Engineering 2019 Transnet Engineering 2019 2

Highlights • Revenue decreased by 6,4% from R11,25 billion to R10,5 billion in 2019 • EBITDA decreased from a loss of R139 million to a loss of R737 million • Transnet Engineering, achieved the Shareholder’s Compact targets on train reliability and efficiency as summarised below: Target Actual 2019 2019 Key performance indicator % %

Volume lost due to traction 7 7,5

Train delays due to traction 40 18,7

Train cancellation 6 3,1

Business overview Transnet Engineering (TE or Engineering), an advanced manufacturing division of Transnet, has a rich and proud heritage spanning more than 150 years. TE’s solutions, underpinned by a strong innovation culture, help customers deliver goods and services with greater speed and efficiency using long refined advanced manufacturing techniques, industry expertise and highly-skilled personnel.

Over time, TE has established extensive core capabilities for research, design, testing, manufacturing, remanufacturing, assembly and maintenance of railway rolling stock including locomotives, freight wagons, passenger coaches and port equipment. To this end, TE has positioned itself as the first African independent original equipment manufacturer (OEM) for wagons.

With more than 11 600 employees countrywide, 143 depots and six main factories, Engineering is ideally positioned to serve its key customers locally and globally. Through its Vision 2021, Engineering aims to be the preferred brand in rail and related engineering solutions in Africa and across the world. This entails: • Becoming a world-class OEM of rolling stock and logistics equipment; • Becoming a preferred maintenance, repairer and overhaul partner for all rail and related equipment in Africa; • Establishing Centres of Excellence for technical and engineering skills development in Africa; and • Driving economic development and growth in sub-Saharan Africa.

Engineering’s range of services is designed to grow the customer base both nationally and across Africa. The maintenance service depots are strategically positioned for the key corridors of Freight Rail. This ensures that the train delays, cancellations and volumes lost are minimised to focus on improving operational efficiencies by concentrating on availability and reliability of rolling stock. National and African markets remain key customer growth areas for Engineering’s commercial prospects. The manufacturing and overhaul arms of TE provide local and African freight operations with new and refurbished locomotives and wagons.

Engineering continues to focus on growing its footprint in the African market and beyond. These new areas are an attractive growth market for the division due to increased investments in rail occurring across the continent. True to its aspirations of becoming the fully-fledged African OEM, Engineering has successfully researched, designed, manufactured and tested a new purpose- built locomotive, the TransAfrica Locomotive. This locomotive was successfully launched in April 2014, attracting impressive commercial interest from local and continental rail players. Transnet Engineering 2019 3

Internally, TE continues to focus on improving operational objectives. Engineering’s new operating model below illustrates efficiencies and a safe working environment through various how the division is structured, how it intends to interface with interventions such as continuous improvement and process customers and the products and services it will provide that will automation. define its value proposition to the market.

TE will continue to forge and strengthen partnerships with OEMs with the aim being to enhance the existing skills and know-how and Where we operate to create new market opportunities. TE has plants and depots spread throughout South Africa, creating The division continues to strengthen its research and development a network of sites that serve the main rail corridors and ports. The (R&D) initiatives to ensure that it has cutting-edge technologies six main plants are located in Cape Town, Johannesburg, Durban, and capabilities to deliver world-class products and services. Bloemfontein, Pretoria and Uitenhage.

Skills, enterprise, rural and supplier development continue to be These plants serve as regional centres for their satellite depots key focus areas of Engineering, with particular attention given to and provide them with support services. There are a total of the youth and women. Significant expenditure over the next few 143 maintenance depots. Out-of-service heavy maintenance and years will create opportunities for the division to identify and manufacturing are undertaken at the plants while the depots implement programmes that will address developmental concentrate on in-service maintenance of rolling stock.

