Directors’ approval In accordance with King IV’s Sector Supplement for SOEs (Principle 2.1), the Transnet Board of Directors is actively leading the value-creation process within Transnet. As such, it has satisfied itself that the 2019 Integrated Report demonstrates the Company’s ongoing journey towards integrating elements of strategy, risk, opportunities, performance and sustainable development.
The Board has applied its collective mind to ensure the integrity of the 2019 Integrated Report and any supplementary information referenced in the report.
The Board has considered the completeness of the material aspects addressed in the report, and the reliability of reported performance information presented, based on the combined assurance process followed.
The Board is satisfied that the 2019 Integrated Report provides a fair representation of the integrated performance of the Company during the year and enables stakeholders to make an informed assessment of the Company’s performance and its ability to create value in a sustainable manner (King IV, SOE Sector Supplement Principle 2.2).
It has further concluded that the report is presented in accordance with the International Integrated Reporting Framework
The 2019 Integrated Report was approved by the Board of Directors and signed on its behalf by:
Dr PS Molefe Mr LL von Zeuner (Chairperson)
Ms ME Letlape Mr MS Mahomedy (Acting Group Chief Executive)
Adv OM Motaung
Mr MD Gregg-Macdonald (Acting Group Chief Financial Officer) Ms GT Ramphaka
Ms UN Fikelepi
Mr AP Ramabulana
Ms RJ Ganda
Dr FS Mufamadi
Ms DC Matshoga Integrated Report 2019
26 September 2019 Johannesburg www.transnet.net Integrated Report 2019 Navigating this report Reporting formats Corporate information Icons key
Strategic focus areas King IV. P5
Financial Operational Sound governance sustainability excellence and ethics Transnet SOC Ltd Acting Group Company Secretary Incorporated in the Republic of South Africa Ms K Naicker Capacity creation Human capital Constructive and maintenance management stakeholder relations Registration number 1990/000900/30 Waterfall Business Estate 9 Country Estate Drive Socio-economic Waterfall Business Estate Organisational Industrialisation developmental Midrand readiness 9 Country Estate Drive outcomes 1662 Midrand Socio-economic developmental outcomes (SDOs) The 2019 Integrated Report The 2019 Annual Financial 1662 PO Box 72501 Statements include reports is the Company’s primary Parkview Investment leveraged and Health Employment of the directors and private sector participation and safety report to all stakeholders. 2122 independent auditors. Executive directors South Africa Skills Regional Community Mr MS Mahomedy (Acting Group Chief Executive) development integration development Mr MD Gregg-Macdonald (Acting Group Chief Financial Officer) Read more Full HTML report Auditors Industrial Environmental Transformation Mr SI Gama’s employment contract was terminated capability building stewardship SizweNtsalubaGobodo Grant Thornton Inc. in October 2018. 20 Morris Street East The capitals Mr T Morwe was appointed in November 2018 and his contract Woodmead Available Available online expired on 30 April 2019. Social and relationship Johannesburg Financial capital Intellectual capital in print format .pdf in PDF format capital 2191 Mr MS Mahomedy was appointed during May 2019.
Manufactured capital Human capital Natural capital Mr MD Gregg-Macdonald was appointed during May 2019.
Performance key
Improvement on prior year Equivalent performance to Independent non-executive directors Target achieved performance prior year Dr PS Molefe (Chairperson), Ms UN Fikelepi, Ms RJ Ganda, Ms DC Matshoga, Mr LL von Zeuner, Ms ME Letlape, Decline on prior year Target partially achieved Target not achieved performance Adv OM Motaung, Ms GT Ramphaka, Mr AP Ramabulana, Dr FS Mufamadi. Material clusters Ms V McMenamin resigned during February 2019. Create and maintain Ensure financial stability Improve operational capacity to support the and sustainability in a performance in the core Professor EC Kieswetter resigned during May 2019. growing demand for tough economy business transport infrastructure
Ensure our activities result Promote industrial in sound socio-economic development in the Build a resilient business developmental outcomes Developmental State (SDOs)
King IVTM1 references We have included references Download Transnet QR reader to King IV principles where appropriate in this report. Android User: Installation 1. Download the Transnet QR Scanner mobile application from Google Play Store. 2. Open the App from your mobile device. P = Principle 3. Accept the permission required. (Make sure you read the privacy King IV Report on Corporate policy before accepting permissions required by the App). Governance for Using the App South Africa 2016 1. Hover your phone over the QR Code and make sure the QR code fits completely into the scanner. 2. You will see two screenshot options: “Visit” and “OK”. Forward-looking information 3. The “Visit” option will allow the App to open the Mobile Device’s browser and take you to the specific articles. All references to forward-looking information and targets 4. The “OK” will let you exit the scanned link and allow you to scan a in the 2019 reports are extracted from the 2019 Transnet new QR Code. Corporate Plan and approved by the Board of Directors. iPhone users: iPhone camera is enabled to scan QR codes so there is no need to Feedback on this report download an app. We welcome feedback on our Integrated Report. Hover the camera over the QR code. A notification will appear stating ‘Website QR code’. Click on it. Please provide written feedback to Kilford Gondo at It will open your phone’s default browser and take you to that specific [email protected]. article.
1 The King IV Report on Corporate Governance for South AfricaTM. The copyright and trademarks are owned by the Institute of Directors in Southern Africa NPC and all of its rights are reserved. Contents
2 About this report 6 Our business 6 Chairperson’s review 14 Organisational overview 20 Value through the capitals 24 Operating context 24 Acting Group Chief Executive’s review 30 Our strategy 31 Material matters impacting our strategy 32 Material opportunities and risks 40 Addressing stakeholder interests 46 Our performance and outlook 46 Acting Group Chief Financial Officer’s review 80 Abridged governance 80 Review of the Chairperson: Corporate Governance and Nominations Committee 104 Annexure A: Audit Committee Terms of Reference for Integrated Reporting 105 Abbreviations and acronyms 106 Glossary of terms ibc Corporate information 2 Transnet Integrated Report 2019 3
About this report Reporting philosophy Transnet Group and approach
Figure 1: Reporting boundary King IV. P5 Our reporting is evolving as the This report was prepared in accordance with the Specialist Units IIRC’s or
Investors and The 2019 Integrated Report provides information that commercial partners we consider to be of material significance in creating Rating agencies and short-, medium- and long-term value. To observe the financial institutions IIRC’s principles of ‘Materiality’, ‘Connectivity’ and ‘Conciseness’, we have considerably simplified our Suppliers and materiality reporting to align with Transnet’s service providers Performance Framework (page 48). Accordingly, we Regulators emphasise six overarching material aspects for the Government 2019 reporting year, which we unpack throughout this Media and the report and reference by way of page citations. general public We further align material aspects to performance, strategy, risks and opportunities, linked visibly by Academia and icons, and disclose material stakeholder impacts and research institutions concerns raised during the year. NGOs3 We are confident that the report provides information International bodies that is of material interest to all stakeholders wishing Communities to make informed assessments of Transnet’s Organised labour performance and its ability to create and sustain long-term value. 1 Referenced in the Annual Financial Statements, note 38. 2 Department of Public Enterprises. Read more 3 Non-Governmental Organisations. 31 Transnet’s material aspects Process for identifying, validating and approving material aspects 4 Transnet Integrated Report 2019 5
Integrated approach to Statement of • Demonstrable sensitivity and care for of reported irregular expenditure), do not the environment; and expect any impact on the going concern assurance stakeholder commitment • Superior returns to our investors, as a ability of the Company. reliable and credible borrower which, albeit State-owned, issues debt on the Credit rating agencies have assigned a King IV. P2, 5 & 15 King IV. P16 strength of its financial position stable outlook for the Company and the without any government guarantees. Board does not anticipate any difficulty in Transnet’s Integrated Assurance Plan has been applied to the process of preparing the Integrated Report to provide an independent We strive to communicate with accessing the debt capital markets for perspective on the transparency and accountability of our disclosures. Transnet’s Integrated Assurance Plan encompasses the stakeholders early and often. Our core required funding. assurance provided by management, internal specialists, internal audit, external audit, external advisers and service providers. values – expressed in our Culture Charter Going concern status The Board serves as the last line of defence. – guide us in our interactions with Board oversight of stakeholders. King IV. P2 Table 1: Integrated Reporting Assurance Framework the elements of the To meet stakeholder commitments, In adopting the going concern assumption, 2019 Integrated Report we continue to strive for: Content Assurance providers Outcome Framework/Standard the Board reviewed the Group’s • An organisational culture that views performance for the year and considered change as an opportunity to improve the robustness of budgets and business King IV. P5, 8, 11, 13, 14, 15 & 16 Integrated Report • Transnet Board • Directors’ approval • International quality in all that we do; results, cash flow projections for the 15 months ending 30 June 2020, cost- The Board and the Group Executive (in full) • Audit Committee
Review of internal • Transnet Internal • Financial controls: • Committee of Sponsoring Strategy and Appropriate strategic • Capital Investment • Audit Committee controls and risk Audit Requires improvement Organisations (COSO) resource allocation response including: Committee • Finance and Investment management • National Occupational • Operational controls: • PFMA • Processes and controls • Human Resources Committee Safety Association Unsatisfactory • NOSA standards • Initiatives and activities Committee • Remuneration, Social and (NOSA) • Risk management: • ISO standards relating to • Resource allocation • Procurement Committee Ethics Committee • International Standards Requires improvement safety and environment, Organisation (ISO) including ISO 9000 and Performance and Appropriate performance • Risk Management • Corporate Governance and accreditation bodies ISO 14000 outlook measurement and Committee Nominations Committee • Legal firms • Legislative requirements management including: • Finance Committee • Remuneration, Social and • Enterprise risk • Applicable lead and lag • Human Resources Ethics Committee management indicators Committee • Finance and Investment ISO 31000 standard About this report continued • Setting of targets, • Capital Investment Committee accountability and Committee B-BBEE contributor • Beever Verification • Level confirmed as Level 2 • Broad-Based Black incentivisation • Procurement Committee level Agency CC Economic Empowerment (B-BBEE) Act and charters Remuneration Appropriate remuneration • Human Resources • Remuneration, Social and • Rail sub-sector scorecard structure to align Committee Ethics Committee performance against • Marine sub-sector strategy in short-, medium- scorecard and long-term incentives
Corporate Governance • Transnet Internal Audit • Assessment of controls: • King IV Governance Governance and assurance • Risk Management • Corporate Governance and Unsatisfactory • PFMA processes to oversee Committee Nominations Committee execution of strategy and • Companies Act • Finance Committee • Risk Committee structures in accordance • Procurement Committee • Audit Committee with policy and regulation • Forensic Committee Read more 40 Addressing stakeholder interests 6 Transnet Integrated Report 2019 7
Our business
here is no substitute for true Chairperson’s review humility. Not a shrinking back, Final thoughts on but rather the willingness to see state capture and acknowledge things as they In setting our new Treally are. As the incumbent Transnet The nature and pervasiveness of state Board of Directors, this is our present strategic direction, capture have perplexed the minds of position, as it allows for the greatest Transnet’s mandate is rational, ethical human beings, and from degree of objectivity and corrective all that has emerged during the Zondo action. As the Board, it is also the our constant beacon. Commission of Inquiry, it appears perspective of custodians who corruption has become a culture within Dr Popo S Molefe It focuses all our appreciate both the privilege of their our SOCs and across the national Chairperson positions, and recognise the gravity and actions and aspirations spectrum. Both organs of State and wide-scale implications of their and reminds us that private sector companies have been decisions in steering one of the largest implicated in wrongdoing. It may well be logistics infrastructure SOCs on the we ultimately serve all helpful for the State to create a fund African continent – in some ways, the South Africans. and forum for the widespread very heart and lungs of South Africa’s re-education of our people about the economy – towards restored operational Our purpose is to impacts of corruption. My final thoughts health and economic well-being. make the country on the matter of state capture underscore that of our Shareholder commercially Minister: we cannot detach corruption Righting the ship in a competitive in a from human choice. We need to ensure challenging operating that, as Transnet, our management rapidly changing global cadres are adequately schooled in ethics climate context by lowering the and sufficiently accountable to the During the 2019 financial year, Transnet Board and that the Board, in turn, is continued to operate in a difficult cost of doing business sufficiently accountable to the economic environment, with weak in South Africa. Shareholder, so that when choices are economic growth, political and policy made, they are ethical and in the uncertainty, rising Government debt and interests of the Company and all people rating agency concerns around the of South Africa. financial health of SOCs. These concerns have a direct bearing on Transnet’s own credit rating and, by extension, the cost effects of corruption on our business. Strategic direction of borrowing as Transnet battles This will involve both organisational and In setting our new strategic direction, economic headwinds while behavioural change. I am confident, Transnet’s mandate is our constant simultaneously trying to right the ship. however, that we have the will and beacon. It focuses all our actions and commitment of our people to reposition aspirations and reminds us that we Further, Transnet was not immune to the Transnet for the long term. ultimately serve all South Africans. now widely-publicised phenomenon of Our purpose is to make the country state capture, which manifested as a commercially competitive in a rapidly systemic weakening of South Africa’s Restoring integrity and changing global context by lowering the SOCs over the past nine years through cost of doing business in South Africa, the misallocation of resources, reputation enabling economic growth, and ensuring widespread corruption, weakened The Transnet Board is responsible for security of supply in providing ports, rail leadership structures and the breakdown strengthening the Company, restoring and pipeline infrastructure in a cost- in governance control systems. The its integrity and reputation and effective manner. In principle, we breakdown in Transnet’s internal refocusing Transnet on its mandate. As interpret our mandate to have three key controls, especially in the procurement the Board, we can begin to achieve this tenets: enabling competitive industry space, appears to have been a deliberate directive by ensuring that the Company supply chains; exemplifying responsible intervention by the proponents of state understands – at all levels – the corporate citizenship; and achieving capture to create an enabling manifestations of state capture and by commercial self-sustainability. environment to profit commercially. This implementing robust structures and placed the Company in a precarious The period of sustained investment in processes to minimise the risk of a position within its community of new capacity, from which we have now recurrence. We have spent most of 2019 stakeholders, with the resulting emerged, did not adequately prioritise reputational damage impacting identifying the Company’s failings and investment in the sustaining of assets. customer confidence, customer growth taking the requisite remedial actions to Our strategic vision is to strengthen our potential, our ability to raise cost- reposition the business while operations while expanding both the effective funding and employee morale. strengthening our internal controls – Company’s influence and its caring by We have a long road ahead to rebuild specifically, fortifying both the form and rebalancing our commercial and trust within our Company, and with our substance of our governance systems developmental objectives. To do this stakeholders, and to heal the corrosive and controls. successfully, Transnet needs to remain a 8 Transnet Integrated Report 2019 9
financially self-sustaining entity which We further wish to convey our Finally, thank you to each of our can thrive commercially while sympathies to the families of the employees working tirelessly to rebuild addressing the social and ecological 134 members of the public who lost the organisation. There is no Transnet Transnet continues to goals of the developmental state. their lives during the year in and around without your priceless contributions. implement safety our operational activities. Railway Change is inevitable and our growth Transnet’s strategic path will transition crossings continue to be a safety depends on it. That said, we all have a measures to prevent the Company from an accelerated challenge. Our rail network spans some choice in how Transnet will move forward safety incidents, capital investment approach towards a 30 400 km and, due to its large to contribute to the well-being of fellow less capital-intensive approach, focused footprint, is prone to encroachment by South Africans. Let us choose wisely and particularly at level on fixing, optimising and growing the informal settlements. We are, however, ethically so that when we rebuild our crossings. These core business. Our growth aspirations unequivocally committed to doing more organisation, we do our small part in will consider the most expedient routes to raise safety awareness within the shaping the nation we choose to leave include level-crossing based on current operational communities that border our rail behind as our living legacy for future blocks, safety capabilities and constraints, while operations. generations. remaining within acceptable capital and billboards, public debt structure parameters. Additionally, Appreciation awareness campaigns we are considering our future growth in the context of the megatrends and As we transitioned into the and awareness th freight system challenges we are 25 anniversary year of our country’s campaigns at schools. observing in the market, such as poor democracy, we dedicated ourselves to reshaping Transnet into a proud asset maritime connectivity, high costs of road Dr Popo S Molefe that serves the people of South Africa. freighting which also leads to high Chairperson To echo the words of President Cyril carbon intensity and international oil Ramaphosa during his 2019 SONA price vulnerability, skills shortages 26 September 2019 address: across the freight system and under- Johannesburg developed supplier industries for all “A year ago, we set out on a path of transport modes. growth and renewal. Emerging from a period of uncertainty and a loss of In parallel, we must ensure adequate confidence and trust, we resolved to reinvestment in the Company to break with all that divides us, to maintain, grow and diversify our embrace all that unites us.”1 operations, maintain an optimal cost of capital (including external debt) and Thank you to the Minister of Public ensure the optimal use of our working Enterprises, Mr Pravin Gordhan – who capital. Accordingly, the Board has set represents our Shareholder and the the following key financial metrics: people of South Africa – for your vocal • Maintain the maximum capital debt and unwavering support and your firm structure (gearing) at < 50% hand in guiding the Company towards • Maintain a cash interest cover of at recovery. On behalf of the Transnet least 2,5 times Board, I assure you of our continued commitment to our task. • Maintain a stand-alone investment- grade credit rating Thank you to the Transnet Board for your diligence and resolve during the We intend to hold off on large-scale challenging circumstances of the 2019 changes in the year ahead while we financial year. Your stewardship was stabilise the Company and rebuild our characterised by integrity, perseverance social and relationship capital with key and fearlessness. I am privileged to stakeholders. serve alongside you.
Thank you to our customers and Condolences commercial partners for your patience Regrettably, during the year, four and confidence in our abilities amid employees passed away. On behalf of difficult economic and operational the Board, I wish to express my heartfelt conditions during the year. We remain condolences to their families and all who resolute in our efforts to improve our were affected by their passing. service offerings to you.
As the Board, we undertake to review Thank you to the leadership of organised Our business continued the nature and causality of all fatalities labour for your guidance and willingness and to do our best to entrench group- to share in the Company’s long-term wide safety awareness. vision.
1 https://pmg.org.za/page/SONA%202019%20Speech. 10 Transnet Integrated Report 2019 11
Our Board members
King IV. P6, 7 & 13
Dr Popo Molefe Mr Mohammed Mahomedy Ms Ursula Fikelepi Ms Ramasela Ganda Ms Dimakatso Matshoga Ms Mpho Letlape Chairperson Acting Group Chief Executive Independent non-executive director Independent non-executive director Independent non-executive director Independent non-executive director
Date of birth: Date of birth: Date of birth: Date of birth: Date of birth: Date of birth: April 1952 March 1971 January 1973 May 1978 September 1974 March 1959 Year of appointment: Year of appointment: Year of appointment: Year of appointment: Year of appointment: Year of appointment: May 2018 May 2018 May 2018 May 2018 May 2018 May 2018 Qualifications: Qualifications: Qualifications: Qualifications: Qualifications: Qualifications: Honorary Doctorate (Leadership Aptitude) CA(SA); PDip Acc (University of KwaZulu- MBA (Gordon Institute of Business MBA (Management College CA(SA); BCom (Hons) (University of Bachelor of Computer Science and (University of North West); Certificate of Natal); BCompt (University of South Africa); Science); LLM (University of New of South Africa); BSc (Electronic Pretoria); CTA (University of Pretoria); Psychology (University of Fort Hare); Conflict Resolution (Harvard University); Advanced Strategic Management (IMD Hampshire USA); LLB (University of Cape Engineering) (University of KwaZulu-Natal); Accounting Special (Bridging Course) Management Advanced Programme (Wits Course on Governance (Harvard University); Switzerland); Global Executive Leadership Town); BA Law (Rhodes University) PD in Project Management (School of (University of Pretoria); BCom (Vista Business School); Strategic Human Certificate of Completion of Business Development Programme (Gordon Institute Project Management); PrEng and Certified Directorship/Shareholding/Trusteeship: University); Associate – South African Resources Management (University of Leadership Course (Pennsylvania of Business Science) Director Institute of Directors in Southern Emmaus Holdings (100% holding) Institute of Chartered Accountants (SAICA) Cape Town Graduate School); Leading University) Africa (IoDSA) Directorship/Shareholding/Trusteeship: Grace Bible Church and The Public Accountants’ and Auditors’ Change (Harvard Business School); Directorship/Shareholding/Trusteeship: Cutting Edge Finance (Pty) Ltd (100%) Mtizamo Africa (Pty) Ltd (16,7% holding) Board (PAAB) Directorship/Shareholding/Trusteeship: Strategic Perspective in NPO Management Aberdeen Offshore Engineering (Pty) Ltd Maquady Family Trust Atafala Consulting (100% holding) (Harvard Business School); Orchestrating 1 2 3 5 6 15 19 19 Directorship/Shareholding/Trusteeship: Bigbit Trading YMM Family Trust Atafatsa Foundation (non-profit company) Winning Performance Devland Meat Production BPC Chartered Accountant (100% holding) (33,3% holding) (IMD) (Harvard Business School); Strategic Friedshelf 1516 2 5 6 7 19 Mytechie (Pty) Ltd (25% holding) ATISSA Engineering and Environmental Human Resources (Harvard Business Global Aviations Operations (Pty) Ltd (33%) (in deregistration process) School) Lereko Broad-based Consortium 212 4 6 7 12 Isa-Stra Tech Solutions (primary Lereko Eco Ms Komilla Naicker co-operative) (20% holding) Directorship/Shareholding/Trusteeship: Lereko Investments (Pty) Ltd Acting Group Company Secretary Africa Harm Reduction Alliance Lereko Metier Investors (Pty) Ltd 1 2 3 5 9 13 18 19 Food Forward South Africa Lereko Metier Trustees Date of birth: Lethushaneng Advisory Services Lereko Mobility February 1969 Lereko Systems Lethushane (Pty) Ltd Year of appointment: National Research Foundation Lereko Metier Capital Growth Fund July 2019 Mabele Trust Sapphire Logistics Marble Gold Qualifications: South African Women in Dialogue Mooki Trust Admitted Attorney; BA Law (University of Standard Bank Tutuwa Community Popo Molefe Foundation Durban Westville); LLB (University of Durban Foundation NPC Westville); Transnet Senior Management Sunshine Street Investments 71 (Pty) Ltd Tower Group Tedcor (Pty) Ltd Leadership Development Programme (Gordon Institute of Business Science); Our business continued Board committees 2 5 10 16 18 19 19 19 1 2 5 17 19 19 19 Leading Women Programme (Gordon Institute of Business Science); Short Term Insurance 1 (Insurance Institute of South Audit Committee Corporate Governance Finance and Africa) and Nominations Committee Investment Remuneration, Social Directorship/Shareholding/Trusteeship: Committee and Ethics Committee Risk Committee Transmed Medical Scheme Board of Trustees
1 2 3 6 12
Board members’ competencies
Business Business Information Transformation Management Legal, Infrastructure, Finance, Procurement HR and Construction Development, Risk Stakeholder Policy Acquisitions and and Socio- Project Rail Operations Corporate and Compliance Logistics and Strategy and Economics and Auditing and and Supply Industrial and Marketing Management Relations Development and Contract Communications economic Management Transport Management Governance Leadership and Regulatory Manufacturing Planning Investment Accounting Chain Relations Engineering and Sales Management Technology Development
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 12 Transnet Integrated Report 2019 13
Adv Oupa Motaung Dr Fholisani Mufamadi Mr Aluwani Ramabulana Ms Gratitude Ramphaka Mr Louis von Zeuner Mr Mark Gregg-Macdonald Independent non-executive director Independent non-executive director Independent non-executive director Independent non-executive director Independent non-executive director Acting Group Chief Financial Officer
Date of birth: Date of birth: Date of birth: Date of birth: Date of birth: Date of birth: August 1970 February 1959 October 1971 August 1979 June 1961 February 1960
Year of appointment: Year of appointment: Year of appointment: Year of appointment: Year of appointment: Year of appointment: May 2018 May 2018 May 2018 May 2018 May 2018 May 2019
Qualifications: Qualifications: Qualifications: Qualifications: Qualifications: Qualifications: BProc (University of the Witwatersrand); DSc (Honoris Causa) (University of London); MBA (Nyenrode Universiteit.net; The CA(SA); BAcc (Hons) (University of the Chartered Director CD(SA) (Institute of CA(SA); BCompt (Hons) (University LLB (University of the Witwatersrand); LLM PhD (University of London); Honorary Netherlands); BSc (Chemical Engineering) Witwatersrand); BCom (University of the Directors SA); BA (Econ) (University of of South Africa); On Campus Senior (Tax Law) (University of the Witwatersrand); Professor (Political and Government (Oregon State University); Executive Witwatersrand); Auditing Specialism Stellenbosch) Management Programme (Henley HDip Company Law (University of the Studies) (Nelson Mandela Metropolitan Development Programme (IMD, Course (Advanced Accounting and Management College, Henley-on- Directorship/Shareholding/Trusteeship: Witwatersrand); AIPSA Diploma (University University); MSc (University of London) Switzerland); Certificate in Corporate Auditing); Auditing Professional Training Thames, UK) Afgri Holdings Ltd of Pretoria); Advanced Certificate in Governance and Risk Management (Advanced Auditing and Professional Directorship/Shareholding/Trusteeship: Anzelle Trust Directorship/Shareholding/Trusteeship: Construction Law (University of Pretoria); Training) Adcorp Holdings Ltd Directorship/Shareholding/Trusteeship: Edward Vorster Trust Histospot (Pty) Ltd (25%) Certificate in Banking and Financial Barclays Bank Mozambique Bono Lithihi Investment Holdings (Pty) Ltd 6 7 12 19 19 19 19 FirstRand Bank Ltd Markets (University of the Witwatersrand) 2 4 5 6 12 13 17 Debshan (Pty) Ltd (5% holding) L & R Family Trust Directorship/Shareholding/Trusteeship: Implats Holdings Ltd DataQwip Rentals (60% holding) LIV Foundation and LIV Equity Trust Condoclox (100% holding) Muendanyi Consulting (dormant) Lateospace (49% holding) Lungisisa Indlela Village (RF) NPC Kuena Construction Projects National Bank of Commerce (Tanzania) MDZ Capital (100% holding) Mahela Boerdery (Pty) Ltd (100% holding) Nokukhanya and Inkosi Albert Luthuli Peace MDZ Fleet Solutions (100% holding) SARPA Foundation Nordaspan (100% holding) and Development Institute MDZ Logistics (100% holding) Telkom SA Orthorox (100% holding) Zimplats (Chairman of the Board) Mudzi Palfinger JV (51% holding) Tongaat Hulett Ltd Vaxiscore Investment (100% holding) NBC Wildeklawer (Pty) Ltd Thulo Trustees (100% holding) 2 10 14 17 19 19 19 19 Gender 1 2 4 5 6 9 11 19 1 2 3 6 7 12 19 19 Twende Investments (10% holding) representation as at 26 September 2019 3 6 9 19 19 19 19 Length of tenure of independent 58% male non-executive 42% female directors as at 26 September 2019 Race representation Our business continued Board committees as at 26 September 2019 Board departures Audit Committee Corporate Governance Finance and 100% 75% (9 African) and Nominations Committee Investment 0–3 years • Mr Siyabonga Gama: contract terminated 28 October 2018 17% (2 White) Remuneration, Social Committee • Ms Vivien McMenamin: resigned 28 February 2019 and Ethics Committee Risk Committee 8% (1 Indian) 0% • Mr Tau Morwe: contract expired 30 April 2019 • Prof Edward Kieswetter: resigned 6 May 2019 3–6 years Board members’ competencies
Business Business Information Transformation Management Legal, Infrastructure, Finance, Procurement HR and Construction Development, Risk Stakeholder Policy Acquisitions and and Socio- Project Rail Operations Corporate and Compliance Logistics and Strategy and Economics and Auditing and and Supply Industrial and Marketing Management Relations Development and Contract Communications economic Management Transport Management Governance Leadership and Regulatory Manufacturing Planning Investment Accounting Chain Relations Engineering and Sales Management Technology Development
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 14 Transnet Integrated Report 2019 15
Organisational overview Total employees represented by Transnet Group’s B-BBEE performance per collective bargaining as a % of 88,7% pillar for the 2018 review period total headcount: Our vision Governance context • As a State-owned Company (SOC), the Element Actual score Target PFMA serves as Transnet’s primary Permanent employees represented What we have to deliver legislation. by collective bargaining as a % of 79,7% Management control 8,62 11,00 • Transnet signs an annual Shareholder’s total headcount: Fuelling Africa’s growth and Compact with the Government of the Employment equity 13,77 18,00 development as the leading • Public company (constituted in terms Republic of South Africa, represented provider of innovative supply chain of the Legal Succession Act of 1989), People with disabilities by the Minister of Public Enterprises. 2,3% Skills development 19,27 25,00 solutions. with the South African Government as The Shareholder’s Compact mandates the sole shareholder. the Company to deliver on numerous Preferential procurement 29,06 33,00 • Owner of South Africa’s railway, ports strategic deliverables, including p o ees ra e Our mission and pipelines infrastructure. sustainable economic, social and • The Company’s Memorandum of environmental outcomes. Enterprise development 15,00 15,00 What we need to do Incorporation (MOI) – approved by the • The Board directs the Company’s Link economies; connect people; Shareholder Minister on 25 June 2013 strategy in response to the Statement Socio-economic development 5,00 5,00 grow Africa! – aligns with the provisions of the of Strategic Intent. r an PFMA, the Companies Act and the te Total 90,72 107,00 National Ports Act, No 12 of 2005, as o o red Our values amended (the National Ports Act). Ind an B-BBEE Level 2 What we stand for Employees I believe in zero harm Summary of employee headcount by Operating Division 2019 I am trusted and ethical I am, because of the customer Transnet Corporate Centre 550
I care, I make a difference Transnet Freight Rail (TFR) 28 868 Broad-Based Black • Targeted at ESD initiatives that • Maputo Corridor Logistics Initiatives I deliver excellence, simply Transnet Engineering (TE) 10 866 support localisation and • New Partnership for Africa’s I am a team player Economic Empowerment industrialisation, and provide Development Transnet National Ports Authority (TNPA) 4 199 (B-BBEE) opportunities for black people, youth, • Railroad Association Transnet Port Terminals (TPT) 9 357 women, small businesses, people with • Southern African Railways Leadership brand disabilities and people living in rural Association Transnet Pipelines (TPL) 706 Transnet’s B-BBEE verification covers attributes six of the seven elements of the Generic communities. • Union of African Railways Transnet Group Capital (TGC) 963 Transport Public Sector Scorecard • International Union of Railways How we should lead Transnet Property (TP) 437 (excluding the ownership element). The The rise of young black entrepreneurs maritime, property and rail charters are through the various developmental I innovate Socio-economic Total headcount 55 946 also applied. levels – from high school innovation I inspire programmes, through business case development context Transnet achieved full points for development and business incubation to I put the customer first Employee profile South Africa is confronted with enterprise development and socio- our Black Industrialist Programme and I know my business Employee profile significant economic and social economic development for the 2019 our regional and global exporting and I am trusted challenges that continue to affect the 70 000 financial year. trade programmes. I deliver well-being of its citizens and the 55 9 6 achievement of inclusive growth. I am ethical 60 000 50 798 Enterprise and supplier Endorsement of external Poverty, unemployment and inequality I create value 50 000 remain South Africa’s most pressing development (ESD) charters and frameworks problems and it remains one of the most 0 000 35 8 9 Transnet acknowledges the importance (not limited to) unequal economies in the world. Social Our mandate of spreading economic growth and change and enhanced access to rights 30 000 • Generic Transport Public Sector Transnet’s mandate and strategic transformation in the South African have not translated into comparable Charter economic shifts – unemployment has objectives are aligned with national 20 000 1 9 9 economy and supporting Government • Maritime Charter risen and inequality remains extreme. development plans and the programmes that seek to redress the 5 1 8 imbalances of the past. Transnet’s ESD is • Property Charter Statement of Strategic Intent 10 000 a key element of South Africa’s • Rail Charter Through the adoption of the 2030 issued by the Minister of Public 0 Agenda for Sustainable Development in Total Permanent Fixed Permanent Permanent developmental agenda. • United Nations Global Compact (since Enterprises: employees employees contract male female September 2015, South Africa seeks to employees employees employees 2012) Our business continued Assist in lowering the cost of As such, our ESD is: accelerate the redress of these • International Integrated Reporting socio-economic ills and to elevate its doing business in South Africa • Guided by Government’s Competitive Framework agenda relating to people, the planet and Supplier Development Programme; Enable economic growth prosperity. Transnet, as a South African Ensure security of supply by • Informed by the B-BBEE Codes of SOC, and signatory to the United Good Practice; Membership of providing appropriate port, rail For more Nations Global Compact since and pipeline infrastructure in a information • Increasing the competitiveness, associations 6 July 2012, understands its role in the capacity and capability of black- economy and employs the socio- cost-effective and efficient owned suppliers through financial and (not limited to) economic developmental outcomes manner, within acceptable DETAIL ON OUR non-financial support; and • Association of American Railroads (SDO) framework as a mechanism to benchmarks SHAREHOLDER • International Association of Marine advance the achievement of the Aids to Navigation and Lighthouse Sustainable Development Goals as Authorities espoused in the 2030 Agenda. 16 Transnet Integrated Report 2019 17
Strategic context Market context Financial context Gross value add resulting from Transnet capital and South Africa’s freight demand will more Internationally, the transport and logistics sector is experiencing several megatrends As a SOC, the financial strategy reflects operating expenditure than double in the next 20 years and which define the key priorities and challenges going forward for transporters, the higher risk profile of the business. Transnet defines value add as the financial value created by the activities of the consistently high levels of investment forwarders and contract logistics providers. To meet long-term market demand, Company and its employees. Transnet’s gross value add increased from R56,7 billion in are required to maintain, modernise and Transnet invests for long-term growth 2018 to R60,3 billion in 2019. expand ports, rail and pipelines. Transnet Table 3: Market trends prospects, but considers short- to will have to grow beyond its core to medium-term volatility in domestic and Gross value add resulting from Transnet’s capital and operating expenditure support the necessary investment Megatrend What is it? Transnet’s response international markets. Transnet raises funding. funds in the debt markets based on the 2017 2018 2019 The ‘two-speed’ A world of rapid change, which Pursue partnerships with strength of its own balance sheet. In recent years, Transnet has focused on splits naturally into steady the next wave of global Value added R50,4 billion R56,7 billion R60,3 billion addressing identified freight system Transnet’s capital structure comprises progress punctuated by sudden challengers. challenges and has prepared the funding from equity and debt which is Employees 42% 42% 39% disruptions. foundation for long-term used to finance its existing business, Capital providers 18% 18% 19% competitiveness of the freight system. future growth opportunities and to Urbanisation Population shift from rural • City-logistics offerings Reinvested 40% 40% 42% Despite realising important gains, areas to urban areas, and the • Integrated hub services refinance maturing debt. Transnet fell short in resolving various gradual increase in the for mega cities critical strategic and operational proportion of people living in Figure 2: Operating structure challenges, including operating urban areas. efficiency, effectiveness and reliability, customer satisfaction and rising Sustainability Maintaining change in a • Replace ageing fleets Office of the Group Chief Executive administered prices. balanced environment where with new and/or electric resource exploitation, the vehicles Group Internal Audit – Internal Audit Group Strategy Strategy The Board remains committed to the direction of investments, • Reduce environmental Corporate and Public Affairs transition towards a less capital- technological development and impact Group Company Secretariat – Governance Africa ventures intensive approach focused on fixing, institutional change are in • Collaborative supply Shareholder’s Compact optimising and growing the core harmony and enhance current chain offerings In-house consulting business while exploring growth and future potential to meet adjacent to the core, using existing human needs and aspirations. Group Finance • Financial and capital planning Information and • IT architecture capabilities and assets as part of a Communications Infrastructure Freight movement takes its toll • Optimise intermodal • Financial analysis • IT build application revenue diversification thrust. The key Management of critical • Reporting Technology (ICT) • IT infrastructure difference is an enhanced focus on congestion and on roadways, bridges, ports efficiencies financial parameters, • Taxation • Digital capability and optimal capital allocation and on scarcity and other infrastructure. As • Ensure access to including capital • Income statement and statement Transitioning Transnet solution delivery structure of financial position from a company with high managing returns on invested capital, more freight is moved, costs infrastructure levels of operational rather than earnings before interest, tax, to maintain and build • Industry-based autonomy to significantly depreciation and amortisation (EBITDA), infrastructure rise. outsourcing solutions higher levels of integrated, group-wide orchestration and an enhanced focus on private sector partnerships. E-commerce Buying or selling products • Last mile strategy online or over the internet. • Refined fulfilment Corporate Governance • Stakeholder relations Integrated Supply • Sourcing (direct and in-direct) Further, as we move into the Online marketplaces enable services and Regulatory • Risk Chain Management • Governance • Procurement 4th Industrial Revolution, the transport third-party business-to- • Compliance Risk and compliance • Legal Ensure the Group’s • Enterprise supplier development and logistics industry, like others, is consumer or consumer-to- aligned with legislative • Security procurement activities are • Vendor management (content bureau) undergoing rapid change driven by new consumer sales. and regulatory fair, equitable, transparent, • Enablement technologies and business models, as requirements competitive and cost effective well as ever-increasing customer Digitisation The key market drivers of • Capture Big Data and digitisation are increased automation efficiency requirements. These changes present Group Capital • Long-term planning Advanced • Locomotive and wagon both opportunities and threats to requirements for transparency, gains • Capital business case support Manufacturing design, manufacturing and sales supply capability and delivery Lead the execution of • Capital mega project execution • Maintenance of locomotives Transnet. The Company will harness the • Offer platform solutions Four customer-facing reliability as well as the desire Transnet’s capital • Engineering and technical and wagons potential of Big Data and the strength of (freight exchanges and expenditure programme, businesses: • Research and development for individualised products or • Capital project support device connectivity to take advantage of virtual forwarding) project support and • Capital assurance • Manufacturing • OEM partnerships the growing number of autonomous data services. engineering, procurement • Maintenance and services • Services development and sales and construction Specialist Unit • Supply management sources to improve the customer Capital TransnetGroup management • Trading experience, while enhancing operational The Railway Safety Regulator regulates efficiency and reliability and creating Regulatory context the safety of the rail operations of the Group Treasury Business new adaptive business models. The Company operates in compliance • Corporate finance • Customer long-term contracts Company, issues safety permits (for a Development • Product and service innovation with more than 195 regulatory Cost-effective funding of • Funding solutions for the business, fee), and conducts inspections and including new ventures and • Commercial capability requirements. Tariffs charged by the the Group and financial risk Support Transnet 4.0 • Branding audits on the Company. Transnet also management geographical expansion by optimising and National Ports Authority and Pipelines • Financial risk management • Market intelligence
Our business continued operates within a policy context which is diversifying Transnet’s • Stakeholder management are determined by independent determined by the Department of Public business portfolio
through growth in Specialist Unit economic regulators, namely the Ports Enterprises and the Department of Property Transnet Regulator of South Africa (Ports existing and new Transport respectively. markets Regulator) and the National Energy Regulator of South Africa (Nersa) • Rail operations respectively. Group Operations Group Human • Reward • Port Terminals Resources • Performance management Drive a group-wide operations • Talent management integrated operational • Ports Authority Lead group-wide • EVP philosophy. The Chief operations performance management, • CSI Executive of each • Pipelines operations labour relations and • Labour relations Operating Division will • Property management corporate social report to this position • TVCC and RMO investment Freight Rail Freight Engineering Authority Ports National Terminals Port Pipelines Read more Divisions Operating 30 Our strategy 18 Transnet Integrated Report 2019 19
Transnet Satellite offices Operating Corporate Centre context Johannesburg For more Operating Divisions’ overview information Five Operating MPUMALANGA Divisions spread SCAN TO DOWNLOAD throughout GAUTENG Employees Total Permanent Fixed-term contract OPERATING DIVISIONS’ South Africa Tanzania REPORTS Four satellite Rail corridor throughout South Africa offices in Lesotho, > ±30 400 km of Namibia Tanzania, Namibia track Swaziland Employees Revenue and Swaziland > 20 953 route km Three joint > Core network: Lesotho 28 868 operating centres 12 801 route km TFRTFR 29% in Mozambique, R43,6 Botswana and 26 312 e e i billion Zimbabwe 71% is bi i ies Pretoria: Koedoespoort Specialist Units Germiston 2 556 Transnet Group Capital KWAZULU- NATAL Bloemfontein Transnet Property FREE Freight Rail Koedoespoort, Germiston, Bloemfontein, Durban, Uitenhage, Salt River STATE Durban EASTERN Employees Revenue CAPE Engineering Uitenhage WESTERN 10 866 CAPE TE 24% Salt River R10,5 National Ports Authority e e i billion 10 370 is bi i ies 76% Port Terminals 496
Pipelines KWAZULU- Richards Bay, Durban, East London, Ngqura, Port Elizabeth, Mossel Bay, Saldanha, Cape Town NATAL Richards Bay Services provided Revenue Durban Employees Outbound services EASTERN 4 199 CAPE South African businesses moving NPA 35% East London TNPA R12,5 Ngqura Saldanha WESTERN products to international markets e e i CAPE Port Elizabeth 4 182 is bi i ies billion Cape Town 65% Mossel Bay Inbound services Bringing products to South African 17 markets
Commodities transported Richards Bay, Durban, East London, Ngqura, Port Elizabeth, Cape Town, Saldanha Mining exports, general freight Employees Revenue KWAZULU- and petroleum products NATAL Richards Bay 9 357 Durban 29% General freight TPTTPT R13,1 e e i EASTERN Containerised cargo, local manganese, 7 392 is bi i ies billion CAPE minerals, local coal, local iron ore, 71% Ngqura East London Saldanha WESTERN chrome and ferrochrome, agricultural CAPE Port Elizabeth 1 965 Cape Town products, iron and steel, fertilisers,
Our business continued cement, fast-moving consumer goods, bulk liquids, wood and wood products, industrial chemicals, intermediate Durban – Johannesburg products and automotive products Employees Revenue GAUTENG Petroleum products Johannesburg Crude oil, refined petroleum products, 706 34% aviation turbine fuel and methane-rich TPLTP R5,3 KWAZULU- e e i NATAL gas products 672 is bi i ies billion Durban 66% 34 20 21 Strategies to preserve or create value Examples of trade-offs
Page Value through Financial capital MEASURE 2017 2018 2019 references Our credit rating is dependent Transnet’s mandate requires on our ability to manage our management and improvement Revenue R billion 65,5 72,9 74,1 51/52 social licence to operate and the of the national logistics Managing working capital to the capitals Cash and cash equivalents Maintaining a strong capital Introducing stringent extent to which our leadership infrastructure to support future meet target levels and governance structures ensure capacity demand and to ensure Operating expenses R billion 37,9 40,4 40,3 51/57 base to maintain investor, cost-containment initiatives creditor and market to reduce costs across ethical and sustainable business market competitiveness for Total capital borrowings confidence to support future operations practices. Negative media South African trade in the Performance highlights and ROTA % 4,6 5,9 5,8 50 coverage of governance failures global market. growth of the business within Transnet has made it more capital trade-offs Finance income Ensuring adequate EBITDA margin % 42,1 44,6 45,6 51/57 challenging to maintain our credit Transnet’s ability to commit to reinvestment in the business rating. Effort and resources spent capital expenditure needs to and maintaining a King IV. P4 Profit R billion 2,8 4,9 6,0 51/52 Maintaining a capital-to-debt on improving governance and be balanced with the need for Maintaining a cash interest structure (gearing) below stand-alone investment- internal controls will ensure we sufficient return on assets to Manufactured capital maximum parameters (< 50%) grade credit rating support funding requirements. Gearing % 44,2 43,4 44,5 50 cover of at least 2,5 times maintain or reduce the cost of capital.
