks, consideration

was given not only to internal factors but also

to external factors in order to understand the inter-

relation of risks and to appreciate the possible

resultant impact/s.

During the year, the Group’s Top 10 risks have

evolved. Whilst some of these risks have dropped

out of the Top 10 as mitigation measures have been

implemented (eg underinvestment) the nature or

profile of other risks has changed. Some risks will

remain and therefore it would be important to

constantly re-evaluate our approach to managing

them including economic regulation and reputation.

The overall trend for risk concerns was the

emergence of new risks in the Group’s Top 10. These

include business continuity, productivity efficiency,

commercial, security of supply and reputation.

Port of Cape Town.

The Quantum Leap

strategy has been

refocused to

encompass our

commitment to the

NGP objectives.



1Business continuity risk: Business interruptions due to natural disasters,

deliberate acts of theft, derailments, poor application of technology and non-

compliance with standard operating procedures.

2Capital projects risk: Non-delivery of capital projects on time and within

budgets and affordability.

3Regulatory risk: Lack of economic regulation that is fair and consistent, as well

as inability to align business strategy, capital investments and revenue models

with regulatory policy.

4Productivity efficiency risk: Failure to make a Quantum Leap improvement in

operational efficiency and asset utilisation.

5Environmental management: Non-compliance with environmental legislation

results in environmental degradation and increases environmental liability.

6Commercial risk: Risks relating to reliance on third parties, such as partners and

clients, including the failure to implement private sector participation funding

and structures; as well as realising poor returns on capital investment.

7Safety management: Non-compliance with safety-related standard, operating

procedures, human error and negligence, and conveyance of hazardous materials

results in disabling injuries and fatalities.

8Security of supply: Failure to deliver on the fuel Bridging Plan and security of

fuel supply.

9Reputational risk: Risks specifically impacting reputation and the effective

management thereof.

10Human capital: Lack of organisational structure with clear accountability

together with skilled labour force, inadequate succession planning and potential

strike action.

Group Top 10 strategic risks – Residual risks heat map

Priority I risk – GCE and Board level Priority II risk – Operating divisions’ CEO’s level Priority III risk – General Managers’ level Priority IV risk – Managers’ level Priority V risk – Employees’ level

Lik

eli

ho

od

ra

tin

g

Consequence rating

E

D

C

B

A

7 6 5 4 3 2 1

1

2

3

4

5

6

810

9

7

GROUP TOP 10 RISKS

An aggregate of

each of the

Operating

division’s risks.

These are updated

on a regular basis

so that timely and

appropriate

mitigating plans

are put in place as

new risks emerge.

The mitigation

strategies have

been integrated

into the

Operational

reviews.

69

Safety a major concern

Safety is a vital and integrated element of our

operations across the Company and is a key

measure of our success and a key contributor to

growth. However, during the year, our safety

performance was decidedly substandard for a

business of Transnet’s size and complexity. The

number of fatalities, derailments and equipment

failures is unacceptably high.

Accordingly, we instituted a process of continuous

review to assess the efficacy of our standard

operating procedures and implemented detailed

improvement plans to turnaround our performance

in this regard. To entrench a safety mindset in the

leadership echelons of our Operations, all

operational managers at Transnet have safety

enshrined in their contracts as a key deliverable.

Our rolling disabling injury frequency rate (DIFR)

– an internationally accepted benchmark for safety

in the workplace – deteriorated to 0,98 from last

year’s 0,88. Disappointingly, the number of

disabling injuries increased by 16, 6% during

the year to 611 compared to 524 in the prior year.

There has been an increase in reported noise-

induced hearing loss (NIHL) cases during 2011,

which had an adverse impact on the DIFR.

Work environments are assessed continuously to

reduce sources of noise to below 85 decibels (db).

Noise surveys will continue to take place,

equipment will be reengineered where possible,

medical check-ups and superior hearing protective

equipment will be issued to those exposed. The

Company will continue to strive for zero NIHL with

regular safety campaigns.

During the year, we lost 12 colleagues including a

single incident in which four colleagues from

Freight Rail lost their lives when the rail road

vehicle they were in collided with a train. This is

significantly higher than the prior year’s eight

fatalities. We deeply regret this.

2011201020092008

26

11

13

8

12

2007

Employee fatalities

It is our view that a change in behaviour would

improve our performance significantly. During the

year, we took an unprecedented decision to call a

30-minute work stoppage across all operations to

remind all our colleagues of the safety obligations

we have to ourselves, our colleagues and

customers.

Although employees repeatedly scored high for the

behaviour ‘Safety Mindset’ in Transnet’s annual

culture scoring process, this is not reflected in

safety statistics. Consequently, Transnet runs a

Safety Culture Programme built around ‘Golden

Safety Actions’ that set the benchmark for safe

behaviours. Through the Safety Culture

Programme, opportunities to further support the

implementation of standard operating procedure,

training for key work functions and improved

recruitment processes are identified.

The number of public fatalities decreased, but is

still at an unacceptably high level of 151 compared

to 173 in the prior year. The majority of these

incidents are due to acts of suicide and criminal

activity, such as electrocution during cable theft,

trespassing, and contravention of road traffic signs

at the level crossings.

Level-crossing accidents have shown a downward

trend. We attribute this decline to our increased

public awareness and training campaigns. In

addition to Transnet’s Public Awareness Campaign,

negotiations are currently underway with the Road

Traffic Management Corporation to deploy level-

crossing warders to ensure greater reductions in

level-crossing incidents.

Train collisions and derailments dropped 15,3% to

705 incidents, down from 832 incidents in the prior

year. In addition to negligence, including non-

adherence to standard operating procedures, the

condition of our infrastructure has been the main

contributor to most incidents. Following an

intensive data analysis of the causes of these

incidents, we are rolling out additional controls and

risk mitigation procedures throughout Freight Rail.

Although we were able to reduce the number of

safety incidents, be it marginally, the severity of

derailments increased dramatically. As a result our

cost of loss increased to R1,0 billion compared to

last year’s R501 million.

We are doubling our efforts to ensure that we bring

down both the number of incidents and resultant

losses.

Security management

Security at Transnet is managed in a manner which

improves alignment of resources and embeds a

strong security culture. Informed by its Integrated

Security strategy, Transnet’s security initiatives

emphasise the protection of clients, employees,

assets, income and infrastructure.

Security incidents cost us approximately

R76 million in 2011. This represents a 26% increase

from the prior year, although the number of total

SAFETY

Safety is a vital and

integrated element

of our operations

and is a key

measure of our

success and a

contributor to

economic growth.



incidents remained unchanged. The increase in cost

is largely due to the significant increase in

replacing stolen copper cables.

Cable theft

In the past two years, Transnet has experienced a

remarkable 40% increase in cable theft along the

railway lines. This amounts to 51% of all theft

incidences in the Company, at a direct cost of

R38 million in 2011. The high cost of replacing

cables, damage to wagons and locomotives and

disruptions in rail traffic has a detrimental effect

on service delivery.

We continue to address this challenge through

partnerships, security clusters and the proactive

use of our intelligence software.

Our commitment to environmental management

The nature of our activities lends itself to increased

environmental exposures, primarily due to

materials we move across our port and rail network

and the nature of our assets and associated carbon

footprint.

Environmental risk (non-compliance, pollution

and contamination) is one of our Top 10 risks.

As a result, we have prioritised adherence to

environmental laws and standards, and we are

taking tangible steps to enhance our compliance in

this respect.

We continue to improve our efforts to prevent,

minimise, rectify and manage the impact of our

operations on the environment. Since 2008,

Transnet has been involved in an ongoing

stakeholder engagement process regarding

pollution at the Port Elizabeth Manganese Terminal

and Tank Farm (fuel storage facilities). We have

invested significant amounts on our Operations in

Port Elizabeth to improve efficiency and address

environmental concerns. Despite this, the

Department of Environmental Affairs (DEA) issued

a Directive in May 2010.

In line with our commitment to comply with all

relevant laws and rules as a responsible corporate

citizen, we established a task team headed by two

Group Executives to develop a plan to address all

issues in the Directive. We track progress on this

matter and I am pleased to report that the DEA’s

response to our progress in the port is encouraging.

Asbestos contamination for which Transnet is

responsible has occurred in two ways: historic

spillages that occurred while transporting asbestos

in the past, and Transnet property in which building

materials containing asbestos were used.

Environmental conditions such as winds and rains

have, over time, been contributing to the spread of

asbestos fibres in operational areas and along the

railway lines.

We are in the process of clean-up and a total of

R570 million is provided for this purpose.

Asbestos was also used in buildings across

Transnet. Transnet Property keeps a register of

assets that contain asbestos and oversees

replacement plans. Each Operating division

appointed a co-ordinator, and replacement of

asbestos in buildings has commenced. The Risk

Management Committee is providing oversight to

the activity.

We are also becoming more proactive in handling

potential exposures. We instituted an independent

Environmental Risk Assessment at the Richard’s

Bay Rail Marshalling Yard in which contamination-

related health and environmental risks were

identified at the rail marshalling yard in the port.

We have established a short and medium-term plan

to address all issues that have arisen out of this

assessment including waste management, water

quality management and air quality management.

At 31 March 2011, the total environmental provision

for Transnet was approximately R1,3 billion.

Transnet’s climate change strategy

Transnet has completed the context analysis, risks

and vulnerability assessment and consideration of

climate change issues in the investment and capital

expansion plans.

Once the carbon footprint assessment has been

completed, we will draft our Carbon Management

Plan and Climate Change Strategy.

Fast facts*Transnet contributes an estimated

1% TO THE TOTAL GREENHOUSE GAS (GHG) INVENTORY for South Africa.

Transnet accounts for approximately

12% OF THE TRANSPORT SECTOR’S EMISSIONS in South Africa.

Transnet’s emissions are primarily from

FUEL (14%) and ELECTRICITY

CONSUMPTION (84%).

FREIGHT RAIL is the largest contributor

to Transnet’s emissions footprint at 81%.

* Based on preliminary carbon footprint estimations.

71

Funding

We continued to implement our comprehensive

funding strategy during the year. This included

raising funds in a cost-effective manner ahead of

demand; diversifying our sources in the local and

international markets; and minimising our risks. We

raised R18,4 billion without any Government

guarantees, an indication of the progress we have

made in managing and strengthening our financial

position.

As a result our gearing ratio, a key consideration for

funders, increased to 41,1% from 39,8% in the prior

year. This is comfortably within our ceiling of 50%

and signals sufficient room for further funding.

However, the cash interest cover ratio decreased

marginally to 3,9 times compared to 4,1 times in the

prior year. This was due to an increase in net finance

costs, as a consequence of our capital investment

programme.

Funding highlights for the year include the listing of

the US$2 billion GMTN programme on the London

Stock Exchange. The issuance in that market had to

be postponed several times due to market

uncertainty and volatility resulting from the

European debt crisis, which affected Greece, Ireland

and recently, Portugal. Ultimately the Company

successfully issued a US$750 million bond in

February 2011 despite these difficult market

conditions, confirming international investor

confidence in the Company and its projects.

The domestic capital markets provided the primary

source of funding. Through the DMTN programme,

we issued bonds worth R7,7 billion as well as

R2,0 billion in commercial paper. These issuances

were mostly oversubscribed, pointing to the

abundance of liquidity in the local markets and

investor appetite for quality paper such as that of

Transnet.

For the current year, we need to raise up to

R20,8 billion based on our investment

requirements. This is certainly achievable, provided

we stick to our funding strategy and maintain our

key financial metrics. That said, although it is

important that as we harness opportunities in the

market and ensure efficient cash management.

Refer to the Acting Chief Financial Officer’s review

for further details.

Capital investments

Our capital investment programme is our key

contribution to the Shareholder’s drive to provide

a responsive infrastructure for the country. The

programme is designed to ensure appropriate

capacity ahead of demand, thereby enabling

sustainable economic growth. It also addresses

decades of underinvestment and infrastructure

neglect. Since Transnet is self-funding, affordability

and fair return on invested capital is a key

consideration.

During the year, expenditure on revamping our rail,

ports and pipelines infrastructure amounted to

R21,5 billion, bringing the total amount for the past

five years to an unprecedented R86,8 billion. The

majority of this expenditure was allocated to

modernising and augmenting Freight Rail’s ageing

fleet of locomotives and wagons. Freight Rail’s

infrastructure was the most affected by the

investment neglect.

Capital Projects, the Specialist Unit responsible

for managing our largest projects, achieved the

following significant milestones during the year:

infrastructure for the Port of Ngqura, a green-

fields investment boasting a two-berth container

terminal. The deep water port outside Port

Elizabeth in the Eastern Cape is already

operational. During the year it moved 410 000

TEUs compared to the budgeted 100 000 TEUs.

project, which aims to double capacity from

740 000 TEUs to 1,4 million TEUs per annum,

is on track to be completed by 2014.

facility, including an upgrade of the Durban Car

Point Terminal, has improved capacity from

10 000 bays to 13 300 bays.

Encouragingly, Capital Projects was recognised by

the South African Institute of Civil Engineering

(SAICE) for construction project excellence.

Projects included the Khangela Bridge construction

project on Bay Head Road in Durban; the Durban

Harbour Entrance Widening and Deepening project;

and the construction of the Port of Ngqura.

Coming from our toughest critics – authoritative

peers in the engineering sector – these accolades

are supremely gratifying. They demonstrate that

the quality of our construction projects are on par

with some of South Africa’s foremost engineering

and project management talent when considering

2010 FIFA Soccer World Cup-related projects that

we had to compete with.

In terms of our rail business, we signed an

agreement for the supply of 32 new Class 15E

locomotives with Venus Railway Solutions, a

subsidiary of Japan’s Mitsui & Co Limited and local

BEE investors. The locomotives will be used on

Freight Rail’s iron ore line, which runs between the

mines in Sishen and our port in Saldanha. We

continue to push towards capacity of 61mt on the

iron ore line. This is in addition to a 2009 agreement

to buy 100 locomotives from General Electric.

These are to be used primarily on Freight Rail’s

General Freight business.

R18,4 BILLION

The amount raised

without any

Government

guarantees, an

indication of the

progress we have

made in managing

and strengthening

our financial

position.

RECOGNITION

Transnet Capital

Projects was

recognised by the

South African

Institute of Civil

Engineering

(SAICE) for

construction

project excellence.



The two purchases form part of our comprehensive

fleet renewal programme intended to improve

efficiency, productivity, reliability and safety of

the Company’s locomotive fleet. As we

progressively augment our fleet, we expect service

levels to improve. This includes the safety of our

rail network.

Rail has the largest share of our capital investment

budget, accounting for R65,3 billion of the R110,6

billion we intend to spend over the next five years.

This will be allocated to maintaining and upgrading

rolling stock; maintaining infrastructure; expanding

the coal and iron lines to 81mt and 61mt

respectively; purchasing locomotives and

equipment for all our Operating divisions; and

boosting capacity for transporting coal to Eskom.

Our Ports and Pipelines Operating divisions which

account for R28,3 billion and R15 billion

respectively. The majority will be allocated to

improving our capacity in the Port of Durban;

expanding the Cape Town Container Terminal;

buying port equipment, including cranes, straddle

carriers, tug boats and marine craft. The pipelines

budget will focus mainly on the NMPP, while smaller

amounts will be allocated to ensuring the integrity

of the existing Durban to Johannesburg Pipeline

(DJP) until the NMPP is fully operational.

New Multi-Product Pipeline (NMPP)

The NMPP is being constructed between Durban

and Jameson Park (Gauteng) to replace the existing

DJP, which is nearing the end of its useful life, is our

single biggest capital expenditure item. Over the

years, the strategically important project has drawn

adverse publicity for various reasons, including

significant revisions in projected costs and

completion schedule delays.

In line with our commitment to transparency,

openness and our licence conditions, we kept all key

stakeholders informed of the progress. The

stakeholders include the DPE and the Department

of Minerals and Energy (DME), as well as Regulators

and the general public.

During the year, we performed a thorough review

of all aspects of the project. The review by a sub-

committee of the Executive Committee concluded

that the final cost estimate is R23,4 billion and that

construction would be completed by December

2013. The original cost estimate was R9,7 billion,

which was revised up to R15,5 billion before the

latest amount. Construction completion schedules

were changed from the first quarter of 2011. Given

the impact these changes may have on petroleum

product supply to the country’s economic hub, the

Shareholder performed its own review of the NMPP.

This review had not been concluded by the end of

the year. However, we have made a commitment to

deliver the pipeline within the revised budget and

timeline. Transnet Pipelines successfully

commissioned the Kendal-Waltloo, Jameson Park-

Alrode and Alrode-Langlaagte sections of the

pipeline by 31 May 2011. Operationalisation of the

trunkline is scheduled for January 2012 and

completion of the entire project is still expected to

be by December 2013.

In the meantime, we have implemented our Bridging

Plan initiative, an inter-divisional initiative between

Freight Rail and Pipelines, which directs the

movement of any additional petroleum product

volumes by rail. We are currently moving 27 million

litres of petrol diesel and jet fuel a week between

Durban and Johannesburg on rail. The Bridging Plan

initiative will be in place until all parts of the NMPP

are completed. These efforts are to ensure that we

maintain security of supply of petroleum products

to the inland market including Gauteng, our

economic heartland.

The NMPP has significant economic, sustainability

and social benefits for South Africa. It is,

therefore, crucial that we use the knowledge

we have gained throughout the construction

period to better manage future projects of this

complexity.

Private sector partnerships (PSPs)

According to current projections, an economic

growth rate of 6% per annum results in a

corresponding growth in transport demand of at

least 6% per annum. Creating capacity to meet the

additional demand requires significant investment

to sustain and expand transport and logistics

infrastructure, particularly in intermodal

infrastructure at ports and inland terminals and in

specialised rolling stock.

Our five-year R110,6 billion capital expenditure

programme is insufficient on its own to meet the

needs of our customers and the economy. PSPs are,

therefore, critical to bridge the investment gap.

Investment plans for several projects will depend

on Transnet’s ability to form partnerships with the

private sector – both customers and other logistics

service providers.

We have compiled an initial portfolio of

opportunities for PSP and have tested the market

in certain instances. PSPs will be a key focus area

going forward and we are committed to meeting the

target of ten PSP transactions for rail by 2014.

Further details are set out in the Acting Chief

Financial Officer’s review and the Capital

investment report.

PRIVATE SECTOR PARTICIPATION

Critical to bridge

the investment gap.

73

Branch lines

During the year, we performed a non-binding market

testing assessment to determine the extent and

type of interest that exists in the private sector for

operating our branch lines network. The response

was encouraging. We also concluded feasibility

studies on concession models for the grain clusters

of branch lines. We have phased the rollout of the

branch line concessioning programme, and will

commence the competitive process to award branch

lines concession rights in 2012. The Minister of

Public Enterprises has mandated Transnet to

conclude at least three concession agreements in

the year ahead.

These lines comprise 7 278 kilometres of the rail

network, 3 928 kilometres of which are operational

and the remainder being closed. We are confident

that there may be entrepreneurial opportunities

to develop rail businesses on some of these lines.

However, branch line revitalisation is likely to

require Government subsidies if the commensurate

socio-economic benefits are to be realised to their

full potential.

Human capital development

Training and wellness

Since 2006, we have intensified our efforts

targeted at improving the well-being and

productivity of our biggest and most valuable asset

– our people. All our efforts are in recognition of the

role our colleagues play in achieving the goals of the

Company’s Quantum Leap strategy including the

requirements of the NGP.

Availability of appropriate skills remains a

significant challenge for Transnet and to address

this, we are committed to spending approximately

3% of our total personnel costs on training

initiatives annually. For us to maintain the skills and

talent pipeline required to support our needs, we

have opted for an integrated value chain which

includes secondary schools, tertiary education

institutions, our industry specific training centres

and workplace.

In addition, we deliberately train more candidates

than we need as part of our contribution to the

broader skills development needs of the country.

At management level, we have several initiatives

focused on building supervisory, management

and leadership skills. These include the Navigator

Leadership Programme and the Executive

Leadership Programme.

Employee wellness is another key pillar of our

human capital strategy. This consists of

absenteeism management, employee assistance

and HIV and Aids management.

New Growth Path (NGP) focus

In line with our commitment to the NGP, we are

focusing our skills development efforts on the

training of artisans, engineers, and engineering

technicians. We plan to increase the number of

trained artisans by an additional 500 in 2012.

This is in addition to the 1 412 apprentices and

427 engineers in the Company and the granting

of 52 engineering bursaries for 2011. We have

356 engineering technicians in the internship

programme and our target is to recruit an additional

180 engineers per year.

Sector-specific skills development is focused on

marine, rail and cargo with an annual internship

target of 1 500 learners. Having concluded a

partnership with the University of the

Witwatersrand (Wits), Transnet is investigating

possible opportunities for further collaboration

with international institutions to promote

continuous improvements in the development of

sector-specific skills.

To deliver on the increased intake of learners,

Transnet is developing a facilities upgrade plan

to equip our training centres with the necessary

resources to meet the NGP targets. To address

the skills gap at supervisory and coordination

level, we have embarked on the development

of a Trainee Manager Programme that will be

implemented in 2012.

Employee relations

Our relations with organised labour unions

continued to improve in the past year, especially

given the backdrop of the crippling three-week

industrial strike action over wages in May 2010.

Encouragingly, this year we settled our wage talks

without having to resort to such measures – an

indication of the strides we have taken.

We currently meet our union leadership on a

monthly basis at operational level and quarterly

at Group level.

Lastly, we wish to take this opportunity to bid

farewell to two of our longest serving colleagues

and leaders, Mr Robert Mashego who was

General Secretary of Satawu and his Utatu

counterpart, Mr Chris de Vos. Mr Mashego, who had

been with us for 31 years is taking on a new

challenge as the Chief Whip of the Ekurhuleni

Municipality, while Mr de Vos, who had been with

Transnet since 1964, is retiring. We wish them well

in their future endeavours.

Further details are set out in the Managing human

and social capital report.



Preferential procurement and enterprise development

Transnet recognises the role played by BBBEE in the

economic transformation of South Africa. It

significantly increases opportunities for previously

disadvantaged people to manage, own and drive the

country’s economy, and reduces income

inequalities.

Although Transnet has consistently supported and

partnered with BBBEE-compliant partners and

suppliers, the Company is still in the process of

finalising its BBBEE and supplier development

strategy. The strategy will link closely with

Transnet’s supply chain to achieve sustainable and

inclusive economic development, social stability

and labour-absorbing economic growth.

The Company is also at advanced stages of

verifying its BBBEE rating through a verification

agency for purposes of issuing a ratings certificate.

Once issued, the certificate will confirm our

contribution to the country’s developmental

objectives, and crucially, identify any possible gaps.

Supplier development, including BBBEE, is a key

focus of our procurement activities. As a result,

BBBEE procurement spend has grown significantly

over the past three years from R6,9 billion in 2008

(40% of the total spend) to R19,4 billion for 2011

(75% of total spend). The overall Transnet BBBEE

spend for 2011 is R19,4 billion (75% of total

measured procurement spend). This is significantly

higher than our internal target. Our long-term goal

is 70%.

Competitive Supplier Development Programme

(CSDP)

The CSDP is a Government initiative intended to

boost the local component of imported goods by

encouraging OEMs to partner with local suppliers.

Transnet has finalised its policy, processes and

procedures relating to the CSDP. This enables us to

mitigate risks and to align our operations with the

programme’s objectives, whilst allowing for the

flexibility to harness maximum value from CSDP

opportunities.

We have successfully negotiated several CSDP

transactions to date as set out in the Acting Chief

Financial Officer’s review.

Transnet is also currently engaging in various port

equipment, rolling stock and infrastructure-related

transactions, which are at various stages of maturity.

Policy and regulatory challenges

With Government’s release of the NGP, there is

increasing recognition that SOCs need to play a

leading role in ensuring that the country’s economic

infrastructure supports economic growth. For

Transnet to be effective in its role as the custodian

of South Africa’s port, rail and pipelines

infrastructure, we need greater policy certainty in a

number of areas, and we continue to engage

Government on key matters.

We are in consultation with the Shareholder

regarding amendments to the National Ports Act to

remove the obligation to corporatise the National

Ports Authority, to ensure consistency with

Transnet’s corporate governance structures, and

to streamline terminal operator licensing

arrangements. The latter includes licensing

requirements for the operation of the Port of

Ngqura Container Terminal, in which we have

invested significantly.

The Department of Transport intends to introduce

a rail economic regulator, to regulate tariffs and

access to the network by other operators. The rail

reform policy framework for such regulation

however, remains unclear. Resolution of these

matters has a material impact on Transnet’s rail

investment and operations strategy.

We continue to engage with different levels of

Government with regards to the Integrated Coastal

Management Act. The Act needs to be amended in

such a way that the seabed within ports remains

part of our property, otherwise R43 billion of port

assets (breakwaters, turning basins, entrance

channels and quay walls) will be expropriated into

state ownership under the DEA. Unless this is

resolved, our financial position will be

compromised, the capital investment programme

will be negatively impacted and our loan agreements

will have to be renegotiated.Port of East London.

75

Regulated businesses

Pipelines’ tariffs are set by the National Energy

Regulator of South Africa (NERSA) and National

Ports Authority is regulated by the Ports Regulator

of South Africa. The two divisions combined

account for approximately 22% of our revenue.

With regards to Pipelines, we have reached a level

of certainty in terms of the applicable regulatory

framework. This includes a revised tariff

methodology; the setting of a starting regulatory

asset base (SRAB); and an improvement in the

formula for calculating the cost of equity. As a

result of this understanding, NERSA has set tariffs

that will allow us to realise a 59,9% increase in

allowable revenue compared to the 2011 tariff

period.

The Ports Regulator, which was instituted recently,

has made two decisions in respect of National Ports

Authority’s tariffs. In both cases, we were

disappointed with the outcome. In our view, these

tariff decisions can be attributed to an uncertain

regulatory framework. We are engaging the

Regulator to finalise the framework and have

communicated our willingness to assist in this

process. It is our view that the prevailing

uncertainty will have a negative impact on our

ability to predict our cash flows, raise funds in the

market and therefore our ability to fund our capital

investment programme.

Reputation management

Transnet has implemented a comprehensive

Reputation Management strategy. The strategy

identifies critical stakeholders that contribute to

the continued success of the business and ensures

that they remain informed of matters impacting

their areas of interest and concern. This includes

(but is not limited to) the respectful engagement of

communities where we operate, informing them of

our intended operational outcomes; keeping

relevant stakeholders abreast of variances in

project completion schedules; communicating

environmental impacts resulting from operations

and ensuring factual accuracy in communication

around safety and security challenges.

Transnet aspires to be known as a Company that

builds, delivers, innovates and cares. The Company

strives to build a solid reputation platform by

gaining the understanding, trust and respect of all

stakeholders, and fostering a culture founded on

the principles of effective communication and

performance. The Reputation Management strategy

is expressed through a structured, systematic

management plan which proactively manages the

Company’s reputation and mitigates potential

reputation risks.

Prospects

The year ahead will no doubt be the proverbial

‘baptism of fire’ for me, as Group Chief Executive.

I look forward to Transnet meeting its obligations

as agreed with the Shareholder as they parallel the

embryonic stages of the NGP. During the year

ahead, we plan to spend R25,9 billion on our

infrastructure investment programme as we

intensify our efforts to modernise South Africa’s

logistics backbone.

Operationally, turning around Freight Rail will be a

key focus as we target an 11% increase in volumes

and aim for a 12% improvement in efficiencies

throughout the Company.

Finally, we will renew our efforts to prevent safety

incidents and to make our operations a ‘zero fatality

zone’ as we target a DIFR of 0,80 in 2012.

Appreciation

I wish to take this opportunity to personally thank

each of our colleagues for their effort, dedication

and commitment in ensuring that Transnet remains

at the forefront of South Africa’s ambitious growth

targets. Without your hard work, we would not be

where we are.

I would also like to thank members of our Board,

chaired by Mr Mafika Mkwanazi, for the guidance

they have provided; the Minister for Public

Enterprises, Mr Malusi Gigaba and his Deputy,

Mr Ben Martins, the Director-General, Mr Tsediso

Matona and officials; the Portfolio Committee on

Public Enterprises; and Regulators for their support

and oversight. Thank you also to our customers;

investors and funders; and members of the public

for travelling this journey with us and for helping us

to meet our growth targets. To our colleagues at

Transnet and the leadership of our recognised

unions, we salute you for your unwavering

commitment and hard work.

I am both humbled and inspired by the task ahead of

me and I look forward to a successful year ahead.

Mr B Molefe

Group Chief Executive

10 June 2011

Johannesburg


Acting Chief Financial Officer’s review

I am pleased to report that the Company made

significant progress during the year, both

operationally and financially, despite a challenging

operating environment, which was negatively

affected by the industrial strike action, derailments

and increasing input costs.

A clear financial strategy, coupled with advanced

planning, reliable monitoring and reporting

mechanisms, as well as prompt and decisive actions,

enabled the Company to build on its strong financial

position, whilst creating a solid financial platform

for sustainable performance going forward.

The Quantum Leap initiatives delivered meaningful

improvements in the port and pipeline operations.

This included volume growth and productivity

improvements that, together with cost-reduction

Transnet’s Financial strategy, as illustrated in the diagram below, encompasses the key elements of revenue growth, capital allocation and portfolio management; cost reduction and optimisation; the maintenance of the Company’s investment grade credit rating by maintaining the financial metrics to an acceptable level, specifically the cash interest cover and gearing ratios; the management of working capital and the execution of the funding programme.

initiatives, contributed to improved profitability.

The rollout of the capital investment programme

continues to create capacity ahead of demand to

enable economic growth. However, rail operations

have underperformed on key elements of the

Quantum Leap strategy, particularly volume growth,

safety and operational efficiency that negatively

impacted the achievement of financial targets.

The financial targets for the year ahead, as well as

the projections, as set out in the Overview section

are challenging. However, I am confident that the

Company’s past performance has built a solid and

stable platform to enable the Company to achieve

these targets. The achievement of the targets will

continue to be monitored through the dynamic

planning and management mechanism on a weekly

basis.

FINANCIAL STRATEGIC FRAMEWORKObjective: Sustainable financial management

Financial levers

to improve

cash flow.

Financial

objectives.

OUTCOME

Maintain credit rating.

Fair return on invested capital.

Maintain long-term financial sustainability of Transnet.

Meeting Shareholder objectives.

Financial position.Financial performance.

IMPROVE CASH FLOW.

Mr Anoj Singh.

R38,0 BILLION

Revenue from

continuing

operations

increased by 6,6%.

R15,8 BILLION

EBITDA from

continuing

operations

increased by 9,4%.

77

Group operating performance – continuing operations

Revenue for the year increased by 6,6% to

R38,0 billion (2010: R35,6 billion) despite the

negative impact of the industrial strike action in

May 2010. Although volumes for the general

freight business and at the ports were negatively

affected by the strike, overall general freight and

container volumes increased by 2,2% to 73,7mt

(2010: 72,1mt) and 12,5% to 4 080 832 TEUs

(2010: 3 628 895 TEUs) respectively.

Iron ore volumes increased by 3,4% to 46,2mt

(2010: 44,7mt) in line with contractual

commitments, notwithstanding the severe

derailments experienced during the year.

Coal volumes increased marginally by 0,6% to

62,2mt (2010: 61,8mt) and export coal tariffs

were increased in line with contractual customer

commitments to achieve a fair return on

invested capital.

The Group’s dynamic management reporting

approach provided the agility to respond to the

challenging economic environment and the

industrial strike action, as evidenced by the

successful execution of the Group’s Quantum Leap

strategy. Numerous cost-reduction initiatives were

implemented throughout the Company during the

year. This resulted in cost savings of R2,1 billion,

despite significant increases in input costs, such as

electricity costs of 25,4%. Accordingly, operating

expenses increased marginally by 4,7% to

R22,2 billion (2010: R21,2 billion).

Consequently, earnings before interest, taxation,

depreciation and amortisation (EBITDA) increased

by 9,4% to R15,8 billion (2010: R14,4 billion)

resulting in an EBITDA margin of 41,5%

(2010: 40,5%).

41,5

2011

40,5

2010

39,3

2009

42,6

2008

39,7

2007

EBITDA margin (%)

Depreciation, derecognition and amortisation

of assets for the year increased by 18,0% to

R7,2 billion (2010: R6,1 billion). This increase is

attributable to the acceleration of the capital

investment programme and the depreciation of

revalued port facilities and pipeline networks. This

trend is expected to continue in line with the

execution of the capital investment programme

over the next five years. R86,8 billion has been

spent on the capital investment programme and the

port facilities and pipeline networks have been

revalued by R31,9 billion over the past five years.

Accordingly, profit from operations after

depreciation, derecognition and amortisation

increased by 3,1% to R8,6 billion (2010: R8,3 billion).

Post-retirement benefit obligations are actuarially

assessed in accordance with IAS 19: Employee

Benefits, and adjusted accordingly. Consequently an

actuarial charge of R155 million (2010: R180 million)

was raised for the year.

Impairment of assets, amounting to R537 million

(2010: R778 million), arose primarily from significant

derailments experienced at Freight Rail during the

year as well as impairments of trade and other

receivables relating mainly to the Passenger Rail

Agency of South Africa (PRASA).

Fair value adjustments of R625 million (2010:

R18 million loss) relate primarily to fair value gains

from investment property revaluation adjustments,

and from the ‘mark to market’ of derivative financial

instruments, which the Group holds to hedge

financial risks associated with the capital

investment programme. The ‘mark to market’ of

derivative financial instruments resulted in a loss

of R12 million for the year (2010: R294 million loss).

More specifically, these losses arose from the ‘mark

to market’ of foreign exchange hedges that

Transnet executed to eliminate foreign currency

risk, as well as hedges that have not been ‘hedge

accounted’ in terms of IAS 39: Financial Instruments.

Investment property revaluations of R637 million

(2010: R276 million) were recognised for the year in

terms of IAS 40: Investment Property.

Accordingly, net profit from operations before net

finance costs of R8,6 billion (2010: R7,3 billion)

reflects an increase of 16,6% when compared to

the prior year.

Finance costs increased by 14,1% to R3,4 billion

(2010: R3,0 billion) due to increased borrowings to

fund the capital investment programme, and is in

line with expectations. Capitalised borrowing costs

amounted to R1,8 billion (2010: R1,5 billion) and

is expected to increase in line with the capital

investment programme over the next five years.

Revenue by Operating division (%)

2011

Freight Rail 59%

Rail Engineering 2%

National Ports Authority 19%

Port Terminals 17%

Pipelines 3%

Other <1%

2010

Freight Rail 58%

Rail Engineering 4%

National Ports Authority 19%

Port Terminals 14%

Pipelines 3%

Other 2%

2010

Energy costs 14%

Maintenance costs 2%

Material costs 8%

Personnel costs 53%

Other expenses 23%

Operating expensesby major category (%)

2011

Energy costs 15%

Maintenance costs 2%

Material costs 7%

Personnel costs 53%

Other expenses 23%


Acting Chief Financial Officer’s review (continued)

2,9

2011

2,4

2010

2,0

2009

1,9

2008

2,3

2007

Net finance costs (R billion)

The taxation charge for the year amounted to

R1,5 billion (2010: R1,8 billion), comprising a current

taxation charge of R905 million (2010: R42 million)

and a deferred taxation charge of R603 million

(2010: R1,7 billion). At 26,8% (31 March 2010:

36,8%) the effective taxation rate for the Group

is marginally below the corporate taxation rate

of 28%.

Net profit for the year from continuing operations

amounted to R4,2 billion (2010: R3,2 billion), an

increase of 32,8% compared to the prior year.

Revaluation of property, plant and equipment

The Group assessed the revaluation of its pipeline

networks and port infrastructure assets in line with

its accounting policy. This requires an independent

valuation every three years as well as index

valuations in the intervening periods.

During the year, an index valuation was applied to

pipeline networks and a full valuation was applied to

the port infrastructure assets.

Accordingly, a revaluation of the carrying value of

the pipeline network of R310 million was

recognised as at 31 March 2011 (2010: R167 million

revaluation). The carrying value of port facilities

required a revaluation adjustment of R8,2 billion in

accordance with IAS 16: Property, Plant and

Equipment (2010: R3,5 billion). The increase in the

revaluation in port facilities assets is mainly due to

the increase in the volume outlook for containers

over the next five years.

Deferred taxation

The deferred taxation liability increased to

R15,4 billion (2010: R12,5 billion), primarily due to

the revaluation of property, plant and equipment

which has been recorded directly in equity.

Cash flows

Cash generated from operations amounted to

R16,2 billion (2010: R14,2 billion), an increase of

13,5% compared to the prior year, demonstrating

the ability of the Group to generate strong

sustainable cash flows. Significant focus and better

working capital management has resulted in an

inflow of R792 million. Cash generated from

operations after working capital changes increased

by 13,5% to R18,3 billion (2010: R16,1 billion).

The security of supply petroleum levy on consumers

of 7,5 cents per litre, as approved by Government, to

ensure long-term security of supply to the inland

market also improved the cash generated from

operations by R1,3 billion (excluding VAT).

The cash interest cover ratio decreased marginally

to 3,9 times compared to 4,1 times in the prior year

due to an increase in net finance costs, resulting

from the capital investment programme. However

the cash interest cover ratio remains significantly

above the target of 3,0 times and it is not expected

to fall below the target in the medium term.


INCREASE OF 13,5% TO R18,3 BILLION

Cash generated

from operations

after working

capital changes.

79

Cash generated from operations (R billion)

2011201020092008

11,9

2007

11,1 11,2

14,2

16,2

3,9

2011

4,1

2010

3,7

2009

6,5

2008

5,5

2007


3,0Minimum

Pension and post-retirement benefit obligations

Benefit funds

The Group provides various post-retirement

benefits to its active and retired employees,

including pension, post-retirement medical benefits

and other benefits. The two defined benefit funds,

namely the TPF and the TSDBF, are fully funded with

actuarial surpluses of R2,0 billion (March 2010:

R1,7 billion) and R3,2 billion (March 2010:

R3,2 billion) respectively. Transnet has not

recognised any portion of the surplus on these

funds, as the fund rules, at present, do not allow for

the distribution of a surplus to Transnet. The

post-retirement medical benefit obligation is

approximately R1,5 billion (March 2010: R1,6 billion)

as at 31 March 2011.

Contingencies and commitments

There were no material movements in contingencies

and commitments since 31 March 2010.

Guarantees

The sole Shareholder in Transnet SOC Ltd, namely

the South African Government, has guaranteed

certain borrowings of the Group amounting to

R9,5 billion (2010: R11,1 billion).

Capital investment

It is imperative that Transnet’s capital investments

be timed appropriately to create the capacity

required to meet the South African economy’s

overall growth objectives. As a provider of national

infrastructure, Transnet endeavours to provide

capacity ahead of demand and it is pleasing to

report that Transnet’s capital investment for the

year (excluding capitalised borrowing costs)

amounted to R21,5 billion as at 31 March 2011,

compared to R18,4 billion in the prior year.

R11,4 billion was invested in expanding the current

infrastructure and equipment, while R10,1 billion

was invested in maintaining the existing capacity.

Over the past five years, the Group has invested,

and successfully implemented, capital projects to

the value of R86,8 billion.

21,5

2011

18,4

2010

19,4

2009

15,8

2008

11,7

2007



Transnet remains committed to providing

responsive infrastructure to meet the demands of a

growing economy and will continue to maintain and

create capacity through the acquisition of property,

plant and equipment to replace infrastructure and

equipment at the end of their useful lives. The

Company will create the capacity as reflected in the

Transnet Infrastructure Plan (TIP) giving due

consideration to affordability. Accordingly, the

rolling five-year plan (for the period 2012 to 2016)

has been increased by 18% to R110,6 billion to meet

the required volume demand and to support the

Company’s growth initiatives.

Beyond the five-year plan, a number of other

infrastructure development opportunities have

been identified to enable and boost economic

growth in the country. The costs of these

infrastructure developments are still being

determined. As these infrastructure developments

cannot be funded by the Company on the strength

of its financial position, alternative options will be

explored, including funding from private investors.

For further details refer to the Capital investment

report.

CAPITAL PROJECTS – R86,8 BILLION

Spend over the past

five years.



Funding

Activities for the year

Over the past five years Transnet has successfully

diversified its funding sources and investor base

across the domestic and international markets,

establishing the Company as a borrower of choice

and attracting favourable funding rates and tenors

from various lenders and investors. This has

enabled Transnet to reach its funding objectives of

reducing the overall cost of borrowing, maintaining

a good credit grade rating and matching assets and

liabilities, despite challenging global market

conditions, especially in the Eurozone area.

During the year, Transnet continued to implement

its pre-funding strategy, which was developed

during the global economic crisis to raise funding

ahead of demand, thereby mitigating the Company’s

liquidity risk. Transnet also obtained overall cost-

effective funding and longer tenors from various

funding sources compared to the previous year.

Funding raised up to 31 March 2011 amounted to

R18,4 billion. Details of the sources of funds and the

amounts raised are depicted below:

Funding sourceAmountR billion

Bonds – domestic 7,7

Bonds – international (GMTN) 5,1

Development finance – French Development Bank (AFD) 0,5

Development finance – Japan Bank for International Cooperation (JBIC) 0,5

Export credit agencies 0,7

Asset-backed funding 0,7

Commercial paper 2,0

Bank loans 1,2

Total 18,4

The funding for 2011 was executed cost-effectively

from a variety of markets and investors as

evidenced by the reduction in the weighted average

cost of debt (WACD) to below 10%.

A highlight during the year was the inaugural

drawdown from the Global Medium-Term Note

(GMTN) programme amounting to R5,1 billion

(US$750 million). International investor confidence

in Transnet was positive, with the first issue being

significantly oversubscribed. The Company will

continue to position itself in the Development

Finance Institution (DFI) market, as well as the

Multi-lateral Agency and Export Credit Agency

(ECA) markets. The flexibility of the DFI and ECA

markets to lend in ZAR should assist the Group in

managing both its interest rate and foreign

exchange risks.

Transnet repaid loans amounting to R5,6 billion,

which related predominantly to commercial paper,

domestic bonds and domestic and foreign loans

that matured during the period. The gearing ratio

increased to 41,1% compared to 39,8% as at

31 March 2010. As noted earlier, Transnet intends to

increase its capital investment plan for the next

five years from R93,4 billion to R110,6 billion. The

gearing ratio is expected to rise from 41,1% in 2011

to 46,8% in 2012 and 2013, but still below the 50%

limit set by the Board, indicating sufficient capacity

to execute the capital investment programme.

Gearing ratio (%)

41,1

2011

39,8

2010

37,7

2009

30,9

2008

40,8

2007

50,0%Maximum

The Company has adequate cash on hand of

R10,9 billion (March 2010: R7,9 billion) and banking

facilities of R3,5 billion to meet its current

commitments, mitigating short-term liquidity risk.

The Company will implement strategies that will

reduce the cost of carry of the positive cash

balances including amongst others, investment

solutions, prepayments and restructuring of

existing debt.

The funding plan for the year ahead aims to ensure

that the various projects in the capital investment

programme are funded cost-effectively within the

Board approved Financial Risk Management

Framework (FRMF) and without compromising the

Group’s financial position. The funding will be

aligned with the various projects, thereby matching

the drawdowns to a specific project.

Medium-term funding requirements

Transnet will invest R110,6 billion over the next five

years in infrastructure and equipment.

Approximately 60% will be spent on the Rail

business, 26% on the Ports, and 14% on Pipelines.

The medium-term funding requirements are set out

overleaf. The most significant portions of these

requirements will be funded from cash generated

from operations.

R5,1 BILLION

Inaugural

drawdown from

the GMTN

programme.

MAINTAIN INVESTMENT GRADE CREDIT RATING OF BBB +/A3

81

Target Projections Totalfive years

R million2012

R million2013

R million2014

R million2015

R million2016

R million

Cash flows from operating activities 15 035 16 048 19 834 22 527 27 152 100 596

Capital investments (25 859) (22 396) (24 606) (18 703) (19 029) (110 595)

Capitalised borrowing costs (2 259) (1 141) (1 356) (570) (568) (5 894)

Other investing activities (49) 320 (145) (146) (206) (226)

Cash (shortfall)/surplus (13 132) (7 169) (6 275) 3 108 7 349 (16 119)

Security of supply levy 1 039 947 – – – 1 986

Net cash (shortfall)/surplus (12 093) (6 222) (6 275) 3 108 7 349 (14 133)

Loan redemptions (8 668) (956) ( 2 047) ( 6 814) (844) (19 329)

Funding (requirement)/excess (20 761) (7 178) (8 322) ( 3 706) 6 505 (33 462)

The funding requirements for 2012 has decreased due to cash on hand at 31 March 2011 of R10,9 billion and increased by the

pre-funding buffer of R3 billion, resulting in a net funding requirement of R12,9 billion.

Funding strategy

Transnet’s funding strategy aims to ensure

sufficient liquidity to meet all its operational and

capital investment funding requirements by raising

the required funding ahead of demand, and cost-

effectively.

The funding approach for 2012 includes:

position.

mitigate refinancing risk.

already established and exploring new ones.

(including PSP, PPP, leasing and project finance).

programme.

The funding requirement for 2012 is R20,8 billion.

Taking the cash on hand at the end of March 2011

and the required cash buffer into account, the

funding requirement is reduced to R12,9 billion.

The funding schedule depicts the probable sources

of funding to be used in 2012, which will be driven

by Transnet’s business requirements, market

liquidity, investor and lender appetite, and pricing.