Beit Bridge

Musina

Makhado Soekmekaar Ellisras Polokwane

Naboomspruit Tzaneen Thabazimbi Central Region Nylstroom Phalaborwa

Northam Pienaarsrivier Marble Hall Hoedspruit Eastern Region Steelpoort Pretoria Rustenburg Pyramid South Graskop Western Region North Macmullins Pendoring Roossenekal Nelspruit Magaliesburg Belfast Kaapmuiden Transnet Engineering factories Rayton Mafikeng Witbak Machadodorp Pretoria Komatipoort Krugersdorp ▲ Ogies Transnet Corporate Centre Johannesburg Lichtenburg Sentrarand Delmas Vryburg Coligny Johannesburg Trichardt Bethal Vermaas Welverdiend ▲ Maydale Vereeniging Ermelo Hotzal Klerksdorp Volksrust Ottosdal Sasolburg Orkney Pudimoe Newcaslte Northcor Erts Makwassie Kroonstad Piet Retief Golela Sishen Dundee Nakop Gunhill Vryheid Capecor Warrenton Bethlehem Upington Harrismith Posmasburg Theunisen Danskraal Southcor Empangeni Kimberley Ladysmith Kakamas Marseillies Bergville Boksputs ▲ Estcourt Natalcor Bloemfontein Cedara Greytown Richards Bay Koffiefontein Maseru Pietermaritzburg Prieska Belmont Sannaspos Underburg Cato Ridge Stanger R. Baycor Kokstad Franklin Copperton Aliwal North Springfontein Richmond N. Westcor Barkly East ▲ Durban Bitterfontein De Aar Dreunberg Eastcor Burgersdorp Harding Liebendal Port Shepstone Noupoort Stormberg Maclear N. Eastcor Rosmead Hutchinson Sterkstroom Klawer Calvinia Umtata Cradock Queenstown Sishen-Saldanha

Cookhouse Stutterheim Malmesbury Beaufort West Fort Sentracor Somerset East Kalbaskraal Beaufort Klipplaat Blaney Touwsrivier South East Cor Dal Alicdale Saldanha Bay Atlantis Josafat East London New Worcster Uitenhage ▲ Brighton Port Alfred Westcor Oudshoorn Avontuur Kraaifontein Patensie Cape Town Port Elizabeth Bellville Free State Mossel Bay Caledon George Knysna

Bredasdorp Namibia

Figure 1: Transnet Engineering’s geographic spread

Regulatory environment Regulatory universe Engineering currently adheres to compliance with approximately 2002 (as amended by Act 69 of 2008), which provides for the 70 legislations, various applicable regulations and supervisory establishment of a Railway Safety Regulator whose mandate is to requirements. These legislations impose strict engineering, issue operating licences and oversee safety in the railway industry. governance, health and safety, environmental, labour and Like other rail operators, Transnet complies with stringent procurement compliance obligations and requirements. The application requirements of annual safety permits, which include the legislations include the National Safety Regulator Act, No 14 of establishment and maintenance of the safety management system. Transnet Engineering 2019 4

Performance context Strategic objective Contribution to strategic objective

Reduce the total cost of logistics as a percentage of • Engineering will continue to source quality rolling stock components and material transportable GDP from low-cost suppliers in order to offer competitive products and services to the market. • The division will continuously benchmark its operations in the industry and incorporate best practice in its operations. Effect and accelerate modal shift by maximising the • The division will assist Freight Rail in improving operational efficiencies by role of rail in the national transport task concentrating on rolling stock availability and reliability and thereby position rail as an attractive alternative to road transportation. Leverage the private sector in the provision of both • Engineering continues to anchor partnerships with the rolling stock component infrastructure and operations where required manufacturers and financial institutions in the provision of rolling stock and related services both in South Africa and the rest of the continent. • Through research and development, Engineering is developing intellectual property in the rail-related industry with the view of partnering with the private sector in instances where other providers have manufacturing capacity and competencies. Integrate South Africa with the region and the • Engineering is positioning itself as a preferred manufacturer and maintenance rest of the world partner for rail and related equipment in Africa. Partnerships will be forged with local companies in Africa where synergies exist. Optimise the social and economic impact of all • Engineering is positioned as a centre of excellence for technical and engineering interventions undertaken by the SOC in the skills. The division is leveraging this capability to provide artisanal status, achievement of these objectives including the conversion of semi-skilled individuals into artisans through the recognition of prior learning.

