What drives our business 8 Chairperson’s review Transnet Integrated Report 2020 9 What drives our business Aside from the catastrophic impacts of state capture, Building a competitive freight and Two years in, Chairperson’s review Transnet has performed below its potential in recent years, which has constrained its financial position and supply chain network we remain left us with limited room for budgetary adjustments. Repositioning to deliver on our committed “We have repositioned Insufficient maintenance of ageing infrastructure and a sedentary posture towards safety and systems mandate to fixing the the Company reliability has impaired our operations, resulting in Among the key challenges we face in South Africa inadequate service delivery. The knock-on effects have is an economy that is not growing sufficiently and basics strategically, with a included declining levels of customer satisfaction, is shedding jobs even as it grapples with the reality lower volumes and undue financial pressure. This said, of high levels of unemployment, especially amongst we are making steady inroads in correcting our future the youth. This is compounded by the return of renewed focus on the course. Most notably, we have completely restructured energy-supply challenges facing South Africa. our executive management cadre appointing talented Further, the emergence of Covid-19 has brought into strategic levers and experienced executives and are refocusing aspects focus the vulnerability of global supply chains to of the business to curb overspending, validate business disruption. As such, we intend to develop a more acute of customer service, cases and incentivise capital efficiency. We have also focus on understanding the strategic risks inherent repositioned the Company strategically, with a people, asset utilisation, renewed focus on the five essential strategic levers of in our customers’ supply chains and to respond customer service , people, asset utilisation, safety, more decisively and proportionately to these safety and cost control cost control and underpinned by ethical leadership. disruptions.
underpinned by ethical We provide more comprehensive perspectives on our We provide a more comprehensive perspective on our operational performance in the chapter on our future commodity outlook in the chapter on Our leadership” 42 strategic progress on page 42 and Our performance performance and outlook on page 76. 76 76 and outlook starting on page 76. Transnet’s port container and automotive terminals Our strategy play a critical role in the manufacturing, agri and retail sectors enabling the export and import of from Wuhan to other cities in China, hundreds of miles The second dimension of our long-term sustainability intermediate and final goods. These sectors will play away, and mere weeks to spread beyond China along relates to our medium- to long-term strategic an increasingly important role in Transnet’s revenue major trade and tourism routes and international planning and resource allocation, and the urgency with mix going forward. supply chains. which we can address our shortcomings in the context of changing economic and market dynamics. During It is gratifying to see that our initiatives to improve As a rail, port and pipeline company, Transnet is the first year of this Board’s tenure, the main port efficiencies are already producing tangible directly exposed to global macroeconomic trends. strategic objective was to ‘stabilise the core’, which results. While writing this review, the Port of Cape A goliath in every respect, the Covid-19 pandemic has aimed to preserve, repair and strengthen Transnet’s Town exceeded its efficiency targets for citrus played out in critical tandem with other socio- operational core by optimising and restoring its exports. The port had been hit hard during the first economic challenges affecting Southern Africa over essential and vital operational capability. Two years stages of Covid-19, with only one port team working the past decade, including reducing agricultural in, we remain committed to fixing the basics, with a at the main terminal, with delays of up to 21 days in productivity, escalating trade tensions, limiting job focus on operational excellence across the supply the roadstead. Now, halfway through the citrus prospects, and increasing political and regulatory chain and on meeting existing customer demand. We season, and despite the lingering challenges of Covid, uncertainty. Resilience is a critical consideration in are, however, in a stronger position to assess what we are exceeding reefer targets and have improved The global Covid-19 pandemic was first reported on evaluating the medium- to long-term sustainability of operational challenges and opportunities direct our Cape Town Container Terminals’ handled volumes, 31 December 2019 by the World Health Organization any company, along with its ability to adapt to strategic impetus. thanks to constant communication with customers to (WHO) following a cluster of pneumonia cases in infrequent but potentially devastating humanitarian maximise 24-hour operations. Wuhan City, Hubei Province of China. The virus has crises such as Covid-19. The next phase of our strategic repositioning will since spread to more than 100 countries, including intensify our focus on future growth opportunities South Africa, leaving few businesses untouched. th Ethical leadership while continuing to build an enabling environment for Adapting to the 4 Industrial Revolution our people, particularly given the new work practices As we prepare to publish our 2020 Integrated Report, While attending the World Economic Forum on Africa The first dimension of our long-term sustainability and technological trends developing post the Covid-19 global cases of the pandemic have surpassed the in September 2019, I was once again reminded of the relates to competent, capable and ethical leadership. lockdown. A diversified growth path will be driven 29 million count, with more than 900 000 fatalities relentless advancement of the 4th Industrial The Board of Directors is two years into its mandate to across three planning horizons. The core growth Revolution, and what it means for our Company in worldwide and more than 650 000 confirmed cases in restore the integrity of the Company following the horizon will optimise Transnet’s rail, ports and practical terms. As a transport and logistics SOC, we Our initiatives South Africa. Soon after the WHO’s December report, widely publicised phenomenon of state capture over pipelines freight logistics systems through investment are facing nothing short of an operational paradigm we observed the first tangible signs of a slowdown in the past nine years. Since my appointment as Transnet and operating partnerships with the private sector, shift. This shift encompasses not only the automation to improve port world trade, changing flows in tourism and disruptions Chair in 2018, I have observed the Company’s genuine while strategic equity partnerships will enhance our efficiencies in global supply chains, particularly for businesses efforts to correct past mistakes. Our cooperation with global competitiveness and regional integration. of our operating environment, but extends to how we that rely on manufactured products. It became various law enforcement agencies is starting to bear Adjacent growth prospects will look to regional approach new technological advancements and also are already apparent to the world that China is the only fruits. The Company has conducted disciplinary expansion of the rail, ports and pipelines logistics how we prepare our people for changing skills sets producing manufacturing hub that provides multiple global processes to deal with malfeasance that has tarnished systems; while new growth will see Transnet venturing and operational methodologies, specifically our supplies on a large scale. In the age of just-in-time 42 younger generations. its reputation over the years. Some of the litigation to into diversified businesses spaces. Please read more tangible results logistics, it took the coronavirus just days to spread matters are still underway. 46 on our strategic direction on pages 42 to 46. What drives our business 10 Chairperson’s review Transnet Integrated Report 2020 11