2012R million

2013R million

2014R million

Commercial paper 2 600 1 200 1 200

Domestic bonds

2 650 4 000 4 000

DFIs, ECAs and bank loans

7 650 2 000 3 100

Total 12 900 7 200 8 300

South Africa’s economic growth should not be

impacted by the constraints of Transnet’s financial

position. Consequently infrastructure development

opportunities mentioned earlier in this review will

have to be funded in partnership with the private

sector. Accordingly innovative funding solutions will

have to be formulated.

Transnet will consider various forms of project

finance, private public partnerships and leasing, in

order to mitigate negative impacts on the financial

position of the Company.

Rail Engineering Koedoespoort.



Financial risk management

The main challenge for the 2012 funding plan is to

fund the capital investment programme, given the

significant funding requirements of Government

and other SOCs, such as Eskom SOC Ltd. In addition,

the funding plan faces further challenges, such as

an increasing gearing ratio, increasing finance

costs, a tenuous cash interest cover ratio, and

unstable global market conditions. The Group’s

financial risk management policies are used to

protect the financial stability of the Group and

are contained in the FRMF.

Risks to the funding plan

Transnet’s key financial risks are tabulated

alongside. Mitigating strategies are set out in

Annexure A.

Integrated supply chain management (iSCM)

Transnet’s iSCM strategic objective is to optimise

inbound supply chain activities to enable efficient

and reliable outbound services to the end customer.

Using best practice principles, and undertaking a

collaborative approach across all Operating

divisions, Transnet has developed an integrated

‘one supply chain management (iSCM) strategy and

operating model. The model is centre-led, with

Centres of Excellence (COEs) comprising

Operational division teams to deliver value through

improved efficiencies and compliance with the

regulatory environment.

The iSCM core has a strong focus on supporting the

NGP through the COEs with an emphasis on

procurement localisation and job creation through

the Supplier Development COE. This further

supports the Company’s sustainability

commitments, which are increasingly being

integrated into strategic initiatives.

To address the high levels of inequality and

unemployment a large focus will be placed on

creating opportunities for the participation of

previously disadvantage groups in the economy

and increasing the number of jobs.

Sourcing achievements

In line with the Quantum Leap strategy, numerous

cost-reduction initiatives implemented throughout

the Company during the year resulted in cost

savings of R2,1 billion compared to a target of

R1,1 billion on operational expenditure and a saving

of R1,2 billion on capital expenditure against a

target of R1,1 billion.

R2,1 BILLION

Cost savings

compared to a

target of

R1,1 billion.

The cost-reduction initiatives included inventory

optimisation programmes and identification, review

and optimisation of the top 10 commodities of the

Operating divisions. Additionally, tactical sourcing

initiatives were implemented and successful

negotiations were concluded with numerous service

providers, resulting in significant financial,

commercial and operational benefits.

Governance, risk and compliance achievements

The newly formed Board Acquisition and Disposal

Committee (the Committee) oversees the

acquisition and disposal process and functions

independently of the supply chain function.

The powers of the Committee include the approval

of tenders within its delegation of authority and

formulates policy as it relates to supply chain

matters.

The integrity of the tender process for high value

transactions has been recognised as being of

critical importance as these transactions pose a

risk to Transnet. A process has been established for

an independent review of key gateways in tender

processes above R50 million in value. A total of 34

tenders have been reviewed amounting to R7 billion.

To date, this process has been successfully

implemented in numerous tenders across Transnet.

An internal procurement ombudsman process was

initiated to deal with all complaints from

dissatisfied suppliers, bidders and stakeholders.

Positive comments have been received from

suppliers commending this initiative.

Standard forms and templates were created and

approved for use across Transnet to standardise

tender submissions. A “Business Critical Activities”

(BCA) framework has been developed to establish a

comprehensive set of controls for each critical

activity throughout the supply chain process which

will be audited by Transnet Internal Audit on a

quarterly basis.

Management has substantially improved

procurement controls, over the last two years,

to ensure compliance with the requirements of

the PFMA. Improvements have been achieved

including a Transnet Internal Audit rating of

“requires improvement” which indicates matters of

a less significant nature and reflect an

improvement from a previous rating of

“unsatisfactory”.

In the current year, external audit have conducted

specific audit procedures at the request of the

Auditor-General – in respect of procurement

contracts. Their review covered 104 procurement

contracts valued at R22 billion. Except for the

FINANCIAL RISKS

Breach of gearing

and cash interest

cover targets.

Actual cash flows

being significantly

different from

estimates.

Liquidity pressure

in the market and

insufficient

investor appetite.

Increased

Government and

other SOC funding

requirements.

Refinancing risk.

Delays in capital

project

implementation.

Exchange rate

movements.

Commodity price

movements.

Varying interest

rate cycles.

Counterparty credit

limits.

83

matters set out in the Report of the Directors, their

review revealed no adverse findings confirming the

assessment by Transnet Internal Audit.

Competitive Supplier Development Plan (CSDP)

Since electing to formally participate in the CSDP in

2007, Transnet has made positive progress, with

internal CSDP policies and procedures being

embedded into standard business practices during

2011. To contribute meaningfully to the South

African Government’s supplier development

objectives, in line with the NGP, Transnet’s supplier

development strategy strives to leverage off the

planned infrastructure spend of R110,6 billion over

the next five years, with the objective of supporting

industry further, developing local suppliers and

increasing skills development in a manner that

enables economic growth.

Transnet’s development goal is, therefore, to use its

procurement spend in focus areas to develop local

suppliers in a sustainable manner. By focusing on

local suppliers, the Company will reduce its supply

chain costs through improved operational

efficiency, procurement localisation and by

securing supply. This will be achieved through skills

transfer and by investing in plant, which will enable

local suppliers to provide products and services of

the requisite quality. This will, in turn, result in

reduced turnaround times of spare parts, job

creation, as well as an improvement in the service

received from suppliers of operational components

and equipment. In addition, the development of

local suppliers will reduce exposures to foreign

exchange rate fluctuations, reduce reliance on

imports and avoid capital leakage.

Transnet has broadened its approach towards

supplier development in which the CSDP is only

one aspect. A supplier development strategy has

been developed, which now includes three key

elements, namely: CSDP, focused supplier

development (FSD), and BBBEE. The latter includes

enterprise development (ED) and preferential

procurement (PP).

Transnet has achieved significant CSDP contractual

commitments of up to 50% localisation as well as

significant skills development and transfer. Transnet

has created and preserved over 900 jobs and

aims to increase this number significantly in the

year ahead. Some of the key CSDP transactions

include:

The procurement of 100 General Electric (GE)

locomotives. The contract is the largest CSDP

transaction to date in South Africa, positioning

Transnet as the leading SOC in CSDP execution.

The total localisation value as a percentage of the

total contract is 52%. This will include skills

development to Rail Engineering and Freight Rail

over a four-year period; localised assembly and

investment in plant; purchasing of local content

and services over a 10-year period; and other

commitments.

The procurement of GE locomotive parts (Long-

term Parts Agreement). The five-year agreement

incorporates the development of the local South

African industry and the provision of sustainable

export potential. The industry development

component includes both Rail Engineering and its

current and potential suppliers, which will result

in the localisation of selected locomotive parts

required for the upgrade, overhaul and

maintenance of GE locomotives. The total

localisation value as a percentage of the contract

is 12%, which includes skills development and

purchasing of local parts and services.

The procurement of Electro-Motive Diesel

(EMD) locomotive spare parts and components.

The CSDP aims to ensure Rail Engineering

and other South African suppliers are able to

provide services and manufactured goods to

EMD and EMD customers. The total localisation

value as a percentage of the contract is 34%

which includes skills transfer, purchasing of

local parts and other commitments over the

next five years.

The procurement of 32 new Class 15E

locomotives. Transnet signed an agreement with

Mitsui-Venus during December 2010 for the

procurement of 32 new Class 15E locomotives.

The total localisation value as a percentage of

the contract is 40%, which includes skills

development, local assembly by Union Carriage

and Wagon and purchasing from local suppliers.

Due to this Class 15E build programme, 734 jobs

are being preserved.

CSDP future plans Transnet is currently engaging in various port

equipment, rolling stock and infrastructure-related

transactions, which are at various stages of

maturity. The most significant potential

transactions that will be realised over the next five

years include:

Rolling stock: Upgrade of diesel locomotives;

upgrade of electric locomotives; new

locomotives; new wagons; replacement of on-trac

machines;

Port equipment: Acquisition of straddle carriers;

rubber-tyred gantries and cranes; STS cranes;

reclaim/reach/mobile stackers; rail siding cranes;

forklifts; tug boats; dredgers; and

Infrastructure: Coal line expansion; iron ore line

expansion; Eskom – Majuba coal supply upgrades;

Ngqura line; Substation upgrades.

RAIL ENGINEERING WAS AWARDED A SILVER MEDAL

for transforming

its logistics process

at the ”logistics

achiever awards”.

TRANSNET WAS AWARDED THE FOLLOWING FROM SAPICS

Corporate educator

of the year.

Operation

management of

the year.

900 JOBS

created and

preserved through

CSDP.



Preferential procurement and enterprise development

Having consistently partnered with, and supported,

BBBEE-compliant partners and suppliers, Transnet

acknowledges the value of a clearly defined BBBEE

strategy. The Company’s BBBEE strategy will be

closely linked with its supply chain to achieve

sustainable and inclusive economic development,

social stability and labour-absorbing economic

growth.

Transnet is currently developing an integrated

ED strategy and associated initiatives, which will

lead to the creation of specific programmes for

assisting and accelerating the development,

sustainability and ultimate financial and

operational independence of beneficiary entities.

The Company’s long-term objective is to achieve

ED equating to 3% of net profit after taxation.

Transnet has, further, engaged in a number of

enterprise development opportunities, which focus

on skills transfer in the related Transnet industry.

Key initiatives include the SAFCEC Diamond

Academy; “Youth in Construction Programme”; the

“Company-to-Company Mentoring Programme”; the

“Contractor Development Programme”; the “Welding

Academy”; the “NMPP Welding School”; the “NMPP

Harrismith B&B project”; and Transnet’s “Schools of

Excellence”.

Given iSCM’s focus on supplier development, and

more specifically preferential procurement,

Transnet’s BBBEE procurement spend has shown a

significant increase over the past four years from

R6,9 billion in 2008 (40% of spend) to R19,4 billion

in 2011 which is 75% of total measured

procurement spend, compared to a target of 50%

set by the DTI. Transnet will continue to build on its

existing achievements in this regard.BBBEE PROCUREMENT

spend of

R19,4 billion

in 2011 which is

75% of total

measured

procurement

spend.

Category of BBBEE entitySpend in R billion

Target as per

DTI codes%

% spend of total

measured procurement

spend

2011

Total BBBEE spend 19,4 50 75

Exempted micro-enterprises 1,9 5 7

Qualifying small enterprises 2,8 5 11

Black-owned 3,1 9 12

Black women-owned 1,4 6 6

2010

Total BBBEE spend 13,5 50 66

Exempted micro-enterprises 1,9 5 9

Qualifying small enterprises 2,7 5 13

Black-owned 3,2 9 16

Black women-owned 0,8 6 4

Tippler in operation at Saldanha Iron Ore Terminal.

85

Information, communication and technology (ICT)

The main objective of Transnet’s ICT function is to

enable the Company to achieve its Quantum Leap

strategy by providing effective, efficient and

adequately governed information technology

capability that enhances business processes across

the Group. ICT ensures strategic alignment of

multiple business needs through technology

enablement and the provision of automated

business solutions.

In order to enable Transnet’s Quantum Leap

objectives and as required by King III, ICT has shifted

its strategic focus from cost optimisation to

Enabling the Transnet Quantum Leap strategy

ICT has adopted a single Business Information

strategy focusing on information management as a

key strategic enabler to ensure business

integration, innovation and unlock efficiencies to

achieve Transnet’s targets in order to enable:

business processes;

and

visibility, availability of data and ease of access.

Key initiatives during the year include:

Terminals;

Engineering with immediate returns through

efficiencies in processing time, including short

turnaround time (JIT) for raw material delivery;

across the Group – phase 1;

and business intelligence capabilities for the

prioritised Freight Corridors;

Human Capital and Payroll via SAP HCM system;

lementing a SAP Contract Lifecycle

Management (CLM) solution to enable continuous

innovation, value creation and information

management.

In line with King III, ICT Governance is the

responsibility of the Board, with a focus on ICT

controls, compliance, expenditure and protection of

information amongst others. To ensure that ICT

risks are mitigated and to promote sound

accountability, the Board has sub-delegated its

responsibility to the Board Audit Committee.

Accordingly the Group Chief Information Officer is

an attendee at the Board Audit Committee.

Furthermore, the Board has recognised the need for

an ICT specialist to assist it in executing its duties

with regards to ICT matters as envisaged by King III.

ICT STRATEGIC FOCUS AREAS

Improve

the ICT

function

Achieve customer-focused delivery excellence.

Operate “Best in Class” ICT environment.

Strengthen ICT governance to increase accountability.

Build and retain a talented ICT workforce.

3

4

5

6

Enable the Transnet Quantum Leap strategy Implement a common enterprise architecture model.

Implement a single Transnet business information strategy.1

2



improvement within CLM practices across the

Group; and

risks and controls across the ICT environment

resulting in the launch of an all-encompassing

ICT Improvement Programme.

The aim of the programme is to ensure that ICT is

governed and maintained in a sustainable and

co-ordinated manner across the Group in line with

best practices, including King III, and in compliance

with regulatory requirements.

Key areas of the ICT Improvement Programme include:

rated ICT management and governance

frameworks across the Group including:

– A single ICT Charter across the Group.

– Over-arching governance framework.

– Standardised policies and procedures to

govern ICT.

– ICT enablement controls for managing project

and programme risks, issues and ensuring

benefits are realised.

processes to enforce compliance to regulations/

legislation directly and indirectly affecting ICT:

– Implementation of an ICT risk management

framework.

– Improved control self-assessments to mitigate

risks appropriately.

stakeholders and committees across the Group.

and KPIs to monitor ICT performance.

continuity practices across the Group.

policies, procedures and performance measures.

Internal control environment

The Board and management recognise that a strong

control environment forms the basis for managing

risks effectively, maintaining and improving

performance in a sustainable manner, enhancing

governance, encouraging stakeholder confidence

and strengthening the reputation of the Company.

Transnet’s control framework encompasses a broad

range of operational components and business

functions, including:

rols monitoring.

Values and ethics form the keystone of an effective

control environment and significant emphasis

continues to be placed on this area.

A brief explanation of the key internal control focus

areas are presented below:

Financial controls

Management has strengthened the financial

controls over the past four years, resulting in

sustained improvement in this area and improved

reliance on controls by external audit through the

development of standard control frameworks.

These financial control frameworks encompass

control objectives, control activities and control

owners for all the major financial processes across

the Group and include Critical Financial Reporting

Controls (CFRCs). The aim of the latter is to improve

financial reporting and to reduce the possibility of

fraud and non-compliance with the Public Finance

Management Act (PFMA).

Access to financial systems

Access to the financial systems are managed

through the SAP GRC (Governance, Risk and

Compliance) tool. User access is secure and

monitored monthly through the review of user

reports, reflecting any access violations across all

financial systems.

Access violations have decreased significantly

since the implementation of this tool to the extent

that there are no unmitigated access violations

across the Group.

Operational controls

A similar approach to that applied in the financial

control environment that resulted in immediate and

significant improvements has been adopted in the

operational arena by developing integrated

operational frameworks. These encompass process

objectives and performance enablers and cover the

order-to-execute and maintenance processes.

These frameworks have been rolled out on the

Sishen-Saldanha and Richards Bay corridors. The

implementation of the operational control

frameworks are the most advanced on the Sishen-

Saldanha corridor and has resulted in improved

efficiency which had a positive impact on volumes

transported for the second half of the year.

A similar framework will be implemented on the

Natal Corridor. The Company will also further

embed these frameworks through regular testing of

performance enablers. Performance enablers aim

to minimise deviation from operational plans, and

where a deviation occurs, enables appropriate

decision making.

87

Integrated supply chain management

A training campaign was launched during the

year to train all Transnet and Operating division

acquisition council members on procurement

and tender policies and procedures. This has

resulted in an improvement in controls in the supply

chain area, as evidenced in the quarterly supply

chain testing performed by Transnet Internal Audit

which reflect a 50% reduction in ineffective

controls relating to the procure to pay and tender

management sub-processes since the beginning of

the year.

Capital project controls

Controls for capital projects were enhanced during

the year through the introduction of project-critical

controls (PCCs), which are tested quarterly and

cover the entire project lifecycle and the following

capital processes:

The results of the PCC testing have shown a 33%

decrease in the number of ineffective PCCs over

the three quarters tested.

Transnet Internal Audit reviewed the controls

relating to the NMPP project and highlighted

certain areas requiring enhancement. In response,

management have implemented additional controls

and the Group Executive Committee has

established a NMPP Governance Steering

Committee to oversee the NMPP project to

conclusion, which meets on a monthly basis and is

chaired by the Group Chief Executive.

Continuous controls monitoring

Financial process controls, as well as operational

performance enablers and project critical controls

are monitored through regular testing by Transnet

Internal Audit, quarterly control self-assessments

by control owners, and monitoring of control

weaknesses through an issue-tracking management

tool and data analytics.

The focus areas for the year ahead will be

continuous control monitoring (CCM) of operational

processes, further implementation and

enhancement of operational performance enablers

and controls over capital projects.

Transnet Internal Audit is regarded as a strategic

function within the Company, ensuring sound

corporate governance, and supporting Transnet’s

strategic objectives.

Transnet Internal Audit’s critical role in driving

improvements in the overall control environment is

duly acknowledged and the internal control

environment will continue to be an area of

significant focus for the Company in the future.

Refer to the Board Audit Committee report for

further details.

Prospects

Whilst the financial performance of the Company

is encouraging, continued implementation of the

Quantum Leap strategy will accelerate volume

growth, operational efficiency and improve safety.

This will enable the Company to deliver on its

mandate and obligations in terms of the NGP.

Anoj Singh

Acting Chief Financial Officer

10 June 2011

Port of Ngqura by night.


Consolidated value added statementfor the year ended 31 March 2011

Value added is defined as the value created by the activities of a business and its employees. For Transnet, this is determined as

revenue less the cost of materials and services. The value added statement reports on the calculation of the value added and its

application among the stakeholders of Transnet.

% changeversus

20102011

R million

Valueapportioned

2011%

2010*R million

Valueapportioned

2010%

Revenue 6,6 37 952 35 610

Cost of materials and services 4,6 (10 349) (9 892)

Net operating expenses excluding depreciation,

and amortisation (22 189) (21 201)

Excluding: Personnel costs 11 840 11 309

Value added by operations 7,3 27 603 96 25 718 98

Other income 100 1 244 4 565 2

– Fair value adjustments 625 (18)

– Income from associates and joint ventures 58 5

– Finance income 561 578

Value added/created 9,8 28 847 100 26 283 100

Applied as follows:

Employees 4,4 11 995 42 11 489 44

– Personnel costs 11 840 11 309

– Post-retirement benefit obligation costs 115 180

Providers of capital#

– Lending institutions 14,1 3 439 12 3 014 11

Government* 12,6 905 3 804 3

– South African normal taxation 898 799

– Foreign taxation 7 5

Reinvested to maintain and expand operations 14,0 12 508 43 10 976 42

– Depreciation, amortisation and impairment 7 721 6 867

– Deferred taxation 603 959

– Profit for the year from continuing operations 4 184 3 150

Value apportioned 9,8 28 847 100 26 283 100

In addition to value apportioned to Government the following amounts were paid to the South African Revenue Services (SARS):

– Pay as you earn (PAYE) R2 432 million (2010: R2 028 million);

– Skills development levy (SDL) R126 million (2010: R110 million);

– Unemployment insurance fund (UIF) R143 million (2010: R137 million); and

– Value added taxation (VAT) R1 564 million (2010: R1 851 million).

* Restated.

# Borrowing costs amounting to R1 720 million (2010: R1 482 million) were capitalised.

Percentage value created (%)

2011 2010

2011 2010

Employees 42% 44%

Providers of capital 12% 11%

Government 3% 3%

Reinvested to maintain andexpand operations 43% 42%

89

Consolidated five-year reviewfor the year ended 31 March 2011

200731 March* R million

2008 31 March* R million

2009 31 March*R million

2010 31 March*R million

201131 MarchR million

Income statementsContinuing operations

Revenue 26 899 30 091 33 592 35 610 37 952

Earnings before interest, taxation, depreciation and amortisation (EBITDA) 10 667 12 810 13 200 14 409 15 763

Depreciation and amortisation (2 952) (3 798) (4 779) (6 089) (7 184)

Operating profit 7 715 9 012 8 421 8 320 8 579

Impairment of assets ( 232) ( 153) ( 324) (778) ( 537)

Post-retirement benefit obligation (costs)/income ( 218) 686 (436) (180) (155)

Fair value adjustments 2 462 1 416 941 (18) 625

Dividends received, income from associates and joint ventures 38 63 82 5 58

Net finance costs (2 287) (1 931) (1 966) (2 436) (2 878)

Profit before taxation 7 478 9 093 6 718 4 913 5 692

Taxation (1 742) (2 615) (1 492) (1 763) (1 508)

Profit for the year 5 736 6 478 5 226 3 150 4 184

Statements of financial positionNon-current assets 58 289 84 220 103 417 120 845 146 243

Current assets 19 069 14 466 15 117 18 040 20 827

Total assets 77 358 98 686 118 534 138 885 167 070

Equity 35 838 49 949 57 276 63 347 73 666

Non-current liabilities 24 513 29 230 44 256 60 179 72 660

Current liabilities 17 007 19 507 17 002 15 359 20 744

Total liabilities 41 520 48 737 61 258 75 538 93 404

Equity and liabilities 77 358 98 686 118 534 138 885 167 070

Capital investments** 11 674 15 780 19 382 18 441 21 503

Statements of cash flowsCash flows from operating activities 8 903 10 287 7 400 12 092 13 159

Cash flows utilised in investing activities (10 307) (8 250) (19 084) (20 408) (23 018)

Cash flows from financing activities 3 669 9 11 587 10 355 12 791

Net increase/(decrease) in cash and cash equivalents 2 265 2 046 (97) 2 039 2 932

* Restated.

** Excluding capitalised borrowing costs, including capitalised finance leases and capitalised decommissioning liabilities.


Managing human and social capital

2

OPER

ATIO

NAL

REVI

EWS


Human resource management

Employee profile

Transnet’s total workforce of 49 078 comprises

47 763 permanent employees and 1 315 fixed term

employees. The Company’s permanent workforce is

made up of 4 521 employees who form part of the

management category (9,5%) and 43 242 employees

who form part of the bargaining unit category (90,5%).

Transnet’s net employment rates for 2011 improved

compared to the prior year with the number of

management employees increasing by 6,5%, and

the number of bargaining unit employees increasing

by 4,7%.

Human capital management (HCM) project

Following the completion of a detailed analysis of

human resource management within each Operating

division, Transnet embarked on a human capital

management (HCM) project in the following phases,

to standardise and consolidate human resources

operations across the Company. This significant

restructuring will further enable the successful

implementation of the human resources strategy.

(implementation completed in all Operating

divisions, within timelines and budget).

gement and recruitment (to

be implemented in 2012).

Human resources excellence project

Parallel to the HCM project, the Company initiated

the human resources excellence (HRE) project,

which was initiated to focus on the development of

a new Group-wide human resources operating

model. The new model is envisaged to consist of

followi

In accordance with King III, sustainability considerations have been integrated into each relevant area of the Integrated Annual Report, including the Operational reviews. The following is a summary of Transnet’s performance in managing human and social capital. These elements, together with governance and operating efficiency, are presented in more detail in the Sustainable Development Report (SDR). The SDR provides a full review of performance from the specific perspective of sustainability.

Managing human and social capital

The design phase of the project has been completed.

Subject to approval by the Board, the build and

transition phases of the project will commence.

Performance and reward

Transnet is committed to fair remuneration

practices that support the business objectives,

employee development and retention of critical

skills. Reward strategies are integrated with all key

performance indicators, thus entrenching a

performance driven culture.

Employment equity and diversity management

The table below illustrate the race and gender

breakdown of employees and is benchmarked

against the national averages for the economically

active population (EAP) as provided by Statistics

South Africa.

African employees, represent 62% of Transnet’s

workforce as compared to the national EAP average

of 74,9%. Transnet exceeds the national EAP

average of 12,1% for White employees with 24% of

the workforce being White. For Indian and Coloured

employees, the Company largely reflects the

national EAP average of 4% and 10% respectively.

The majority of employees are males, at 80% of

the workforce as against the national EAP for male

employees of 53%. While female employees

comprise a smaller portion of the workforce,

Transnet has, since 2001, more than doubled

its female employee base from 8,4% to the

current 20%.

Rail Engineering personnel at Koedoespoort.

HUMAN CAPITAL

This section covers

the areas of

human resource

management,

employee equity

and diversity, skills

development and

employee wellness.

93

Summary of Transnet’s employment equity: 2011

African Coloured Indian White TotalGrandtotal

Category Female Male Female Male Female Male Female Male Female MaleFemale + Male

Top management 17 20 2 5 4 14 9 18 32 57 89

62 135 17 31 24 73 28 143 131 382 513

618 985 102 273 104 303 199 1 335 1 023 2 896 3 919

2 939 6 219 463 1 234 169 699 867 6 352 4 438 14 504 18 942

2 561 10 824 333 1 530 63 352 266 2 010 3 223 14 716 17 939

Unskilled 587 4 861 73 652 15 31 17 125 692 5 669 6 361

Total permanent 6 784 23 044 990 3 725 379 1 472 1 386 9 983 9 539 38 224 47 763

Non-permanent 228 518 38 127 12 26 63 303 341 974 1 315

Grand total 7 012 23 562 1 028 3 852 391 1 498 1 449 10 286 9 880 39 198 49 078

Lack of representivity of female employees and

people with disabilities still remains a significant

challenge, with females and people with disabilities

representing 20% and 0,8 % of Transnet’s

workforce, respectively. Research to understand

the issues impacting the attraction and retention of

women and people with disabilities within Transnet,

and plans to improve representivity is a focus area

sustained commitment to EE principles, namely the

elimination of unfair discrimination and

implementation of affirmative action measures to

achieve a workforce that reflects the national

across all occupational levels.

Culture Charter

The Culture Charter was developed in 2008 with

extensive employee engagement. It expresses the

preferred behaviours required from all Transnet

employees. As the Company gears itself to deliver

ever to align employee behaviour to the Charter and

to encourage employees at all levels to embrace the

principles of productivity, efficiency, customer

service and safety.

During the year, Transnet’s safety performance fell

short of set targets. Going forward the Company

will increase its vigilance in implementing the

entrench a culture of safety among employees by

promoting a safety mindset and focusing on

reducing the number of unsafe acts in the work

environment.

Promoting a culture of transformation

The Transnet Culture Charter is a significant social

compact amongst leadership, employees, trade

unions and managers. It is a unifying call to action

that outlines seven key features of culture that will

make Transnet a winning company. The Culture

Charter was developed from 17 000 inputs from all

levels of employees. The final seven features were

determined after 44 000 votes were received and

Annual scoring of the Culture Charter

Every year, all employees score the Culture Charter

to determine how well the Company is performing

to reach aspired culture scores. The scoring process

is a powerful tool that sets the agenda for how to

enrich the Company culture. More than 16 500

employees scored the Culture Charter in October

2010 based on a three-point scale, with results

Culture Charter behaviour

Transnet average score

2009 2010 2011

2,62 2,56 2,64

2,56 2,49 2,58

Deliver on our promises 2,47 2,39 2,49

Good communication 2,26 2,21 2,29

Dignity and respect 2,24 2,18 2,25

Recognition and reward for good work 2,18 2,08 2,18

2,11 2,08 2,16

Total 16,44 16,00 16,60

Employment equity by race: 2011

African 62%

White 24%

Coloured 10%

Indian 4%

Employment equity by gender: 2011

Male 80%

Female 20%


Managing human and social capital (continued)

Transnet scored higher on all of the seven

behaviours in 2010. Although the behaviour “Dignity

and Respect” did not receive the lowest score, it

was prioritised by employees as a focus area for

improvement.

popularising the Culture Charter behaviours, with

specific emphasis on the behaviours “Dignity and

to perform” was introduced during 2010.

Safety Culture programme

Improvements in safety culture at the 12 “hotspots”

as a result of the thorough stakeholder

management and engagement. Vast systemic

changes have already been achieved in these sites

as well as some behavioural change. More

awareness and understanding of the safety

behaviour programme however is required across

Transnet.

improved attendance at shift meetings.

breathalyser testing.

Baseline 2011

Targets

2012 2013 2014 2015 2016

Number of apprentices enrolled 1 029 1 412 1 412 1 412 1 412 1 412

Number of qualified new

artisans produced 500 500 200 350 350 500

Number of qualified artisans

employed by Transnet 200 200 200 200 200 200

Number of qualified artisans

available for the market 300 300 – 150 150 300

Number of new technicians

employed 356 356 180 180 180 180

Number of new engineers

employed 64 64 110 64 64 64

undergoing training 36% 36% 39% – 40% 39% – 40% 39% – 40% 39% – 40%

technicians, artisans 1 739 1 739 1 440 1 440 1 440 1 440

Internship Transnet is currently able to accept interns on a minimum of a six-month contract for

fields of study that are aligned to Transnet’s requirements. The opportunity for three-

month internships are being explored.

Training and skills development

The availability of appropriate skills across

Transnet remains a significant challenge.

Company is planning to expand its capacity and

development is thus a focus area for significant

investment for Transnet.

Transnet’s approach to skills development entails

the creation of an integrated value chain from

secondary educational institutions, through to

tertiary educational institutions and Transnet

workplace. This allows Transnet to maintain a skills

and talent pipeline that continuously supports the

needs of the Company, while also providing skills

supports the national skills agenda by aligning with

relevant platforms in training processes (such as

the Transport Education Training Authority, the

Department of Trade and Industry).

Transnet strives to spend approximately 3% of total

personnel costs on training initiatives annually.

95

Talent management and leadership

In a nationwide climate of intense competition for

skills, Transnet’s ability to attract, manage and

retain talent is crucial. During the year, the talent

management initiative, which manages this key

managers at various organisational levels, to

ensure that employee talent is properly nurtured.

through Talent Forums. These resultant talent

pools then feed into the Company’s succession

needs.

focused on building the supervisory, management

and leadership competence in Transnet. The

focuses on building the leadership capacities of

managers. The programme celebrated the

graduation of 2 400 managers this year.

six “stars” at Extended Executive Committee level

for 2011, and plans to increase this number to

20 in the year ahead.

Throughputs on leadership development at senior

and middle management levels remain low due to a

range of operating challenges. Transnet is targeting

this by developing more customised leadership

programmes, as well as a review of the specific

needs of leadership development.

Employee wellness

Transnet’s employee wellness model consists of

Absenteeism management

The direct absenteeism payroll cost increased by

R38,5 million (27, 5%) in 2011. This increase may be

partly attributed to the annual salary increases

across different job levels. However, compared

to 2010, there has been a decrease of 25,4% in

the number of days lost due to absenteeism

during 2011.

In 2010, absenteeism management forums were

successfully introduced across all Operating

divisions. This will support healthier containment of

absenteeism and provide access to appropriate and

relevant wellness interventions.

Employee Assistance Programme

has been implemented as part of the Company’s

commitment towards creating a safe, healthy and

productive working environment. The programme

focuses on raising employee awareness of various

health risks, and supports them in taking

responsible action for managing these.

During 2010, Transnet conducted 159 wellness

events across the Company and 10 663 employees

attended, constituting approximately 21,7% of the

Transnet workforce. Transnet has initiated

interventions to support improved employee

health and wellness.

HIV/Aids disease management programme

The number of registrations for the Transmed HIV/

Aids disease management programme has

stabilised at 1 311 enrolments.

Encouraging enrolment for the HIV/Aids disease

management programme once employees have

tested positive remains a challenge. Transnet’s

focus in 2011 will be to continue its integrated

approach to HIV/Aids Testing and Counselling (HCT)

and incorporating HCT into an overall wellness and

health testing package. This package incorporates

other general health-related testing, such as

glucose and cholesterol.

The total expenditure on HIV/Aids management for

2011 was R2,2 million.

SAFETY mindset.

Good COMMUNICATION.

DIGNITY and RESPECT.

Being EMPOWERED to perform.

BUSINESS focus.

RECOGNITION and REWARD for good

work.

DELIVER on our promises.


The principal objective of the TIP is to provide

Transnet with a 30-year framework for the planning

and development of its port, rail and pipeline

infrastructure, to ensure that adequate

infrastructure capacity is created ahead of demand.

The five-year Capital Investment Plan is reviewed

annually and interrogated through a robust process

to ensure alignment to the TIP requirements and

the strategic objectives of the Company as

reflected in the Compact with the Shareholder.

Capital investments: 2011

Capital investment for the year amounts to

R21,5 billion which is the most significant

investment in a financial year by the Company and

also represents a 16,6% increase in investment

compared to the prior year. This reflects the

Company’s commitment to providing a responsive

infrastructure that creates capacity ahead of

demand and satisfies the demands of a growing

economy.

Notwithstanding the challenges experienced during

the year to roll out the capital investment plans, the

spending for the year represents 94,2% of the

targeted spending.

As set out alongside, the investment of

approximately 58,3% by the rail sector supports

the required major upgrades as well as replacement

of existing assets. The New Multi-Product Pipeline

(NMPP) from Durban to Johannesburg is the second

largest investment, that ensures the security of

fuel supply to the inland market.

Transnet Infrastructure Plan: A framework for capacity planning and creation

Transnet is the key driver and enabler of South Africa’s transport logistics infrastructure and is one of the primary contributors in planning for South Africa’s future freight transport infrastructure capacity requirements. These plans are continuously updated to account for changes in market demand and are then incorporated into the Transnet Infrastructure Plan (TIP).


Overview of major projects

Highlights of the Operating division projects are

set out below whilst more details on the mega

projects that are managed and executed by Capital

Projects, are set out in the section dealing with the

Transnet Freight Rail (Freight Rail)

The investment of R12,5 billion by Freight Rail

was made in the commodity export lines (coal and

iron ore) and in the general freight business which

constitutes 57,1% of the total revenue of Transnet.

The average age of the assets for General Freight

are well above benchmark standards and will

consequently remain a key component of the

investment plans going forward.

Major capital investments in the various projects

Capitalisation of infrastructure and wagon

maintenance/replacement

During the year 555km of rail and 292km of

sleepers were replaced and 528km of track were

screened, which resulted in the track life being

increased. Altogether 12 900 wagons underwent

major lifting programmes.

Upgrade of Class 6E1 locomotives to Class 18E

During the year 41 locomotives were upgraded.

These upgraded locomotives with higher

output have been successfully deployed on

various corridors in the general freight business

sector.

*Includes

intercompany

eliminations and

other adjustments.

Capital investments: 2011

(R billion)

Rail 12,5*

Ports 2,9

Pipelines 6,1

(%)

Rail 58,3*

Ports 13,5

Pipelines 28,2

Port of Richards Bay.

99

Capitalisation of locomotive maintenance

The implementation of improved monitoring

systems and focused control on locomotive

maintenance has resulted in timely locomotive

overhaul programmes which will improve reliability

and availability over the longer term.

General Freight volume expansion: CR 16 wagons

To meet business requirements, 354 CR16 wagons

have been deployed to the Port Elizabeth corridor

where these wagons are being used for the export

of manganese.

Yard safety automation

The aim of the project is to reduce the number of

derailments in Freight Rail shunting yards through

the automation of points and certain shunting

activities. The Ermelo, Bayhead and Beaconsfield

yards have already been completed.

Conversion of BA to C type wagons

During the year 410 wagons have been converted to

increase the capacity of these wagons from 48 tons

to 60 tons providing much needed additional

capacity for General Freight mining commodities.

Freight Rail plans on converting a further

380 wagons in the year ahead.

Train driver simulators

Of the planned 19 simulators, 18 have been

delivered and although some software/data must

still be installed, the simulators are in operation and

used for the training of train drivers.

Transnet Rail Engineering (Rail Engineering)

Rail Engineering’s investment of R532 million is

primarily executed to provide the maintenance

support and the building of rolling stock facilities

to harness volume growth of Freight Rail. Major

engineering projects include:

facilities on the Richards Bay Corridor to support

Freight Rail in ramping up coal export volumes

to 81mt.

project entailed the construction of maintenance

facilities at City Deep to perform minor

maintenance on locomotives before departure

without removing it from service. The project was

completed in March 2011.

Transnet National Ports Authority (National Ports Authority)

The major investment by National Ports Authority

for the year was in the container sector with an

amount of R1,1 billion invested in port

infrastructure for the anticipated growth in

containers at the Ports of Cape Town, Ngqura

and Durban.

Major infrastructure and equipment delivered in the

year include: three tugs (two in Durban and one in

Richards Bay), one dredger (the Isandlwana) and the

bulk liquid berth in Richards Bay.

Safety related investments at all ports, in line with

the International Ship and Port Security (ISPS) code,

were approximately R68 million and included the

provision of optic fibre cable, CCTV network and

port access controls.

Details of the investments in the different sectors

are reflected in the pie chart to the middle left.

Key projects completed

creating 1,25mt of capacity.

cubic metres of dredging capacity.

Transnet Port Terminals (Port Terminals)

Port Terminals invested R866 million during the

year with the majority of the investment targeted at

the container sector (Cape Town, Ngqura and

Durban) and the bulk sector (Richards Bay, Saldanha

and Agriport Durban). Details of projects concluded

and commenced during the year are as follows:

new conveyors and steel shed for soya bean meal

was installed and commissioned. The project

was successfully commissioned at a cost of

approximately R114 million, significantly below

budget. This new shed boosts the overall storage

capacity of the Agriport grain and soya bean meal

facilities.

quayside fleet commenced and an order was

placed for the replacement of the alumina berth

ship unloader (for key aluminium customer in

Richards Bay). This project is progressing well

with delivery and commissioning planned for

October 2012. An order was also planned in June

2011 for the supply of a replacement ship loader

for the export berth.

in the container terminals, specifically Durban

Container Terminal Pier 2 and Port Elizabeth

Container Terminal is underway.

Terminal have received a significant capital

injection of R52 million. This project is mid-way in

execution and will be completed in the year ahead.* Other includes

break-bulk,

automotives and

investments to

support all sectors

mentioned above

* Other includes

break-bulk, dry bulk,

automotives and

investments to

support all sectors

mentioned above

Freight Rail capital investment per sector (%)

Export coal 25,3%

Export iron ore 29,1%

General Freight 45,6%

National Ports Authority capital investment by sector (%)

Containers 55,4%

Liquid bulk 7,9%

Other* 36,7%

Port Terminals capital investment by sector (%)

Containers 50,6%

Bulk 45,2%

Other* 4,2%


Capital investment report (continued)

Key projects completed

capacity created.

Increase in capacity from 2,8mt to 4,8mt.

Transnet Pipelines (Pipelines)

After more than 45 years, the pipeline between

Durban and Johannesburg (DJP) is being replaced

with a new 24-inch diameter trunk line, the NMPP.

This pipeline with sufficient capacity for the future

is well in progress requiring major capital

investment as reflected in the R5,6 billion invested

during the year. The pipeline will be phased into

operation between early 2012 and the end of

2013 whilst further investments (additional

pumpstations) will be made in future years to create

more capacity.

The remaining portion of Pipelines’ investment

(R297 million) is on upgrades on other pipelines,

replacement of equipment and the safeguarding of

the operations and the overall security of the

pipeline network. Details are set out below:

was made on the telemechanical upgrades at the

various depots (7) and is closely aligned to the

completion of the various phases of the NMPP.

The projects are not yet complete and are

scheduled to be completed over the next two

financial years (four in 2012 and three in 2013).

Assets installed by these projects are in

operation.

currently in design stage and entails improving

the security infrastructure at all Pipelines’ sites

design has commenced and is expected to be

complete by the end of the 2012 year.

the Tarlton spill dam, emergency sirens, gas

supply to the refractionator, Ladysmith prover

and manifold correction have also been

completed and are operational.

other capital projects such as the DJP intelligent

pigging are in execution, and the business is

already realising the benefits of the investment.

For example the postponement of the down

rating of the DJP to 2013 as a result of the

information obtained through the intelligent

pigging exercise.

Transnet Foundation

The construction of the state-of-the art healthcare

train, the Phelophepa II has commenced at Rail

Engineering workshops in Salt River, Cape Town.

Transnet has to date invested R53 million in the

project. Six out of the 18 coaches have been

completed and the train is expected to be

operational during 2012. This project forms part of

the key focus areas of the Foundation strategy and

Transnet’s commitment to make a contribution to

healthcare in South Africa.

Port of Durban.

101

Iron ore line expansion – all phases up to 61mt (including locomotives)

The iron ore line is the main export channel for iron

ore from the mines in the Northern Cape to the Port

of Saldanha. Plans are in place to increase capacity

to 61mt. The expansion of the iron ore line is

progressing well. Capacity created to date is

approximately 61mt on the rail channel and 52mt

at the port.

The acquisition of 44 and 32 Class 15E locomotives

will facilitate the increase in iron ore capacity to

beyond 61mt. Of the 44 Class 15E ore line

locomotives 34 locomotives have been delivered to

date. Altogether 31 have been accepted into

operations with three locomotives undergoing

acceptance testing. The remaining locomotives are

planned for delivery in 2012.

Of the 32 Class 15E locomotives, 25 locomotives

are planned to be delivered in 2013 and seven

locomotives are planned for delivery in 2014.

During the year R3,0 billion was invested on iron ore

expansion projects and locomotives acquisitions,

with future investment expected to be R4,1 billion

over the next five years.

In addition the following have commenced or are in

progress:

South) to the main line is being constructed and

Progress on mega projects

A significant component of the investment plan is geared towards infrastructure, sustainability and

capacity creation to support volume growth for export iron ore, export coal, containers, manganese and

petroleum products (imported and piped). The projects undertaken require thorough studies, planning,

design and engineering before execution.

The table below reflects Transnet’s mega project portfolio:

Mega projects

Estimated total

costs (ETC)R million

2011R million

Spendingsince

inceptionto 2011

R million

Iron ore line capacity expansion to 41mt: Rail 4 105 424 2 700

Iron ore line capacity expansion to 41mt: Ports 1 264 32 1 187

Iron ore line capacity expansion to 47mt: Rail 3 190 866 2 592

Iron ore line capacity expansion to 47mt: Ports 1 225 157 879

Iron ore line capacity expansion to 61mt: Rail 3 722 1 437 1 834

Iron ore line capacity expansion to 61mt: Ports 567 79 333

Acquisition of 32 Class 15E locomotives for the iron ore line 2 000 268 268

Coal line expansion to beyond 63mt 3 824 414 831

Coal line expansion: Quantum Leap: Smaller projects to expedite creation of capacity

882 796 796

Coal line expansion to 81mt 5 100 174 174

Acquisition of 110 dual voltage locomotives for the coal line 3 405 925 2 116

Capitalisation of infrastructure maintenance 11 038# 1 265 3 236

Capitalisation of locomotive maintenance 8 885# 2 317 2 355

Capitalisation of wagon maintenance 8 700# 2 370 7 171

Acquisition of 100 new GE diesel electric locomotives 2 314 334 771

Construction of the Port of Ngqura 3 492 123 3 083

Ngqura Container Terminal 7 900* 461 4 842

Cape Town Container expansion 4 375* 741 2 697

Durban Harbour entrance channel widening and deepening 3 360 54 2 826

Reengineering of Durban Container Terminal 1 802 268 1 319

Reconstruction of sheet pile quay walls at Maydon Wharf 1 594 4 25

New Multi-Product Pipeline (NMPP)^ 23 407 5 612 11 588

# Future rolling five-year plan: 2012 – 2016

* ETC being revised

^ Investment in the NMPP represents a concentration risk to Transnet and the Company is exploring options to mitigate

the risk.



13km out of 32km of track installation has been

completed.

of port equipment has been successfully

implemented.

mooring hooks and boarding platforms to

facilitate staggered ship loading have been

completed.

upgrade, road over rail bridge and loops are

progressing well with certain components

already complete.

This is a cross-divisional project and the rail and

port divisions are major roleplayers in the

investments.

Cape Town Container Terminal

The expansion of Cape Town Container Terminal

aims at increasing capacity ultimately to 1,4 million

TEUs to address growth in demand for containers in

the Western Cape region.

The first reconfigured terminal area for refrigerated

containers has been completed. 440m of the 1 130m

long quay wall has been deepened to -15,5m chart

datum. Certain sections of the reconfigured

stacking area have been completed. The contract for

the acquisition of 32 rubber tyred gantry cranes

(RTGs) has been completed and the equipment has

been commissioned to service (28 at CTCT and 4 at

DCT Pier 1). Six of the eight ship-to-shore cranes are

in operation.

Capital invested in the Cape Town Container

Terminal in 2011 amounted to R741 million and

R2,7 billion since the expansion was undertaken.

Planned investment over the next five years in

Cape Town Container Terminal is R2,4 billion.

Ngqura Container Terminal

The Ngqura Container Terminal is a new facility

located at the Port of Ngqura and provides

additional container handling capacity to the ports

system in South Africa.

The terminal has handled 410 000 TEUs in the

current year. The option to dredge the full two

berths was approved in 2010 and the contractor

commenced work in February 2011. Ngqura

Container Terminal is behind schedule and the first

phase of the project is planned for completion by

February 2012. The dredging of the full two berths

will result in capacity of the terminal increasing to

800 000 TEUs.