Cash interest cover times 51/53 Property, plant and equipment 2,9 3,0 2,9
Advancing Transnet’s Inland Strictly adhering to the Ensuring integrated Rail track Terminal Strategy and capital maintenance management of projects Investing in manufactured In recent years, spend was Capital expenditure capital requires substantial weighted towards expansionary R billion 21,4 21,8 17,9 55 addressing infrastructure programme and cultivating through the Integrated (including accruals) and rolling stock a culture of maintenance Capital Projects Programme investment and reduction of capital investment. Going financial capital. Even within forward, however, in order to Pipeline infrastructure maintenance requirements and preservation of existing Infrastructure maintenance spend R billion 55 manufactured capital, a trade-off safeguard financial sustainability 16,2 16,4 14,7 assets exists between using financial and improve operational Information and communications technology (ICT) resources on maintenance efficiency, the balance of Depreciation and amortisation R billion 13,5 13,7 14,3 51 Applying Transnet’s Value infrastructure Structuring and maintaining spend or expansionary capital maintenance versus expansionary Chain Co-ordinator (TVCC) the information technology expenditure. expenditure will be tilted towards Net impairment of assets R billion 2,5 1,4 2,7 51 Optimising Transnet’s in operations to streamline network for more reliable maintenance. property portfolio activity Human and intellectual capitals connectivity
Number of permanent employees Number 53 661 51 324 50 798 14 nb un Skilled, healthy and motivated workforce While the financial store of value Also, the benefit to the nation Contributing towards the Providing apprenticeship Personnel cost R billion 24,5 25,7 26,8 57 Implementing and embedding is decreased by spending on of increasing the pool of development of young opportunities through research and development as skilled engineers and artisans the Integrated Management Standard operating procedures professionals through Young the young engineers and well as training of technicians is imperative for dealing with Training spend R million 746 741 740,8 68 System (IMS) across all Professionals-in-Training technicians in training and engineers e.g. the anticipated structural unemployment operations future inflows to financial capital challenges that the country faces. Policies, frameworks, management systems and processes programmes programmes Ou b un Training spend (as % of labour cost) % 3,1 2,9 2,5 68 and manufactured capital created by spending on intellectual capital Efficient and reliable leadership team delivering on our mandate Engineering trainees Number 173 100 60 68 outweigh immediate cost. Developing and implementing Developing intellectual Embedding a zero-harm Investment in R&D R million 185 147 10,8 67 an integrated training plan property through research safety culture across National pool of skilled artisans and engineers for key procurement staff and development operations Technology transfer/intellectual % 67 property (% of TMPS) 2,1* 0,93 0,74 Research and development Keystone expansion projects these communities as well as in – such as our large-scale port the larger economy. DIFR Rate 0,69 0,73 0,71 63 As part of Transnet’s infrastructure improvement project at the Port of Durban – As Transnet strives for growth Transnet has developed a strategic plans to create * % of SD Transnet’s Phelophepa need to balance the economic through the expansion and Social capital three-year plan (Stakeholder enterprise development Healthcare programme is a benefits for the country with modernisation of the country’s Engagement Plan 2021) programmes that expand the social and environmental ports, rail and pipelines CSI flagship project across Total CSI spend R million 234 219 151 72 that sets out precise actions opportunities to communities concerns raised by surrounding infrastructure, the Company eight of South Africa’s realises the importance of Transactional, collaborative and constructive required to rebuild relations where the Company operates, communities. nine provinces that is in spreading economic growth and relationships with stakeholders B-BBEE spend R billion 37,0 25,8 29,9 69 particularly with our there are currently five its 25th year of operation, Transnet’s operations have transformation in the South Shareholder, Government, enterprise development hubs adverse impacts on local African economy and supports and provides experiential Committed supplier development R billion 62,6 63,4 4,96 69 investors, funders, for small businesses and communities – as such, we the Government programme that Engaged workforce learning opportunities to an customers, regulators, entrepreneurs with the fifth apportion financial investment seeks to redress the imbalances Patients treated on Phelophepa estimated 2 500 healthcare towards programmes aimed at of the past. Number 72 communities as well as our mega hub officially launched Healthcare train 173 016 157 418 91 588 students per annum improving the quality of lives of Social licence to operate employees in March 2019 in Empangeni, north of KwaZulu-Natal
Energy-efficiency improvement % 1,1 0,9 0,5 64/65 Natural capital We understand that some of We endeavour to achieve net Transnet’s approach to our operations deplete natural positive gains through the Carbon emissions mtCO2e 3,95 4,0 3,78 64/65 Through the modal shift of natural capital management resources and are in pristine implementation of waste cargo from road to rail, we Our integrated asbestos environments. We are guided recycling programmes, land Natural resources we use to enable us to operate encompasses energy Used oil reclaimed K 1,2 202 140,9 64 aim to lower carbon and hydrocarbon clean-up by environmental impact remediation, dust suppression Outbound services (water, air, energy, etc.) efficiency, climate change emissions in the transport programmes enable us assessments in our approach programmes, and the invasive South African businesses mitigation and adaptation, to developments. species eradication programme to Alien invasive species eradicated Ha 3 398,1 1 307 1 158 64 sector, especially for the to manage the impact of moving products to water stewardship, reduce the impact in water stress international markets Land on which to run operations hauling of large volumes of historical environmental Our operations span across the biodiversity management and catchments where we operate. Number of pipeline spillages Number 1 0 2 64 high-density freight over contamination country and beyond with waste enhancement and land use Inbound services long distances production and emissions to air, Bringing products to Biodiversity and ecosystem health Asbestos waste removed Tonnes 37,3 929,8 49,2 64 management water and land. South African markets 22 Transnet Integrated Report 2019 23
Value through the capitals Our business model Our purpose Through our activities, we deliver Socio-economic Developmental Outcomes (SDOs) Our value proposition is founded Modernisation and renewal of South Africa’s transport and Cost-effective Value-added services Advanced engineering for our Shareholder, the economy and our stakeholders: in our mandate (see page 14): logistics infrastructure through strategic investment in rail, logistics value chains solutions ports, and oil and gas pipeline infrastructure. Employment
Create measurable direct, indirect and King IV. P4 Regional integration induced employment for South Africans
Financial Manufactured Intellectual Human Social and relationship Natural Improve freight logistics Health and safety Skills development connectivity on the continent International and domestic capital Property, plant and equipment Project lifecycle programme Responsible leadership Customers: Large mining, shipping, Water Protect physical and mental health and markets Investment property methodologies 55 946 skilled and motivated employees manufacturing, agricultural, industrial, retail Enhance and improve human capabilities Air Investment leveraged safety of the public and communities Loan markets (public and private) Research and development as at 31 March 2019 year end and energy contributors to the South African and productive capacity within the Rail and branch-line networks economy Land where we operate Development finance institutions Standard operating procedures Remuneration philosophy and process South African job market Multi-cargo ports Government and regulators Biodiversity and ecosystem health Leverage private sector Export credit markets Policies, frameworks and processes 3 800 km of petroleum and gas pipeline Employees and organised labour investment in the country’s freight Structured financing infrastructure Responsible leadership Transformation Industrial capability building Communities, citizens, institutions, media and logistics system Partial funding by customers and/or Locomotives and rolling stock pensioners interested parties that are part of Port terminals Promote black economic Transnet’s Investment Plan Shareholder and funders Promote industrial development for empowerment within supplier Project-specific funding Environmental stewardship South Africa and improved entities Commodity-based revenue (e.g. Capital inputs competitiveness transported iron ore and steel) Promote a modal shift from Vastly improve rail and freight Non-commodity revenue from Community development road to rail operations infrastructure Enhance capacity of the natural Positive outputs Cargo-handling services to Measurably improve the Create increased capacity at a range of customers environment to meet the resource ei ri e Wide range of economic, social, cultural South African ports transported general bulk needs of future generations and containerised freight and environmental Facilitate a Multi-Product Pipeline Port National Ports r r e en re well-being of communities Freight Rail Engineering Pipelines commodities Secure inland petroleum Terminals Authority Reduce cost of logistics as a product supply e es r percentage of transportable GDP In-service maintenance, repair, Increase capacity for South African upgrade, conversion and Commodities commodity exports including mining exports, manufacture of various types of Organisational culture to nnesbur general freight and petroleum wagons, coaches, locomotives as drive health and safety products well as equipment, machines and is en er is n services For others Value e n ein Engineering R&D initiatives, e.g. traction motor for Petroleum products i r s created including crude oil, refined rugged conditions, control For Transnet petroleum products and Capacity growth through system for diesel and electric urb n aviation turbine fuel new and refurbished locomotives and new diesel locomotives and wagons locomotive
i er Optimise ‘that which makes Transnet i en e great’ by living the Transnet culture General freight n Adverse outputs including containerised n s n n cargo, minerals and ur Waste materials as automotive products e n Commercial agility in a changing by-products of Pipeline spills and marine sse r i be socio-economic environment Align with regulatory requirements infrastructure projects pollution (e.g. plastics and oil (e.g. asbestos and entering marine water to maintain required operational hydrocarbon waste) at ports) compliances Employment equity Long-term financial stability Maintain agility within a cost Promote ethical business practices structure in which 80% to 90% of Financial stability in the short, as well as sound environmental fixed costs and assets have lifecycle medium and long term as per stewardship within operations times of 30 to 100 years Full value chain service propositions Outcomes gearing and cash interest cover Funding strategy based on strategic Digital transformation across the Social licence to operate priorities value chain Enhanced human capabilities and Build partnerships for sustainable Customer-centric and reliable delivery of High-yield capital investments (financial Mega critical projects, such as the Stable, secure infrastructure productive capacity (particularly growth Distinctive product and service designs An iBELONG culture customer volumes and social returns) Multi-Product Pipeline, Durban scarce skills) Reliable borrower which, albeit Container Terminal expansion and Global operational standards Skilled and representative workforce Collective agreements with organised labour Environmental stewardship extension of Saldanha Tippler 3 Strengthen our credibility in terms of state-owned, issues debt on the Strong governance structure and Safe working environment, promoting Partnerships with customers and logistics Opportunities for improving water Stand-alone credit rating – attract strength of its financial position without Improved physical and mental health Business continuity oversight diversity, equal opportunity, training and providers along the value chain consumption funding from diverse sources infrastructure reliability government guarantees education and safety of employees and Infrastructure reliability Agile digital technologies and Fair, transparent and efficient contract Cost saving from recycling Investment-grade stand-alone capabilities Responsible, ethical leadership management other stakeholders Operational efficiencies and improved credit profile 6,4% improvement in energy efficiency over Enhance delivery of customer- productivity Integrated planning and resourcing Employer of choice Fair and equitable tender processes the past five years Operational performance without Cash interest cover of 2,9 times centric solutions Ability to avail analytics to end-users Enhanced transparency through Exposure to broader national and regional Proactive and collaborative supplier 2,3% reduction in carbon emissions compromising on safety Gearing at 44,5% through multiple digital platforms advanced, integrated digital platforms opportunities development intensity 24 Transnet Integrated Report 2019 25
I recently helped dock a ship liner via addressing our performance context and Notwithstanding the flawed judgments of a series of cell phone conversations results for the year, I would like to share some of our people coming to light during with our port team. The success of it my concluding thoughts on the matter, the Zondo Commission, I sincerely believe Operating context was exhilarating and a moment of as stated by me, as well as other Transnet that most of our 55 000-strong Transnet great pride as we docked the vessel employees (past and present) and community are good, committed and two days before its due date. The representatives of MNS Attorneys at passionate people who have given of exuberance was short lived as relief the inquiry. themselves for the benefit of the organisation and all that it stands for. Acting Group set in. As a result of our collective By all accounts, Transnet was Transnet is a significant entity in the lives ‘can do’ attitude on that day, a major successfully manipulated to benefit a of South Africans and the local business Chief Executive’s review automotive client could meet its small group of individuals and entities community, and together, we remain critical business objectives. Relief, through the following modus operandi: committed to the organisation’s success however, turned to frustration given • Significant procurement transactions and its developmental mandate. procedural red tape that could have for goods and services were executed, delayed the process. I was requiring willing participants both attempting to help remotely execute internally and externally; and The year in review what is standard procedure at our • Local consulting firms were inserted Economic overview and Mr Mohammed Mahomedy ports, the failure of which would by certain Transnet executives to Acting Group Chief Executive have had catastrophic consequences identify commercial opportunities financial capital for our customer, and by extension using Transnet’s supplier development performance for us as well. I recall this incident mechanisms. In some instances, it South Africa’s economy has performed here to emphasise the need for transpired, companies were paid sluggishly during the financial year, procedures and processes that are without having performed any work. appropriately adaptable and reliable contracting at times and showing signs of recovery at other times. There was a to support our business priorities The incumbent Board and executive with due urgency, and to remind our management have engaged in much short-lived technical recession during the people to be personally inspired and debate and introspection around how this second quarter of the 2018 calendar accountable to achieve excellence in phenomenon took root, and the extent to year, with a growth of 1,4% in the fourth their daily tasks. We must put the which it had swept up willing enablers as quarter contributing to an overall growth customer’s priorities first, no matter it gained momentum. Following our own rate of 0,8% for the year. The marginal what it takes. forensic investigations, and in growth was a result of a decline in activity collaboration with the Zondo Commission, in the agriculture, transport and 2019 was a challenging year for me, Werksmans and MNS Attorneys, and manufacturing industries, as well as personally and professionally; firstly, various law-enforcement agencies, it is reduced activity in Government sectors stepping into the position of Acting emerging that the large-scale corruption and trade. We saw energy prices Group Chief Financial Officer, and then manifested due to considerable breaches fluctuating markedly in the second half of into the position of Acting Group Chief of corporate governance and the 2018, mainly reflecting supply factors, Executive. I am both humbled and manipulation of certain accountability with sharp falls towards the end of the inspired by the opportunity to serve our processes and policies without due regard year. The market challenges are perhaps people as we change course, quite for the monumental risks and burdens best exemplified by South Africa’s abruptly, from the accelerated capital placed on the organisation’s financial unemployment rate increasing to 27,5% at investment approach of the seven-year sustainability. the end of the third quarter of 2018, Market Demand Strategy as well as the averaging 25,71% from 2000 until 2019. corrosive effects of state capture on our We have subsequently introduced business. measures to enable an immediate Regardless of the tough economic and improvement in our procurement operational contexts, the Company The task at hand requires that we first processes and controls, including: continued to achieve notable results, strengthen our internal controls, • Bringing in enhanced Treasury risk confirmed by increased EBITDA at 3,8% particularly as they relate to our management and oversight; and a net profit of R6,0 billion for the year procurement environment and • Embedding financial and capital – a 24,7% increase on the prior year. investment activities; secondly, that we controls that should exist – and have in stabilise and restore our core operations; the past; The Company’s financial capital outcomes and thirdly, that we rectify the • Amending the Company’s delegation for the year are outlined in more detail in maintenance backlog and broader lack of of authority to limit the authority of the Group Chief Financial Officer’s review co-ordination in our investments through individuals in signing off on and in Our performance and outlook a less capital-intensive approach to take procurement transactions and section on page 46. full advantage of the Company’s recent capital decisions; expansion projects. A bold refocusing is • Implementing end-to-end contracting Continued investment in critical to ensuring Transnet’s rail, ports systems; and pipeline infrastructure operates at • Significantly improving oversight and sustaining our globally competitive standards. Transnet assurance processes; and can capitalise on emerging opportunities manufactured capital • Implementing a remedial plan to but only if the Company can significantly We continued to execute our asset address: improve performance in its core business. investment programme, spending – the prevention, identification and R17,9 billion, a 17,9% decrease from the reporting of fruitless and wasteful previous year (2018: R21,8 billion). Our How we disappointed expenditure; capital investment for the year ended During May 2019, I presented my views – irregular expenditure that does not 31 March 2019 represents R3,2 billion on the impact of the scourge of state comply with operational policies; invested in the expansion of capacity, capture on our business at the Zondo – losses through criminal conduct; and mainly on the integrated freight network, Commission of Inquiry1. Before – the collection of all revenue. while R14,7 billion was invested to
1 “A Commission of Inquiry to investigate allegations of state capture, corruption and fraud in the public sector including organs of state…” https:// www.sastatecapture.org.za/uploads/Terms_Of_Reference.pdf. 26 Transnet Integrated Report 2019 27
maintain capacity, mainly in the rail and Safety and security Derailments, suspected cases of cable More detail on our natural capital unacknowledged, insecure and are designing an ethics programme to ports divisions, taking the total theft and vandalism, as well as incidents performance is reported in the uncomfortable in their immediate support the behavioural change investment for the past seven years performance in our of coal, chrome and petrochemical operational performance section on surroundings. We also know that required within the Company to to R183,5 billion. operations spillages also caused significant page 63. economically-strapped people have few rebuild our corporate standing and environmental incidents. These incidents economic options and that corruption reputation. More specifically, as at 31 March 2019, Safety and organisational have ripple effects on our ability to thrives upon weaknesses in key economic, the cumulative expenditure incurred on well-being deliver on planned volumes and to comply How we will recover political and social institutions. At the time of publishing this report, our with environmental regulations. They the 1 064 locomotive contract amounted It was gratifying to see that disabling In many respects, we should thank brave executive and extended executive further cause tension with adjacent to R33,6 billion, with R3,9 billion invested injuries declined in our operations, with and pervasive journalism for lifting the lid leadership structures are comprised of communities, incur high remedial costs in the current year. A total of 525 the Company’s disabling injury frequency on corruption in our Company and our Looking ahead several interim executives, some of and affect our reputation. Our divisional locomotives had been accepted into rate (DIFR) decreasing from 0,73 in 2018 wider social context in recent years. As Acting Group Chief Executive, this whom have been with Transnet for more managers must create sufficient operations, with a further seven to 0,71. However, we still experienced an Judge Professor Mervyn King, Chairman may be my first and final public call to than two decades. As such, they bring awareness of the integrated nature of locomotives delivered and undergoing unacceptably high occurrence of safety of the IIRC4 suggests that we have action. As such, I am appealing to institutional knowledge and our operations and the potential entered a new age of immediacy in which organisational experience, as well as acceptance testing. Additionally, incidents during the year, losing four trade-offs of working in a highly divisional managers to mobilise and to society has rigorous transparency at its fresh perspectives and objectivity to the Freight Rail and Engineering embarked on colleagues and 134 members of the industrialised operating environment. provide lasting, implementable solutions a programme to build 318 CR13 wagons public due to fatal accidents in and fingertips through social media and will to our teams on the ground. As the business. I would like to commend them We cannot look at issues of security and for taking full and primary accountability for the iron ore line, and 169 CR19 around our operations. As leadership, we theft as separate from commercial no longer accept wrongful acts Executive Committee, we have activated wagons for the General Freight Business. are mindful of the inherent safety committed by companies. As a SOC, with teams to assist with the state of for stewarding the organisation through sustainability, stakeholder relations, a challenging period while the process For the year ending 31 March 2019, a challenges in our operations and are environmental compliance and the a national mandate to better the lives of equipment and to address the for recruiting permanent executive total of 393 wagons were manufactured, determined to improve Transnet’s safety reputational impacts they may have for all South Africans, we would do well to maintenance backlog matters. Asset care members is actively underway. commissioned and accepted into performance by implementing global- us as a company. keep this top of mind. should become part of our DNA. We have standard safety measures and initiatives. developed a 90-day remedial plan, a operations by Freight Rail, resulting in a Every company on the planet That said, employee safety and well- We provide more details on these issues For me, radical transparency is about blueprint that addresses culture, values, capital investment of R607 million. experiences challenges. The companies being are not simply the responsibility of in our PFMA reporting on page 75. visibility and radical authenticity – seeing efficiency and operational effectiveness, that stand head and shoulders above the We highlight other sustaining management. It is imperative that all our We also provide more detail on our health it, and saying it as it is. My first months focusing on our most pressing challenges: people internalise a culture of self- as Acting Group Chief Executive were others are those that respond infrastructure investments on page 55 of and safety performance on page 63. • Transnet has embarked on a preservation and safety consciousness, concerned with understanding what our appropriately and decisively. It is time to this report. programme to renegotiate contractual which, I believe, starts with self- people really think and feel, where they take decisive action, and to act in the terms with OEMs of the 1 064 confidence and pride in doing purposeful Preserving our natural need support and what they need in their best interest of our customers, our programme to align with Transnet’s and productive work every day. It is also jobs to thrive. As the executive, we have Company and our country. Commitment to our capital requirements in the short, medium concerning to note that both our planned been inspired by the notion of visible and customers To plan effectively for our future and long term, and where feasible, to and unplanned absentee rates continued accessible leadership, as demonstrated infrastructure requirements, it is critical recover funds. In appreciation To restore the credibility of our State- an upward trend from the prior year, with by the current Transnet Board and that we consider the reliability of water owned institutions, both in South Africa our overall unplanned leave cost to Shareholder. Accordingly, we embarked – R618 million has been recovered I would like to express my heartfelt and internationally, we must stabilise and company at R614,3 million (2018: R585,1 access and future water quality in our from China South Rail, with a gratitude to each of our employees for national operations. According to the on a series of operational site visits and strengthen our operations to deliver million) and our planned sick leave cost at further R86 million being their courage and steadfastness during Department of Water and Sanitation, walkabouts at the ports, which sustained value. While our infrastructure R454,8 million (2018: R439,7 million). pursued; and the year. Together we must safeguard the without intervention, South Africa faces culminated in a report on our findings provides the engine for economic growth, – We are exploring legal options and three fundamentals of our business: our a deficit of about 3 000 billion litres of to the Transnet Chairperson. With the organisation’s painful processes to set aside interest rate finances, our procurement processes and our customers fuel Transnet’s momentum water per year by 20302. With our We endeavoured to meet as many forward. Our seventh consecutive annual governance failures coming to light, as employees as possible. In a 72-hour swap transactions costing the our operations. We, the people, are the well as the challenging working national operational footprint, Transnet’s customer satisfaction survey raised period, we met approximately 2 500 organisation R400 million a year. heart of the business and it is up to us to conditions I describe further on in this operations are particularly exposed to take care of these fundamentals, each several concerns, including declining rail climate change impacts and water-access people from Port Elizabeth, Durban and • We are working to improve the role review – especially at our ports – it would with personal accountability and pride. I performance levels, poor port challenges. During the year, we Cape Town. We met the 5am shift workers and function of Group forensics be fair to assume that low employee look forward to a new chapter within productivity, poor customer participated in the Carbon Disclosure and appreciated their dedication to wake insofar as it relates to the collapse of morale was a major contributor to Transnet, in which we can rebuild trust communication and a lack of integration Project: Water and achieved a “C” score3, up three hours earlier to make their way governance and administrative absenteeism. While we can empathise, we and pride – with each other, with our on key customer touchpoints. Greater highlighting a critical need for the to work on time. We met staff going off functions within the organisation. owe it to ourselves and our stakeholders customers and with the people of South effort is required to satisfy our business to step up its water stewardship shift at 10pm and realised the challenge to rebuild our collective confidence and • With procurement challenges Africa. customers’ needs. efforts. A Transnet-wide water strategy, this posed to them spending quality time to recommit to personal accountability presenting both reputational and which would consider water-saving and ethical business practices. Without with their families. We were taken aback operational risks, we are mapping Thank you to the Transnet Shareholder During the year, we hosted integrated mechanisms and alternative water these qualities we cannot be the company though at their claims that this was the assurance activities and lines of Minister, Mr Pravin Gordhan; the Transnet customer and industry engagements to sources, such as setting up desalination our customers, Shareholder and the first time that they had met any of the assurance against each step in the Chairperson, Dr Popo Molefe; the Board; and recycling facilities will be developed better understand their requirements executives from Johannesburg. People procurement process. the Acting Chief Financial Officer, people of South Africa need us to be. in the coming financial year. and to discern where we are not At the time of publishing this report, shared with us their concerns about • We are exploring various sustainable Mr Mark Gregg-Macdonald; and the measuring up. The engagements included management had embarked on an challenging working conditions, which solutions to support Transnet Transnet executives for your customer breakfasts and customer With the introduction of carbon tax to included absent operational equipment, employee engagement programme to South Africa in June 2019, businesses are Engineering to achieve financial encouragement and guidance as I steering committees, and specific poor condition of assets, maintenance determine and address main areas of encouraged to implement measures that sustainability, and resolving service stepped into the role of Acting Group forums, such as the NAAMSA Automotive breakdowns and facilities that require concern as part of a remedial action plan. will reduce greenhouse gas emissions, level agreement terms between Chief Executive. With your support, I Industry Supply Chain Forum and the urgent attention. They showed us and to mitigate costs in the value chain. Engineering and Freight Rail. trust that I will be equal to the Container Liner Operators Forum. buildings with shattered windows, broken Transnet views the tax as an opportunity • We are formulating a real estate challenging yet aspirational task of Constructive outcomes of the proactive Security, theft and community lights and cracked shower doors. Overall, to motivate for, and to provide the strategy to address governance shepherding Transnet in the interim as it Operating context Operating continued engagements included concluding unrests we found marked differences between solution of shifting more cargo from road failings in our Property unit and to rebuilds and repositions itself for growth. long-term take-or-pay contracts with As leadership, we are concerned about the quality of amenities between the to rail, especially for hauling large reduce revenue leakages and audit eight manganese clients, as well as the frequency and severity of the impacts ports, so much so that we could not volumes of high-density freight over long findings. signing an internal Transnet Customer of security incidents and theft in our distances. To this end, Freight Rail believe we were in the same Transnet. • We are working to align our digital Charter (in September 2018) to drive a operations during the financial year, achieved a meaningful annual strategy across all business units to customer-centric culture in the Company. which included cable theft, derailments contribution to reduce carbon emissions I took from this experience that the small stuff matters, and that we cannot expect create a single-view perspective of all and community unrest, particularly on the in the transport sector through its ‘rail Mr Mohammed Mahomedy On page 62 of this report, we detail some export coal line. Overall, we experienced tonnage gains’ of 1 650 266 tonnes, our people to take pride in their work if digital initiatives within Transnet. Transnet, as a company, does not show • With the recent exposure of Acting Group Chief Executive of our proud moments during the year, 65 running line derailments, and with 110 078,8 tCO2e carbon emissions pride in them first, by ensuring the most compromising conduct, characterised when we excelled beyond the basics. 153 shunting derailments. savings. 26 September 2019 basic of dignified working conditions. by employees circumventing internal Johannesburg Calls to excellence and customer- controls, an ethical revival is required 2 https://www.news24.com/SouthAfrica/News/a-countrywide-water-shortage-is-looming-and-government-is-mum-on-wastewater-audit-20190225. centricity are meaningless if people feel in the organisation. Accordingly, we 3 The main idea is that a company goes through four main steps, starting with disclosure of their current position; moving to awareness which looks at whether a company is conscious of its environmental impact; to management, i.e. if a company is managing these overall impacts and the risks and opportunities related to these; and finally leadership, which is a measure of whether a company is implementing best practices in this environmental realm. F: Failure to provide sufficient information; D: Disclosure; C: Awareness; B: Management; A: Leadership. 4 https://integratedreporting.org/news/2018-address-by-judge-professor-mervyn-king-chairman-of-the-council-iirc/. 28 Transnet Integrated Report 2019 29
Executive Committee
Mr Mohammed Suleman Mr Gert De Beer Mr Thoba Majoka Ms Rebatho Madiba Ms Xoliswa Buyiswa Ms Sanet Vorster Mr Lloyd Tobias Mr Mark Gregg-Macdonald Mahomedy Mpongoshe Chief Business Development Acting Chief Officer: Acting Chief Information Acting Chief Human Acting Chief Executive: Acting Group Chief Financial Acting Group Chief Executive Officer Advanced Manufacturing Officer Chief Corporate and Resources Officer Transnet Freight Rail Officer Regulatory Officer Date of birth: Date of birth: Date of birth: Date of birth: Date of birth: Date of birth: Date of birth: March 1971 October 1964 January 1963 February 1978 Date of birth: October 1956 August 1963 February 1960 September 1964 Year of appointment: Year of appointment: Year of appointment: Year of appointment: Year of appointment: Year of appointment: Year of appointment: 2008 2016 1997 2013 Year of appointment: 2006 2004 First appointment 2001 2018 Qualifications Appointed Acting COAM and Appointed Acting CIO and Appointed Acting Chief Human Appointed Acting CE: TFR and Appointed Acting GCFO Appointed AGCE 13 May 2019 1 May 2019 Master’s Degree in Commerce Exco member Exco member 1 October 2018 Appointed CCRO Resources Officer and Exco Exco member 18 March 2019 (University of Pretoria); 10 September 2018 22 October 2018 member 18 March 2019 Qualifications Qualifications Qualifications Qualifications CA(SA); BCompt (Hons) CA(SA); BCompt (Hons) Qualifications MBA (Wits Business School); Refer to the Board profile on (University of South Africa); Qualifications BSc Information Systems Qualifications (University of South Africa); On BA (Rand Afrikaans University); BA (University of South Africa); page 10 BCompt (University of MBA (University of (University of Leeds UK) B Proc (University of the Campus Senior Management Potchefstroom); BSc Western Cape); Dip Juris Organisation and Work Study Certificate in Business Project South Africa) Management (Wits Business Programme (Henley Management 1 2 5 12 16 19 19 19 (University of the Western Certificate (Pretoria Mechanical Engineering School); Breakthrough College, Henley-on-Thames, UK) (University of Cape Town) Cape); Certificate in Technikon); Global Executive Development Programme Programme for Senior Compliance Management Executives (Wits Business 2 5 6 7 19 19 19 19 4 5 6 7 8 11 19 19 2 5 9 17 20 19 19 19 (Gordon Institute of Business (University of Cape Town) School); Global Executive 2 4 5 6 12 13 17 Science) Development Programme (Gordon Institute of Business 1 2 3 5 12 19 19 19 2 5 10 19 19 19 19 19 Science); Change Leadership for Executives (INSEAD); Coaching to Excellence (University of Cape Town); Diploma in Education (Rand College of Education) Ms Nozipho Mdawe 2 13 18 20 19 19 19 Acting Chief Executive: Transnet National Ports Authority Mr Mike Fanucchi Mr Sibongiseni Khathi Mr Krishna Reddy Date of birth: January 1973 Ms Michelle Jean Phillips Mr Richard Vallihu Executive Committee members whose contracts expired/are on Chief Customer Officer Acting Chief Executive: Chief Capital Officer suspension and/or resigned Transnet Pipelines Year of appointment: Acting Chief Executive: Acting Chief Operating Officer Date of birth: Date of birth: 2018 Transnet Port Terminals May 1964 Date of birth: August 1971 Date of birth: Name Job title Date March 1971 Appointed Acting CE: TNPA Date of birth: June 1964 Mr T Jiyane Chief Advanced Contract terminated Year of appointment: Year of appointment: and Exco member December 1970 Manufacturing Officer 7 August 2019 2016 Year of appointment: 1992 18 March 2019 Year of appointment: Ms M Mosidi Chief Information Officer Resigned 30 September 2013 Year of appointment: 1995 Appointed Exco member Qualifications 2018 Qualifications 1999 29 January 2019 Appointed Acting CE: TPL and BSc Civil Engineering Diploma in Geology Appointed Acting COO and Exco Mr N Silinga Chief Corporate and Fulfilled acting role until (Witwatersrand Technikon); Exco member 3 May 2019 (University of Kwa-Zulu Natal); Appointed Acting CE: TPT and member Regulatory Officer the appointment of CCRO Qualifications Management Advanced BCom Logistics (University of Exco member 7 August 2019 (Acting) in October 2018 MSc Engineering (University of Qualifications Programme (Wits Business South Africa); Senior 7 August 2019 the Witwatersrand); GDE MBA (University of KwaZulu- School); Transnet Executive Qualifications Mr SI Gama Group Chief Executive Contract terminated Management Certificate Women Development Engineering (University of the Natal); Post Graduate Diploma Qualifications MBA (Specialising in Technology) 28 October 2018 (University of Stellenbosch); Programme (Operations and Witwatersrand); BSc (University of Southern Ms NE Sishi Chief Human Resources Suspended 5 March 2019 in Management (University of Port Engineering and Capacity Logistics Management) (Gordon B Juris LLB (Nelson Mandela Engineering (Mech) Industrial Queensland, Australia); BSc Officer KwaZulu-Natal); BSc Chemical Programme (Antwerp, Institute of Business Science); University); Executive (University of the Engineering (University of MBA (Gordon Institute of Development Leadership (Hons) (Longborough University Mr L Moodley Chief Executive: Transnet Suspended 3 May 2019 Belgium) of Technology, UK); Financial Witwatersrand); EDP (Gordon KwaZulu-Natal); Global Business Science); Finance for Programme (Gordon Institute Pipelines Operating context Operating continued Institute of Business Science); Executive Leadership Non-Financial Managers (Wits of Business Science); Global Management Certificate (Rand Afrikaans University); Advanced Ms S Qalinge Chief Executive: Transnet Suspended 8 March 2019 Global LPG Supply Development Programme Business School); IRSMI Executive Development Management Programme National Ports Authority Development (Oxford College (Gordon Institute of Business Management Development Leadership Programme (Gordon (Harvard Business School) of Petroleum) Programme (University of Mr M Buthelezi Chief Operating Officer Resigned 31 March 2019 Science) Institute of Business Science); France); Advanced Strategic Mr R Nair Chief Executive: Transnet Resigned 31 March 2019 Management Programme (IMD, Breakthrough Programme for Freight Rail Switzerland); Global Executive Senior Executives (IMD 2 4 5 6 16 20 4 5 9 11 13 15 19 20 2 5 9 17 20 19 19 19 2 4 9 18 20 19 19 19 Development Programme Business School) Mr TC Morwe Group Chief Executive Contract expired (Gordon Institute of Business (Acting) 30 April 2019 Science) Ms N Sithole Chief Executive: Transnet Suspended 7 August 2019 2 3 4 20 12 20 19 19 Port Terminals Executive Committee members’ competencies 2 4 5 6 10 20
Business Management Legal, Economics, Procurement HR and Business Information Transformation Infrastructure, Construction Risk Stakeholder Policy Acquisitions Project Rail Operations Corporate and Compliance Strategy and Finance and Auditing and and Supply Industrial Development, and and Socio- Logistics and and Management Relations Development and Contract Management Transport Management Governance Leadership and Regulatory Planning Investment Accounting Chain Relations Marketing Communications economic Manufacturing Engineering Management and Sales Technology Development
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 30 Transnet Integrated Report 2019 31
Our strategy Material matters impacting our strategy