With more than 200 million people aged between 15 Achieving our developmental Transnet remains well positioned to raise funding operations and the country who have been impacted As an SOC, and 24, Africa has the youngest population in the through the domestic medium-term note. Transnet is by Covid-19. world, and the current trend indicates that this figure mandate in the process of securing several long-term facilities the lesson of As an SOC, the lesson of the pandemic has been to which will help improve its liquidity profile in the will double by 2045. One set of cautious estimates by Appreciation the pandemic the World Economic Forum shows that 75 million jobs bring our developmental mandate into sharper focus. near term. For us, as for all companies post-pandemic, the only Foremost, I would like to acknowledge the people of may be displaced by a shift in the division of labour sustainable advantage going forward is to recognise Transnet for your commitment to keeping the has been to between humans and machines, while 133 million new Outcome of the external audit our inherent and integral connections to all who make proverbial wheels turning under difficult conditions. bring our roles may emerge that are more adapted to the new up our society, and to recommit to our overarching Despite all efforts to accurately identify, quantify and The Covid-19 situation evolves from day to day, and division of labour between humans, machines and purpose, which is to serve the people of South Africa. report irregular expenditure, the Company has again there is a lot we do not know about the long-term developmental algorithms. While these numbers remain a moving been unable to satisfy the external auditors in this implications for our business and the transport and target, they are useful in highlighting the types of As we navigated the first few months of Covid-19, regard, resulting in an audit qualification for the third logistics sector. Despite the uncertainty, we must do mandate into adaptation strategies that must be put in place to responding to safety protocols, coordinating the tools year in a row. The qualification does not talk to the our best to anticipate possible changes and use the sharper focus facilitate the transition of our workforce to the new for some to work remotely, preparing our frontline financial soundness of the Company, but does crisis as a way to steer our business in a more world of work. employees for essential services and planning how to indicate the extent of the impact that legacy sustainable direction, deciding which parts of the old support our customers’ critical supply chains, our procurement events are having on the Company. While ways to keep and what to let go. We have developed and piloted several technology purpose expanded beyond our resolve to lowering the immediate remedial actions have been implemented, cost of doing business in South Africa to a whole- Thank you to the Minister of Public Enterprises, projects, including advanced sensors and track-and- and have materially reduced non-compliance in hearted, people-driven commitment to the health, current year procurement events (accounting for less Mr Pravin Gordhan, who represents our Shareholder trace technology, as well as our survey and inspection safety and well-being of all South Africans. than 4% of irregular expenditure reported), the new and the people of South Africa, for your unwavering device (SID). The SID can provide early warnings for leadership appointed as part of these remedial support and guidance. On behalf of the Transnet trains by travelling ahead of them, alerting them to We provide more information on the various financial actions initiated by the Board of Directors, have an Board, I assure you of our steadfastness in track obstacles and potential hazards at level and non-financial contributions to Government’s arduous task in addressing legacy matters extending repositioning Transnet for future growth and crossings. The SID operates autonomously in metros Covid-19 efforts in our chapter on What matters to over more than 8 years, taking into account high staff sustainability. Thank you, also to our colleagues at the and rural areas, collecting and reporting data through our stakeholders on page 65. 65 turnover in the supply chain environment and limited Department of Public Enterprises for your wireless communication. This capability holds huge record-keeping. constructive counsel and direction. Going forward, we will continue to strengthen our potential from a human and livestock safety developmental efforts. One way we intend to achieve Thank you to the Transnet Board for your perspective as well as for infrastructure inspections. Our Group Chief Financial Officer, Ms Nonkululeko this is through our alignment to the Transport Sector Dlamini and our Treasurer, Mr Mark Gregg-Macdonald conscientiousness and stewardship during a Additionally, our port customers already access all Charter, with an overarching vision to develop a provide more information on our financial challenging year. I am grateful for your commitment the services they need to import or export cargos on world-class rail industry that will grow in size, performance in their review in the chapter relating in and support and am proud to serve by your side. an e-commerce platform, from customs declarations stimulate economic growth and development, Our performance and outlook on page 76. to applying for finance. One of the next steps for facilitate trade and comply with effective safety 76 Thank you to our customers and commercial partners Transnet is a more targeted use of the Internet of standards, not simply in South Africa but also for your continued confidence in our abilities. Things (IoT) and data analytics to create ‘smart ports’, regionally. As such, Transnet continues to position Condolences Understandably, we face an uncertain future in many respects, but we face it together. As Transnet, we using a single common technology platform to enable itself as a key facilitator of trade growth in the region. Regrettably, during the year, six colleagues passed This extends to building regional sovereignty as a have every intention to improve and also to thrive, and our customers, suppliers, finance holders, stevedores, away while at work. On behalf of the Board, I wish to successful logistics operator to reduce the need for we look forward to journeying towards what I can only agents, warehousing and other stakeholders to share once again express our sincere condolences to their foreign