Investment in the Ngqura Container Terminal

including the rail component amounted to

R461 million in 2011 and future investment in the

terminal over the next five years is planned to be

approximately R1,5 billion.

Reengineering of Durban Container Terminal

The Durban Container Terminal is one of the busiest

container facilities in Africa. The project to

reengineer the terminal through reconfiguration

and equipment replacement will result in 920 000

TEUs of additional capacity.

An amount of R268 million was invested during the

year and R247 million is planned to be spent over

the next three years.

Coal line expansion to 81mt

The coal line is the main export channel for coal and

starts from the mines in Mpumalanga and ends at

the Port of Richards Bay. Plans are in place to

increase capacity to 81mt and together with

Coal train at the Port of Richards Bay.

103

sustaining capital investment is estimated to be

R37 billion over the next 10 years.

The acquisition of 110 Class 19E dual voltage

locomotives will facilitate the planned expansion

of the coal line to 81mt. The locomotives in

combination with wagons and upgraded

infrastructure are expected to result in the

increased throughput of export coal on the

Richards Bay corridor. Of the 110 Class 19E dual

voltage locomotives, 58 locomotives have been

delivered to date (44 in 2011 and 14 in 2010).

48 locomotives have been accepted into

operations. The remaining 52 locomotives are

planned for delivery at four per month over the

next 13 months.

Investment over the next five years is planned

to be approximately R6,2 billion for the three

expansionary mega projects and new locomotives.

New Multi-Product Pipeline

This is a strategic investment to secure the supply

of petroleum products to the inland market over the

long term. The line will replace the old DJP which is

running at full capacity and nearing the end of its

design life.

Some of the benefits of the NMPP include (when

fully operational) an increase in capacity from

4,4 billion litres to 8,4 billion litres resulting in a

significant reduction in the number of tankers on

the road, and a cost-effective and efficient mode of

moving petroleum products in an environmentally

friendly manner.

The cost of the NMPP in the current year has

increased from R15,5 billion to R23,4 billion. This is

due to increases in the cost of terminals, pump-

stations and project management. The increase is

related to additional scope, schedule changes and

higher than initially budgeted for costs.

The Company is confident that the revised schedule

and costs will not be exceeded. Due to the strategic

nature of the project, the Company has established

the NMPP Governance Steering Committee to

oversee the project to conclusion with specific

focus on risk mitigation pertaining to reputational,

commissioning, governance, engineering,

construction and design, financial, legal and

regulatory aspects.

The NMPP construction is progressing according to

plan and the entire project is on track for

completion by December 2013.

Acquisition of 100 Class 43 new diesel electric mainline locomotives

Acquisition of locomotives is planned for the

General Freight business and will assist in

improving availability and reliability of the General

Freight business fleet and the entire project is

expected to support the increase in capacity to

110mt over the next five years.

Two locomotives were delivered in January 2011

and are undergoing acceptance testing.

Eight more locomotive sets have been shipped

from the USA in April 2011. The remaining

90 locomotives will be assembled at Rail

33 locomotives are planned to be delivered in

2012 and 65 are planned for delivery in 2013.

An amount of R334 million was invested in 2011

and R771 million since the project commenced.

R1,8 billion is planned to be invested in this project

over the next three years.

Manganese stockpiles at the Port of Port Elizabeth.



Transnet’s rolling Capital investment plan: 2012 – 2016

Transnet remains committed to provide responsive infrastructure that creates capacity ahead of demand

and that satisfies the demands of a growing economy as reflected in the TIP against the backdrop of

affordability. Consequently the rolling five-year plan has been increased by 18% to R110,6 billion

(excluding capitalised borrowing costs of R5,9 billion) to meet the required volume demand and to support

the growth initiatives embarked on.

Transnet’s five-year R110,6 billion Capital investment programme to increase the capacity and efficiency

of the freight system is not sufficient to meet the needs of customers and the economy. Private sector

participation is therefore critical to bridge the investment gap. Investment plans for a number of the key

projects, such as supporting Eskom’s rail migration plan and finalising the strategy for the export of

manganese will depend on Transnet being able to strike partnerships with the private sector.

Details of the Operating division targets and projections are set out below.


R million2012

R million2013

R million2014

R million2015

R million2016

R million

Freight Rail 14 693 13 521 13 301 11 564 10 624 63 703

Rail Engineering 445 364 290 250 230 1 579


2 444 3 281 7 032 5 157 5 319 23 233

Port Terminals 1 686 960 741 711 933 5 031

Pipelines 6 113 3 827 2 894 656 1 561 15 051

Specialist Units 478 443 350 365 362 1 998

Transnet Group* 25 859 22 396 24 608 18 703 19 029 110 595

Note: Investment Plan approved in February 2011.


The majority of investments are for infrastructure

assets such as the pipelines, rail track, container

facilities and rolling stock.

Approximately 37% (R41,4 billion) of the five-year

Capital investment programme is allocated to

identified growth/expansion projects. Due to the

age of Transnet’s assets approximately 62%

(R67,6 billion) is planned to be invested in the

replacement of old/unreliable assets over the next

five years.

Replacement and expansionary investments(R billion )

Expansion (37%)*

Replacement (63%)

20162015201420132012

12

,1

13

,8

7,8

14

,6

9,7

14

,9

5,9

12

,8

5,9

13

,1

* 34% of expansionary projects will create additional

volumes, the other 3% will fulfil other strategic objectives

(social, human capital, efficiency improvement).

Commodity view of investment plans

Due to the generally long useful lives of Transnet’s

asset base, commodities that are sustainable over

the long term are a priority for any expansionary

investments that Transnet embarks upon and in

some cases 10 year and longer contracts are

entered into with clients on a ‘take or pay’ basis

before any investment can be made. The chart

below depicts Transnet’s investment over the next

five years in the major commodities.

Commodity view (%)

General Freight 35

Export coal 13

Export iron ore 9

Containers 14

Piped products 12

Break-bulk 2

Bulk 2

Other* 13

* Other includes investments that support commodities

that may span across the above sectors eg tugs and

dredges support all commodities transported.

105

*Includes the acquisition of the former Durban International Airport site.

Freight Rail

The five-year investment plan for each business segment in Freight Rail is depicted below:


R million2012

R million2013

R million2014

R million2015

R million2016

R million

General Freight business 7 657 7 668 9 160 7 620 6 904 39 009

Export coal line 3 554 3 208 2 722 2 638 2 375 14 498

Export iron ore line 3 482 2 645 1 418 1 306 1 345 10 196

Total 14 693 13 521 13 301 11 564 10 624 63 703

The investment in the two export lines is primarily to increase capacity to meet customer demands. The

coal line capacity will be increased to 81mt in 2014. Capacity on the iron ore line is planned to increase

from 47mt to 61mt over the next three years. The planned investment in the General Freight business is

necessary to progress with the strategy to improve the predictability and reliability of the service.

Rail Engineering

The five-year investment plan for Rail Engineering is shown below and it is mainly to replace equipment

required for the maintenance of rolling stock to agreed performance levels as well as additional equipment

to improve service delivery.


R million2012

R million2013

R million2014

R million2015

R million2016

R million

Total 445 364 290 250 230 1 579

FIVE-YEAR CAPITAL INVESTMENT PLAN PER MAJOR ASSET CLASS

RAILR million

Land, buildings and infrastructure

21 423

Machinery and equipment

1 944

Locomotives

23 121

Wagons

18 794

TOTAL

65 282

59%

PORTSR million

Land*, buildings and infrastructure

6 422


923

Port facilities

17 883

Floating craft

3 036

TOTAL

28 264

25%

PIPELINES AND OTHERR million

Pipeline networks

13 239

Buildings and structures

745


3 065

TOTAL

17 049

16%




The planned investment in each of the major commodity sectors in National Port Authority is set out below:


R million2012

R million2013

R million2014

R million2015

R million2016

R million

Containers 1 092 840 3 338 3 012 2 739 11 021

Dry bulk 56 7 5 – 50 118

Liquid bulk 335 449 433 344 280 1 841

Break-bulk 90 378 617 410 49 1 544

Automotive – – – 34 169 203

Non-commodity specific investments 871 1 607 2 639 1 357 2 032 8 506

Total 2 444 3 281 7 032 5 157 5 319 23 233

Port Terminals

Port Terminals’ major investment categories are set out below:


R million2012

R million2013

R million2014

R million2015

R million2016

R million

Containers 963 627 645 617 850 3 702

Bulk 577 248 20 13 13 871

Break-bulk 79 14 24 40 36 193

Other 66 71 52 41 34 265

Total 1 686 960 741 711 933 5 031

Pipelines

The major investment at Pipelines is the NMPP which will increase capacity and replace the existing DJP.

The five-year investment plan is presented below:


R million2012

R million2013

R million2014

R million2015

R million2016

R million

Total 6 113 3 827 2 894 656 1 561 15 051

Fleet plans

A comprehensive fleet plan, taking into account the asset replacement strategy and asset lifecycle

management has been developed by the Operating divisions. The table below shows a high level view of the

major new fleet assets that are planned to be acquired over the next five years. Acquisition of locomotives

for the coal and iron ore export lines will result in the existing diesel locomotives being cascaded to the

General Freight fleet.

Target Projections

Operating division Asset 2012 2013 2014 2015 2016

Freight Rail Locomotives* 86 110 64 40 40

Wagons 1 509 672 736 915 461


Tugs 1 2 4 3 1

Dredgers – – – – 1

Pilot boats 2 2 – – –

Port Terminals STS cranes* – 4 2 – 2

Straddles 28 – – 22 24

RMG cranes – 2 2 – –

* Currently being revised.

107

Affordability of the five-year Capital investment plan

The affordability of the investment plan over the

next two years is critical as cash from operations

together with funding from various external

sources will have to be utilised to fund all the

required investments. Funders in general require

that Transnet maintains certain thresholds in terms

of gearing and cash interest cover to safeguard

their own investment in Transnet. The chart below

shows the profile of gearing and cash interest cover

over the next five years based on the projects

included in the existing Capital investment plan.

Opportunities beyond the five-year Capital investment plan

Other development opportunities, as noted below,

are being explored. The costs of these are being

determined and may require alternative funding.

export market, estimated volume could be

between 80mt and 135mt;

capacity beyond 81mt;

capacity to 93mt to support the increase in

demand for export iron ore and manganese;

Container Terminal to create capacity of

1,2 million TEUs;

development into a dug-out port, to address

container capacity requirements up to 2040; and

volume increases in excess of the planned levels

for GFB.

Investment/cash interest cover


Investment (R billion)

Minimum Board limit

20162015201420132012

3,2 3,33,4

3,9

4,8

3 times

25,9

22,424,6

18,719,0

Investment/gearing limit

Gearing (%)

Investment (R billion)

Maximum Board limit

20162015201420132012

46,8 46,8 46,4

37,7

50%

25,9

22,4

24,6

18,7 19,0

42,8

Durban Point Car Terminal.



Transnet Capital investment programme – Governance

The following diagram reflects the overall framework adopted during the portfolio balancing phase in

selecting projects that are included in the investment plan. The framework assists in ensuring alignment

across the Company to the key strategic objectives.

The CPMF requires that the capital spend (per

project) of Transnet be analysed against four major

areas in all Operating divisions.

2) Corridors in the network;

3) Asset types; and

4) Major commodities.

Policies and procedures

Transnet’s capital investment policies which are

currently been rolled out require that the projects

identified during the development of the

investment plan are tested through a robust “seven

step process” in arriving at a balanced portfolio

of projects. The different steps implemented are

as follows:

QUANTUM LEAP STRATEGY

Capital optimisation and

financial management

Reengineering, integration, productivity and efficiency.

Safety, risk and effective governance.

Human capital optimisation.

Commodity

focus

Corridor

focus

Infrastructure

focus

Additional volumes.

Improve operating efficiencies.

Revenue protection.

Safety optimisation/environmental improvement.

Optimise business enterprise offerings (IT).

Optimise social investments.

Optimise human resources.

Transnet’s strategy and strategic objectives are supported by investments across corridors, commodities and infrastructure assets.

identified, including non-accepted projects in the

past, suspended and existing projects as well as

feasibility studies to be undertaken;

relevant Operating division and Group categories

that support the strategic objectives at an

Operating division and Group level;

against predetermined criteria that includes non-

financial, financial and benefit analysis. Measures

that can be applied include net present value

(NPV), internal rate of return (IRR), payback

periods etc;

on the results from the evaluation step;

109

projects with due consideration for Transnet’s

strategic objectives and the availability of key

resources etc;

portfolio project mix with the greatest potential

to support the achievement of Transnet’s

strategic objectives and the greatest value

creation through the Capital Portfolio

Management Framework (CPMF); and

resources required to execute the selected

projects and the communication of the selected

portfolio to the relevant stakeholders.

Project lifecycle process (PLP)

The methodology adopted by Transnet to roll out its

mega and certain divisional executed capital

projects is contained in the Project Lifecycle

Process (PLP). This methodology entails the

conducting of front-end loading (FEL) studies at

various phases of the project lifecycle to achieve

reduction of risk and increasing certainty in line

with increasing investment. At the end of each

phase a gate review is done. Gate reviews are an

essential means of reviewing the project outcome

to date, confirming alignment with the project

objectives, reviewing the viability of the project and

granting necessary authorisation for the project to

be assessed for the next phase. During the gate

review, project cost estimates are firmed up to a

greater level of accuracy as a result of reducing risk

associated with the project. The FEL studies can be

classified as follows:

Development intended to enhance and improve

knowledge to inform Master Planning and

developing Framework Planning;

business concept is tested and a number of

options are generated to implement the

requirement;

are evaluated and a preferred option prioritised

and selected and the viability of the project is

more rigorously tested. Cost estimates at a 70%

accuracy level;

option is more fully defined and its viability

confirmed. Front-end engineering design

commences. The project to deliver the solution is

defined in terms of costs, schedule (level 1), scope

and other required disciplines – resulting in a

bankable business case being developed. Cost

estimates providing an 85% level of accuracy; and

design, contracting, construction management,

commissioning and handover is achieved.

Approval, monitoring and reporting

Capital projects follow a dual approval process.

Projects are approved in principle as part of the

Capital investment plan that is submitted to the

Board of Directors during the budget approval

process. Individual approval is thereafter required

for new projects before commencement. Depending

on the total cost of the project, approval is obtained

from the relevant governing body which may be the

Shareholder in certain cases.

The capital spending in all the areas of the portfolio

is monitored on a monthly basis to determine the

progress on the roll out of the investment plan and

to take appropriate steps where necessary.

Financial interim reviews are required to be

conducted half yearly on mega projects to assess

the viability of investment from approval up to when

the post-implementation review is conducted. Post-

implementation reviews are undertaken for certain

projects at least a year after the facility/asset has

been operating to test if the actual results match

the estimates included in the approved investment

proposal. It also tests whether the objectives of the

project have been met.

Environmental Management of the Investment Plan

Managing the environment responsibly, and caring

for the communities in which we operate, while

building and operating a world-class transport

infrastructure are key principles of our

sustainability framework and environmental

management principles. In support of the above,

Transnet is committed to ensuring compliance

with all legislation, including all environmental

legislation of the country. During the year

environmental risk audits and compliance audits

were conducted by the Department of

Environmental Affairs (DEA), Transnet Internal

Audit, as well as Group Compliance. The formal

reports from DEA are awaited.

The Environmental Impact Assessment (EIA)

regulations (National Environmental Management

Act) were amended and promulgated in July 2010.

The risk of not obtaining environmental

authorisations and other permits (such as

water use licences) for the infrastructure projects

as well as operational activities which are listed in

terms of the EIA regulations, within specific

timeframes, remains a risk to Transnet.

The good working relationship that has been

established with the DEA continued through

regular meetings and engagements. Together

with other state-owned companies, Transnet



Risks impacting the Capital investment programme

An investment plan of R110,6 billion over the next five years is susceptible to many risks. The key risks are

presented below together with mitigating actions. Continuous monitoring of the investment portfolio will

result in the table below being amended to address different risks that may arise during the course of the

roll out.

Risks Mitigating plans

Increase in the total cost of projects: Increases have a significant impact on the viability of the infrastructure facilities constructed. Pressure is also put on the cash flows and key financial ratios of the Company as more debt may need to be raised or cash needs to be generated from operations to fund the increase.

This risk is mitigated by the conducting of front-end loading (FEL) studies and the gateway review process conducted at the end of each FEL study which assists in firming up of cost estimates to a greater level of accuracy; Steering committees have been established to monitor performance of major projects.

Funding: The roll out of an investment plan of this magnitude and the current general sentiment in the capital markets might create challenges around funding. It may become difficult to procure and/or obtain funding at a reasonable cost.

Transnet has adopted a pre-funding strategy and is pursuing the participation of the private sector (PSPs) to fund some of the Company’s infrastructure. This will be a key focus area going forward.

Foreign exchange rate fluctuations: Locomotives, tugs and port handling equipment have a significant import component and is therefore subject to exchange rate fluctuation.

Transnet has a hedging strategy to cover exchange rate volatility.

Skills: Many of the projects in the investment portfolio require specialised engineering, procurement, contract and construction management skills which are in scarce supply.

The development of project structures with manning requirements, implementation of a scheme to retain skilled resources and to maintain partnerships with identified reputable managing contractors mitigates this risk.

Constructing in an operational area: With the exception of the Ngqura Port and Container Terminal most of our infrastructure investment rollout takes place in existing operational areas. Access to the work site by contractors may be affected as operations may require that the site is not readily available for development.

Proper planning for the release of the project site by operations is a mechanism to reduce risk.

continued to make contributions to the SOC Fund

that was established between the DEA and the

Department of Public Enterprises to build capacity of

the DEA in the field of environmental impact

management.

A water use licence (WUL) for the reverse osmosis

plant is awaited from the Department of Water

Affairs. The NMPP submitted WUL applications and

amendments to existing permits have been issued.

Through the Capital investment programme, several

opportunities were created for pursuing best

practice in the field of environmental management.

Several of the initiatives have been put in place to

either comply with conditions as set out in the

environmental authorisations or to ensure best

practice. Two examples are provided below:

system for monitoring and controlling rodents

inside an international Port of Call.

authorisation for the NMPP was that Transnet

had to develop a biodiversity offset for the

wetlands that were impacted by the construction

of Terminal 2 of the pipeline, and specifically

the habitat of the endangered giant bull frog

that would be impacted on by the location of

Terminal 2.

Sustainable development and environmental

criteria, as well as climate change considerations

have been incorporated into the Transnet

Infrastructure Plan.

111


Condition of assets being refurbished: The assets being refurbished may be in a worse condition than initially expected which results in increased costs and a longer period that the asset is out of service.

Proper asset lifecycle management, major overhaul and service intervention plans to be put in place to address this risk.

Environmental impact assessment (EIA): These studies tend to run on for long periods affecting the project start date and hence its completion. The project could as a result of a drawn out EIA process commence later and cost more than anticipated and may not be ready in time to take up the increase in volume demand which will lead to bottlenecks in the logistics chain.

Greater engagement with Government and other stakeholders is being undertaken for a more effective EIA application process. The Transnet Infrastructure Plan (TIP) now provides a greater horizon for projects to be executed and should reduce pressure on tight timeframes for project development.

Returns/volumes not materialising: There is always a risk that the volumes anticipated when the project was motivated do not materialise. The Company could end up with semi-productive assets for which funding still has to be serviced and settled.

This risk is mitigated through a robust capital approval process before the commencement of projects (Divisional Investment Committees, Group Investment Committee, Executive Committee as well as the Board of Directors and Shareholder according to the delegations of authority and the Materiality and Significance Framework as agreed with the Shareholder). In some cases entering into ‘take or pay’ contracts with clients before the investment is made also mitigates this risk.

Safety on project sites. Safety is a key focus area for Transnet. Long-term injury-free hours is an indicator used to measure safety performance and a culture and awareness of safety are key behaviours management is trying to embed throughout the organisation.

Electricity: The impact of electricity, specifically load shedding will have major consequences for both Transnet who uses electricity extensively in all operations (rail, port and pipeline) and in the construction of assets and clients that utilise electricity in the mining and general production process.

Transnet will continue to engage with Eskom with regard to electricity infrastructure. Electricity initiatives throughout the organisation have been adopted so that consumption takes place at the most efficient levels.

Productivity linked to capacity: The capacity of certain facilities has been simulated at a defined level of productivity eg the capacity of the Ngqura Container Terminal is 750 000 TEUs per annum is based on a gross crane move per hour rate of 28. If this efficiency rate is not achieved in operations then the capacity of the terminal will be lower than the initial design which impacts on revenue and could result in bottlenecks.

Stronger first line management and performance and reward systems are being explored to address productivity.

Economic regulation: Two of Transnet’s divisions (National Ports Authority and Pipelines) are for the most part regulated in terms of the tariffs that can be charged to clients. Investing in an environment where planned returns can be reduced by changes in regulation and regulatory policies is challenging as funders for major bulk infrastructure require a fair return and security of their funds advanced to Transnet.

Transnet will continue engaging constructively with the Regulator to create an environment conducive for investment for the benefit of South Africa.


Freight Rail



Transnet Freight Rail (Freight Rail), the largest of Transnet’s Operating divisions, transports bulk and containerised freight along approximately 20 500 route kilometres of which 1 500 kilometres comprise heavy haul lines for export coal and export iron ore. Freight Rail supports the transport needs of most of the growing sectors of the economy and allocates capacity to prioritised commodities, thereby contributing to national objectives. Strategic advantage lies in the movement of heavy haul and bulk commodities over long distances, where flow densities provide economies of scale and lower unit costs.

The Export coal business focuses on conveying coal from the Mpumalanga coalfields to the Port of Richards Bay. The Export iron ore business operates the heavy haul line from mines in the Sishen area to the Port of Saldanha Bay. The General Freight operation comprises the transportation of freight on national main line corridors between economic hubs and ports. Intermodal traffic, forming part of the General Freight business, and operating as the Container and Automotive business, extends between main industrial hubs and ports or continue over-border.

For export coal and export iron ore

along approximately

20 500 ROUTE KMSINCLUDING 1 500 KMS

HEAVY HAUL LINES

TRANSPORTS FREIGHT

Export coal operations.

115

Highlights Challenges



5

HUMAN CAPITAL

6, 7, 8STRATEGIC ENABLERS, SHEQ AND REGULATORY

3CAPITAL INVESTMENT

2VOLUME GROWTH


Freight Rail (continued)

Market analysis

Competitive environment

Customer profile

Performance indicators

2010Actual

2011Target

2011Actual

2012Target

Operational efficiency

5 121

12,6

13 505

72

38 866

85

3 711

67,1

Customer focus

350

234

161

434

468

285

THE AUTOMOTIVE INDUSTRY

is gearing for an

increase in

manufacturing.

This will have a

positive influence

in the Pretoria area

for both containers

and automotive

units, which in turn

requires a total

review of inland

rail terminal’s

supply chain.

117

2010Actual

2011Target

2011Actual

2012Target

Volume

73,7

36 974

34,0

62,2

36 914

46,2

40 088

Infrastructure

12 542

77 74

70 75


36,0

7,7

Human capital

23 665

2,2

77,6

5,1

6,3

Safety, health and environment

1,22

558 374

8

138

nil

609

156 149

1 299

38 068 30 000

(a) Excluding B-fleet and shunting locomotives.

(b) General freight locomotives on export coal line excluded from 2012.

(c) Rail containers expressed as a percentage of railable maritime import and export containers.

(d) Excluding the capitalisation of borrowing costs and including the capitalisation of finance leases.

(e) EBITDA expressed as a percentage of revenue.

(f) Profit from operations before impairment of assets, fair value adjustments, dividends received, net finance costs and taxation expressed as a

percentage of average total assets excluding capital work in progress.

ns not set.

zt zero tolerance.

nr not reported.



Financial and operational performance

Salient features

Year ended31 March

2011R million

Year ended31 March

2010R million

% change

22 607

13 364

5 632

2 669

942

(14 463)

(2 533)

(2 949)

(436)

(6 555)

(1 990)

8 144

(4 602)

3 542

(181)

12

(1 448)

Profit before taxation 1 925

Total assets (excluding CWIP) 50 681

Profitability measures

36,0

15,7

7,7

0,49

Capital investments^ 12 542

Capitalised maintenance expenditure 4 024

Employees

23 665

0,96

* EBITDA expressed as a percentage of revenue.

** Profit from operations before impairment of assets, fair value adjustments, dividends received, net finance costs and taxation expressed as a

percentage of revenue.

*** Profit from operations before impairment of assets, fair value adjustments, dividends received, net finance costs and taxation expressed as a


**** Revenue divided by average total assets excluding capital work in progress.

^ Actual capital expenditure (replacement + expansion) excluding borrowing costs and including capitalised finance leases.

119

Revenue

General Freight business

Export Coal Line

EXPORT IRON ORE

Increased by 1,5mt.

CITY DEEP VOLUMES

2010: 250 430 TEUs

2011: 277 641 TEUs

GENERAL FREIGHT

Growth of 2,2%

to 73,7mt.

EXPORT COAL

Increased by 0,4mt.



Export Iron Ore Line

Operating expenses

Profitability

Capital investment

51 547 LESS TRUCKS ON THE ROAD

resulting in a

substantial

CO2 emissions

saving of

13 527 tons.

FREIGHT RAIL

Many of the

operations are

in smaller

municipalities and

rural areas, leading

to sustainable

employment and

economic

stimulation in

those areas.

121

2011Actual

R million

Five-year planned

spendingR million

5 758

3 138

3 646

Total* 12 542

* Excluding capitalised borrowing costs and including capitalised finance leases.

Sustaining and expanding operations

General Freight business

Export Coal line

Iron Ore line

The five-year capital investment plan

FREIGHT RAIL’S CAPITAL EXPENDITURE PROGRAMME:

R12,5 billion

focused on

increasing capacity,

as well as

maintaining and

replacing

infrastructure and

rolling stock to

meet customer

demand for freight

transport more

efficiently.

THE CAPACITY EXPANSION PROGRAMME

is well underway

and the acquisition

programme

of 110 new 19E

locomotives

is gaining

momentum.



BBBEE performance

Safety performance

Environmental management

Contamination and pollution

BBBEE PROCUREMENT

Target 2011: 70%.

Actual spend: 75%.

123

Climate change

Waste management

Human capital

Trains entering the Port of Ngqura.



Governance

Regulatory environment

Manganese stockpiles at the Port of Port Elizabeth.

125

Top 10 risks and mitigating plans


Area of

strategic impact

1Productivity efficiency risk: Inability to move

planned volumes as a

result of ageing rolling

stock and infrastructure

leading to a reduction in

operating effectiveness

and revenue loss.

Volumes, operational efficiency, financial performance, safety and human capital.

2Human capital risk (Competency): Lack of

competent, willing and

empowered management

of the workforce leading

to poor organisational

performance.

Volumes, operational efficiency, financial performance and human capital.

3Commercial risk: The

financial performance and

going-concern status

threat in respect of

Transnet’s major third

party provider of

Information,

Communication and

Technology Systems.

Financial performance.

4Industrial relations risk: The pressure in the

industrial relations

landscape resulting in

strike action.

Volumes, operational efficiency, financial performance and human capital.

5Market structure risk: Implementation of branch

lines strategy in the

absence of guiding

policy reform.





Area of

strategic impact

6Environment, safety and security risk (Health and safety): Non-compliance

with safety and standard

operating procedures

(Train Working Rules)

leading to safety

incidents, fatalities

business interruptions

and poor customer

service.

Human capital, safety and environment and operational efficiency.

7Revenue performance risk: Lack of correlation

between costs and

activities.


8Environment, safety and security risk (Environment): The

negative impact of

railway operations on

the environment leading

to environmental

degradation as well

as the impact of the

environment on railway

operations.

Safety and environment.

9Procurement and contract management risk: Non-adherence to

contract lifecycle

management process

leading to negative

publicity, exposure to

fraudulent activities,

and overspending.

Financial performance, infrastructure and procurement.

10Capital projects risk: Ineffective

implementation and

execution of capital

projects.

Volumes, financial performance, infrastructure, procurement and operational efficiency.

127

Strategic initiatives

Overview

Strategy and implementation

Transnet Freight Rail personnel at the Manganese Terminal – Port Elizabeth.



VOLUMESBusiness drivers and key initiatives

Challenges going forward

Key risks 1 2

6 10

Management commitments

Prospects

VOLUMES

Business drivers and key initiatives


Key risks 1 2

4 5


Prospects

VOLUMES


VOLUME GROWTH

129



Key risks 9 10


Prospects

VOLUMES



Key risks 1 2

3 4

5 7

9 10


Prospects

VOLUMES

CAPITAL INVESTMENT






Key risks 1 2

4 6


Prospects

VOLUMES

Operation in Saldanha.

HUMAN CAPITAL

131



Key risks 6

8


Prospects

SHEQ


Rail Engineering



Transnet Rail Engineering (Rail Engineering) is the backbone of South Africa’s railway maintenance industry, with eight product-focused businesses, 132 depots, six factories and 13 001 employees countrywide. The Operating division is dedicated to in-service maintenance, repair, upgrade, conversion and manufacture of freight wagons, mainline and suburban coaches, diesel and electric locomotives as well as wheels, rotating machines, rolling stock equipment, casting, auxiliary equipment and services.

Personnel at Koedoespoort.

13 001 EMPLOYEES

8 PRODUCT-FOCUSED BUSINESSES

135



5HUMAN CAPITAL

– –


3CAPITAL INVESTMENT

2VOLUME GROWTH



Rail Engineering (continued)

Market analysis

Customer profile

Student at the School of Engineering.

137


2010Actual

2011Target

2011Actual

2012Target


% 89,6

30 30

% 94,5

0,50 0,38

– % 88,5 89,6

28

% 93,8

0,88 0,80 0,79

% 90,2

31 44 33

% 97,6

0,20 0,13

– % 88,5 88,2

31 35 18 20

% 98,1

0,02 0,15 0,01 0,10

Infrastructure

500 532

% 80 44 85


% 8,2 11,3 12,3 12,3

% 8,5 13,1 15,8

Human capital

13 001

% 3,0 3,5

% 74,5

% 3,0 5,0 3,8


0,81 0,93 0,80

121 128 110,5

2 1

0 0

nil

(a) Excluding the capitalisation of borrowing costs.

(b) EBITDA expressed as a percentage of revenue.

(c) Profit from operations before impairment of assets, fair value adjustments, net finance costs and taxation expressed as a percentage of average

total assets excluding capital work in progress.

zt zero tolerance.




Salient features

Year ended31 March

2011R million

Year ended31 March

2010R million

% change

9 326 8 215 13,5

8 665

661 1 280

(8 175) 8,3

(146)

(145)

(3 630)

(3 719)

(535)

1 151

(171)

980

(12)

(184)




% 12,3 8,2

% 10,5

% 15,8 8,5

1,50

Capital investments^ 532

Employees

13 001

0,72 10,8


** Profit from operations before impairment of assets, fair value adjustments, net finance costs and taxation expressed as a percentage of revenue.

*** Profit from operations before impairment of assets, fair value adjustments, net finance costs and taxation expressed as a percentage of average



^ Actual capital expenditure (replacement + expansion) excluding borrowing costs.

139

Revenue

Operating expenses

Profitability

Capital investment

The five-year capital plan

EBITDA

increased by 71,8%

to R1,2 billion.

EBITDA MARGIN

increased from

8,2% to 12,3%.

Koedoespoort depot – locomotive wheels.

TOTAL REVENUE

increased by 13,5%

to R9,3 billion.

INTERNAL REVENUE

increased by 24,9%

to R8,7 billion.



BBBEE performance

Safety performance


Climate change

Waste management

The asbestos management standard

Waste management strategy

Human capital

141



Area of

strategic impact

1Commercial risk: Decreased capital

spending by the main

external coach business

clients leading to a

reduction in volumes and

loss of revenue.

Volumes, financial performance, infrastructure and procurement.

2Capital projects risk: Increased input costs for

capital projects and net

working capital.


3Logistics and supply chain management risk: Ineffective demand

management resulting

in shortages and

unavailability of

material.

Operational efficiency, volumes, financial performance, infrastructure and procurement.

Governance





Area of

strategic impact

4Human capital risk (Thin skills base): Critical skills shortage

and retention.

Human capital, operational efficiency, infrastructure, procurement and financial performance.

5Infrastructure maintenance risk: Equipment breakdowns.

Financial performance, operational efficiency, infrastructure, procurement, volumes, safety and environment.

6Productivity efficiency risk: Not sustaining

appropriate availability

and reliability of rolling

stock.

Operational efficiency, financial performance, infrastructure, procurement, volumes and human capital.

7Productivity efficiency risk: Slow to produce

new products.

Volumes, financial performance, operational efficiency, human capital, infrastructure and procurement.

Bay 4 Koedoespoort – reprofiling and cutting of locomotive wheel.

143


Area of

strategic impact

8Environmental, safety and security risk (Safety): Injuries,

disabilities and fatalities.

Safety and environment and human capital.

9Environment, safety and security risk (Security): Theft of assets and

material.

Human capital, safety and environment, infrastructure and procurement.

10Environment, safety and security risks (Environment): Increase

in environmental

liability.

Volumes, operational efficiency, financial performance, infrastructure, procurement, human capital, safety and environment.


Overview






Key risks 3 4

5 6


Prospects

VOLUMES



Key risks 1 2

3 5

6


Prospects

VOLUMES


VOLUME GROWTH

145



Key risks 1 2

3 4

5 6

9


Prospects

VOLUMES



Key risks 1 2

3 4

5 6


Prospects

VOLUMES

CAPITAL INVESTMENT






Key risks 4 6

8 9 10


Prospects

Rail Engineering, Koedoespoort Depot.

HUMAN CAPITAL

147



Key risks 5 8 9 10


Prospects

SHEQ



Transnet National Ports Authority (National Ports Authority) is the ‘landlord’ port authority responsible for the safe, efficient and effective economic functioning of the national ports system, which it manages, controls and administers. The Operating division also provides and manages port infrastructure and maritime services and, in a broader context, facilitates the development of trade and commerce through market collaboration for the economic benefit of the national economy. It owns and manages eight ports within South Africa: Saldanha Bay, Cape Town, Mossel Bay, East London, Port Elizabeth, Durban, Richards Bay and the Port of Ngqura.

National Ports Authority’s business is divided into two key operational areas: Port infrastructure and maritime operations. Port infrastructure and maritime services are provided in five market segments: containers, dry bulk, liquid bulk, break-bulk and automotive. The major commodities handled at the ports are coal, iron ore, containers, automotives, steel, fruit, ferrochrome, petroleum products and manganese.

National Ports Authority is the

‘landlord’ port authority responsible

for the safe, efficient and effective

economic functioning of the national

ports system.

PORT INFRASTUCTURE

MARITIME OPERATIONS

Coal, iron ore, containers, automotives, steel, fruit, ferrochrome, petroleum products and manganese.

KEY BUSINESS SEGMENTS

MAJOR COMMODITIES

Containers, dry bulk, liquid bulk, break-bulk, automotive.

Port of Richards Bay.

151



3CAPITAL INVESTMENT

5HUMAN CAPTIAL


2VOLUME GROWTH



National Ports Authority (continued)

Market analysis

ll

l

Competitive environmentCustomer profile


153


2010Actual

2011Target

2011Actual

2012Target


1,7

1,0

1,3

0,5

1,4

40

26

36

nr

46

– 46

67

78

2 237

3 316

2,3

Volume

4 081

8,7

41,9

140,3

617 592

Infrastructure

2 031

80


72,8

9,6

Human capital

3 535

4,0

76

5,4


0,80

32

nil

nil

nil





nr not reported

ns not set

zt zero tolerance




Salient features

Year ended31 March

2011R million

Year ended31 March

2010R million

% change

8 061

3 600

254

697

654

472

2 384

(2 195)

(215)

(254)

(63)

(1 180)

(483)

5 866

(997)

4 869

355

(1 234)




72,8

60,4

9,6

0,16


Employees

3 535

2,28







155

Revenue

Containers

Break-bulk

Dry bulk

Automotive

Operating expenses

Profitability

Capital investment

AUTOMOTIVEVOLUMES

increased by 54,0%.

CONTAINER VOLUMES

grew by 12,5%

to 4 080 832 TEUs.



Per Port

2011Actual

R million

Five-yearplanned

spendingR million

174

326

12

475

24

2

543

76

308

1

90

Total* 2 031

Major projects

2011Actual

R million

112

28

54

– 46

137

40

25

– 123

– 348

488

307

68

255

Total* 2 031

*Excluding capitalised borrowing costs.

R54 MILLION

Widening and

deepening of the

Durban entrance

channel.

R488 MILLION

Expansion of Cape

Town Container

Terminal.

R307 MILLION

Trailing suction

hopper dredger.

157

Safety performance



Hopper dredger.

DISABLING INJURY FREQUENCY RATE

Improvement to

0,80 from 1,24

in 2010.



Climate change

Waste management

Human capital

Transnet helicopter landing at the Port of Durban.

159

Governance


To ensure the

provision of port

services, including

the management of

port activities and

the port regulatory

function at all

South African ports.

To plan, provide,

maintain and

improve port

infrastructure.

To provide or

arrange marine-

related services.

To provide aids

to assist the

navigation of

vessels within

port limits and

along the coast.

SECTION 11 OF THE PORTS ACT PRESCRIBES THE CORE FUNCTIONS OF THE NATIONAL PORTS AUTHORITY:





Area of

strategic impact

1Regulatory risk: Economic regulatory

environment impacting

adversely on operations

and revenue generation.

Volumes and financial performance.

2Commercial risk: Inability to increase lease

revenue and drive

enforcement in line with

lease agreements.


3Revenue performance risk: Non-realisation of

anticipated volumes and

revenue growth.


4Capital projects risk: Capital projects not

completed on time and

within budget to provide

capacity ahead of demand.


5Human capital risk (Succession planning): Ineffective succession

plan pools.

Financial performance, human capital and operational efficiency.

161


Area of

strategic impact

6Infrastructure maintenance risk: Inadequate port

infrastructure

maintenance inclusive of

dredged channels, basins,

berths and marine craft

resulting in operational

inefficiencies.

Volumes, financial performance, infrastructure, procurement and operational efficiency.

7Procurement and contract management risk: Inability to source

the right service at the

right time in a cost-

effective manner and

within the Transnet

Procurement Policy.


8Productivity efficiency risk: Increased port

inefficiencies resulting

in congestion and loss of

market share.

Volumes, financial performance, human capital operational efficiency and safety.

9Compliance risk: Non-compliance with

legislation resulting in

directives, fines, penalties,

criminal and possible civil

litigation.

Financial performance, infrastructure, procurement, safety and environment.

10Environment, safety and security risk: Human error, negligence

and non-compliance with

standard operating

procedures result in

disabling injuries,

fatalities, pollution and

security breaches.

Financial performance, human capital, safety and environment.




Overview




Key risks 5 6

8


–

Prospects


163



Key risks 1 3

4 6

8


Prospects

National Ports Authority personnel at work – Port of Ngqura.

VOLUME GROWTH





Key risks 4 6

7 9


Prospects

VOLUMES



Key risks 1 2

3 4

5 6

7 8

9 10


Prospects

CAPITAL INVESTMENT


165



Key risks 5 8

10


Prospects

VOLUMES



Key risks 9 10


Prospects

HUMAN CAPTIAL

SHEQ


Port Terminals



Transnet Port Terminals (Port Terminals) provides cargo-handling services to a wide spectrum of customers, mainly comprising shipping lines, freight forwarders and cargo owners. Operations are divided into four major market sectors, namely containers, bulk, break-bulk and automotive. Port Terminals manages 16 cargo terminals across seven South African ports with a staff complement of 5 867 as at March 2011.

CONTAINERS BULK

BREAK-BULK AUTOMOTIVE

OPERATIONS ARE DIVIDED INTO FOUR MAJOR MARKET SECTORS:


– Annual average of 24 GCH performance. – Rolling average* of 28 GCH (Target = 26GCH).


– Annual average of 26 GCH performance. – Rolling average* of 29,5 GCH (Target = 26GCH).


* 90-day rolling average.

breakdowns in straddle carriers and cranes, despite improvements in the performance of the premium berths. Average of 24,5 GCH for the last 90 days of the year, which represents a 19% improvement from the prior year.

were below targets, primarily due to the poor state of the plant and equipment at this terminal. Only safety critical equipment is being procured. Replacement of other equipment is dependent on the outcome of the long-term strategy for the Richards Bay corridor.

Freight Rail derailments, impacting stockpiles and resulting in a higher proportion of single loading, which is less efficient than dual loading.



169



3CAPITAL INVESTMENT

5HUMAN CAPITAL

6, 7, 8STRATEGIC ENABLERS SHEQ AND REGULATORY

2VOLUME GROWTH


Port Terminals (continued)

Market analysis


Customer profile

The interlink

between the Ports

of Richards Bay

and Maputo is

being addressed by

a high level study

expected to be

concluded in

July 2011.

INTERLINK

171


2010Actual

2011Target

2011Actual

2012Target


23

26

25

25

24

47

40

46

37

40

6 959

660

425

46

45

200

0,9

Volume

4 017

10,3

67,5

617 588

Infrastructure

866

80


34,5

10,5

Human capital

5 867

3,7

80

5,5

5,3


0,51

1 436

1

nil

nil

218

* Based on 90-day rolling average.

** Blended loading rate based on dual (79%) and single (21%) loading.



(c) Profit from operations before impairment of assets, fair value adjustments, dividends received, net finance costs and taxation expressed as a


zt zero tolerance.

ns not set.




Salient features

Year ended31 March

2011R million

Year ended31 March

2010R million

% change

6 351

3 495

1 611

826

419

(4 163)

(273)

(208)

(257)

(2 048)

(1 377)

2 188

(998)

1 190

(106)

– –

(356)

Profit before taxation 728



34,5

18,7

10,5

0,56

Capital investments^ 866

Employees

5 867

1,08


** Profit from operations before impairment of assets, fair value adjustments, dividends received, net finance costs and taxation expressed as a

percentage of revenue.

*** Profit from operations before impairment of assets, fair value adjustments, dividends received, net finance costs and taxation expressed as a




173

Revenue

Containers

Container handling

Bulk

Iron ore handling

Other bulk handling – Richards Bay

BULK VOLUMES

increased by 8,9%

to 67,5mt.

CONTAINER VOLUMES

increased by 11,4%

to 4 016 564 TEUs;

exceeded target

by 4,1%.



Break-bulk

Automotives

Operating expenses

Profitability

Capital investment

Planned capital investment – Major investments

2011Actual

R million

Five-year planned

spendingR million

–

253

40

8

2

131

61

79

–

–

292

Total* 866

* Excluding capitalised borrowing costs.

175

The five-year capital investment plan

Safety performance


Crane operator at the Port of Durban.

R2,8 BILLION

planned

replacements of

container handling

equipment at

various terminals.

ZERO

major

environmental

incidents in the

next five years.



Waste management

Human capital

Governance


177



Area of

strategic impact

1Productivity efficiency risk: Poor productivity

efficiency resulting in

dissatisfied customers,

pressure from

stakeholder and a threat

to operating licences.

Volumes, operational efficiency, financial performance, human capital and safety.

2Commercial risk: Poor

return on capital

investment.


3Regulatory risk: Lack of

alignment between the

company’s strategic intent

and existing/emerging

policy and regulatory

direction.


4Infrastructure maintenance risk: Equipment performance

and availability not

meeting productivity

requirements arising out

of inadequate

maintenance practices.

Volumes, operational efficiency, financial performance and safety.

5Capital projects risk: Untimely delivery of

capital projects within

budget and quality

specifications.

Volumes, operational efficiency and financial performance.




Area of

strategic impact

6Environment, safety and security risk (Health and safety): Disabling injuries

and fatalities arising out

of non-compliance with

safety legislation, policy

and standards.

Human capital, safety and environment.

7Environment, safety and security risk (Environment): Non-compliance with

environmental legislation

resulting in fines,

penalties and adverse

publicity.


8Human capital risk (Culture): Employee

performance culture not

geared towards achieving

Quantum Leap objectives.

Operational efficiency, financial performance and human capital.

9Revenue performance risk: Eroding profit

margins resulting from

escalating operating costs

associated with increased

energy, labour, and rental

costs.


10Procurement and contract management risk: Poor procurement

practices and inadequate

contract management

resulting in increased

liability, litigation and

financial loss.


179


Overview


Port of Ngqura.





Key risks 1 4

5 8


Prospects

VOLUMES



Key risks 1 3

4 5


Prospects

VOLUMES


VOLUME GROWTH

181



Key risks 5 10


Prospects

Crane operation at the Port of Durban.

CAPITAL INVESTMENT





Key risks 1 2

3 4

5 8

9 10


Prospects

Port of Durban.


183



Key risks 1 6

8


Prospects

VOLUMES



Key risks 6

7


Prospects

HUMAN CAPITAL

SHEQ


Pipelines


Transnet Pipelines

Transnet Pipelines (Pipelines) owns and operates South Africa’s 3 000 kilometres of strategic petroleum and gas pipeline infrastructure, traversing five provinces with the strategic objective of ensuring security of supply of petroleum products to the inland market. The pipeline system is the preferred mode of transportation of petroleum products as it is cost-effective, environmentally friendly and reliable. The business is regulated by the National Energy Regulator of South Africa (NERSA) and is governed by the Petroleum Pipelines Act No 60 of 2003 (Petroleum Pipelines Act) and the Gas Act No 48 of 2001 (Gas Act).

Pipelines transports a variety of petroleum products and gas through the pipeline infrastructure. Its clients comprise the major oil companies in South Africa. Pipelines’ infrastructure further includes a tank farm at Tarlton, with storage and distribution facilities that have a capacity of approximately 30 million litres and is key in the supply of petroleum products to Botswana.