Operational performance Core initiatives for 2019 • Extend Engineering’s maintenance services to other Transnet • Engineering will focus on expanding its maintenance footprint in Operating Divisions to ensure that they leverage the available Africa by marketing its maintenance capability and forging technical knowledge embedded in Engineering. closer collaboration with Transnet International Holdings. • In order to provide an enhanced service to Transnet Freight Rail, • The continuous improvement team has identified a potential to maintenance depots will be aligned with key Transnet channels reduce production inefficiencies within the manufacturing and as an enabler to achieve Transnet’s volumes. maintenance operations. Transnet Engineering 2019 5

Overview of key performance indicators Key performance area 2017 2018 2019 2019 2020 and indicator Unit of measure Actual Actual Target Actual Target Financial sustainability EBITDA margin % 4,9 (1,2) 0,9 (7,0) 3,3 Operating profit margin % (9,5) (5,2) (3,6) (11,3) (0,6) Gearing % 73,7 88,4 92,8 102,1 104,8 Net debt to EBITDA times (32,6) 45,9 110,2 (25,7) 26,4 Return on total average assets % 6,6 (0,9) (2,4) (6,5) (0,5) Asset turnover times 0,7 0,7 0,8 0,6 0,9 Cash interest cover times (1,0) (3,6) 2,6 0,6 1 Total revenue R million 9 380 11 250 10 871 10 524 12 973

– External R million 1 622 2 467 4 065 1 657,4 1 753,5 – Internal R million 7 758 8 783 6 806 8 867,1 11 219,5

Capacity creation and maintenance Capital expenditure R million 945 275 748 301 510 Planned maintenance R million 203 223 209 199 198,6 Operational excellence Train cancellations due to traction

General freight business % 3,4 3,1 ≤ 6,0 3,2 ≤ 6,0 Export coal % 4,1 8,2 ≤ 6,0 5,7 ≤ 6,0 Export iron ore % 1,6 1,5 ≤ 6,0 1,9 ≤ 6,0 Net volume lost due to traction General freight business % 4,1 3,1 ≤ 7,0 4,1 ≤ 6,6 Export coal % 5,8 14,8 ≤ 7,0 11,7 ≤ 6,6 Export iron ore % 4,1 5,5 ≤ 7,0 1,3 ≤ 6,6 Traction delays General freight business % 14,2 5,1 ≤ 40,0 16,6 ≤ 36 Export coal % 18,6 23,5 ≤ 40,0 41,5 ≤ 36 Export iron ore % 9,6 8,8 ≤ 40,0 17,5 ≤ 36 Human capital Employee turnover % 5,4 8,5 6,0 5,0 6,0 Employee headcount permanent 11 731 10 838 10 962 10 370 10 786 Revenue per employee R million 0,80 0,96 1,0 1,0 1,2 Transformation Total blacks % 80,2 80,8 89,0 81,7 90,0 Total females % 22 23 32 23,6 35 Total people with disabilities % 1,4 1,6 3,2 1,9 3,3 Skills development Apprentice trainees headcount 250 200 200 223 200 Technician trainees headcount 43 87 30 83 20 B. Engineering trainees headcount 22 12 20 28 30 Sector specific headcount 514 570 250 279 250 Training spend % of personnel cost 3,6 2,6 3,0 2,4 3,0 Risk, safety and health Cost of risk % of revenue 1,9 1,1 4,0 4,0 4,0 DIFR rate 0,61 0,66 0,70 0,66 0,69 Regional integration Africa sales revenue R million 227 254 1 979 166,1 254 Industrial capability building R&D costs R million 185 147 300 275 304 Transnet Engineering 2019 6