debt. As an SOC, Transnet will play an term an optimistic vision of the future. information, thereby optimising the flow of cargo families and all who knew them. As the Board, we important future role in regional economic growth review the nature and causality of all fatalities and do through the port. Thank you to Transnet Management for your through job creation and skills development, wide- our best to entrench group-wide safety awareness. scale industrialisation as well as creating partnerships commitment and determination during a difficult year. I would be remiss if I did not also acknowledge that with the private sector at scale. These in turn will We also wish to convey our sympathies to the families As the Board, we recognise your efforts in motivating, while leveraging technological advancements will create a conductive environment for regional of the members of the public who lost their lives in focusing and leading our people towards the greatly assist us to improve our operational investments, supporting trade competitiveness, and and around our operational activities. Railway achievement of the Company’s goals. efficiencies, it is imperative that we first look at for migrating traffic from road to rail. crossings remain a safety challenge given the vast Thank you to the leadership of organised labour for improving the tools and equipment in the present national footprint of our rail network, spanning some your guidance and willingness to share in our journey. We provide more information on our sustainable 31 000 km. The encroachment of the railway reserves working environment where our employees operate. On behalf of the Board, I would like to acknowledge developmental outcomes (SDO) performance in the needs attention from all stakeholders involved. We Substandard working conditions negatively affect the commitment of our organised labour in helping chapter on Our performance and outlook from have made safety a strategic priority for the Company employee morale and reduce productivity. We need to Transnet to survive during the very difficult Covid-19 page 76. 76 going forward and intend to hold our people to better utilise our present assets by ensuring minimal period. We depend on the capacity and capability of account for any acts of negligence. We recognise that downtime of our existing asset base and leveraging our people, more so in dealing with the coronavirus. the quality of our operations and the strength of our complementary assets through integrated planning, Maintaining commercial We recognise that our goals are the same, which is to reputation are only as prized as our safety record. As an SOC, improved maintenance and debottlenecking. The self-sustainability create an ethical, transparent culture, and a safe and healthy work environment, where our people face Company has invested heavily in assets in recent As we prepare to finalise this integrated report, we Transnet will As we closed off the financial year in March 2020, each day with self-confidence and the promise of years, although associated volumes and returns have are deeply saddened by the loss of our dear friend and Moody’s Investor Service (Moody’s) downgraded the personal growth and communal well-being. play an been significantly below forecast. A further critical Government of South Africa’s long-term foreign colleague, Adv Oupa Motaung, who passed away on factor in ensuring we get the most from our current currency and local currency issuer ratings to Ba1 from 28 September. Adv Motaung joined the Transnet important and future technology assets relates to ICT Baa3, with a negative outlook. The Moody’s downgrade Board in May 2018 at a critical time in the Company’s history as we navigated the tempests of State governance. In many ways, the Covid-19 lockdown was followed days later by S&P Global Ratings (S&P) future role Capture. We wish his family strength and fortitude as period has accelerated our digital strategy with lowering South Africa’s sovereign credit rating further Dr Popo S Molefe they endeavour to come to terms with their huge loss. in regional into non-investment grade, otherwise known as ‘junk Chairperson remote and mobile work practices necessitating We all join them in their grief, for their loss is our loss. economic stricter data management and more rigorous ICT status’, citing the impact of the pandemic on South governance, particularly around cyber security and Africa’s public finances and economic growth as one of In concluding this review, I would also like to extend 29 September 2020 growth internet fraud and scamming. the reasons for its ratings action. our thoughts and well-wishes to all across our Johannesburg What drives our business 12 Our Board members Transnet Integrated Report 2020 13
Our Board members
Dr Popo Molefe Ms Portia Derby Mr Aluwani Ramabulana Ms Ursula Fikelepi Ms Dimakatso Matshoga Ms Mpho Letlape Chairperson Group Chief Executive Independent non-executive director Independent non-executive director Independent non-executive director Independent non-executive director
Date of birth: April 1952 Date of birth: December 1969 Date of birth: October 1971 Date of birth: January 1973 Date of birth: May 1978 Date of birth: March 1959
Year of appointment: May 2018 Year of appointment: February 2020 Year of appointment: May 2018 Year of appointment: May 2018 Year of appointment: May 2018 Year of appointment: May 2018
Qualifications: Qualifications: Qualifications: Qualifications: Qualifications: Qualifications: Honorary Doctorate (Leadership Aptitude) MBA (University of the Witwatersrand); MBA (Nyenrode University, The Netherlands); MBA (Gordon Institute of Business Science); MBA (Management College of South Africa); Bachelor of Computer Science and (University of North West); Certificate of BSc (Hons) Economics (University of BSc (Chemical Engineering) (Oregon LLM (University of New Hampshire, USA); BSc (Electronic Engineering) (University of Psychology (University of Fort Hare); Conflict Resolution (Harvard University); KwaZulu-Natal); BSc Geology and Economics State University); Executive Development LLB (University of Cape Town); BA Law Natal); PD in Project Management (School Management Advanced Programme (Wits Course on Governance (Harvard University); (University of KwaZulu-Natal); Management Programme (IMD, Switzerland); Certificate in (Rhodes University) of Project Management); PrEng; Certified Business School); Strategic Human Certificate of Completion of Business Advancement Programme Certificate Corporate Governance and Risk Management Director (Institute of Directors in Southern Resources Management (University of Leadership Course (Pennsylvania Directorship/Shareholding/Trusteeship: Africa (IoDSA)) Cape Town Graduate School); Leading University) Directorship/Shareholding/Trusteeship: Directorship/Shareholding/Trusteeship: • Emmaus Holdings (100% holding) Change (Harvard Business School); • JoyAnanda Investments (50% holding) • Bono Lithihi Investment Holdings (Pty) Ltd • Grace Bible Church Directorship/Shareholding/Trusteeship: Strategic Perspective in NPO Management Directorship/Shareholding/Trusteeship: • LPA Properties (50% holding) (5% holding) • Mtizamo Africa (Pty) Ltd (16% holding) • Atafala Enterprises t/a Atafala Consulting (Harvard Business School); Orchestrating • Aberdeen Offshore Engineering (Pty) Ltd • Pholela Trust • DataQwip Logistics (60% holding) • Mtizamo Capital (100% holding) Winning Performance (IMD) (Harvard • Andru Mining (Pty) Ltd • Tandimanzi (Pty) Ltd • Lateospace (49% holding) • Mtizamo Properties (Pty) Ltd • Atafatsa Foundation (non-profit company) Business School); Strategic Human Resources • Bigbit Trading • Ubu Investment Holdings (60% holding) • MDZ Capital (100% holding) (33,3% holding) (Harvard Business School)