Cost-effective. Environmentally friendly.

Reliable.

3 000 KILOMETRESof petroleum and

gas pipeline infrastructure.

OWNS AND OPERATES

Pig launching.

187


.

.


3CAPITAL INVESTMENT

5HUMAN CAPITAL


.


2VOLUME GROWTH


Pipelines (continued)

Market analysis


Customer profile

PETROLEUM STORAGEGAS

PIPELINES OPERATES IN THE FOLLOWING KEY BUSINESS SEGMENTS:

25 BILLION

litres petroleum

products consumed

by South Africa

per annum.

Pipelines storage tanks.

189


2010Actual

2011Target

2011Actual

2012Target


102

n/a

85

89

89

285

72

Customer focus

95

0,6

l 5,9

Volume

l 10 997

l 5 457

l 1 149

l 616 422

470

Infrastructure

6 077

68


61,7

7,0

Human capital

567

5,1

77

4,0

1,2


0,33

76

nil

nil

6 6

26

236 117

(a) Excluding the capitalisation of borrowing costs and including capitalised decommissioning liabilities.




n/a not applicable.

zt zero tolerance.




Salient features

Year ended31 March

2011R million

Year ended31 March

2010R million

% change

1 129

774

35

433

112

39

–

(264)

(432)

(56)

(40)

(11)

(217)

(108)

697

(330)

367

(10)

118

Profit before taxation 475



61,7

32,5

7,0

0,22


Employees

567

1,99






^ Actual capital expenditure (replacement + expansion) excluding borrowing costs and including capitalised decommissioning liabilities.

191

Revenue

Operating expenses

Profitability

Capital investment

2011Actual

R million

Five-yearplanned

spendingR million

Planned capital investment

5 589

–

15

39

–

–

434

Total* 6 077

* Excluding capitalised borrowing costs and including capitalised decommissioning liabilities.

NMPP PROJECT PHASE 01

increase capacity

by 5,5% to

8,7 billion litres per

annum; and

increase capacity

from the coast to

the inland market.

OPERATING EXPENSES

decreased by 7,7%

compared

to prior year.

Sustaining and expanding operations



BBBEE performance

Safety performance



Climate change

Waste management

193

Human capital

Governance


Corporatisation of Pipelines

THE NEWLY ESTABLISHED PIPELINES ENERGY FORUM

Yielding positive

results in

conserving

electricity.





Area of

strategic impact

1Capital projects risk: Failure of the Bridging

Plan and non-

achievement of

volume targets.

Volumes, operational efficiency, financial performance, infrastructure, procurement and human capital.

2Capital projects risk: Completion of NMPP

within revised budget in

accordance with revised

timelines.

Volumes, operational efficiency, financial performance, infrastructure, procurement and human capital.

3Capital projects risk: Failure of the DJP due to

extended use until NMPP

is commissioned.

Volumes, operational efficiency, financial performance, infrastructure, procurement, human capital and safety.

4Business continuity risk: Business interruptions

resulting from internal or

external activities eg

theft, sabotage, accidents

or system failures.

Volumes, operational efficiency, financial performance, human capital, safety and environment.

5Capital projects risk: Pipelines readiness/

preparedness for

maintenance and

operation of the NMPP.

Volumes, operational efficiency, financial performance, infrastructure, procurement, human capital and safety.

6Market structure risk: Pipelines’ growth is

limited in a regulated

environment.

Operational efficiency, financial performance and human capital.

7Environment, safety and security risk: Conveyance

of hazardous products

resulting in safety,

spillages and security

incidents and damage.


195


Area of

strategic impact

8Human capital risk (Thin skills base/competency): Inappropriate/inadequate

human resources

capability to ensure

business sustainability.

Volumes, operational efficiency, financial performance, infrastructure, procurement, human capital, safety and environment.

9Regulatory risk: Ensuring consistency in

the application of the

tariff setting methodology

and review possible

corporatisation of

Pipelines.

Volumes, operational efficiency, financial performance, infrastructure and procurement, human capital, safety and environment.

10Reputational risk: Risk to reputation

resulting from non-

delivery of Pipelines’

strategic mandate and

business failures.

Volumes, operational efficiency, financial performance, infrastructure and procurement, human capital, safety and environment.


Overview

l

Product line colour coding on manifolds.




VOLUMES



Key risks 1 2 3 5 4

6 8

9 10


Prospects

VOLUMES



Key risks 1 2 3 5 4

9 10


l

Prospects

VOLUMES


VOLUME GROWTH

197



Key risks 1 2 3 5 4

8 9

10


Prospects

VOLUMES


l


Key risks 1 2 3 5 4

6 8

9 10


Prospects

VOLUMES

CAPITAL INVESTMENT






Key risks 1 2 3 5 4

6 8

9 10


Prospects

Personnel on manifold.

HUMAN CAPITAL

199



Key risks 4 7

8 9

10


Prospects

SHEQ

Transnet Limited Annual Report 2011206

Proof 4 – 21 May 2011 – ANNETTE


ANNU

AL F

INAN

CIAL

ST

ATEM

ENTS

3


Approval of the annual financial statementsfor the year ended 31 March 2011

Directors’ responsibilities

The Directors’ are required, by the Companies Act, No 61 of 1973

of South Africa, as amended (Companies Act), and the Public

Finance Management Act No 1, 1999, of South Africa (PFMA), to

prepare annual financial statements which fairly present the

state of affairs of the Company and the Group as at the end of the

year, the profit or loss and cash flows of the Company and the

Group for the year then ended.

In preparing these annual financial statements, the Directors’

consistently;

and prudent;

followed; and

basis unless it is inappropriate to presume that the

Company and/or the Group will continue in business for

the foreseeable future.

The Directors’ of the Company are responsible for the

maintenance of adequate accounting records and the preparation

and integrity of the annual financial statements and related

information. The annual financial statements have been

prepared in accordance with International Financial

Reporting Standards (IFRS), the Companies Act and the PFMA.

Directors’ statements

The external auditors, Deloitte & Touche, are responsible for

independently auditing and reporting on the financial

statements in conformity with International Standards of

Auditing. Their audit report on the annual financial statements

prepared in terms of the Companies Act and the PFMA

appears alongside.

The Internal Audit activities are in line with the requirements

of the PFMA and leading practice and have enabled the

preparation of these annual financial statements. Transnet

Internal Audit have executed a number of reviews during the year.

Based on these reviews they have assessed the effectiveness

of the system of internal controls and risk management.

Their assessment results are included in the Board Audit

Committee Report.

The Directors’ have every reason to believe that the Company

and Group have adequate resources and facilities in place to be

able to continue in operation for the foreseeable future.

Therefore, the Directors’ are satisfied that Transnet is a going

concern and have continued to adopt the going-concern basis in

preparing the annual financial statements.

The Board Audit Committee has reviewed the effectiveness of

the Company’s internal controls and considers the systems

appropriate for the effective operation of the Company. The

Board Audit Committee has evaluated the Group’s annual

financial statements and has recommended their approval to the

Board of Directors. The Board Audit Committee’s approval is set

out later.

In preparing the Company and Group annual financial

statements, the Company and the Group have complied with

IFRS and the Companies Act. In addition, the Group has complied

with the reporting requirements of the PFMA.

The Company has used appropriate accounting policies supported

by reasonable and prudent judgements and estimates.

Judgements and estimates made in the application of IFRS, that

have a significant impact on the annual financial statements are

disclosed in the accounting policies.

The Directors’ are of the opinion that the Company and the

Group have complied with applicable laws and regulations

except as disclosed in the Report of the Directors.

The Directors’ are of the opinion that these annual financial

statements fairly present the financial position of the Company

and the Group as at 31 March 2011, and the results of their

operations and cash flow information for the year then ended.

Mr ME Mkwanazi Mr B Molefe

Chairman Group Chief Executive

10 June 2011 10 June 2011

Johannesburg Johannesburg

Group Company Secretary certificate

I hereby certify that in terms of Section 268G(d) of the Companies Act, to the best of my knowledge and belief, the Company has

lodged with the Registrar of Companies all such returns for the year ended 31 March 2011 as are required of a public company in

terms of this Act, and that all such returns are true, correct and up to date.

ANC Ceba

Group Company Secretary

10 June 2011

Johannesburg

203

Independent auditors’ report to Parliament on Transnet SOC Ltdfor the year ended 31 March 2011

Report on the consolidated and separate financial statements

Introduction

We have audited the accompanying consolidated and separate

annual financial statements of Transnet SOC Ltd, which comprise,

the consolidated and separate statements of financial position as

at 31 March 2011, and the consolidated and separate income

statements, consolidated and separate statements of

comprehensive income, consolidated and separate statements of

changes in equity and consolidated and separate statements of

cash flows for the year then ended, and a summary of significant

accounting policies and other explanatory information, the Report

of the Directors’ and the Board Audit Committee Report, as set

out on pages 205 to 323.

Accounting Authority’s (Directors’)responsibility for the consolidated and separate financial statements

The Accounting Authority (Directors’) is responsible for the

preparation and fair presentation of these consolidated and

separate financial statements in accordance with International

Financial Reporting Standards and in a manner required by the

Companies Act, No 61 of 1973 of South Africa, as amended and

the Public Finance Management Act No 1, 1999, of South Africa,

and for such internal control as the Accounting Authority

(Directors’) determine is necessary to enable the preparation of

consolidated and separate financial statements that are free

from material misstatement, whether due to fraud or error.

Auditor’s responsibility

Our responsibility is to express an opinion on these consolidated

and separate financial statements based on our audit. We

conducted our audit in accordance with International Standards

on Auditing. Those standards require that we comply with ethical

requirements and plan and perform the audit to obtain

reasonable assurance about whether the consolidated and

separate financial statements are free from material

misstatement.

An audit involves performing procedures to obtain audit evidence

about the amounts and disclosures in the consolidated and

separate financial statements. The procedures selected depend

on the auditor’s judgement, including the assessment of the risks

of material misstatement of the consolidated and separate

financial statements, whether due to fraud or error. In making

those risk assessments, the auditor considers internal control

relevant to the entity’s preparation and fair presentation of the

consolidated and separate financial statements in order to design

audit procedures that are appropriate in the circumstances, but

not for the purpose of expressing an opinion on the effectiveness

of the entity’s internal control. An audit also includes evaluating

the appropriateness of accounting policies used and the

reasonableness of accounting estimates made by management,

as well as evaluating the overall presentation of the consolidated

and separate financial statements.

We believe that the audit evidence we have obtained is sufficient

and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated and separate financial

statements present fairly, in all material respects, the

consolidated and separate financial position of Transnet

SOC Ltd as at 31 March 2011, and its consolidated and separate

financial performance and its consolidated and separate

cash flows for the year then ended in accordance with

International Financial Reporting Standards and in the manner

required by the Companies Act, 61 of 1973 of South Africa, as

amended and the Public Finance Management Act No 1, 1999, of

South Africa.

Report on other legal and regulatory requirements

In terms of General notice 1111 of 2010, issued in Government

Gazette 33872 of 15 December 2010, we include below our

findings on the audit of predetermined indicators included in

the Report of the Directors’ as set out on pages 209 to 225 and

on material non-compliance with laws and regulations applicable

to the Company and its subsidiaries.

Predetermined objectives

There were no material findings on the audit of predetermined

objectives concerning the presentation, usefulness and

reliability of the information.

Compliance with laws and regulations

Procurement, contract and expenditure management

The following reportable items, as per the requirements of

Section 55(2)(b)(i) of the PFMA, came to our attention in terms

of significance and the materiality framework agreed with the

Executive Authority:

procurement of a Pneumatic Ship unloader;

– Contracts for the provision of Engineering, Procurement

and Contract Management (EPCM) services on capital

projects;

– Contract for the supply of 32 Rubber Tyred Gantry (RTG)

cranes;

– Contracts for the accommodation of staff; and

– Contract for the supply of rails.


Independent auditors’ report to Parliament on Transnet SOC Ltd for the year ended 31 March 2011 (continued)

Internal control

In terms of General notice 1111 of 2010, issued in Government Gazette 33872 of 15 December 2010, we considered internal control

deficiencies in internal control that resulted in a qualification of the auditor’s opinion on the annual financial statements and/or

Financial and performance management

Deloitte & Touche

Registered Auditor

Per Thega MarridayPartner

10 June 2011

Deloitte Place

The Woodlands

Woodmead, 2199

National Executive: GG Gelink Chief Executive, AE Swiegers Chief Operating Officer, GM Pinnock Audit, DL Kennedy Risk Advisory,

NB Kader Tax & Legal Services, L Geeringh Consulting, L Bam Corporate Finance, JK Mazzocco Human Resources, CR Beukman

Finance, TJ Brown Clients, NT Mtoba Chairman of the Board, MJ Comber Deputy Chairman of the Board.

205

In presenting Transnet SOC Ltd’s first Integrated Annual Report

this Board Audit Committee Report is prepared as recommended

Regulations. The Board Audit Committee performs its duties in

accordance with Section 94(7) of the Companies Act and the

PFMA. The terms of reference are set out in the Board Audit

conducted its affairs in accordance with the mandate and has

discharged its responsibilities accordingly.

Composition of the Board Audit Committee

The Board Audit Committee comprises the following

Chairman for the period from 10 February 2010 until

2 June 2010);

13 December 2010 and resigned on 13 December 2010);

The credentials of the members are detailed in the Corporate

appointed as a member of the Board Audit Committee

mitigated. The Board Audit Committee Chairperson is also a

The Board Audit Committee held six scheduled meetings for the

year ended 31 March 2011 and member attendance at these

from the Transnet Internal Audit function together with the

external auditors are required to attend the meetings.

The internal auditors and the external auditors, are also

afforded separate sessions with the Board Audit Committee

without the presence of management.

Board Audit Committee induction

In addition to the initial formal induction programme held

Audit Committee members attended a detailed induction

session prepared by management to enable the members to

execute their duties in terms of the Board Audit Committee

operational and financial processes as well as assurance and

monitoring mechanisms.

Board Audit Committee governance structure

The Board Audit Committee relies on a strong and well

structures which are considered to be significant by either

management, the internal auditors or external auditors, are

This structure requires the appropriate “Tone at the Top” to

the Company. In addition, management has introduced

organisational culture as well as the maturity of the internal

accountability, thereby enhancing organisational performance

in a sustainable manner.

Board Audit Committee reportfor the year ended 31 March 2011


Board Audit Committee report (continued)

for the year ended 31 March 2011


Operating division Forensic Working Group (FWG)

in terms of Section 55 (2)(b) of the PFMA and

Public Finance Management Act (PFMA) Forum

GICC is responsible for monitoring the

controls and facilitating the enhancement of

Group Internal Control Committee (GICC)

Operating division Internal Control Steering Committee (ICSC)

GROUP FINANCE COMMITTEE (FINCO)Finco is responsible for management of all the

Group Finance Committee (Finco)

These Committees are constituted to assist the Group Audit Committee in discharging its duties relating

results to the

Operating division Audit sub-Committee

Frequency: Monthly

Attendees:Transnet Internal Audit.

Frequency: Monthly

Attendees:

Transnet Internal Audit.

Frequency: Quarterly Frequency: Monthly

Attendees:

Compliance and Procurement.

Attendees:

from Group Finance and Transnet Internal Audit.

Frequency: Monthly

Attendees:

from Group Finance.

Frequency: Bi-annually

Attendees:

the Group Finance, Transnet Internal Audit, External audit

BOARD AUDIT COMMITTEE

207

Summary of the main activities undertaken by the Board Audit Committee during the yearIn executing its duties, the Board Audit Committee established

during the year:

External audit

the Board Audit Committee, is independent of the Company

in terms of International Standards on Auditing (ISA);

auditors, with specific reference to the proposed audit scope

well as the audit fee;

the external audit process, areas of concern, the procedures

and the audit approach for those areas;

made recommendations where required;

which for the year included: – the Annual Report for the year ended 31 March 2010 as well

as the Integrated Annual Report for 31 March 2011; – the interim results for the six months ended

30 September 2010; – the results for the quarters ended 30 June 2010 and

31 December 2010; and

(GMTN) programme.

findings; and

rotation of the external audit function.

Internal audit

strategic Internal Audit Plans and monitored Internal Audit’s adherence to its annual programme;

internal audit findings;

management; and

findings.

General

adopted by the Group in the application of IFRS and found those to be appropriate;

proposed changes in accounting policies and practices, and recommended any changes considered appropriate in terms of

concern basis in preparing the financial statements;

information for adoption by the Board, which for the year included:

– the Annual Report for the year ended 31 March 2010 as well as the Integrated Annual Report for 31 March 2011;

– the interim results for the six months ended 30 September 2010;

– the results for the quarters ended 30 June 2010 and 31 December 2010,

– the GMTN programme; and – the disclosure of sustainability issues in the Integrated

Annual Report;

(IT) responsibilities, and considered IT as it relates to audit

concern of the Company;

drawdown in terms of the GMTN programme;

legislation and regulations, including without limitation, the Companies Act, the PFMA, the Treasury Regulations and the Income Tax Act, No 58 of 1962; and

wasteful and irregular expenditure and losses through criminal conduct in terms of the PFMA.

King III recommendations

comply with the requirements of King III with respect to:

the Company’s finance function;

process; and

In addition the Board of Directors, has delegated its responsibility

to the Board Audit Committee to assist it in carrying out its responsibilities.


Assessment of the financial function and competence of the Acting Chief Financial OfficerAs required by King III, the Board Audit Committee is required to assess the Company’s financial function as well as the competency of the Chief Financial Officer. The Board Audit Committee has performed this assessment and accordingly the Board Audit Committee is satisfied with:

financial function of the Company;

responsible for the financial function; and

Officer is appropriate to meet the responsibilities commensurate with the position and is satisfied that the acting

management of the Company.

Internal control environment

financial controls.

number of satisfactory audit reports that were issued by Transnet Internal Audit in the last two years after testing the

material misstatement of reported financial information, fraud and error.

Q2 2009

50

37

11

31

14

86

13 12 12

7

Graph 2 – Critical Financial Reporting Controls (CFRC) exceptions

Q3 2009

Q4 2009

Q1 2010

Q2 2010

Q3 2010

Q4 2011

Q3 2011

Q2 2011

Q1 2011

Q4 2010

Num

ber o

f ine

ffec

tive

cont

rols

Note: Quarters reflected are per financial year.

adopt a control reliance approach across most of the Operating

performed by Transnet Internal Audit.

Risk and control component

Process Assessment

Financial Satisfactory

Operational

PeopleFinancial Satisfactory

Operational

Method and

practices

Financial Satisfactory

Operational

area requires additional focus and attention in the short to medium term.

controls through the Quantum Leap strategy, and Transnet

In the opinion of the Board Audit Committee, the internal controls of the Company are considered appropriate in terms of:

in the Company’s accounting records.

including a Transnet Internal Audit rating of “requires

“unsatisfactory”.


Report for the year ended 31 March 2011 and considers that it complies, in all material respects, with the requirements of the Companies Act, the PFMA, IFRS and that the adoption of the

statements is appropriate.

The Board Audit Committee is of the opinion that these annual financial statements fairly present the financial position of the Company and the Group as at 31 March 2011, and the results of their operations and cash flow information for the year then ended and has, therefore, recommended the adoption of

this Integrated Annual Report to the Board at their meeting on

10 June 2011.

MP Moyo

Chairman

10 June 2011

Johannesburg

Board Audit Committee report (continued)


Graph 1 – Finance process ratings (%)

2007 2008 2009 2010 2011

Process rated as unsatisfactory

Process rated as requires improvement

Process rated as satisfactory

22

78 38

49

13

26

50

24

23

77

18

82

209

Report of the Directors for the year ended 31 March 2011

Introduction

The Board of Directors (Board) is pleased to present its first

Integrated Annual Report in line with King III and the audited

annual financial statements of Transnet SOC Ltd (Transnet or

the Company) and its subsidiaries (the Group) for the year ended

31 March 2011.

Ownership and Shareholder’sexpectations

Republic of South Africa as its sole shareholder. The Company is

PFMA, and consequently reports to its Shareholder through the

Transnet’s mandate is to assist in lowering the cost of doing

business in South Africa, enabling economic growth and

port, rail and pipeline infrastructure ahead of demand. In so

mandate of the Shareholder and the NGP are summarised into

maintaining the health of Transnet’s financial position;

by customers);

structure that meets the needs of the growing economy”;

Board of Directors

The composition of the Board, together with summary

The following Directors resigned from the Board during the year:

– 13 December 2010;

– 15 December 2010.

Board on 13 December 2010:

The following Directors were retained for purposes

of continuity:

13 December 2010.

his resignation from the Board on 15 December 2010.

Accordingly, the Board of Directors delegated the powers, duties

the Board, with effect from 16 December 2010, until the new

As required by the current Company’s Articles of Association

and pursuant to the recruitment and selection process

conducted by the Board, and in accordance with the guidelines

issued by the Minister of Public Enterprises, the Minister

Company on 17 February 2011.

on 3 March 2011. Mr Wells, remained with the Company until

from the Board on 17 February 2011.

The Committees of the Board were established on 25 January

2011. More details pertaining to the Committees are included in

process as determined by the Company’s Articles of Association

Refer to the Board Audit Committee Report for the assessment

of the Company’s financial function as well as the competency of

the Acting Chief Financial Officer. The remuneration of the

Directors is set out later in this report.


Strategy overview

Transnet’s Quantum Leap strategy, depicted below, is informed

NGP and the Shareholder expectations outlined earlier.

areas are informed by the requirements of the NGP as well as

the SSI issued by the Shareholder Minister. The strategy

regional integration.

Increase productivity and efficiency

1

Volume growth

2

3

Capital investment

4 Financial sustainability

IMPROVINGCUSTOMER

SERVICE

Regulatory

Humancapital

Strategic enablers6

SHEQ

Quantu

m Leap strategy

New Growth Path

Transnet’s role as custodian of the integrated port, rail and

the utilisation, capacity and

South African freight logistics system.

encourage economic growth and thus lead to the creation of

asset utilisation and lowering the cost of doing business in

South Africa.

appropriately to create the capacity required to meet the South

ahead of demand and it is pleasing to report that Transnet’s

capitalised borrowing costs) amounted to R21,5 billion

compared to R18,4 billion in the prior year, representing a

current infrastructure and equipment, while R10,1 billion was

The Company remains committed to employee and public safety

to generate strong and stable cash flows and access the debt

to maintain and expand its port, rail and pipeline infrastructure.

of the Quantum Leap strategy are set out in the Group Chief

To support the growth of the business and the implementation

forward. The combined effects of Transnet’s operations and

R110,6 billion (excluding capitalised borrowing costs), focusing

on areas in the Company where existing infrastructure is

A portfolio of PSP opportunities has been compiled and will be

Shareholder Minister for 10 PSP transactions in rail by 2014.

PSP priorities include: finalising the agreements for three

branch line operators by the end of 2012; finding a partner to

Report of the Directors (continued)


211

exports.

utilised as a tool for industrial capability building and economic

transformation. Local sourcing will comprise approximately

The focus on local suppliers will benefit Transnet’s supply chain

port equipment and other infrastructure.

Transnet recognises that the growth and efficiency required

only for Transnet’s own requirements, but also for the broader

prioritised and Transnet is considering increasing the planned

1 500 trainees in the system, to 3 400 annually. This will,

Regional integration of the freight system is a strategic priority

for Transnet. The Company will accelerate the implementation

transshipment hub at the Port of Ngqura; expanding and

optimising the Maputo corridor (in partnership with customers

The establishment of a transshipment hub at the Port of

with regional ports and will align with the “Smart Ports

strategy” referred to in the NGP. Transnet has already

established a partnership with the Port of Luanda in relation

to transshipment traffic.

their “dashboard” monitoring of future progress relating to

all identified areas in the NGP, to maximise contributions in

these areas. These include the promotion of the social economy

intermodal solution.


Transnet during the year. Although the number of incidents

from R501,5 million in the prior year to R1,0 billion.

fatalities and derailments remain a serious concern. The

during the year, an increase from eight fatalities in the prior

year. In a single incident four Freight Rail employees lost their

on duty.

Altogether 151 public fatalities occurred during the year,

Whilst the incidence of derailments has decreased by

for the period. The unsafe conditions of infrastructure and

on security issues, crew resourcing management, infrastructure

deteriorated to 0,98 at 31 March 2011 compared to 0,88 for

the prior year.

The Board wishes to reiterate its continued commitment to

fatalities in all Operations. To demonstrate this commitment to

the safety consciousness of all employees. During the stoppage,

The Company will continue to implement and monitor the

recommendations emanating from the Boards of Inquiry and

legislation is also included in the “Top 10 acts” of Transnet’s

During the year, Trans

compliance concerns by prioritising monthly reporting of


Greater emphasis was also placed on fostering mutually

communities.

continue to be refined during the year ahead. These include:

and addressing pollution and contamination issues, such as oil

regulators;

lifecycle process; and

context for the Company within which to perform a climate

climate change issues to be considered in the drafting of the

Transnet Infrastructure Plan. Currently Phase 2 is underway,

which includes a detailed determination of Transnet’s carbon

footprint. Following the latter, a carbon management plan and

climate change implementation strategy will be finalised in the

year ahead. Recommendations for further research and

Share capital

There has been no change in the authorised or issued share

capital of the Company during the year. The issued share capital

of the Company is 12 660 986 310 ordinary shares of R1 each.

Further details pertaining to the Company’s share capital are

contained in note 21 to the annual financial statements.

Divisions, subsidiaries and associate companies

of in the 2012 year to the Passenger Rail Agency of South Africa

transfer of the business, and this may delay the date of transfer.

In addition, the Company intends to sell its shares in America

owned subsidiary Spoornet do Brasil Ltda (SdbL), after which it

will liquidate its interest in SdbL. A detailed list of subsidiaries

and associate companies are contained in annexure D to the

annual financial statements.

Accounting policies

The accounting policies used in the preparation of the annual

financial statements for the year ended 31 March 2011 are in

accordance with IFRS and consistent with those used in the prior

year, except for the changes required by an amendment to

IAS 12: Income Taxes; and a change in the application of the

standard pertaining to deferred taxation on depreciable

as disclosed in the accounting policies to the annual

financial statements.

Critical judgements and estimationsmade in applying the accounting policies

Judgements made by management in the application of IFRS

statements are disclosed in the accounting policies.

Summary of performance March 2011 March 2010 % change

37 952 35 610 6,6

EBITDA (R million) 15 763 14 409 9,4

EBITDA margin (%) 41,5 40,5 1,0

Equity attributable to the equity holder (R million) 73 666 63 347 16,3

Gearing (%) 41,1 39,8 (1,3)

18 266 16 089 13,5

3,9 4,1 (4,9)



213

quarter of the year the Group recorded a pleasing financial

performance for the year. The Group’s dynamic management

Leap strategy. Earnings before interest, taxation, depreciation

and amortisation (EBITDA) increased by 9,4% to R15,8 billion

(2010: R14,4 billion) resulting in an EBITDA margin of 41,5%

targets set by the Board.

Revaluation of property, plant andequipment – port infrastructure and pipeline networks

The accounting policies of the Company require port

infrastructure assets.

Port infrastructure

independent experts using the depreciated optimised

Pipeline networks

Borrowings and cash flows

As at 31 March 2011, the Company’s borrowings amounted to

R60,0 billion (2010: R47,4 billion), an increase of R12,6 billion

compared to the prior year. This increase can be attributed to

economic crisis.

detailed funding strategy will enable it to successfully raise the

required funds to continue with the execution of the capital

In addition it is expected that the Company will maintain its

In line with expectations, the gearing ratio increased to

41,1% from 39,8% as at 31 March 2010, which is well below

the Group’s target range of 50%, reflecting the significant

medium term.

Cash generated from operations amounted to R16,2 billion

(2010: R14,2 billion), an increase of 13,5% compared to the

prior year, demonstrating the ability of the Group to generate

strong sustainable cash flows. Significant focus and better

capital changes increased by 13,5% to R18,3 billion

(2010: R16,1 billion).

(excluding VAT).

to 4,1 times in the prior year due to an increase in net finance

the target in the medium term.

Post-retirement benefit obligationsBenefit funds

medical benefits and other benefits. The two defined benefit

funds, namely the TPF and the TSDBF, are fully funded with

actuarial surpluses of R2,0 billion (March 2010: R1,7 billion) and

not recognised any portion of the surplus on these funds, as the

fund rules at present do not allow for the distribution of a

obligation is approximately R1,5 billion (March 2010: R1,6 billion)

as at 31 March 2011.

benefits to pensioners of the defined benefit funds in future.

Any potential enhancements will only be implemented once the

when an appropriate funding solution is formulated.

SATS pensioners’ post-retirement medical benefit obligations

pensioners and their dependants.


Capital expenditure and commitments

of borrowing costs). The Company has spent R21,5 billion

(excluding capitalisation of borrowing costs) during the current

year (2010: R18,4 billion) and anticipates spending a further

R25,9 billion in the year ahead (excluding capitalisation of

borrowing costs).

Further details regarding capital expenditure and commitments

are contained in note 30 of the annual financial statements and

Dividends

The Company’s R10,9 billion in cash resources will primarily

address priorities in the Quantum Leap strategy, such as the

Passenger Rail Agency of South Africa(PRASA)

An amount of R1 276,6 million was owing to Transnet by PRASA

at 31 August 2010. On 14 December 2010, Transnet and PRASA

(parties) reached agreement that the disputed amounts owing at

R289,3 million and the parties agreed that an amount of

R987,3 million was due and payable by PRASA to Transnet which

PRASA committed to pay in four equal instalments by

March 2011.

Against the August 2010 outstanding debt, net receipts of

in a net amount of R364,6 million outstanding by PRASA in terms

of the agreed payment plan.

by Transnet to PRASA post August 2010 remains unpaid,

therefore the total amount owed by PRASA at 31 March 2011 is

R923 million.

The Company remains confident that all amounts due and

payable from PRASA will be settled.

Further, the parties reached agreement that PRASA will continue

is maintained. Negotiations regarding the ancillary

in the year ahead.

Compliance with legislation

has, during the year, complied, in all material respects, with all

legislation and regulations applicable to it, including without

limitation, the Companies Act, the PFMA, the Treasury

Regulations and the Income Tax Act except as noted below.

PFMA – Compliance

that the Company manages and monitors. This monitoring

Sections 51 and 55 of the PFMA impose certain obligations on

reporting of fruitless and wasteful expenditure; irregular

expenditure; expenditure that does not comply with

operational policies; losses through criminal conduct and the

certain conditions.

As set out in the Shareholder’s Compact with the Shareholder

from Section 54 of the PFMA, which pertains to amongst

others, to the acquisition and disposal of assets, partnerships,

of the asset exceeds 1% of the total assets. In respect of the

been set.

significance and materiality limit for reporting in terms of

Sections 55(2)(b)(i), (ii) and (iii) of the PFMA is R25 million

per transaction.

All items classified as fruitless and wasteful or irregular

expenditure that are in excess of R25 million is tabulated

policies and procedures in the expenditure, procurement and

contract management processes of Transnet. The Company is

expenditure.



215

Control improvements and disciplinary action resulting from

identified PFMA contraventions

Transnet Internal Audit.

Furthermore, a contract management system – SAP CLM, to

enhance the management of contracts has been implemented.

Monitoring and reporting of procurement related issues to the

Acquisitions and Disposal Committee.

and transparency of condonations and the “Delegation’s of

PFMA and the reportable items to ensure that the root causes

which led to the occurrence are identified and that any control

requirements of the PFMA.

Expenditure and losses not reportable in terms of the

materiality limit

Amounts classified as fruitless and wasteful and irregular

expenditure as well as losses through criminal conduct,

below the materiality limit, is reported internally to the Transnet

Expenditure as a result of incidents inherent to the business of

Transnet

of a train derailment or cable theft, is not reportable in terms of

Section 55(2)(b) of the PFMA due to the fact that these incidents

are inherent to the business operations of Transnet.

to confirm the treatment of expenditure of this nature.

Proposed amendments to the Articles of Association

In line with the Department of Public Enterprises’ “Guidelines on

Company’s Articles of Association was amended during the year

the recruitment and selection process. Accordingly the

69 (b) and (c). In addition Article 91 was amended to reflect and

updated quorum requirements for Board meetings.

Shareholder’s Compact – performance criteria

impact on Transnet’s operations and consequently on certain

presented below.

the Company.

Performance information and other criteria comparing actual

Shareholder Compact. In the current year, the performance

Nature of contractAmount

R million

Fruitless and wasteful expenditure

. 36,0

Irregular Expenditure

Contracts 6 573,0

Contract for the supply of 32 Rubber Tyred Gantry (RTG) Cranes. 513,6

Awarding of contracts for the accommodation of staff. 112,9

Confinement and award of a contract for the supply of rails. 1 065,0


Transnet Group

Key performance area Key performance indicatorUnit

of measure2011

Target2011

Actual

% �60% 58,5

(a) % �8% 6,6

times �3,2 3,9

Gearing % �46% 41,1

Infrastructure and maintenance

(b) % of R million

capital

budget

�90 94

Maintenance cost % of R million

maintenance

budget

�90 98

Training spend % of personnel

costs

3 – 4 3

Safety Safety index �0,85 0,98

(a) Total average assets (excluding capital work in progress) comprise a combination of revalued assets and depreciated assets as per the accounting policies and have been computed as an average for the two years ending 31 March 2010 and 31 March 2011.

(b) Capital investment excludes capitalised borrowing costs, includes capitalised finance leases and capitalised decommissioning liabilities.



of measure2011

Target2011

Actual

Volume growth

(year on year)

%

�3,0 (2,4)

– Export iron ore

�11,0 3,1

– Containers (TEUs)

TEUs as % of

railable import

and export

maritime

containers

�33 34

– GFB (excluding

% �10 4,0

increases (c)

– Export coal

%

�3,4 2,6

– Export iron ore (d) �13,5 16,7

– GFB �7,3 8,1

– Export coal

from scheduled

times (minutes)

�150 234

– Export iron ore �95 161

– GFB �185 350

– Export coal �250 468


– GFB �240 434

– Export coalGTK/loco/m

(000)

�15 755 13 505

– Export iron ore �43 650 38 866

– GFB (mainline locos) �5 300 5 121

Wagon utilisation indexWagon cycle time

– Export coal �66 72


Wagon turnaround – GFB Days �12,2 12,6


(c) Includes an allowance for a projected increase in energy costs. (d) The revenue per unit increase for export iron ore includes revenue of approximately R255 million for “super tariffs” and backdated tariff

reconciliations calculated from January 2010. Excluding the effects of these adjustments, the average revenue per unit for export iron ore is 5,6% for 2011.



217


Key performance area Key performance indicatorUnit of

measure2011

Target2011

Actual

% �88,5 89,6

Loco reliability (weighted) �30,5 29,9

% �94,5 94,5

Wagon reliability (weighted) �0,50 0,38




of measure2011

Target2011

Actual

Volumes per hour

Containers

TEUs per STAT

hour

– Durban �28 40

– Cape Town �16 26

�33 36

Tons per STAT

hour

– Coal (RBCT) �1 600 2 237

– Iron Ore (Saldanha) �2 800 3 316

Ship turnaround time Durban (Containers) �45 46

time when ship is

delayed)

Port of Durban

Tugs: �2,4 1,0

Pilot: �2,3 0,49



Key performance area Key performance indicator

Unit

of measure

2011 Target

2011 Actual

Tariff increases (e) % �6 8

hour

CTCT �24 25

DCT Pier 2 �26 23

DCT Pier 1 �26 26

Tons loaded per hour Saldanha Iron Ore Terminal Tons/hours �7 100 6 959

DCT Pier 2Minutes

�35 46

DCT Pier 1 �35 45


(e) Includes an allowance for a projected increase in energy costs. The tariff increase is measured by weighted average revenue per unit increase (including the impact of commodity mix and tariffs negotiated with the industry).

Transnet Pipelines


of measure2011

Target2011

Actual

Reliability Production interruptions – internal �280 285



Economic regulation and regulatory reform

and National Ports Authority are regulated by economic

regulators. NERSA regulates the tariffs of the petroleum

pipeline system, its storage facility at Tarlton and its gas

transmission pipeline. The Ports Regulator regulates the tariffs

of the National Ports Authority.

In determining proposals for both tariffs, Transnet is faced with

substantial uncertainty regarding aspects on how the Ports

economic regulation, unless the relationships with regulators

confidence and ultimately on the execution of the R110,6 billion

limited recourse by the regulated entities in the absence of an

appeal mechanism. Credible appeals mechanisms need to be put

in place and attention needs to be paid to monitoring the

performance and decision of regulators in line with international

and opportunities but also for building mutually beneficial

relationships, based on trust and transparency, with the

economic regulators.

and certain.

Transnet Pipelines

Petroleum levy and corporatisation of

Transnet Pipelines

Department of Energy and the National Treasury has finalised a

grant amounting to R4,5 billion for the construction of the NMPP

as announced by the Minister of Finance in his 2010 Budget

speech. An agreement relating to the grant (Grant Funding

Agreement) was signed between Transnet and the Department

R1,3 billion (excluding VAT), representing four payments in

respect of the four quarters of 2011.

Section 6.1.5 of the Grant Funding Agreement requires Transnet

to report to the Department of Energy on a quarterly basis

regarding “the progress in respect of the corporatisation of

Public Enterprises in this regard”. The corporatisation of

Transnet Pipelines is intended to enhance the accountability,

commence with the corporatisation of Transnet Pipelines in the

year ahead.

Tariffs

Transnet Pipelines submitted its 2011/12 petroleum pipeline

Reasons of Decision setting tariffs that will enable Transnet

increase is mainly attributable to the operationalisation of the

come into operation in January 2012. NERSA’s decision has

resulted in an increase in the pipeline transport component of

the petrol price in Gauteng of only 7,5 cents per litre. It is

encouraging to note that due to certain amendments made by

NERSA to its tariff methodology, effected in its 2011/12

tariff decision, greater certainty in future tariff applications is

now expected.

In its announcement of the 2012 tariff decision, NERSA stated

that the Regulator is concerned about the unpredictable nature

of Transnet’s tariffs as a result of delays in the commissioning of

new pipelines and regular increases in the forecast cost of the

NMPP

Transnet applied for and was granted a licence in terms of

Section 16 of the Petroleum Pipelines Act, No 60 of 2003, to

construct the NMPP, which will replace and expand parts of the

Transnet informed NERSA that, at its meeting of

2011 and operational by January 2012, with the remaining

R15,5 billion to R23,4 billion.

The increases are due to a number of reasons including

substantial delays in the acquisition of land, obtaining the

assessments, change of location for the coastal terminal and

Authorisations, complex and protracted coastal terminal land

lease negotiations, significant increases to commodity (steel)

and equipment costs compared to original estimates as well as

the National Key Points Act, No 102 of 1980 and security of

supply requirements. These changes resulted in a need for

Transnet to alter its long lead equipment procurement strategy

Terminal 1 and the location of pumpstations.



219

Transnet Pipelines licence amendments

Two licence amendments are currently before NERSA: the

Transnet Pipeline Refined Products Durban pumpstation.

20 December 2011 to the end of December 2013. NERSA has

Governance and controls around the NMPP Project

mitigation pertaining to reputational, commissioning,

(including commercial, engineering and commissioning); ensuring

management and the NMPP operational strategy.

Ministerial audit of NMPP costs and schedule

The Minister of Public Enterprises has appointed a panel of

including procurement and construction; and operating costs.


The potential corporatisation of


for the corporatisation of Transnet National Ports Authority. On

Republic of South Africa, informed Transnet in writing that it

would not initiate the corporatisation process and that

appropriate amendments to the Ports Act will be considered.

The engagements between Transnet and the Department of

Public Enterprises are aimed at ensuring that the appropriate

amendments to the Ports Act are effected. The potential

corporatisation of Transnet National Ports Authority poses

impact on the Company, both financially and strategically, and

could trigger default clauses in some of Transnet’s funding

National Environmental Management: Integrated Coastal

Management Act of 2008 (ICM Act)

Presidential Proclamation to bring the ICM Act into operation on

Public Enterprises (DPE), the proclamation notice was amended

to exclude certain sections of the ICM Act from coming into

ports from Transnet. The amended proclamation, which

commenced on 1 December 2009, is an interim measure, bringing

about a staggered implementation of the ICM Act. Negotiations

with the DEA are underway to formulate proposed amendments

to the ICM Act, which can be presented to Parliament to ensure

that Transnet’s assets are secure in the long term and that

Transnet National Ports Authority is able to fulfil its ports

authority functions.

Tariffs

A tariff increase of 4,49% in respect of the 2012 tariff

application has been determined by the Ports Regulator in its

Record of Decision, compared to the tariff application made by

Transnet National Ports Authority requesting an 11,91%

increase. The outcome of the tariff determination translates

period used by the Ports Regulator.

In respect of operating costs, the Ports Regulator remains

determination, the Ports Regulator has capped some of the

2012 operating costs. The Ports Regulator has ruled

that all future applications should include all aspects of the

real estate business, and any future application that does

be assessed.

applied by the Regulator. This results in uncertainty and may

A discussion paper on the proposed Transnet National Ports

Authority tariff methodology was submitted to the Ports

Regulator in July 2010 by Transnet National Ports Authority.


The Ports Regulator has indicated in its 2011/12 tariff Record

methodology to be followed in subsequent tariff applications

necessary certainty required.

Economic review of participation in ports operation and

services in South Africa

In terms of Regulation 5 of the Ports Act, the Ports Regulator is

economic structure or future participation in ports.

The Ports Regulator commissioned the study and the report was

completed in August 2010. The study assessed the economic

participation of roleplayers in the South African ports system by

lowering of the generalised cost of doing business through the

country’s ports. One of the report findings asserts that South

The Ports Regulator has submitted the study, together with

of Transport for consideration.

Port of Ngqura licence

Pursuant to the Ports Act, Transnet is deemed to hold licences

required to operate the terminals and facilities in each of its

ports, with the exception of the container terminal at the Port

of Ngqura.

Section 65(5) of the Ports Act states that:

“Transnet is, in respect of port services or port facilities

provided or operated by Transnet Port Terminals immediately

prior to the commencement of this Chapter, deemed to be the

holder of a licence for the provision of port services or

operating of port facilities, but must apply for such a licence

within six months of the date determined by the Shareholding

Minister by notice in the Gazette” (this date has not yet

been determined).

As the container terminal at the Port of Ngqura was not yet

operational at the commencement of the Ports Act, Transnet Port

Terminals is not, in terms of the Ports Act, deemed to hold

a licence to operate the container terminal at the Port of Ngqura.

Transnet built and equipped the Port of Ngqura in accordance

Establishment Act, No 77 of 1998 and whilst doing so, the Ports

Act came into effect in 2006. Guided by Senior Counsel,

Transnet National Ports Authority, which is deemed to be the

Authority in terms of the Ports Act, entered into an interim

agreement with Transnet Port Terminals, whereby Transnet Port

Terminals would be authorised to operate the container terminal

at the Port of Ngqura on an interim basis. In the current

engagements between Transnet and the Department of Public

of Ngqura licence matter.

Freight Rail

introduce rail reform through the establishment of an Interim

Rail Economic Regulator. The aim is to create capacity in the

Department of Transport for rail economic regulation, focusing

on current economic regulatory practices for the rail sector, and

current access arrangements for third parties, and pricing for

engage with the Department of Transport process to establish

Judicial proceedings

The annual financial statements include a best estimate of

by Transnet, as either defendant or plaintiff, where the outcome

into account the legal opinions obtained for the Group.

note 31 to the annual financial statements.

Events after the reporting period date

Going concern

is critical to Transnet as it forms the basis of future growth for

the Company and the South African economy. Consequently, the

successful execution of the borrowing strategy and the ability of

paramount importance. The Directors’ are of the opinion that

the Company will be a going concern for the foreseeable future.

In reaching this opinion, the Directors’ considered the

following factors:

lenders to fund its operations and meet its financial

obligations in the normal course of business for the

foreseeable future.



221

without breaching the set financial parameters.

and controls are in place as reflected in the business and

to the prior year.

of 50%.

than the target of 3,0 times.

meet its obligations.

position will not impact on Transnet’s ability to continue as a

going concern.

impact of the Integrated Coastal Management Act is

now mitigated.

result in greater certainty in future tariff applications.

Operations normalised during the year, therefore the financial

based on the operating and financial indicators, the Directors’

the foreseeable future.

Remuneration report

Introduction

the economy. The 2011 year was characterised by a number of

a wage dispute. The containment of labour costs remains a

challenge specifically within the context of increased

Company. In addition the Company established a single

grade structure and standardised pay scales for the

management group, implementing a new reward dispensation

for first line managers, specialists and technicians, implemented

commenced with the negotiation to cascade this reward model

to the rest of the bargaining unit employees. The reward model

established to date supports a model of competency based

career progression.

the freight logistics system will encourage economic growth

going forward.

Executive remuneration – guaranteed

To confirm the Company’s reward approach, Transnet conducted

are retained.

Executive salary adjustments

during the year.