Our strategic context appropriate ports, rail and pipeline partnerships to augment and deliver its Changes in reporting on material aspects infrastructure, as well as providing total value chain vision. operations in a cost-effective and The Company is transitioning towards a less capital-intensive approach, focused on fixing, optimising and growing the core business Transnet’s national efficient manner, within acceptable while exploring growth adjacent to the core, using existing capabilities and assets as part of a revenue diversification thrust. At the mandate benchmark standards. Market trends influencing same time, the transport and logistics industry, like others, is undergoing rapid changes driven by new technologies and business The NDP vision for the 2030 Agenda for models and ever-increasing customer requirements. To fulfil this mandate, Transnet needs to strategy Sustainable Development aspires grow beyond its current core. Freight Internationally, several trends define the towards a SOC landscape in which key priorities and challenges for Figure 3: The levels of accountability for identifying, validating and approving Transnet’s material issues efficient, financially sound and well- forecasts indicate a doubling of freight governed State-owned companies demand in 20 years and an increasingly logistics providers. Larger players are address the country’s developmental important role for ports, rail and increasing the range of services offered, Identification criteria objectives in areas where neither the pipelines in the national freight system. often developing deep specialisation in a Organic growth of the current business • Frequency of aspect being raised executive arms of Government nor limited number of industry sectors and Transnet Sustainability private enterprises can do so will not yield the required funds to meet focusing on international end-to-end • Relevance of topics to multiple stakeholders future investment needs. Transnet of the Department effectively. These enterprises must logistics networks and service provision. • Applicability to Transnet’s mandate, strategy and SDOs future needs to participate at various deliver a quality and reliable service at a The orientation is to move away from Group Finance Stage 1 • Efficacy of the Transnet control environment in mitigating associated risks cost that enables South Africa to be levels of the freight system, even though
transport modes in favour of servicing Identification globally competitive. it will not itself directly provide each • Emerging risks step in the value chain. Accordingly, it industry segments. Transnet is As a SOC, Transnet’s core mandate is to needs to nurture its core technical positioning itself to take advantage of Validation criteria assist in lowering the cost of doing competencies and promote competition these trends and the trends and business in South Africa, enabling to benefit the development of the opportunities observed in the domestic Transnet Sustainability • Actual incidents arising during the year transport and logistics sector which are economic growth and ensuring security national freight system, while Department • Continuing applicability from the prior year of supply through the provision of encouraging pivotal strategic summarised below. Group Finance • Stakeholder inclusivity Table 4: Trends in the domestic transport and logistics sector Group Corporate • Management assessment, discussion and approval Governance • Appropriateness of the range of aspects to be covered in Transnet’s and Regulatory integrated reporting process Stage 2
Summary of trend Opportunities Validation Transnet Operating • Severity of impact on the business* Diversification into logistics value-added services Divisions • How and where material issues occur and their impact in terms of Transnet’s • Provision of add-on value-added services to complement • Develop and roll-out new value-added services to Transnet’s reporting boundary core logistics products is becoming increasingly common existing customer base and beyond (such as customs among large logistics service providers. clearing, warehousing, financing, etc.). • Relevance within the 2019 reporting period Industry consolidation Prioritisation criteria • South Africa’s logistics industry is consolidating with • Reduced number of small/niche players in South Africa’s larger players acquiring small/niche players. logistics sector. Transnet Sustainability • Align relevance of material aspects with boundary context • This is primarily due to reduced payloads, low profitability • Possibilities for Transnet to acquire or partner with Department • Management perspective on impact and likelihood on Transnet’s business levels and evolving customer preferences. small/niche players. Group Finance context and strategy Energy diversification Group Corporate • Alignment with top 10 risks Stage 3 • Declining use of fossil fuels, particularly coal, and increased • Develop infrastructure for uptake in gas and electricity Governance Prioritisation • Consideration of relevance both in terms of challenges and opportunities use of gas and renewables. generation, industry and transport. and Regulatory (i.e. overall impact on the Company’s ability to create sustainable value) • New long-term mega investments in coal infrastructure are • Expedite wayside battery storage for electric locomotive at risk. efficiencies. Digitisation of operations Remuneration, Social and Ethics Committee (sustainability aspects) • Digitisation of operations via sensors, augmented reality, • Exploitation of digital capabilities to offer value-added Risk Committee (all material aspects) drones and robots and autonomous vehicles. services to Transnet’s existing customer base and to lower Audit Committee (all material aspects) • Leveraging Big Data and analytics to improve operational operating costs. Stage 4 efficiencies and processes. Approval Corporate Governance and Nominations Committee (all material aspects) The ‘uberisation’ of freight Transnet Board of Directors (all material aspects) • Advances in ‘uberising’ the trucking industry are currently • Implementation of a new business built on offering underway – this will result in lower operating costs for asset-light products and services (such as volume * Quantitatively measured in potential Rand impact and qualitatively measured in terms of value impacted (e.g. impact on reputation, trucking companies. aggregators using third-party assets for shipments). natural capital, relationship capital and strategy).
New strategy and • Align Transnet’s strategy and appreciate their role in the greater operations to harness opportunities aspirations of the Company and feel Figure 4: The scope and boundary of our materiality determination process is shown below: supporting operating presented by global market trends. empowered to contribute to the Operating context Operating continued • Ensure Transnet readies itself to collective vision. model survive and ultimately to thrive in the At the time of publishing this report, the data-driven 4th Industrial Revolution. As this process of optimisation and Statement of Strategic Intent organisation is principally concerned with • Re-emphasise the Company’s restoration gains momentum, the Company intends to build on its gains by Issues arising from Transnet’s business context and operating environment preserving, repairing and strengthening developmental obligations. growing the core beyond its current its operational core by optimising and • Improve visibility in all areas of the incarnation, investing in new growth TRANSNET’S Transnet’s top 10 risks restoring its essential and vital business to empower management to areas adjacent to our core operations MOST operational capability. accurately diagnose operational and exploring innovative opportunities MATERIAL Issues arising from stakeholder concerns challenges. Accordingly, the Board has determined across the logistics value chain. This will ASPECTS that Transnet requires both a new • Redefine lines of accountability and be achieved while increasing the scope Key issues arising from the external environment strategy and supporting operating model enforce consequence management to of Transnet’s participation in the overall to reposition the Company as the integral drive a culture of governance and logistics value chain as it capitalises on Issues arising from the Board and Board committee meetings during the year national asset that it ought to be. The performance excellence. the trends of industry convergence and following strategic objectives are at the • Cultivate a workplace of safety, pride evolving integrated and potentially Material issues relating to SDOs core of the Board’s decision: and ethics, where each employee can disruptive business models. 32 Transnet Integrated Report 2019 33
Material matters, opportunities and risks
Opportunities arising from material matters King IV. P11 & 12 Material cluster: Ensure our activities result in sound socio-economic developmental outcomes (SDOs) Our material topics relate directly to matters that impact the performance of the core business, our strategic growth objectives and the Company’s standing as a responsible corporate citizen. Material matters impacting Table 5: Opportunities arising from material matters on strategy Opportunities • Develop skills • Leveraging environmental friendliness of rail. Material cluster: • Restore stakeholder confidence • Improving safety in operations through Transnet’s Roadmap to Safety Programme, which Ensure financial stability and sustainability in a tough economy and trust in the Company aims to embed best practice safety standards. • Create shared value through • Leveraging our procurement spend to engage in specific supplier development initiatives, as Material matters impacting Transnet’s CSI initiatives well as generating economic value by optimising our sourcing strategies. on strategy Opportunities • Improve safety and • Reducing cost, risk and inefficiencies while improving audit trails and compliance of environmental compliance environmental policies. • Improve financial • Exploring private sector partnership (PSP) opportunities to reduce funding and operational • Promote sound environmental • Partnering with Government departments (e.g. the Department of Trade and Industry) to performance requirements and leverage the capabilities of partners for mutual benefit. stewardship (water, energy attract new OEMs. • Drive cost efficiency across • Leveraging real estate, telecommunications and other diversified revenue streams in security, land usage and carbon • Exploiting regional integration opportunities – dredging and marine training (Maritime all spheres of the business partnership with the private sector. mitigation) School of Excellence) in Africa SADC. (cost optimisation) • Diversifying the property portfolio to maximise returns. • Promote transformation through • Promoting the port of Ngqura as a transshipment hub for sub-Saharan Africa. localisation of supply • Monetising the spare capacity on Transnet’s optic fibre network with the potential to extend • Aggregating relevant transportation and logistics data from multiple sources in a connected wireless network services. • Create shared economic value transport ecosystem through the African Connected Transport Ecosystem. through private sector • Enabling service scalability and leveraging an operating expenditure-based consumption partnerships model. • Contribute towards regional • Achieving cost efficiency through economies of scale and allowing Operating Divisions to integration of the freight system focus on core business, continuous improvement and compliance through centralisation through Project Sisonke. Material cluster: Promote industrial development in the Developmental State Material cluster: Create and maintain capacity to support growing demand for transport infrastructure Material matters impacting on strategy Opportunities Material matter impacting on strategy Opportunities • Invest in research and • Creating an e-commerce customer platform for easy onboarding and transacting. This development and explore platform could offer a service catalogue, spot quoting, service level agreements, contracting • Less capital-intensive • Increasing the Tarlton fuel storage and handling depot throughput to operate at maximum global-standard technological options and other value-added services such as crypto currency options. approach to capital capacity through multimodal intakes and deliveries. innovations investment in favour of • Exploiting connectivity and computing power to enable real-time asset monitoring across all • Harnessing the value of the Black Industrialist Programme to accelerate ESD efforts and sustaining infrastructure capital programmes. • Build a representative accelerate the sourcing and development of black industrialists. workforce based on equity • Developing capacity through new growth initiatives (e.g. Tambo Springs Intermodal Gateway; • Influencing industrialisation, beneficiation and development planning of special economic and fairness Ngqura Waste Treatment Facility for liquid waste from vessels; Natural Gas Networks of zones to develop capacity for rail volume growth. integrated port and pipeline infrastructure; and liquid fuels storage and pipelines to • Contribute to the • Investing in bimodal technologies and logistics real estate to contribute to intermodal maximise the use of Transnet’s liquid fuels infrastructure). transformation and growth of capability corridor densification. • Unlocking section 56 concession opportunities with the private sector to leverage investment the South African economy • Supporting mining companies that select to purchase their own rolling stock rather than in the port system (e.g. offshore supply base and LPG terminal in Saldanha; liquid bulk relying on traditional railway operators. facilities and green ship recycling in Cape Town and the Port Elizabeth Waterfront project). • Exploring alternative uses for the Durban–Johannesburg Pipeline (DJP) (i.e. fibre and gas). • Bolstering skills in gas operations to build capacity and experience for future gas terminals. • Leveraging Transnet’s position as the holder of a large property portfolio to positively • Creating an oil and gas hub as well as rig repair facilities. influence the property industry. • Providing ship-to-ship operations outside ports. • Leveraging blockchain technology for transport and logistics disruptive innovation. • Exploring opportunities for back-of-port services to offer warehousing and value-add services in the container, mineral bulk and automotive segments. • Offering tailor-made solutions to original equipment manufacturers (OEMs) in the Material cluster: automotive industry. Build a resilient business
Material cluster: Material matters impacting on strategy Opportunities Improve operational performance in the core business
Material matters impacting • Strengthen governance, • Utilising data analytics and intelligence to optimise resource planning and predictive on strategy Opportunities compliance and risk maintenance. management • Taking advantage of digital-physical transformation to improve manufacturing • Enable access to network productivity and inventory management (augmented reality). • Greater customer-centricity • Offering integrated customer end-to-end value propositions.
Operating context Operating continued infrastructure • Leveraging virtual/augmented reality for operations innovation. • Improve operational efficiency • Implementing new locomotive operational readiness plans – Krugersdorp, Springs, • Prepare the organisation and effectiveness Polokwane, Phalaborwa and Empangeni – to retire older locomotives and cascading plans to • Enabling predictive analysis through Artificial Intelligence for near to real-time and its employees for the other areas to harness new market opportunities (43D class locomotives to be cascaded to decision-making. • Focus on fixing, optimising and 4th Industrial Revolution growing the core business the ore line). • Extending line of business services to mobile end-point devices for continuous and • Improve business continuity increased productivity. • Grow volumes • Optimising key operational processes using digital technology to create real-time visibility following business disruption • Extracting data from strategic operational assets using IoT sensors to connect, collect, • Build market competitiveness for customers – with a ‘one Transnet view’ aggregated for the customer – enabling customers • Build a high-performance and transmit and analyse key operational performance indicators. for the Company and the to track and trace commodities across the Transnet value chain (i.e. determining whether assets are in transit or in storage). desirable organisational • Integrating next-generation applications and analytics characterised by faster parallel country in regional and global culture markets • Creating an e-commerce customer platform for easy onboarding and transacting. This processing, simplification and improved efficiencies. platform could offer a service catalogue, spot quoting, service level agreements, contracting • Automating seamless, efficient and effective processes to provide more strategic, options and other value-added services such as crypto currency options. transparent and value-added procurement services across Transnet. • Improving port efficiencies by enforcing global-standard performance terminal oversight. • Positioning Pipelines as an international best-in-class pipeline operator and offering subject matter expertise in the pipeline arena. • Improving the utilisation of less-utilised assets – key corridors/certain wagon types for market growth. 34 Transnet Integrated Report 2019 35
Transnet’s risk The emergence of generally accepted Achieving best practice Adding value through year, with none of those risks being People management risk denotes the corporate governance principles has retired. The top 10 risks have remained inadequate capacity and misalignment management process seen risk management focus levels ERM relatively unchanged over the last five of skills to address current and future increasingly on Transnet’s strategic financial years, with the risks for 2019 business demand. Despite present objectives. Rather than merely striving financial year remaining the same as mitigating controls, a lack of workforce King IV. P11 King IV. P11 & 12 for inherent efficiencies and operational King IV. P4 & 11 that of the prior year, however, the risk planning has resulted in continued performance, enterprise risk rankings have changed somewhat. exposure to inadequate capacity Transnet has used a single risk To achieve best practice levels, the The business development/accelerated management (ERM) has now emerged as Negative movements in rankings planning and misalignment of skills. In requirements of the guidelines of the investment model was developed with framework to manage all business risks a function that can shape the strategic (consequence ratings) can be seen in the context of the 4th Industrial King IV Report on Corporate Governance the Business Development team to filter since 2007. While this framework is now direction of the organisation. The risk respect of pricing risk, sustainability Revolution, Transnet needs to reskill the for South Africa, 2016 (King IV) and new business opportunities using a risk established, we continue to promote a management approach is evolving from a risk, people management risk and labour force to be responsive against a ISO 31000:2018 risk management and compliance lens. This model is being risk management culture across the process and compliance focus to one of macroeconomic risk. backdrop of increasing labour activism. standard are considered in Transnet’s used at the Growth Investment organisation. The introduction of the data-centricity. Integrated Risk Management Policy in ERM approach. The strategic risk profile Committee (GIC). Transnet’s pricing risk is attributed to Macroeconomic risk is attributed to the is based on Transnet’s eight strategic November 2017, however, paved the way Transnet’s risk management architecture the high cost of providing freight deterioration in the macroeconomic focus areas, as expressed through the The risk and compliance function for a more cohesive approach to risk is based on the ISO 31000:2018 services, rendering pricing environment due to global economic Shareholder’s Statement of participates in the remedial plan relating management in the organisation. standard for the ERM process. There are uncompetitive in certain commodities. slowdown, concentration risk and Strategic Intent. to reported PFMA non-compliance: Lean two distinct but integrated cycles. The This risk is driven by the nature of the dependency on five key commodities, i.e. Six Sigma study (the non-compliance fee structure that is not regulated within coal, iron ore, fuel, containers and The policy introduced risk management innermost cycle contains the approach During the 2018/19 financial year, we root cause analysis) to facilitate the rail and port operations, while the manganese. Risk drivers include at three levels: strategic, tactical and that is core to the risk management performed a formal review of the ERM improvements in Transnet’s procurement regulated pricing guidelines in the port Transnet’s high dependency on the operational. While the strategic and process and provides the framework for framework and standards to address key process, and to integrate and map and pipeline environments are not mining sector and the fact that previous tactical risk management processes and managing risk on a day-to-day basis. improvements; assess alignment with current assurance activities and lines of supportive of volume growth. investments were informed by these key methodologies are identical, the Surrounding the tactical process is the COSO, ISO and King IV requirements; assurance against each step in the operational risk management process commodities. strategic envelope which drives risk and to determine any emerging procurement processes. Transnet ‘s sustainability risk is and methodology are somewhat management according to business and challenges facing the Transnet risk described in the context of inadequate While the ranking for the operational different and tailored for the specific strategic objectives, stakeholders’ management function. An ERM audit was The project risk and opportunity energy supply, water shortage and the efficiency risk remained the same, there needs of risk assessments at the needs, our desired risk culture, undertaken by Transnet Internal Audit management methodology assists in impact of adverse weather patterns on is still a risk exposure that inefficiencies operations level. The Transnet Integrated appropriate organisational structure, (TIA) and a subsequent remedial action providing contingency reserves for the operations of the business. To this and high costs in the value chain can lead Management System (TIMS) plans for advancing risk management, plan was developed to improve ERM programme and project risks. The effect, Transnet has already experienced to lower volumes and financial incorporates the operational risk integrated control assurance aspirations within Transnet. opportunities identified in projects two severe flood events in two instability. Risk drivers include non- management methodology into one of and the requirements of governance serve as a basis for value engineering consecutive years, the insurance claims availability of operating assets, its core procedures. instruments and legislation. within projects. of which amounted to R443 million. ineffective rail and port planning as well The uncertainty in the supply of energy as ineffective value chain co-ordination Figure 5: Risk management process and architecture Transnets key strategic by Eskom, the continued use of among other exposures. carbon-intensive energy sources, risk movements extreme drought and flood conditions are the drivers to this risk. Commit and mandate Strategic process Communicate and train The 2019 review of Transnet’s top Policy statement Communications and 10 risks was premised on the previously Risk management plan reporting plan identified strategic risks of the prior Integrated Assurance Plan Training strategy Standard/Procedures/ Risk management network Guidelines Tactical process Figure 6: Transnet’s top 10 material risks for 2019 and the year-on-year movement of the top 10 risks from the prior year
Context setting Residual risk rating key: 5 -20 25 -30 35 - 55 60 - 80 85 - 100 Residual risk profile Residual risk profile
Communications 100% Strategic process 2019 Risk identification 2018 Denotes previous year 1. Pricing risk 1. Pricing risk 3 2. Operational efficiency 2. Sustainability risk 1 90% Risk analysis and productivity risk 3. Operational 9 3. Macroeconomic risk readiness risk 80%
Strategic process Strategic 4. Regulatory risk 4. Market growth risk Risk evaluation 70% 5. Market growth risk* 5. People management risk Monitor and review 1 6. Capital programme risk# 6. Capital programme risk 60% 7. Operational 7. Macroeconomic risk 6 Risk treatment 2 5 7 readiness risk 50% Operating context Operating continued Denotes current year 8. Operational efficiency 6 5 3 4 8. People management risk and productivity risk 7 40% 8
Measure and review Allocate and organise 9. Sustainability risk Likelihood rating 10 9. ICT risk 9 8 Integrated control assurance Risk Committee 10. ICT risk 30% 4 10. Regulatory risk 10 2 reporting Audit Committee Risk management 20% Risk management plan Executive Risk Management * Previously volume growth risk progress Information systems Committee # Previously capital execution risk Risk registers 10% Governance reporting Risk management teams Treatment plan Benchmarking 1% 5 10 20 30 40 50 60 70 80 90 100 Assurance plan Risk management champions Priority I risk Transnet GCE and Board level Performance criteria Priority II risk Operating Divisions’ CEO level Reporting template Risk and control owners Points 7 6 5 4 3 2 1 Key risk indicators Priority III risk General Managers’ level Priority IV risk Managers’ level Category Consequence rating Priority V risk Employees’ level Strategic process 36 Transnet Integrated Report 2019 37
Table 6: Root causes of risks and value impacted
Risk description Inherent risk Residual risk Root causes of risks Value impacted Activities to manage risk Risk description Inherent risk Residual risk Root causes of risks Value impacted Activities to manage risk
1. Pricing risk • Non-regulated pricing • Not meeting planned Regulated pricing controls: 6. Capital programme risk • Expected market • Not generating • Validate business cases prior to investment decisions models and methods volume growth • Build relationships with regulators and Government demand not validated adequate cash flows to • Update and monitor the portfolio on a quarterly basis and Not realising the benefits The high cost of rendering are not flexible enough • Impacting adversely on departments sufficiently contribute to future rebalance if required from the capital investments freight services is rendering to be competitive financial results • Conclude multi-year tariff agreements with the National • Lower economic capital expenditure • Exhaust operational efficiency improvements prior to prices uncompetitive in cer- • Regulated pricing – • Slowing down the Energy Regulator of South Africa and the Ports Regulator activity both locally • Stranding and capital investment decisions tain commodities (commercial tariff guidelines not road-to-rail strategy of South Africa and internationally under-utilisation of • Consider full asset lifecycles during strategic fleet planning
pricing risk (Competition Act, supportive of volume Non-regulated pricing controls: leading to a lack of newly-acquired assets • Develop clear principles and guidelines around replace/ No 89 of 1998)) growth • Conclude take-or-pay contracts (certainty around price per market demand repair/refurbish decisions volume for major customers, including iron ore, manganese • Delays in the execution • Apply design to cost principles throughout the lifecycle of and coal segments) of capital projects programmes/projects • Introduce pricing predictive models that consider cost • Design and develop assets with flexible and scalable recovery and adequate returns to determine pricing solutions • Integrated pricing methodologies to be applied across • Structure the Capital Investment team to provide Operating Division integrated portfolio views of capital investments and execution 2. Sustainability risk • Absence of sufficient • Operational • Execute the port climate response strategy that focuses on • Align delegation of authority, role profiles and programme sub-stations along the disruptions adopting a holistic cross-sector approach in building and project governance structures to ensure effective Energy supply, water shortage network • Handling of certain resilience implementation of the new Capital Operating Model and adverse weather patterns • Water shortage in commodities adversely • Continuously identify opportunities for the introduction of • Establish and resource Centres of Excellence to support certain geographical affected (i.e. saw dust renewable energy sources e.g. rooftop solar photovoltaic the Capital Operating Model areas at Port of Richards and wayside energy storage systems for traction • Adverse weather Bay) • Ensure compliance with energy-efficiency targets, 7. Macroeconomic risk • Global economic • Capital projects • Comply with the Treasury Financial Risk Management patterns resulting in • Safety incidents: loss energy-saving initiatives and consumption reporting across slowdown and becoming non-viable Framework Deterioration in the strong winds and of life and damage to the Company concomittant slow • Increased cost for the • Adopt the Long-term Planning Framework macroeconomic environment torrential rain equipment • Improve the understanding of water challenges and recovery replacement of current • Develop and maintain strategic customer engagement plans due to global economic contribute to the development of effective response • Local economic policy assets and acquisition • Consider international demand for raw materials through slowdown and slow recovery strategies through participating in Carbon Disclosure uncertainty of spares the annual Corporate Plan and budgeting process leading to capital projects Projects (CDPs) worldwide water initiatives • Weakening of local • Possible Sovereign • Implement more robust corporate planning and budget becoming economically • Implement integrated business continuity plans across the currency credit rating processes non-viable value chain downgrades
3. Operational readiness risk • Operations not ready • Delays in the • Execute the locomotive execution strategy – four-tier
to operate the newly- deployment of newly- governance structure (Executive Sponsor, Steering Misalignment between acquired assets in acquired rolling stock Committee, Locomotive Owners Team, Programme 8. Operational efficiency and • Ineffective value chain • Lower volumes • Fully implement and utilise operational and improvement operational readiness and terms of training • Reduced availability of Director) productivity risk co-ordination • Financial instability systems in Operating Divisions new assets drivers and rolling stock • Integrate capital project planning to ensure alignment • Ineffective rail and • Reduced asset • Develop a capacity versus demand model for ports that maintenance staff, • Lower productivity across the value chain Inefficiencies in the value port planning performance addresses holistic operations of ports and review all port upfront spares, tools • Perform operational readiness plans in preparation for chain leading to lower volumes • Asset availability and • Adversely affecting development framework plans and facilities locomotive deployment (e.g. training train drivers and and financial instability reliability concerns service delivery levels • Implement a regional economic integration programme and • Alignment across the maintenance staff, acquisition of upfront spares, tools and memorandums of understanding to co-ordinate regional value chain between facilities) cargo flows through South African ports Operating Divisions • Implement the locomotive deployment plan • Embed a culture of risk management in the decision-making and Specialist Units process • Ensure integrated planning between the Operating 4. Market growth risk • High reserve stock • Not meeting planned • Refocus the Company on diversification initiatives Divisions and industry to create contingent capacity in the levels of some revenue diversification • Explore alternative income streams as part of Transnet’s event of capacity outages Inability to attract and commodities opportunities leadership reshape sustain additional volumes as • Current customers in • Stranding and • Develop and maintain strategic customer engagement 9. ICT risk • Organisation not ready • Business is not enabled • Effective implementation plans (people, systems and new capacity is created and financial distress under-utilisation of plans, including onboarding of new customers with protecting current volumes to embrace disruptive to deal with disruptive processes) for the IT strategy • Pricing not integrated newly-acquired assets greater speed Inadequate information and against new entrants and technologies innovation • Ensure the convergence of IT systems to improve visibility across the organisation • Reduced volumes from • Enhance key account management to ensure service communication infrastructure customer activism • Current ICT solutions • Delayed of information between Operating Divisions • Inflexible pricing current customers consistency and proactive customer communication and technology to enable not integrated implementation of strategies do not business and to deal with • Implement two-way ICT disaster recovery plan new technologies compete with rivals in disruptive innovation • Funding constraints • Continue with the legacy (systems) renewal process to new markets • Reskilling of Human phase out outdated systems and technologies Resources required • Implement systems automation strategies to streamline 5. People management risk • Operational staff not • Delayed benefits • Implement a compelling employer brand proposition • Delayed processes skilled for future realisation of new • Compile the strategic workforce plan to determine commercialisation of Inadequately skilled staff operations technologies long-term and temporary skills requirements digital solutions in operations not skilled for • Lack of scarce skills in • Retraining of current (differentiate scarce skills) future operations the job market employees • Develop short-, medium- and long-term skills development 10. Regulatory risk • National policy • Spending on capital • Initiate regular engagement with relevant Government • Not actively managing • Reliance on external strategies i.e. create partnerships with educational changes anticipated in expenditure based on departments/regulators to ensure alignment between skills development skills institutions or programmes to improve the supply of Changes in the regulatory terms of economic assumptions may be strategies Operating context Operating continued scarce skills environment i.e. economic, regulation negatively impacted by • Regularly analyse and monitor the regulatory landscape • Initiate differentiated recruitment, talent and technical and compliance: • National Treasury subsequent changes in • Develop and maintain minimum control frameworks in compensation strategies to attract and retain scarce skills spending on capital increasing regulation response to procurement legislation investment based on procurement controls • Compliance assumptions that may be to contain requirements Priority I risk Transnet GCE and Board level negatively impacted by uneconomical spend becoming more Priority II risk Operating Divisions’ CEO level subsequent changes in and opportunities for onerous regulation Priority III risk General Managers’ level fraud • Local policy uncertainty Priority IV risk Managers’ level Priority V risk Employees’ level 38 Transnet Integrated Report 2019 39
Emerging sustainability risks Risks taken outside of Due consideration is also given to the Transnet’s risk control cost benefit analysis when deciding tolerance levels on the scope for further control and and assurance risk treatment. King IV. P11 & 12 environment
Transnet faces various strategic, operational and sustainability-related emerging sustainability risks which are likely to impact the King IV. P11 The risk sponsors/owners consider organisation going forward. These risks relate in part to environmental and market factors that fall outside of Transnet’s locum of closing the gap (if any) between the King IV. P2, P11, P13 & 15 control, such as climate change events, community unrest and unforeseen disruptive technological developments in the freight and The desired control effectiveness is actual control effectiveness and the logistics sector. We have, however, also observed emerging risks in our operational environment that require greater attention in the decided by risk sponsors/owners, desired control effectiveness when short to medium term, as detailed in the table below: assuming that all additional mitigation deciding on risk response strategies. Integrated Assurance has become effective at some planned The top five residual risks are therefore Model for capital projects future date. The level of desired control Table 7: Emerging sustainability risks for 2019 tolerated for being outside the generic effectiveness is based on considerations tolerance levels. This is largely due to and programmes such as the extent to which the root Management is in the process of Emerging risk Key root causes Mitigating controls Anticipated outcomes the influence of external factors on causes, consequences or likelihood of the these risks. reviewing and embedding an integrated risk materialising can be controlled. control assurance process that provides Damage to • Climate change • Develop and implement a climate change • Decrease damage to infrastructure and adaptation: extreme adaptation strategy infrastructure through a clearly defined, documented approach safety of employees weather events and • Quantify revenue at risk adaptive planning for integrating and aligning Transnet’s due to extreme weather volatility • Develop and implement resilience • Increase safety of assurance processes and control weather events projects employees systems thereby enabling appropriate • Hazard management through business risk and governance oversight. continuity
Global decrease in • Climate change • Long-term take-or-pay contracts are in • Long-term business thermal coal, iron ore mitigation: structural place for the export iron ore and coal sustainability and petroleum changes in commodity flows Figure 7: Integrated Capital Projects/Programme Assurance Framework (ICPAF) demand due to demand • A planned transition to mitigate international stranded rail and pipeline capacity by agreements to reduce diversifying future revenue streams carbon emissions thereby impacting on 1 revenue FIRST LINE OF DEFENCE – assurance Negative impact on • Autonomous road freight • Research and development into possible • Maintain market comes directly from those responsible for road-to-rail modal systems technology solutions to mitigate risk of competitiveness delivering specific objectives or processes shift autonomous trucks displacing rail on a day-to-day operational basis 3 THIRD LINE OF DEFENCE – provides objective and Risk of inadequate • New competencies • Centres of Excellence being established • Long-term business independent assurance on the overall effectiveness of skills and required to navigate 4th to respond to 4th Industrial Revolution sustainability governance, risk management and internal controls. Transnet’s competencies to fully Industrial Revolution prerequisites respond to 4th Internal Audit function provides reasonable assurance Industrial Revolution business models 2 SECOND LINE OF DEFENCE – relates Water shortage • Drought and water • Development and implementation of • Uninterrupted water to functions such as Compliance and Risk, 4 impacting on: restrictions increasing in the water strategy to address the supply through which the Company oversees the FOURTH LINE OF DEFENCE – this independent line – Operations frequency following: • Healthy and hygienic work control framework to ensure effective of defence is provided by the Auditor General and external – Employees • Ports of Saldanha, Port – Alternative water sources environment operations auditors. The Auditor General and external auditors provide – Health and hygiene Elizabeth and Richards – Water conservation • Establish security of an important external perspective regarding governance, risk – Customers and Bay also at risk – Communication and awareness supply for Transnet supply chain campaigns management and the internal control environment within the Company. Their outsider status strengthens confidence in Amplifying • Social activism • Implementation of the Community • Social licence to operate the objectivity and independence of their assurance community discontent Investment Plan to respond to • Minimal disruptions to due to Transnet not community grievances operations meeting community • Appointment of community liaison • Upliftment of communities demands in respect of officers and regional co-ordinators in close proximity to our job and business • Establishment of community operations Key focus areas for 2020 management across all capital compliance policy, framework opportunities, engagement structures at district projects and the standardisation of methodology and processes. thereby resulting in municipality level The key thrust of the risk management models used for assessing project risk operational • To eliminate duplication in assurance • Implementation of the community plan is to inculcate a vigilant risk culture disruptions and opportunities. grievance mechanism through a toll-free within the organisation as per the risk coverage and improve risk governance. • To assist the Board, governance hotline management plan in the Corporate Plan. • To increase awareness of insurance structures and management to cover through increasing Loss of trust in the • Increasing expectation • Visible and measurable enhancement of • Improved reputation for This plan articulates the key objectives understand whether: Operating context Operating continued integrity of Transnet from stakeholders for internal governance and control Transnet for 2020 as follows: accountability on incidents that give – Business has been conducted in governance processes transparent decision- environment rise to increased claims that affect the resulting in making and accountability • To fully integrate risk management compliance with applicable • Implementation of the Stakeholder premium. reputational damage Engagement and Management Procedure considerations into strategic and regulatory requirements; and the Transnet Stakeholder tactical management and provide risk – Compliance risks have been • To increase awareness, ensuring Improvement Plan intelligence that drives continuous adequately and effectively overall visibility, accountability and • Appointment, training and capacitation improvement of the control compliance with PFMA requirements of stakeholder relationship owners who managed; and manage and build relationships with environment. – Organisational structures have and provide systems and processes to stakeholders and understand • To ensure a consistent approach to effectively and consistently enable effective, efficient and timely stakeholder needs and expectations project risk and opportunity implemented and applied the reporting.