• Devland Meat Production • MDZ Fleet Solutions (100% holding) 1 2 3 6 7 11 • ATISSA Engineering and Environmental
• Friedshelf 1516 2 6 11 15 19 • MDZ Logistics (100% holding) Services (in deregistration process) Directorship/Shareholding/Trusteeship: • Global Aviations Operations (Pty) Ltd • Mudzi Palfinger JV (51% holding) • Isa-Stra Tech Solutions (20% holding) • Africa Harm Reduction Alliance • Lereko Broad-based Consortium 212 • NBC • Food Forward South Africa
• Lereko Eco 1 2 11 13 17 18 19 • Lethushane (Pty) Ltd (100% holding)
• Lereko Investments (Pty) Ltd 1 2 4 5 6 9 11 • Lethushaneng Advisory Services • Lereko Metier Investors (Pty) Ltd (100% holding) • Lereko Metier Trustees • National Research Foundation • Lereko Mobility • South African Women in Dialogue • Lereko Systems • Standard Bank Tutuwa Community • Lereko Metier Capital Growth Fund Length of tenure of independent Foundation NPC • Mabele Trust non-executive directors • Tower Group • Marble Gold • Vinton Holdings Foundation as at 29 September 2020 • Mooki Trust
• Popo Molefe Foundation 2 8 10 11 18 • Sunshine Street Investments 71 (Pty) Ltd • Tedcor (Pty) Ltd 100% 0 – 3 years
1 2 9 11 0% 4 – 6 years Corporate Governance Corporate Management and Leadership Legal Compliance and Regulatory Logistics and Manufacturing Infrastructure, and Sales Marketing Business Development, Finance, Economics and Investment Business Process Re-engineering and Systems Engineering ICT and Socio-economic Development Transformation HR and Industrial Relations and Planning Strategy Risk Management Relations Stakeholder Development Policy Auditing and Accounting Procurement and Supply Chain Construction and Engineering Project Management (Road, Rail, Shipping, Aviation) Transport Management Operations Property Management
Corporate Governance and Nominations Finance and Investment Remuneration, Social and Ethics Audit Risk Board committees 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 Board members’ competencies What drives our business 14 Our Board members Transnet Integrated Report 2020 15
Our Board members
Adv Oupa Motaung Dr Fholisani Mufamadi Ms Gratitude Ramphaka Mr Louis von Zeuner Ms Nonkululeko Dlamini Independent non-executive director Independent non-executive director Independent non-executive director Independent non-executive director Group Chief Financial Officer
Date of birth: August 1970 Date of birth: February 1959 Date of birth: August 1979 Date of birth: June 1961 Date of birth: October 1973
Year of appointment: May 2018 Year of appointment: May 2018 Year of appointment: May 2018 Year of appointment: May 2018 Year of appointment: July 2020
Qualifications: Qualifications: Qualifications: Qualifications: Qualifications: BProc (University of the Witwatersrand); Dsc Honoris Causa (Igbinedion University); CA(SA); BAcc (Hons) (University of the Chartered Director CD(SA) (IoDSA); CA(SA); BCom (University of the LLB (University of the Witwatersrand); PhD (University of London); Honorary Witwatersrand); BCom (University of BA (Economics) (University of Stellenbosch) Witwatersrand); Higher Diploma in Accounting LLM (Tax Law) (University of the Professor (Political and Government Studies) the Witwatersrand); Auditing Specialism (CTA) (University of Natal) Witwatersrand); HDip Company Law (Nelson Mandela Metropolitan University); Course (Advanced Accounting and Auditing); Directorship/Shareholding/Trusteeship: (University of the Witwatersrand); MSc (University of London) Auditing Professional Training (Advanced • FirstRand Bank Ltd Directorship/Shareholding/Trusteeship: AIPSA Diploma (University of Pretoria); Auditing and Professional Training) • FirstRand Ltd • Coalition Trading 363 Advanced Certificate in Construction Law Directorship/Shareholding/Trusteeship: • Mahela Boerdery (Pty) Ltd (AR final deregistration) (University of Pretoria); Certificate in • Absa Bank Mozambique Directorship/Shareholding/Trusteeship: • Mahela Group Holdings (Pty) Ltd • Khula Credit Guarantee Banking and Financial Markets (University • Adcorp Holdings Ltd • Mbabo Transport Services cc • Telkom SA SOC Ltd • Kutlwanong Centre for Maths and Science of the Witwatersrand) • Implats Holdings Ltd (Dormant – being deregistered) • Tongaat Hulett Ltd Technology (NRC) • Muendanyi Consulting (100% holding) • Wildeklawer Investments (Pty) Ltd • Melody Hills Trading 127 Directorship/Shareholding/Trusteeship: • Nokukhanya and Inkosi Albert Luthuli 6 12 15 (AR final deregistration) • Condoclox (100% holding) Peace and Development Institute 1 2 3 6 7 12 • Rosherville Properties • Epic Telecommunication • Zimplats (Chairman of the Board) • Small Enterprise Finance Agency (SEFA) • Kuena Construction Projects
(100% holding) 2 9 10 14 2 6 15 • Miracle Mile 74 Investment • Nordaspan (100% holding) • Orthorox (deregistration – dormant) • Thulo Trustees (100% holding) • Twende Investments (10% holding) Group Company Secretariat • Vaxiscore Investment (100% holding) Ms S Bopape – Interim Group Company Secretary For more information please see page 126
3 6 17 Gender representation Race representation as at 29 September 2020 as at 29 September 2020
56% male 89% (8 African)
44% female 11% (1 White)
Excluding Executive Directors and Company Secretary. Corporate Governance Corporate Management and Leadership Legal Compliance and Regulatory Logistics and Manufacturing Infrastructure, and Sales Marketing Business Development, Finance, Economics and Investment Business Process Re-engineering and Systems Engineering ICT and Socio-economic Development Transformation HR and Industrial Relations and Planning Strategy Risk Management Relations Stakeholder Development Policy Auditing and Accounting Procurement and Supply Chain Construction and Engineering Project Management (Road, Rail, Shipping, Aviation) Transport Management Operations Property Management
Corporate Governance and Nominations Finance and Investment Remuneration, Social and Ethics Audit Risk Board committees Board members’ competencies 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 What drives our business 16 Our business model and value chain Our business model and value chain
Our vision Our value propositions
Fuelling Africa’s growth As a State-owned Company, our overarching and development as the value propositions are founded in our Shareholder leading provider of mandate and enabled through our strategic objectives. innovative supply chain solutions Socio-economic value and Value for the economy environmental stewardship Our mission • Reduce the total cost of logistics as a • The modernisation and renewal of percentage of transportable GDP South Africa’s transport and logistics infrastructure Linking economies; • Accelerate the modal shift, maximising the role of rail in the national • Regional integration to support South connecting people; transport task Africa’s market competitiveness growing Africa! • Leverage the private sector in the • Preserving road infrastructure through provision of both infrastructure road-to-rail migration and operations • Stimulating economic activity through Our mandate • Integrate the South African economy growth in the commodities sector with the region and the rest of the world • CSI initiatives that contribute to • Optimise the social and economic impact • Assist in lowering the cost of the socio-economic well-being of of all our interventions in achieving these doing business in South Africa communities where we operate objectives • Enable economic growth • Ensure commercial growth and • Activities that enhance rather than deplete the natural environment financial sustainability • Ensure security of supply by providing appropriate port, rail and pipeline infrastructure in a cost-effective and efficient manner, within acceptable benchmarks Value for domestic and Value for suppliers Value for regional customers and service providers employees