Executive remuneration – guaranteed

SalaryR thousand

Post-retirement

benefit fundcontributions

R thousand

Other contributions

R thousand

Other payments

R thousandTotal 2011


R thousand

B Molefe#** 589 54 – – 643 –

CF Wells**^ 4 030 428 – 138 4 596 4 105

2 396 220 – 1 2 617 2 436

SI Gama* 8 745 760 22 602 10 129 4 060

2 335 248 – 39 2 622 2 383

VD Kahla## 2 217 170 14 510 2 911 3 269

3 309 257 – 1 3 567 3 419

CA Möller 2 552 226 73 1 2 852 2 582

T Morwe 3 185 234 21 67 3 507 3 308

M Moses 3 264 166 20 1 3 451 3 207

K Phihlela 2 968 216 – 136 3 320 3 052

Z Stephen# 582 57 – 115 754 –

A Singh** 1 939 179 16 18 2 152 1 876

2 884 287 – 135 3 306 3 023

R Vallihu 3 062 265 16 1 3 344 3 084

+ – – – – – 855

44 057 3 767 182 1 765 49 771 40 659

** Group Executives.* Mr SI Gama was reinstated during the year and his salary during his period of suspension was paid. # Appointed during the year.+ Resigned during the previous year.## Resigned during the year.^ Resigned from the Board on 15 December 2010, but remained with Company until 31 March 2011.

Resigned subsequent to year-end.

Total 2011R thousand

Total 2010R thousand

376 90

*** 833 –

T Morwe 500 122

A Singh 1 544 172

461 112

CF Wells 608 401

4 322 897

*** The Board of Directors delegated the powers, duties and authority of the Group Chief Executive to the Chairman of the Board, with effect from 16 December 2010, until 2 March 2011.



223

Executive remuneration – non-guaranteed

Short-Term Incentive Scheme

The following principles apply to the STI:

– Alignment with the Quantum Leap strategy (Strategy

Shareholder’s Compact.

strategy; and

– Alignment of measures from the Shareholder

– Ensure measurements used accurately relate to

ratings for 2011 are as follows:

Qualifying percentage*

Grade On target Maximum

A 54,02% 60,78%

B 40,51% 45,55%

* Aligned with the cap on the rand-value amount of the incentive pool as per the Remuneration Committee decision.

Junior employees

between targets and actual performance as well as to ensure

internal parity. Junior employees will be eligible for an annual

potentially earn the following:

the budget), plus the potential of;

opportunity to gain up to a maximum of 16% per annum when

the stretch business targets are met and exceeded (120% of

budgeted EBITDA); and

to a maximum of 26% of their annual pensionable earnings

per year if the financial and operational targets are exceeded

by 20%.

Generation of bonus pool

category employees were also assessed in terms of their

The Remuneration Committee exercised their right to

not exceeded.

Long-Term Incentive Scheme

implementation and success of the strategy as well as to

encourage stretch performance and reward performance

can be summarised as follows:

sustained business performance and retention;

on a rand for rand basis as an LTI payable on the third

determined annually by the Remuneration Committee to

ensure adherence to affordability guidelines whilst

recognising retention and reward factors; and

the LTI.

eligible for participation are specifically excluded as a result of


has been introduced.

Payments in terms of the STI scheme are lower than the prior

year due to the financial performance of Transnet. For the 2010

against the planned target. The financial results for 2011 are

better than the prior year, but lower than the target, with an

target for the year. Accordingly the Remuneration Committee

Payments in terms of the LTI scheme continued in terms of

Incentive payments

LTI2011

R thousand

LTI2010

R thousand

STI2011

R thousand

STI2010

R thousand

CF Wells*** 8 900 2 809 2 771 3 366

2 546 903 1 415 1 899

SI Gama* 2 510 – – –

2 033 1 066 1 720 1 950

VD Kahla## – 2 099 – 2 676

4 244 2 153 2 073 2 692

CA Möller 3 217 1 387 1 656 2 152

T Morwe 3 791 1 918 1 597 2 556

M Moses – 1 689 1 305 2 604

K Phihlela 3 167 1 755 1 936 2 301

Z Stephen# 1 984 – 396 –

A Singh** 2 171 1 115 2 324 2 209

3 898 1 402 2 209 2 394

R Vallihu 4 105 1 969 1 789 2 524

+ – 9 347 – –

M Ramos+ – 1 873 – –

42 566 31 485 21 191 29 323

*** Former Group Chief Executive resigned from the Board and was paid pro-rated amounts in respect of the 2008, 2009 and 2010 LTI conditional awards. Transnet received a letter of demand from Mr Wells claiming the sum of R3,8 million, alleging it is the balance owing to him in terms of the LTI. The Company disputes this and is defending the claim.

** Group Executive who is a member of the Board of Directors.* Mr SI Gama was reinstated during the year and was paid backdated LTI and STI incentives in accordance with the reinstatement agreement. # Appointed during the year.## Resigned during the current year.+ Resigned during the previous year.

Non-executive Directors’ remuneration

Company’s Annual General Meeting. Among the issues considered committees of the Board.



225

FeesR thousand

Other payments



R thousand

(Chairman)# 301 1 302 –

FTM Phaswana (Chairman)+ – – – 381

I Abedian+ – – – 230

* 730 1 731 922

NBP Gcaba 517 – 517 494

* 338 – 338 425

* 338 – 338 450

PG Joubert* 450 – 450 600

* 414 – 414 500

MP Moyo 413 – 413 375

+ – – – 206

NR Ntshingila 394 – 394 375

KC Ramon°* 394 – 394 468

MA Fanucchi# 138 – 138 –

138 – 138 –

**** 138 – 138 –

MP Malungani# 138 – 138 –

156 – 156 –

156 – 156 –

N Moola# 138 – 138 –

IB Sharma# 138 – 138 –

E Tshabalala# 156 – 156 –

DLJ Tshepe# 138 – 138 –

Prof JE Schrempp*# 50 – 50 –

5 773 2 5 775 5 426

* Resigned during the year.+ Resigned during the previous year.° Directors’ fees paid to Sasol Limited.# Appointed during the year.**** Directors’ fees paid to Kapela Investment Holdings (Pty) Limited.

Registration details

The registration number of the Company is 1990/000900/06.

The registered name and address of the Company are as follows:

Transnet SOC Ltd

47th Floor, Carlton Centre

150 Commissioner Street

Johannesburg

2001

Company Secretary

Transnet SOC Ltd’s Group Company Secretary is Ms ANC Ceba.

Ms Ceba’s business address is at:

47th Floor, Carlton Centre


Johannesburg

2001

Auditors

At the Annual General Meeting, held on 22 July 2010, Deloitte

& Touche was reappointed as the Company’s external audit firm.

Touche has its business address at:

Deloitte Place

The Woodlands

Woodmead

Johannesburg

The Group’s internal audit function is outsourced to Ernst

& Young. Ernst & Young has its business address at:

Johannesburg


Transnet SOC Limited (the “Company”) is a company domiciled in

South Africa.

The consolidated financial statements for the year ended

31 March 2011 comprise the Company and its subsidiaries

(together referred to as the “Group”) and the Group’s interest in

The consolidated financial statements were authorised for issue

by the Board of Directors on 10 June 2011.

Statement of compliance

accordance with International Financial Reporting Standards

(IFRS) issued by the International Accounting Standards Board

(IASB), interpretations of those standards issued by the

International Financial Reporting Interpretations Committee

(IFRIC) and applicable legislation.

Critical judgements and estimates madein applying the accounting policies

The preparation of financial statements in accordance with IFRS

assumptions that affect the application of policies and reported

The estimates and underlying assumptions are based on

under the circumstances. Actual results may differ from

these estimates.

future periods.

Judgements and estimates made by management in the

statements are discussed below:

Revaluation of property, plant and equipment

(Pipelines) and port infrastructure assets, (National Ports

these asset classes.

Appropriate indices, as determined by independent experts, are

in the selection of such indices.

The useful life of each asset group has been determined by

independent experts based on the build quality, maintenance

infrastructure assets and port operating assets.

IAS 36: Impairment of Assets requires that the carrying amount

future use or disposal of those assets. Consequently all asset

a discounted cash flow model to ensure that their carrying

assumptions made were:

budgets and operational plans;

rates used ranged between 11,74% and 12,36%;

expected to sustain capital expenditure; and

capacity of the underlying assets.

Impairment – Cash-generating units

IAS 36: Impairment of Assets requires an entity to assess at

each reporting date whether or not there is an indication that

an asset may be impaired. If there are any such indicators, the

The Group conducted an assessment of potential indicators of

generating units). In addition to the indicators of impairment

Impairment of Assets, the Group assessed

additional issues and factors that could result in the impairment

of assets for the year ended 31 March 2011. The additional

issues and factors considered include;

return on assets.

Accordingly, the Group has concluded that no indicators of

Accounting policiesfor the year ended 31 March 2011

227

Residual values and useful lives

The following factors are considered when assessing an asset’s

useful life; and

similar assets.

following factors are considered when assessing an asset’s

useful life:

Investment properties

In terms of IAS 40 Investment Property,

Group is the original intention at the time of acquisition of the

asset, as well as the current and future intention.

Group to hold these properties strategically for future

structures, they shall be held for capital appreciation.

The Group has areas where multiple buildings are on a single erf

or multiple erfs defined as one area called a “precinct”. Certain

or intermodal hub is assessed in its entirety and is classified as

which entails the capitalisation of the normalised net annual

income from the property. The income streams are discounted

in IFRS 5 Non-current Assets Held-for-Sale and Discontinued

Operations are met, the asset is classified under Non-current

Assets Held-for-Sale.

Inventory provisions

Allowance for trade and other receivables

restructure payment terms;

debtor; and

payment status of debtors and changes in the national or local

economic conditions that correlate with defaults in the

debtors portfolio.

Decommissioning liabilities

a result of the requirement to restore the site on which the asset

is located are computed by discounting estimated future cash

flows required to restore the site at rates that reflect the

the obligation.

Environmental liabilities

relating to rehabilitation is particularly complex and requires

about the future. The estimates are dependent on a number of

extent of contamination and discount rates.

contaminated areas include the estimated rehabilitation costs

for the historical contamination caused by asbestos,

ferromanganese, manganese, mixed soil (including chrome,

sulphur and manganese), fuel and rubble. These obligations

identified areas of contamination and the Group’s related

rehabilitation obligation. A number of factors were considered

in determining the obligation, which included:

disposal of the contamination;

contamination; and


sheeting and cladding on buildings.

Refer to note 25 of the annual financial statements for

more detail.

Post-retirement benefit obligations

Refer to note 32 of the annual financial statements for the

benefit obligations.

Fair values and financial instrumentsBonds

Johannesburg Securities Exchange (JSE) and Bond Exchange

South Africa (BESA) closing rates with the SA Bond formula. This

Other non-derivative financial assets and liabilities

Derivatives

Other financial instruments

The carrying amounts of financial assets and liabilities with a

maturity of six months or less are assumed to approximate

Legal claims

Judgement is based on legal opinion as to whether the claim is

possible and/or probable.

Significant accounting policies

Basis of preparation

The consolidated financial statements of the Group (“financial

statements”) are presented in South African Rand, rounded to

the nearest million. The financial statements are prepared on

the historical cost basis, except for the following assets and

classes of property, plant and equipment are carried at

consistently to all periods presented in these financial

statements, except for the following:

Change in accounting policy

New and amended standards adopted by the Group

The Group has adopted the following new and amended IFRS in

the current financial year:

IAS 12 Income Taxes

early adopted the amendment to IAS 12 issued in December

2010 relating to the calculation of deferred taxation on

depreciable (ie buildings) and held within a business model

adopting the amendment is disclosed in note 36.

Financial Instruments: Recognition and Measurement –

Eligible Hedged Items

amendment clarifies that an entity is permitted to designate

in particular situations. The amendment has no impact on the

financial position or performance of the Group, as the Group

has not entered into any such hedges.

Business Combinations

Consolidated and Separate Financial Statements (amended)

changes in the accounting for business combinations

transaction costs, the initial recognition and subsequent

measurement of a contingent consideration and business

the amount of goodwill recognised, the reported results in the

period that an acquisition occurs and future reported results.

IAS 27 (Amended) requires that a change in the ownership

interest of a subsidiary (without loss of control) is accounted

for as a transaction with owners in their capacity as owners.

amended standard changes the accounting for losses incurred

by the subsidiary as well as the loss of control of a subsidiary.

and had no material impact on the financial position or

performance of the Group.

Distribution of Non-cash Assets to Owners –

on accounting for arrangements whereby an entity distributes

either the financial position or performance of the Group.

Accounting policies (continued)


229

the IASB issued an omnibus of amendments to its standards,

for each standard. The adoption of the following amendments

resulted in some changes to accounting policies but did not

the Group.

Issued in May 2008 – IFRS 5 Non-current Assets Held-for-Sale and Discontinued

Operations clarifies that when a subsidiary is classified as

controlling interest after the sale transaction.

Issued in April 2009 – IAS 1 Presentation of Financial Statements

that the potential settlement of a liability by the issue of

right to defer settlement by transfer of cash or other

assets for at least 12 months after the accounting period)

notwithstanding the fact that the entity could be required

by the counterparty to settle in shares at any time. The

position or performance of the Group.

– IAS 17 Leases

deleted guidance from the standard which stated that a

lease of land with an indefinite useful life normally is

classified as an operating lease, unless at the end of the

lease term title is expected to pass to the lessee. The

amended standard clarifies that when a lease includes land

and building elements, an entity should determine the

classification of each element separately by applying the

criteria in the standard. The amendments apply

or performance of the Group.

– IAS 7 Statement of Cash Flows states that only

expenditure that results in the recognition of an asset can

– IAS 36 Impairment of Assets clarifies that the

largest unit permitted for allocating goodwill,

acquired in a business combination, is the operating

segment as defined in IFRS 8 before aggregation for

reporting purposes.

– IAS 38 Intangible Assets clarifies that an intangible asset

that is separable only together with a related contract,

identifiable asset or liability is recognised separately from

goodwill together with the related item. It also permits the

grouping of intangible assets as a single asset if the

– IAS 39 Financial Instruments: Recognition and

Measurement

whether loan prepayment penalties result in an embedded

– IFRS 5 Non-current Assets Held-for-Sale and Discontinued

Operations clarifies that the disclosures required in

only those set out in IFRS 5. The disclosure requirements

of other IFRSs only apply if specifically required for such

– IFRS 8 Operating Segments clarifies that segment assets

and liabilities need only be reported when those assets

and liabilities are included in measures that are used by

liabilities, the Group has continued to disclose this

information under Segment information.

or performance of the Group:

– IFRS 2 Share-based Payment;

– IFRIC 9 Reassessment of Embedded Derivatives;

– IFRIC 16 Hedge of a Net Investment in a Foreign

Operation; and

– IFRIC 19 Extinguishing Financial Liabilities with

Equity Instruments.

Other changes in accounting policy

Income Taxes. The Group changed its accounting policy

assets which do not attract wear and tear allowances. The

carrying amount exceeded the original cost. No deferred

less than the original cost. In order to align with general

industry practice, the Group changed its policy to calculate

The impact of this change in accounting policy is disclosed in

note 36.

Basis of consolidation

Subsidiaries

Subsidiaries (including special purpose entities, such as trusts)

are entities controlled by the Group. Control exists when the

financial and operating policies of an entity so as to obtain

statements include the results of the Company and its

The acquisition method of accounting in accordance with

IFRS 3 Business Combinations is applied in accounting for the

acquisition of subsidiaries. The cost of an acquisition is

measured as the sum of:


at the acquisition date;

and

fees are recognised in profit or loss in the period in which they

Identifiable assets acquired, liabilities and contingent liabilities

assumed in a business combination are measured initially at

Non-current

Assets Held-for-Sale and Discontinued Operations at the lower

the net identifiable assets acquired and liabilities assumed is

recognised as goodwill and accounted for in terms of the

accounting policy on intangible assets and goodwill. If the cost

acquired, the difference is recognised directly in the income

statement as a gain from a bargain purchase transaction.

contingent liabilities recognised.

When the Group acquires a business, it assesses the identifiable

assets and liabilities assumed for appropriate classification and

designation in accordance with the contractual terms, economic

circumstances and pertinent conditions as at the acquisition

host contracts by the Group.

acquisition date through profit or loss.

Any contingent consideration to be transferred by the Group is

is deemed to be an asset or liability will be recognised in

accordance with IAS 39 either in profit or loss or as a change to

classified as equity, it is not remeasured until it is finally settled

within equity.

Where there is a change in the interest in a subsidiary that does

not result in a loss of control, the difference between the fair

recognised as an equity transaction directly in the statement

of changes in equity.

Where there is a change in the interest in a subsidiary that

results in loss of control, the Group;

the subsidiary;

interest;

recognised in equity to profit or loss;

retained earnings, as appropriate.

Special purpose entities are consolidated when the substance

of the relationship between the Group and the special purpose

entity indicates that it is controlled by the Group.

transactions between Group entities are eliminated. Unrealised

group transactions, balances, income and expenses are

eliminated in full on consolidation.

necessary to ensure consistency with the policies of the Group.

accumulated impairment losses in the Company financial

statements.

Associates (equity accounted investees)

financial and operating policies of the entity. Significant

influence is presumed in instances where the Group has an

consolidated financial statements for the period in which the

Group exercises significant influence, except when the

accounted for in accordance with IFRS 5 Non-current Assets

Held-for-Sale and Discontinued Operations.

Equity accounted income represents the Group’s proportionate

share of taxation thereon. Losses incurred by associates

(including any impairment losses) are recognised in the

are accounted for only insofar as the Group is committed to

the associates.

associate’s net assets is recognised as goodwill and is included



231

difference is recognised immediately in profit or loss.

The Group’s interest in an associate is carried on the statement

of financial position at an amount that reflects the cost

Where the Group transacts with an associate of the Group,

unrealised profits and losses are eliminated to the extent of the

Group’s interest in the associate, except to the extent that

asset transferred.

Joint ventures (equity accounted investees)

the unanimous consent of the parties sharing control).

which case it is accounted for in accordance with IFRS 5 Non-

current Assets Held-for-Sale and Discontinued Operations.

Equity accounted income represents the Group’s proportionate

share of taxation thereon, net of the Group’s proportionate

(including any impairment losses) are recognised in the

losses are accounted for only insofar as the Group is committed

the difference is recognised immediately in profit or loss.

unrealised profits and losses are eliminated to the extent of the

asset transferred.

Foreign currency

Functional and presentation currencies

Items included in the financial statements of each of the Group

entities are measured using the currency of the primary

functional currency”). The consolidated financial statements are

prepared in South African Rand, which is the Company’s

functional currency and the Group presentation currency.

Foreign currency transactions

Transactions in currencies other than the Group’s functional

currency are defined as foreign currency transactions.

Transactions in foreign currencies are translated into the

functional currency at exchange rates ruling on transaction

dates. Monetary assets and liabilities denominated in foreign

currencies are translated into the functional currency at the rate

of exchange ruling at the reporting date.

of historical cost in a foreign currency are translated at the

denominated in the foreign currency are translated into the

functional currency at the exchange rate ruling when the fair

Exchange differences are recognised in profit or loss in the

period in which they arise except for:

in the cost of those assets when they are regarded as an

payable to a foreign operating entity for which settlement is

subsequently recognised in profit or loss on disposal of the

Financial statements of foreign entities

The financial statements of foreign entities are translated into

South African Rand as follows:

the reporting date;

exchange rates ruling at the dates of the transactions or

a foreign entity are treated as assets and liabilities of the

foreign entity and translated at the rates of foreign exchange

ruling at the reporting date.

On consolidation, exchange differences arising from the

related hedges where hedge accounting is applied are

a separate component of equity.

On disposal, such translation differences are recognised in

profit or loss as part of the gain or loss on disposal.


Revenue

added taxation, returns, rebates and discounts and after

Where extended payment terms are granted by the Group,

the goods.

be reliably measured, it is probable that future economic

consideration the type of customer, the type of transaction and

the specific circumstances of each arrangement.

Transportation and other related services

recognised in profit or loss by reference to the stage of

completion of transactions at the reporting date. The stage of

consideration due and associated costs.

Rental income

the total rental income.

Construction contracts

As soon as the outcome of a construction contract can be

recognised in profit or loss in proportion to the stage of

incurred to the extent that it is probable that they will result in

only to the extent of contract costs incurred in the period that

recognised immediately in the income statement.

Dividend income

Government grants

periods necessary to match the grant on a systematic basis to

the costs that it is intended to compensate.

a deferred income account and is released to the income

Transactions giving rise to adjustments to revenue/purchases

Property, plant and equipment

amount, less accumulated depreciation where appropriate and

any accumulated impairment losses.

Recognition and measurement

recognised in the income statement, in which case the surplus is

credited to the income statement to the extent of the decrease

income statement to the extent that it exceeds the balance, if

.

Cost includes expenditure that is directly attributable to the

acquisition of the asset, borrowing costs capitalised to

respect of hedge accounting where applicable.

are stated at cost less any accumulated impairment losses. The



233

which they are located, qualifying borrowing costs, any

Where components of an item of property, plant and equipment

items of property, plant and equipment and depreciated

Group are classified as property, plant and equipment if they are

expected to be used for more than one period. If not, they are

equipment that can be used only in connection with a specific

item of property, plant or equipment are accounted for as

property, plant and equipment.

Subsequent costs

The Group recognises in the carrying amount of an item of

property, plant and equipment the cost of replacing part of such

an item when that cost is incurred and it is probable that the

future economic benefits embodied within the item will flow to

the Group and the cost of the item can be measured reliably. The

carrying amount of the replaced part is derecognised. All other

costs are recognised in the income statement as expenses

when incurred.

capitalised as separate components if the recognition criteria

are met.

Depreciation

property, plant and equipment. Land and assets in the course of

construction are not depreciated. All other property, plant and

equipment, including capitalised leased assets, are depreciated

Asset class Years

Buildings and structures 10 – 50

Buildings and structures components 5 – 25

3 – 95

Aircraft including components 8 – 15

6 – 70

Port infrastructure 12 – 100

Floating craft including components 5 – 40

Port operating equipment including components 3 – 40

30 – 60

25 – 60

Containers 10 – 20

Vehicles 3 – 15

Machinery, equipment and furniture 3 – 50

The gain or loss arising on the disposal or retirement of an item

of property, plant and equipment is determined as the

difference between the sales proceeds (if any) and the carrying

amount of the asset and is recognised in profit or loss.

Investment properties

and/or for capital appreciation (including properties under

construction for such purposes) and are initially measured at

cost, including transaction costs. Subsequent to initial

Where an item of property, plant and equipment is transferred

difference arising at the date of transfer between the carrying

amount of the item immediately prior to transfer and its fair

Property, Plant and Equipment and is recognised in other

the gain is transferred to retained earnings. Any loss arising

from the transfer is recognised immediately in profit or loss

at the date of the reclassification becomes its deemed cost for

subsequent accounting purposes.

Some properties comprise a portion that is held to earn rentals

or for capital appreciation and another portion that is held for

could be sold separately or leased out separately under a

finance lease, the Group accounts for the different portions

equipment. If the portions are not separable, the entire property

classified as property, plant and equipment.

Intangible assets and goodwill

Software and licences

Software and licences are recognised and measured at cost

less accumulated amortisation and any accumulated

impairment losses.


Costs associated with researching or maintaining computer

software programmes are recognised as an expense as incurred.

identifiable software products controlled by the Group that will

probably generate economic benefits beyond one year and for

which the costs can be measured reliably, are recognised as

intangible assets. Direct costs include the software

Research and development

recognised in the income statement in the period in which they

the research findings to a plan or design for the production of

recognised as an asset if, and only if the Group can demonstrate

all of the following:

sell it;

economic benefits;

intangible asset; and

The expenditure capitalised includes the cost of materials,

Prefeasibility and feasibility study expenses are classified as

accumulated amortisation and any accumulated impairment

are not amortised, but are tested for impairment at each

reporting date.

recognised as an asset in a subsequent period.

Subsequent expenditure

Subsequent expenditure on capitalised intangible assets is

capitalised only when it increases the future economic benefits

embodied in the specific asset to which it relates. All other

expenditure is recognised in profit or loss as incurred.

Amortisation and impairment

Intangible assets with an indefinite useful life and intangible

for impairment at each reporting date.

Intangible assets with a finite useful life are carried at cost less

accumulated amortisation and any accumulated impairment

reporting period, with the effect of any changes in the estimate

Software – 5 years; and

Licences – term of the licence.

Goodwill

Goodwill that arises on the acquisition of interests in

acquired and liabilities assumed.

After initial recognition, goodwill is measured at cost less any

accumulated impairment losses. Goodwill in respect of

subsidiaries is tested for impairment annually as well as when

there is an indication of impairment. For the purpose of

impairment testing goodwill is, from the acquisition date,

of whether other assets or liabilities of the acquiree are

allocated to those units (refer “Impairment of non financial

assets”). Any impairment losses recognised are not

associates is included within the carrying amount of the

annual basis (ie it is assessed for impairment as part of the

impairment exist). Goodwill arising on the acquisition of

subsidiaries is presented separately on the statement of

financial position.

the operation within that unit is disposed of, the goodwill

associated with the operation disposed of is included in the

carrying amount of the operation when determining the gain or

loss on disposal of the operation. Goodwill disposed of in this

unit retained.

Gain from a bargain purchase transaction

A gain from a bargain purchase transaction represents the

cost of the acquisition.



235

The gain is recognised immediately in profit or loss, but only

after a reassessment of whether all assets and liabilities of the

assets acquired, liabilities assumed and the consideration

Impairment of non-financial assets

The carrying amounts of the Group’s tangible and intangible

any indication of impairment. If such an indication exists, the

extent of the impairment loss (if any). Where an asset does not

generate cash flows that are independent from other assets, the

unit to which the asset belongs.

Goodwill, intangible assets with an indefinite useful life and

the asset may be impaired.

is estimated to be less than its carrying amount, the carrying

units are allocated first to reduce the carrying amount of any

and then to reduce the carrying amount of the other assets in

Calculation of recoverable amount

expected future cash flows from the asset are discounted to

Reversals of impairment

An impairment loss in respect of goodwill, whether recognised

subsequent periods.

amortisation had no impairment loss been recognised.

Finance costs

Finance costs comprise interest payable on borrowings

on redeemable preference shares, amortisation of discounts

on bonds and foreign exchange gains and losses, less amounts

capitalised to qualifying assets.

Capitalised borrowing costs

The Group capitalises borrowing costs that are directly

attributable to the acquisition, construction or production of

a qualifying asset, as part of the cost of that asset, until such

time that the asset is substantially ready for its intended use.

The Group identifies a qualifying asset as one that necessarily

To the extent that funds are borrowed specifically for the

purpose of obtaining a qualifying asset, the Group capitalises

the actual borrowing costs incurred on that borrowing during

borrowings, the Group determines borrowing costs eligible

borrowings for the period, other than borrowings made

specifically for the purpose of obtaining qualifying assets, to

the expenditures on that asset.

All other borrowing costs are recognised in profit or loss under

finance costs in the period in which they are incurred.

Finance income

Finance income is accrued on a time basis, by reference to the

which is the rate that exactly discounts estimated future cash

receipts through the expected life of the financial asset to the

asset’s net carrying amount.

Taxation

Income taxation on the profit or loss for the period comprises

current and deferred taxation. Income taxation is recognised in

the income statement except to the extent that it relates to

in equity.


Current taxation

The charge for current taxation is the amount of income taxes

payable in respect of the taxable profit for the current period

Deferred taxation

position method on all temporary differences arising between

the carrying amounts of assets and liabilities for financial

reporting purposes and their taxation bases. The following

business combination), which affect neither accounting nor

taxable profit or loss; and

expected manner of realisation or settlement of the carrying

amount of assets and liabilities and is calculated using the

at the reporting date. Deferred taxation is charged or credited

in the income statement, except where it relates to items

recognised directly in equity.

A deferred taxation asset is recognised to the extent that it is

utilised against the associated unused taxation losses and

deductible temporary differences. Deferred taxation assets are

reduced to the extent that it is no longer probable that the

related taxation benefit will be realised.

Deferred taxation liabilities are recognised for taxable

in the foreseeable future.

Deferred taxation assets and liabilities are offset when they

the Group has the legal right to and intends to settle its current

taxation assets and liabilities on a net basis.

If a deferred taxation liability or deferred taxation asset arises

model in IAS 16 Property, Plant and Equipment, the Group’s

measurement of the deferred taxation liability or deferred

regardless of the basis of measuring the carrying amount of

that asset.

If a deferred taxation liability or deferred taxation asset arises

model in IAS 40 Investment Property, there is a rebuttable

presumption is rebutted, the measurement of the deferred

taxation liability or deferred taxation asset reflects the taxation

substantially all of the economic benefits embodied in the

presumption is rebutted, the Group measures deferred taxation

liabilities and deferred taxation assets using the taxation rate

and the taxation base that are consistent with the expected

Secondary taxation on companies (STC)

net of STC credits and is recognised as a taxation charge in the

distribution. The STC asset is only recognised to the extent that

Dividends taxation

Financial instruments

Recognition

Financial assets and financial liabilities are recognised on the

statement of financial position when the Group has become

Group applies trade date accounting for “regular way” purchases

and sales of financial assets.

Classification

The Group classifies its financial assets in the following

categories: at fair value through profit or loss, loans and

receivables, available-for-sale and held-to-maturity. The

classification depends on the purpose for which the financial

assets were acquired. Management determines the

classification of its financial assets at initial recognition.

Financial assets at fair value through profit or loss

designated into this category on initial recognition. A financial



237

for the purpose of selling in the short term, is part of a portfolio

of identified financial instruments that are managed together

a financial guarantee contract).

Loans and receivables

“at

fair value through profit or loss” or as “available-for-sale”. Loans

maturities greater than 12 months after the end of the

financial position.

Available-for-sale financial assets

assets that are either designated into this category at initial

recognition or not classified in any of the other categories.

matures or management intends to dispose of it within

12 months of the end of the reporting period, in which case they

are included in current assets.

Held-to-maturity financial assets

assets with fixed or determinable payments and a fixed maturity

maturity, other than assets that are included in the other

Measurement

plus, in the case of a financial asset or a financial liability not

that are directly attributable to the acquisition or issue of the

financial asset or financial liability.

initially measured at the transaction price and any difference

instrument is derecognised.

Subsequent to initial recognition these instruments are

measured as set out below:

Investments; including subsidiaries, jointly controlled entities

and associates

appropriate.

intends to hold to maturity are subsequently measured at

period to maturity.

Derivative financial instruments and hedge accounting

currency and interest rate swaps and interest rate options to

hedge its exposures arising from operational, financing and

financial instruments.

those of host contracts and the host contracts are not carried at

Group first becomes a party to the contract. Subsequent

reassessment is only performed by the Group if there is a change

in the terms of the contract that significantly modifies the cash

flows that otherwise would be required under the contract.

account current interest rates and the current creditworthiness


qualifying hedge relationships in accordance with IAS 39

Financial Instruments: Recognition and Measurement by

associated with recognised assets, liabilities or highly probable

forecast transactions (cash flow hedges). At the inception of the

hedge relationship, the relationship between the hedging

instrument and the hedged item is documented, along with the

relationship and on an ongoing basis, the Group assesses

hedged asset, liability or unrecognised firm commitment that

that are designated and qualify as cash flow hedges is initially

immediately in profit or loss.

and included in equity are reclassified from equity to profit or

loss in the period(s) in which the hedged item affects profit or

loss and are included in the same line as the hedged item.

are transferred from equity and included in the initial cost or

financial liability.

the hedging relationship, the hedging instrument expires or

is sold, terminated, or exercised, or no longer qualifies for

hedge accounting.

Long-term loans and advances

account any transaction costs, and any discount or premium

on settlement.

Trade and other receivables

terms, are recognised and carried at amortised cost using the

amounts are recognised in the income statement when there is

measured as the difference between the carrying amount and

are used to record impairment losses unless the Group is

against the financial asset directly.

The Group renegotiates terms for financial assets that would

otherwise be past due or impaired in instances where the debtor

of the renegotiated terms. The impact of the renegotiated terms

for these financial assets.

Cash and cash equivalents

amortised cost.

For the purposes of the consolidated cash flow statements, cash

Financial liabilities

After initial recognition, financial liabilities other than financial

transaction costs, and any discount or premium on settlement.

Interest-bearing borrowings

less related transaction costs. Subsequent to initial recognition,

Financial liabilities designated as fair value through profit or loss

or loss represent a portion of the Group’s bonds that otherwise

amortised cost.

bonds. These bonds are managed and their performance



239

Trade payables and accruals

Liabilities for trade and other amounts payable which are

settled within normal terms are stated at amortised cost.

Impairment of financial assets

An assessment is made at each reporting date to determine

of assets) is determined and an impairment loss is recognised

carrying amount as follows:

carrying amount of the asset is reduced to its discounted

rate), and the resulting loss is recognised in the income

are not discounted. Assets that are assessed not to be

Group’s past experience of collecting payments, an increase in

the number of delayed payments in the portfolio past the

changes in national or local economic conditions that

been derecognised.

extent that the asset’s carrying amount does not exceed the

impairment loss has been recognised.

through profit or loss. An impairment loss in respect of a debt

loss was originally recognised in profit or loss.

An impairment loss in respect of an unquoted equity instrument

measured reliably, whether recognised at an interim reporting

Offset

Where a legally enforceable right of offset exists for recognised

financial assets and financial liabilities, and there is an intention

to settle the liability and realise the asset simultaneously, or

settle on a net basis, all related financial effects are offset.

Financial liabilities and equity

Financial instruments issued by the Group are classified as

either financial liabilities or equity according to their substance

and the definitions of financial liabilities and equity.

Equity instruments

interest in the assets of the Group after deducting all of its

Gains and losses on financial instruments

Net gains or net losses on:

Financial liabilities designated as at fair value through profit

and loss

Exchange of South Africa, and as a result of derecognition.

gains or net losses are recognised in profit and loss for

the period.

Financial liabilities at amortised cost represent the

interest costs as well as any derecognition gains or losses on

these liabilities. Gains or losses on liabilities held at amortised

cost are recognised in profit or loss for the period.

Available-for-sale financial assets are determined with

Impairment losses are recognised in profit or loss for

the period.

Loans and receivables and financial assets held-to-maturity

interest earned on outstanding balances, as well as gains or

losses recognised on derecognition of the asset. These gains or

losses are recognised in profit or loss for the period.

Financial assets and liabilities held-for-trading represent fair

loss for the period.

Derecognition

Financial assets (or a portion thereof) are derecognised when

the Group’s rights to the cash flows expire, or when the


to the financial asset or when the Group loses control of

the financial asset. On derecognition, the difference between

the carrying amount of the financial asset and proceeds

had been reported in equity are included in the consolidated

income statement.

Financial liabilities (or a portion thereof) are derecognised when

the obligations specified in the contract are discharged,

cancelled or expire. On derecognition, the difference between

unamortised costs, and settlement amounts paid is included in

the consolidated income statement.

Inventories

selling price in the ordinary course of business, less all

estimated costs of completion and selling.

Cost is determined as follows:

labour cost and an appropriate portion of related

losses occur.

Construction contracts

Construction contract balances represent the gross unbilled

amount expected to be collected from customers for contract

recognised to date less progress billings and recognised losses.

Cost includes all expenditure related directly to specific

operating capacity.

recognised, the difference is presented as deferred income in

the statement of financial position.

Non-current assets classified as held-for-sale and discontinued operations

through a sale transaction rather than continuing use. This

condition is regarded as met only when the sale is highly

immediate sale in its present condition. Management must be

committed to the sale, which should be expected to qualify for

recognition as a completed sale within one year from the date

of classification.

measurement of the assets (and all assets and liabilities in

depreciated or amortised whilst classified as such.

A discontinued operation is a component of the Group’s

geographical area of operations or is a subsidiary acquired

Classification as a discontinued operation occurs upon disposal

or when the operation meets the criteria to be classified

abandoned upon abandonment may also qualify as a

discontinued operation.

plan to sell the assets or disposal groups, such asset or disposal

Share capital

Incremental costs directly attributable to the issue of new

shares are shown in equity as a deduction, net of taxation, from

the proceeds. Incremental costs directly attributable to the

issue of new shares for the acquisition of a business are

recognised in profit or loss in the period in which they

are incurred.

When share capital is repurchased, the amount of the

consideration paid, including directly attributable costs, is

deducted from equity. Repurchased shares are classified as

treasury shares and presented as a deduction from the total

equity until they are cancelled, reissued or disposed of.

are declared.

Employee benefits

contribution fund. The assets of each scheme are held

separately from those of the Group and are administered by the

schemes’ trustees. The defined benefit funds are actuarially



241

consulting actuaries on an annual basis.

Defined contribution fund

The Group’s contributions to the defined contribution fund are

recognised in the income statement in the period to which

they relate.

Defined benefit funds

The benefit costs and obligations under the defined benefit

funds are determined separately for each fund using the

in the income statement. All actuarial gains and losses are

which they arise.

expense is recognised immediately in the income statement.

Any asset resulting from this calculation is limited to the

the plan.

Post-retirement medical benefits

qualifying employees and pensioners. The medical benefit costs

method. Actuarial gains or losses are recognised in line with the

Short- and long-term benefits

bonuses, housing allowances, medical and other contributions is

recognised in the period in which the employee renders the

Termination benefits

employment is terminated before the normal retirement date

exchange for these benefits. The Group recognises termination

benefits when it has demonstrated its commitment to either

terminate the employment of current employees according to

a detailed formal plan without possibility of withdrawal or to

Leases

Group as a lessee

Leases of property, plant and equipment where the Group

classified as finance leases. Finance leased assets and the

related liabilities recognised at the commencement of the lease

payment is allocated between the liability and finance charges

remaining balance of the liability. The corresponding rental

term payables.

The interest element of the finance lease payment is recognised

rentals are charged as expenses in the period in which they are

incurred. Property, plant and equipment acquired under a

useful life and the lease term.

and rewards of ownership are classified as operating leases.

escalation clauses), are charged to the income statement on a

of the lease (if shorter).

Group as a lessor

When assets are leased out under a finance lease, the Group

derecognises the leased asset and recognises the net

recognised as unearned finance income. Lease income is

method, which reflects a constant periodic rate of return.

Assets leased to third parties under operating leases are

property where applicable) in the statement of financial

on a basis consistent with similar owned property, plant and

lease term.


Sale and leaseback

period of the lease.

the assets sold is recognised in the income statement in the

year in which it arises. If the deficit is compensated for by future

period for which the asset is expected to be used. If the sale

expected to be used.

Determining whether an arrangement contains a lease

The Group ensures that the following two requirements are met,

in order for an arrangement transacted by the Group to be

classified as a lease in terms of IAS 17 Leases:

a specific asset or assets (whether explicitly or implicitly

stated in the contract); and

the right to control the use of the underlying asset.

This will be the case if any one of the following conditions

are met:

– The purchaser has the ability or right to operate the asset

or direct others to operate the asset in a manner it

determines while obtaining or controlling more than an

insignificant amount of the output or other utility of

the asset;

– The purchaser has the ability or right to control physical

access to the asset while obtaining or controlling more

than an insignificant amount of the output or other utility

of the asset; and

– There is only a remote possibility that parties other than

of the output or other utility of the asset and the price

that the purchaser will pay for the output is neither

contractually fixed per unit of output nor equal to the

The Group’s assessment of whether an arrangement contains a

lease is made at the inception of the arrangement, with

circumstances as specified by IFRIC 4 Determining whether an

Arrangement contains a Lease.

Provisions

it is probable that the Group will be required to settle the

obligation, and a reliable estimate can be made of the amount

of the obligation.

the consideration required to settle the present obligation at

and uncertainties surrounding the obligation. Where the effect

When some or all of the economic benefits required to settle a

Warranties

historical warranty data and a weighting of all possible

outcomes against their associated probabilities.

Restructuring

Group has a detailed formal plan for the restructuring and the

will carry out the restructuring by starting to implement that

plan or announcing its main features to those affected by it.

which are necessarily entailed by the restructuring and not

Environmental rehabilitation and environmental obligations

historical contamination caused by asbestos as well as costs for

the rehabilitation caused by ferromanganese, manganese,

mixed soil (including chrome, sulphur and manganese) fuel

and rubble contamination.

Decommissioning liabilities

property, plant and equipment and restoring the site is



243

recognised when the Group has a present obligation (either legal

the site.

Environmental liabilities

land contaminated by asbestos, ferromanganese, manganese,

mixed soil (including chrome, sulphur and manganese) fuel and

rubble. Refer under “Critical judgements and estimates made in

applying the accounting policies” for more details on the

determination of these liabilities.

Onerous contracts

under the contract.

Other provisions

recognised when they meet the recognition requirements

as per IAS 37 Provisions, Contingent Liabilities and

Contingent Assets.

Contingent liabilities

Contingent liabilities are (a) possible obligations that arise

either not probable that an outflow of resources embodying

economic benefits will be required to settle the obligation or

the amount of the obligation cannot be measured with

sufficient reliability. Contingent liabilities are not recognised

in the financial statements but are disclosed in the notes to

the financial statements unless the probability of occurrence

is remote.

Financial guarantees

A financial guarantee contract is a contract that requires the

when due in accordance with the original or modified terms of

the debt instrument. The Group recognises financial guarantee

recognised at the higher of:

Provisions,

Contingent Liabilities and Contingent Assets; and

IAS 18 Revenue.

Legal claims

surrounding the obligation.

Compensation receivable

up or for any other loss incurred is recognised in the income

measured reliably.

Segment disclosure

which form the basis of reporting segment information in

accordance with IFRS 8 Operating Segments. Further

Operational Review.

The operating segments are identified on the basis of internal

assessing their performance. Reportable segments are

Transfer prices between operating segments are on an arm’s

column of the segment report.

Related party transactions

Transactions with related parties are conducted on an arm’s

length basis similar to transactions with third parties.


Income statements for the year ended 31 March 2011

Company Group

2010Restated*R million

2011

R million Notes

2011

R million


Continuing operations

35 593 37 924 Revenue 2 37 952 35 610

(21 160) (22 178)

Net operating expenses excluding depreciation

and amortisation 3 (22 189) (21 201)

14 433 15 746

Profit from operations before depreciation, amortisation

and items listed below 15 763 14 409

(6 089) (7 294) Depreciation and amortisation 4.1 (7 184) (6 089)

8 344 8 452 Profit from operations before the items listed below 4.2 8 579 8 320

(774) (536) Impairment of assets 4.4 (537) (778)

8 26 Dividends received 4.5 – –

(180) (155) Post-retirement benefit obligation costs 4.6 (155) (180)

(18) 625 Fair value adjustments 5 625 (18)

Income from associates and joint ventures 13 58 5

7 380 8 412 Profit from operations before net finance costs 8 570 7 349

(3 018) (3 441) Finance costs 6 (3 439) (3 014)

556 536 Finance income 7 561 578

4 918 5 507 Profit before taxation 5 692 4 913

(1 745) (1 510) Taxation 8 (1 508) (1 763)

3 173 3 997 Profit for the year from continuing operations 4 184 3 150

Discontinued operations

(128) (74) Loss from discontinued operations 1 (71) (128)

3 045 3 923 Profit for the year 4 113 3 022

* Refer to note 36 for the restatements to prior year results.