Financial performance review

Year ended Year ended 31 March 31 March 2019 2018 % Salient features R million R million change

Revenue 10 524 11 250 (6,5) – Internal 8 867 8 783 1,0 – External 1 657 2 467 (32,8)

Operating expenses (11 261) (11 369) (0,9) – Energy costs (217) (231) (6,1) – Maintenance (199) (223) (10,8) – Materials (4 241) (4 398) (3,6) – Personnel costs (5 598) (5 809) (3,6) – Other (3 395) (728) 366,3

Profit from operations before depreciation, derecognition, amortisation and items listed below (EBITDA) (737) (139) 430 Depreciation, derecognition and amortisation (450) (447) 0,7

Profit from operations before items listed below (1 187) (586) 103 Impairments and fair value adjustments (159) (52) 205,8 Net finance costs (1 085) (1 116) (2,8)

Profit before taxation (2 431) (1 754) 38,6 Total assets (excluding CWIP) R million 18 035 18 687 (3,5)

Profitability measures EBITDA margin1 % (7,0) (1,2) (5,8) Operating margin2 % (11,3) (5,2) (6,1) Return on average total assets (excluding CWIP)3 % (6,5) (3,4) (3,1) Asset turnover (excluding CWIP)4 times 0,57 0,66 (13,6) Capital investments5 R million 301 275 9,5 Employees Number of employees (permanent) number 10 370 10 838 (4,3) Revenue per employee R million 1,02 1,04 (1,9)

1 EBITDA expressed as a percentage of revenue. 2 Profit from operations before impairment of assets, fair value adjustments, net finance costs and taxation expressed as a percentage of revenue. 3 Profit from operations before impairment of assets, fair value adjustments, net finance costs and taxation expressed as a percentage of average total assest excluding capital work in progress. 4 Revenue divided by average total assets excluding capital work in progress. 5 Actual capital expenditure (replacement + expansion) excluding borrowing costs. Transnet Engineering 2019 7

Internal revenue (about 99% from Freight Rail) increased to Financial performance review R8,9 billion (2018: R8,8 billion). External revenue decreased by 32,8% to R1,7 billion (2018: R2,5 billion). As a result, EBITDA The 2019 financial year presented a difficult trading environment reflected a loss of R737 million. for Engineering where cross-border orders were less than the quantum received in 2018 and ultimately less than 2019 Engineering saw a negative return on invested capital (return on expectations. The decline in orders had an overall negative impact total average assets) of -6,5% (2018: -1,2%) during 2019. to financial performance, which showed a total revenue reduction of 6,4% to R10,52 billion (2018: R11,25 billion). The marginal increase of internal revenue by 1% to R8,87 billion (2018 Looking ahead R8,78 billion) minimally negated unsatisfactory results due to the • Engineering plans to maximise external revenue by, amongst overall influence of a substantial 32,8% decline in the external others: revenue to R1,66 billion (2018: R2,47 billion). –– Commercialising key projects emanating from the division’s R&D capabilities; and Engineering, like other entities, was exposed to inflationary –– Enhancing marketing and customer-centered approaches that pressure on its costs which exceeded 7% on most cost categories will secure additional revenue. such as labour, material and electricity. In order to respond to the • Engineering’s products offerings from its internal manufacturing decline in revenue, Engineering persisted with aggressive cost business are being reviewed with a view to focus on profitable optimisation initiatives, which helped to cushion the division against activities in a streamlined business model. much worse financial performance. Notable initiatives included • The division will focus on building a sustainable and personnel cost containment (constituting 47% of operating costs) economically responsive cost structure in the year ahead. and material costs (constituting 36% of operating costs).