• Aspire to deliver predictable • An ethical and transparent • Employer of choice and reliable customer procurement process Freight Rail volumes • A work ethos of ‘safety Pipelines • Fair and equitable tender • Customer-centric business and integrity in all processes innovations we do’ • Fair, transparent and Engineering • Full value chain service • Opportunities to propositions efficient contract grow personally, 1 management • Distinctive product and professionally and Loading of service designs per market academically commodities • A proactive and segment collaborative approach to • Exposure and • Integrated cross-operating local supplier development 2 connectivity to Rail transit divisional customer support broader national and Unique Property across the logistics value regional opportunities assets chain
In/out- • Digital transformation bound across the value chain
Value for our Shareholder Value for financial partners 3 • Sustained financial returns and broad • A funding strategy based on strategic socio-economic value priorities and sound environmental, & stacking social and corporate governance Reclaiming • Regulatory compliance, accountable 4 & shiploading principles business practices, ethical leadership and responsible corporate citizenship • Capital investments likely to yield superior financial and social returns Port Terminals • Investment priorities closely aligned with National Ports Aut horit y Government’s infrastructure programme • A reliable and credible borrower, which issues debt on the strength of its financial position without government guarantees Transnet Integrated Report 2020 17
Who we are (our value chain activities) Five strategic drivers
Strategic levers What the levers mean to us Our unique assets • 56 414 employees • 16 cargo terminals operating Customer service • Customer-centricity and service reliability to provide a value-based customer experience • 31 000 km of railway track across seven South African – general freight and two ports • Clear and proactive customer communication regarding delays or stoppages throughout the heavy-haul export lines • 3 800 km of pipeline lifecycle of an agreement infrastructure • 143 engineering depots Providing the • Joint strategic planning with customers to • 8 commercial ports along • 2 454 locomotives quality service address market challenges and service delivery 2 798 km of coastline • 71 075 wagons our customers • Ensure adequate capacity and well coordinated expect from • 6 rail and port manufacturing resources to meet customer demand Transnet and maintenance factories • Develop nodes/inland ports to increase capacity and efficiency on the network, reduce costs, and to improve traceability and accountability Transnet Freight Rail
• Operates and maintains the largest railway in Africa – People • Invest in training and development especially among the top 10 global freight railways since we are moving into an increasingly digitally oriented work environment • Commodities railed over a rail network of Our operating 31 000 track kilometres • View talent sourcing and acquisition as a critical environment is labour strategic enabler • Operates the prestigious award-winning luxury Blue Train intensive with 56 414 • Continue to improve current working conditions • Provides primary healthcare services to rural communities people nationally. • Foster employee dignity and wellness and through the Phelophepa trains It is the interface nurture ingenuity between employees • Continue to enhance systematic employee Transnet Engineering and service delivery, communications and thus critical to our • Encourage collaboration and an ethos of ‘service • Core capabilities in research, design, testing, manufacture, performance to others’ remanufacturing, assembly and maintenance of railway rolling stock including locomotives, freight wagons, passenger coaches and port equipment Asset utilisation • Address the network and equipment backlog • Ensure minimal downtime of the existing • An independent African original equipment manufacturer asset base (OEM) for wagons The more efficient • Leverage complementary assets through integrated planning, improved maintenance and Transnet Ports Authority our procedures and operations, the more debottlenecking • Ports landlord responsible for the safe, efficient, effective value can be leveraged • Reduce the loan book by improving the and economic functioning of the national ports system, from our assets – from generation of cash through the portfolio of assets which it manages, controls and administers on behalf of locos and wagons to the State office equipment and • Leverage technology to enhance operations • Emphasise coordinated and integrated planning • Maintains port infrastructure, controls port land use, floor space at Operating Division level assists in the navigation of vessels within port limits and along the coast, and provides marine-related services Safety • Establish a corporate coordinating and assurance role to guide and monitor safety Transnet Port Terminals measures • Operates 16 terminals with 68 berths across seven Safety is every • Supplement the existing safety indicators ports along the South African coastline employee’s with additional measures to provide a more meaningful safety monitoring environment • Enables the efficient flow of imports, exports and responsibility. The • Change the mental models and mindsets of transshipments through its cargo terminals, ensuring more predictable and reliable our employees towards a posture of safety through year-round economic connectivity with regional and education and awareness campaigns international trade partners processes, the safer our operations, • Enforce a culture of safety compliance and zero • Provides cargo handling services to a wide spectrum of tolerance for deviation from safety-critical particularly in our customers practices highly industrialised operating environment • Enhance accident investigation capabilities to Transnet Pipelines avoid similar safety incidents in future
• Largest multi-product pipeline operator in southern Africa, transporting liquid petroleum and Cost control • Apply financial prudence to all business decisions methane-rich gas through a network of 3 116 km of operational pipeline infrastructure Right management • Visible and transparent cost allocation and cross-subsidisation across the Company • Ensures security of product supply for the inland means understanding • Up-to-date and ‘business-relevant’ financing market, transporting over 70% of all inland market- the impact of all policies and frameworks bound products expenses for short- term day-to-day • Adopt an iterative budgeting process and approach Transnet Property operating expenses and long-term capital • Enforce cost accountability and ownership at an Operating Division level • Manages a portfolio of commercial and residential expenses properties with a book value of R6,5 billion What drives our business 18 Our business model and value chain Transnet Integrated Report 2020 19