245

Company Group


2011

R million Notes

2011

R million


3 045 3 923 Profit for the year 4 113 3 022

Other comprehensive income

– – Exchange differences on translation of foreign operations (6) 4

4 049 8 772 Gains on revaluations 8 690 4 124

(109) 65 Cash flow hedges 65 (109)

135 (204) Actuarial (loss)/gain on post-retirement benefit obligations (204) 135

4 075 8 633 8 545 4 154

(1 086) (2 360)

Taxation relating to components of other comprehensive

income 8.1 (2 339) (1 105)

2 989 6 273

Other comprehensive income for the year,

net of taxation 6 206 3 049

6 034 10 196 Total comprehensive income for the year 10 319 6 071


Statements of comprehensive income for the year ended 31 March 2011


Company Group


2011

R million Notes

2011

R million


2 971 6 373 Net gains on revaluation reserve 6 312 3 027

4 049 8 772 Gains on revaluations 8 690 4 124

167 310 – Gain on revaluation of pipeline networks 22 310 167

3 468 8 210 – Gain on revaluation of port facilities 22 8 210 3 468

(14) (12) – Decommissioning restoration liability adjustment 22 (12) (14)

428 264

– Net gain on revaluation of land, buildings

and structures 22 264 428

– – – (Loss)/gain on revaluation of other investments 22 (82) 75

(1 078) (2 399) Taxation effect of revalued items 8.1 (2 378) (1 097)

(79) 47 Net losses on cash flow hedging reserve 47 (79)

(109) 65 – Gains/(losses) on cash flow hedges 22 65 (109)

30 (18) – Taxation effect of cash flow hedge (gain)/loss 8.1 (18) 30

– – Net movement on foreign currency translation reserve 22 (6) 4

97 (147)

Net actuarial (loss)/gain on post-retirement benefit

obligations (147) 97

135 (204)

Actuarial (loss)/gain related to post-retirement benefit

obligations 22 (204) 135

(79) (190)

– Actuarial loss on the Transport Pension Fund:

Transnet Sub-Fund 32.1.2 (190) (79)

(4) (7)

– Actuarial loss on the Transnet Second Defined

Benefit Fund 32.1.3 (7) (4)

2 1

– Actuarial gains on the Transnet Top Management

Pension Fund 32.1.4 1 2

16 (22)

– Actuarial (loss)/gain on the Transnet Workmen’s

Compensation Act Pensioners Fund 32.1.4 (22) 16

112 4

– Actuarial gain on the Transnet SATS Pensioners’ post-

retirement medical benefits 32.2.1 4 112

88 10

– Actuarial gain on the Transnet employees’ medical

benefits 32.2.2 10 88

(38) 57 Taxation effect of net actuarial loss/(gain) 8.1 57 (38)

2 989 6 273 Other comprehensive income for the year 6 206 3 049


Disclosure of components of other comprehensive income for the year ended 31 March 2011

247

Company Group



2011

R million Notes

2011

R million



Assets

Non-current assets

96 569 113 689 137 836 Property, plant and equipment 9 137 836 113 579 96 459

5 961 6 604 7 368 Investment properties 10 7 368 6 604 5 961

431 421 464 Intangible assets 11 464 421 431

246 246 245 Investments in subsidiaries 12

10 10 13 Investments in associates and joint ventures 13 81 21 24

178 11 15 Derivative financial assets 14 15 11 178

77 37 11 Long-term loans and advances 15 11 37 77

138 172 468 Other investments and long-term financial assets 16 468 172 287

103 610 121 190 146 420 146 243 120 845 103 417

Current assets

2 589 2 048 2 257 Inventories 17 2 257 2 048 2 589

5 528 5 880 5 501 Trade and other receivables 18 5 503 5 859 5 503

– – 306 Current taxation asset 303 – –

335 28 30 Derivative financial assets 14 30 28 335

436 1 670 1 566 Other short-term investments 16 1 566 1 670 436

5 603 7 632 10 606 Cash and cash equivalents 19 10 876 7 918 5 880

14 491 17 258 20 266 20 535 17 523 14 743

349 267 150 Assets classified as held-for-sale 20 292 517 374

14 840 17 525 20 416 20 827 18 040 15 117

118 450 138 715 166 836 Total assets 167 070 138 885 118 534

Equity and liabilities

Capital and reserves

12 661 12 661 12 661 Issued capital 21 12 661 12 661 12 661

44 603 50 637 60 833 Reserves 22 61 005 50 686 44 615

57 264 63 298 73 494 Attributable to the equity holder 73 666 63 347 57 276

Non-current liabilities

3 839 3 451 3 232 Employee benefits** 23 3 232 3 451 3 839

29 754 42 732 50 450 Long-term borrowings 24 50 452 42 736 29 758

18 366 558 Derivative financial liabilities 14 558 366 18

994 1 054 1 174 Long-term provisions** 25 1 174 1 054 994

9 606 12 413 15 383 Deferred taxation liabilities 26 15 415 12 473 9 647

– 99 1 829 Other non-current financial liabilities** 16 1 829 99 –

44 211 60 115 72 626 72 660 60 179 44 256

Current liabilities

7 985 9 558 10 365 Trade payables and accruals** 28 10 393 9 598 8 000

7 255 4 698 9 578 Short-term borrowings 29 9 578 4 698 7 255

846 157 – Current taxation liability – 171 854

109 183 92 Derivative financial liabilities 14 92 183 109

770 694 672 Short-term provisions** 25 672 694 770

16 965 15 290 20 707 20 735 15 344 16 988

10 12 9 Liabilities directly associated with assets classified as held-for-sale 20 9 15 14

16 975 15 302 20 716 20 744 15 359 17 002

118 450 138 715 166 836 Total equity and liabilities 167 070 138 885 118 534

* Refer to note 36 for the restatements to prior year results.** The incentive bonus and leave pay accrual have been reallocated from short-term provisions to trade payables and accruals (March 2010: R2 273 million,

March 2009: R1 509 million, for both Company and Group) and from long-term provisions to employee benefits (March 2010: R929 million, March 2009: R1 015 million, for both Company and Group) in line with the requirements of IAS 19: Employee Benefits. The SATS post-retirement medical subsidy and non-recurring bonus to pensioners has been reallocated from long-term provisions to employee benefits and trade payables and accruals (March 2010: R540 million, March 2009: R500 million, for both Company and Group). The long-term deferred income has been reallocated from trade payables and other accruals to other non-current financial liabilities (March 2010: R99 million, March 2009: Rnil for both Company and Group).

Statements of financial positionat 31 March 2011


Statements of changes in equityfor the year ended 31 March 2011

Issuedcapital

R million

Revalua-tion

reserveR million

Foreigncurrency

trans-lation

reserveR million

Actuarial gains and

lossesR million

Cash flow hedgingreserve

R million

Other reserve

R million

RetainedearningsR million

TotalR million

CompanyRestated opening balances as at 1 April 2009* 12 661 19 186 – 2 398 – 250 22 769 57 264

Opening balance as at 1 April 2009 as previously reported 12 661 20 453 – 2 398 – 250 22 560 58 322

Deferred taxation adjustment on revaluations – (1 266) – – – – 45 (1 221)

Deferred taxation adjustment on investment

property – (1) – – – – 164 163

Restated other comprehensive income

for the year – 2 971 – 97 (79) – 3 045 6 034

Other comprehensive income for the year as

previously reported – 2 981 – 97 (79) – 3 086 6 085

Deferred taxation adjustment on revaluations – (35) – – – – 15 (20)


property – 25 – – – – (56) (31)

Transfer to retained earnings – (1) – – – – 1 –

Restated balances as at 31 March 2010* 12 661 22 156 – 2 495 (79) 250 25 815 63 298

Profit for the year – – – – – – 3 923 3 923

Other comprehensive income for the year – 6 373 – (147) 47 – 6 273


– Gross transfers – (114) – – – – 114 –

– Taxation effect of transfers – 30 – – – – (30) –

Balances at 31 March 2011 12 661 28 445 – 2 348 (32) 250 29 822 73 494

GroupRestated opening balances as at 1 April 2009* 12 661 19 293 21 2 394 – 249 22 658 57 276

Opening balance as at 1 April 2009 as previously reported 12 661 20 560 21 2 394 – 249 22 449 58 334

Deferred taxation adjustment on revaluations – (1 266) – – – – 45 (1 221)


property – (1) – – – – 164 163

Restated other comprehensive income

for the year – 3 027 4 97 (79) – 3 022 6 071

Other comprehensive income for the year as

previously reported – 3 037 4 97 (79) – 3 063 6 122

Deferred taxation adjustment on revaluations – (35) – – – – 15 (20)


property – 25 – – – – (56) (31)

Transfer from retained earnings – (1) – 4 – – (3) –

Restated balances as at 31 March 2010* 12 661 22 319 25 2 495 (79) 249 25 677 63 347

Profit for the year – – – – – – 4 113 4 113

Other comprehensive income for the year – 6 312 (6) (147) 47 – – 6 206


– Gross transfers – (114) – – – – 114 –

– Taxation effect of transfers – 30 – – – – (30) –

Balances as at 31 March 2011 12 661 28 547 19 2 348 (32) 249 29 874 73 666


249

Statements of cash flowsfor the year ended 31 March 2011

Company Group

2010R million

2011R million Notes

2011R million

2010R million

12 082 13 176 Cash flows from operating activities 13 159 12 092

14 263 16 150 Cash generated from operations 34.1 16 159 14 239

– 1 315 Security of supply petroleum levy 1 315 –

1 829 827 Changes in working capital 34.2 792 1 850

16 092 18 292

Cash generated from operations after

changes in working capital 18 266 16 089

(3 043) (3 428) Finance costs* 34.3 (3 428) (3 042)

556 441 Finance income 34.4 466 580

(713) (1 363) Taxation paid 34.5 (1 379) (725)

(307) (268) Settlement of post-retirement benefit obligations (268) (307)

(503) (498) Derivatives settled and raised (498) (503)

(20 408) (22 993) Cash flows utilised in investing activities (23 018) (20 408)

(9 497) (10 263) Investment to maintain operations (10 288) (9 497)

(8 569) (10 101) Replacements to property, plant and equipment (10 101) (8 569)

(17) (21) Additions to intangible assets (21) (17)

(212) (322) Borrowing costs capitalised (322) (212)

1 8 Proceeds on the disposal of investment property 8 1

436 301

Proceeds on the disposal of property,

plant and equipment 301 436

– 1 Proceeds on the disposal of subsidiary 34.6 1 –

51 – Proceeds on the disposal of associates 34.7 – 51

8 26 Dividend income 1 8

(15) (3) Net advances of long-term loans and advances (3) (15)

(1 180) (152) Increase in other investments (152) (1 180)

(10 911) (12 730) Investment to expand operations (12 730) (10 911)

(9 641) (11 292) Expansions – property, plant and equipment (11 292) (9 641)

(1 270) (1 438) Borrowing costs capitalised (1 438) (1 270)

10 355 12 791 Cash flows from financing activities 12 791 10 355

19 696 18 418 Borrowings raised 18 418 19 696

(9 341) (5 627) Borrowings repaid (5 627) (9 341)

2 029 2 974 Net increase in cash and cash equivalents 2 932 2 039

5 603 7 632 Cash and cash equivalents at the beginning of the year 7 944 5 905

7 632 10 606 Total cash and cash equivalents at the end of the year 34.8 10 876 7 944

7 632 10 606 Cash and cash equivalents at the end of the year 10 876 7 918

– – Disclosed as assets held-for-sale – 26

* Finance costs have been reclassified to be shown net of borrowing costs capitalised in cash flows from operating activities.


Segment informationfor the year ended 31 March 2011

Continuing operations#

FreightRail

R million

RailEngineering

R million

For the year ended 31 March 2011

External revenue* 22 310 661

Internal revenue 297 8 665

Total revenue 22 607 9 326

Energy costs (2 533) (146)

Maintenance costs (2 949) (145)

Material costs (436) (3 630)

Personnel costs (6 555) (3 719)

Other costs (1 990) (535)

Earnings before interest, taxation, depreciation and amortisation (EBITDA) 8 144 1 151

Depreciation and amortisation (4 602) (171)

Impairment of assets (228) 1

Dividends received and income from associates and joint ventures 12

Fair value adjustments and post-retirement benefit obligation costs 47 (13)

Finance costs (1 493) (213)

Finance income 45 29

Profit before taxation 1 925 784

Total assets## 55 466 6 944

Total liabilities## 33 925 3 802

Capital expenditure*** 12 542 532

Cash generated from operations after changes in working capital 7 660 1 588

EBITDA margin (%) 36,0 12,3

Number of employees 23 665 13 001

For the year ended 31 March 2010

External revenue* 20 599 1 280

Internal revenue 226 6 935

Total revenue 20 825 8 215

Energy costs (2 198) (117)

Maintenance costs (2 532) (149)

Material costs (386) (3 311)

Personnel costs (6 214) (3 507)

Other costs (2 101) (461)

Earnings before interest, taxation, depreciation and amortisation (EBITDA) 7 394 670

Depreciation and amortisation (3 910) (173)

Impairment of assets (213) –

Dividends received and income from associates and joint ventures – –

Fair value adjustments and post-retirement benefit obligation costs (169) (119)

Finance costs (1 195) (291)

Finance income 9 34

Profit before taxation 1 916 121

Total assets## 46 827 6 286

Total liabilities## (Restated+) 27 758 3 797

Capital expenditure*** 9 726 376

Cash generated from operations after changes in working capital 8 540 641

EBITDA margin (%) 35,5 8,2

Number of employees 22 571 12 677

* Revenue from segments below the quantitative thresholds are attributable to two operating segments of Transnet. Those segments include Transnet Property that manages internal and external leases of commercial and residential property and Transnet Capital Projects.

# A reconciliation between total reportable segments measure of profit or loss and the Group profit or loss before taxation and discontinued operations is included on the face of the income statements. The nature of each segment and the major products are disclosed in the operational reviews set out earlier in this Integrated Annual Report.

** All other segments and adjustments include the Corporate Centre functions.*** Excludes capitalised borrowing costs, includes capitalised finance leases and capitalised decommissioning liabilities.## Excludes assets and liabilities held-for-sale.+ Refer to note 36 for the restatements to prior year results.

251

National Ports

AuthorityR million

PortTerminals

R millionPipelinesR million

Total forreportable

segmentsR million

All other segments and

adjustments**R million

Elimination ofinter-segment

transactionsR million

Total R million

7 343 6 349 1 128 37 791 161 – 37 952

718 2 1 9 683 2 680 (12 363) –

8 061 6 351 1 129 47 474 2 841 (12 363) 37 952

(215) (273) (56) (3 223) (161) – (3 384)

(254) (208) (40) (3 596) (192) 3 364 (424)

(63) (257) (11) (4 397) (238) 3 059 (1 576)

(1 180) (2 048) (217) (13 719) (1 758) 3 637 (11 840)

(483) (1 377) (108) (4 493) (2 059) 1 587 (4 965)

5 866 2 188 697 18 046 (1 567) (716) 15 763

(997) (998) (330) (7 098) (176) 90 (7 184)

(14) (80) (12) (333) (204) – (537)

– – – 12 54 (8) 58

369 (26) 2 379 91 – 470

(1 236) (417) – (3 359) (6 707) 6 627 (3 439)

2 61 118 255 6 933 (6 627) 561

3 990 728 475 7 902 (1 576) (634) 5 692

60 956 12 856 19 355 155 577 19 314 (8 113) 166 778

29 850 6 637 13 530 87 744 10 684 (5 033) 93 395

2 031 866 6 077 22 048 177 (721) 21 504

6 770 2 424 3 450 21 892 (3 626) – 18 266

72,8 34,5 61,7 38,0 n/a n/a 41,5

3 535 5 867 567 46 635 2 443 n/a 49 078

6 839 5 154 1 170 35 042 568 – 35 610

622 2 1 7 786 2 133 (9 919) –

7 461 5 156 1 171 42 828 2 701 (9 919) 35 610

(163) (206) (140) (2 824) (131) – (2 955)

(179) (190) (35) (3 085) (117) 2 741 (461)

(56) (203) (13) (3 969) (251) 2 492 (1 728)

(1 140) (1 797) (202) (12 860) (1 412) 2 963 (11 309)

(350) (1 139) (78) (4 129) (1 904) 1 285 (4 748)

5 573 1 621 703 15 961 (1 114) (438) 14 409

(788) (800) (343) (6 014) (159) 84 (6 089)

(175) (183) (137) (708) (70) – (778)

– 8 – 8 (3) – 5

208 18 1 (61) (137) – (198)

(1 330) (430) (97) (3 343) (6 759) 7 088 (3 014)

6 79 – 128 7 538 (7 088) 578

3 494 313 127 5 971 (704) (354) 4 913

51 110 12 830 12 301 129 354 15 857 (6 843) 138 368

26 841 7 698 8 504 74 598 5 115 (4 190) 75 523

3 231 2 368 3 067 18 768 109 (436) 18 441

5 267 1 894 955 17 297 (1 208) n/a 16 089

74,7 31,4 60,0 37,3 n/a n/a 40,5

3 426 5 313 570 44 557 1 365 n/a 45 922


Notes to the annual financial statementsfor the year ended 31 March 2011

Company Group

2010R million

2011R million

2011R million

2010R million

1. Discontinued operationsThe loss from discontinued operations, comprises:

(141) (41) Loss for the year (refer below) (41) (141)

– (32)

Loss on disposal of discontinued operations, net of taxation

(refer note 4.3) (29) –

13 (1) (Impairments)/reversal of impairments (1) 13

(128) (74) (71) (128)

Loss from discontinued

operations – Luxrail

41 36 Revenue (refer note 2) 36 41

(182) (77)

Net operating expenses excluding depreciation and amortisation

(refer note 3) (77) (184)

(141) (41)

Loss from operations before depreciation and amortisation and

items listed below (41) (143)

– – Depreciation and amortisation – –

(141) (41) Loss from operations before the items listed below (41) (143)

– – Impairment of assets – –

– – Fair value adjustments – –

(141) (41) Loss from operations before net finance income (41) (143)

– – Finance costs – –

– – Finance income (refer note 7) – 2

(141) (41) Loss before taxation (41) (141)

– – Taxation – –

(141) (41) Loss for the year (41) (141)

2. Revenue 33 561 36 463 Rendering of services 36 491 33 578

1 104 1 092 Rental income 1 092 1 104

24 12 Finance income from lending activities 12 24

945 393 Construction contracts (refer note 27) 393 945

35 634 37 960 37 988 35 651

(41) (36) Discontinued operations (36) (41)

35 593 37 924 Continuing operations 37 952 35 610

253

Company Group

2010R million

2011R million

2011R million

2010R million

3. Net operating expenses excluding depreciation and amortisation

321 229 Accommodation and refreshments 229 321

483 431 Electronic data costs 431 483

2 955 3 384 Energy costs 3 384 2 955

210 259 Health and sanitation 259 210

207 216 Insurance 216 207

461 424 Maintenance costs 424 461

562 740 Managerial and technical consulting fees (refer note 4.2) 740 562

1 728 1 576 Material costs 1 576 1 728

1 345 1 482 Operating leases (refer note 4.2) 1 482 1 345

11 309 11 840 Personnel costs 11 840 11 309

53 58 Printing and stationery 58 53

(63) (33)

Profit on disposal of property, plant and equipment

(refer note 4.2) (33) (63)

77 128 Promotions and advertising 128 77

561 641 Security 641 561

198 202 Telecommunications 202 198

52 65 Transport 65 52

73 46 Research and development costs (refer note 4.2) 46 73

810 567 Other costs 578 853

21 342 22 255 22 266 21 385

(182) (77) Discontinued operations (77) (184)



Notes to the annual financial statements (continued)for the year ended 31 March 2011

Company Group

2010R million

2011R million

2011R million

2010R million

4.1 Depreciation and amortisation 5 948 7 134 Depreciation and derecognition (refer annexure B) 7 024 5 948

4 299 5 221 Depreciation – Owned assets at historic cost 5 161 4 299

7 22 Aircraft 22 7

400 513 Land, buildings and structures 513 400

448 500 Machinery, equipment and furniture 498 448

478 548 Permanent way and works 493 478

2 927 3 601 Rolling stock and containers 3 597 2 927

39 37 Vehicles 38 39

1 487 1 818 Depreciation – Owned assets revalued portion 1 768 1 487

317 311 Pipeline networks 306 317

1 170 1 507 Port facilities 1 462 1 170

162 95 Depreciation – Leased assets at historic cost 95 162

100 55 Rolling stock and containers 55 100

23 14 Machinery, equipment and furniture 14 23

39 26 Permanent way and works 26 39


141 160 Amortisation of intangible assets (refer note 11) 160 141

141 160 Software and licences 160 141

141 160 Continuing operations 160 141

6 089 7 294 Total depreciation and amortisation – continuing operations 7 184 6 089

4.2 Profit from operations before impairment of assets, dividends received, post-retirement benefit obligation costs, fair value adjustments and income from associates and joint ventures

is stated after taking into account the following amounts:

Auditors’ remuneration

Group auditors

57 62 Audit fees 62 57

2 2 Audit fees – prior year underprovision 2 2

17 17 Fees for audit-related and other services 17 17

2 2 Expenses 2 2


255

Company Group

2010R million

2011R million

2011R million

2010R million

4.2 Profit from operations before impairment of assets, dividends received, post-retirement benefit obligation costs, fair value adjustments and income from associates and joint ventures (continued)

Managerial and technical consulting fees


Operating lease charges

1 1 Aircraft 1 1

656 760 Land, buildings and structures 760 656

688 721 Other 721 688


Profit on disposal of property, plant and equipment

(63) (33) Continuing operations (33) (63)

Research and development costs


Directors’ and executives’ emoluments (full details are

disclosed in the Report of the Directors)

16 27 Executive Directors 27 16

5 6 Non-executive Directors 6 5

86 91 Senior executives 91 86


4.3 Loss/(profit) on disposal of discontinued operations, net of taxation

– 38 Loss on disposal of freightdynamics 38 –

– (6) Profit on disposal of other (9) –

– 32 Discontinued operations 29 –


Company Group

2010R million

2011R million

2011R million

2010R million

4.4 Impairment of assets752 291 Property, plant and equipment (refer annexure B)* 291 752

(178) (4) Reversal of impairments of associates and subsidiaries (3) (174)

55 29 Long-term loans and advances (refer note 15) 29 55

145 220 Trade and other receivables 220 145


* The impairment of property, plant and equipment relates mainly to derailments and the impairment of certain feasibility costs.

4.5 Dividends received– 25 Dividends from subsidiary

8 1 Dividends from associate

8 26 Continuing operations

4.6 Post-retirement benefit obligation costs(59) (172) Transport Pension Fund: Transnet Sub-Fund (172) (59)

(4) (7) Transnet Second Defined Benefit Fund (7) (4)

7 7 Transnet Top Management Pension Fund 7 7

32 30 Transnet Workmen’s Compensation Act Pensioners Fund 30 32

101 79 Transnet SATS Pensioners’ post-retirement medical benefits 79 101

63 58 Transnet employees’ post-retirement medical benefits 58 63

40 160 Other post-retirement and medical benefits (refer note 23) 160 40


5. Fair value adjustments(1 074) (100) Derivative fair value adjustments (100) (1 074)

276 637 Fair value adjustment of investment property (refer note 10) 637 276

88 – Fair value adjustment to treasury bonds – 88

692 88 Gains on hedging instruments 88 692

(18) 625 Continuing operations 625 (18)

Reconciliation of fair value adjustments to note 14

(18) 625 Fair value adjustments 625 (18)

(276) (637)

Fair value adjustment of investment property

(refer note 10) (637) (276)

(88) – Fair value adjustment to treasury bonds – (88)

(692) (88) Gains on hedging instruments (88) (692)

(6) (157) Other realised fair value adjustments (157) (6)

(1 080) (257) Fair value adjustments (refer note 14) (257) (1 080)


257

Company Group

2010R million

2011R million

2011R million

2010R million

6. Finance costs(51) (19) Net foreign exchange gains on translation (21) (54)

26 32 Discounts on bonds amortised (refer note 24) 32 26

27 22 Finance lease obligation 22 27

4 498 5 166 Interest cost – Financial liabilities at amortised cost 5 166 4 497

4 500 5 201 Gross finance costs 5 199 4 496

(1 482) (1 760) Borrowing costs capitalised* (1 760) (1 482)


* The weighted average capitalisation rate on funds borrowed generally is 9,83% per annum (2010: 10,67% per annum).

7. Finance income479 391 Interest received – Bank deposits 416 503

77 50 Interest received – Loans and receivables 50 77

– 95 Interest received – Held to maturity 95 –

556 536 561 580

– – Discontinued operations – (2)


8. TaxationSouth African normal taxation

786 900 – Current year 898 799

(762) – – Transfer to deferred taxation – (762)

Deferred taxation (refer note 26)

959 730 – Current year 723 959

– (120) – Release of deferred taxation (120) –

762 – – Transfer from current taxation – 762

Foreign taxation

– – – Current year 7 5



Company Group

2010%

2011%

2011%

2010%

8. Taxation (continued)Reconciliation of taxation rate

28,00 28,00 Standard rate – South African normal taxation 28,00 28,00

8,43 (0,21) Adjustment for differences (1,17) 8,84

8,48 2,13 Expenses not included for taxation purposes 0,97 8,84

(0,05) (0,13) Exempt local dividends – –

– (2,21) Release of deferred taxation (2,14) –

36,43 27,79 Effective rate of taxation 26,83 36,84

35,48 27,42 Continuing operations 26,49 35,88

R million R million R million R million

8.1 Taxation recognised in other comprehensive income

Arising on the taxation effect of items recognised

in other comprehensive income:

(15) (84)

Gains on revaluation of pipeline networks and decommissioning

restoration liability (84) (15)

(980) (2 300)

Gains on revaluation of port facilities and

decommissioning restoration liability (2 300) (980)

(83) (15) Gains on revaluation of land, buildings and structures (15) (83)

– –

Losses/(gains) on revaluation of investments to market value

(ALL Group Ltd) 21 (19)

30 (18) Cash flow hedge (gains)/losses (18) 30

(38) 57

Actuarial (gains) /losses on post-retirement

benefit obligations 57 (38)

(1 086) (2 360) Total taxation recognised in other comprehensive income (2 339) (1 105)


259

Company Group

2010R million

2011R million

2011R million

2010R million

9. Property, plant and equipment (refer annexure B)Property, plant and equipment is stated at historical cost except

for pipeline networks and port facilities, which are stated at

revalued amounts.

113 689 137 836 Net book value 137 836 113 579

158 501 192 157 Gross carrying value 192 157 158 407

(44 812) (54 321) Accumulated depreciation and impairment (54 321) (44 828)

Comprising:

Historical cost


153 153 – Aircraft 153 153

13 286 15 965 – Land, buildings and structures 15 965 13 290

5 678 5 874 – Machinery, equipment and furniture 5 874 5 695

15 518 18 930 – Permanent way and works 18 930 15 461

30 088 39 106 – Rolling stock and containers 39 106 30 084

797 809 – Vehicles 809 798

21 048 23 202 – Capital work in progress 23 202 21 048

(19 128) (22 817) Accumulated depreciation (22 817) (19 138)

(45) (67) – Aircraft (67) (45)

(2 545) (2 985) – Land, buildings and structures (2 985) (2 548)

(2 750) (3 028) – Machinery, equipment and furniture (3 028) (2 759)

(3 249) (3 726) – Permanent way and works (3 726) (3 247)

(10 076) (12 522) – Rolling stock and containers (12 522) (10 076)

(463) (489) – Vehicles (489) (463)

(467) (617) Accumulated impairment (617) (478)

(204) (190) – Land, buildings and structures (190) (205)

(58) (53) – Machinery, equipment and furniture (53) (68)

(11) (22) – Permanent way and works (22) (11)

(107) (274) – Rolling stock and containers (274) (107)

(1) (1) – Vehicles (1) (1)

(86) (77) – Capital work in progress (77) (86)

66 973 80 605

Net book value of property, plant and equipment

stated at historical cost 80 605 66 913


Company Group

2010R million

2011R million

2011R million

2010R million

9. Property, plant and equipment (refer annexure B) (continued)Revaluation


12 844 13 867 – Pipeline networks 13 867 12 838

59 089 74 314 – Port facilities 74 314 59 040

(24 446) (30 144) Accumulated depreciation (30 144) (24 441)

(8 408) (9 037) – Pipeline networks (9 037) (8 407)

(16 038) (21 107) – Port facilities (21 107) (16 034)

(771) (806) Accumulated impairment (806) (771)

(219) (217) – Pipeline networks (217) (219)

(552) (589) – Port facilities (589) (552)

46 716 57 231

Net book value of property, plant and equipment

stated at revalued amounts 57 231 46 666

113 689 137 836 Total net book value 137 836 113 579

Land, buildings and structures

A register of land, buildings and structures is available for

inspection at the Company.

During the year, the Group transferred Rnil

(2010: R152 million) from investment properties to property,

plant and equipment. The fair values of these properties are

deemed as cost for subsequent accounting in accordance with

IAS 40.

During the year, the Group also transferred R143 million

(2010: R520 million) from property, plant and equipment

to investment properties. The carrying values of these

properties were restated to fair value in accordance with

IAS 16.

Rolling stock

Included in rolling stock are locomotives that were leased and

leased back. The locomotives are leased to a third party,

refurbished and then leased to a financier who in turn leases the

assets back to the Company. This has been treated as a

structured loan. The loan is secured by virtue of the lease

agreements and a collateral covering bond over the refurbished

locomotives.

1 501 1 982

The book value of the refurbished locomotives which are so

encumbered amounts to 1 982 1 501

441 491

Included in rolling stock assets are capitalised leased assets

with a carrying value of 491 441


261

Company Group

2010R million

2011R million

2011R million

2010R million

9. Property, plant and equipment (refer annexure B) (continued)Pipeline networks

The Group’s policy is to perform a revaluation of its pipeline

networks every three years and apply appropriate valuation

indices in the intervening years. The last full revaluation was

performed in 2009. An external revaluation was performed in

the current year by Arthur D. Little Inc., an independent firm of

professional valuers, on the basis of the modern equivalent net

asset value. The current year’s revaluation resulted in a net

increase of R310 million (2010: R167 million) to the carrying

value of the Group’s pipeline networks, which has been

adjusted accordingly.

2 041 2 060 The historic cost carrying values of these assets amount to 2 060 2 041

Port facilities

The Group’s policy is to perform a revaluation of its port

operating assets and infrastructure every three years and

apply appropriate valuation indices in the intervening years.

A full revaluation was performed in the current year. In the

current year, the revaluation resulted in an increase of

R8 136 million (2010: R3 446 million) for port infrastructure

and an increase of R74 million (2010: R22 million) for port

operating assets.

The estimated replacement cost of port infrastructure assets

that are subject to revaluation amount to R45,5 billion

(2010: R45,5 billion) as determined by independent valuation

experts, however, the revaluation was limited to the present

value of future discounted cash flows amounting to R43,4 billion

(2010: R35,3 billion).

17 735 18 657 The historic carrying values of these assets amount to 18 657 17 735

Included in port facilities are encumbered assets of

R1 222 million (2010: R1 492 million) as security for the

finance leases.

Useful lives and residual values

In terms of IAS 16: Property, Plant and Equipment, the useful

lives and residual values of property, plant and equipment must

be reviewed annually. The useful lives are estimated by

management based on historic analysis, benchmarking and other

available information. The residual values are based on the

assessment of useful lives and other available information.


Company Group

2010R million

2011R million

2011R million

2010

R million

10. Investment properties

5 961 6 604 Fair value at the beginning of the year 6 604 5 961

368 143 Transferred from property, plant and equipment (refer annexure B) 143 368

276 637 Recognised in income statement (refer note 5) 637 276

(1) – Disposals – (1)

– 1 Other movements 1 –

– (17) Transferred to assets held-for-sale (17) –

6 604 7 368 Fair value at the end of the year 7 368 6 604

The fair value of the Group’s investment properties at

31 March 2011 was arrived at on the basis of valuations carried

out at that date by Transnet Property valuers.

The valuations, which conform to the Property Valuers

Profession Act, No 47 of 2000, were arrived at by capitalising

the first year’s normalised net operating income at a market-

derived capitalisation rate.

Various assumptions were made in order to derive the net

present value of the future cash flows. These assumptions were

arrived at after wide consultation with subject matter experts.

The more critical assumptions made were:

related rentals per investment property.

purposes of determining present value was the market-

related return rate adjusted to reflect the appropriate risk

profile of each individual property.

various properties.

In limited circumstances where the income capitalisation

method was not appropriate, market-related information

was applied to determine the value of the respective

investment property.

The gross property rental income earned by the Group

from its investment properties, which are leased out

under gross operating leases, amounted to R1 092 million

(2010: R1 104 million).

Direct operating expenses arising on the investment properties

during the year amounted to R293 million (2010: R296 million).


263

Company Group

2010R million

2011R million

2011R million

2010R million

11. Intangible assets421 464 Intangible assets 464 421

1 083 1 283 1 283 1 145

(662) (819) Accumulated amortisation and impairment (819) (724)

Comprising:

Finite life intangible assets*

421 464 Software and licences: carrying value 464 421

1 083 1 283 1 283 1 145

976 1 083 Balance at the beginning of the year 1 145 1 038

17 21 Additions 21 17

13 – Borrowing costs capitalised – 13

(24) (3) Disposals (65) (24)

101 182 Transfers from property, plant and equipment (refer annexure B) 182 101

(662) (819) Accumulated amortisation and impairment (819) (724)

(545) (662) Balance at the beginning of the year (724) (607)

24 3 Disposals 65 24

(141) (160) Amortisation (refer note 4.1) (160) (141)

421 464 464 421

* Software and licences are assessed as having a finite life and are amortised on a straight-line basis over a period of three to five years.

12. Investments in subsidiaries (refer annexure D)

44 43 Shares at carrying value

604 603 Amounts owing by subsidiaries

648 646

(402) (401) Provision for impairment and losses

246 245

13. Investments in associates and joint ventures (refer annexure D)

10 13 81 21

10 10 Balance at the beginning of the year 21 24

– – Equity-accounted earnings 58 5

– – Dividends received (1) (8)

– 3 Reversal of impairments 3 –

10 13

Directors’ valuation of unlisted investments in associates and

joint ventures (at carrying value) 81 21

– – Income from associates and joint ventures 58 5


Company Group

2010R million

2011R million

2011R million

2010R million

14. Derivative financial assets and liabilities

instruments, in particular forward exchange contracts, cross-

currency swaps and interest rate swaps, to hedge the financial

risks associated with underlying business activities. All

derivative financial instruments have been measured at fair

value with the resulting gain or loss taken to the statement of

comprehensive income.

39 45 Derivative financial assets 45 39

513 39 Opening balance 39 513

(162) 78 Income statement credit/(debit) 78 (162)

(312) (72) Derivatives raised and settled (72) (312)

549 650 Derivative financial liabilities 650 549

127 549 Opening balance 549 127

1 128 696 Income statement debit 696 1 128

109 (65) Recognised in other comprehensive income (refer note 22) (65) 109

– 40 Deferred loss on swap 40 –

(815) (570) Derivatives raised and settled (570) (815)

(1 290) (618) Net income statement debit (618) (1 290)

(1 080) (257) Fair value adjustments (refer note 5) (257) (1 080)

(210) (361) Finance costs (net interest expense on cross-currency swaps) (361) (210)

Comprise the following financial instruments:

11 15 Non-current assets 15 11

11 15 Forward exchange contracts 15 11

28 30 Current assets 30 28


1 1 1 1

366 558 Non-current liabilities 558 366


288 457 457 288

183 92 Current liabilities 92 183


23 1 1 23


265

Company Group

2010R million

2011R million

2011R million

2010R million

14. Derivative financial assets and liabilities (continued)

Fair value hedges of firm commitments

The Group entered into fair value hedges of the foreign

exchange risk on firm commitments of the Group to import items

of equipment (ie locomotives and port equipment). The Group is

settling the contract price of these items by making pre-

determined progress payments (in foreign currency) to the

relevant suppliers as specified milestones are achieved.

At 31 March 2011, the Group held a series of forward exchange

contracts as hedging instruments for this purpose. These hedges

were assessed to be effective. The ineffective portion of the

hedge has been recorded in profit and loss.

The fair value of these forward exchange contracts held as

hedging instruments at 31 March 2011 are as follows:

(37) (31) (31) (37)

– – – –

(4) (4) (4) (4)

(157) (105) (105) (157)

The net fair value gain recognised in profit and loss on these fair

value hedges during the year was Rnil (2010: R0,4 million gain).

This net fair value gain comprised a gain of R78 million (2010:

R692 million) with respect to foreign exchange risk on the firm

commitments, and a loss of R78 million (2010: R691,6 million)

on the forward exchange contracts.

The nominal value of these forward exchange contracts at

31 March 2011 are as follows:

3 494 1 562 1 562 3 494

– 26 Australian Dollar 26 –

143 38 38 143

757 577 Euro 577 757

million million million million

43 357 17 046 17 046 43 357

– 4 Australian Dollar 4 –

19 5 5 19

76 41 Euro 41 76

Cash flow hedges

Cross-currency interest rate swaps

On 31 March 2011, the Group was party to four separate cross-

currency interest rate swap contracts which are designated as cash

flow hedges of the foreign exchange rate and interest rate risks

associated with foreign currency-denominated borrowings.


Company Group

2010R million

2011R million

2011R million

2010R million

14. Derivative financial assets and liabilities (continued)

310 457

Cash flow hedges (continued)

Cross-currency interest rate swaps (continued)

The terms of the cross-currency interest rate swaps closely match

those of the foreign currency-denominated borrowings they hedge

and they were assessed as highly effective hedges. The amount of

ineffectiveness recognised in profit and loss for the period with

respect to these hedges was R0,790 million (2010: Rnil). The

amount recycled to profit and loss to offset the hedged risks was

R157 million (2010: R70 million), included in finance costs.

The cash flows are projected to occur semi-annually in February and

cash flows are projected to occur semi-annually in February and

The fair values of the cross-currency interest rate swaps at


Cross-currency interest rate swaps 457 310

The nominal amounts of the cross-currency interest rate swaps

at 31 March 2011 are as follows:

3 176 9 137 South African Rand 9 137 3 176

38 500 44 260 44 260 38 500

– 750 750 –

(2) (8)

Forward exchange contracts

On 31 March 2011, the Group held a series of forward exchange

contracts as hedges of highly probable forecast transactions

relating to the acquisition of locomotives, spares and tools. The

terms of the forward exchange contracts exactly match the terms of

the highly probable forecast transactions and were assessed as

highly effective hedges. No hedge ineffectiveness was recognised

in profit or loss for the period (2010: Nil).

The cash flows are projected to occur in the period between

The fair values of the forward exchange contracts at 31 March 2011

are as follows:

The nominal values of these forward exchange contracts at


(8) (2)

150 2 085 2 085 150

Refer to note 22 for details of the amounts recognised in other

comprehensive income, amounts recycled to profit and loss or

included in the initial cost of non-financial assets or liabilities with

respect to the above hedges.


267

Company Group

2010R million

2011R million

2011R million

2010R million

15. Long-term loans and advances

37 11 11 37


15 4 Advances 4 15

– (1) Repayments (1) –

(55) (29) Impairment (29) (55)

Comprising:

33 8 Employee housing and other loans 8 33


2 4 Advances 4 2

(40) (29) Impairment (29) (40)

4 3 Other loans and advances 3 4


13 – Advances – 13

– (1) Repayments (1) –

(15) – Impairment – (15)

37 11 11 37

16. Other investments, long-term financial assets and other non-current financial liabilities

– – – 224

172 468 Other financial assets 468 172

172 468 468 396

– – Transferred to assets classified as held-for-sale – (224)

172 468

Total long-term investments and long-term

financial assets 468 172

1 670 1 566

Short-term portion of other investments including market-

making positions held-for-trading 1 566 1 670

1 670 1 566 Total short-term investments 1 566 1 670

99 507 507 99

– 1 315 Security of supply petroleum levy 1 315 –

– 7 Other 7 –

99 1 829 Total other non-current financial liabilities 1 829 99

17. InventoriesAt weighted average cost

1 556 1 579 Maintenance material 1 579 1 556

114 259 259 114

44 36 Finished goods 36 44

134 163 Work in progress* 163 134

(363) (339) Provision for stock obsolescence (339) (363)

1 485 1 698 1 698 1 485

* Included in work in progress are costs for construction contracts in progress (refer note 27).


Company Group

2010R million

2011R million

2011R million

2010R million

17. Inventories (continued)At net realisable value

601 556 Maintenance material 556 601

30 26 26 30

(67) (21) Provision for stock obsolescence (21) (67)

564 561 561 564

(1) (2) Transferred to assets classified as held-for-sale (2) (1)

2 048 2 257 2 257 2 048

18. Trade and other receivables 4 348 4 081 Trade receivables – net of allowances for credit losses 4 083 4 327

384 236

Amounts due from customers under construction contracts

(refer note 27) 236 384

16 11 Retention debtors (refer note 27) 11 16

4 748 4 328 Trade receivables 4 330 4 727

1 130 1 170 Prepayments and other amounts receivable 1 170 1 130

3 3 Short-term portion of loans and advances 3 3

5 881 5 501 5 503 5 860

(1) – Transferred to assets classified as held-for-sale – (1)

5 880 5 501 5 503 5 859

Reconciliation of allowance for credit losses

(Refer annexure A)

Low risk (5) (207) Opening balance (207) (5)

(284) (211) Raised (211) (284)

80 66 66 80

2 – Disposals – 2

(207) (352) Closing balance (352) (207)

Medium risk

(117) (43) Opening balance (43) (117)

(13) (69) Raised (69) (13)

87 5 5 87

(43) (107) Closing balance (107) (43)

High risk

(169) (206) Opening balance (206) (169)

(66) (19) Raised (19) (66)

29 24 24 29

(206) (201) Closing balance (201) (206)

Total provisions

(291) (456) Opening balance (456) (291)

(363) (299) Raised (299) (363)

196 95 95 196

2 – Disposals – 2

(456) (660) Closing balance (660) (456)


269

Company Group

2010R million

2011R million

2011R million

2010R million

19. Cash and cash equivalents7 632 10 606 10 876 7 918

7 632 10 606 10 876 7 918

20. Assets classified as held-for-sale and liabilities directly associated with assets classified as held-for-sale (refer annexure C)

Non-current assets classified as held-for-sale

247 124 Property, plant and equipment 124 247

8 17 Investment property 17 8

– – Other investments 142 224

255 141 283 479

Disposal groups

Assets classified as held-for-sale

85 76 76 85

– – Freight Dynamics Guardrisk – 26

(73) (67)

Effect of inter-company eliminations and impairment of disposal

groups (67) (73)

12 9 9 38

267 150

Total assets transferred to non-current assets classified

as held-for-sale 292 517

Liabilities directly associated with assets classified

as held-for-sale

Disposal groups

12 9 9 12

– – Freight Dynamics Guardrisk – 3

12 9 9 15

12 9

Total liabilities transferred to liabilities directly associated with

assets classified as held-for-sale 9 15


Company Group

2010R million

2011R million

2011R million

2010R million

21. Issued capitalAuthorised

30 000 30 000 30 000 000 000 ordinary par value shares of R1 each 30 000 30 000

Issued

12 661 12 661

12 660 986 310 ordinary par value shares of R1 each

(2010: 12 660 986 310). 12 661 12 661

The unissued share capital is under the control of the South

Capital management

The Board’s policy is to maintain a strong capital base to

maintain investor, creditor and market confidence to

measured in terms of returns on equity and the asset base,

as well as the gearing ratio, which is monitored by the

Board. The capital structure of the Group consists of equity

attributable to the equity holder, the South African

Government, comprising issued capital, reserves and

retained earnings as disclosed in notes 21 and 22. Other

other externally imposed capital requirements.

Based on the significant capital investment plan of the

There were no changes to the capital management approach

during the year.


271

Company Group

2010R million

2011R million

2011R million

2010R million

22. Reserves22 156 28 445 Revaluation reserve 28 547 22 319

3 179 3 475 Revaluation of pipeline networks 3 475 3 179

3 047 3 179 Balance at the beginning of the year 3 179 3 047

167 310 Revaluation during the current year 310 167

(28) (14) Decommissioning restoration liability adjustment (14) (28)

(7) – Realised through disposal – (7)

26 922 35 020 Revaluation of port facilities 35 020 26 922


3 468 8 210 Revaluation during the current year 8 210 3 468

– (114) Transfer to retained earnings (114) –

14 2 Decommissioning restoration liability adjustment 2 14

553 817 Revaluation of land, buildings and structures 817 553


428 264 Fair value movement during the current year 264 428

– –

ALL Group Ltd (refer annexure D) – revaluation of investment to market value 135 217

– – Balance at the beginning of the year 217 142

– – Fair value movement during the current year (82) 75

(8 498) (10 867)

Deferred taxation impact of items relating to revaluation reserves (10 900) (8 552)

– – Foreign currency translation reserve 19 25

– – Balance at the beginning of the year 25 21

– – (6) 4

(79) (32) Cash flow hedging reserve (32) (79)

(109) (44) Cash flow hedging reserves (44) (109)

– (109) Balance at the beginning of the year (109) –

(179) (162) (162) (179)

70 227 Transfer to foreign exchange differences 227 70

30 12

Deferred taxation impact of items relating to cash flow hedging reserves 12 30

2 495 2 348 Net actuarial gains on post-retirement benefit obligations 2 348 2 495

3 466 3 262 Actuarial gains on post-retirement benefit obligations 3 262 3 466


135 (204) (204) 135

– – Transfer from retained earnings – 5

(971) (914) Deferred taxation impact of net actuarial gains (914) (971)

250 250 Other reserves 249 249

5 5 Other transfers 4 4

245 245

Share of pension fund surplus (retained for application

against pensioners) 245 245

25 815 29 822 Retained earnings 29 874 25 677


1 84 Transfers into/(from) retained earnings 84 (3)

3 045 3 923 Profit for the year attributable to equity holder 4 113 3 022

50 637 60 833 61 005 50 686



Company Group

2010R million

2011R million

2011R million

2010R million

23. Employee benefts2 022 1 953 Post-retirement benefit obligations 1 953 2 022


140 (5) Income statement (credit)/charge (5) 140

(307) (268) Settlements during the year (268) (307)

(135) 204 Actuarial loss/(gain) (refer note 22) 204 (135)

Comprising:– – Transport Pension Fund: Transnet Sub-Fund (refer note 32.1.2) – –

– – Transnet Second Defined Benefit Fund (refer note 32.1.3) – –

80 77 Transnet Top Management Pension Fund (refer note 32.1.4) 77 80

354 373 note 32.1.4) 373 354

1 026 934

Transnet SATS Pensioners’ post-retirement medical benefits

(refer note 32.2.1) 934 1 026

562 569

Transnet employees’ post-retirement medical benefits (refer

note 32.2.2) 569 562

2 022 1 953 1 953 2 022

Various assumptions have been applied by management and

actuaries in the calculation of post-retirement benefit

obligations.

The assumptions and their sensitivities are disclosed in note 32.

500 373 Other post-retirement and medical benefits 373 500


40 160 Accruals made during the year 160 40

– (121) (121) –

540 579 579 540

(40) (206) Less: Short-term portion classified as current liabilities (206) (40)

518 505 Leave pay 505 518


736 810 Accruals made during the year 810 736

(662) (559) (559) (662)

(2) –

Transferred to liabilities directly associated with assets

classified as held-for-sale – (2)

1 139 1 390 1 390 1 139

(621) (885) Less: Short-term portion classified as current liabilities (885) (621)

411 401 Incentive bonuses 401 411


1 855 1 699 Accruals made during the year 1 699 1 855

(1 249) (2 199) (2 199) (1 249)

2 063 1 563 1 563 2 063

(1 652) (1 162) Less: Short-term portion classified as current liabilities (1 162) (1 652)

3 451 3 232 Total employee benefits 3 232 3 451

Various assumptions are applied in arriving at the carrying value of provisions that are recognised in terms of the requirements of IAS 37 Provisions, Contingent Liabilities and Contingent Assets.

Other post-retirement and medical benefitsIncluded is an amount of R579 million for the restructuring of the SATS pensioners’ medical subsidy. An amount of R40 million for a non-recurring bonus to pensioners was included in the prior year balance.