The infographic that follows, titled ‘Emerging sustainability risks and opportunities’, provides a 30-year perspective of Transnet’s changing operating environment, in which the business adapts to changing social and environmental conditions, new technologies to mitigate perceived risks in the natural environment and to bring new and often ‘disruptive’ solutions to operational challenges across the freight and logistics landscape. x y aa Figure 8: Emerging sustainability risks and opportunities 2019 2025 2030 2040 2050 KEY
Coastal Fuel switching Global emissions reduction Cap placed on carbon emissions Acceleration of a Scale-up wind energy behaviour agreements lead to global carbon drives disinvestment in fossil fuels Increased confidence in electric circular economy rooftop supports observed across price and subsequently reduce vehicle drives renewable energy and Petroleum demand Renewable energy and thus more focus on renewables E-Highway Risks means less energy solar PV ‘Green Port’ value chains, demand for fossil fuel-based energy Waste 2 smart grid technology, displacing decreases as electric smart grid requirements for the especially for Energy petroleum as the dominant energy vehicles dominate same amount of output Renewable energy primary energy Gas pipelines source for mobility systems Electric vehicle mobility energy mix at price parity with Energy system usage and recharge fossil fuel options energy-intensive LNG infrastructure transformation Decline in Wave Red industries import Concentrated Price volatility for thermal coal due to petroleum demand energy Energy terminals solar power flags transformation competitiveness created by convergence Gas of: renewable energy, smart grid technology bunkering driven by 4th Industrial Revolution and Habitat loss caused by agreement on global carbon price land use change leading 48% of the South Increase in bio-energy demand possibly Biodiversity Decline in bee population Other Emergence of Unsustainable Challenges in locating African wetland creating an export opportunity promoting fuel ecosystem impacting food production and to the decline of wetlands Monitoring Valuation land for the business risks fishing continues switching away from fossil fuels services presenting opportunities to leverage ecosystem is critically and Accounting Widespread implementation of biodiversity offsets to decline global to offset may lead rail and pipeline corridors as endangered System (payment for Biodiversity fish populations, to increased project pollination-rich zones loss of biodiversity amplifying food and monitoring costs instituted) security concerns Increase in bio-energy over the business’ [Scan to access Sustainable Slow redress Strain on demand impacting the Catalyse lifecycle due to of historical Development Goals website] Study of infrastructure and demand for fossil fuel biofuels stringent offsetting inequality leading social services industry requirements biomimicry Rapidly evolving for design to service delivery demonstrations environmental and resilience regime
Circular Global shift to a circular Increasing political Manufacturing waste economy economy underway; affordable instability and Declining global demand for Adoption of digital factories and Manufacturing at point of use: 3D requirements drive renewable energy and climate social unrest result thermal coal impacting thermal Waste management optimisation presents an opportunity 3D printing emerging globally printing technology expected to prosumption business model change agreements expected to in increased large- coal value chain (including for recycling and transportation of recycled materials increase production efficiencies scale up adoption of renewable mining and logistics) Thermal coal export Rising social scale involuntary Iron ore mining will be impacted due to https://sustainabledevelopment.un.org/ energy, resulting in a declining volumes expected to Deepening income activism migration across Increased steel recycling Waste stream increased efficiency gains in recycling of Iron ore export volumes expected demand for fossil fuel energy Advanced decline due to accelerating Decline in Waste trading Decline in inequality eroding social countries High carbon price is expected to pose a optimisation and steel and a decline in demand due to material to decline due to increase in steel manufacturing transition to cleaner energy thermal coal digital iron ore contracts within and impacts thermal upcycling recycling and new materials demand threat to iron ore demand platform substitution related to disruptive technology between countries coal demand on demand a global scale, Industrial stranding rail scale 3D Damage to infrastructure capacity and future printing Amplifying response Limited progress on Increasing likelihood of large-scale weather and safety risk to employees revenue streams Scaling up of adaptation global consensus to to mitigation with high requirements to Increasing intensity of weather Increasing volatility of weather systems events shifting global action towards strong under extreme weather High price on carbon implement measures to price placed on carbon build resilience to the events requiring increased Meteorological amplifying impacts on business mitigation and adaptation measures events drives adaptation at scale, mitigate climate change Community unrest environment, society resilience and adaptive capacity Big Data including geo-engineering Climate due to inability and economic systems for society and business Analytics change to respond to all Thermal coal mining declines expectations due to reduced demand driven by high carbon price Extreme weather events directly impact the South African economy Impact of water scarcity and weather events on business continuity Water tariffs and restrictions on Impacting business continuity in affected domestic and industrial usage regions and health and hygiene of employees Volume increase at ports from food imports Water security across Water stress amplifying, business addressed through increasing volatility to Social unrest innovative water solutions Coal production impacted, Integrated into catchments and water supply emerging as a result Desalination Increased water stress in Waterberg Syncromodality resulting in stranded rail satellite facilities region impacting access to water- of persistent job capacity and negative Water Food production impacted, resulting in inflationary use licensing for coal mining losses due to service impact on revenue scarcity increases on food prices and in imports delivery, lack of ‘Uberisation’ Autonomous accessibility and Water of mobility road freight Water scarcity in the Western Cape and other regions automation addressed through innovative water solutions pipelines system system Opportunities and risks continued
AI addresses system-level challenges such as social inequality, economic progress and environmental challenges, Narrow Artificial Intelligence however, creates risks in respect of human ingenuity Disruptive (AI) and Big Data analytics accelerating disruption Embedding narrow AI Road-to-rail Disruptive technology in the technology across multiple sectors of into business Increased efficiency Road-to-rail modal shift well Convergence of AI-driven mobility system impacts the global economy processes accelerates in upstream and modal shift advanced 3D printing technology at industrial scale Digital mass media Increased technology platforms road-to-rail market share Drone freight automation, having a downstream markets Advancements in unemployment disrupting existing system reduces quantum of goods to be transported. manipulation negative impact on jobs electric vehicle Broad AI begins disrupting business Hyperloop due to disruptive creating risks and logistics business models, Opportunities to adapt through new products displacing traditional Augmented Predictive analytics provide new avenues technology begin to models and reducing embedded waste and logistics services mobility technologies Drone pilot Automation displacing existing jobs jobs New reality of revenue generation and adaptive reduce demand for (time and resources) in the economy training impacts job competencies capacity increasing business resilience petroleum products Artificial opportunities Intelligence 00 Transnet Integrated Report 2019 00
We intend to hold off on large-scale changes in the year ahead while we stabilise the Company and rebuild our social and relationship capital with key stakeholders. 40 Transnet Integrated Report 2019 41
Addressing stakeholder interests
Our stakeholder universe The 2019 Multi-Stakeholder Perception reflect the new Board’s ongoing efforts Employees reported a high level of engagements with communities, channels that work best for them. Our Survey covered 14 of the 17 stakeholder to re-engage stakeholders in a genuine dissatisfaction and weakening of business forums and the Amakhosi messaging intends to contextualise the categories as per our stakeholder spirit of collaboration, transparency and relations. This stakeholder category (community leadership) in those regions new business strategy within the King IV. P16 universe. good corporate citizenship. (n=300) comprised both management during the reporting period to establish present business environment, our and non-management. Only 24% of formal structures to manage these historical context and the broader The sample size (n) for the survey was We recognise the critical value of good Regulators (n=5) noted an overall employees rated the quality of their needs and expectations. market, and to make it understandable, stakeholder relationships in ensuring 450, a 66,6% increase from the 150 improvement in their relations with relationship with Transnet as an accessible, and implementable across that the Company operates optimally to respondents in the 2016/17 financial Transnet, with at least 80% of employer as good, citing the following Transnet. achieve its mandate. As such, we year survey, owing to the inclusion of participants indicating a very high issues: Engaging our continue to strive to improve the ways in employees which comprised both During the year, greater emphasis was improvement in engagements. This can be which we engage and communicate with management and non-management • Dissatisfaction with issues relating to stakeholders on the new placed on actively engaging with attributed to the numerous engagements our stakeholders. During the year, we (n=300). The results of the survey are lack of uniformity in the application of Transnet strategy stakeholders. The newly-appointed reviewed our stakeholder universe, conclusive given that, of the 450 with the Railway Safety Regulator and policies and procedures. Board worked persistently to rebuild and which comprises 17 stakeholder participants surveyed, 89,7% (404) Ports Regulator to manage issues • Lack of recognition, talent nurturing regain confidence with our stakeholders. categories that have the potential to relating to the Railway Safety Permit and reported that they have been active and reward. King IV. P16 The Board hosted its first stakeholder affect or be affected by the the tariff applications. Further, Transnet stakeholders to Transnet (whether • Poor and ineffective communication. breakfast with financial institutions, organisation’s activities. These passively or involved) for a period of has made progress with environmental Transnet’s new strategy will be investors, business organisations and the categories of stakeholders also have the • The lack of transparency and more than two years, while the remaining regulators through bilateral/multilateral implemented through a new operating media, with the objective of updating the power to influence our business, both consultation with respect to the new 10,3% (46) have been stakeholders for engagements to streamline processes model that places customer-centricity, South African public on the status of our positively and negatively. operating model. less than two years. We recorded a 100% relating to regulatory requirements, operational excellence, financial business, our commitment to response rate across all questions. • Job security. We promote an inclusive approach when especially relating to Environmental sustainability and integration at the core transparency and good governance, and A summary of results of the survey is engaging our material stakeholders. We Authorisations and Atmospheric of the business. Accordingly, Transnet’s our commitment – as the Board – to provided below and can be read in full in Communities (n=21) cited issues align as far possible to the King IV Code Emission Licences. stakeholder engagement strategy is stabilise the organisation. the detailed Stakeholder Report on pertaining to lack of access to business in executing our mandate and attempt to being adapted to share the key tenets of Transnet’s website at www.transnet.net. and job opportunities, requesting that consider all legitimate and reasonable Financial institutions (n=20) also the strategy with material stakeholders. Transnet further held numerous employee they be more engaged, and that certain needs, expectation and interests of all expressed a good level of satisfaction engagement sessions across the business opportunities be ring-fenced for those in our material stakeholders. We continue with Transnet’s engagement efforts. The stakeholder engagement strategy is to share the Board’s vision and to provide Results of the 2019 close proximity to our operations. designed to be transparent, and to reach a platform through which employees can to improve the quality of our stakeholder Overall, aspersions cast against Accordingly, Transnet held numerous stakeholders through the communication engage with the Company’s leadership. relationships and are guided by the Multi-Stakeholder Transnet’s governance processes and Stakeholder Engagement Policy and Perception Survey prolonged investigations into corruption Stakeholder Engagement Management have resulted in a high level of doubt in Procedure in our endeavours. Together, The overall quality of Transnet’s they provide a methodical, company- engagement during the 2019 financial the integrity of the organisation’s wide approach to managing stakeholder year was measured at 65%, reflecting a leadership. Transnet has however, made engagements. These engagements range 5% improvement from the previous good progress in rebuilding trust with Figure 9: Key issues/concerns impacting stakeholders during the 2019 reporting period from formal, daily communication with survey (2018: 60%). We also recorded lenders through continuous open stakeholders to responding to crises. good performance overall in terms of the engagements as part of the remedial quality of our stakeholder relationships, plan developed in response to the 2019 issues raised Link to 2019 emerging risks Stakeholders interested/affected Transnet’s detailed Stakeholder with 75% of survey participants qualified audit opinion, financial control Engagement Report for the 2019 indicating an overall good quality of their environment and other governance financial year is available online at Community unrest leading to business interruptions, funding risks, ethics and relationship with Transnet. The results matters. Stakeholder engagement www.transnet.net. reputational risks Ethics and corruption Funding risks, ethics and reputational risks Transparency and 2019 Multi-Stakeholder e o de Funding risks, ethics and reputational risks ini te u to e accountability Perception Survey Balancing regulated versus unregulated sustaining and expansionary capital ni ed ou Compliance to legal and other investment in the face of funding constraints; delayed auditing financial results nion n e to requirements by external audit – potential impact on local and international legislative requirements 31 July 2019 deadline, railway network safety King IV. P16 o ee $ Funding risks, potential adverse audit outcome – audit qualification relating to u ie Financial sustainability The Remuneration, Social and Ethics irregular expenditure Committee (REMSEC) of the Board of Governance and leadership People risk – tone at the top/company culture, effectiveness of governance Directors oversees Transnet’s structures
stakeholder relationship management. o unitie To execute this duty, the REMSEC Competition risk (high costs of freight services thus uncompetitive, climate Operational change events and the effect on operations), complexity of pricing, derailments – tin encie nd resolved that Transnet conducts a in nci n titution efficiency/performance impairment of assets relating to derailment and its impact on the Company’s Multi-Stakeholder Perception Survey financial performance, ICT vendor management every two years to independently gauge n net t e o de Transnet’s overall strategy Complexity of pricing, competition risk how the organisation is perceived by its e u to Operating context Operating continued stakeholders. Over and above gauging uni e e
n e ent Addressing and responding to Reputation and brand, community unrest leading to business interruptions, ethics perception, Part 5.5 of the King IV issue concerns and reputation at risks Report provides inter alia that: Corporate social responsibility Community unrest leading to business interruptions, ethics and reputational risks
5.1 (4e) “The governing body shall o e n ent i ecto Ineffective and poor communication Community unrest leading to business interruptions, ethics and reputational risks
oversee stakeholder relationship o o d management, including the Clarity on the operating model Corporatisation of the National Ports Authority and Pipelines measurement of the quality of
Not keeping promises o etito Funding risks, ethics and reputational risks relationships and resultant appropriate odie
responses.” nte n tion
Organised Labour Unions Customers n titution Employees Financial Institutions Opinion Influencers Suppliers Government Regulators Community
c de i edi 42 Transnet Integrated Report 2019 43
Addressing key stakeholder concerns Stakeholder categories: Shareholder Minister and Board of Directors Engagement frequency and communication vehicles: King IV. P16 • Frequency: Periodically, annually and quarterly • Vehicles: Memoranda, letters, meetings and telecons Table 8: Key issues arising from our 2019 Multi-Stakeholder Perception Survey Reasons for engaging with the Shareholder Minister Key engagements in 2019 Key issues/areas of interest Stakeholder categories: Employees and Management • Negotiate and conclude the Significance • Engagement on and approval of the • Mainstreaming of private sector Engagement frequency and communication vehicles: and Materiality Framework detailing Significance and Materiality Framework. partnerships (PSPs) how to address significant transactions • Frequency: Periodically • Engagements on the strategic outlook • Development of the new strategy for ministerial approval or noting. of the Company considering the winding • Vehicles: Newsflashes, email, staff broadcasts, roadshows and meetings • Development of the new operating model • Conclude the Shareholder’s Compact down of the Market Demand Strategy – • Operational and financial performance between July and December annually. as part of the new strategy formulation. Reasons for engaging with employees • Linking incentives to performance and and management Key engagements in 2019 Key issues/areas of interest • Report on the Company’s performance • Negotiation of the 2019/20 audits against the Shareholder’s Compact and Shareholder’s Compact. • Understand and respond to the needs • The Acting Group Chief Executive held • Lack of consequence management • Corporate governance issues share the strategic direction and goals and concerns of our employees. numerous employee engagement • Transparency and accountability • Reporting of interim results in of the Company. September 2018. • Ensure that we remain an employer of sessions across Transnet between • Uniform application of policies and choice by providing a conducive working November 2018 and March 2019. procedures • Board strategy session in November environment. • Transnet launched the Employee Value • Female representation at top 2018 to review Transnet’s financial and • Share the strategic direction of the Proposition and Values Cascade session management level operational performance. in November 2018. Company. • Uncertainty about the new operating model Our responses: • Share the performance of the Company. • Job security • We have started discussions on possible projects to be set aside for PSPs. Our responses: • We have assembled a team to focus on the development of the new strategy and operating model – this process is ongoing. • We are instituting mechanisms to improve performance, including initiatives to recover lost volumes from the first quarter and • We issued precautionary suspension letters to employees who have been implicated in allegations of corruption through internal audit and forensic reports. broadly reconfiguring the Company to align with customer requirements. • We are providing refresher training to management and bargaining unit employees at Transnet Group Services on the talent • We are including a clause in the 2019/20 Shareholder’s Compact to set out parameters for the treatment of the incentive regime. management process – concept, methodology and the role of both management and employees throughout the process. • We have instituted mechanisms to improve corporate governance, including lifestyle audits, co-operation with the Zondo • We provided training on Performance Management and Contracting to management in February 2019. Commission of Inquiry and are acting on the forensic reports commissioned by the Company. • We are establishing a central human resources approach – Project Sisonke – which structures support services of human resources • The Group Leadership Team was dissolved and an interim Executive Committee was established to stabilise the Company and to services into a shared service model across operations to uniformly apply procedures and policies. introduce a renewed focus on organisational performance. • We provided fraud awareness training to employees.
Stakeholder categories: Investors and Rating Agencies and Financial Institutions Stakeholder category: Customers Engagement frequency and communication vehicles: Engagement frequency and communication vehicles: • Frequency: Periodically, annually, quarterly and bi-annually • Frequency: Annually, bi-annually, periodically, quarterly and ad hoc • Vehicles: Meetings, email, telecons and formal letters • Vehicles: Customer Satisfaction Survey, letters and telecons Reasons for engaging with investors Reasons for engaging with customers Key engagements in 2019 Key issues/areas of interest and rating agencies and financial • Obtain feedback on perceived service • The Board led an engagement with • Competitive pricing institutions Key engagements in 2019 Key issues/areas of interest quality through the Customer customers, business organisations and • How Transnet can collaborate with • Ensure good governance and deepen • Transnet hosted a stakeholder breakfast • Accountability Satisfaction Survey. media in East London, where a customers and partners early on in Memorandum of Understanding (MOU) trust. in February 2019 with financial • Leadership stability • Participate in sector events, such as the projects to make them ‘bankable’ African Mining Indaba as platforms to was signed with the Buffalo City • Manage investor expectations and institutions, investors, businesses and • Transnet’s overall strategic direction • Reducing the cost of logistics the media to demonstrate its connect with current and potential Metropolitan Municipality and East reputational risk. • Financial sustainability • Customer service commitment to transparency and good customers. London Industrial Development Zone • Provide performance information. • 2018 financial year’s qualified audit • Low levels of trust in our ability to deliver governance as well as the Board’s • Engage customers through customer (IDZ) to harness the potential of the • Inform them about our strategy, opinion services reliably commitment to stabilising the breakfast sessions to demonstrate Port of East London and the IDZ to governance, capex plans, funding needs • Poor customer communication Company. This was followed by a • Financial control environment commitment to gauging and responding foster economic growth in East London. and credit information. • Declining rail performance levels and roadshow (London/Frankfurt) to update • Governance matters to their needs and concerns. • The Acting Group Chief Executive spoke • Meet with credit rating agencies for poor port productivity resulted in our international lenders and investors. • Ethical leadership • Address service offering matters at the African Mining Indaba where he liquidity reviews. industry and customer complaints • Quarterly engagements with lenders through the Customer Nerve Centre. shared the Company’s long-term vision • Lack of integration on key customer focused on the 2018 financial year’s to facilitate an integrated freight
Operating context Operating continued touchpoints qualified audit opinion, financial controls logistics system in Africa. (remedial action) and governance • Transnet participated in the South matters. African Production and Inventory • Transnet met with key global players Control Society which took place at the World Economic Forum to attract from 10 to 13 June 2018. investment. Our responses: Our responses: • We continue to engage with customers outside of formal meetings to showcase other service offerings. • We have implemented a remedial plan that was shared with lenders affected by the audit qualification event, and with other lenders • We are establishing a Customer Nerve Centre to serve as a centralised touchpoint that will facilitate the understanding, internal and stakeholders such as rating agencies. The remedial plan focuses on ensuring completeness of reporting on irregular alignment, drive and ownership required to fulfil customer desires and resolve issues timeously. expenditure as well as developing additional controls to prevent irregular expenditure from recurring. • We are following up on issues and opportunities emanating from engagements with our African counterparts. • We launched an investor portal in December 2018 to provide targeted interim performance information via a quick access online • We are engaging customers to discern their interests and concerns in order to incorporate these into the new operating model so mechanism. that it responds to customers’ needs. • We continue to regularly engage with lenders and investors, providing updates on our performance and funding needed. 44 Transnet Integrated Report 2019 45
For more Stakeholder category: Regulators information Engagement frequency and communication vehicles: • Frequency: Periodic, monthly, quarterly SCAN TO DOWNLOAD • Vehicles: Meetings, letters, MOUs and telecons THE STAKEHOLDER ENGAGEMENT REPORT Reasons for engaging with regulators Key engagements in 2019 Key issues/areas of interest • Facilitate the strategic management of • Quarterly meetings held with the • Compliance with legal and other economic regulation, safety regulation Department of Environmental Affairs requirements, including permit and and the transport policy to ensure and the Department of Water and licence conditions compliance, operational time and Sanitation to discuss pending permits • Transnet’s application of the asset base reputation and to prevent loss of and licences as well as compliance to valuation methodology on TNPA’s revenue. existing authorisations. regulated assets • Discuss and submit tariff applications • Meetings on the decommissioning of • Adherence to Rail Safety Permit based on approved methodologies. the Durban-Johannesburg pipeline. requirements • Ensure that the Company’s policy is • Transnet National Ports Authority • Project planning and funding for the aligned to its regulatory position. (TNPA) and Transnet Pipelines (TPL) decommissioning of the Durban- • Discuss compliance issues. tariff application meetings. Johannesburg pipeline • Delays and cost overruns on the completion on the New Multi-Product Pipeline (NMPP) project Our responses: • We are continuing with bilateral/multilateral engagements with relevant authorities to streamline our processes with regulatory requirements. • We continuously engage the Ports Regulator in respect of the regulated asset valuation methodology. • A proposal to establish a team to review the Railway Safety Permit application has been communicated to the Regulator. The team will comprise representatives from both the Regulator and railway operators. We continue to engage the Railway Safety Regulator to demonstrate our safety management system. • We are in continuous engagement with Nersa to provide updates on the Durban-Johannesburg Pipeline decommissioning plan. • An NMPP prudency exercise is underway.
Stakeholder categories: Communities and Suppliers Engagement frequency and communication vehicles: • Frequency: Periodically • Vehicles: Meetings, campaigns, events and direct engagements Reasons for engaging with communities and suppliers Key engagements in 2019 Key issues/areas of interest • Understand their needs and • Launch of an enterprise development • Access to enterprise and supplier expectations. mega hub in Richards Bay in development opportunities • Forge partnerships that serve to March 2019. • Job opportunities facilitate asset-based community • Engagements held between April and • Health and safety along the railway development. December 2018 with community forums reserve • Create awareness about railway safety, in the Gert Sibande District • Access to bursaries Municipality, King Cetshwayo District including level crossings. • Skills development Municipality, Umkhanyakude • Communicate Transnet’s Community • Localisation of supply and labour Investment Plan. Municipality and Zululand District Municipality to discuss job and business opportunities. • The Acting GCE engaged local business forums through stakeholder breakfasts
Operating context Operating continued and dinners. • Engagements with Amakhosi in KwaZulu-Natal. Our responses: • We continue to present youth development opportunities through skills training to enable them to enter the mainstream economy by becoming employed or starting their own businesses. • Through our Learning and Development department, we are ring-fencing opportunities for Engineers-in-Training, Chartered Accountants as well as Young Professionals-in-Training. • We provide primary healthcare services via the Phelophepa Healthcare Trains. • We are providing socio-economic development opportunities through hubs. • We are offering education and sports through the Whole School Programme, which provides support to both learners and teachers. • We are taking an integrated approach to enterprise and supplier development and CSI to ensure a much greater impact on the societies surrounding our operations. • We launched an enterprise development mega hub to support and transform the growth of small, medium and micro enterprises and aspiring entrepreneurs in Empangeni in Richards Bay. 46 Transnet Integrated Report 2019 47 Our performance and outlook
Acting Group ransnet has produced solid maintain capacity in the rail and ports financial results in a challenging divisions. year and progress on stabilising Transnet has Chief Financial the business is yielding positive The Company expects to invest a further T results. produced solid R153,5 billion over the next five years, while the core focus remains on Transnet’s leadership is committed to financial results Officer’s review sustaining and growing volumes. Transnet implementing the necessary remedial in a challenging is also seeking new growth paths to plans and restoring integrity throughout Mr Mark Gregg-Macdonald year and progress diversify our revenue to compensate for Acting Group Chief Financial Officer the organisation. on stabilising the lower growth expectations in its The performance for the reporting period traditional market segments. unfolded under tough conditions for the business is yielding South African economy. positive results. Funding In addition to tough macroeconomic As at 31 March 2019, the Company’s conditions, the operational environment total borrowings amounted to was also beset with numerous R127,6 billion (2018: R122,6 billion), an challenges, which led to the Company increase of R5 billion compared to the Despite our best efforts to improve railing only 215,1 mt for the year. prior year, primarily due to foreign internal controls – particularly our Weighted volumes (i.e. aggregate of rail, exchange rate movements. The increase procurement controls – we were unable port and pipeline commodities) to avoid an audit qualification on the in the value of borrowings, is offset by a performed at 93,65% against the completeness and accuracy of the corresponding increase in net derivative planned target. reported Irregular Expenditure during financial assets, as exposure to foreign the year. The audit finding related to the exchange movements is fully hedged. Transnet’s 2019 financial performance interpretation on the use of certain was severely impacted by the lower- tender prequalification criteria (with The gearing ratio at 44,5% remains well than-budgeted volume of bulk reference to Preferential Procurement below the threshold of 50% prescribed in commodities railed. This was as a result Regulations, 2017) that was inconsistent the Shareholder’s Compact. Cash interest of the contraction in the mining sector as with the legislation. Kindly refer to note cover reflects Transnet’s strong well as other variables impacting our 40 in the Annual Financial Statements cash-generating capability and, at operational performance. and to page 74 of this report. 2,9 times, is comfortably above the Group revenue grew by a marginal 1,6% triggers in loan covenants. With the year on year to R74,1 billion, supported Capital expenditure subdued business environment, Transnet by strong performance in the pipeline We continued to execute our will be taking a more conservative business. infrastructure investment programme, approach in the management of its spending R17,9 billion for the year financial position in the near term. Stringent cost-containment measures (2018: R21,8 billion), which brings total resulted in operating expenses being expenditure over the past seven years to Credit ratings contained to R40,3 billion, which R183,5 billion. represents a R6,8 billion saving against Transnet has two officially recognised planned costs. This resulted The capital investment for the year rating agencies: Standard & Poor’s (S&P) in EBITDA improving by 3,8% to comprises R3,2 billion invested in the and Moody’s Investors Service (Moody’s). R33,8 billion, and EBITDA margin expansion of infrastructure and Transnet’s credit rating as at 31 March improving to 45,6%. equipment and R14,7 billion invested to 2019 is depicted in the table below.
The Company achieved 65% of the total number of key performance indicators Issuer rating Moody’s S&P For more (KPIs) contained in the Shareholder’s information Compact for the period ended 31 March Foreign currency rating Baa3/stable outlook BB/stable outlook 2019. Significantly, 100% of Transnet’s Local currency rating Baa3/P-3/stable outlook BB+/stable outlook SCAN TO DOWNLOAD financial sustainability KPIs were THE 2019 ANNUAL FINANCIAL achieved. This is reflective of the National scale rating (NSR) – Aa1.za/Aa3.za/P-1.za/ zaAA+/zaA-1+ STATEMENTS organisation-wide effort to lower costs long and short term stable outlook and maintain financial discipline. BCA/SACP Baa3/stable outlook bbb- Efforts to improve operational efficiency as well as governance and internal controls are critical to maintaining and improving on our financial sustainability.