Personnel cost initiatives, which included strict management of Operational performance headcount and related labour costs interventions resulted in a R305,5 million saving on budget. In addition, interventions to reduce Operational efficiency and productivity procurement costs and improve efficiency resulted in R171,4 million Train cancellations due to traction was at 3,2% which was well cost savings. within the target of 6%. Net volumes lost due to traction for the financial year was marginally off target at 7,5%. The coal line was The aggressive adoption and implementation of cost optimisation the main contributor to the unfavourable losses due to traction. initiatives enabled Engineering to mitigate against further adverse performance. An EBITDA loss of R1 billion, resulting from reduced Traction delays were within target, however, there is constant external sales as well as the inflationary pressure of rising costs, effort to bring it down further. With the introduction of new was averted through cost-optimisation initiatives. Through the (1 064) locomotives into service, these numbers should reduce initiatives the EBITDA loss was limited to R737 million (2018: significantly in the near future. R139 million loss). Engineering expects the next five years to be profitable in light of the anticipated revenue pipeline and Looking ahead turnaround initiatives that are under implementation. • In the coming year TE will continue with the implementation of the flexible workforce model to support the variable order book, enabling production lines to be flexible in relation to demand. Performance commentary • TE will continue with kinetic energy recovery systems research on wagon bogies to assess the feasibility of a dynamic kinetic Financial sustainability energy recovery system application in the rail sector. Engineering’s total revenue for the year was R10,5 billion, which is • TE will evaluate a pre-production locomotive condition 6,4% lower than the R11,3 billion achieved in the prior year. monitoring device and begin production and commercialisation. Transnet Engineering 2019 8

Capacity creation and maintenance Capital investment for the year, at R301 million against a budget of R748 million, was 9,5% higher than the prior year (2018: R275 million). Maintenance of plant, equipment and machinery totalled R199,4 million against a budget of R271,1 million. Some of the key revenue- generating projects that were financed during the year were as follows:

Project Name Description

MC 25 MC 25 (Baluleka) – Passenger Coaches to showcase TE’s capabilities in manufacturing state-of-the-art trainsets. The trainset consists of a power car, an executive sleeper, a dining room, a lounge, conference cars, a staff sleeper and kitchen. TransAfrica Locomotive (TAL) TAL 2 & 3 – Locally designed, manufactured and assembled locomotive by Transnet Engineering. Following the successful launch of TAL1, in pursuit of OEM status, it was decided to build additional TAL version improvements. TAL was successfully tested and a certificate from the Railway Safety Regulator was obtained. It’s currently being utilised for no-fault trips. Africa wagons The gondola wagon, container wagon and the fuel tank wagon have been completed and tested. They are currently being showcased to potential customers. Intelligent Real-time Information Services (IRIS) IRIS consolidates all Transnet asset management data into a single cloud-based platform to improve end-to-end operational and maintenance efficiencies through advanced analytics and intelligent data-driven services. Locomotive Condition Monitoring System (LCMS) The LCMS is a stand-alone device capable of capturing data from on-board locomotive systems, and then collating, storing and ultimately transmitting this data to off-board databases. Port hauler A vehicle specifically designed to haul bulk and container commodities around commodity-handling facilities. TE Electric Locomotive CNR 1 064 DBN Setting up manufacturing lines for the manufacturing of the CNR and BT locomotives entails procurement of the required machinery, tooling and equipment. TE Electric Locomotive BT 1 064 DBN TE Electric Locomotive BT 1 064 RSE DBN Demo coach Advanced Manufacturing Technology Demonstrator Coach (Amdec) — The coach is being built to showcase manufacturing capabilities for marketing purposes. The coach will be used to demonstrate different interior offerings to potential customers.