Leave payRelates to accruals for unutilised leave at year-end. The leave is expected to be taken over the next two financial years and is calculated based

Incentive bonusesAccrual for incentive bonuses in terms of the Board-approved Group incentive scheme.


273

Company Group

2010R million

2011R million

2011R million

2010R million

24. Long-term borrowings (refer annexure A)42 732 50 450 50 452 42 736

29 754 42 732 Total long-term borrowings at the beginning of the year 42 736 29 758

15 137 16 390 Raised 16 390 15 137

(82) (158) Foreign exchange movement (158) (82)

26 32 Amortisation of discount 32 26

(2 103) (8 546) year transferred to short-term borrowings (refer note 29) (8 548) (2 103)

Unsecured liabilities

37 575 46 165 Rand-denominated 46 165 37 575

29 048 35 295 Bonds at nominal value 35 295 29 048

(1 332) (1 224) (1 224) (1 332)

27 716 34 071 Bonds at carrying value# 34 071 27 716

9 859 12 094 Other unsecured liabilities* 12 094 9 859

3 102 8 854 Foreign currency-denominated† 8 854 3 102

– 5 149 Bonds at nominal value 5 149 –

– (28) (28) –

– 5 121 Bonds at carrying value 5 121 –

3 102 3 733 Other unsecured liabilities 3 733 3 102

4 158 3 977 Secured loans** and capitalised finance leases� 3 981 4 162

4 118 3 977 Rand-denominated 3 981 4 120

40 – Foreign currency-denominated�� – 42

44 835 58 996 Total long-term borrowings 59 000 44 839

(2 103) (8 546) year transferred to short-term borrowings (refer note 29) (8 548) (2 103)

42 732 50 450 50 452 42 736

# The Rand-denominated secured local guaranteed bonds of which the T011 bond has been redeemed on 1 April 2010 and the rest is redeemable on 15 July 2014 bear interest at 10,75% (refer annexure A). Rand-denominated secured Eurorand bonds bear interest between 10% and 13,5% and are repayable in 2028 and 2029 (refer annexure A).

* The Rand-denominated unsecured and non-guaranteed bonds are redeemable between 14 November 2017 and 14 November 2027 and bear interest at a rate between 8,9% and 10,8%.

† The foreign currency bond was issued on 10 February 2011. The issuing currency is United States Dollars. This foreign currency bond is redeemable on 10 February 2016 and bears interest at a rate of 4,5%.

Foreign currency unsecured loans are denominated in Japanese Yen, bear interest at rates between 1,826% and 2,7%, and are repayable between 15 November 2019 and 20 February 2021.

* Rand-denominated unsecured loans bear interest at rates ranging between 6,025% and 10,95%. These liabilities are repayable over periods between 29 July 2011 and 30 November 2024.

** �� Rand-denominated secured loans bear interest at rates ranging between 5,825% and 7,825% with floating rates linked to JIBAR. These liabilities are repayable over periods between 15 October 2013 and 20 December 2021.

� �� Rand-denominated capitalised finance lease liabilities bear interest at rates ranging between 11,00% and 16,93% with all rates linked to prime. These liabilities are repayable over periods between 2010 and 2017.

�� Foreign currency secured loans are denominated in United States Dollars and have been redeemed on 24 November 2010.


Company Group

2010R million

2011R million

2011R million

2010R million

25. Provisions 1 054 1 174 Comprising 1 174 1 054

994 1 054 Total provisions at the beginning of the year 1 054 994

1 382 1 377 Provisions raised during the year and unwinding of discounts 1 377 1 382

(1 398) (1 279) Provisions utilised (1 279) (1 398)

76 22

Decrease in short-term provisions classified as current

liabilities 22 76

135 174 Third-party claims 174 135


428 215 Provisions made during the year 215 428

(432) (176) (176) (432)

26 26 Customer claims 26 26


4 – Provisions made during the year – 4

(4) – – (4)

38 – Onerous contracts – 38


107 – Provisions made during the year – 107

(218) (38) (38) (218)

1 087 1 267 Decommissioning and environmental liabilities 1 267 1 087

906 1 087 Balance at the beginning of the year 1 087 906

188 239 Provisions made during the year and unwinding of discounts 239 188

(7) (59) (59) (7)

45 30 Restructuring 30 45


(33) (15) (15) (33)

417 349 Other 349 417


655 595 Provisions made during the year 595 655

(704) (663) (663) (704)

1 748 1 846 Total provisions 1 846 1 748


275

Company Group

2010R million

2011R million

2011R million

2010R million

25. Provisions (continued) 694 672 Less: Short-term provisions classified as current liabilities 672 694

135 174 Third-party claims 174 135

26 26 26 26

38 – Onerous contracts – 38

113 124 Decommissioning and environmental liabilities 124 113

382 348 Other 348 382

1 054 1 174 Total long-term provisions 1 174 1 054

Various assumptions are applied in arriving at the carrying value of provisions that are recognised in terms of the requirements of

IAS 37: Provisions, Contingent Liabilities and Contingent Assets.

liabilities are disclosed in note 31.

Third-party claims

This provision represents the best estimate of known third-party claims together with an allowance for claims incurred but not yet reported

based on historical experience.

Customer claims

This provision represents claims made by customers arising from non-performance on contracts or damage to goods in transit.

Onerous contracts

This provision is raised for the onerous portion of certain lease agreements.

Decommissioning and environmental liabilities

Provisions raised for the dismantling and removal of an asset as a result of the requirement to restore the site on which the asset is located

are computed by discounting estimated future cash flows required to restore the site at rates that reflect the current market assessments of

the time value of money and the risks specific to the liability. The amount recognised as a decommissioning liability is the best estimate of the

rehabilitation required and may change from year to year taking into account the changes in intended use of the asset, risks and uncertainties

surrounding the obligation.

In accordance with the Group’s environmental policy and applicable legal requirements, a provision for environmental rehabilitation in respect

of clean-up costs is recognised when it meets the recognition requirements for provisions. The provision includes the estimated rehabilitation

costs for the historical contamination caused by asbestos, ferromanganese, manganese, mixed soil (including chrome, sulphur and manganese),

fuel and rubble.

These obligations arise from environmental legislation requiring the Group to remove waste material and remediate the land. Transnet

engaged external consultants to perform risk assessments on identified areas of contamination and the Group’s related rehabilitation

obligation. A number of factors were considered in determining the obligation, which included:

The extent of the contamination.

The cost per ton/square metre/running kilometre line of removal and disposal of the contamination.

The costs of rehabilitation of the identified areas of contamination.

The costs for the removal and replacement of asbestos roof sheeting and cladding on buildings.

Restructuring

Provisions raised for restructuring costs in terms of strategic plans.


Company Group


2011

R million

2011

R million


26. Deferred taxation liabilities 12 413 15 383 Comprising 15 415 12 473

9 606 12 413 Opening balance 12 473 9 647

959 610 Income statement charge (refer note 8) 603 959

762 – Transfer from current taxation (refer note 8) – 762

1 086 2 360 Raised in other comprehensive income 2 339 1 105

Analysis of major categories of temporary differences

3 507 4 079 Deferred taxation assets 4 079 3 478

789 693 Provisions 693 789

1 158 1 210 Employee benefit obligations 1 210 1 158

117 766 Revenue received in advance and deferred income 766 117

1 278 1 262 1 262 1 278

136 148 Doubtful debts 148 136

29 – Other – –

15 920 19 462 Deferred taxation liabilities 19 494 15 951

74 150 Deferred expenditure 150 74

15 822 19 251 Property, plant and equipment 19 251 15 822

24 37 Future expenditure allowance 37 24

– 24 Other 56 31

12 413 15 383 Net deferred taxation liability 15 415 12 473

No deferred taxation asset has been raised in respect of

secondary taxation on companies credits available as they are

unlikely to be utilised given the capital requirements of the

companies to a withholding taxation on dividends, from which

* Refer note 36 for the restatements to prior year results.


277

Company Group

2010R million

2011R million

2011R million

2010

R million

27. Construction contractsContracts in progress at the financial position date:

1 306 662 to date 662 1 306

(929) (382) Less: Progress billings (382) (929)

377 280 280 377

Recognised and included in the financial statements:

Income statements

945 393 393 945

Statements of financial position

384 236

Amounts due from customers under construction contracts

(refer note 18) 236 384

16 11 Retention debtors (refer note 18) 11 16

been signed off as proof of quality satisfaction by the external

customer.

28. Trade payables and accruals 1 791 1 856 Trade payables 1 861 1 779

7 767 8 509 Accruals 8 532 7 819

2 984 2 897 Accrued expenditure 2 926 3 010

51 55 Deposits received 55 51

1 229 1 379 Accrued interest 1 379 1 229

92 311 Personnel costs 311 93

654 544 Public creditors 539 679

325 907 Revenue received in advance and deferred income 907 325

40 206 Other post-retirement and medical benefits (refer note 23) 206 40

621 885 885 621

1 652 1 162 Incentive bonus (refer note 23) 1 162 1 652

119 163 SARS – value added taxation 162 119

9 558 10 365 10 393 9 598

29. Short-term borrowings

2 103 8 546

(refer note 24) 8 548 2 103

2 595 1 032 Other short-term borrowings 1 030 2 595

4 698 9 578 9 578 4 698

Other short-term borrowings relate to the market-making

portfolio and comprise the Group’s position on bonds and other

financial instruments.

The short-term borrowings bear interest at rates between

2012, and are not guaranteed.


Company Group

2010R million

2011R million

2011R million

2010R million

30. Commitments

30.1 Capital commitments* 18 257 22 790 Contracted for in SA Rand 22 790 18 257

1 703 1 184 Contracted for in Japanese Yen 1 184 1 703

28 20 Contracted for in US Dollar 20 28

463 3 Contracted for in Euro 3 463

1 101 Contracted for in various other currencies 101 1

20 452 24 098 Total capital commitments contracted for 24 098 20 452

72 930 86 497

Authorised by the Board of Directors but not yet

contracted for 86 497 72 930

93 382 110 595 110 595 93 382

Total capital commitments are expected to be incurred as

follows:

22 831 25 859 Within one year 25 859 22 831

70 551 84 736 After one year, but not more than five years 84 736 70 551

93 382 110 595 110 595 93 382

These capital commitments will be financed utilising net cash

flow from operations, debt capital markets, through project

finance and the use of operating leases.

* Excludes capitalised borrowing costs of R5 894 million (2010: R5 981 million).

30.2 Operating lease commitmentsFuture minimum rentals under non-cancellable leases are as

follows:

Land, buildings and structures

76 90 Within one year 93 79

226 313 After one year, but not more than five years 319 233

291 409 More than five years 409 291

593 812 821 603

Machinery, equipment, furniture and vehicles




1 026 1 048 1 048 1 026

Security and maintenance contracts



168 245 245 168

Other



33 26 35 42


279

Company Group

2010R million

2011R million

2011R million

2010R million

30. Commitments (continued)

30.3 Finance lease commitmentsThe finance leases relate to the Kimberley – De Aar

transmission line, MTN Coal Line Network, computer

equipment and camera security equipment. These finance

leases have a lease term ranging between 3 to 17 years.

The interest rates vary from 11,25% to 16,93%.

Future minimum lease payments under finance leases,

together with the present value of the net minimum lease

payments, are as follows:

Machinery, equipment and furniture




154 148 Total minimum lease payments 148 154

(17) (15) Amount representing finance charges (15) (17)

137 133 Present value of minimum lease payments 133 137

Included in the financial statements as:

24 38 – Short-term borrowings 38 24

113 95 – Long-term borrowings 95 113

137 133 133 137

30.4 Lease rentals receivableFuture minimum rentals under operating leases are

as follows:

Property

1 159 1 095 Within one year 1 095 1 159

3 222 3 079 After one year, but not more than five years 3 079 3 222

3 479 3 878 More than five years 3 878 3 479

7 860 8 052 8 052 7 860

Other




1 080 990 1 014 1 104


Company Group

2010R million

2011R million

2011R million

2010R million

31. Contingent liabilities, assets and guarantees Continuing operations

Asbestos roofs and cladding

Transnet owns buildings with asbestos roofs and cladding. In

terms of the Asbestos Regulations of 2001, Transnet is

responsible for taking reasonable steps to determine the

location of asbestos in the workplace for the purposes of

managing the potential risk associated with such materials.

The assessment for the potential risk of exposure and the

cost of removal is a complex scientific process which

requires the expertise of an environmental specialist. In

certain cases the asbestos cladding is of low friability, ie

dust fibres released is negligible/non-existent and therefore

maintenance and inspection of the contamination is the

preferred rehabilitation option, until the roofs and cladding

are removed and replaced.– – – –

Port Elizabeth manganese plant Within the next five years, a decommissioning environmental impact assessment (DEI) will be required to determine the soil condition of the terminal at the time of potential decommissioning of the plant. Transnet will be responsible for any clean-up costs as a result of the decommissioning of the plant, including the entire berm removal and bin deconstruction.

To date, no formal decision has been taken in respect of the following:

of Ngqura or Saldanha and therefore the nature and timing

is uncertain.

be used for property development or port development

once the manganese operations are relocated.

dismantled and moved and re-assembled at the new

location or whether it would be more financially viable to

construct new assets for the new plant.

Accordingly, a reliable estimate could not be made for the relocation of the manganese plant until a detailed feasibility study has been carried out.– – – –

227 192Various contingent liabilities where no material losses are expected to materialise 192 227

– 74

Various contingent assets where the inflow of economic

benefits is probable, but not virtually certain 74 –


281

32. Post-retirement benefit obligationsThe Group offers pension benefits through two defined benefit pension funds and one defined contribution fund. The Group also

offers post-retirement medical benefits to its employees. Specific retirement benefits are offered to top management and under

the Workmen’s Compensation Act. The following sections summarise the relevant components of the pension benefits and post-

retirement medical benefits. (All amounts disclosed are equal for Company and Group unless otherwise stated.)

Pension benefits

Benefit Fund. Except for the Transnet Retirement Fund, the IAS 19: Employee Benefits actuarial valuations for the funds are

With regard to the defined benefit funds, the expected return on plan assets has been calculated based on market expectations at

the beginning of the period for returns over the entire life of the related obligation, except where settlements have occurred

during the year. In these instances the return on assets is adjusted immediately before settlement. The estimated return is

determined in conjunction with actuaries and market analysts based on the underlying asset base within each fund.

32.1.1 Transnet Retirement Fund

The fund was structured as a defined contribution fund from 1 November 2000. All employees of the Group are eligible members

of the fund. There were 60 314 members at 31 March 2011 (2010: 58 667). Actuarial valuations are done at intervals not exceeding

three years to determine the financial position. An actuarial valuation was performed as at 31 March 2010. The actuaries were

satisfied with the status of the members’ credit account then. The total contributions to this fund constitute member

contributions of R725 million (2010: R714 million) and employer contributions of R735 million (2010: R1 127 million).

32.1

32.1.2 Transport Pension Fund: Transnet Sub-Fund

The fund is a defined benefit pension fund. The fund has been closed to new members since 1 December 2000. Members are

current employees of Transnet who elected to remain as members of the fund at 1 November 2000 and pensioner members who

retired subsequent to that date.

fund. From the date this Act came into operation, all existing members, pensioners, dependant pensioners, liabilities, assets, rights

2006, with the South African Rail Commuter Corporation Limited as the principal employer of that sub-fund.

Fund are limited to those attributable to its members, pensioners and dependent pensioners assigned to its sub-fund.

There were 5 293 members and pensioners at 31 March 2011 (2010: 5 449). The fund gives members the option to transfer to the

Transnet Retirement Fund twice a year. Altogether, 35 members opted to transfer to the Transnet Retirement Fund in the current

year. The effect of this transfer is noted below.

An actuarial valuation was done as at 31 March 2011 based on the projected unit credit method. The principal actuarial

assumptions used are as follows:


Group

2011R million

2010R million

32. Post-retirement benefit obligations (continued)32.1 Pension benefits (continued)

32.1.2 Transport Pension Fund: Transnet Sub-Fund (continued)

Discount rate (%) 9,08 8,89

Salary increases

– Inflation (%) 5,99 5,24

0,25 1,00

Expected return on plan assets (%) 10,23 9,99

2,00 2,00

The results of the actuarial valuation are as follows:

Benefit liability(2 784) (2 786)

Fair value of plan assets 4 769 4 502

Surplus 1 985 1 716

Unrecognised asset (1 985) (1 716)

Net liability per the statements of financial position – –

The liability recognised for this fund relating to the Company amounts to Rnil (2010: Rnil).

The surplus was not recognised as the rules of the fund do not provide for the surpluses to be distributed.

Credit to the income statementsExpected return on assets 436 337

Current service cost (26) (28)

Interest cost (238) (250)

172 59

Actual return on plan assets 534 1 234

Actuarial loss recognised in other comprehensive income (190) (79)

– Actuarial gain 79 936

– Net asset not recognised (269) (1 015)

The cumulative actuarial losses recognised in other comprehensive income (1 347) (1 157)

Movements in the net asset recognised in the statements of financial positionOpening net asset 1 716 701

Income as above 172 59

Actuarial gain recognised in other comprehensive income 79 936

Contributions paid 18 20

Surplus 1 985 1 716

Asset not recognised (1 985) (1 716)

Closing net asset – –

Reconciliation of movement in benefit liability Opening benefit liability (2 786) (2 957)


Contributions by members (13) (13)


Actuarial (loss)/gain recognised in other comprehensive income (19) 39

Benefits paid 233 277

(2 849) (2 932)

Transfer to the retirement fund 65 146

Closing benefit liability (2 784) (2 786)


283

Group

2011R million

2010R million

32. Post-retirement benefit obligations (continued)

32.1 Pension benefits (continued)32.1.2 Transport Pension Fund: Transnet Sub-Fund (continued)

Reconciliation of movement in fair value of plan assets

Opening fair value of plan assets 4 502 3 658

Expected return 436 337


Contributions by employer and members 31 33

Benefits paid (233) (277)

4 834 4 648

Transfer to the retirement fund (65) (146)

Closing fair value of plan assets 4 769 4 502

2011%

2010

%

The major categories of plan assets as a % of total plan assets are:

Equity – Local and international 69 73

5 1

Bonds 20 20

Cash 6 6

Total 100 100

2011R million

2010R million

2009R million

2008R million

2007R million

Summary of actuarial valuation results for past periods:

(2 784) (2 786) (2 957) (3 192) (4 456)

Fair value of plan assets 4 769 4 502 3 658 4 924 5 610

Surplus 1 985 1 716 701 1 732 1 154

Asset not recognised (1 985) (1 716) (701) (1 732) (1 154)

Net liability – – – – –

Actuarial (loss)/gain recognised on defined

benefit obligation (19) 39 (63) 297 (20)

Actuarial gain/(loss) recognised on plan

assets 98 897 (1 176) (73) 1 199

The estimated contributions by both employer and members for the year beginning 1 April 2011 amount to R31 million

(2010: R33 million).


Group

2011R million

2010R million


32.1 Pension benefits (continued)

32.1.3 Transnet Second Defined Benefit Fund

The fund was established on 1 November 2000 for the benefit of existing retired members and

qualifying beneficiaries. The fund includes the spouses of black pensioners who retired from

Transnet between 16 December 1974 and 1 April 1986 (previously reported under the Black

(2010: 31 328). This excludes widows and children of pensioners, as well as the black widows.

The all-inclusive membership is 71 865 at 31 March 2011 (2010: 75 401). The entire obligation

relates to Transnet SOC Ltd.

The actuarial valuation was based on the projected unit credit method. The principal actuarial

assumptions used are as follows:


Expected return on assets (%) 8,13 7,19

Inflation (%) 6,21 5,38

2,00 2,00

The results of the actuarial valuation are as follows:

Benefit liability

(15 666) (16 469)

Fair value of plan assets 18 908 19 679

Surplus 3 242 3 210

Unrecognised asset (3 242) (3 210)

Net liability per the statements of financial position – –

Credit to the income statements

Expected return on plan assets 1 319 1 400

Interest cost (1 312) (1 396)

7 4

Actual return on plan assets 1 899 1 584

Actuarial loss recognised in other comprehensive income (7) (4)

– Actuarial gain 820 440

– Net asset not recognised (32) (444)

– Net asset utilised to pay bonus to pensioners (795) –

The cumulative actuarial gains recognised in other comprehensive income 4 548 4 555

Movements in the net asset recognised in the statements of financial position

Opening net asset 3 210 2 766

Loss as above 7 4


Net asset utilised to pay bonus to pensioners (795) –

Surplus 3 242 3 210

Asset not recognised (3 242) (3 210)

Closing net asset – –


285

Group

2011R million

2010R million


32.1 Pension benefits (continued)32.1.3 Transnet Second Defined Benefit Fund (continued)

Reconciliation of movement in benefit liability

Opening benefit liability (16 469) (17 550)

Interest cost (1 312) (1 396)

Actuarial gain 240 256

Benefits paid 1 875 2 221

Closing benefit liability (15 666) (16 469)

Reconciliation of movement in fair value of plan assets

Opening fair value of plan assets 19 679 20 316

Expected return 1 319 1 400


Benefits paid (2 670)* (2 221)

Closing fair value of plan assets 18 908 19 679

2011%

2010%

The major categories of plan assets as a % of total plan assets are:

Equity 21 18

2 1

Bonds 27 27

Cash and net current assets 50 54

Total assets at market value 100 100

* Includes bonus payments made to pensioners.

2011R million

2010R million

2009R million

2008R million

2007R million


(15 666) (16 469) (17 550) (17 194) (19 548)

Fair value of plan assets 18 908 19 679 20 316 19 966 21 477

Surplus 3 242 3 210 2 766 2 772 1 929

Asset not recognised (3 242) (3 210) (2 766) (2 772) (1 929)

Net liability – – – – –

Actuarial gain/(loss) recognised on defined

benefit obligation 240 256 (1 126) 1 513 563

Actuarial gain/(loss) recognised on plan

assets 580 184 912 (1 308) 3 012

The estimated contributions by both employer and members for the year beginning 1 April 2011 amount to Rnil (2010: Rnil).



2011R million

2010R million

2009R million

2008R million

2007R million

(77) (80) (84) (89) (113)

Deficit (77) (80) (84) (89) (113)

Actuarial gain recognised on defined benefit

obligation 1 2 3 27 4

The estimated contributions (based on current year contribution) for the year beginning 1 April 2011 amount to R9 million

(2010: R9 million).

Group

2011R million

2010R million


32.1 Pension benefits (continued)

32.1.4 Top Management Pension Fund and Workmen’s Compensation

Act Pensioners Fund

the effects of any early retirement and resignation penalties applied under the Group’s existing pension fund schemes to management appointed prior to 1 April 1999. There were 400 members at 31 March 2011 (2010: 397). The entire obligation relates to Transnet SOC Ltd.

Company pays to current and former employees who were disabled in service prior to the corporatisation of Transnet in 1990. There were 1 419 members at 31 March 2011 (2010: 1 472).

Actuarial valuations for both benefits were performed to determine the present value of the obligations. Similar valuations were done at the previous reporting date. The projected unit credit method was used to value the obligations. There are no plan assets held to fund these obligations.

The following summarises the components of expense and liability recognised in the financial statements together with the assumptions adopted.

Top Management Pension Fund

The principal assumptions in determining the benefits are as follows:


Salary increases

– Inflation (%) 6,21 5,38

0,17 1,00

2,00 2,00

Benefit liability(77) (80)

Liability recognised in the statements of financial position (77) (80)

Charge to the income statementsInterest cost (7) (7)

(7) (7)


The cumulative actuarial gains recognised in other comprehensive income 38 37

Reconciliation of movement in benefit liabilityOpening benefit liability (80) (84)

Expense as above (7) (7)

Actuarial gain 1 2

Benefits paid 9 9

Benefit liability at year-end (77) (80)


287

Group

2011R million

2010R million


32.1 Pension benefits (continued)32.1.4 Top Management Pension Fund and Workmen’s Compensation Act

Pensioners Fund (continued)

Workmen’s Compensation Act Pensioners Fund

The principal assumptions in determining the benefits are as follows:


Inflation rate (%) 5,99 5,24

5,99 5,24

Benefit liability

(373) (354)


Charged to the income statements


(30) (32)

Actuarial (loss)/gain recognised in other comprehensive income (22) 16

The cumulative actuarial losses recognised in other comprehensive income (161) (139)


Opening benefit liability (354) (368)


Actuarial (loss)/gain (22) 16

Benefits paid 33 30



2011R million

2010R million

2009R million

2008R million

2007R million

(373) (354) (368) (280) (238)

Deficit (373) (354) (368) (280) (238)

Actuarial gain/(loss) recognised on defined

benefit obligation (22) 16 (93) (43) –

The estimated contributions (based on current year contribution) for the year beginning 1 April 2011 amount to R33 million

(2010: R30 million).

32.1.5 HIV/Aids benefits

Transnet Group offers certain assistance to employees diagnosed with Aids. The related data is not sufficient to actuarially value

any liability the Group may have in this regard.



Post-retirement medical benefitsSATS Pensioners’ post-retirement medical benefits The SATS pensioners are the retired employees of the former South African Transport Services (SATS) and their dependants. The liability is in respect of pensioners and their dependants who have elected to belong to the Transnet in-house medical scheme, Transmed, whose membership is voluntary. Transnet subsidises the medical contribution costs at a flat contribution of R800 per principal member per month.

Transnet employees’ post-retirement medical benefits This includes the current and past employees of Transnet who are members of Transnet’s in-house medical aid, Transmed Medical Fund. Membership is voluntary.

Transnet subsidises members at a flat contribution of R213 per month per member family.

To enable the Company to fully provide for such post-retirement medical liabilities, since April 2000 actuarial valuations are obtained annually. There are no assets held to fund the obligation.

Analysis of benefit expense The following summarises the components of the net benefit expense recognised in both the statements of comprehensive income and statements of financial position as at 31 March 2011 for both SATS pensioners and Transnet employees. The projected unit credit method has been used for the purposes of determining the actuarial valuation for both the funds.

32.2

Group

2011R million

2010R million

32.2.1 SATS Pensioners’ post-retirement medical benefits


Benefit liability

(934) (1 026)

Liability recognised in the statements of financial position (934) (1 026)

Charge to the income statements


(79) (101)


The cumulative actuarial losses recognised in other comprehensive income (83) (87)


Opening benefit liability (1 026) (1 240)


Company contributions 167 203


Benefit liability at year-end (934) (1 026)

The medical inflation has no impact on the aggregate current service cost and interest cost and

the benefit liability. However, the assumed discount rate has an impact. The sensitivity of the

obligation to a change in the assumed discount rate of 9,08% (2010: 8,89%) on the present

value of the obligation is as follows:

Closing benefit liability based on changes in discount rate:

8,08% (2010: 7,89%) (981) (1 079)

10,08% (2010: 9,89%) (892) (979)

2011R million

2010R million

2009R million

2008R million

2007R million


Benefit liability (934) (1 026) (1 240) (1 223) (1 369)

Deficit (934) (1 026) (1 240) (1 223) (1 369)

Actuarial gain /(loss) recognised on medical

benefit obligation 4 112 (117) 204 134

The estimated contribution (based on current year contribution) for the year beginning 1 April 2011 is R167 million

(2010: R203 million).


289

Group

2011R million

2010R million


32.2 Post-retirement medical benefits (continued)

32.2.2 Transnet employees post-retirement medical benefits


Benefit liability

(569) (562)


Charge to the income statements



(58) (63)


The cumulative actuarial gain recognised in other comprehensive income 263 253


Opening benefit liability (562) (632)

Expense as above (58) (63)

Member and Company contributions 41 45



Transnet subsidises members at a flat contribution of R213 per month per member family.

The medical inflation has no impact on the aggregate current service cost and interest cost and

the benefit liability. However, the assumed discount rate has an impact. The sensitivity of the

obligation to a change in the assumed discount rate of 9,08% on the present value of the

obligation is as follows:

Closing benefit liability based on changes in discount rate:

8,08% (2010: 7,89%) (625) (619)

10,08% (2010: 9,89%) (522) (514)

2011R million

2010R million

2009R million

2008R million

2007R million


Benefit liability (569) (562) (632) (592) (720)

Deficit (569) (562) (632) (592) (720)

Actuarial gain/(loss) recognised on medical

benefit obligation 10 88 (20) 145 87

The estimated contribution (based on current year contribution) for the year beginning 1 April 2011 is R41 million (2010: R45 million).


Company Group

2010R million

2011R million

2011R million

2010R million

Services rendered

944 1 337 Major public enterprises 1 337 944

633 1 485 Other public enterprises 1 485 633

1 948 1 087 National Government business enterprises 1 087 1 948

18 36 Associates 36 18

12 7 Subsidiaries

3 555 3 952 3 945 3 543

Services received

1 039 1 314 Major public enterprises 1 314 1 039

225 295 Other public enterprises 295 225

1 677 871 National Government business enterprises 871 1 677

28 1 Associates 1 28

40 39 Subsidiaries

3 009 2 520 2 481 2 969

Amount due (to)/from

16 (3) Major public enterprises (3) 16

(7) 27 Other public enterprises 27 (7)

(4 983) (5 197) National Government business enterprises* (5 197) (4 983)

(1) 2 Associates 2 (1)

(68) (3) Subsidiaries

(5 043) (5 174) (5 171) (4 975)

During the year, the Group expensed R468 million (2010: R299 million) in relation to provisions and write-offs of bad debts on related parties and at year-end the Group had a provision of R349 million (2010: R170 million) against debtors pertaining to related parties.

Report of the Directors.

Transactions with key management personnel

Details of key management compensation are set out in the Report of the Directors.

None of key management has or had significant influence in any entity with whom the Group had significant transactions during the year.

* Includes R5 068 million relating to bonds issued to National Government business enterprises (2010: R6 072 million).

33. Related-party transactions

state-owned companies, Government departments and all other entities within the national sphere of Government. The Group has utilised the database maintained by the National Treasury to identify related parties. A list of all related parties is available at the

In addition, the Company has a related-party relationship with its subsidiaries (see note 12). The Group and Company have related-party relationships with its associates (see note 13) and with its Directors and Senior Executives (key management).

Unless otherwise disclosed, all transactions with the above related parties are concluded on an arm’s length basis.

Furthermore, neither the Group nor any of its related parties are obligated to procure from or render services to their related parties.

Transactions with related entitiesServices rendered to related parties comprise principally transportation services. Services purchased from related parties comprised principally energy, telecommunications, information technology and property-related services.

The following is a summary of transactions with related parties during the year and balances due at year-end according to Transnet’s records:


291

Company Group

2010R million

2011R million

2011R million

2010R million

34. Cash flow information

34.1 Cash generated from operations 4 777 5 466 5 651 4 772

4 918 5 507 – Continuing operations 5 692 4 913

(141) (41) – Discontinued operations (41) (141)

3 043 3 428 Finance costs (refer note 34.3) 3 428 3 042

(556) (536) Finance income (561) (580)

(8) (26) Dividend income (1) –

7 007 7 818 Elimination of non–cash items 7 642 7 005

6 089 7 294 – Depreciation and amortisation 7 184 6 089

140 (5)

– (Decrease)/increase in provision for post-retirement

benefit obligations (5) 140

(174) (4)

– Reversal of impairment of loss-making subsidiaries

and associates (3) (174)

200 249

– Impairment of trade and other receivables, loans and

advances 249 200

752 291 – Impairment of property, plant and equipment 291 752

(101) 232 – Movement in provisions 232 (101)

(88) – – Fair value adjustments to treasury bonds – (88)

– – – Income from associates and joint ventures (58) (5)

1 290 618 – Derivative fair value adjustments 618 1 290

(90) (158) – Unrealised foreign exchange gains (158) (86)

(63) (33) (33) (63)

26 32 – Discounts on bonds amortised 32 26

(83) (70) (70) (83)

(613) 8 – Release of firm commitments 8 (613)

(276) (637) – Fair value adjustment of investment property (637) (276)

(2) 1 – Other non-cash items (8) (3)

14 263 16 150 16 159 14 239

34.2 Changes in working capital 630 (139) (Increase)/decrease in inventories (139) 630

(374) 159 Decrease/(increase) in trade and other receivables 136 (378)

1 573 807 Increase in trade payables and accruals 795 1 598

1 829 827 792 1 850

34.3 Finance costs (refer note 6) 3 018 3 441 Finance costs 3 439 3 014

51 19 Net foreign exchange losses on translation 21 54

(26) (32) Discounts on bonds amortised (32) (26)

3 043 3 428 3 428 3 042

34.4 Finance income (refer note 7)556 536 Finance income 561 580

– (95) Interest received – Held-to-maturity (95) –

556 441 466 580


Company Group

2010R million

2011R million

2011R million

2010R million

34. Cash flow information (continued)

34.5 Taxation paid Balance at the beginning of the year

(846) (157) – normal taxation (net) (171) (854)

Taxation as per income statements

(24) (900) – normal taxation (905) (42)

Balance at the end of the year

157 (306) – normal taxation (net) (303) 171

(713) (1 363) (1 379) (725)

34.6 Disposal of subsidiary – 1 Cash and cash equivalents 1 –

– 1 Net asset value 1 –

– 1 Selling price 1 –

– 1 Net proceeds 1 –

34.7 Disposal of associate174 – Selling price – 174

(123) – Accrued receivable – (123)

51 – Net proceeds – 51

34.8 Cash and cash equivalents 7 632 10 606 Cash and cash equivalents for continuing operations 10 876 7 918

– – Cash and cash equivalents included in a disposal group – 26

7 632 10 606 Total cash and cash equivalents at the end of the year 10 876 7 944

35. Headline earnings 3 045 3 923 4 113 3 022

– 32 Loss from discontinued operations, net of taxation 29 –

(13) 1

Impairment/(reversal of impairments) – Lower of carrying

value and fair value less costs to sell 1 (13)

3 032 3 956 operations 4 143 3 009

(63) (33)

(refer note 4.2) (33) (63)

(276) (637)

Fair value adjustment of investment property

(refer note 5) (637) (276)

752 291

Impairment of property, plant and equipment

(refer note 4.4) 291 752

(178) (4)

Reversal of impairment of associates and subsidiaries

(refer note 4.4) (3) (174)

3 267 3 573 Headline earnings before taxation effects 3 761 3 248

Taxation effects

18 9 9 18

40 89 Fair value adjustment to investment properties 89 40

(204) (81)

Impairment of property, plant and equipment

(refer note 4.4) (81) (204)

3 121 3 590 Headline earnings 3 778 3 102


293

36. Change in accounting policies and other restatementsChange in accounting policies

The Group early adopted the changes as required by an amendment to IAS 12: Income Taxes and a change in the application of the

standard with regards deferred taxation on depreciable revalued assets which do not attract wear and tear in the current financial year.

Deferred taxation on investment propertyThe amendment to IAS 12: Income Taxes has resulted in the Group’s deferred taxation on depreciable investment property (eg buildings) carried at fair value being calculated at the usage rate on the difference between the taxation base, where taxation allowances are available, and the original cost, and at the CGT rate on the difference between the CGT base cost and the fair value.

Where the depreciable investment property is held within a business model whose objective is to consume substantially all of the asset’s economic benefits over the life of the asset, deferred taxation is calculated at the usage rate on the difference between the taxation base and fair value.

The existing deferred taxation accounting policy has also been reworded to refer only to assets other than investment property.

Deferred taxation on revalued assetsThe Group changed its accounting policy for calculating deferred taxation on depreciable revalued assets which do not attract wear and tear allowances. The Group previously accounted for deferred taxation at the usage rate on the difference between the revalued carrying amount and the original cost, to the extent that the revalued carrying amount exceeded the original cost. No deferred taxation was raised where the revalued carrying amount was less than the original cost. In order to align with general industry practice, the Group changed its policy to calculate deferred taxation on the full revaluation, ie on the difference between the revalued carrying amount and the taxation base.

Restatements

Deferred taxation on investment propertyThe amendments made to IAS 12: Income Taxes have resulted in the Group applying a deferred taxation rate of 14% to the

difference between its investment property buildings taxation base and fair value as opposed to the 28% used in the past, as the

recovery of the asset is deemed to be via sale in terms of the amended standard. The financial impact of the restatements has been

detailed as follows:

Deferred taxation on revalued assetsThe change in the Group’s accounting policy has resulted in deferred taxation on the difference between the revalued carrying amount and the taxation base being calculated at a rate of 28% as opposed to the 0% used in the past. Accordingly, an adjustment was required in prior financial periods, as detailed as follows:

Company Group

1 April 2009

R million

31 March2010

R million

31 March2010

R million

1 April 2009

R million

The changes in accounting policies and other restatements had

the following impact on the financial statements:

Income statements

3 086

Net profit attributable to the equity holder as previously

reported 3 063

(41) Net effect of restatements (41)

(56) Deferred taxation adjustment on investment property (56)

15 Deferred taxation adjustment on revaluations 15

3 045 Restated net profit attributable to the equity holder 3 022

Statements of comprehensive income

(41) Decrease in profit for the year (41)

(10) Increase in taxation effect of revalued items (10)

(51) Decrease in profit for the year (51)

Statements of financial position

58 322 64 407 Equity attributable to the shareholder as previously reported 64 456 58 334

(1 058) (1 109) Net effect of restatements (1 109) (1 058)

163 132 Deferred taxation adjustment on investment property 132 163

(1 221) (1 241) Deferred taxation adjustment on revaluations (1 241) (1 221)

57 264 63 298 Restated equity attributable to the equity holder 63 347 57 276

Introduction

The Group has a centralised Treasury function which performs a supporting role to the Transnet Operating divisions and is tasked with the following three main objectives:

of the Group’s capital investment programme which is mainly executed by the Operating divisions;

overall business of Transnet.

All of these objectives should be performed in a professional and ethical manner in line with Transnet’s governance framework.

Policies

effective risk management by ensuring that:

persons and accountability is defined.

regulations. The latest version was approved during November 2009 and is structured around the Transnet business strategy and capital investment programme.

operate within the limits as contained in the Transnet

Group Executive Committee. The latest version was approved on 1 August 2010.

Risk philosophy

The overall risk management philosophy of Transnet is to the

liquidity and operational risks. success and reputation of Transnet are critically dependent on the credibility of risk management and commitment to applying leading practice in risk management.

Risk profile and risk management

Financial risk assessment and analysis are disclosed on a

Committee. The Group Executive Committee is responsible for reporting financial risk exposures to the Board at scheduled Board meetings.

Treasury will continuously manage all risks very closely so as to

Liquidity risk

requirements. The Group has established a liquidity risk management policy with the following main objectives:

enable Transnet to meet all expected and unexpected

and liabilities;

available to reduce reliance on particular sources to support effective liquidity risk management;

risk; and

liquidity risk.

programmes extensively to mitigate liquidity risk exposures;

domestic loans R1 billion and foreign currency bonds under the $

$

rolling Capital investment programme and is one of the main

spread of maturities along the Transnet bond curve.

approved policy to further ensure effective liquidity risk management. The maximum tenor of money market investments may not exceed 120 days.

of the annual corporate planning process. These provide Treasury with a good estimate of the Group’s future cash position.

Counterparty risk

Counterparty risk exposures arise mainly as a result of the

strategies and positive fair market values of derivative hedging instruments. The Group’s main objectives of its counterparty risk policies are:

exposures; and

high credit quality counterparties.

The counterparty risk policy of the Group is fully aligned with the detailed requirements of the Treasury Regulations as

Annexure A – Financial risk managementfor the year ended 31 March 2011


ratings; and

requirements.

Financial assets that potentially subject the Group to concentrations of credit risk consist primarily of operational

market fund investments and positive fair market values of derivatives and trade receivables. The Group’s exposures to

transactions are confined to credible counterparties and are

reviewed and approved by the Board on an annual basis. Trade receivables are presented net of impairments. It is Treasury’s policy to perform ongoing credit evaluations of the financial position of its counterparties. Guarantees are issued under

with an approved DOAF.

Investments are only allowed with international counterparties that are local authorised dealers with a minimum international

recognised rating agency and approved by the Board as an

with counterparties in the A rating category and is limited to

under review the Group has substantially increased its exposures against money market funds due to an acceptable risk profile and enhanced return on investment.

Market risk

This will be discussed under the following headings: “Foreign

Foreign currency risk

Foreign currency risk arises mainly as a result of the Group’s

are imported from foreign countries and are exposed to currency fluctuations as well as the raising of funding in a foreign currency. Transnet’s main objectives of its foreign currency risk policies are:

exchange is involved; and

rate fluctuations.

Transnet does not take any foreign currency risk exposures and all foreign currency risk exposures are hedged within the

agreements are signed. It is Transnet’s preference to enter into

Transnet will then hedge on its own financial position. The foreign currency position is monitored on a monthly basis by obtaining the net foreign currency position in all the major

currency risk exposures are fully hedged until maturity with

vanilla hedging instruments after careful consideration and

and system implications. Hedge accounting is applied to all

FINCO to ensure proper implementation.

Commodity risk

Commodity risk refers to the potential variability in Transnet’s financial condition owing to the changes in commodity prices

exposures are actively monitored on a regular basis and are

such a way that tariffs can be adjusted to compensate for

and electricity and do provide a good natural risk offset. Only the unhedged portion on fuel will be considered for hedging

that are highly liquid with a maximum tenor of 12 months and the underlying used in a hedging strategy must have a very high correlation with the actual product consumed.

Interest rate risk

This refers to the potential variability in Transnet’s financial condition owing to changes in interest rate levels. The Group’s

derivative financial instruments create an exposure to this risk. The Group’s main objectives in managing interest rate risk are as follows:

rate exposures;

the gap to prevailing market rates is reduced;

are concerned;

movements on the Group’s net income and cash flows to within an acceptable risk profile;

netted between investments and borrowings; and

the average payback periods of assets.

The Group measures interest rate risk by calculating the impact of fair value movements on derivatives and floating rate loans and running cash flow at risk scenarios and extreme sensitivities to determine the impact against the annually approved external finance cost budget. All foreign currency interest rate risk exposures are hedged to Rand as soon as agreements are concluded.

Other price risk

The only other market risk the Company and Group is exposed

changes in future cash flows of a financial instrument as a result of changes in the underlying share price. Transnet does not trade in equities and the only exposure of this nature at

stock exchange.

295

Annexure A – Financial risk management (continued)for the year ended 31 March 2011

Liquidity risk

Bonds at carrying and nominal values

Domestic Rand bonds

2011 2010

Bond Redemption date

Coupon rate

%

Carrying value

R million

Nominal value

R million

Carrying value

R million

Nominal value

R million

T011 1 April 2010 Redeemed Redeemed 901 900

T018* 6 058 6 000 6 000

6 702 7 000

TN20 4 734 4 646 2 169 2 189

TN23 6 November 2023 4 689 4 578 3 328

2 586 2 571

6 315 7 000 6 004

31 084 31 795

Eurorand bonds

2011 2010

BondRedemption

date

Coupon rate

%

Carrying value

R million

Nominal value

R million

Carrying value

R million

Nominal value

R million

Euro 42* 18 April 2028 1 953 2 000 2 000

Euro 42A* 1 034 1 500 1 029

Total for Eurorand bonds 2 987 3 500 2 982

Foreign currency bonds

2011 2010

BondRedemption

date

Coupon rate

%

Carrying value

R million

Nominal value

R million

Carrying value

R million

Nominal value

R million

10 February 2016 5 121 5 149

Total bonds in issue at report date 39 192 40 444 28 898**

The domestic Rand bonds, Eurorand bonds and International bond are reflected on the financial positions of both the Company and the Group.

* The bonds are guaranteed by the Government of the Republic of South Africa, and the Company paid R19,2 million in guarantee fees (2010: R19,2 million). Only the T018 bond and Eurobonds are guaranteed by the Government. The amounts in the above tables are all in respect of bonds held at amortised cost. The early redemption of the T018 bonds have been approved by the Transnet Board of Directors subsequent to year-end. The redemption, though, is still subject to negotiations with the Public Investment Corporation to discuss the financial terms of the redemption.

** These amounts are reflected after taking into account the close-out position of R150 million nominal and R37 million unamortised premium on the TO11 bonds.


Concentration of liquidity risk

Company Group2010

R million2011

R million2011

R million2010

R million

3 190 2 682 2 682 3 190

862 693 693 862

4 421 6 078 6 078 4 421

1 894 2 468 2 468 1 894

1 609 2 204 2 204 1 609

1 209 1 265 1 265 1 209

500 French Development Bank 500

150 150

640 640 640 640

250 250

2 189 2 189

100 100 100 100

650 Omsfin 650

30 232 39 883 and traded* 39 883 30 232

218 276 Other 278 222

60 028 60 030

* Includes bonds held at amortised cost (R39 192 million) and commercial paper (R691 million) (2010: Includes bonds held at amortised cost (R27 529 million), bonds held at fair value (R358 million) and commercial paper (R2 345 million)).

Funding plan*

the next five years will amount to R33 462 million as reflected below:

Target Projections Total

2012 2013 2014 2015 2016Funding option R million R million R million R million R million R million

(20 761)

R million2012#

R million2013

R million2014

Commercial paper 2 600 1 200 1 200

Domestic bonds 4 000 4 000

2 000 3 100

Total funding 12 900 8 300

* Unaudited.# The funding requirement in 2012 has decreased due to cash on hand at 31 March 2011 of R10,9 billion and increased by the pre-funding buffer of

R3 billion resulting in a net funding requirement of R12,9 billion.