48 49 Transnet Integrated Report 2019
Moody’s Governance issues were highlighted to operational climate, we are heartened Operating Divisions’ review still pose a risk to Transnet’s ratings, by instances of record-breaking On 28 March 2019, Moody’s released an particularly the SACP rating. Should performance across the Company, as KPIs update of Transnet’s credit opinion, management and governance matrices evidenced by the continued commitment followed by an opinion on the Sovereign Freight Rail Engineering National Ports Authority Port Terminals Pipelines – which have been revised to fair – of our many dedicated employees across on 2 April 2019. The agency did not take deteriorate further, Transnet’s SACP may South Africa. 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 any rating action as was scheduled in the be downgraded. rating calendar. In the credit opinion, We expect the Company to continue to Revenue (R million) 43 582 43 709 10 524 11 250 12 450 11 700 13 086 12 393 5 262 4 488 Moody’s highlights that they still expect generate strong cash flows, to maintain South Africa’s credit profile to be in line Prospects affordable levels of debt without any Operating expenses (R million) 24 076 23 236 11 261 11 389 4 133 4 503 8 545 8 221 1 266 1 296 with Baa3 rated sovereigns. As we emerge from a year marked by Government support, and to continue to several distractions, defined in large part report year-on-year improvement in Should the Sovereign be downgraded, EBITDA (R million) 19 506 20 473 (737) (139) 8 317 7 196 4 541 4 172 3 996 3 192 by the Board and management’s efforts financial performance. More importantly, Transnet will also be downgraded as it is to remediate the widespread effects of we trust that our efforts will contribute classified as a Government Related ROTA (%) 6,6 7,8 (6,5) (0,9) 7,0 7,04 20,5 17,2 7,0 7,04 corruption on our business, the way to the overall efficiency and growth of Entity in terms of Moody’s methodology. forward is clear. While we have the South African logistics environment In parallel, Transnet’s Baseline Credit Capex 14 818 17 598 301 275 941 1 054 1 515 1 365 326 1 544 experienced operational challenges, and, in turn, have a positive impact on the Assessment can be downgraded if particularly in the port environment, we economic growth of the country. 4 682 4 778 4 534 4 664 working capital remains constrained. Volumes (mt) 215,1 226,3 n/a n/a n/a n/a 17 825 16 345 are confident that the continued efforts ('000 TEUs) (’000 TEUs) (‘000 TEUs) (‘000 TEUs) of the current leadership to enhance S&P internal controls, improve operational Black employees (%) 88,74 87,9 81,7 80,8 88 88 88 87 90 89 On 28 November 2018, S&P affirmed all efficiency and customer service, and to Training spend (% of personnel cost) Transnet’s ratings, citing its strong shape the ethical cultural bedrock 2,03 2,1 2,4 2,6 1,5 5,9 3,2 1,5 1,1 3,5 stand-alone credit profile (SACP) required to set the Company on its new Mr Mark Gregg-Macdonald growth trajectory, will deliver the quality Disabling injury frequency rate (DIFR) 0,90 0,91 0,66 0,66 0,41 0,33 0,52 0,67 0,18 0,09 supported by its solid operating Acting Group Chief Financial Officer and reliable service needed to build a performance in the 2018 financial year. % energy-efficiency improvement on the globally-competitive national freight Transnet’s ratings are capped to that of 26 September 2019 previous year (electricity) 1,60 (1,43) 0,70 16,88 2,80 0,36 5,40 (7,27) 1,50 1,23 the Sovereign’s due to its strong linkages system. with the Government. Regional integration: Despite the challenges experienced in Cross-border revenue (R million) 2 152 2 113 166 254 69,8 77,9 6,7 5,9 n/a n/a 0 89,1 the year’s difficult business and
Revenue Revenue Revenue Revenue Revenue Figure 10: Transnet’s Performance Framework billion billion billion billion billion Strategic focus areas Business Department of Public Enterprises’ R43,6 R10,5 R12,5 R13,1 R5,3 and key KPIs enablers Statement of Strategic Intent Performance key Revenue decreased by 0,3% to R43,6 billion Revenue decreased by 7% to R10,5 billion Revenue increased by 6,4% to R12,5 billion Revenue increased by 5,6% to R13,1 billion Revenue increased by 17,2% to R5,3 billion (2018: R43,7 billion), mainly due to the 4,9% (2018: R11,3 billion), due mainly to a decline (2018: R11,7 billion), mainly due to an increase (2018: R12,4 billion), due mainly to lower than (2018: R4,5 billion), due mainly to the Nersa decrease in volumes resulting in a R2,1 billion in external orders as well as poor cross- in tariffs and the discontinuation of clawback anticipated volumes. decision to increase the 2018/19 petroleum Improvement on prior year performance unfavourable volume variance. This variance border sales. Low Africa sales for the current accounting. allowable revenue by 25,96%. was partially offset by an increase in average year were mainly due to competition and Operating expenses increased by 3,9% to Rand/tonne at R196,55 in 2019 unfavourable macroeconomic conditions. Operating expenses decreased by 8,2% to R8,4 billion (2018: R8,2 billion). While costs Net operating expenses decreased by 2,3% to Socio-economic Reduce the cost Decline on prior year performance Financial Stakeholder (2018: R186,75). R4,1 billion (2018: R4,5 billion), mainly due to have been tightly managed, energy costs R1,27 billion (2018: R1,3 billion), mainly as a development of logistics as a percentage Operating expenses reduced by 1,1% to savings on maintenance and other operating have increased by 8,3% as a result of higher result of significant inventory write-offs in the sustainability engagement outcomes of transportable GDP Target achieved Operating expenses increased by 3,6% to R11,3 billion (2018: R11,4 billion). costs as well as the capitalisation of operating year-on-year tariff increases. Also, repairs and prior year that did not repeat. R24,1 billion (2018: R23,2 billion). Austerity Engineering implemented aggressive cost- lease expenditure as required by IFRS 16. maintenance on aging bulk and other operating measures yielded significant cost savings in optimisation initiatives, with savings noted in equipment increased by 14,5%. EBITDA of R4,0 billion (2018: R3,2 billion) is Target partially achieved administration and overhead costs. maintenance, energy, travel and leases. With EBITDA increasing by 15,6% to 25,2% higher than the prior year. Effect and accelerate modal R8,3 billion (2018: R7,2 billion), the EBITDA EBITDA grew by 8,8% to R4,5 billion Skills development Operational The EBITDA margin decreased 1,2% to 44,8% Engineering had an EBITDA loss of margin increased to 66,8% (2018: 61,5%). (2018: R4,2 billion) and the EBITDA margin shift by maximising the role of rail Equivalent performance to prior year Capacity readiness (2018: 46,8%) with EBITDA reducing by 4,7% R737 million (2018: R139 million loss). increased from 33,7% to 34,7% in 2019. in the national transport task to R19,5 billion (2018: R20,5 billion). Significant turnaround strategies are in place creation Target not achieved to improve Engineering’s performance. Health and safety Return on average total assets decreased by 6,6% (2018: 7,8%), due mainly to a decrease Leverage the private sector in the in operating profit, somewhat offset by the Governance provision of both infrastructure and impact of a decrease in asset base following the Regional integration operations where required devaluation of infrastructure assets. Industrialisation Opportunities in the short to medium term: Opportunities in the short to medium term: Opportunities in the short to medium term: Opportunities in the short to medium term: Opportunities in the short to medium term : • Assist in reducing logistics costs through • Energy-saving initiatives including • Section 56 concessions will be considered as • ‘Back-of-port’ opportunities offer • Diversify into the LNG market. Community Integrate South Africa with the acceleration of road-to-rail initiatives, installation of solar PV in all office blocks an additional source of revenue. warehousing and value-add services in the • Create import capability for new users at Ethics thereby ensuring the long-term and the phasing out of non-energy-efficient container, mineral bulk and automotive development region and the rest of the world • The real estate business is geared to bring Island View in Durban. competitiveness of the national freight systems. additional revenues. segments.
Our performance and outlook continued For more • Terminal operations planned at Island View information system. • Offer funding packages for rolling stock • TNPA will continue managing costs through • Private sector participation opportunities and Ambrose Park in Durban. sales to customers in targeted markets. Environmental • Collaborate with supply chain partners and cost-saving initiatives. may reduce funding and operational • Grow the non-regulated business by sharing stewardship Optimise sustainable economic, the private sector to encourage participation • Provide turnkey products and service requirements and present opportunities to Operational skills, knowledge, pipeline training and Human social and environmental outcomes SCAN TO DOWNLOAD and creation of cost-effective, rail-based solutions for locomotives, wagons and leverage partner capabilities for mutual operational services with other African excellence OPERATING DIVISIONS’ end-to-end logistics solutions such as maintenance. benefit. capital of all activities undertaken pipeline companies in the Southern Africa REPORTS intermodal terminals, common-user facilities • New bulk commodity mines across the world • The Transnet Value Chain Co-ordinator Development Community, including Kenya. Investment leveraged and strategic hubs. by the SOC provide for an expanding market. continues to facilitate operational efficiency • Structure the intermodal integration of a • Optimise the capital portfolio to assure rail improvements and logistics integration with Freight Rail and Pipelines service offering capacity; and improve business performance Freight Rail, creating opportunities to shift for liquid fuel. through the execution of operational more cargo from road to rail, ease congestion efficiency initiatives – Productivity of on the roads and reduce carbon emissions. Wagons, Operations Control Centre, and the • Offer tailor-made solutions to original Value Chain Integration Programme. equipment manufacturers in the automotive • Improve operating models and practices to industry. increase regional volumes in co-operation with regional partners. 50 Transnet Integrated Report 2019 51
Five-year review: Key profitability ratios and statistics Revenue for the year increased by 1,6% to R74,1 billion (2018: R72,9 billion), supported by a 9,1% increase in petroleum volumes. The increase in Financial petroleum volumes is mainly due to the operationalisation of Terminal 2. IT arg n We expect the Company A sustainability: Operating expenses were to continue to contained to R40,3 billion, generate strong cash (2018: R40,4 billion) despite an increase of 16,6% in fuel costs. flows, to maintain performance Numerous cost-optimisation Income statement initiatives implemented throughout for the year ended 31 March 2019 affordable levels of debt the Company aided cost King IV. P5 containment, resulting in a R6,8 B without any billion saving against planned Audited Government support, costs. These initiatives included The technical recession experienced during rationalising overtime, reducing 31 March 31 March and to continue to the second quarter of 2018, coupled with a professional and consulting fees (in R million) 2019 2018 decline in the agriculture, transport and and limiting discretionary costs ear ng report year-on-year manufacturing industries, as well as reduced relating to travel, printing, Revenue 74 070 72 887 stationery and A activity in Government sectors and trade, improvement in telecommunications. contributed to a marginal GDP growth rate of B Net operating expenses excluding depreciation and amortisation (40 320) (40 372) financial performance. only 0,8% for the 2018 calendar year. EBITDA increased by 3,8% to R33,8 billion (2018: R32,5 billion) C Profit from operations before depreciation, Amid these trying economic conditions, with the EBITDA margin increasing C derecognition, amortisation and items listed to 45,6% (2018: 44,6%). Transnet had to address numerous allegations below (EBITDA) 33 750 32 515 of fraud and corruption, performing its own forensic investigations and collaborating with Impairment of assets, amounting to Depreciation, derecognition and amortisation (14 274) (13 686) various law-enforcement agencies to R2,7 billion (2018: R1,4 billion), is Profit from operations before items determine the extent and impact of reported primarily due to the impairment of D listed below: 19 476 18 829 incidents. The current leadership made property, plant and equipment, resulting from derailments, the significant progress in addressing each as nterest o er t es index valuation impairment on port Impairment of financial assets (444) (681) allegation, instituting the requisite remedial D operating assets and impairments Impairment of non-financial assets (2 244) (761) actions and taking steps to stabilise the on trade and other receivables. organisation. Post-retirement benefit obligation expense (287) (268) Fair value adjustments amounted Numerous other operational challenges to a R3,3 billion gain E Fair value adjustments 3 271 410 (2018: R410 million gain). These impeded the Company’s ability to achieve the Income from equity-accounted investees 19 9 planned volumes and operational efficiency adjustments are mainly due to targets. investment property fair value Profit from operations before net gains, recognised in terms of E finance costs 19 791 17 538 The resultant lower-than-targeted revenue IAS 40 Investment Property, as well as fair value gains on interest was, however, more than offset by stringent F Finance costs (11 597) (10 211) rate swaps in terms of IFRS 13 Fair cost-containment measures that resulted in a Value Measurement and Finance income 387 302 0,1% decline in operating costs compared to R T ra operat ons IFRS 9 Financial Instruments. Profit before tax 8 581 7 629 the prior year. Income tax expense (2 534) (2 778) Finance costs increased by Commentary on key ratios 13,6% to R11,6 billion G Profit for the year 6 047 4 851 (2018: R10,2 billion). This is The gearing ratio increased to 44,5% due to borrowing costs (2018: 43,4%). This level is within the Group’s related to the NMPP project F target range of < 50,0%, and is well within the no longer being capitalised triggers in loan covenants, reflecting the following its operationalisation in December 2017, and increased available capacity to continue with its capital investment plan. The gearing ratio is expected interest rates due to the impact of Statement of comprehensive income the credit rating downgrade in to remain within the target ratio over the November 2017. for the year ended 31 March 2019 medium term. R T port operat ons Profit for the year increased by Audited 24,7% to R6,0 billion G (2018: R4,9 billion). 31 March 31 March Performance key (in R million) 2019 2018 Improvement on prior year performance Profit for the year 6 047 4 851 Decline on prior year performance Other comprehensive (loss)/income (18 603) 8 442 Gains on revaluations (25 970) 11 678 Target achieved Cash flow hedges 789 (1 471) Actuarial gain on post-retirement benefit obligations 90 29 Target partially achieved Tax relating to components of other Equivalent performance to prior year comprehensive income 7 070 (2 859)
Target not achieved Other comprehensive (loss)/income for the year, net of tax (18 021) 7 377
Total comprehensive (loss)/income for the year (11 974) 12 228 52 Transnet Integrated Report 2019 53
Headline earnings Statement of cash flows for the year ended 31 March 2019 for the year ended 31 March 2019
Audited Audited
31 March 31 March Cash generated from 31 March 31 March (in R million) 2019 2018 operations amounted (in R million) 2019 2018 to R35,2 billion Profit for the year attributable to the equity holder 6 047 4 851 (2018: R34,9 billion), an Cash flows from operating activities 21 930 22 958 increase of 0,7% from the Profit on the disposal of property, plant and equipment (54) (1) prior year. The cash interest Cash generated from operations 35 165 34 915 Loss on the disposal of intangible assets — 1 cover ratio (excluding H Changes in working capital (1 633) (2 161) Loss on the disposal of investment property — 6 working capital changes) at Total remeasurements (916) 64 2,9 times (2018: 3,0 times) Cash generated from operations after changes in reflects Transnet’s strong working capital 33 532 32 754 Investment property fair value adjustments (3 160) (697) cash-generating capability. Finance costs (10 968) (8 930) Impairment of property, plant and equipment 2 244 760 This is also comfortably Impairment of intangible assets — 1 above loan covenant Finance income 387 261 triggers. Tax paid (7) — Total tax effects of adjustments (59) 95 Settlement of post-retirement benefit obligations (144) (180) Headline earnings 5 172 4 862 Derivatives settled (870) (947) Cash flows utilised in investing activities (20 124) (24 891) Investment to maintain operations (15 318) (16 795) Condensed statement of financial position Investment to expand operations (4 806) (8 096) for the year ended 31 March 2019 Changes in investments, loans, advances and other Audited investing activities (297) (68) The Company borrows on 31 March 31 March the strength of its financial Cash flows utilised in financing activities (2 030) (109) (in R million) 2019 2018 position and has maintained Borrowings raised* 8 387 13 336 Non-current assets 339 422 352 333 a stand-alone investment- I grade credit rating. New Borrowings repaid (10 417) (13 445) Current assets 16 078 17 490 long-term funding of Net decrease in cash and cash equivalents (224) (2 042) Total assets 355 500 369 823 R6,5 billion was raised Cash and cash equivalents at the beginning Capital and reserves 148 631 156 874 for the period without government guarantees. of the year 4 380 6 422 Non-current liabilities 173 782 158 036 Total cash and cash equivalents at the end of the year 4 156 4 380 Current liabilities 33 087 54 913 * Borrowings raised is reported net of deferred interest of R702 million (2018: R1 227 million), refer Total equity and liabilities 355 500 369 823 to note 34.3 and IFRS 16 adjustment of R777 million (2018: nil). Refer to PPE reconciliation note 9, which is included in borrowings raised for the reporting period.
Segment information for the year ended 31 March 2019
Transnet Transnet Transnet Transnet Transnet Total Total Freight Rail Engineering National Ports Authority Port Terminals Pipelines reportable segments Other1 Transnet
Audited Audited Audited Audited Audited Audited Audited Audited Audited Audited Audited Audited Audited Audited Audited Audited 31 March 31 March 31 March 31 March 31 March 31 March 31 March 31 March 31 March 31 March 31 March 31 March 31 March 31 March 31 March 31 March (in R million) 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018
External revenue 42 650 42 709 1 657 2 467 10 755 10 113 13 073 12 386 5 258 4 484 73 393 72 159 677 728 74 070 72 887 Internal revenue 932 1 000 8 867 8 783 1 695 1 586 13 7 4 4 11 511 11 380 1 599 (11 380) — —
Total revenue 43 582 43 709 10 524 11 250 12 450 11 699 13 086 12 393 5 262 4 488 84 904 83 539 2 276 (10 652) A 74 070 72 887
Our performance and outlook continued EBITDA 19 506 20 473 (757) (139) 8 317 7 196 4 541 4 172 3 996 3 192 35 623 34 894 (1 338) (2 379) C 33 750 32 515 Total assets2 176 443 191 864 19 883 20 245 93 077 94 359 16 970 17 853 43 515 43 873 349 888 369 294 21 918 399 355 327 369 693 Total liabilities 120 912 122 673 20 390 18 713 35 399 43 872 4 508 6 573 21 100 23 375 202 309 216 356 15 925 (3 407) 206 869 212 949 Capital expenditure3 14 818 17 598 301 275 941 1 054 1 515 1 365 326 1 544 17 901 21 836 40 (55) 17 941 21 781 Cash generated from operations after changes in working capital 17 491 20 703 891 (3 978) 8 040 8 308 4 160 4 463 3 545 3 423 34 127 32 919 (595) (165) 33 532 32 754
1 Other includes other segments, inter-unit eliminations and consolidation adjustments. 2 Excludes assets held-for-sale. 3 Capital expenditure excludes the effects of borrowing costs, includes capitalised finance leases and capitalised decommissioning liabilities. See page 51 See page 51 54 Transnet Integrated Report 2019 55
Economic regulation Ports Pipelines Capacity creation and maintenance: performance The tariffs for Pipelines are regulated by On 1 December 2018, after considering On 1 March 2019, Nersa elected to set the National Energy Regulator of South the application, the written and oral Pipelines’ 2020 financial year tariffs as King IV. P5 Africa (Nersa), while the National Ports submissions by all stakeholders, and per sections 4(f) and 28(1) of the Authority’s tariffs are regulated by the based on the latest available data, the Petroleum Pipelines Act, No 60 of 2003. Regulator concluded, in its Record of The Regulator increased Pipelines’ Ports Regulator of South Africa (the Performance review expenditure incurred on the 1 064 • R527 million invested in wagon fleet Regulator). Railway safety permit fees are Decision (ROD), that an appropriate allowable revenue (AR) by 7,69% for the locomotive contract amounts to renewal and modernisations; overall adjustment in average tariffs for 2020 financial year. charged by the Railway Safety Regulator Capital investment R33,6 billion, with R3,9 billion invested • R111 million invested towards the (RSR) to the Company. The Company also the 2020 financial year is a decrease of Transnet continued to execute its asset in the current year. upgrade of yards, lines and electrical operates within a policy context which is 6,27%, and has approved that the This translates into an 11% increase investment programme, spending equipment under the coal line determined by the Department of Public following specific changes to the tariff in the Durban to Alrode tariff from In total, 525 locomotives have been R17,9 billion (2018: R21,8 billion). The investment programmes in expanding book would apply from 1 April 2019: 41,18 cents per litre to 45,70 cents per accepted into operations with a further Enterprises (DPE) and the Department of capital investment for the year ended capacity on the export coal line to litre for the 2020 financial year. seven locomotives delivered Transport (DoT). 1. Marine services and related tariffs are 31 March 2019 represents R3,2 billion 81 mtpa; to remain unchanged at the 2019 and undergoing acceptance testing. In its decision, the Regulator has elected invested in the expansion of capacity • R179 million invested in the Port of financial year levels; Rail to smooth the tariff increases over the mainly on the integrated freight network, In the year under review, Transnet Freight Durban, Durban Container Terminal 2. All container and roll on/roll off (RoRo) while R14,7 billion was invested to (DCT) Berth Deepening project as it Transnet is engaging with the DPE and the next four years. Nersa also deferred Rail and Transnet Engineering embarked cargo dues are to decrease by 10%; maintain capacity, mainly in the rail and commences execution; DoT on the Revised White Paper on the the ‘give back’ on assets until it has on a programme to build the following 3. Coal dry bulk export cargo dues are to ports divisions, taking the total • R99 million invested in the National Transport Policy, Economic finalised its prudency study in the wagons: increase by 10%; and investment for the past seven years to reconstruction of sheet-pile quay walls Regulation of Transport Bill, 2018, and the 2020 financial year. • CR13 (iron ore): 318 wagons R183,5 billion. in the Port of Durban, Maydon Wharf Railway Safety Bill, 2017. Transnet will 4. The following tariffs are to be reduced manufactured and commissioned. precinct, which has been completed; continue to engage the DoT through to upper limit caps applicable as The Company expects to invest a further • CR19 (GFB): 169 wagons manufactured • R95 million invested in firefighting existing protocol to contextualise its follows: R153,5 billion over the next five years, and commissioned. upgrades at Pipelines to ensure views and proposals prior to submission of a. All break-bulk cargo dues are to be while the core focus remains on sustaining For the full year period ending 31 March stringent compliance to safety the abovementioned draft policies and capped at R31,50/tonne; and growing volumes. Transnet is also 2019, a total of 393 wagons were standards and regulations; Bills to Cabinet for approval. b. All dry bulk cargo dues are to be seeking new growth paths to diversify its revenue to compensate for lower growth manufactured, commissioned and • A R99 million investment in the capped at R20,00/tonne; accepted into operations by Transnet On 11 May 2018, the Minister of Transport expectations in its traditional market multi-product pipeline towards the c. All liquid bulk cargo dues are to be Freight Rail, a capital investment of published a notice setting out the safety segments. construction of tanks; and capped at R40,00/KL; and R607 million. permit fees payable to the RSR for the • Approximately R2 billion was spent in d. The tariffs below these upper limit Among the Company’s most significant the maintenance and acquisition of 2019 financial year. Transnet paid a Other infrastructure investment caps in the categories above will investments is the acquisition of cranes, tipplers, dredgers, tugs, non-refundable application fee of highlights for the financial year include: remain at 2019 financial year tariff locomotives, infrastructure and rolling straddle carriers and other port marine R53 650 and a permit fee of • R3,1 billion invested in rail levels, excluding coal dry bulk stock to modernise its fleet in anticipation and terminal equipment. R98,94 million. export cargo dues. of a rise in general freight volumes and the infrastructure; solidification of the road-to-rail strategy. • R4,9 billion invested to maintain the Transnet submitted its permit application Furthermore, the Regulator in the ROD As at 31 March 2019, the cumulative condition of rolling stock; to RSR on 30 June 2018. On 8 August indicated that in the 2020 financial year 2018, the RSR issued Transnet’s Railway it will: Five-year review: Investment perspective Safety Permit with two special conditions 1. Reassess the impact of the specific as follows: approach adopted in the valuation of ap tal n e tment m ll on ap tal n e tment operat n e ment • Special Condition 1: Transnet to list all the regulated asset base (RAB) in its rail operational safety and security relation to the sustainability concerns risks on the newly-developed risk expressed by the National Ports i assessment register; and Authority; o t • Special Condition 2 (Human Factor 2. Consult further with port stakeholders, i e ine Management): Transnet to provide the as well as the National Ports Authority n inee in nd ot e RSR with the consolidated number of on the applicability of the historical safety-related and safety-critical cost component of the RAB valuation vacancies against the budgeted in the context of the implementation of positions. section 3(2) of the National Ports Act which requires the corporatisation of otal a et m ll on ap tal n e tment commod t Furthermore, Transnet must demonstrate the National Ports Authority; how it addresses the management of fitness for duty and also provide the RSR 3. Assess the progress of the implementation of section 3(2) of the with training matrices for both technical and non-technical training. National Ports Act; and 4. Finalise the specific approach of the RAB valuation within the next
Our performance and outlook continued multi-year tariff methodology review i ion (which, will be conducted during the 2020 financial year). otal orro n m ll on o i ed
ei t on o e ene ene o o t o o t o o t o o t oduct iti e ut o it e in u ot e cont ine e u n ne e eci nit
u ti co odit u ti co odit 56 Transnet Integrated Report 2019 57
SDO: Investment leveraged Section 56 (S56) projects Operation Phakisa projects Export coal line current year, mainly due to the tough competition and unfavourable Transnet is guided by section 56 of the Operation Phakisa provides collaborative Operational and private sector Freight Rail railed 72,0 mt of export coal macroeconomic conditions. The National Ports, Act No 12 of 2005. partnership opportunities with the private participation (2018: 77,0 mt), 6,5% lower than the prior R2,5 billion shortfall in cross-border The S56 projects help to develop a sector. year. The poor performance was mainly revenue was partially offset by competitive and productive South African excellence: due to low demand in quarter one, panto R1,7 billion worth of maintenance ports industry that contributes to South Our 2019 Operation Phakisa project hook ups, power failures, export coal work performed for Freight Rail. Africa’s economic growth and performance in brief: performance parties under business rescue, mine development. The S56 projects present • R1,8 million was invested by the cancellations, cable thefts, derailments In order to respond to the decline in opportunities for new operators to enter National Ports Authority towards and community unrest that negatively revenue, Engineering implemented engineering prefeasibility studies for the port system in line with the country’s King IV. P5 impacted the export coal line. aggressive cost-optimisation initiatives to transformation agenda 2030. the Richards Bay floating dock project. improve its performance with a focus on The process for identifying a floating As a SOC, we are mandated to deliver its two major cost base items, being Our 2019 PSP performance in brief: dock operator is due to start in the Revenue from operations Export iron ore line integrated cost-effective services to material and labour. • Three S56 projects were launched, latter part of the 2019 calendar year. Export iron ore volumes decreased promote economic growth in South Africa. and volumes productivity namely the Green ship recycling project This project demonstrates positive marginally by 0,2% to 58,4 mt (2018: Although bargaining unit employees Transnet’s business operations portfolios (to be implemented across all ports), market Freight Rail 58,5 mt). The main reason for this was received a 7,5% inflationary increase, enable diverse opportunities to integrate the Maydon Wharf Agri Terminal project appetite and is being progressed the bridge incident that resulted in a a headcount reduction has positively with private companies to leverage Freight Rail operational and financial (public process to commence in the next for a combination of public and 1,7 mt loss. Rail operations were also contributed to personnel costs increasing investments. Through the Investment performance for the period ended financial year), and Lot 100 (Durban private sector investment. 31 March 2019 was below expectations, disrupted by extreme weather conditions by a marginal 1,6% year on year. Leveraged Portfolio, Transnet seeks to liquid fuels facility) at the Port of owing mainly to subdued customer during the financial year. In addition, a Engineering is implementing a flexible supplement the growing demand for • Berth 205, Mossgas Quay and Durban (bid evaluations). demand and operational issues. As a number of network challenges, particularly workforce model that will assist with economic infrastructure that supports East London boat building facility result, volumes railed decreased from main line speed restrictions, resulted in labour cost savings in future financial socio-economic imperatives as mandated • A total number of S56 projects across have not as yet attracted investors 226,3 mt in 2018 to 215,1 mt this year volume losses. years. Engineering has also managed to by the Department of Public Enterprises. the port system to date: 10. due to a lack of demand in a weak economic climate. (a 4,9% decrease). reduce operating expenses by 1,1% Operating expenses increased by 3,6% to (excluding material), due to cost- Private sector partnerships 2019 – S56 project investments Revenue for the period under review R24,1 billion compared to the prior year optimisation initiatives with savings noted (PSPs) decreased by 0,3% to R43,6 billion (2018: R23,2 billion). Austerity measures in maintenance, energy, travel and leases. compared to the prior year (2018: fuelled significant cost savings which were PSPs represent an opportunity for Section 56 projects Invested R43,7 billion). This deterioration is mainly realised mainly in administration and Consequently, Engineering had an EBITDA Transnet to increase capacity and driven by the 4,9% decrease in volumes, overhead costs thus mitigating the impact loss of R737 million (2018: R139 million efficiencies, to lower the cost of logistics Sunrise Energy Liquefied Petroleum Gas Project R1,1 billion resulting in a R2,1 billion unfavourable of increases in certain operating expense loss). There are significant turnaround and to remove barriers to entry for private volume variance, partially offset by an items such as personnel, materials and strategies in place to improve investment and operations in the port and increase in average Rand/tonne Offshore Supply Base (OSSB) R1,87 billion fuel costs which increased above inflation. Engineering’s performance. rail environment. (R196,55 in 2019 compared to R186,75 in Fuel costs increased by 18,2%, mainly as 2018), resulting in a R1,9 billion Burgan Cape Liquid Bulk Terminal R650 million a result of unbudgeted price escalations PSPs enable Transnet to: favourable price and mix variance. The National Ports Authority exacerbated by the RAF rebate rejection • Broaden the available finance pool and average increase in Rand/tonne at 5,2% Cape Town Cruise Terminal R179 million of R189 million relating to claims dating Revenue increased by 6,4% to expedite infrastructure development was slightly higher than the average CPI R12,5 billion (2018: R11,7 billion). (averaged 4,7% over the reporting period) back to the 2013 financial year that were and capacity creation; This is mainly attributable to the increase Durban Cruise Terminal R215 million mainly attributable to the prioritisation of disallowed by the South African Revenue • Encourage intermodal efficiencies and in tariffs and the discontinuation of high-yield commodities in the mix. Services. the modal shift from road to rail; Oil Tanking Grindrod Calulo R2 billion clawback accounting which was partially • Leverage private sector skills and Driven by the deterioration in revenue, the offset by a decrease in volumes. expertise to provide infrastructure and Sheds 10 and 11 General Freight Business EBITDA margin decreased to 44,8% R20 million Net operating expenses decreased by operations; General freight volumes decreased by (2018: 46,8%) with EBITDA reducing by 8,2% to R4,1 billion (2018: R4,5 billion), • Encourage foreign direct investment in Project inception 6,7% to 84,7 mt (2018: 90,8 mt) because 4,7% to R19,5 billion (2018: R20,5 billion). Green ship recycling (new) of the current weak economic climate as due mainly to the capitalisation of the South African and regional phase operating lease expenditure as required infrastructure and industry; well as various operational issues Engineering including network, crew and resource by IFRS 16. • Mitigate risks for large infrastructure Public process in Engineering recorded revenue of Maydon Wharf Agri Terminal (new) challenges. Some commodities performed projects and freight systems 2020 exceptionally well, such as manganese, R10,5 billion (2018: R11,3 billion). It Accordingly, EBITDA increased by 15,6% connectivity; which set a new record, and increased by recorded very low Africa sales for the to R8,3 billion (2018: R7,2 billion). • Position Transnet to support the Lot 100 Port of Durban liquid fuels facility (new) Bid evaluation 2,2% to 14,0 mt (2018: 13,7 mt), chrome involvement of B-BBEE investors in PSP volumes increased by 4,6% to 7,1 mt Table 9: Summary rail volume performance opportunities, thereby contributing to (2018: 6,7 mt) and timber and paper transformation in the broader economy; volumes increased by 3,4% to 2,4 mt 2019 2019 and (2018: 2,3 mt). Key performance indicator Unit of measure target actual • Improve the social and developmental The aforementioned was offset by poor benefits leveraged from such Total rail volumes million tonnes ≥ 235,00 215,13 performance in other sectors such as
Our performance and outlook continued investment programmes through close 99,00 domestic coal, down by 21,1% to 15,1 mt General freight million tonnes ≥ 84,69 collaboration between the public and (2018: 19,1 mt), mineral mining down by Pipeline volumes billion litres ≥ 17 025 17 825 private sectors. 10,1% to 11,5 mt (2018: 12,8 mt) and Eskom coal million tonnes ≥ 11,50 8,54 cement and lime lower by 4,1% to 5,7 mt (2018: 6,0 mt), mainly due to product Container throughput Natcor TEUs ≥ 352 686 424 908 unavailability, plant breakdowns, extreme Container throughput Capecor TEUs ≥ 28 852 57 744 weather conditions, community unrest 272 205 blocking train operations and the impact Automotive units ≥ 198 039 of infrastructure-related crimes on the Freight Rail network. 58 Transnet Integrated Report 2019 59
Port Terminals 4 534 341 TEUs (2018: 4 663 888 TEUs). While costs have been tightly managed, Table 12: Operational efficiency: Density Bulk volumes decreased marginally by energy costs increased by 8,3% as a result Revenue increased by 5,6% to 0,8% to 82,4 mt (2018: 83,1 mt). Bulk of higher year-on-year tariff increases and Improvement/ R13,1 billion (2018: R12,4 billion). volumes were impacted by weaker repairs and maintenance on aging bulk and decline on prior Target achieved/ commodity prices for magnetite, chrome other operating equipment increased by Target Actual Target year or equivalent not achieved/ Volume performance was varied across and coal as well as load shedding and 14,5%. Volumes 2018 2019 2019 2020 performance partially achieved the sectors. The automotive sector supply chain challenges, which impacted increased by 5,6% to 743 350 units the export of bulk commodities during As a result of the above, Port Terminals General freight (GTK/Route km) 5,08 5,56 4,87 > 5,74 (2018: 704 052 units). Break-bulk the year. was able to grow its EBITDA by 8,8% to Natcor (GTK/Route km) 8,04 10,56 8,90 > 10,14 volumes increased by 3,7% to R4,5 billion (2018: R4,2 billion). 19,8 mt (2018: 19,1 mt) while container Net operating expenses increased by Capecor (GTK/Route km) 5,56 5,95 5,77 > 6,93 volumes decreased by 2,8% to 3,9% to R8,4 billion (2018: R8,2 billion). Southcor (GTK/Route km) 4,71 5,52 5,97 > 6,67
Table 10: Summary port volume performance Table 13: Operational efficiency: Loco-utilisation Improvement/ decline on prior Percentage Improvement/ year or increase/ decline on prior year Target achieved/ or equivalent not achieved/ Target Actual equivalent decrease Target Actual Target 2018 performance partially achieved Volumes 2018 2019 2019 performance % Volumes 2019 2019 2020 General freight (GTK’000/Loco/Month) 4 917 4 327 4 551 4 227 Bulk and break-bulk volumes (mt) 102,2 106,0 102,7 0,5 Export coal (GTK’000/Loco/Month) 18 547 17 793 11 147 17 232 Container volumes (000 TEUs) 4 664 4 625 4 534 (2,8) Export iron ore (GTK’000/Loco/Month) 40 458 54 594 34 122 54 576 Total automotive volumes (units) 704 052 725 401 743 350 5,6 Port terminal efficiency Durban Pier 2 Container Terminal has The Ngqura Container Terminal’s SWH has Liquid bulk (million kilolitres) 44,5 42,1 40,4 (9,2) marginally increased its SWH from 53 to decreased from 50 to 47 moves due to Port Terminals’ primary measure of 54 moves. The Cape Town Container limitations in people resources and operational efficiency, average moves per Terminal SWH has also increased equipment uptime, which are both Petroleum volumes transported for attributable to inventory write-offs in the Pipelines ship working hour (SWH), has improved marginally to 46 moves from 45 moves in currently being addressed. The terminal the period increased by 9,1% to prior year that were not repeated. Revenue for the year increased by 17,2% across most container terminals compared the prior year. These improvements have has also experienced a significant decline to R5,3 billion (2018: R4,5 billion). This is 17 825 million litres (2018: 16 345 million Consequently, EBITDA of R4,0 billion to the prior year. Durban Pier 1 Container been achieved despite the terminals in weather conditions which has had a mainly attributable to the Nersa decision litres). Net operating expenses decreased (2018: R3,2 billion) is 25,2% higher than Terminal has improved its average SWH experiencing operational challenges due to negative impact on operations. to increase the 2018/19 petroleum by 2,3% to R1,27 billion (2018: the prior year. performance from 46 to 47 moves in 2019. the deterioration in weather conditions. allowable revenue by 25,96%. R1,3 billion). This decrease is mainly Table 14: Port – average moves per ship working hour (SWH) Table 11: Summary pipeline volume performance Port – containers productivity and Target Performance Target Improvement/ efficiency 2018 2019 2019 2020 Performance Target decline on prior Percentage year or increase/ Moves per SWH Durban Pier 1 46 ≥ 50 47 > 50 Target Actual equivalent decrease Durban Pier 2 53 ≥ 65 54 > 65 Volumes 2018 2019 2019 performance % Cape Town 45 ≥ 56 45 > 56 Transported petroleum volumes (Mℓ) 16 345 17 025 17 825 9,1 Ngqura 50 ≥ 66 47 > 56 3 Gas volumes (million m ) 489 506 509 4,1 The Richards Bay Dry Bulk Terminal’s loading rate reflected an improvement from 785 tonnes per hour in 2018 to 849 tonnes per hour Storage (Mℓ) 315 338 553 75,6 in 2019. The discharge (offloading) rate improved from 391 tonnes per hour in 2018 to 462 tonnes per hour in 2019. Table 15: Port – productivity loading, offloading and dual loading Rail efficiency Port – Continued efforts to improve efficiencies have yielded positive results, as evidenced by the 4,9% improvement in the general freight productivity and Target Performance Target average wagon turnaround time, from 10,0 days in 2018 to 9,6 days. efficiency 2018 2019 2019 2020 Performance Target Dual loading Saldanha – iron ore (Tonnes per General freight productivity and efficiency Export coal productivity and efficiency hour) 8 576 8 100 8 657 8 100
Loading rate Richards Bay DBT – Loading (Tonnes per – Magnetite 1 229 1 050 1 236 1 100 e e Performance 2018 on Performance 2018 hour) on c c e ti e Richards Bay DBT – Loading
Our performance and outlook continued et et tu n ound ou – Chrome 820 950 893 950 ti e d Performance 2019 Performance 2019 Richards Bay DBT – Loading – Coal 688 800 691 800 et et Offloading rate Richards Bay DBT – Offloading (Tonnes per hour) – Coking coal 615 600 532 650 Export iron ore productivity and efficiency Performance key The average tonnes dual loaded per hour at the Saldanha Iron Ore Terminal has been maintained above the target of 8 094 tonnes per hour. Improvement on prior year performance ar t me connect t eneral re t u ne on Performance 2018 Decline on prior year performance c c e ti e et ou Target achieved Performance 2019 Target partially achieved nde erformance erformance et Equivalent performance to prior year et ≥ et Target not achieved erformance erformance et et 60 Transnet Integrated Report 2019 61
Table 16: Port – average ship turnaround times Pipelines efficiency
Target Performance Target Operat n co t e l no in lanned er u actual del er t me o de i e e it in t o ou o n Port – efficiency 2018 2019 2019 2020 Performance Target