Financial sustainability drivers Our investment case
As an SOC, our Shareholder mandate requires domestic market, particularly as we progress Accordingly, we are reassessing the current Key performance indicator 2020 target 2020 actual 2021 target that we ensure cost-effective logistics our modal shift strategy to move cargo from system to identify overlooked opportunities infrastructure for South Africa, while road to rail, as well as increased cross-border that could increase capacity without Liquidity Cash interest cover 2,8 times 2,9 times 2,7 times remaining financially self-sustainable. revenue from our Africa strategy. accommodating increases in investment. EBITDA margin 45,3% 45,3% 44,9% Despite global socio-economic challenges A rephasing and deferment of our expansion We are continuously monitoring our overall Profitability impacting Transnet’s overall growth outlook, capital investments will enable us to capital portfolio to ensure bankable business Return on invested capital 5,2% 4,6% 4,8% we continue to observe a positive outlook prioritise capital investments that have a cases can activate deferred investments on for sustained revenue growth through an direct and short-term impact on revenue. short notice once conditions improve. Gearing Debt to equity ratio 45,1% 47,6% 45,8% increase in transported volumes in the Read more on our strategy 42 Debt coverage Net debt to EBITDA 4,0 times 3,60 times 3,51 times
Transnet’s Northern Cape inland manganese loading and handling terminal Financial stability for emerging mines is strategically reconfiguring a critical logistics channel Revenue drivers by enabling the movement of manganese from road to rail. External variables impacting value Transnet has a strong balance sheet and the About R308 million invested in 23 new, locally assembled Kalmar straddle Commodity-based revenue from commodities transported ability to generate cash flow to support further The global and domestic impacts of Covid-19 investment for continued financial stability carriers for Port Terminals’ DCT Pier 2 operations to address equipment on customers, our people and operations through a sustainable capital management failures, improve reliability and lower the maintenance costs. Refined petroleum Coal Forestry products products approach, cost management and volume Systemic weakening of many SOCs through the consolidation and growth. Five principles Iron ore Aggregate automotive Crude oil widely publicised phenomenon of ‘state capture’ R350 billion invested in the TransAfrica Locomotive – designed, engineered underscore our investment decisions: and manufactured in Africa. Manganese Fast-moving Aviation turbine fuel consumer goods Slow rates of global and local economic growth • Asset care Chrome Methane-rich gas The world’s longest train at 4 km with 375 wagons could add annual freight • Priority focus on maintenance Containerised cargo Changes in global energy consumption, particularly revenue of R350 million, particularly for manganese exports and in future Steel and crude oil the anticipated reduction in coal consumption • Rephasing of expansion capital investments the nascent zinc sector. Cement Agricultural products • Support for SMMEs who are existing partners Historical underinvestment in the maintenance of • Agility of execution Since commissioning the Durban to Johannesburg trunk line in 2012, the South Africa’s logistics infrastructure Non-commodity revenue 555 km and 24-inch New Multi-Product Pipeline (NMPP) trunk line has transported more than 16 billion litres of diesel. Two additional grades of Structural unemployment Sector expertise and partnerships petrol – Unleaded 93 Octane and Unleaded 95 Octane – will see a potential Maintenance and Other revenue from Property rentals from engineering services Freight Rail, National Transnet Property of 7 billion litres of petroleum product being pumped per annum. provided by Transnet Ports Authority, Port Climate change adaption We have exceptional expertise in our core sectors Engineering Terminals and Pipelines of rail, ports and pipelines, with strong growth Transnet’s Manganese Export Capacity Allocation (MECA2) programme Volatile commodity prices impacting freight potential in regional markets through a platform integrates multiple export manganese contracts. Nine out of 10 MECA2 volumes and revenue for partnership interoperability across all modes contracts have been concluded with local manganese companies, including: with industry and the private sector. Energy and water supply challenges % of current Group revenue per Operating Division • A 7,5-year export manganese contract with mining company, Tshipi é Ntle, yielding nearly 2,1 million tons of manganese railed per annum; South Africa’s creditworthiness impacting Resilience under pressure Freight Rail 42% borrowing costs • A 7,5-year MECA2 R8 billion+ contract with United Manganese of Kalahari, the fourth largest manganese producer in South Africa; Group eliminations and other provisions 14% At the time of publishing this report, we have • A R3 billion MECA2 partnership with Kalagadi Manganese (Pty) Ltd Port Terminals 13% demonstrated economic, social and cultural resilience in light of Covid-19, maintaining to transport up to 3 million tons of beneficiated sinter manganese per National Ports Authority 12% momentum in delivering core services and annum; and Engineering 11% supporting our customers’ essential supply chain • A manganese contract with South 32 is set to yield 2,6 million tons of Pipelines 5% activities amid global logistic disruptions. export manganese per annum at close to R10,4 billion in total value for Transnet. Specialist Units (Corporate Centre, Funding sources Group Capital and Africa Unit) 1% Support large burgeoning markets International and domestic capital markets A 25-year concession agreement worth R200 million+ between National Property 1% Ports Authority and KwaZulu Cruise Terminal (Pty) Ltd to finance, construct Development finance institutions Our business model aims to promote strategic and operate a new cruise terminal facility in the Port of Durban Costs drivers (domestic and international) value for large burgeoning markets on the by 2021. continent by reducing the cost of regional Loan market (public and private) logistics infrastructure and ensuring product- A cost-sharing agreement with IFC, a member of the World Bank Group, to do Personnel costs 41% supply security. a feasibility study to develop a LNG storage and regasification terminal at Maintenance and materials 21% Export credit market the Port of Richards Bay and to repurpose Transnet Pipelines for natural gas Operating leases 11% Business with a conscience transmission to inland markets. Structured financing Other admin and overheads 11% Our developmental mandate has come into sharp Energy 8% Partial funding by customers and interested parties forming part of Transnet’s investment plan focus as we have reached beyond our commercial Electronic data costs 4% activities to support vulnerable pockets of Security 2% Project-specific funding society, as well as small businesses, communities where we operate and other SOCs. Group eliminations and other provisions 2% What drives our business 20 Sustaining value through the capitals Transnet Integrated Report 2020 21 22 Transnet Integrated Report 2020