297

Contractual maturity analysis

arrangements for the Group and the Company:

Carrying value

2011R million

Contractual cash flows

2011R million

0 to 12 months

R million

1 to 2years

R million

2 to 3years

R million

3 to 4years

R million

4 to 5years

R million

More than5 years

R million

Non-derivative financial liabilities

(39 192) (81 297)

(4 022) (6 404)

(4 020) (6 402)

(15 848) (19 364)

(691) (715)

(277) (277)

Total borrowings Group (60 030) (108 057)

Total borrowings Company (60 028) (108 055)

(10 393) (10 393)

(10 365) (10 365)

Derivative financial liabilities

(Group and Company)

(458) (14 773)

Forward exchange contracts used for hedging (180) (15)

(180) (346)

331 284 40 2

Other forward exchange contracts (12) (308)

(12) (2 052)

1 744 1 319

Total derivative financial liabilities (650) (15 096)

Carrying value2010

R million

Contractual cash flows

2010R million

0 to 12 months

R million

1 to 2years

R million

2 to 3years

R million

3 to 4years

R million

4 to 5years

R million

More than5 years

R million

Non-derivative financial liabilities

Bonds

Total borrowings Group

Total borrowings Company

Derivative financial liabilities

(Group and Company)

Forward exchange contracts used for hedging

2 404 902 139

Other forward exchange contracts

102 102

Total derivative financial liabilities



Credit risk

Maximum exposure and analysis of exposures to credit risk

2011 2010

Carrying value

R million

Neither past due

nor impairedR million

Past due but not

impairedR million

ImpairedR million

Carrying value

R million

Neither past due

nor impairedR million

Past due but not

impairedR million

ImpairedR million

GroupTrade receivables:****

3 226 2 476 750 (352) 3 136 626

852 788 64 (107) 3

252 212 40 (201) 290 233

4 330 3 476 854 (660) 4 041 686

Other amounts receivable** 944 393 551 (55) 934

1 566 1 566 – –

and advances* 14 14 – – 40 40

Guarantees issued 2 153 – – –

Investment and price risk*** 12 966 – – –

Company

Trade receivables:****

3 224 2 476 748 (352) 3 134 626

852 788 64 (107) 3

252 212 40 (201) 290 233

4 328 3 476 852 (660) 4 039 686

Other amounts receivable** 994 393 551 (55) 934

1 566 1 566 – –

and advances* 14 14 – – 40 40

221 221 222 222

Guarantees issued 2 153 – – –

Investment and price risk*** 12 966 – – –

*** Investment and price risk includes call and fixed deposits as well as money market funds. The high investment risk exposure for 2010 and 2011 is as a result of pre-funding done to minimise liquidity risk to fund the capital expenditure programme.

* Long term Short term

R11 million (2010: R37 million).R3 million (2010: R3 million).

Reconciliation to note 18 Group Company

** Other amounts receivable R944 million (2010: R937 million) R944 million (2010: R937 million)

Prepayments R226 million (2010: R193 million) R226 million (2010: R193 million)

Prepayments and other amounts receivable R1 170 million (2010: R1 130 million) R1 170 million (2010: R1 130 million)

**** Trade receivables as per above R4 330 million (2010: R4 727 million) R4 328 million (2010: R4 725 million)

Group debtors Rnil (2010: Rnil) Rnil (2010: R23 million)

Trade receivables R4 330 million (2010: R4 727 million) R4 328 million (2010: R4 748 million)

299

Credit risk (continued) Low risk: No guarantee is required from the customer.

Medium risk: 50% to 75% guarantee required by the customer.

High risk: In such instances, customers are required either to provide 100% guarantee or transact on a cash basis only.

The balances for other receivables and loans and advances are not disaggregated for internal reporting purposes.

Price risk: The risk that financial derivatives and bond transactions have to be closed out at a market value loss as a result of the unfavourable movements in market rates.

Bond issuer risk: The risk that an issuer of bonds will not be able to fulfil its financial obligations on maturity date in accordance with the terms and conditions of the bond issues.

IFRS 7 Financial Instruments: Disclosure defines credit risk as the risk that

one party to a financial instrument will cause a financial loss for the other

party by failing to discharge an obligation. As such, Transnet will suffer

financial losses on guarantees issued as the Group would be required to

make good the failure by a third party to discharge an obligation.

Credit enhancements in the form of title deeds and pension fund cessions

for loans and advances and deposits and guarantees in respect of amounts

included in trade and other receivables and loans and advances, are held

by the Group. The Group took possession of some collaterals during the

current financial year amounting to R1,2 million (2010: R1,2 million).

1 – 30 days 31 – 60 days Greater than 60 days

R millionPastdue

Lowrisk

Medium risk

High risk

Pastdue

Lowrisk

Medium risk

High risk

Pastdue

Lowrisk

Medium risk

High risk

2011

189 164 15 10 67 59 4 4 598 527 45 26

189 164 15 10 67 59 4 4 596 525 45 26

Other receivables

19 19 – – 7 7 – – 525 525 – –

2010

236 236 1 19 369 334

236 236 1 19 369 334

34 34 12 12 13 13

2011 2010

R millionTrade

receivablesOther

receivablesTrade

receivablesOther

receivables

Group444 4 29 32

338 –

High risk 143 – 203

Company444 4 29 32

338 –

High risk 143 – 203

Financial assets have been impaired based on the age of the debt and the inability to recover these specified assets. Guarantees

certain counterparties in respect of trade receivables during the year.



Concentration of credit risk

Transnet risk per long-term rating (R million)

AA-2 135,4

A+1 675,3

JSE 0,1

Money market funds5 920,7

A 818,6

AA1 447,6

AAA1 062,9

Transnet risk per long-term rating (R million)

AA-1 897,3

A+1 174,2

Bond Exchange 0,1

Money market funds2 942,6

A842,3

AA1 924,4

AAA993,2

301

6 000

Market risk

Foreign currency risk

2011 2010

JPY¥/m

AUDAU$/m

USDUS$/m

EUR€m

Other currencies exp in USD

US$/mJPY¥/m

AUDAU$/m

USDUS$/m

EUR€m

Other currencies

exp in USDUS$/m

Foreign currency bonds – – (750) – –

– – – – –

Unsecured bank loans (44 260) – – – –

– – 21 – 30

Gross financial position exposure (44 260) – (729) – –

Exposures for future expenditure (17 046) (9) (13) (94) (17)

Gross foreign currency exposure (61 306) (9) (742) (94) (17)

Forward exchange contracts 17 046 4 5 40 – 19

44 260 – 750 – –

Net uncovered exposure – (5) 13 (54) (17) 18

* The $21 million Brazil equity investment is only applicable at Group level.

guarantees and receivables:

Risk per instrument per long-term rating (Investments) – 2011 (R million)

A+ 1 675,3

A 818,6

AA 1 447,6

AA- 2 135,4

AAA 1 062,9

Money market funds 5 920,7

JSE 0,0

5 000

4 000

3 000

0

1 000

2 000

Risk per instrument per long-term rating (Derivatives) – 2011 (R’000)

A+ 0,0

A 0,0

AA 0,0

AA- 0,0

AAA 0,0

Money market funds 0,0

JSE 100,0

500

400

300

0

100

200

Risk per instrument per long-term rating (Derivatives) – 2010 (R’000)

A+ 0,0

A 0,0

AA 0,0

AA- 0,0

AAA 0,0

Money market funds 0,0

Bond Exchange 100,0

0

Risk per instrument per long-term rating (Investments) – 2010 (R million)

A+ 1 174,2

A 842,3

AA 1 924,4

AA- 1 897,3

AAA 993,2

Money market funds 2 942,6

Bond Exchange 0,0

2 500

2 000

1 500

0

500

1 000

3 000

500

400

300

100

200



Sensitivity analysis

2011 2010

Currency

Currency exposure in

millions of currency

Fair valueR million

Impact of Rand

strengthening

Impact of Rand

weakening

Currency exposure in

millions of currency

Fair valueR million

Impact of Rand

strengthening

Impact ofRand

weakening

343 (2) 3 (3)

AUD (2) (0,2) (2) 2

(2) (4) (1) 1 18 26

EUR (13) (0,5) (10) 10 1 1

Total (6,7) (10) 10

hedges as detailed in note 14. The sensitivity analysis above includes the impact of fair value movements on derivatives that are

other variables remain unchanged. Basis swap adjustments have been added to the curves when doing the sensitivities to ensure

that a more accurate market value is reflected that also take market liquidity into account.

Value at risk (foreign exchange)

the model assumes that historical patterns will repeat into the future and does not take extreme market conditions into account.

Foreign exchange rates

2011 2010

Japanese Yen 11,8549

Australian Dollar 7,0385

6,8655

Euro 9,6653

11,0033

Interest rate risk

The Group’s exposure to fixed and floating interest rates on domestic financial liabilities is as follows:

Company Group2010

R million2011

R million2011

R million2010

R million

(42 861) Fixed rate liabilities (42 861)

(14 711) Floating rate liabilities (14 711)

(57 572) Total (57 572)

The above table excludes liabilities held at fair value of Rnil million (2010: R400 million).

of fixed interest rates that may be managed to enable management to utilise interest rate yields.

303

Sensitivity analysis

The sensitivity analysis below reflects the interest rate impact on the finance cost budget for the 2012 year:

2011 2010

Impact

Shift + 100 bp

R million

Shift - 200 bp

R million

Shift + 250 bp

R million

Shift - 500 bp

R million

Shift + 500 bp

R million

Shift + 100 bp R million

Shift - 200 bp

R million


Shift - 500 bp

R million


Finance cost impact

(229) 220 (453) 668 (827) 411

2011 2010

Impact

Shift + 100 bp

R million

Shift - 200 bp

R million

Shift + 250 bp

R million

Shift - 500 bp

R million

Shift + 500 bp

R million


Shift - 200 bp

R million


Shift - 500 bp

R million


Fair value movements

– – – – –

* The market-making bonds have matured during the year.

debt has been swapped to a fixed Rand interest rate risk.

The sensitivity ranges utilised are based on historical trends and extreme scenarios. The above tables assume no change in

other variables.

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value

repo instruments which derive their prices through the Bond Exchange.

consists mainly of derivatives concluded for risk management purposes.

2011

Level 1R million

Level 2R million

Level 3R million

TotalR million

Financial assets at FVTPL*

– 45 – 45


– 650 – 650



2010

Level 1R million

Level 2R million

Level 3R million

TotalR million


39 39

Total 39


Financial liabilities designated at fair value through

400 400

Total 400 949

* FVTPL – Fair value through profit and loss.

Note: There were no transfers between levels 1 and 2 during the period under review.

There were no level 3 fair value movements to disclose at reporting date, as all fair value calculations are done by using market observable data.

As the market-making bonds matured in April 2010, the repurchase transactions (repos) concluded subsequent to that were classified as held-to-maturity instruments.

Other price risk

investment is significantly greater than that of equity price risk and as such the sensitivity for this investment has been included

in the foreign currency risk net position and VaR calculations.

Commodity price risk

The table below shows the cash flow at risk scenarios against the approved budget for the 2012 year at various levels of Brent crude

$

31 March 2011 Fuel price in Dollars per barrel

$/R5,50 $/R5,93 $/R6,87 $/R7,80 $/R9,00

Brent @ $ 295 244 132 20 (124)

Brent @ $ 166 105 (29) (162) (334)

Brent @ $ (61) (141) (313) (485) (707)

Brent @ $ (289) (386) (597) (808) (1 079)

$

31 March 2010 Fuel price in Dollars per barrel

$ $ $ $ $

Brent @ $ 844 611

Brent @ $ 119

Brent @ $ 410 186

Brent @ $

305

Analysis, classification and fair values of financial instruments

Categories of financial instruments

Company Group2010

R million2011

R million2011

R million2010

R million

Financial assets

17 684 17 956 13 814

Fair value through profit and loss

45 45

Financial liabilities

70 393 70 423

Fair value through profit and loss

650 650

– –

133 133

recorded at amortised cost in the financial statements approximate their fair values:

Company Group

2010 2011 2011 2010Fair

valueR million

Carrying value

R millionFair value

R million

Carrying value

R millionFair value

R million

Carrying value

R million

Fair value

R million

Carrying value

R million

40 40 14 14 14 14 40 40

64 294 59 895 Borrowings 64 296 59 897

89 89 133 Finance lease obligations 89 133 89

The net gains and losses on financial instruments are detailed below:

Group

Net (loss)/gain

R million

Less:Discontinued

operationsR million

Continuing operations

R million

2011

– ** –

(82) – (85)

(5 202) – (5 202)

479 – 482

– ** –

2010

**

10 10

**



Analysis, classification and fair values of financial instruments (continued)

CompanyNet (loss)/

gainR million

2011

–

(82)

(5 202)

479

2010

10

* The net (loss)/gain on Group and Company financial assets and financial liabilities held-for-trading and designated at fair value through profit and loss is R82 million (2010: R10 million).

** The net gain on financial assets and financial liabilities held-for-trading pertinent to discontinued operations is Rnil (2010: Rnil).*** The net loss on financial liabilities measured at amortised cost consist mainly of interest expense after offsetting against effective cash

flow hedges.

Reconciliation of liabilities designated at fair value through profit and loss for the Group and Company

Contractual value payable on maturity

R millionAccrued interest

R million

Fair value movements

R millionCarrying value

R million

2011 – – – –

2010 331 26 1

There has been no element of the change in the fair value that is attributable to credit risk.

Transnet’s credit rating

Moody’s investor service

The following credit rating actions have been taken during the year:

Standard and Poors

The following credit rating actions have been taken during the year:

307


Property, plant and equipment reconciliation

Aircraft

R million

Land,

buildings

and

structures

R million

Machinery,

equipment

and

furniture

R million

Company

Balance at the beginning of the year

Historical cost and revaluation 153 13 286 5 678

Accumulated depreciation (45) (2 545) (2 750)

Accumulated impairment – (204) (58)

Opening net carrying value at 1 April 108 10 537 2 870

Current year movements

Replacements – 168 128

Expansions – 133 88

Acquired through lease – – 24

Disposals – (47) (8)

Depreciation (22) (512) (512)

Derecognition – (1) (2)

Revaluation – 264 –

Impairment – historical cost and revaluation – (3) 5

Transferred to intangible assets – – –

Transfers from/(to) non-current assets classified as held-for-sale – 233 28

Transfer to investment property – (143) –

Transfer to inventory – – –

Borrowing costs capitalised – 9 7

Release of firm commitments to income statement – – –

Capitalisation of firm commitments – – –

Transfer from capital work in progress to assets – 2 152 165

(22) 2 253 (77)

Closing carrying value 86 12 790 2 793

Made up as follows:




Closing carrying value at 31 March 86 12 790 2 793

Annexure Bfor the year ended 31 March 2011

309

Permanent

way and

works

R million

Pipeline

networks

R million

Port

facilities

R million

Rolling

stock and

containers

R million

Vehicles

R million

Capital

work in

progress

R million

31 March

2011

Total

R million

31 March

2010

Total

R million

15 518 12 844 59 089 30 088 797 21 048 158 501 136 028

(3 249) (8 408) (16 038) (10 076) (463) - (43 574) (38 505)

(11) (219) (552) (107) (1) (86) (1 238) (954)

12 258 4 217 42 499 19 905 333 20 962 113 689 96 569

177 – 244 99 1 9 284 10 101 8 569

3 84 298 – 2 10 768 11 376 9 742

3 – – – – – 27 130

– – – (144) (1) (13) (213) (188)

(426) (306) (1 462) (3 267) (37) – (6 544) (5 428)

(148) (5) (45) (389) – – (590) (520)

– 310 8 210 – – – 8 784 4 063

(11) (12) (38) (167) – (65) (291) (752)

– – – – – (182) (182) (101)

(214) – – 23 – – 70 (103)

– – – – – – (143) (368)

– – – – – – – (6)

– – 50 – – 1 694 1 760 1 469

– – – – – (8) (8) 692

– – – – – – – (79)

3 540 325 2 862 10 250 21 (19 315) – –

2 924 396 10 119 6 405 (14) 2 163 24 147 17 120

15 182 4 613 52 618 26 310 319 23 125 137 836 113 689

18 930 13 867 74 314 39 106 809 23 202 192 220 158 501

(3 726) (9 037) (21 107) (12 522) (489) – (52 961) (43 574)

(22) (217) (589) (274) (1) (77) (1 423) (1 238)

15 182 4 613 52 618 26 310 319 23 125 137 836 113 689


Property, plant and equipment reconciliation

Aircraft

R million

Land,

buildings

and

structures

R million

Machinery,

equipment

and

furniture

R million

GroupBalance at the beginning of the year




Opening net carrying value at 1 April 108 10 537 2 868

Current year movements

Replacements – 168 128

Expansions – 133 88

Acquired through lease – – 24

Disposals – (47) (8)

Depreciation (22) (512) (512)

Derecognition – (1) –

Revaluation – 264 –

Impairment – historical cost and revaluation – (3) 5

Transferred to intangible assets – – –

Transfers from/(to) non–current assets classified as held-for-sale – 233 28

Transfer to investment property – (143) –

Transfer to inventory – – –

Borrowing costs capitalised – 9 7

Release of firm commitments to income statement – – –

Capitalisation of firm commitments – – –

Transfer from capital work in progress to assets – 2 152 165

(22) 2 253 (75)

Closing carrying value 86 12 790 2 793

Made up as follows:




Closing carrying value at 31 March 86 12 790 2 793

Annexure B (continued)for the year ended 31 March 2011

311

Permanent

way and

works

R million

Pipeline

networks

R million

Port

facilities

R million

Rolling

stock and

containers

R million

Vehicles

R million

Capital

work in

progress

R million

31 March

2011

Total

R million

31 March

2010

Total

R million

15 461 12 838 59 040 30 084 798 21 048 158 407 135 935

(3 247) (8 407) (16 034) (10 076) (463) – (43 579) (38 510)

(11) (219) (552) (107) (1) (86) (1 249) (966)

12 203 4 212 42 454 19 901 334 20 962 113 579 96 459

177 – 244 99 1 9 284 10 101 8 569

3 84 298 – 2 10 768 11 376 9 742

3 – – – – – 27 130

– – – (144) (1) (13) (213) (188)

(426) (306) (1 462) (3 267) (37) – (6 544) (5 428)

(93) – – (385) (1) – (480) (520)

– 310 8 210 – – – 8 784 4 063

(11) (12) (38) (167) – (65) (291) (752)

– – – – – (182) (182) (101)

(214) – – 23 – – 70 (103)

– – – – – – (143) (368)

– – – – – – – (6)

– – 50 – – 1 694 1 760 1 469

– – – – – (8) (8) 692

– – – – – – – (79)

3 540 325 2 862 10 250 21 (19 315) – –

2 979 401 10 164 6 409 (15) 2 163 24 257 17 120

15 182 4 613 52 618 26 310 319 23 125 137 836 113 579

18 930 13 867 74 314 39 106 809 23 202 192 220 158 407

(3 726) (9 037) (21 107) (12 522) (489) – (52 961) (43 579)

(22) (217) (589) (274) (1) (77) (1 423) (1 249)

15 182 4 613 52 618 26 310 319 23 125 137 836 113 579


Disposal groups classified as held-for-sale

Company Group A B C D E F G

= A + B = C + D = E + F

Luxrail ¥

Inter-company

eliminations and other

adjustments ‡Disposal

groups

Non-current

assetsheld-for-

sale Total

Non-current

assetsheld-for-

sale TotalNotes R million R million R million R million R million R million R million

Assets classified as held-for-sale

Property, plant and equipment a 73 (65) 8 124 132 – 132

Investment properties b – – – 17 17 – 17

Other investments – listed c – – – – – 142 142

Inventories 2 (2) – – – – –

Trade and other receivables d 1 – 1 – 1 – 1

Total 76 (67) 9 141 150 142 292

Liabilities directly associated with

assets classified as held-for-sale

Provisions e 2 – 2 – 2 – 2

Trade payables and accruals f 7 – 7 – 7 – 7

Total 9 – 9 – 9 – 9

¥ Included in the rail segment.‡ Included in the other segment.

The above disposal groups form part of the overall restructuring plan of Transnet to dispose of its non-core entities. This process was initiated once PFMA approval in terms of Section 54 was obtained. It is management’s expectation that these disposal groups will be disposed of within the next 12 months. These disposal groups will be disposed of to external third parties as part of a competitive bidding process.

Annexure Cfor the year ended 31 March 2011

313

Notes to disposal groups classified as held-for-saleCompany Group

2010R million

2011R million

2011R million

2010

R million

a. Property, plant and equipment 339 257 Net carrying value at the beginning of the year 257 339

(185) (54) Disposals (54) (185)

– (1) Impairment (1) –

103 (70) Transferred (to)/from continuing operations (refer annexure B) (70) 103

257 132 132 257

b. Investment properties8 8 Fair value at the beginning of the year 8 8

– (8) Disposals (8) –

– 17 Transferred from continuing operations (refer note 10) 17 –

8 17 17 8

c. Other investments – listed– – Balance at the beginning of the year 224 –

– – Fair value movement during the current year (82) –

– – Transferred from continuing operations (refer note 16) – 224

– – 142 224

2 1 d. Trade and other receivables 1 2

e. Provisions 1 3 Total provisions at the beginning of the year 3 1

– (1) Provisions utilised (1) –

2 – Transferred from continuing operations (refer note 25) – 2

3 2 2 3

9 7 f. Trade payables and accruals 7 12


SubsidiariesSharesissued Effective holding

Voting power held

Million 2011

% 2010

% 2011

%

Subsidiaries held by Transnet

Local subsidiaries

Transport logistics

KN Viamax Logistics (Pty) Ltd † 100 100 100

HSA Management Systems (Pty) Ltd * 100 100 100

Viamax Logistics (Pty) Ltd * 100 100 100

Viaren (Pty) Ltd † 100 100 100

Marine Data Systems (Pty) Ltd * 80 80 80

Owner-Driver Management (Pty) Ltd * 100 100 100

Property holdings

Transhold Properties (Pty) Ltd * 100 100 100

Esselen Park Developments (Pty) Ltd * 100 100 100

Point Waterfront (Pty) Ltd * 51 51 51

Proptrade (Pty) Ltd * 100 100 100

IT procurement

B2B Africa Holdings (Pty) Ltd * 100 100 100

Rolling stock and traction

Transwerk Foundries (Pty) Ltd † 100 100 100

Insurance captive cells

Spoornet Guard Risk 100 100 100

Freight Dynamics Guard Risk @ – 100 –

Social responsibility

Transnet Foundation Trust ‡ 100 100 100

Investment holdings

Newshelf 697 (Pty) Ltd * 100 100 100

Foreign subsidiaries

Transport logistics

African Joint Air Services Ltd (Uganda) # 57 57 57

Freight Logistics International (British Virgin Islands) 23 100 100 100

Spoornet do Brasil Ltda (Brazil) ** 100 100 100

* Dormant and in the process of deregistration.# Dormant.† In liquidation.‡ In dissolution.@ Disposed of during the current year.** Holds an investment in America Logistica do Brasil S.A (ALL Group Ltd).

Annexure Dfor the year ended 31 March 2011

315

Shares at costInterest of holding company

net profit/(loss)Interest of holding company

indebtednessAccumulated impairment

and losses

2011 R million

2010 R million

2011 R million

2010 R million

2011 R million

2010 R million

2011 R million

2010 R million

– – – – – – – –

16 16 (22) – – – 16 16

1 1 (1) – – – 1 1

– – – – – – – –

– – 5 – – – – –

– – – – – – – –

– – – – – – – –

– – – 4 – – – –

– – – – – – –

– – – – – – – –

– – 1 – – – – –

– – – – – – – –

3 3 32 (18) – – – –

– 1 – 1 – – – –

– – – – – – – –

– – – – – – – –

– – – 4 384 385 384 385

23 23 18 4 219 219 – –

– – – – – – – –

43 44 33 (5) 603 604 401 402


Associates and joint ventures

Effective holding Shares at cost

Principal activity 2011 %

2010 %

2011 R million

2010 R million

Associates^

Commercial Cold Storage (Ports)

(Pty) Ltd Storage and bondage 30 30 – –

Comazar (Pty) Ltd # Transport logistics 32 32 13 13

Mossel Bay Waterfront Development

(Pty) Ltd #

Property development and

management 15 15 2 2

Cape Town Bulk Storage (Pty) Ltd Port operations 50 50 1 1

Experience Delivery Company (Pty) Ltd Managing agent 11 11 – –

RainProp (Pty) Ltd Property development and

management 20 20 3 3

Transpoint Properties (Pty) Ltd * Telecommunication 50 50 – –

Joint ventures

Gaborone Container Terminal Container terminal 36 36 6 6

25 25

^ Incorporated in the Republic of South Africa.* Dormant and in the process of deregistration.# Dormant.

Annexure D (continued)for the year ended 31 March 2011

Summarised financial information of significant associates

Commercial Cold Storage (Ports)

(Pty) Ltd

Cape Town Bulk Storage

(Pty) LtdRainProp

(Pty) Ltd

2011 2011 2011

R million R million R million

Financial position

Total assets 52 4 864

Total liabilities 12 2 567

Results of operations

Revenue 49 3 140

Net (loss)/profit (2) (2) 285*

* RainProp (Pty) Ltd restated accumulated profits in 2010.

317

Interest of holding companyindebtedness

Accumulated impairment and losses

Share of post- acquisition reserves Total

2011 R million

2010 R million

2011 R million

2010 R million

2011 R million

2010 R million

2011 R million

2010 R million

1 1 – – 11 11 12 12

8 8 21 21 – – – –

– – 2 2 – – – –

2 2 – – – – 3 3

– – – – – – –

– – – 3 57 – 60 –

– – – – – – – –

– – – – – – 6 6

11 11 23 26 68 11 81 21


Annexure Efor the year ended 31 March 2010

New financial reporting standards and interpretations issued but not yet effective

The following new or revised International Financial Reporting Standards, amendments and interpretations of those standards

which are applicable to the Group are not yet effective for the year ended 31 March 2011 and were not applied in preparing these

annual financial statements:

Standard or interpretation Title Effective date

IAS 1 (amendment)

Presentation of financial statements

IAS 1 requires a reconciliation of each component of equity to be presented in the statement of changes in equity, showing separately changes arising from items recognised in profit or loss, in other comprehensive income and from transactions with owners acting in their capacity as owners.

The standard was amended to clarify that disaggregation of changes in each component of equity arising from transactions recognised in other comprehensive income is also required to be presented but is permitted to be presented either in the statement of changes in equity or in the notes.

The amendment will not have a material impact on the Group’s financial statements.

Annual periods beginning on or after 1 January 2011.

IAS 24 (revised)

Related-party disclosures

The standard was revised to simplify the definition of related parties as well as modifying some of the disclosure requirements for Government-related entities. The standard still requires disclosures that are important to users of financial statements, but eliminates requirements to disclose information that is costly to gather and of less value to users. It achieves this balance by requiring disclosure about transactions only if they are individually or collectively significant.

The revised standard will be applied retrospectively and will not have a material impact on the Group’s financial statements.


IAS 27(amendment)

Consolidated and separate financial statements

IAS 27 (2008) resulted in a number of consequential amendments to IAS 21 The effects of changes in foreign exchange rates, IAS 28 Investments in Associates and IAS 31 Interests in Joint Ventures, which added guidance about disposals of all or part of a foreign operation and about accounting for a loss of significant influence or joint control respectively. However, it was not specified whether those amendments were to be applied retrospectively or prospectively.

The IFRS was thus amended to clarify that the consequential amendments should be applied prospectively, except for the amendments to IAS 28 and IAS 31 that solely are the result of renumbering in IAS 27 (2008).

The amendments are not expected to have a material impact on the Group’s financial statements.

Annual periods beginning on or after 1 July 2010.

319


IAS 34 (amendment)

Interim financial reporting

The standard was amended by adding a number of examples to the list of significant events or transactions that require disclosure under IAS 34, namely:– Recognition of a loss from the impairment of financial assets;– Significant changes in an entity’s business or economic

circumstances that have an impact on the fair value of items in the statement of financial position, regardless of whether such items are accounted for at fair value;

– Significant transfers of financial instruments between levels of the fair value hierarchy; and

– Changes in asset classification (eg from available-for-sale to held-to-maturity) as a result of changes in their purpose or use.

In addition, reference to materiality relating to other minimum disclosures was removed from the standard.

The amendment is not expected to have a material impact on the Group’s financial statements.


IFRS 3 (amendment)

Business combinations

IFRS 3 was amended as follows: – To state that contingent consideration arising in a business

combination that had been accounted for in accordance with IFRS 3 (2004) and has not been settled or otherwise resolved at the adoption date of IFRS 3 (2008) continues to be accounted for in accordance with IFRS 3 (2004);

– To limit the accounting policy choice to measure non-controlling interests (NCI) upon initial recognition either at fair value or at the NCI’s proportionate share of the acquiree’s identifiable net assets to instruments that give rise to a present ownership interest and currently entitle the holder to a share of net assets in the event of liquidation. The accounting policy choice does not apply to other instruments, such as written options classified as equity instruments or options granted under share-based payment arrangements. Such interests generally will be measured at fair value or otherwise in accordance with other relevant IFRSs and

Annual periods beginning on or after 1 July 2010.

– IFRS 3 (2008) currently contains guidance on the attribution of the market-based measure of an acquirer’s share-based payment awards that are issued in exchange for acquiree awards between consideration transferred and post-combination compensation cost when an acquirer is obliged to replace the acquiree’s existing awards. The IFRS was further amended so that the guidance for such awards also applies to voluntarily replaced unexpired acquiree awards. Additionally, guidance is introduced about the accounting for unreplaced acquiree awards.

The above amendments are all required to be applied retrospectively. The amendments will not have a material impact on the Group’s financial statements.


Annexure E (continued)for the year ended 31 March 2011


IFRS 7(amendments)

Financial instruments: disclosures

Qualitative disclosuresIFRS 7 was amended to add an explicit statement that the qualitative disclosure should be made in the context of the quantitative disclosures to better enable users to evaluate an entity’s exposure to risks arising from financial instruments.

The existing disclosure requirements of the IFRS were amended as follows: – To clarify that disclosure of the amount that best represents an entity’s

maximum exposure to credit risk is required only if the carrying amount of a financial asset does not reflect such exposure already,

– Additional requirement to disclose the financial effect of collateral held as security and other credit enhancements in respect of a financial instrument. An example of such disclosure is the quantification of the extent to which credit risk is mitigated by the collateral and other credit enhancement obtained. This disclosure is in addition to the existing requirement to describe the existence and nature of such collateral, and

– To clarify that disclosure in respect of collateral taken possession of by the entity is required only in respect of such collateral held at the end of the reporting period.

The following requirements have been removed from the IFRS: – Disclosure of the carrying amount of financial assets that would

have been past due or impaired if their terms had not been renegotiated, and

– Disclosure of the description and fair value of collateral held as security and other credit enhancements in respect of financial assets that are past due but not impaired and in respect of financial assets that are individually determined to be impaired.



Financial assets transferredThe standard was further amended to require disclosure of information that enables users of financial statements to: – Understand the relationship between transferred financial assets

that are not derecognised in their entirety and the associated liabilities; and

– Evaluate the nature of, and risks associated with, the entity’s continuing involvement in derecognised financial assets.

Entities are not required to provide the disclosure for any period presented that begins before the date of initial application of the amendments. The amendments are not expected to have a material impact on the Group’s financial statements.

Annual periods beginning on or after 1 July 2011,

321


IFRS 9 (new)

Financial instruments

IFRS 9 (2009) IFRS 9 (2009) is the first standard issued as part of a wider project to replace IAS 39.

IFRS 9 (2009) retains but simplifies the mixed measurement model and establishes two primary measurement categories for financial assets, namely amortised cost and fair value. The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the financial asset. The requirements in IAS 39 with respect to impairment of financial assets and hedge accounting continue to apply for now.

IFRS 9 (2010)IFRS 9 (2010) adds requirements related to the classification and measurement of financial liabilities, and derecognition of financial assets and liabilities to the version issued in November 2009.

It also includes the requirements in IAS 39 dealing with the determination of fair value and accounting for derivatives embedded in a contract that contains a host that is not a financial asset, as well as the requirements of IFRIC 9 Reassessment of Embedded Derivatives.

The standard will be applied retrospectively subject to the standard’s transitional provisions. The impact on the Group’s financial statements has not yet been estimated.


IFRS 10 (new)

Consolidated financial statements

IFRS 10 establishes principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. The IFRS supersedes IAS 27 Consolidated and Separate financial statements and SIC-12 Consolidation – Special-purpose Entities.

IFRS 10 changes the definition of control and requires the same criteria to be applied to all entities (including special-purpose entities) to determine control. The existing IAS 27 is renamed IAS 27 Separate Financial Statements, and now deals solely with separate financial statements. The existing guidance for separate financial statements is unchanged.

The new standard is not expected to have a material impact on the Group’s financial statements.

The standard will be applied retrospectively and earlier application is permitted.


IFRS 11 (new)

Joint arrangements

IFRS 11 establishes principles for financial reporting by parties to a joint arrangement. The IFRS supersedes IAS 31 Interests in Joint Ventures and SIC-13 Jointly Controlled Entities – Non-monetary Contributions by Venturers.

The new standard reduces the types of joint arrangements to two, namely joint operations and joint ventures. The existing policy choice of proportionate consolidation for jointly controlled entities has been eliminated. Equity accounting is mandatory for participants in joint ventures. Entities that participate in joint operations will apply accounting similar to that for joint assets or joint operations under the old IAS 31 Interests in Joint Ventures.






IFRS 12(new)

Disclosure of interests in other entities

IFRS 12 applies to entities that have an interest in a subsidiary, a joint arrangement, an associate or an unconsolidated structured entity.

IFRS 12 sets out the required disclosures for entities reporting under the two new standards, IFRS 10 Consolidated Financial Statements and IFRS 11 Joint Arrangements. It replaces the disclosure requirements currently found in IAS 27 Consolidated and Separate Financial Statements, IAS 28 Investments in Associates and IAS 31 Interests in Joint Ventures.

The new standard requires entities to disclose information that helps financial statement readers to evaluate the nature, risks and financial effects associated with the entity’s interests in subsidiaries, associates, joint arrangements and unconsolidated structured entities.




IFRS 13(new)

Fair value measurement

IFRS 13 aims to provide clearer and more consistent guidance on measuring fair value and enhance fair value disclosures. The requirements do not extend the use of fair value accounting, but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRS.


The standard will be applied prospectively and earlier application is permitted. The disclosure requirements of the new standard need not be applied to comparative information for periods before the initial application of the standard.


IFRIC 14 (amendment)

IAS 19 – The limit on a defined benefit asset, minimum funding requirements and their interaction

The amendments remove the unintended consequences arising from the treatment of prepayments where there is a minimum funding requirement. These amendments result in prepayments of contributions in certain circumstances being recognised as an asset rather than an expense.

The amendments apply from the beginning of the earliest comparative period presented in the first financial statements in which the entity applies the interpretation.



Annexure E (continued)for the year ended 31 March 2011

323

The financial reporting standards, amendments or interpretations listed below are currently not applicable to the Group and will have no impact on the Group’s annual financial statement.


IFRS 1(amendments)

First-time adoption of international financial reporting standards

Event-driven fair value measurement– The IFRS was amended to allow a first-time adopter to use an event-

driven fair value measurement (eg revaluation of certain assets on the occurrence of an initial public offering) as deemed cost for some or all of its assets when such revaluation occurred during the reporting periods covered by its first IFRS financial statements.

Deemed cost exemption– The standard was amended to provide an additional optional

deemed cost exemption. In particular for items of property, plant and equipment or intangible assets used in certain rate- regulated activities.

Other changes– The standard was amended to clarify that IAS 8 Accounting Policies,

changes in accounting estimates and errors does not apply to the changes in accounting policies that occur during the period covered by their first IFRS financial statements; and

– In addition, the amendment provides guidance for entities that publish interim financial information under IAS 34 Interim Financial Reporting and change their accounting policies or use of the exemptions provided in IFRS 1 during the period covered by their first IFRS financial statements.

1 January 2011.

IFRIC 13 (amendment)

Customer loyalty programmes

The amendments clarify that the fair value of award credits takes into account the amount of discounts or incentives that otherwise would be offered to customers that have not earned the award credits.

1 January 2011.

IFRIC 19(new)

Extinguishing financial liabilities with equity instruments

The interpretation provides guidance on accounting for debt equity swaps, ie equity instruments issued to a creditor to extinguish all or a part of a financial liability.

1 July 2010.


General information

GENE

RAL

INFO

RMAT

ION

4


Abbreviations and acronyms

$/R USD/ZAR

AFD Agence Française de Development – French

Development Bank

AfDB African Development Bank

AFLAC American Family Life Assurance Company of

Columbus

AGM annual general meeting

Aids Acquired immune deficiency syndrome

AMP asset maintenance procedures

BBE black economic empowerment

BBBEE broad-based black economic empowerment

BCA business-critical activity

BCM business continuity management

BESA Bonds Exchange of South Africa

BOI Board of Inquiry

bp basis point

CAB Change Control Board

CAGR compound annual growth rate

Capecor Cape corridor

CCM continuous control monitoring

CD chart datum

CFMA control framework maturity assessment™

CFRC critical financial reporting controls

CGT Capital gains taxation

COE Centre of Excellence

COL cost of loss

CPIP container productivity improvement programme

CPMF Capital Portfolio Management Framework

CRM Customer Relationship Management

CSA controls self-assessment

CSDP Competitive Supplier Development Programme

CSI Corporate social investment

CTC centralised train control

CWIP Capital work in progress

DBT Dry Bulk Terminal

DCT Durban Container Terminal

DEA Department of Environmental Affairs

DFI Development Finance Institution

DIFR disabling injury frequency rate

DJP Durban to Johannesburg pipeline

DME Department of Minerals and Energy

DMTN Domestic Medium-Term Note

DOAF Delegations of Authority Framework

DoT Department of Transport

DPE Department of Public Enterprises

DTI Department of Trade and Industry

EBIT Earnings before interest and taxation

EBITDA Earnings before interest, taxation, depreciation

and amortisation

ECA Export Credit Agency

ED Enterprise development

EE employment equity

EIA Environmental impact assessment

EMD Electromotive Diesel

ERM Enterprise-wide Risk Management

FDI Foreign Direct Investment

FEL front-end loading

FER front-end research

FIFA Federation International Football Association

FINCO Group Finance Committee

FLMEP First Line Management Engagement Programme

FRMF Financial Risk Management Framework

FSD focused supplier development

FSTs first-line managers, specialists and technicians

GBP Pound Sterling

GCH gross crane moves per hour

GDP Gross domestic product

GE General Electric

Gesat GE South Africa Technologies

GFB General Freight business

GHG greenhouse gas

GIT Graduate in Training

GMTN Global Medium-Term Note

GRI Global Reporting Initiative

G-role first line managers, specialists and

employees technicians

HCM Human Capital Management

HCT HIV/Aids Testing and Counselling

HIV human immunodeficiency virus

HPE hydrocarbon pollution elimination

HR human resources

327

IAS International Accounting Standards

IASB International Accounting Standards Board

ICLM Interim Contract Lifecycle Management

ICM Act Integrated Coastal Management Act,

No 24 of 2008

ICT Information and communication technology

IFRIC International Financial Reporting Interpretations

Committee

IFRS International Financial Reporting Standards

IOT Iron Ore Terminal

ISA International Standards of Auditing

iSCM Integrated supply chain management

ISPS International Ships and Ports Security

IT Information Technology

ITO international terminal operator

JBIC Japan Bank for International Cooperation

JPY Japanese Yen

JSE Johannesburg Securities Exchange Limited

King III King III Report on Governance for

South Africa – 2009

km kilometre

KPA key performance area

KPI key performance indicator

LC Leadership Charter

LTI long-term incentive scheme

ml/km million litres per kilometre

MPT Multi-Purpose Terminal

mt million tons

MTBF meantime before failure

MTTR meantime to repair

Natcor Natal corridor

NCI non-controlling interest

NCT Ngqura Container Terminal

NEMA National Environmental Management

Act, No 107 of 1998

NERSA National Energy Regulator of South Africa

NGP New Growth Path

NIHL noise-induced hearing loss

NKP National Key Points

NKP Act National Key Points Act

NMPP New Multi-Product Pipeline

NRSR Act The National Railway Safety Regulator Act,

No 16 of 2002

OBML outcomes based modular learning

OEM original equipment manufacturer

ORTIA OR Tambo International Airport

OSHACT Occupational Safety and Health Act

PAA Public Audit Act, No 25 of 2004

PFMA Public Finance Management Act, No 1 of 1999,

of South Africa

PIC Public Investment Corporation

PLP Project Lifecycle Process

PMO Programme Management Office

Ports Act National Ports Act, No 12 of 2005

PP preferential procurement

PPM Procurement Policy Manual

PPP private public partnerships

PRASA Passenger Rail Agency of South Africa

PSP private sector partnerships/participation

R Baycor Richards Bay corridor

RBCT Richards Bay Coal Terminal

RBO relationship by objectives

RER Rail Economic Regulator

ROD Record of Decision

RSR Railway Safety Regulator

RTG Rubber-tyred gantry crane

SABS South African Bureau of Standards

SADC South African Development Community (SADC)

SAICE South African Institute of Civil Engineering

SAPICS Association of Operations Management

of Southern Africa

SAPS South African Police Services

SARHU South African Railways and Harbour

Worker’s Union

Satawu South African Transport and Allied Worker’s Union

SATS South African Transport Services

SdbL Spoornet do Brasil Limitada

SDR Sustainable Development Report

SHEQ Safety, health, environment and quality

SLA service level agreement

SLF Strategic Leadership Forum

SMME Small, medium and micro-enterprise


Abbreviations and acronyms (continued)

SMS safety management system

SOC state-owned company

SOP standard operating procedure

Southcor South corridor

SPO strategic performance objective

SRAB starting regulatory asset base

SSI Statement of Strategic Intent

SSM Strategic supply management

STAT ship turnaround time

STC Secondary taxation on companies

STI short-term incentive scheme

STS ship-to-shore

SVA Shareholder value add

SWH ship working hour

TAIMP Transnet Absenteeism and Incapacity Management Programme

TCC total cost to company

TIP Transnet infrastructure plan

TEU twenty-foot equivalent unit

TOMS Transnet Occurrence Management System

TPF Transport Pension Fund: Transnet Sub Fund

TRA Transnet Recognition Agreement

TRRC Transitional Rail Regulation Capacity

TSDBF Transnet Second Defined Benefit Fund

TSM Transnet Security Management

UKLA United Kingdom Listing Authority

USA United States of America

USD US Dollar

Utatu United Transport and Allied Trade Union

VaR value at risk

VCT voluntary counselling and testing

VIS vehicle identification system

VTS vessel tracking system

WACC weighted average cost of capital

WACD weighted average cost of debt

WUL water use licence

ZAR South African Rand

329

Glossary of terms

Asset turnover (times)

Revenue divided by total assets (total assets excluding capital work in progress).

Average total assets

Total assets, where “average” is equal to the total assets at the beginning of the reporting period plus total assets at the end of the

reporting period, divided by two.


Cash generated from operations after working capital changes, divided by net finance costs (net finance costs includes finance

costs, finance income and capitalised borrowing costs from the cash flow statement).

Debt

Interest-bearing borrowings (short and long-term), post-retirement benefit obligations, derivative financial liabilities plus

overdraft, less short-term investments and net cash and cash equivalents.

EBITDA

Profit/(loss) from operations before depreciation, amortisation, profit on sale of interest in businesses, impairment of assets,

dividend received, post-retirement benefit obligation (costs)/income, fair value adjustments, income/(loss) from associates and

net finance costs

EBITDA margin

Profit/(loss) from operations before depreciation, amortisation, profit on sale of interest in businesses, impairment of assets,

dividend received, post-retirement benefit obligation (costs)/income, fair value adjustments, income/(loss) from associates and

net finance costs expressed as a percentage of revenue.

Equity

Issued capital, reserves and minority interests.

Gearing

Debt expressed as a % of the sum of debt and Shareholder’s equity

Headline earnings

As defined in Circular 3/2009, issued by the South African Institute of Chartered Accountants, separates from earnings all items of

a capital nature. It is not necessarily a measure of sustainable earnings


Glossary of terms (continued)

Operating profit

Profit or loss from operations after depreciation and amortisation but before profit on sale of interest in businesses, impairment

of assets, dividends received, post-retirement benefit obligation (costs)/income, fair value adjustments, income/(loss) from

associates and net finance costs.

Operating profit margin

Operating profit expressed as a percentage of revenue.

Profit/(loss)

Profit or loss after taxation and minority interests.

Return on average total assets (%)

Operating profit expressed as a percentage of average total assets (average total assets exclude capital work in progress).

Return on net assets

Profit before taxation expressed as a percentage of net assets.

Shareholder value add (SVA)

Earnings before interest and taxation (EBIT) less the cost of capital. Cost of capital is the average total assets, excluding capital

work in progress, multiplied by WACC.

Total assets

Non-current assets plus current assets at the end of a

reporting period.

Total debt

Current and non-current liabilities.

Total debt-to-equity ratio

Total debt expressed as a ratio to equity.

BUSINESS ADDRESS AND REGISTERED OFFICETransnet SOC Ltd

Carlton Centre


Johannesburg

2001

PO Box 72501

Parkview

2122

South Africa

TELEPHONE+27 11 308 2719

GROUP COMPANY SECRETARYANC Ceba

COMPANY REGISTRATION1990/000900/06

WEBSITEwww.transnet.net

Corporate information

Transnet SOC Ltd

47th floor, Carlton Centre150 Commissioner StreetJohannesburg, 2001www.transnet.net

integrated annual report 2011 - transnet repor… · for the 2011 year, but also contains future...

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