Average ship Durban Pier 1 69 ≥ 55 56 < 55 e tin erformance e i e erformance turnaround times co t ti e Durban Pier 2 72 ≥ 53 60 < 63 et et (containers STAT erformance erformance hour) Cape Town 32 ≥ 27 33 < 32 et Ngqura 38 ≥ 30 31 < 30 et
Table 17: Port – anchorage waiting time capac t ut l at on Performance key
Target Performance Target Improvement on prior year performance Port – efficiency 2018 2019 2019 2020 Performance Target erformance Decline on prior year performance c cit Durban Pier 1 42 ≤ 30 33 < 25 et Target achieved Anchorage waiting uti i tion times (average Durban Pier 2 79 ≤ 40 66 < 30 erformance Target partially achieved hours) Cape Town 34 ≤ 28 34 < 25 et Equivalent performance to prior year Target not achieved Ngqura 42 ≤ 28 29 < 28
Table 18: Port – train turnaround time Five-year review: Business growth through volume performance A five-year perspective for volume performance is reflected below: Port – containers productivity and Target Performance Target eneral fre t otal ra l efficiency 2018 2019 2019 2020 Performance Target Train turnaround Durban Pier 1 (hours) 2,4 4 2,3 4 time (hours/ Durban Pier 2 (hours) 2,2 4 2,0 4 minutes) Cape Town (hours) 1,1 4 1,3 4 Port Elizabeth (hours) 7,8 12 7,5 12 Ngqura (hours) 3,9 4 3,8 4 (mt) Richards Bay (hours) 8,4 11 9,1 11 (mt) Saldanha (minutes) 105 109 109 109
Table 19: Port – truck turnaround time
Port – productivity Target Performance Target and efficiency 2018 2019 2019 2020 Performance Target
Truck turnaround Durban Pier 1 55 35 41 35 port coal onta ner time (minutes) Durban Pier 2 72 35 69 65 Cape Town 36 35 35 35 Ngqura 36 35 36 35 Richards Bay 24 35 31 35
Table 20: Port – moves per gross crane hour (mt) Port – productivity Target Performance Target and efficiency 2018 2019 2019 2020 Performance Target (‘000 TEUs)
Moves per gross Durban Pier 1 25 26 24 26 crane hour Durban Pier 2 23 32 21 28 Cape Town 30 33 22 28 Ngqura 25 32 21 28
Our performance and outlook continued Port Elizabeth 23 25 21 25 port ron ore etroleum
ntermodel conta ner and e cle Performance key Improvement on prior year performance erformance Decline on prior year performance et Target achieved erformance (mt)
Target partially achieved (ml) et Equivalent performance to prior year Target not achieved
62 Transnet Integrated Report 2019 63
SDO: Regional integration Cross-border revenue by Operating Division SDO: Health and safety improve efficiencies as well as safety During the year, we lost four colleagues management. We acknowledge that the and 134 members of the public to fatal Operating Divisions Variance highly industrial nature and scope of our accidents in and around our operations. (R million) Budget Actual (%) activities requires targeted efforts to In respectful memory of our late maintain the highest standards of safety colleagues: TFR 2 924 2 152 -26 for our employees, contractors, business • Mr Bongani Lucky Magagula TE 2 100 166 -92 partners, customers and communities. • Mr Henry Tshikila The Company’s DIFR for the year • Mr Abednego Nkuluma Kubheka TNPA Transshipment 69,22 69,77 +1 • Mr Bantubonke Qikani Transnet’s geographic expansion opportunities will Safety performance decreased from 0,73 in 2018 to 0,71 against a tolerance of 0,75. ideally be achieved through port and rail operating TPT Transshipment 853,5 728,4 -14,7 Transnet’s safety performance is Our 2019 safety performance in brief: concession agreements. These agreements will be measured against industry-recognised • Disabling injuries: 509 (2018: 539) TPT Consulting 6,3 5,9 -6,4 Transnet continues to implement safety pursued collaboratively with suitable regional indicators, such as the disabling injury • Public fatalities: 134 (2018: 102) logistics partners to accelerate the economic measures to prevent safety incidents, TPL 138 108 -22 frequency rate (DIFR), fatalities, loss • Running line derailments: 65 (2018: 80) integration processes that help develop regional particularly at level crossings. These incidents and derailments. We continue to • Shunting derailments: 153 (2018: 140) value chains. Transnet Africa unit is responsible for Total 6 091,02 3 229,81 -47 strive towards improved safety include level-crossing blocks, safety enabling the Company’s competitiveness, growth and performance each year through the billboards, public awareness campaigns Table 21 reflects DIFR figures recorded development in the region through reliable delivery of implementation of zero harm measures to and awareness campaigns at schools. per Operating Division during the year. freight, port and pipeline solutions. otal cro order ra l olume Transnet continues to establish Joint Operating Table 21: Operating Divisions’ DIFR performance for 2019 Centres (JOCs) and inter-rail agreements to improve Disabling Injuries (DIs) Disabling Injuries Frequency Rate (DIFR) corridor efficiencies across all our regional t erformance partnerships. Operating Division/Business 2017/18 2018/19 2017/18 2018/19 et Our 2019 regional integration performance in brief: erformance Freight Rail 334 342 0,91 0,90 • Cross-border revenue from Transnet Engineering: et Engineering 91 82 0,66 0,66 R166 million (2018: R254 million). Port Terminals 92 61 0,67 0,52 • Inter-Africa transshipment: R798,17 million National Ports Authority 16 20 0,33 0,41 (2018: R278 million). ro order ra l re enue Pipelines 1 2 0,09 0,18 • Freight Rail cross-border revenue: R2,152 billion Transnet Group Capital 1 1 0,08 0,09 (2018: R3,785 billion). i ion erformance Transnet Corporate Centre 0 1 0,00 0,19 et Transnet Property 4 0 0,35 0,00 Positive operational performance erformance Group 539 509 0,73 0,71 highlights et We are pleased to report the following performance Employee wellness highly water-stressed catchments in the * Includes R112,7 million revenue generated from interim solutions SDO: Environmental highlights reflecting instances of superior country i.e. Olifants, Inkomati-Usuthu and implemented in Zambia and Zimbabwe. We are guided by the Safety, Health, stewardship performance within our operations: Environment and Quality Policy in our Berg-Olifants. We also continue to engage • Following the breakdown of stacker reclaimer 4 in safety management approach advocating with public and private stakeholders in key Saldanha, repair on the equipment was completed zero harm to self, colleagues and the water-stressed catchments to within seven days, as opposed to the original environment. We also acknowledge that collaboratively develop sustainable timeline of four weeks, thereby significantly Performance key productivity is an elusive concept solutions. Transnet has bilateral reducing the impact of the breakdown. especially if it is not merged with engagements with the Department of Improvement on prior year Target partially achieved Water and Sanitation to monitor • Repair of the iron ore rail bridge accident, that performance employees’ well-being. As such, Transnet ensures that a healthy and safe workforce water-related issues affecting our occurred in December 2018, took nine days against Equivalent performance to Decline on prior year relies on the mindful balance between operations and to ensure compliance and, a projected 11 days to complete. The two-day performance prior year employee wellness and productivity. where possible, to shape policy outcomes. schedule gain resulted in a Transnet revenue Target not achieved opportunity of R56 million, and a benefit to the Target achieved We participated in the Carbon Disclosure Our 2019 wellness performance in brief: 1 South African economy of R474 million. Project: Water and achieved a C score • Unplanned absenteeism rate: 3,49% in 2019. The score highlighted a need for • Record manganese volumes moved in a week of (2018: 3,49%) Environmental stewardship is a the business to step up its water 329 000 tonnes was railed in April 2019. • Sick absenteeism rate: 2,86% mechanism that Transnet employs to stewardship efforts by setting meaningful • A record volume of 14,3 million tonnes of (2018: 2,85%) minimise its environmental impacts and targets and embedding the reality, risks manganese was moved on rail and a further • Overall unplanned leave cost: prevent pollution through an integrated and opportunities of a water-secure 2 million tonnes by the port for the year. R614,3 million (2018: R585,1 million) systems approach. As a SOC, it is both our future into their business through • Sick leave cost: R353,8 million • The largest production train in the world was core mandate and a key impetus of our operational practices, and financial and officially implemented in Saldanha in April 2019, (2018: R439,7 million) strategic purpose to ensure that we policy decision-making. Our performance and outlook continued with 125 wagons of manganese. • Face-to-face counselling sessions provided: 15 814 steward the natural resources in our • Transnet successfully enabled the only 100% In 2019, Transnet consumed 33 megalitres • Calls made to the Employee Assistance operational areas to support the sinter beneficiating manganese producer in the of water and we endeavour to implement Programme service provider by well-being of future generations. initiatives that will lower this across country (Kalagadi Manganese) on 1 April 2019. Transnet employees: 9 538 • Record automotive volumes of 510 000 vehicle our operations. • Investment in our chronic disease Water stewardship units were handled at Durban RoRo Terminal for management programme: R3,5 million the year. • Number of employee awareness Transnet is exposed to various water risks campaigns rolled out across the due to the Company’s national footprint. Company: 45 Our operations are located in three of the
1 Company goes through four main steps, starting with disclosure of their current position; moving to awareness which looks at whether a company is conscious of its environmental impact; to management, so if a company is managing these overall impacts and the risks and opportunities related to these; and finally leadership, which is a measure of whether a company is implementing best practices in this environmental realm. F: Failure to provide sufficient information, D: Disclosure, C: Awareness, B: Management, A: Leadership. 64 Transnet Integrated Report 2019 65
Waste management Heritage management Energy management Transnet’s total electricity consumption over the period 2014 In 2019, 74,4% of electricity was used for Freight Rail traction to 2019 decreased by 10,0% from 3 529 GWh in 2014 to and the remainder of Transnet’s properties, ports, pipelines and Transnet’s operations generate numerous We further protect and relocate historical In South Africa, energy supply is 3 177 GWh in 2019. engineering operations. waste streams. Transnet has identified, graves within our operations where impact dominated by coal, accountable for 59% applied and received remediation orders cannot be avoided. During 2019, we of the primary energy supply, followed by lectr c t con umpt on lectr c t d tr ut on for contaminated sites as per the relocated 48 graves on the Swazi Rail Link renewables at 20% and crude oil at 16%. requirements of section 36 of the from farming land to a formal cemetery in Natural gas contributes 3%, while nuclear National Environmental Management: contributes only 2% to the total primary Lothair, Mpumalanga. ction Waste Act, No 59 of 2008 (Waste Act). supply1. The Draft Integrated Resource We are implementing the conditions of the Plan 2018 envisages that renewables will remediation orders as per the developed Air quality management contribute 26% to electricity generation, rehabilitation plans. Engagements with Transnet handles large quantities of while coal will contribute 44,5% in 2030. authorities are ongoing to ensure that we commodities which impact on air quality. This is a clear indication that South Africa implement the best options for managing Transnet continues to manage and is transforming towards a low-carbon and rehabilitating contaminated areas. implement Air Emissions Licences (AELs) economy. conditions, as per the National Transnet further performs ad hoc Of the 3 176 930 MWh consumed by Environmental Management: Air Quality Of the total fuel consumption figure, 74,3% was used for Freight clean-ups in contaminated areas where Act, No 39 of 2004. We endeavour to Transnet, 57% was supplied by Eskom’s asbestos exposure presents risks to coal-dominated national grid. Electricity Rail diesel traction, 12,4% on home-base fuel, 9,2% on road mitigate any air quality infringements and vehicles, 4,2% on marine diesel and 0,1% jet fuel. employees and the public. to operate within legal limits. generation is the largest key source of greenhouse gas (GHGs) emissions in South Our 2019 waste management performance Operational trends reflect that different Africa. Transnet continues to implement uel d tr ut on in brief: ranges of emission intensity are highly energy-efficiency measures to manage Transnet’s total fuel consumption over the period 2014 to • Revenue generated through the influenced by activities, such as volumes electricity consumption. Fuel accounted recovery of general and hazardous 2019 increased by 4,5% from 247,9 megalitres in 2014 to ction moved or handled and seasonal patterns. for approximately 43% of energy needs. waste such as scrap metal and used oil: Diesel fuel, imported from oil-extracting 236,7 megalitres in 2019. Emissions tend to peak during winter t tion R210,24 million (2018: R89,4 million) countries and manufactured by emissions- months where dispersion is at its lowest. intensive processing locally, emits GHG at uel con umpt on me al tre n o d • Hazardous waste disposed: Through our monitoring efforts, we have, 35 855 tonnes (of which 60% was a high cost to the environment, both in however, observed a reduction in ine die e contaminated soil) climate change and localised air quality. emissions over the past five years. • Asbestos remediation and Approximately 74% of Transnets total et ue electricity and fuel consumption is rehabilitation: nine sites and Significant environmental incidents during accounted for in Freight Rail, one of our 49,2 tonnes (2018: 929,88 tonnes) the year were mainly due to train Transnet’s overall energy efficiency (tonne/GJ) over the period largest Operating Divisions. • Clean-up of hydrocarbon contaminated derailments, operational incidents and 2014 to 2019 improved by 6,4% from 18,0 tonne/GJ in 2014 to sites: seven suspected cases of theft and vandalism, Natural gas has been identified as a key 19,1 tonne/GJ in 2019. as well as spillages ranging from coal, energy source for South Africa’s growth Biodiversity enhancement chrome and petrochemicals (diesel, petrol Efficiency (tonne/GJ) and transition to a lower-carbon economy, Our operations traverse numerous and oil). The business also experienced requiring enabling infrastructure. Transnet +6,4% two pipeline spillages; one due to a ecosystems. Conservation and is preparing for partnerships with the 19,1 biodiversity enhancement not only benefit pipeline rupture in Mpumalanga where private sector to establish common-user the communities where we operate but is diesel was spilled into the natural midstream natural gas networks of critical in ensuring our long-term business environment and another one was due to integrated port facilities and pipelines (for sustainability. Transnet monitors and an operational fault at Pipelines’ Howick import, storage and regasification of controls invasive species throughout our Depot where 600 litres of crude oil was liquefied natural gas and the transmission operations. In total, 1 158 ha of alien and spilled. The relevant authorities were of natural gas to multi-sectoral customers Transnet’s total carbon emissions (tCO2e) over the period 2014 invasive species were eradicated. We also informed and clean-ups were completed in the industrial, power and transport to 2019 decreased by 12,9% from 4,34 tCO2e in 2014 to 3,78 tCO e in 2019. monitor the environmental health of on the affected sites. sectors). Through our research and 2 estuaries in our port operations, where we development unit, we continue to investigate alternative means of energy direct our conservation efforts to Our 2019 compliance performance in brief: ar on footpr nt mt O e understand and mitigate the impact of • Number of compliance inspections by efficiency and opportunities resulting from gas and hybrid-type locomotives. environmental risks on the marine authorities: eight environment. 2018/19 • Significant environmental incidents: Our 2019 energy performance in brief: 15 (2018: 12) • In 2019, energy constituted 18,7% of • Value of fines due to non-compliance: Transnet’s total operating cost R1 million compared to 16,8% reported in 2018. • Number of pipeline spillages: two (2018: 0)
Our performance and outlook continued
1 South African Energy Sector Report, DoE, 2018. 66 Transnet Integrated Report 2019 67
With respect to the Transnet Shareholder’s order to limit their carbon tax burden. This Our 2019 skills development performance Group-weighted energy efficiency SDO: Skills development Compact agreement, the total carbon also presents opportunities for Transnet in brief: emissions intensity (kgCO e) performance to position the benefits of carbon- Industrialisation: • Percentage of labour cost spent on 2 +2,8% recorded a 2,3% reduction from 2018. emissions savings from shifting road training: 2,5% (2018: 2,9%) cargo to rail, especially for the hauling of performance • Sector-specific training programmes ar on em on cope and large volumes over long distances. intake: 1 902 (2018: 1 996) nten t k O e tonne Transnet is investing aggressively in rail • Full-time engineering bursaries development to accommodate current and Research and awarded in various disciplines: 60 • Engineering technician trainees offered future freight demand, to improve quality development of service and reliability, and to reduce rail workplace experience opportunities: costs. In the past five years, Transnet remains committed to skills 108 approximately 34,4 mt of cargo was King IV. P5 development and the upskilling of critical • New apprentices joined the Company’s apprenticeship scheme: 223 shifted from road to rail, amounting to skills within the organisation and the Our research and development (R&D) communities along our servitudes. Our • New Young Professionals-in-Training carbon emissions savings of 2,4 mtCO e in Per year Target 2 portfolio contributes to the diversification youth development initiatives enable us to contracted: 250 the transport sector. The carbon emissions of Transnet’s revenue and business respond to the national youth • Number of engineering bursars in savings in 2019 amounted to 110 ktCO e, 2 streams, with the intention of expanding development strategy, while Transnet’s Transnet’s talent pool: 477 contributing to the reduction of carbon from the commodity product portfolio to schools of Engineering, Rail, Pipeline and Modal shift from road to rail emissions in the transport sector. higher value-adding products and services. Maritime School of Excellence provide Our R&D portfolio researches enabling er ear ar et ctual sector-specific training to increase the South Africa’s shift to a low-carbon Our 2019 road-to-rail performance in technologies such as autonomous employability of our communities. economy necessitates a reduction of brief: vehicles, additive manufacturing, 3D The overall weighted energy-efficiency carbon emissions in the transport sector • Road-to-rail volume gains amounted to printing, material science and energy The impact of the 4th Industrial performance for 2019 recorded a 2,8% with support for a significant shift of 1 650 266,4 tonnes storage. It further serves as a product and Revolution on our industry is bringing improvement above the Shareholder’s business support department, involved in far-reaching change. As such, Transnet cargo from road to rail. • Carbon emissions savings in 2019 Compact target (each operation’s the continuous upgrade, modification, is assessing the skills required for this amounted to 110 078,8 tCO2e testing and commissioning of the current energy-efficiency performance against We anticipate that the introduction of new environment and working to close fleets to ensure greater operational own target is measured per weight carbon tax and carbon budget constraints the skills gaps resulting from industry reliability. disruptions and new opportunities contributed to total energy). will encourage business to reduce GHGs in presented by technology. Our schools are The development of the South African already equipped with state-of-the-art TransAfrica Locomotive (TAL) has been simulation and digital learning one of our greatest achievements, and we technologies to respond to future Table 22: Carbon mitigation results from road-to-rail gains up to March 2019 are preparing for TAL testing in the next skills requirements. financial year. Freight Rail intends to Volume gains Carbon emissions savings incorporate additional requirements into While we seek to remain competitive in the current design. Commodity groups (tonnes) (tCO e) our industry, we acknowledge that our 2 operational sustainability depends on Our 2019 research and development Agriculture and Bulk Liquids 238 583,8 14 758,4 our ability to implement our skills performance in brief: development programmes. Transnet was Coal 198 014,6 8 926,3 • Investment in the research and awarded a Certificate of Recognition for development portfolio: R10,8 million Excellence in Skills Development and Containers and Automotive 665 552,2 50 586,7 • Table 23 provides an overview of our Training at the Transport Sector Iron Ore and Manganese 79 729,9 9 032,5 R&D performance against key Education Training Authority (TETA) Skills performance indicators Summit. Mineral Mining and Chrome 141 169,6 7 960,8 Steel and Cement 327 216,2 18 814,1 Table 23: Research and development performance for 2019 Total 1 650 266,4 110 078,8 Research and development KPI 2019 Target 2019 Numbers rounded to one decimal place. Note: Calculations are based on volume gained and distance travelled. Second generation Number of project TransAfrica locomotive milestones completed 2 0 MC 25-Baluleka coach Number of project milestones completed 7 0 Skills development % of TMPS ≥ 4,00 0,29 Local spend % of total spend ≥ 75,00 65,34 Technology transfer/ intellectual property (IP) % of TMPS ≥ 1,50 0,74
Our performance and outlook continued Investment in plant % of TMPS ≥ 6,00 0,18 68 Transnet Integrated Report 2019 69
measured procurement spend (TMPS) programmes provide much-needed Table 24: Skills development programme SDO: Industrial capability building of R32,31 billion (2018: R25,8 billion or financial and practical business support Input 86,9% of R29,7 billion). Transnet spent and entrepreneurship training to advance R million Output R13,61 billion (42,14% of TMPS) on small businesses. Programmes 2019 KPI 2019 black-owned enterprises; R9,20 billion (28,5% of TMPS) on black women- Supplier development (SD) owned enterprises; R2,71 billion (8,41% Training spend 667,89 % of training spend 2,5% Transnet’s SD programme promotes skills (target: 3,1%) of TMPS) on exempted micro- development and aims to create and Apprentices programme enterprises (EMEs); and R3,26 billion preserve jobs in the South African (10,12% of TMPS) on qualifying small Work-based learning under the supervision and guidance of a skilled, 25,18 Number of new trainees 223 economy. It further encourages the enterprises (QSEs). Black youth-owned qualified artisan with an employer B-BBEE spend transfer of intellectual property and the Number of artisans 368 enterprise spend accounts for promotion of local suppliers and that completed training (target: 200) Transnet’s B-BBEE verification covers six R360 million (1,11% of TMPS). ultimately promotes industrialisation Technicians-in-Training of the seven elements of the Generic Enterprise spend relating to black through contractually-obligated SD plans. Transport Public Sector Scorecard, people living with disabilities accounts Individuals who have successfully completed a National Diploma in 97,56 Number of new trainees 129 SD spend amounted to R5,7 billion excluding the ownership element. The Rail for R42 million (0,13% of TMPS). Engineering studies at a university of technology, undergoing an (17,66% of TMPS), with the following Charter, Maritime Charter and Property 18-month structured development programme category breakdown: SD of R92,19 million Charter are also applied. Transnet was Enterprise development (ED) (0,29% of TMPS), investment in plant of Engineers-in-Training rated a Level 2 B-BBEE contributor in R59,27 million (0,18% of TMPS) and Transnet recognises that today’s Graduates, who have completed an engineering degree at university, 126,74 Number of engineers 230 2019. technology transfer of R259,55 million entrepreneurs and small businesses are undergoing a two-year structured development programme (0,74% of TMPS). Transnet’s total recognised B-BBEE spend South Africa’s future creators of direct Young Professionals-in-Training for the year, as per the Department of and indirect employment and will form a Young graduates in non-technical fields receiving workplace 47,40 Number of trainees 250 Trade and Industry Codes (the Codes), is critical part in the country’s economic experience and skills R29,93 billion or 92,62% of total revival. Accordingly, Transnet’s ED
Chartered Accountants Training Programme pend of Table 26: Industrial capability Individuals who have successfully completed an accounting degree at 6,25 Number of chartered 17 a university, undergoing a three-year chartered accountant accounting trainees programme 2019 Target Key performance area Technical Learner (without March Individuals who are participating in a practical technical learnership 14,26 Number of new technician 200 Industrial capability Unit of PPPFA 2019 (P1,P2) work-integrated learning in order to obtain a qualification, who learners (target: 200) building measure exemption) % have been awarded a stipend from Transnet Number of technician 181 % of TMPS > 39 17,66 learners that completed CSDP (SD value) training SD % of TMPS > 4 0,29 Table 25: Bursar and learnership development programme Technology transfer/IP % of TMPS > 1,25 0,74 Input Investment in plant % of TMPS > 5 0,18 R million Output Programmes 2019 KPI 2019
Engineering bursars Table 27: B-BBEE categories of spend Engineering bursars individuals who are registered for a four-year Number of new bursars 60 BEng/BSc Eng degree to which a full-time bursary has been (target: ≥ 50) 2019 Target awarded; other bursaries non-technical bursars Individuals who are Key performance area (without PPPFA March 2019 Number of bursars in the 477 registered for a non-technical degree to which a full-time bursary (Transformation) Unit of measure exemption) % system has been awarded; National Diploma (technical bursars) Individuals who are registered for a National Diploma to which a full-time 36,75 Local spend % of total spend > 75 65,34 bursary has been awarded B-BBEE % of TMPS > 70 92,62 Other bursaries • Non-technical bursar Number of other bursars 41 Black women-owned % of TMPS > 5 28,50 • National Diploma technical bursar (target: 40) Black-owned % of TMPS > 15 42,14 This includes trainees across Operating Divisions i.e. Engineering, Our performance and outlook continued Rail, Pipelines and Ports Black youth-owned % of TMPS > 1 1,11
Learnership Development Programmes EME % of TMPS > 7 8,41 Call centre, professional driving, health and safety, point of sale, 3,04 Number of youth enrolled in 50 Youth Unemployment Programme the programme QSE % of TMPS > 5 10,12 Sector-specific training People living with disabilities % of TMPS > 0,125 0,13 Engineering, Rail, Port and Pipeline 2,81 Number of trainees that 1 902 completed training (target 1 002) 70 Transnet Integrated Report 2019 71
Table 28: Building and transforming our economy through enterprise and supplier development SDO: Employment and Table 29: Transnet employment equity profile Type of Investment transformation # Initiatives Description Outcomes programme Beneficiaries 2019 Designated categories 2018 2019
1 • Shanduka • A non-financial support • Business incubation and • Enterprise • Black-owned R10 million Black 85,2 88,2* Black service aimed at mentorship Development SMMEs Umbrellas incubating 100% • 30 companies are through Females at executive level 50,0 38,1 black-owned SMMEs, incubated in Port Elizabeth incubation which can meet and Richards Bay Females at extended executive level 43,2 44,4 Transnet’s supply chain • 97 jobs were created needs. Females below extended executive level 27,7 28,9 Transnet upholds the principles of the 2 • Godisa • The fund is a • Provides financial • Supplier • Revolving loan R13 million United Nations Global Compact (UNGC) People with disabilities 2,4 2,3 collaboration between assistance to 21 black- Development on equity and anti-discrimination and, as Transnet, Anglo owned current suppliers an organisation, seeks to reflect the * Including contract employees. American and the Small • In 2013 Transnet awarded diversity of South African society. Enterprise Finance a R15,5 billion oil contract Agency to provide to nine black-owned The employee race profile for the year Table 30: Black employees: male and female financial and non- companies was 75,1% African, 9,8% coloured, financial support to 3,3% Indian and 11,8% white. Female Male Female Transnets black-owned representation now exceeds 28,9% in suppliers. executive, senior, professional and Top management 70 58 3 • Junior • A school programme • School programme that • Enterprise • High school R4,2 million skilled technical levels, including a Achievement that provides provides entrepreneurship Development learners 38,1% representation in the Interim Senior management 505 274 South Africa entrepreneurship skills skills Executive Committee. Professional 2 628 1 727 (JASA) to high school students. • 321 learners benefited Representation of people with disabilities • 20 youth-owned Skilled 11 730 6 905 remains a challenge at 2,3% of the total businesses were formed. headcount (2018: 2,4%). The employment • Established five Semi-skilled 13 301 4 718 of people with disabilities remains a entrepreneurial academies in four provinces and more priority for Transnet’s transformation Unskilled 5 957 1 462 than 35 jobs created agenda. 4 • SABS • This is an incubation • 100 black-owned • Enterprise • Black-owned R10,6 million programme designed to businesses were Development SMMEs We continue to build our talent pool of Table 31: Employee by age distribution assist black-owned incubated and provided research and younger employees with the intake of graduates into our Graduates-in-Training 2019 SMMEs with design, with entrepreneurial, development Actual research and research and innovation programmes and other learnerships. To number of % of the development skills. skills over a three-year further strengthen the talent pool for overall period succession, we assign young mentees to category employees workforce • 36 businesses were our more mature personnel to provide established by the school’s guidance and technical skills transfer. At learners least 37,2% of our workforce comprises 63 years 15 0,02 personnel less than 35 years, a decrease • One of the black 61-62 years 1 718 3,1 industrialists was from from the 39% in 2018. A decrease has this programme also been noted in the older workforce at 56-60 years 4 801 8,6 5 • Empangeni • The enterprise • Building refurbishment for • Enterprise • Incubation of R7,3 million 0,02% (2018: 0,03%). Hub (building development hub aims to incubation Development Transnet 46-55 years 9 303 16,6 refurbishment) ensure that Transnet former 36-45 years 19 308 34,5 creates an enabling Graduates-in- environment for SMMEs Training (GITs) 26-35 years 19 540 34,9 to access products and that are services that are offered unemployed 18-25 years 1 261 2,3 by both provincial and national economic development institutions. 6 • Small • Incubation and • 16 SMMEs currently • Enterprise • Incubation of R4 million Enterprise mentorship of military incubated Development Transnet Development veterans in KwaZulu- former GITs Natal (KZN) and Eastern that are Our performance and outlook continued Agency Incubation Cape (EC). unemployed 7 • CVC Africa • Develops • 201 beneficiaries • Enterprise • Military R29 million entrepreneurship and benefited Development veterans based innovation for the in KZN and transport and logistics Eastern Cape industry. • Incubation and mentorship of military veterans in KZN and EC. 8 • Mtiya • Enterprise and skills • 20 SMME black • Enterprise • Black R3,5 million Dynamics development and industrialists were Development industrialist research for black- incubated incubation owned business. 72 Transnet Integrated Report 2019 73
SDO: Community Table 32: Youth benefiting from health programmes nationally Employee volunteerism (EV) respective funds who have not opted out independent opinion, we have outsourced of the class action. the Tip-Offs Anonymous Hotline to a third development Adolescent Adolescent Youth out Given Transnet’s diverse skill sets across party to ensure seamless investigation Province male female of school the business, we have adopted an On 31 May 2019, Transnet’s attorneys without prejudice. The Hotline is available integrated community development concluded a Joint Memorandum of 24 hours a day, seven days a week and the KwaZulu-Natal 1 044 2 238 395 approach by creating a formal EV Agreement (JMoA) with the plaintiffs’ call centre agents can converse in all Free State 322 1 016 300 programme. The EV programme offers attorneys recording matters that are 11 official South African languages, and Northern Cape 247 501 20 employees an opportunity to volunteer resolved on the essential economic irregularities can be reported Eastern Cape 383 959 289 their wealth of skills and knowledge to arrangements for the settlement of anonymously. Limpopo 228 1 304 0 help address communities’ needs. Our EV the litigation. offerings range from infrastructure We seek to ensure that the outcomes of Healthcare Mpumalanga 452 900 100 development, to job creation and skills On 20 June 2019, the two funds’ boards the investigations be measured by either As a SOC, Transnet continues to address North West Province 200 673 779 development and help to grow unanimously resolved to accept the criminal convictions, disciplinary action the challenges of poverty, unemployment Western Cape 410 1 505 300 contents of the JMoA as the basis for a (formal dismissal or other sanctions), civil and inequality. We continue to prioritise communities’ competency levels. recovery and blacklisting of vendors who healthcare services to rural and semi-rural Total 3 286 9 096 2 183 settlement agreement among all the As a SOC, Transnet encourages a culture communities through two main healthcare parties to the class action litigation. have been dishonest. We continue to raise of volunteerism by allocating three days a awareness on different communication programmes: • Patients receiving counselling services: • Learners participating in the provincial In a special Transnet Board meeting held year for volunteerism to each employee, on 16 July 2019, the Board approved the platforms about fraud, corruption and 1 894 and the national sports tournaments: and also allows employees to volunteer settlement proposal of the pensioners’ scams; and to protect our employees from Teenage health programmes • Individuals assisted through outreach: 25 000 their time to a non-profit project or class action as set out in the JMoA. The victimisation by implementing the 452 866 (2018: 435 332) Our teenage health programmes advance • Vulnerable and orphaned youth organisation of their choice. During the settlement proposal is affordable to the Transnet Whistle-blowing Policy. health rights across South Africa by • Volunteers trained on preventative receiving assistance: 37 year, R9 698 728 million was invested funds and has no financial implications Reporting is undertaken in line with the recognising that health rights are human healthcare at edu-clinics: 6 591 • Graduates participating in international in EV. on Transnet. Protected Disclosures Act, No 26 of 2000, rights. These programmes continue to be • Experimental learning opportunities football teams: four as amended. Transnet acknowledges that responsive to the needs of adolescents provided to healthcare students: 2 500 The settlement will only take effect once • Graduates participating in national Legislative compliance fraud, corruption and procurement and youth as outlined in the National • Established dedicated youth health it is made an order of the court. irregularities remain a significant football teams: 62 Adolescent and Youth Health Policy and centres: Ermelo, Bodibe and Application to the High Court for approval challenge that requires prioritisation. include stakeholders from Government, Bloemfontein • Learners enrolled in 2019: 119 of the settlement agreement is being civil society and the private sector. • Unemployed youth enrolled in King IV. P5 & 13 prepared, subject to a window period for In 2019, incidents relating to procurement accredited community health-worker Socio-economic and members of the classes and interested irregularities remained high at 39%. 31% Phelophepa Healthcare training as possible career paths: 100 infrastructure development To the best knowledge of the directors, parties to make representations to the related to corruption and fraud, 19% related to the misuse of resources while Trains I and II • Investment in teenage health and the Company has complied, in all material High Court. Assuming that the settlement (SEID) respects, with all legislation and 11% was due to non-compliance to policy development programmes: agreement is accepted by the High Court, Our Phelophepa Healthcare Trains I and II regulations applicable to it during the or legislation. A total of 2 064 incidents R20,66 million SEID improves the societal welfare in implementation of the agreement on its extend the reach of primary healthcare vulnerable and disadvantaged year, except as disclosed on page 74 were reported during the financial year, • Number of adolescents and youth terms will proceed. services and healthcare education to communities. Transnet’s SEID programmes where we report on PFMA compliance. with 1 328 having undergone enable individuals along Transnet’s benefiting from the health programmes: convert old freight containers into Accordingly, the case management investigation. Of the incidents national corridors to receive healthcare 14 565 community centres, enterprise incubation timetable and the class action litigation investigated, 45,1% were founded, that they would not otherwise have access Pending legal matters 54,2% were unfounded while 0,7% were hubs, police stations, schools and clinics have been suspended by agreement to. Our pharmacy provides up to schedule Education and sport Pension and post-retirement partially founded. using a specialised mix of buildings and among the parties’ representatives. 4 medication. The health clinic treats Transnet’s Whole School Development containers. We reach out to the benefit obligations common illnesses and ailments, diabetes Programme (WSDP) comprises education, The Company also recorded 1 250 communities through our SEID Following the certification of the and provides cancer screening. The dental sport development, teenage health, school Incidents relating to incidences of scamming during the year, programmes in partnership with both the pensioners’ class action proceedings on clinic is equipped to perform teeth infrastructure and employee volunteering with 41,4% scam incidents being founded 31 July 2014, Transnet was served with a irregularities and fraud cleaning, extractions and restorations, and initiatives aimed at fostering optimum private and public sectors. We also and 42,6% being unfounded; 15,8% were summons on 11 June 2015 issued out of We have identified fraud, corruption and also has a digital X-ray unit for intra-oral holistic learner well-being. The curriculum collaborate with other Government social still under investigation at the financial the Pretoria High Court. In terms of the radiography. The eye clinic treats patients’ is premised on three fundamental pillars services institutions to enable procurement irregularities as a significant year end. The majority of the scam summons, the plaintiffs are members of eyes and sight, while prescription to improve academic outcomes: sport, communities to access basic services. By risk that continues to plague the incidents occurred within Freight Rail. Of the Transnet Transport Pension Fund spectacles are produced in the laboratory teacher support and educational engaging unemployed youth graduates in organisation. The Company continues to the 535 incidents reported for Transnet’s (TTPF) and the Transnet Second Defined on the train and a range of ready-made development. innovative ways – especially in economics, root out such behaviour and has Corporate Centre, 16 are presently under Benefit Fund (TSDBF) respectively, and implemented proactive analytics to investigation and zero incidents have been readers are also available. The educational engineering and construction – we have they represent all members of their identify these irregularities. To facilitate founded to date. clinic trains volunteers from each In 2019, beneficiaries of Transnet’s School observed excellent returns in the areas community in preventative healthcare at of Excellence obtained a 100% pass for where we operate. each of the stations on route. The the Grade 12 class with eight bachelor Table 33: Incidents of irregularities 2019 psychology clinic continues to provide a passes, seven diploma passes, two Our 2019 socio-economic and Incidents 2019 valuable link to local community national senior certificate passes and a infrastructure development performance psychologists, social workers and other total of six distinctions. in brief: Reported professionals for follow-up assistance. Reported Reported incidents Our performance and outlook continued • People benefiting from SEID initiatives Our 2019 community education and sport Investigation incidents incidents partially Our 2019 community health performance along our servitudes: 37 261 performance in brief: Operating Divisions in progress unfounded founded founded Total in brief: • Investment in the WSDP and the South • Investment in the SEID programme: • Investment in the Phelophepa African Football Association (SAFA/ R6,61 million Transnet Corporate Centre 15 32 1 1 49 Healthcare Trains: R88,44 million Transnet) School of Excellence: • Non-financial beneficiaries (SMME Transnet Freight Rail 311 56 39 0 406 • Patients receiving medication through R48,89 million development, safety, health, social, Transnet Engineering 70 43 10 1 124 the on-board pharmacies: 55 468 • Number of provinces enrolled in the education): Transnet Ports National Authority 30 18 4 4 56 • Patients receiving primary healthcare: programme: nine – SMMEs established: two Transnet Port Terminals 68 29 26 2 125 66 913 • Schools forming part of the programme: – SMME members trained: 21 Transnet Pipelines 9 1 1 0 11 • Patients receiving dentistry services: 287 – Food distribution programme Transnet Group Capital 28 2 0 0 30 24 264 • Number of schools selected to beneficiaries: 162 Transnet Property 7 6 0 0 13 • Patients receiving optometry services: participate in the provincial and – Adult Basic Education and Training Total 538 187 81 8 814 46 712 national sports tournaments: 50 (ABET) beneficiaries: two 74 Transnet Integrated Report 2019 75