We aim to ensure For others
Modernisation and renewal of South Africa’s transport Sustaining value through the capitals Cost-effective Advanced engineering Value created and logistics infrastructure through strategic investment Value-added services Employment logistics value chains solutions in rail, ports and oil and gas pipeline infrastructure Created measurable direct, indirect and induced employment for South Africans For Transnet Outcomes Capital inputs Long-term financial stability Skills development Enhanced and improved human capabilities and Positive outputs Human and Intellectual Reliable and secure infrastructure productive capacity within the South African Human and Intellectual Wide range of transported general bulk • Distinctive product and service designs job market and containerised freight commodities • Responsible and accountable leadership • Global operational standards Commercial agility in a changing socio-economic • 56 414 skilled and motivated employees environment Transformation In-service maintenance, repair, upgrade, • Strong governance structure and oversight as at 1 April 2020 year end conversion and manufacture of various • Integrated planning and resourcing Promoted black economic empowerment within • Research and development Freight Rail types of wagons, coaches, locomotives as • Skilled and representative workforce Employment equity supplier entities well as equipment, machines and services • Standard operating procedures • Safe working environment promoting diversity, Engineering • Policies, frameworks and processes equal opportunity, training and education Ethical business practices as well as sound Community development Secure inland petroleum product supply environmental stewardship within operations National Ports Authority • Responsible, ethical leadership Financial Improved economic, social, cultural and Cargo-handling services to a wide range Port Terminals • An inclusive ‘iBELONG’ culture environmental well-being of communities • Access to affordable funds through of customers Enhanced human capabilities and productive capacity international and domestic capital markets Pipelines (particularly scarce skills) Capacity growth through new and Regional integration • Cash generated from operations: Property Financial e t r dge refurbished locomotives and wagons R35 911 billion (A separate Operating Division Improved physical and mental health and safety of Improved freight logistics connectivity on from 1 April 2020) • Funding strategy based on strategic priorities the continent • Borrowings raised: R11 357 million employees and other stakeholders • High-yield capital investments (financial and social returns) • Share capital and reserves • Cash interest cover of 2,9 times Investment leveraged oedoespoort orporate • Gearing at 47,6% Manufactured entre Leveraged private sector investment in the country’s o annes rg • Property, plant, and equipment: freight logistics system
R313 558 million er ston Manufactured • Port, rail and pipelines infrastructure s en Environmental stewardship • Full value chain service propositions • ICT systems, digital platforms Promoted modal shift from road to rail oe onte n and cloud services R ards a • Digital transformation across the value chain • Business continuity Protected and enhanced capacity of the natural r an Social and relationship • Infrastructure reliability environment to meet the resource needs of Adverse outputs future generations • Effective engagement with • Analytics to end-users through multiple digital platforms Shareholder and funders Waste materials as by-products of • Healthy customer relations infrastructure projects (e.g. asbestos and a dan a Health and safety a t R er ast ondon • Collaborative and supportive ten age hydrocarbon waste) Social and relationship
ape To n partnership with communities g ra Protected physical and mental health and safety of Pipeline spills and marine pollution (e.g. • Social licence to operate • Transparent and positive relations osse a ort a et the public and communities where we operate with institutions and media plastics entering marine water at ports) • Customer-centric and reliable delivery of customer volumes • Constructive engagement with • Collective agreements with organised labour Industrial capability building Government and regulators • Partnerships with customers and logistics providers Supported industrial development for South Africa • Supplier development • Fair, transparent and efficient contract management and improved competitiveness • Proactive and collaborative supplier development Natural Vastly improved rail and freight infrastructure • Water Commodities Petroleum products General Freight Increased capacity at South African ports • Air Natural Including mining Including crude oil, Including minerals, • Land exports, general refined petroleum automotive products • Environmental stewardship Increased capacity for South African freight and petroleum products and aviation and containerised • Biodiversity and ecosystem health • Opportunities for improving water consumption commodity exports products turbine fuel cargo • Waste • Cost saving from recycling • 6,4% improvement in energy efficiency over the past five years • 2,3% increase in carbon emissions intensity What drives our business 23 Capital value generated and trade-offs 24 Transnet Integrated Report 2020 25
Capital value generated and trade-offs
For Transnet, sustainable development not only reflects the trade-offs between business activities, the environment and community stakeholders, but also works consciously to create long-term synergy between them. Balancing short-term and long-term interests Social and relationship capital Manufactured capital remains one of our most complex trade-offs. However, it is imperative that we do not view the concept of ‘trade-offs’ as a ‘win/lose’ scenario, but rather consider the ways shared value can be achieved in the mutual balance of all interests. Transactional, collaborative and constructive relationships with stakeholders to maintain trust and a social licence to operate Means of generating value through physical infrastructure in the form of property, plant and equipment, which includes rail, port and pipeline infrastructure of the country Human and Intellectual capital – 56 414 motivated and efficient employees Strategies to create or sustain value Trade-offs Value generated Strategies to create or sustain value Trade-offs Value generated