Looking ahead see an improvement on the employment equity profile over the next two to three years. The division aims to execute a balanced portfolio of projects with continued focus on projects that support revenue generation in TE continues with the implementation of the flexible workforce Africa, R&D and entry into new markets. strategic objective, focusing on effective labour utilisation and maximising output with less resources. This includes, amongst TE aims to improve delivery and efficiency, expand current others, multi-skilling, effective attrition management, fixed-term maintenance service offerings and increase product offerings. contractors and discretionary overtime. Some of the initiatives that will be used to achieve these goals include: Skills development • Focus on training of employees and enhancing maintenance Notwithstanding the target performance below on the overall skills on new technology locomotives in the year ahead; training spend as a percentage of personnel costs, skills • Further alignment of maintenance depots with Freight Rail development key performance indicators for artisan trainees, channels to support the achievement of volume targets. engineering trainees, technician trainees and sector-specific training have been exceeded. Sustainable developmental outcomes • Training spend as a percentage of labour costs: 2,39% was spent against the 3% target. Human capital (employment and transformation) • Artisan (apprentices) trainees: A total of 223 apprentices were • Engineering achieved a permanent employee headcount of recruited against the target of 200. 10 370 against the target of 10 842 • Engineering trainees: In total, 28 full-time bursaries were issued • Black employees represented 81,8 % of the total employee base against the target of 20. (target: 89%) • Technician trainees: A total of 83 apprentices phase 1 and • Female employees represented 23,6% of the total employee phase 2 students were recruited against the target of 30. base (target: 32%) • Sector-specific training: 279 employees were trained against • People with disabilities represented 1,9% of the total employee the target of 250. base (target: 3,2%) • Employees trained against the Industrial Development Plan: Due to increased focus on internal talent development and 6 816 of employees trained against the target of 5 926. deployment, the employment equity profile has improved slightly year on year. Although this strategy assisted in containing labour costs, TE remained below the target in terms of blacks, women and Regional integration people with disabilities. TE is currently rolling out the Workplace The divisions achieved Africa sales revenue of R166 million Skills Programme targeted at people with disabilities, which will (2018: R254 million) against the target of R1,98 billion. Transnet Engineering 2019 9

Industrial capability building R&D expenditure of R275 million (2018: R147 million) was below the target of R300 million for the financial year. The shortfall was due to an underspend of R26,5 million on the projects tabled below, which was mainly caused by the quality of tenders received (e.g. completion of all tender documentation) thus leading to non-awards and timeous appointment of international suppliers. These projects had to be rolled over to 2019/20: Project Description R&D spend

D-Kers Regenerative add-on system to capture kinetic energy on wagons R9 million Composite and alternative material Building of parts for coaches using composite and alternate materials R4,7 million IRIS IRIS consolidates all Transnet asset management data to a single cloud-based R2,2 million platform to improve end-to-end operational and maintenance efficiencies through advanced analytics and intelligent data-driven services LCMS The LCMS is a stand-alone device capable of capturing data from on-board R3 million locomotive systems, collating, storing and ultimately transmitting this data to off-board databases Project online Cloud-based project management solution with integrated Bi-Reports pulled R3,6 million from SAP and other platforms Transnet bogie An undercarriage pivoted beneath a railway wagon R4 million

Environmental stewardship Pollution management • Transnet Engineering maintained its ISO 14001:2015 • In an effort to prevent, control and mitigate pollution, TE has Environmental Management System certification during the cleaned up 80 m2 of historical hydrocarbon pollution at its reporting year. Germiston factory, and continues to explore feasible options of • Alien and invasive species eradication and control plans were cleaning up historical asbestos pollution. In an effort to clean up submitted to the Department of Environmental Affairs on and remediate asbestos contaminated sites, a service provider 27 March 2019. Implementation of invasive species control was appointed to conduct optioneering on feasible options to plans will continue during the 2020 financial year. remediate asbestos contamination at the Koedoespoort factory. Once feasible options have been identified and confirmed for Waste management suitability by Department of Environmental Affairs, remediation • In addition to existing waste management, TE has undertaken a will be undertaken. waste minimisation project with the objectives of reducing • TE continues to monitor compliance with atmospheric emission waste generated from source at operations. A significant licences for its Bloemfontein and Koedoespoort foundries as reduction in waste generation has been realised and this per the National Environmental Management Air Quality Act. translated into a reduction in waste management costs. Waste Atmospheric emission monitoring for Koedoespoort could not management in TE continues to improve with the cost of waste be executed as planned due to procurement delays, however, reducing every year. other licence conditions continue to be met. Engagements with Energy efficiency relevant authorities continue to take place to ensure that they are notified of progress and challenges in pursuing full • Energy efficiency improvement covers both electricity and fuel compliance. (petrol, diesel and oil). Electricity and fuel contribute 90% and 10% respectively of total energy consumption. TE achieved a Community development (social accountability) 4,1% improvement on electricity savings and 5,07% improvement in fuel savings in 2019. Improvement in electricity At the heart of the division’s corporate social investment savings are attributable to less operational man-hours worked initiatives is the commitment to uplift the lives of communities during the financial year. Fuel savings are attributed to a in areas where TE operates. To ensure maximum impact of its reduction in mileage covered by the TE fleet. socio-economic development interventions, TE focuses its • Opportunities for further energy savings are in the planning resources on the following areas: stages. Initiatives include the installation of solar PV in all TE • Education office blocks as well as producing less energy-consuming plants. • Socio-economic infrastructure development Inefficient energy utilisation including heat ventilation, air • Employee volunteerism conditioning, refrigeration and lighting systems will be phased • Sports out and replaced with energy-efficient systems. The phasing out • Health process is dependent on the availability of budget.