Table 34: Incidents of scams 2019 Activities undertaken to • Identified non-compliance categorised provide automated process as ‘Irregular Expenditure’, ‘Fruitless and improvements. Processes include, Incidents 2019 ensure complete and Wasteful Expenditure’, ‘Losses from among others, the linking of purchase Reported accurate reporting on Criminal Conduct’ or ‘Non-collection of orders to contracts, the management of Revenue’ – have been fully quantified Reported Reported incidents pre-award procurement activities, and irregular expenditure for reporting purposes. Investigation incidents incidents partially the enforcement of error reporting for Operating Divisions in progress unfounded founded founded Total • Complete procurement files for • A detailed reconciliation of all purchase orders created above all active contracts have been compiled procurement spend for the 2018/19 threshold values. Transnet Corporate Centre 16 519 0 0 535 in both hard and soft copy, and financial year confirmed the accuracy • The Company has collaborated with all Transnet Freight Rail 152 7 518 1 678 reviewed by management to ensure and completeness of all reviews. forensics investigations to ensure Transnet Engineering 6 3 0 0 9 that the procurement processes • A project has been initiated to ensure group-wide alignment of employee Transnet Ports National Authority 2 1 0 0 3 followed were in compliance with the the requisite technology platform and relations on consequence management Transnet Port Terminals 12 3 0 0 15 PFMA and related regulations and tools are in place to sustain the on all matters reported in the Annual Transnet Pipelines 6 0 0 0 6 policies. aforementioned activities and to Financial Statements. Transnet Group Capital 1 0 0 0 1 Transnet Property 3 0 0 0 3 Total 198 533 518 1 1 250 Table 35: PFMA reporting in 2019 Recurrence Loss value Outcome of remedial actions during the Reportable PFMA incidents of incidents* (R million) 2019 financial year Governance and In the prior year, the audit opinion was the audit, was of the opinion that the 2019 2018 qualified due to external audit being affected expenditure was not irregular, as Compliance unable to obtain sufficient audit evidence the use of the tender prequalification Irregular expenditure that the disclosure of irregular criteria was aimed at assisting the Current year spend on contracts 1 618 3 427 • 87% incurred prior to the remedial plan kick off. Update on state-capture entered into in the current year expenditure was complete and accurate. Company to achieve the competitive allegations supplier development targets set by the Current and prior year spend, 4 846 4 696 • R507 million removed which was under During the year, the Company was the 2018/19 audit findings Shareholder. identified in the current year, for investigation as potential irregular expenditure in contracts entered into in prior years the prior year and now confirmed not irregular. subject of pervasive media coverage During the year under review, relating to what is commonly referred to management made a significant effort to This matter has been considered in detail Non-compliance to PPPFA – tender • Misinterpretation of legislation in an effort to pre-qualification criteria align Transnet’s procurement practices to as the Gupta leaks and state capture. The improve and establish adequate controls and, with input provided by various to maintain complete and accurate technical and legal experts, the Company Current year spend 837 — contribute to the achievement of the competitive Transnet Board, appointed on Prior year spend 1 092 — supplier development targets set by the records of irregular expenditure. The vast now accepts that the affected 23 May 2018, drove numerous forensic Shareholder. investigations. While the negative media majority of the irregular expenditure expenditure should be reported as reported in the current year relates to irregular. We need to emphasise that this Locomotive transactions 41 529 — • Under investigation in the prior year. allegations pummelled Transnet’s Spend on “1 064”, “95” and “100” contracts entered into in prior years, is merely due to the misinterpretation of • Contravention of the PFMA provisions. reputation and employee morale for more locomotive transactions and which is indicative of the improvement in • Accordingly, transactions are reported on in the than a year, the focus has now shifted to legislation in an effort to align our associated transaction advisory the procurement control environment current year and appropriately classified as rebuilding trust with our various procurement practices to achieve certain services that is now preventing new incidences of irregular expenditure. stakeholders and recovering any funds competing developmental objectives. non-compliance. • The Board sought independent legal advice on the due to Transnet. In addition to the civil Given management’s interpretation of the implementation of civil, criminal and disciplinary legislation, appropriate controls to action taken, the appropriate criminal The amount of irregular expenditure matters. identify and record this category of charges have been laid, and may continue reported in the current year is significant Fruitless and wasteful expenditure expenditure were not put in place. Due to to be laid where appropriate. The due to the expected inclusion of Identified in the current year, 134 4,8 • Mainly due to poor contract management, fines this, as well as the timing of the Company is co-operating fully with law R41,5 billion expenditure on locomotive relating to current year and penalties and non-adherence to the Company’s delegation of authority. enforcement and investigative agencies contracts, entered into prior to 2015, clarification relating to this issue, the Identified in the current year, 350 18,7 and has provided extensive evidence to that was the subject of several Company was not in a position to satisfy relating to prior years external audit that the reporting of this the Zondo Commission of Inquiry. investigations at the time of finalising the Criminal conduct category of irregular expenditure is prior year report. Cable theft 44 22 • 171 cases reported to the South African Police PFMA reporting complete and accurate and, accordingly, (copper, cabling and related Service (SAPS). Despite the abovementioned corrective the external auditors have issued a equipment) 2017/18 audit findings • R1,4 million worth of stolen material recovered. action, it was confirmed during the qualified opinion that is specific to the • One employee was dismissed. In terms of the Public Finance current audit that Transnet’s completeness and accuracy of the General theft and damage to assets 32 21 • 72 cases reported to SAPS. Management Act of South Africa, 1999 implementation of certain of the reported irregular expenditure, as • R1,4 million of stolen material was recovered. (PFMA), the Company is required to Preferential Procurement Regulations, required by the PFMA. report the quantum of Irregular 2017 relating to tender prequalification Collusion and fraud 20 — • Disciplinary, criminal and civil proceedings Expenditure incurred, which is criteria was inconsistent with the The qualified opinion is not related to instituted. expenditure that was incurred in legislation. The Company ceased using compliance with International Financial • Two employees dismissed following the contravention of procurement legislation, the tender prequalification criteria in Reporting Standards (IFRS) nor the disciplinary process. Our performance and outlook continued notwithstanding that value was received. June 2018 and, at the commencement of Companies Act of South Africa, 2008. • Two employees resigned. • One employee suspended. • One matter still under investigation. Theft of signals, perway and 13 13 • 92 incidents of theft. equipment = • Two employees suspended. • R525 000 of stolen equipment recovered. Non-collection of revenue Bad debts written off (432) — • R432 million written off due to efforts to collect debt (unpaid rentals) being unsuccessful. Delayed invoicing (2) • R2 million recovered. * The significant increase in the number of items reported is mainly due to the concerted drive to improve our reporting. 76 Transnet Integrated Report 2019 77
Outlook
Economic considerations Government spending. That said, a broad-based tariffs by the United States The performance framework depicting the performance outlook for our KPIs is depicted below. higher rate of growth in the country’s on China’s imports. Heightened trade Transnet’s economic performance, economy is expected in 2020. tensions involving these economies have Table 36: Medium-term planning horizon insofar as it relates to volume growth, is raised market concerns about global directly linked to the performance of the An improved outlook from 2020 stems trade and investment prospects, and as 2018 2019 2020 2022 2024 global and domestic economy. At the from the expectation that Government’s a result, they have clouded the outlook performance performance year ahead short term medium term same time, Transnet is a key enabler of structural reform agenda will gradually for commodity demand. the domestic economy through its gather speed, and help to boost Financial sustainability provision and maintenance of logistics investment growth, as policy uncertainty Supporting local commodity exporters infrastructure and freight solutions. recedes and investor sentiment and importers through our infrastructure Revenue (R million) 72 887 74 070 83 670 96 280 111 424 improves. The IMF cutting its January and freight solutions requires continued Net operating expenses 40 372 40 320 45 755 52 014 59 236 Global financing conditions have 2019 growth outlook for the country is investment in infrastructure tightened in the wake of weakened due to the view that policy uncertainty maintenance and improvements. That EBITDA (R million) 32 515 33 750 37 915 44 266 52 188 growth. Industrial production has has only modestly reduced since the said, operational efficiency gains and EBITDA margin (%) 44,5 45,6 45,3 46,0 46,8 moderated, with intensified trade May 2019 national election and, stringent cost reduction will buffer tensions resulting in some large additionally, structural pressures unpredictable or slow growth in Net profit after tax (R million) 4 851 6 047 6 089 7 287 11 144 emerging market and developing remain. This is best demonstrated by the commodities in the near term. Capital investment 21 781 17 941 28 911 33 861 28 225 economies (EMDEs) losing momentum economy shrinking more than it has in a and experiencing significant financial decade during the first quarter of 2019 Gearing (%) 43,5 44,5 45,1 46,0 42,2 market stress. The global economy is due to the nation experiencing the worst Capital investment outlook Cash interest cover (times) 3,0 2,9 2,8 2,7 3,0 currently characterised by volatility and power outages since 2008. Transnet plans to spend R153,5 billion Cash flow from operations (R million) 22 958 21 930 23 300 27 453 33 587 high levels of uncertainty. With the on capital investment over the next five stubborn recovery of the global economy years, of which 71,3% (R109,4 billion) ROIC 6,4 7,2 5,2 5,8 6,9 and persistent vulnerability of EMDEs Commodity outlook will be spent on sustaining capital. Capacity creation (R million) to market swings and increasing The haulage of commodities has A significant portion of capitalised protectionism in advanced economies, traditionally been the cornerstone of the maintenance (R73,2 billion) will be spent Freight Rail 17 598 14 818 20 358 19 200 13 623 global trade movements are constrained. organisation’s shipping activities. As on permanent ways and rolling stock In this climate, the organisation has had such, the global commodity outlook is a (locomotives and wagons) while the National Ports Authority 1 054 941 2 706 5 414 7 261 to revise its capital expenditure and significant factor in considering the remainder is planned for port and Port Terminals 1 365 1 515 2 877 5 170 4 966 infrastructure investment approach organisation’s economic prospects. pipeline fleet and equipment Pipelines 1 544 326 1 418 2 681 1 054 from the previous accelerated Market respectively. Demand Strategy, which relied on Agricultural prices were roughly flat Engineering 275 301 510 457 468 growing global and domestic aggregated in 2018 but declined appreciably in demand. In the short to medium term, the second half of the year, with Funding outlook Operational performance (mt) Transnet is shifting its emphasis developments varying by commodity. Apart from the initial share capital of towards capital expenditure based on Rail volumes (mt) Agricultural prices are projected to approximately R12,7 billion at the time validated demand, and prioritising spend remain broadly stable in 2019 and 2020. of the establishment of Transnet, debt General Freight Business 90,8 84,7 96,6 104,6 115,0 on sustaining capital rather than capital capital (local and foreign bonds and expansion. Export coal 77,0 72,0 77,4 77,5 77,5 Energy prices fluctuated markedly in the loans) is the only source of external second half of 2018, mainly reflecting funding that has been used to finance Export iron ore 58,5 58,4 60,0 60,0 60,0 Downside macroeconomic risks have supply factors, with sharp falls toward become more acute and include the Transnet. Less than 3% (R3,5 billion) of Port volumes the end of the year. Prices of most Transnet debt is supported by possibility of unpredictable financial Containers (‘000 TEUs) 4 664 4 534 4 863 5 112 5 356 metals and, to a lesser extent, government guarantees and the current market movements. Furthermore, an agricultural commodities also weakened, escalation of trade disputes and debt funding plan assumes no further reliance Bulk (mt) 83,1 82,4 85,6 89,2 93,9 largely due to concerns about the on government guarantees. vulnerabilities in EMDEs have increased, effects of tariffs on global growth and Break-bulk (mt) 19,1 19,8 21,7 24,9 27,9 particularly in low-income countries. trade. Oil prices are expected to average Funding initiatives to satisfy the funding Vehicles (units) 704 052 743 350 724 141 725 087 802 090 Also, slower than projected growth in 4 $67/bbl in 2019 and 2020. This needs for the new financial year are China and the Euro area, which have Pipelines forecast, however, remains highly already well advanced and there is every strong trade and investment links with uncertain. While growth in oil demand is indication that the aspiration to not only Total petroleum products (Mℓ) 16 345 17 825 17 204 17 575 17 989 sub-Saharan Africa, will adversely affect expected to remain robust in 2019, the reduce our total debt levels, but to also the region through lower export demand estimated loss in momentum across reduce the weighted average cost Market share competitiveness (%) and investment. EMDEs could have a greater impact on thereof, is achievable in the short term. General freight oil demand than anticipated. Excessive In South Africa, economic growth demand on road freight transport poses While the short-term funding Rail addressable market share (RAMS) 31,4 29 32 32 33 remains weak due partially to continued an input cost risk to South African requirements are likely to be sourced policy uncertainty. According to the Intermodal rail addressable market share (RAMS) 23,6 20,9 26 26 26 economic participants when oil and, by from the traditional sources of debt Bureau of Economic Research1, South implication, fuel prices face volatility. funding, we continue to explore all other Africa is projected to recover slower Reducing the dependence on road and sources of funding (e.g. asset leases, Within the current economic environment, it is critical that Transnet focuses on that which it can control and on mitigating internal than previously expected in 2019 to providing intermodal solutions is ever and external risks to its financial sustainability. As previously stated, the Company is transitioning from an accelerated capital 2 project finance and private sector Our performance and outlook continued 0,7%, before rising to 1,9% in 2021 . more critical with the high cost of participation) and will utilise these investment approach towards a less capital-intensive approach. In 2020, the Company will prioritise operational efficiency, The International Monetary Fund (IMF) freight services rendering prices sources where more appropriate. reliability and visibility, thus improving the customer experience. has revised South Africa’s growth rate uncompetitive for suppliers in certain 3 downward to 0,7% . High unemployment commodities. Vigilant management of the risk factors and slow growth in household credit associated with our debt book is a extensions are expected to constrain After increasing in the first half of the central feature of our Financial Risk domestic demand in the near term, while year, prices of metals fell sharply in the Management Framework. fiscal consolidation is likely to limit second half, following the imposition of
1 https://m.fin24.com/Economy/sas-economic-growth-prospects-keep-diving-20190724. 2 Source: Bureau for Economic Research, June 2019. 3 https://m.fin24.com/Economy/sas-economic-growth-prospects-keep-diving-20190724. 4 https://businesstech.co.za/news/business/310036/imf-cuts-south-african-growth-forecast-for-2019/. 78 Transnet Integrated Report 2019 79
Figure 11: Five-year investment portfolio Freight Rail The National Infrastructure Development Plan, Operations and comprising 18 Strategic Integrated Projects R88,2 billion (SIPs), forms the cornerstone of Government’s Specialist Units Key strategic investment infrastructure programme. Transnet has active projects in the SIPs, and we co-operate with focus areas for operations the Presidential Infrastructure Co-ordinating Commission (PICC) to align our investment priorities with Government’s infrastructure aspirations. Engineering Specialist Units Pipelines Port Terminals National Ports Port investments and supporting Authority The investment required to maintain, modernise functions R6,4 billion Durban Container Terminal and expand the country’s ports, rail and pipelines cannot be met by Transnet alone. Optimal R2,4 billion R4,6 billion R9,3 billion R21,9 billion R27,1 billion Container expansion performance of the national freight system billion R1,3 Phase 2B (CT) requires greater integration between all parties in the value chains, and there are many opportunities Richards Bay Expansion Programme to achieve this given Transnet’s commitment to R914 million partnering with the private sector. (RBEP)
We are gearing the business towards becoming R1,2 billion Ngqura Tank Farm a diversified organisation that partners with the private and public sectors in various ways to pursue adjacent and new business and to act as a R391 million Salisbury Island Pier 1 infill catalyst for economic growth. We anticipate that private partnership opportunities will also reduce oad n t ne a l ran t Off load n tack n ecla m n p load n funding and operational requirements and present opportunities for leveraging a wider network of partner capabilities for mutual benefit. National Ports Authority Coal and Mineral System
Export coal expansion R805 million 71,3% to 81 mtpa
(R109,4 billion) R958 million Waterberg upgrade stages 2-5 will be spent on Freight Rail Engineering sustaining capital R1,9 billion Overvaal solution Port Terminals
Expand Pipelines R44,1 billion Pipelines New Multi-Product Pipeline (NMPP) 28,7% billion R2,5 (Phase 1b)
R2,2 billion NMPP PL5 and PL6 Five-year investment General freight R637 million Fire upgrade portfolio Five-year R86,4 billion Sustain investment by (56,2%) commodity R153,5 billion R109,4 billion General freight General Freight Business and 71,3% billion R60,5 rolling stock Multi- commodity for Maritime Our performance and outlook continued Piped Ports Authority containers products R14,9 billion Specialist R14,8 billion Manganese Bulk other R9,3 billion (9,7%) Units (9,6%) (6,1%) Multi- Iron ore R3,7 billion Investment in manganese Manganese R8,8 billion commodity for Break-bulk R7,0 billion Coal R4,8 billion (5,7%) Port Terminals R4,0 billion (4,5%) R1,8 billion (3,2%) R1,0 billion (2,6%) R0,7 billion (1,2%) (0,7%) (0,5%) Engineering
R2,4 billion Advanced manufacturing investment 80 Transnet Integrated Report 2019 81 Abridged governance Review of the Chairperson: Corporate Governance and ransnet is on a continuous 9. Establishing a Forensic Committee Nominations Committee improvement journey with respect as a subcommittee of the Executive Tto its corporate governance, Committeeto perform various compliance and risk management. Our governance forensic tasks aligned with ongoing Accordingly, the Board of Directors (the investigations. Board) and management are resolute in function needs to Further, during its strategic planning their efforts to restore trust and reflect our broader session in November 2018, the Board confidence in the Company. The web of resolved to review the Company’s fraud and wrongdoing that gradually evolutionary operating model while also reviewing the Ms Dimakatso Matshoga unravelled during the reporting year in journey – in spirit Delegation of Authority Framework, the wake of state capture allegations – Chairperson: Corporate Governance and which defines the parameters within and the roles that some external parties and in practice to Nominations Committee which individuals can make financial and Transnet employees had played in acknowledge decisions on behalf of the Company. this alarming phenomenon – demanded These reviews necessitated an update of urgent governance attention. The the needs of all our the committee mandates which is appointment of a new Board in May 2018 stakeholders. currently underway. As the business served as the first step in embarking on concretises Transnet’s strategic vision, the challenging journey to restore and as we strengthen our core stability to the largest and most crucial operations and governance structures in part of South Africa’s freight logistics the short to medium term, the new chain. operating model will start coming into Reform of State-owned Companies is effect. one of the major themes that In gearing up for commercial growth, President Cyril Ramaphosa underlined 2. Initiating the implementation of the our governance function needs to in his 2019 State of the Nation Address. Werksmans and MNS report reflect our broader evolutionary journey He emphasised the need for decisive recommendations, e.g. suspending – in spirit and in practice – to measures to improve governance, several senior managers; acknowledge the needs of all our strengthen leadership and restore stakeholders, and to ultimately create stability in strategic entities. It is the 3. Instigating the requisite corrective the broader economic and current Board’s duty to usher in the measures and consequence developmental value for society necessary changes to create a more management; demanded by our national mandate. robust, responsive and effective system 4. Issuing multiple summonses in lieu To this end, the Board intends to of governance to support Transnet’s of civil recoveries, as well as establish a governance platform that new strategic direction, that is intended entering into contractual embodies the core values of to restabilise an operational core and negotiations with the OEM suppliers professional ethics, leadership, create a strategy, which has been of the 1 064 locomotives; accountability, inclusivity and thrown off course from its core responsiveness – and to ensure that mandate. It is the Board’s firm 5. Launching criminal complaints when we act, we do so decisively, undertaking to re-establish a firm against key individuals as ethically and with fair regard for governance foundation which can investigations progress; those impacted. monitor performance, enable clear and 6. Working with the Zondo transparent communication relating to Commission, the Special that performance, and ultimately hold Investigating Unit and the our people to account for their actions, Directorate of Priority Crimes regardless of their positions within the Investigations to support their organisation. investigation processes; Ms Dimakatso Matshoga Chairperson The first steps we took as a new 7. The Board, together with management undertook numerous Board on this governance journey 26 September 2019 roadshows with Transnet’s broad included: Johannesburg For more base of stakeholders to address 1. Overhauling all Board information challenges and to share Transnet’s subcommittees and disbanding strategic objectives; the Acquisitions and Disposals CORPORATE 8. Stabilising the executive GOVERNANCE REPORT subcommittee – which had the Board ONLINE AT involved in procurement awards – management echelon by taking WWW.TRANSNET.NET and establishing the Finance and steps to appoint executive officers, Investment subcommittee, with starting with the Group Chief the Board providing strategic Executive, Group Chief Financial oversight and guidance in the Officer, Chief Procurement Officer procurement process; and Group Treasurer; and 82 Transnet Integrated Report 2019 83
How our improved governance function will support our strategy and operations Figure 12: Company structure and governance committees
Monitor reward practices and promote Shareholder (Minister of Public Enterprises) King IV. P2, 12 & 13 competitive reward strategies to recruit and retain high-performing people. Shareholder’s Compact Board Chairperson Dr PS Molefe
Monitor the implementation of strategic Ensure the Board’s composition and Manage legal and moral obligations for acquisitions and disposals against structure enables it to fulfil its mandate economic, social and natural environments approved plans. and obligations, aligned to strategy. and set standards for ethical conduct.
Develop key performance indicators to As custodians of governance, set an ethical monitor sustainability performance. Ensure appropriate skills are represented tone and enforce sound ethical principles. on the Board and appoint competent executive management.
Corporate Remuneration, Finance Group Chief Audit Governance and Risk Social and Ethics and Investment Ensure the integrity of accounting and Set the tone for Transnet’s value system Executive Committee Nominations Committee Committee Committee financial control system. (filtered into the corporate culture). Committee
(Acting) Chairperson Chairperson Chairperson Chairperson Chairperson Inform the overall control consciousness of Maintain the highest standards in the social Mr MS Mahomedy Ms RJ Ganda Dr FS Mufamadi Ms DC Matshoga Ms GT Ramphaka Mr LL von Zeuner employees without restricting performance and ethics environment (policies, legal or innovation. requirements and codes of best practice). Members Members Members Members Members • Mr LL von Zeuner • Ms UN Fikelepi • Dr FS Mufamadi • Ms UN Fikelepi • Adv OM Motaung Executive • Mr AP Ramabulana • Ms ME Letlape • Dr PS Molefe • Ms DC Matshoga • Mr AP Ramabulana Committee • Ms GT Ramphaka • Adv OM Motaung • Ms ME Letlape • Ms RJ Ganda Strategic • Ms ME Letlape • Ms UN Fikelepi • Mr LL von Zeuner Appropriate planning, Clear governance performance accountability committee monitoring and mechanisms structures Delegation of Authority Framework evaluation Flexible and Strong evolving leadership, principles-based culture and Chief Business communication Legal and Risk Human Capital systems Forensic Procurement Finance Information Property Delevopment Compliance Management Resources Investment Committee Committee Committee Officer Committee and Growth Committee Committee Committee Committee Council Committee
Comprehensive Divisional Executive Committee Principles that Transnet’s risk management, compliance and governance structure assurance Freight Rail Engineering National Ports Authority Port Terminals Pipelines Sound systems aspires to uphold business case management across project lifecycles
Provide assurance on governance-related Working processes and controls applied by the Board effectively across to support strategy. organisational boundaries Meet Transnet’s strategic objectives while Balance financial accountabilities, mitigating risks. Abridged governance continued organisational performance and strategic priorities. Safeguard manufactured assets.
Monitor trends in supplier development Manage ICT architecture and mitigate spend and progress against targets. digital risks.
Assess private sector participation Integrate and align assurance processes models to support project funding and and control systems to enable risk and economic growth. End-to-end visibility of key financial control. governance oversight.
Ensure that intellectual property created Ensure that the Company’s strategy, risk Adhere to legal, compliance and accounting (e.g. ICT and advanced manufacturing compliance, performance and sustainability requirements, and contribute to a climate of innovations) is protected. are inseparable. discipline to reduce fraud and losses. 84 Transnet Integrated Report 2019 85
Governance in action Financial Statements within the Governance instruments Delegation of Authority The Board, through its Chairperson, also The Committee considered a self- legislated timelines and ensures that the serves as the Shareholder of Transnet evaluation programme for use in the during the 2019 reporting Shareholder Minister has timely access Framework International Holdings SOC Ltd, a Company and, in keeping with the year to the audited Annual Financial King IV. P7, 10 & 13 The Company reviewed its Delegation of wholly-owned subsidiary of Transnet directive from the Shareholder Minister, Statements. Authority Framework which was SOC Ltd, incorporated on 29 August six-monthly reviews will be conducted The Company’s governance instruments approved by the Board of Directors on 2017 which is currently dormant. going forward. A hybrid approach has King IV. P6, 11 & 12 The Company has developed procedures include: 29 January 2019. The objective of the been implemented where a self- and systems to ensure early adoption of • A Memorandum of Incorporation review was to craft and implement a The Board leads the Company in its assessment will be conducted during Ethical leadership, oversight and the POPI Act once it is promulgated. (MOI), as lodged with the Companies Delegation of Authority Framework achievement of strategic objectives by the interim financial year through a accountability are instituted through the More detail on section 8 on page 98. and Intellectual Property Commission which defines the parameters within directing and approving the Company’s programme that is linked to the appointment of the Board and the (CIPC); and which individuals can make financial overall strategy and associated Company’s Governance Assessment determination of the Board’s strategic operational objectives. It monitors the • A Delegation of Authority Framework, decisions on behalf of the Company. Instrument. and operational objectives. The following Compliance with laws, Company’s performance against targets approved by the Board and cascaded This approach would ensure that there oversight deliverables were achieved outlined in the Shareholder’s Compact As the Board was still fairly new during codes, rules and standards Company-wide. are checks and balances in the decision- during the year: making process and that there is no one and ensures that adequate processes the 2019 financial year – having been • The roles of the Chairperson and individual with superior powers which are in place for budget planning and appointed in May 2018 – no annual Group Chief Executive remained King IV. P13 Memorandum of results in abuse of authority, allocation to advance the Company’s independent Board evaluation separate as recommended by King IV. Incorporation particularly in acquisition or mandate. This includes oversight of the assessment was conducted for the year. The Board governs and directs procurement-related transactions. Company’s socio-economic programmes. An independent evaluation will be • A formal induction and training The MOI was revised and filed with the compliance with applicable laws. The Board is tasked with ensuring that considered for the 2019/20 financial programme for the Board was CIPC on 19 December 2017. The implemented. Training and The review of the Delegation of the Company can achieve its statutory year and the process to appoint an mandates of the Board of Directors and Authority Framework takes cognisance development needs identified by the and commercial objectives. independent evaluator will be initiated Public Finance Management its committees are aligned with the of the Company’s strategic objectives. Board and its committees were by September 2019. Act (PFMA) Company’s MOI. The Company has since The framework is reviewed annually for The Company has incurred severe incorporated into training embarked on the MOI amendment The Company is identified as a major adequacy and completeness and damage due to procurement governance programmes. process to include the changes Directors’ induction and business entity and is listed under approved by the Board. failures which have tainted the good • Appropriate disclosure of the introduced by the new Board, such as Schedule 2 of the PFMA. The Board image that the Company held for continuous development remuneration of directors has been disbanding the Acquisitions and All the Operating Divisions and decades. During the year, the ensures that the Company adheres to made in the 2019 Integrated Report, Disposals Committee, and the Specialist Units are required to implementation of the investigation the requirements for the assessment of in line with applicable laws and subsequent establishment of the sub-delegate authority according to the outcomes and the ongoing King IV. P1 & 9 risk and annual budget submissions and regulations. Finance and Investment Committee, as latest DOA Framework to their investigations as well as various the annual conclusion of a Shareholder’s • The Board continued to be assisted by well as the appointment of a Board respective executive committees governance interventions have kept the As part of enhancing the directors’ a competent, suitably qualified and Compact. The Board also ensures that member as a Chairperson of the (Extended Executive Committee) within Board engaged in extensive meetings skills, the Group Company Secretary experienced Group Company the Company adheres to all procedures Corporate Governance and Nominations a period of 30 days from the date of with various stakeholders ranging from develops an Annual Board Training Plan, Secretary during the period under for quarterly reporting to the Executive Committee. signature by the Group Chief Executive. law-enforcement agencies to lenders, which identifies training requirements review. The mandatory duties of the Authority through the submission of customers and employees. for the Board and its committees. Group Company Secretary are quarterly PFMA reports to the Board composition The mandates of the Board of Directors Individual directors are also encouraged formalised and adequately defined in Shareholder Minister. and its committees are aligned with the to identify any governance-related The amendment to the MOI provides accordance with the provisions of the provisions of the Companies Act and the Independent performance training events they may wish to attend that the Board shall consist of a Companies Act. DOA. Similarly, the mandates of the through recognised training King IV minimum of six and a maximum of evaluation of the Board, its Group Executive Committee and its institutions. • The Board continues to ensure that The Company has adopted the King IV 14 directors, comprising not less than committees and directors appropriate risk and governance subcommittees are aligned with the principles in conjunction with regulatory four non-executive directors, from The Board ensures the evaluation of its Board and committee induction frameworks and methodologies are in current DOA and the mandates of the provisions to achieve the overarching whom the Chairperson of the Company own performance and that of its sessions (including site visits) were held place to enhance the Company’s Board and its committees. principles of sound governance, namely shall be appointed. The Board is, committees. The Chairperson and between May and July 2018 for the ability to anticipate and respond to responsibility, accountability, fairness therefore, adequately resourced in line individual directors provide support for newly-appointed directors. The unpredictable risks and identified and transparency. The Company with the MOI. The Board composition is, The role of the Board of continued improvement in the Board’s induction of directors is ongoing to opportunities. attempts to do so substantively and not however, under continuous review to Directors efficiency and effectiveness. An annual acquaint the Board with the business of • The Board reviewed the IT strategy ensure adequate resourcing of the Board simply in form, so that its decisions and independent evaluation is conducted the Company. In the year under review, and its associated risks. and its committees. actions impact positively on the to assess the effectiveness of the the following training activities were Company and its stakeholders, which King IV. P1 & 9 Board, its committees, the Chairperson conducted by both internal and external Transparency, include its employees, the communities Non-executive directors and the individual contributions of training service providers: The Board is principally responsible for in which it operates, suppliers, A non-executive director shall hold the directors. accountability and integrity directing and overseeing the affairs of customers and the public at large. office for a term of three years from the the Company, balancing the interests of The findings of the evaluation are date of his/her appointment, subject to stakeholders, and ensuring the considered by the Board and compared King IV. P1, 12 & 13 The Governance Assessment Instrument confirmation of his/her appointment at Company’s long-term economic, social to the prior year’s assessment, with is utilised to monitor the level of the annual general meeting, provided and environmental sustainability. This appropriate action plans being The PFMA, Companies Act and application of the King IV principles. that no person is appointed as a responsibility includes it being the formulated. The Board tracks progress non-executive director for more than Abridged governance continued Protection of Personal Information Act, Transnet has adhered to some of the deemed Board of the Transnet National against those plans through the No 4 of 2013 (POPI Act) provide specific three consecutive terms. The Board shall King IV principles and recommendations Ports Authority in terms of the National Corporate Governance and Nominations requirements pertaining to the consist of not less than two executive as evidenced in the 2019 Integrated Ports Act, No 12 of 2005, as amended. Committee. Company’s records management Report, Remuneration Report and the directors who shall include the Group practices, such as interim financial Sustainably Outcomes Report. Chief Executive and the Group Chief results and annual financial statements Financial Officer. The Board shall at all that satisfy the International Financial times consist of a majority of non- Reporting Standards, and for the Companies Act executive directors. audited annual financial statements to The Company reports on the extent of be prepared within five months its compliance with the Companies Act Ms V McMenamin and Prof EC Kieswetter following the financial year end. To that in the Directors’ Report in the 2019 resigned as non-executive directors of end, the Company finalises its Annual Annual Financial Statements. the Company with effect from 28 February 2019 and 6 May 2019, respectively. 86 Transnet Integrated Report 2019 87
Table 37: Board and committee induction sessions Board independence non-executive directors have The Board has interrogated matters unrestricted access to the Company’s within its mandate and those relating to Governance structure Training provided Service provider Date Attendees information, documents, records and the year under review and is satisfied King IV. P7 property in the interest of fulfilling their that it has discharged its Remuneration, Social Short-term Incentive In-House: Transnet Group 12 June 2018 Dr FS Mufamadi fiduciary duties and responsibilities. responsibilities. The Board comprises an appropriate and Ethics Committee (STI) Ground Rules Human Resources/Group Ms ME Letlape balance of knowledge, skills, experience, Finance Mr SI Gama diversity and independence, enabling it Core responsibilities of the Board and committee Mr MS Mahomedy to objectively and effectively discharge Board meetings Social and Ethics as per Institute of Directors of 4 February 2019 Dr FS Mufamadi its duties. In accordance with King IV, the The Board serves as the focal point and the Companies Act Southern Africa Ms ME Letlape Board is satisfied that the non- custodian of corporate governance in King IV. P6 Prof EC Kieswetter executive directors of the Company are the Company. The protocol for independent. exercising its leadership role is outlined The diagram below indicates the number Corporate Governance The Role of the iThemba Governance and 26 July 2018 Ms DC Matshoga in the approved Board and committee of scheduled and ad hoc meetings held The non-executive directors have and Nominations Committee Statutory Solutions Dr PS Molefe mandates. The mandates clearly define during the year under review. diverse skills, experience and Committee Ms UN Fikelepi the procedures for the Board and backgrounds. They are principally free committees to obtain professional Adv OM Motaung from any business relationship that Dr FS Mufamadi advice and the procedures for could hamper their objectivity or management to submit documentation Mr MS Mahomedy judgement in terms of the business and for the Board to make informed activities of the Company. All the decisions. Risk Committee Transnet Risk In-House: Group Risk and 2 August 2018 Mr LL von Zeuner Management Approach Compliance Ms UN Fikelepi Ms DC Matshoga Status of meetings convened during the 2019 nancial year Ms GT Ramphaka Mr SI Gama Mr MS Mahomedy Board 5 3 9 Audit Committee Role of the Audit Institute of Directors of 23 August 2018 Ms RJ Ganda Committee Southern Africa Ms ME Letlape Audit Committee 3 1 11 Mr AP Ramabulana Finance and Investment Committee 3 4 3,0 Ms GT Ramphaka Corporate Governance and 2 Mr LL von Zeuner Nominations Committee 3 Mr SI Gama Remuneration, Social and 3 1 33 Ethics Committee Mr MS Mahomedy Integrated Assurance FirstRand 12 February 2019 Ms RJ Ganda Risk Committee 3 2
Ms ME Letlape TNPA Deemed Board 3 Mr AP Ramabulana Ms GT Ramphaka Scheduled meetings Workshops Special meetings Mr LL von Zeuner Mr TC Morwe Mr MS Mahomedy
Finance and Investment PLP, Capital Operating In-House: Transnet Group 8 November 2018 Prof EC Kieswetter Committee Model and Indicative Capital Mr AP Ramabulana Capital Budgets for Mr TC Morwe 2018/19 Mr LL von Zeuner Mr MS Mahomedy
Board of Directors National Ports Act In-House: TNPA 21 February 2019 Dr PS Molefe Ms UN Fikelepi Ms RJ Ganda Prof EC Kieswetter Ms ME Letlape Mr MS Mahomedy Abridged governance continued Ms DC Matshoga Mr TC Morwe Dr FS Mufamadi Adv OM Motaung Mr AP Ramabulana Mr LL von Zeuner
Individual director Technology and Institute of Directors of 27 March 2019 Ms UN Fikelepi development Information Governance Southern Africa 88 Transnet Integrated Report 2019 89
Board and committee meetings held during the period 1 April to 13 May 2018 Table 40: Summary of critical matters during 2018/19* Board and committee meetings were held and attended by the previous non-executive directors prior to the appointment of the current Board on 14 May 2018, whose appointment was confirmed on 23 May 2019. The table below discloses the number of King IV. P6 & 8 meetings held and attended by the former directors during the period 1 April to 13 May 2018.