Implementation of policies, programmes and services to attain Company and employee goals while ensuring that employee needs • Use customer requirements to guide • Keystone expansion projects Effectiveness of our efforts to add value and organisational goals are balanced how and where to integrate services – such as our large-scale port through our relationships • Adhere to the capital maintenance • Investing in manufactured capital Capital investment: • Transnet’s Phelophepa Healthcare infrastructure improvement project programme and cultivate a culture of requires substantial investment • Spend on expansion amounted to programme provides primary at the Port of Durban – need to Beneficiaries of socio-economic and process fine-tuning and preservation and reduction of financial capital. R3,5 billion Strategies to create or sustain value Trade-offs Value generated infrastructure development (SEID): healthcare across eight provinces and balance the economic benefits for of existing assets, while maximising There is a trade-off between using • Spend on sustaining amounted to experiential learning to some 2 500 the country with the social and • People benefiting from the SEID asset utilisation financial resources on maintenance R15,1 billion • Strategies to improve working • Time, effort and resources Effectiveness of our efforts to sustain environmental concerns raised by initiatives along our servitudes: 39 859 spend or expansionary capital healthcare trainee professionals • Ensure integrated management of • See page 87 for more on conditions and employee wellness to improve operations may our employees’ welfare and contribute to surrounding communities (2019: 37 261) spend • Mobilise two medical trains for projects through the Integrated Capital performance and planning as it relates 87 • A zero-harm safety culture across initially divert focus from pure the economic well-being of citizens: 64 Covid-19 testing (see pages 64 and 65 • Transnet’s operations have adverse • Investment in the SEID programme: Projects Programme • In recent years, spend was to infrastructure and physical assets 65 operations manufactured capacity-building, • Sustained strong safety and for more on strategic response to the impacts on local communities – R7,98 million (2019: R6,61 million) • Structure and maintain the ICT weighted towards expansionary as such, we apportion financial • 105 565 people treated in our capital. Going forward, to • Employee culture that is inclusive but the Company’s long-term occupational health performance: impact of Covid-19 on people) network for reliable connectivity investment towards programmes Phelopepa Healthcare programme safeguard financial sustainability and accommodating while demanding financial health requires a thriving – 6 employee fatalities (2019: 4) • Creating enterprise development • Optimise Transnet’s property portfolio and improve operational efficiency, and safe work environment programmes to expand opportunities aimed at improving the quality of (2019: 91 588) performance, innovation and – Total disabling injury frequency rate to communities where the Company lives of these communities as well the investment balance will tilt excellence • The decision not to institute pay (DIFR) of 0,73, against a tolerance of operates as in the larger economy towards infrastructure • Drive an ethical culture to support the cuts, while revenue was reduced 0,75 (2019: 0,71) maintenance • Manage and establish socio-economic Company’s long-term viability due to the effect of Covid-19 • Improved and aligned employee skills infrastructure such as community put strain on financial capital, • Support the development of South sets, equity and diversity as well as centres and hubs Natural capital particularly for work that is not Africa’s artisanal labour force, thereby culture of accountability with: • Transparent disclosure of desk-bound, e.g. operating trains creating positive externalities and – R23,3 billion spent on personnel sustainability performance to Shared natural environment in which our operations are located and have an impact such as the ocean, rivers, ecosystems and air or cranes transferring value to civil society costs and benefits (2019: stakeholders • The efficiency and practicalities • Manage the impact of Covid-19 on our R22,9 billion) Strategies to create or sustain value Trade-offs Value generated of mobile work practices need to people and operations, e.g. develop – R764 million spent on training and Financial capital be balanced with more stringent technology strategies and governance development (2019: R667 million) governance • Transnet’s approach to natural capital • We understand that some of our • Water stewardship: to support changing work practices • Contributed to the national pool of Made up of cash and cash equivalents as well as borrowings management encompasses energy operations deplete natural – Achieved a ‘B’ score in the Carbon (see pages 64 and 65 for more on our skilled artisans and engineers with: efficiency, climate change mitigation resources and are in pristine Disclosure Project for Water in response to the impact of Covid-19 on – 60 Engineering trainees (2019: 60) Strategies to create or sustain value Trade-offs Value generated and adaptation, water stewardship, environments. We are guided by 2019, an improvement from the ‘C’ our employees) biodiversity management and environmental impact assessments – Sector-specific training spend of score obtained in 2018 enhancement, and land use in our approach to infrastructure R2,7 million (2019: R2,8 million) • Maintain a strong capital base to • Effort and resources spent on Effectiveness of our efforts to sustain – Water recycled: 396 578 kℓ management maintenance and expansion promote investor, creditor and market improving governance and internal financial capital: (2019: 1 267 477 kℓ) • Investment in R&D of R234,3 million, • Through the modal shift of cargo from confidence to support future growth of controls will ensure we maintain or • EBITDA margin decreased to 45,3% • Rebates generated from general waste up from R10,8 million in 2019 road to rail, we aim to lower carbon the business reduce the cost of capital (2019: 45,6%) recycling: R19 693 967 from emissions in the transport sector, • Achieve financial targets related to • Transnet’s ability to commit to 11 908 tons (2019: R210 965 355) • Realised cash interest cover of especially for the hauling of large gearing, the return on investment capital expenditure is balanced • Asbestos remediation and 2,9 times (2019: 2,9 times) volumes of high-density freight over capital and cash interest cover, e.g. with the need for sufficient return rehabilitation from historical • Ended the year with a net cash position long distances maintain the Company’s stand-alone on assets to support funding contamination: 63,18 tons (2019: of R4 256 million (2019: R4 156 million) • Our integrated asbestos and credit rating and secure cost-effective requirements 49,2 tons) • EBITDA amounted to R34 billion hydrocarbon clean-up programmes funding in the rollout of our Capital • Recorded 36 Section 30 incidents4, (2019: R33,8 billion) enable us to manage the impact of Investment Plan a 58% increase compared to 2019 historical environmental contamination • Continued cost-control initiatives • Energy efficiency management and • Implement best practice environmental through ‘right management’ carbon footprint: risk management and natural capital • Managing working capital to meet – Total carbon emissions (tCO e) policies 2 target levels increased by 3,1% during 2020 • Continuously evaluate the cash flow – Overall energy efficiency improved profile of the business and proactively by 3,9%, to 19,8 ton/GJ (2019: manage operational and financial risks 19,1 ton/GJ) for long-term financial sustainability – Carbon emission savings from ‘road
• Maintain a cash interest cover of at to rail’ of 327 644 tC02e (2019:
least 2,5 times 110 078,8 tCO2e)
4 As per the National Environmental Management Act, No 107 of 1998.