Water management Highlights for the reporting period included the donation of 12 containers to the Free State government to benefit poor and • TE continues to monitor, mitigate, and prevent contamination vulnerable communities in the province. These containers were and overexploitation of water resources at all its operations re-purposed for several community development applications such countrywide through continual effluent, ground water and as libraries, classrooms, ablution facilities and makeshift informal surface water monitoring. TE is in the process of conducting trading stores. water audits, storm water assessments and developing integrated water quality management plans to ensure that water leaks (wastage) are detected. Furthermore, improved accounting of water consumption and water-saving initiatives are planned in the coming years. Transnet Engineering 2019 10

Key risks Mitigating activities

Renewal of Atmospheric Emissions Licence for Koedoespoort • Service provider to monitor and report to the authority that has been Foundry facility as a result of non-compliance with specific appointed. Reporting to the authority to start at the end of June 2019 conditions of the Air Emission Licence and a directive that • Continuous engagements with the authority regarding progress made on was issued regarding non-compliance initiatives that need to be implemented to ensure compliance is taking place • Permanent solution required to monitor pollution from foundry facility is currently being investigated There is a possibility of a fine or penalty as a result of • A clean-up is being undertaken through a contracted service provider pollution that emanated from one of the TE depots in Durban • Interim measures to prevent reoccurrence of the incident have been during the storm that occurred on 23 April 2019. As a result identified and will be implemented of heavy downpours, a Kingsrest Effluent Plant overflowed, • Permanent measures to prevent reoccurrence are currently being drained into a nearby stream and resulted in significant investigated pollution. The City of eThekwini issued a contravention notice • Engagements with relevant authorities are taking place to provide progress after an inspection was conducted on on measures being implemented and investigations 10 May 2019

Opportunities • New rail corridors are being developed within sub-Saharan Africa allowing Engineering to exploit these markets with the supply of rolling stock. • Offering of funding packages for rolling stock procurement to customers in targeted markets. • New discoveries of bulk commodity mines across the world provides for an expanding market. • Mining companies purchasing their own rolling stock and not relying on traditional railway operators. • Rolling stock overhauls and upgrades will continue to be strong in Africa and this provides an opportunity to sell refurbished rolling stock. • The ability to offer turnkey products and services solutions for locomotives, wagons and maintenance to customers – very few competitors have the ability to do so. • Leverage on technical skills to offer both manufacturing and maintenance and services of port equipment. Transnet Engineering 2019 11

Abbreviations and acronyms

DIFR Disabling injury frequency rate

EBITDA Earnings before interest, taxation, depreciation and amortisation

IRIS Intelligent Real-time Information Services

LCMS Locomotive Condition Monitoring System

OEM Original equipment manufacturer

R&D Research and development

SOC State-owned company

TE Transnet Engineering

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