Board Table 38: Board and committee meetings held during the period 1 April to 13 May 2018
Acquisitions and • Total number of meetings held during the year: 17 • Executive director^ Board/Committee Board Audit Committee Risk Committee Disposals Committee • Independent non-executive director†
Number of meetings held 1 1 1 1 Chairperson: Members: (CS) (SP) Dr PS Molefe† • Ms UN Fikelepi† • Ms V McMenamin†2 Ms LC Mabaso# (Chairperson) ✓ — — ✓ • Ms RJ Ganda† • Mr SI Gama^3 Mr SI Gama1 — — ✓ ✓ • Prof EC Kieswetter†1 • Mr TC Morwe^4 Ms Y Forbes# ✓ — ✓ — • Ms ME Letlape† • Mr MS Mahomedy^5 Ms AC Kinley# ✓ ✓ — ✓ • Ms DC Matshoga† • Adv OM Motaung† Ms PEB Mathekga# ✓ ✓ — — • Dr FS Mufamadi† • Mr AP Ramabulana† Mr ZA Nagdee# ✓ — — ✓ • Mr LL von Zeuner† • Ms GT Ramphaka† Mr VM Nkonyane# ✓ — — — Mr GJ Pita2 — — — — Mr SM Radebe# ✓ ✓ ✓ — Most material matters arising during the year Main undertakings and considerations
1 Mr SI Gama’s contract of employment was terminated with effect from 28 October 2018. • Dissolution of the Acquisitions and • Dissolved the Acquisitions and Disposals Committee. 2 Mr Pita resigned with effect from 19 April 2018. # Msses LC Mabaso, Y Forbes and AC Kinley resigned with effect from May 2018 and Ms PEB Mathekga and Messrs VM Nkonyane, ZA Nagdee and Disposals Committee • Established the Finance and Investment Committee. SM Radebe were removed with effect from May 2018. • New Board composition and amendment • Recommended the amendments in the MOI to the Shareholder Minister for CS Closed session. to the MOI approval. SP Special meeting. • Executive directors’ fees • Approved the going concern assertion. • Pension Funds’ bonus payments The table below discloses the number of meetings held during the year and the attendance of the respective directors from • Recommended the executive directors’ fees to the Shareholder Minister for 23 May 2018 to 31 March 2019. • Going concern status approval. • State capture issues • Approved the Transnet Sub-fund of the Transport Pension Fund (TTPF) 2019 Table 39: Schedule of directors’ attendance at Board and committee meetings* • PFMA matters ad hoc bonus payment. • Contract management • Approved the Transnet Second Defined Benefit Fund (TSDBF) ad hoc bonus Corporate • Forensic investigations and co-operation payment. Governance Remuneration, with law-enforcement agencies • Considered state capture-related issues and appearances before the Zondo Finance and and Social and TNPA • Derailments Commission of Inquiry by Company representatives. Audit Investment Nominations Ethics Risk Deemed • Low volumes • Considered increasing PFMA reportable issues, media allegations against Board/Committee Board Committee Committee Committee Committee Committee Board Transnet and issues raised by the Standing Committee on Public Accounts (SCOPA). Number of meetings held 17 15 7 5 7 5 3 • Undertook to SCOPA to reduce instances of contract variations through deviations and extensions. As such, reporting on contracts is a standing Dr PS Molefe matter at the Finance and Investment Committee meetings to ensure (Chairperson) 17 — — 5 — — 3 proactive review of contracts and effective management of contracts. Ms UN Fikelepi 16 — — 5 — 5 3 • The Company has also instituted independent forensic investigations to Ms RJ Ganda 15 14 5 — — — 2 address the alleged corporate governance breaches on contracts concluded Mr SI Gama1 6 — — — — — 1 between 2004 and 2018 and the prevailing media allegations. Some of the Prof EC Kieswetter4 15 — 7 — 2 — 1 recommendations from the forensic investigation have been implemented while further investigations have been commissioned. Ms ME Letlape 16 14 — — 7 2 3 • Collaborated with law-enforcement agencies. Mr MS Mahomedy5 15 — — — — — 2 • Considered root causes of derailments and low volumes, and the related Ms DC Matshoga 16 — — 5 — 4 2 remedial plans. Ms V McMenamin3 4 — — — 2 — — Mr TC Morwe2 7 — — — — — 1 * A more detailed table of key activities and outputs for the 2019 financial year is online in the full Governance Report at www.transnet.net. 1 Adv OM Motaung 11 — 2 4 — — 3 Prof EC Kieswetter resigned as a non-executive director of the Company with effect from 6 May 2019. 2 Ms V McMenamin resigned as a non-executive director of the Company with effect from 28 February 2019. Dr FS Mufamadi 14 — — 5 7 — 1 3 Mr SI Gama’s contract of employment was terminated with effect from 28 October 2018. Abridged governance continued Mr AP Ramabulana 15 14 7 — — — 3 4 Mr TC Morwe was appointed with effect from 1 November 2018. His contract of employment expired with effect from 30 April 2019. Ms GT Ramphaka 16 13 — — — 5 3 5 Mr MS Mahomedy was appointed Acting Group Chief Executive in May 2019. Mr LL von Zeuner 16 10 7 — — 5 3
* Each scheduled Board meeting is preceded by a closed session attended by non-executive directors. 1 Mr SI Gama’s contract of employment was terminated with effect from 28 October 2018. 2 Mr TC Morwe was appointed with effect from 1 November 2018. His contract of employment expired with effect from 30 April 2019. 3 Ms V McMenamin resigned with effect from 28 February 2019. 4 Prof EC Kieswetter resigned with effect from 6 May 2019. Mr MS Mahomedy was appointed Acting Group Chief Executive in May 2019. Mr MD Gregg-Macdonald was appointed Acting Group Chief Financial Officer with effect from 13 May 2019. Mr LL von Zeuner attended two days of the three-day workshop held in November 2018. Ms UN Fikelepi was appointed a member of the Remuneration, Social and Ethics Committee with effect from 15 March 2019. Executive directors are not members of the Board committees. 90 Transnet Integrated Report 2019 91
Chairperson and Group It is critical that Transnet fulfils its The Board and the Group Executive In consultation with the Chairperson, the Benchmarking scheduled meetings were held during the economic and developmental mandates, Committee note their respective annual Group Company Secretary ensures that year and all quorum requirements were The Group Company Secretariat Chief Executive and the Board considers it both a declarations of interest registers. The the contents of the agenda are relevant met. The Audit Committee provides the continues to conduct benchmark business and governance imperative Corporate Governance and Nominations to the Board’s decision-making and following support activities to the Board: Committee and the Remuneration, Social exercises with other SOCs and private that a new executive head be appointed communicates the Board’s resolutions • Assists the Board in discharging its King IV. P7 to ensure this outcome. and Ethics Committee conduct annual companies, while sharing knowledge throughout the Company in a timely and duties to safeguard assets and reviews of the filed declaration of gained in the corporate governance appropriate manner. evaluate internal control frameworks. The roles of the Chairperson and the Mr Tau Morwe was appointed Acting interest forms of the members of the sphere with other SOCs, with the Group Chief Executive are separate, GCE with effect from 1 November 2018 Board and Group Executive Committee The Group Company Secretary is objective of enhancing uniformity, • Reviews and assesses the integrity with their individual responsibilities for a six-month period. When his for oversight purposes. qualified to perform duties in accordance standardisation and alignment of best and effectiveness of the accounting, clearly defined. financial, compliance and other control contract expired on 30 April 2019, with applicable legislation and is practice across the SOCs. This exercise systems. Mr Mohammed Mahomedy was The declaration of interest process is considered by the Board to be fit and mutually benefits the participants. The Chairperson is an independent appointed as Acting Group Chief conducted through an electronic filing • Considers the internal and external non-executive director and is proper for the position. The Group Executive, effective from system. In addition, the Company Company Secretary does not fulfil an audit process, accounting principles responsible for leading the Board and requires all employees to sign Board committees 1 May 2019. executive management function and is and policies. ensuring its effectiveness. confidentiality and declaration of not a director. The Board is therefore • Strengthens the independence of the interest forms when adjudicating on Audit Committee satisfied that the Group Company internal and external audit functions The Group Chief Executive is responsible Management of potential procurement contracts, and this practice Secretary maintains an arm’s-length to ensure their effectiveness. for the execution of the Company’s is strictly enforced. The declaration of conflicts of interest relationship with the Executive • Ensures effective communication strategy, and the day-to-day business of interest and related-party disclosure King IV. P6 & 8 the Company. He is supported by the Committee, the Board and the individual between the internal auditors, policies for directors and employees are During the year, the Company continued Group Executive Committee, of which he non-executive directors. external auditors, the Board, King IV. P13 revised every five years, or as required, in to comply with the Companies Act’s is the Chairperson. management and regulators. line with the Company Policy Framework. requirements for the functioning and The Companies Act codified the fiduciary Ms Nokuthula Khumalo resigned from • Ensures compliance with and reporting of the Audit Committee. PFMA The Board is satisfied that the duties of directors, and prohibits the use the role of the Group Company Secretary adherence to applicable legal, requirements for the composition and Delegation of Authority Framework of position, privileges and/or confidential Group Company with effect from 30 June 2019. The regulatory and accounting election of the Audit Committee are clearly records the nature and extent of information for personal gain or to Board of Directors appointed Ms Komilla requirements. benefit another person improperly. Secretariat function strictly observed. the authorities delegated by the Board Naicker as the Acting Group Company • Contributes to a climate of discipline to the Group Chief Executive and The Board continuously improves the Secretary with effect from 16 July 2019. The Audit Committee comprises and control which will reduce the specified governance structures and/or, governance instrument to ensure King IV. P10 independent non-executive directors opportunity for fraud. in turn, by the Group Chief Executive to continued adherence to the prescribed who are duly elected by the Shareholder • Assists the Board in discharging its the members of the Group Executive standards of ethical and professional The Board has appointed a competent Minister at the annual general meeting in duties as it pertains to ICT Committee in order to implement certain conduct. and qualified Group Company Secretary line with legislative requirements. Two governance. actions by or on behalf of the Company. who is responsible for developing Where it has been established that a It includes, to the extent necessary and/ systems and processes to enable the director or a prescribed officer has any or incidental thereto, the authority to Board to discharge its functions direct or indirect personal or private Table 41: Summary of main undertakings and considerations during the year* discharge all the duties, obligations and efficiently and effectively. The Group business interest in a particular matter, Company Secretary prepares Annual powers imposed upon the deemed that director or prescribed officer must Audit Committee authority under the National Ports Act. Work Plans for the Board and its be recused from the proceedings when committees as informed by the strategic the matter is considered, unless the direction of the Company. The Corporate • Total number of meetings held during the year: 15 • Executive director^ Appointment of directors Board, Board committees or Group Governance and Nominations Committee • Independent non-executive director† Executive Committee and its reviews the Annual Work Plans and and succession planning subcommittees, as the case may be, makes recommendations to the Chairperson Members decide that the member’s interest in the respective Board committees for Ms RJ Ganda† • Ms ME Letlape† matter is trivial or irrelevant. consideration. These Annual Work Plans King IV. P13 • Mr AP Ramabulana† are recommended to the Board for • Ms GT Ramphaka† The declaration of interest and related- approval by the respective Board The Company, through the Shareholder party disclosures registers are signed by • Mr LL von Zeuner† Minister, adheres to the prescribed committees for implementation and are the members and attendees at all formal continually tracked to assess progress. No external advisers attended committee meetings during the year. requirements for the composition, meetings of the Board, the Group election, appointment and remuneration Executive Committee and their The Group Company Secretary also of the Board. The Corporate Governance Most material matters arising during the year Main undertakings and considerations committees. These registers are advises the Board on corporate and Nominations Committee is maintained by the Group Company governance issues, the requirements of responsible for the succession planning Secretary. In addition, non-executive the Companies Act and other relevant • Integrated Report material aspects • The committee approved the
Corporate Governance • Sets criteria for the nomination of • Administers and manages the Risk Committee • Ensures that the risk policies are • Contributes to a climate of discipline directors to be recommended to the selection process of the Group Chief managed effectively and in and control which will reduce the and Nominations Board for appointment to the Board Executive on behalf of the Board and accordance with the Enterprise Risk opportunity for fraud and other Committee committees. makes recommendations on the top King IV. P6 & 8 Management Framework approved by operational losses. • Nominates potential Audit Committee three candidates – in order of priority the Board from time to time. • Assesses any significant risk control The Risk Committee provides the members for appointment by the – to the Board by complying with the • Ensures effective communication with failings or weaknesses identified and King IV. P6 & 8 following support activities to the Shareholder Minister. Guidelines for the appointment of a the internal and external auditors, the their potential impact and confirms Board: Audit Committee, the Board, that appropriate action has or is being • Nominates potential Remuneration, Group Chief Executive for a State- The Corporate Governance and • Reviews and assesses the integrity of management and regulators on risk taken. Social and Ethics Committee members owned Enterprise. Nominations Committee provides the the risk control processes and management. for approval by the Board and following support activities to the systems. Board: confirmation by the Shareholder • Ensures that the Board’s composition Minister at the annual general meeting Table 43: Summary of the main undertakings and considerations during the year* and structure enables it to fulfil the or through a written resolution. obligations of the Board mandate and • Ensures that best practice succession Risk Committee advance and maintain the Company’s planning policies are implemented in corporate governance policies and the respect of executive directors and Total number of meetings held during the year: 5 Executive director^ Corporate Governance Framework. independent non-executive directors. Independent non-executive director†
Table 42: Summary of the main undertakings and considerations during the year* Chairperson Members Mr LL von Zeuner† Ms UN Fikelepi† Corporate Governance and Nominations Committee Ms ME Letlape† Ms DC Matshoga† Total number of meetings held during the year: 5 Executive director^ Ms GT Ramphaka†1 Independent non-executive director† Mr SI Gama^†2 Chairperson Members No external advisers attended committee meetings during the year. Ms DC Matshoga† • Dr PS Molefe† • Ms UN Fikelepi† Most material matters arising during the year Main undertakings and considerations • Adv OM Motaung† • Dr FS Mufamadi† • An increasing trend in derailments • Considered an increasing trend in derailments – addressed across the Company and visible leadership strategies implemented, which include individual No external advisers attended committee meetings during the year. • Credit rating agencies’ assessments and their impact on the Company’s funding executive members being allocated specific work areas to visit regularly to requirements engage employees on different matters, including safety. Most material matters arising during the year Main undertakings and considerations • Fraud risks and consequence management • Considered credit rating agencies’ assessments, and their impact on the • Status of ongoing forensic investigations Company’s funding requirements. Mitigation plans to improve the Company • Delegation of Authority (DOA) Framework • Recommended to the Board the approval of the DOA Framework. rating while acknowledging the link with the sovereign – included reducing and • Ensuring regular updates on forensic • Board composition and Board evaluation • Recommended to the Board the Board’s committees composition. deferring capital spend and instituting alternative funding models until a stable investigations • TTPF matters • Approved the Internal Board Evaluation Scope. position is achieved. • Integrated risk reporting within Transnet • TSDBF matters • Recommended to the Board the TTPF ad hoc bonus payment. • Considered fraud risks and forensic management briefings on consequence • Reputational risks • Shareholder’s Compact monitoring • Recommended to the Board the TSDBF proposed rule amendment 11. management and expediting the management of cases through forensic • Review cross-cutting matters from other investigations. committees • Held meetings dedicated to ensuring that the committee receives regular • Director development and Board updates on the forensic investigations and consequence management continuous improvement implementation. The forensic portfolio was transferred from the Chief Audit Executive to the Chief Corporate and Regulatory Officer. * A more detailed table of key activities and outputs for the 2019 financial year is included in the full Governance Report at www.transnet.net. • Considered reputational risks. • Streamlined risk reporting through integrated risk reporting to ensure effective oversight of the Company’s complicated business.
* A more detailed table of key activities and outputs for the 2019 financial year is included in the full Governance Report at www.transnet.net. 1 Ms GT Ramphaka was appointed Chairperson of the Risk Committee with effect from 29 May 2019. 2 Mr SI Gama attended once between 1 April 2018 to 13 May 2018. His employment contract was terminated with effect from 28 October 2018. Abridged governance continued 94 Transnet Integrated Report 2019 95
Finance and Investment • Approves investment transactions partnerships against the approved Remuneration, Social and and standards of the Company’s • Develops and implements a within the committee’s delegated plans. conduct and activities. remuneration philosophy for Committee authority. • Recommends divestments (disposals) Ethics Committee • Manages and monitors the Company’s disclosure to enable a reasonable assessment of reward practices and • Oversees trends in supplier to the Board in line with the activities to achieve and maintain world-class standards in the governance processes to be made by development and localisation spend in Delegation of Authority (DOA) King IV. P6 & 8 King IV. P6 & 8 Company’s social and ethics stakeholders. line with Broad-Based Black Economic Framework. environment, with due regard to all • Recommends the level of independent Empowerment plans and monitors The Finance and Investment Committee • Approves procurement strategies and The Remuneration, Social and Ethics relevant legislation, policies, legal non-executive directors’ fees to the provides the following support activities progress on these plans. oversees related awards in line with Committee is constituted as a statutory requirements and codes of best Board. to the Board: • Considers strategic growth the DOA Framework for assurance committee of Transnet SOC Ltd in practice. • Ensures compliance with applicable investments and partnerships and purposes. respect of its statutory duties in terms laws and codes. • Advances and maintains the of section 72(4) and Regulation 43 of the • Oversees the ethics management makes recommendations to the Board. • Considers and makes Company’s financial and investment • Considers property lease agreements Companies Act, and as a committee of programme implemented by recommendations on all human capital • Monitors the implementation of in line with the DOA Framework. the Board in respect of all other duties management. policies to ensure its financial matters related to the: sustainability. strategic growth investments and assigned to it by the Board in terms of • Ensures that competitive reward its mandate. strategies and programmes are in –– Restructuring of Transnet; place to facilitate the recruitment, –– Disposal of assets/part of Table 44: Summary of the main undertakings and considerations during the year* The committee provides the following motivation and retention of high- Transnet’s business; and support activities to the Board: performance staff at all levels in –– Acquisition of assets/new business. Finance and Investment Committee • Advises the Board regarding support of realising corporate • Development of human resources responsible corporate citizenship and objectives and to safeguard the issues. • Total number of meetings held during the year: 7 • Executive director^ the ethical relationship between the Shareholder’s interests. • Approves the succession planning • Independent non-executive director† Company and its stakeholders, both • Reviews the design and management policy and procedures for the Group internally and externally. The of salary structures, policies and Executive Committee (other than committee manages the Company’s incentive schemes and ensures that executive directors) and the Extended Chairperson Members legal and moral obligations for its they motivate sustained high Executive Committee members. 1 Prof EC Kieswetter† • Ms RJ Ganda† economic, social and natural performance and are linked to • Adv OM Motaung† environment, including the objectives corporate performance. • Mr AP Ramabulana† • Mr LL von Zeuner†2 Table 45: Summary of the main undertakings and considerations during the year* No external advisers attended committee meetings during the year. Remuneration, Social and Ethics Committee Most material matters arising during the year Main undertakings and considerations Total number of meetings held during the year: 7 Executive director^ • Eskom Long-term Transportation • Recommended to the Board the Eskom Long-term Transportation Agreement. Independent non-executive director† Agreement • In line with its mandate, the committee provided guidance and oversight on • Improved procurement governance procurement-related matters to assure that tender awards are issued to Chairperson Members bidders who meet the criteria and have adequate capabilities to execute the Dr FS Mufamadi† • Ms UN Fikelepi†3 contracts. This assurance will proceed until such time that there is assurance • Prof EC Kieswetter†1 that corrupt activities have been eradicated and that good governance prevails. • Ms ME Letlape† 2 * A more detailed table of key activities and outputs for the 2019 financial year is included in the full Governance Report at www.transnet.net. • Ms V McMenamin† 1 Prof EC Kieswetter resigned as a non-executive director of the Company with effect from 6 May 2019. No external advisers attended committee meetings during the year. 2 Mr LL von Zeuner was appointed Chairperson of the Finance and Investment Committee with effect from 29 May 2019. Most material matters arising during the year Main undertakings and considerations
• Non-executive directors’ remuneration • Recommended to the Board and Shareholder Minister the review of the • Actions required in terms of suspensions non-executive directors’ fees. and appointments of senior executives in • Recommended consequence management of the Group Chief Executive and other light of widespread corruption allegations executives. • Measures to address employee and public • Recommended the extension of the Acting Group Chief Executive’s contract. safety and fatalities • Considered Human Resources policies for review. • Improvement of employment equity • Considered suspensions and terminations. across the organisation • Considered Executive Committee vacancies. • Need to improve consequence • Considered skills and capacity building, including management skills. management in terms of fraud and • Reviewed the remuneration and reward philosophy. The committee called for the corruption matters revision of the Company’s balanced scorecards and related reward schemes (Short- term and Long-term Incentive Scheme Ground Rules). • Considered ethics matters, such as fraud and corruption matters and the need to improve efficiencies in consequence management. 2019 saw more decisive action Abridged governance continued being taken to institute consequence management, • More transparent reporting regarding remedial actions taken to eradicate corruption and sharing positive and constructive news have impacted positively on media reporting.
* A more detailed table of key activities and outputs for the 2019 financial year is included in the full Governance Report at www.transnet.net. 1 Prof EC Kieswetter resigned as a non-executive director of the Company with effect from 6 May 2019. 2 Ms V McMenamin resigned as a non-executive director of the Company with effect from 28 February 2019. 3 Ms UN Fikelepi was appointed a member of the Remuneration, Social and Ethics Committee with effect from 15 March 2019. 96 Transnet Integrated Report 2019 97
Our control environment • Supply Chain Management Policy 2. Internal Audit 3. Enterprise risk management and 4. Strategic execution and performance • Service providers, suppliers and and robust, independent • Accords with section 51 of the integrated assurance management trade partners are also subject to in brief complaints handling. PFMA. • The Board delegates the Group’s • Transnet’s performance targets are the Code. • Adherence to a strict set of laws, • Governed by the International risk management function to the confirmed in the annually • The Code is revised every five codes, rules and standards, Risk Committee. negotiated Shareholder’s Compact. years or as required. King IV. P2, 4, 8, 11, 12, 13 & 16 Standards for the Professional including (but not limited to): Practice of Internal Auditing of the • The strategic risk profile is • Transnet manages the execution of • The Group Company Secretary is –– Section 217(1) of the responsible for the Code Transnet’s governance control Institute of Internal Auditors. generated from the Transnet ERM its strategic imperatives through Constitution of South Africa and development, review, and Human environment comprises eight key areas: • An independent assurance function Strategy Framework, based on the Company’s Strategic Execution section 51(1)(a)(iii) of the PFMA; that is functionally accountable to ISO 31000: 2009. Framework. Resources is responsible for the implementation of the Code. 1. Integrated procurement management –– Promotion of Administrative the Transnet Audit Committee. • Transnet’s Integrated Assurance • The framework is designed to Justice Act, No 3 of 2000, which • The mandate and terms of Model manages risks and controls, achieve: • Aspects of the Code are included in • Optimally regulated fraud and corruption awareness was issued in terms of section 33 reference are included in the and encompasses the assurances –– Visibility of strategic execution infrastructure-related training and are accessible to all of the Constitution; Internal Audit Charter – approved provided by management, internal to identify and close execution procurement and delivery employees on the Company’s –– The Construction Industry annually by the Transnet Audit specialists, internal audit, external gaps; management with Finance and intranet. Development Board Act, No 38 Committee. audit and external advisers and –– Group-wide integration and Investment Committee Terms of • The Tip-Offs Anonymous Hotline is of 2000, and the regulatios • Transnet Internal Audit was a fully service providers. alignment of strategic initiatives Reference. outsourced to a third party to thereto; outsourced function operating • First line of defence: Assurances and critical processes; • Infrastructure Procurement and ensure independent, seamless –– The Promotion of Access to under strategic leadership of the provided by direct line Delivery Management Framework –– Problem-solving and analytical investigation without prejudice. Information Act, No 2 of 2000; Chief Audit Executive – a Transnet management, which is blanket with procurement rules, tools, and follow through with The Hotline is available 24 hours a –– The Preferential Procurement permanent employee. Transnet is assurance across the full scope of procedures and processes. solution-driven actions; day, seven days a week and call Policy Framework Act, No 5 of considering increasing the internal risks and controls. • Procurement Ombudsman. –– A risk-based execution process centre agents converse in all 2000, and the regulations capacity. • Second line of defence: Assurance to monitor the MDS; and 11 official South African • Up-to-date compliance assurance thereto; and providers that are internal to the • Develops and executes a –– A platform for collaboration and languages. All irregularities, for high-value tender processes. Company, yet not directly –– Instruction notes are also issued risk-based audit plan. seamless execution of strategic whether reported through external • Transnet Delegation of Authority. responsible for the direct by National Treasury, which initiatives. or internal reporting channels, are • Efficient and effective contract regulate Transnet’s procurement management of the process under investigated through an management, with SCM Contract processes. review. established forensics investigation Management Procedures Manual Material matters, • Third line of defence: Assurance process. and Procurement Procedure 32 opportunities and risks providers that act independently • The Transnet Whistle-blowing Manual. 74 PFMA compliance from management and the 5. Ethics and fraud management Policy is aligned with the Protected Company’s operations. Disclosures Act, No 26 of 2000, • Fourth line of defence: • The Code of Ethics (the Code) and helps to protect employees Independent oversight committees enables a culture of entrenched from various forms of with specific responsibilities values, principles, standards and victimisation. Figure 13: Transnet Internal Audit (TIA) strategic objectives pertaining to the risk, control and norms. • The fraud and corruption risk assurance of Transnet’s activities • Integrity pacts are concluded with management strategy provides and their impact on stakeholders. all bidders and suppliers. mechanisms for the prevention, • Fraud and corruption awareness early detection and investigation 1 Material matters, training is conducted annually with of irregularities. 32 opportunities and risks all employees. Develop and execute Our performance and a risk-based 46 outlook internal audit plan Fraud and corruption risk management strategy 6 2 Figure 14: Key themes of the fraud and corruption risk strategy Enhance the Strengthen effectiveness, efficiency Financial Manufactured Intellectual Social and Human proactive assurance, and productivity of processes and capital capital capital relation capital capital the internal audit reporting process Tone at the top Forensic data analytics Capital programmes Fraud and corruption Recruitment and Asset management selection TIA’s risk assessments strategic Forensic data analytics objectives Anti-corruption Time and attendance Anti-bribery, fraud and Revenue generation compliance programme Declaration of interest corruption awareness 5 3 Fraud and corruption risk assessments Abridged governance continued Design and implement Manage an optimal internal Rail sidings Lease management Tender management Declaration of gifts Whistle-blowing stakeholder audit structure with mechanism expectations requisite skills and competencies Contract management 4 Three-quote process Treasury transactions Verification of vacant/ Recruitment and illegal properties selection Ethics Compliance Maintain an effective Payroll Programme Quality Assurance and Improvement Procurement to pay Programme Inventory Scrap sales High Value Tender Ethics management Legislative compliance reviews 98 Transnet Integrated Report 2019 99
6. Governance of stakeholder • The ethical and responsible use of – Improved return on ICT-enabled Remuneration strategic objective, to promote manage the business on a day-to-day management and engagement ICT, and compliance with applicable investment. Transnet’s long-term sustainability. basis to achieve the stated objectives. • The Board delegates authority to laws, is the overall responsibility of – ICT risks managed in line with the The performance of Transnet as a King IV. P.1 & 14 Transnet’s remuneration philosophy the Group Chief Executive who the Board, which is provided with priorities and Transnet’s risk Company, and individual performance supports the strategic goals and reports to the Board on all material insight on ICT’s updated regulatory appetite. against a set of broadly predetermined objectives of the organisation and stakeholder issues and takes universe each year. – Appropriate security measures metrics, form part of the remuneration Remuneration philosophy creates an environment in which teams responsibility for incorporating • In aligning IT Governance practices to protect Transnet and employee cycle. King IV Principle 14 emphasises that are challenged and rewarded to achieve these into Transnet’s strategy and within Transnet, ICT has focused on information. remuneration practices should be targets and to sustain superior risk management. the improvement of the integrated – Improved management of equitable, responsible and transparent, performance. This approach to Linking reward to the • Stakeholder engagement practices assurance approach, in addition to business-related ICT projects. optimising the assurance coverage linked to Transnet’s strategy, and should remuneration aims to encourage and strategic intent of Transnet align with the Company’s Culture – Improved information result in continued shareholder value on ICT and Digital following feedback reward performance that is aligned to The table below provides an overview of Charter and supporting values. management. creation. In this regard, Transnet aims to from both external and internal the business strategy. the different reward elements and the • Engagement norms include – ICT executed in line with ensure that remuneration is assurance as well as risk link to the strategic intent of Transnet. inclusivity, accountability and legislative and regulatory Management is responsible for delivering management. commensurate with the roles and responsiveness. requirements. responsibilities of executives and also against the mandate set by the Transnet • With the proliferation of technology • Stakeholder engagement linked to the achievement of our Board and the Shareholder and to in this digital era, Transnet ICT has performance is measured as a key 8. Regulatory compliance elevated cybersecurity to a top performance indicator in the • Group Risk and Compliance ensures priority and provides feedback to the Table 46: Reward linked to strategy balanced scorecards of stakeholder that the outcome of its plan is Board on a regular basis. It further relationship owners. aligned with the mandates of the First line management, guards against negative publicity and Audit Committee and Risk specialists and • Stakeholder engagement is reputational damage resulting from Committee and executes its areas Management technicians Junior employees decentralised, but the Board has social media risks. overall responsibility for of focus from an annual Board- Reward element (Grade level A to F) (Grade level G) (Grade level H to L) Link to strategic intent • Focus has been on protecting stakeholder engagement. approved Compliance Plan. Transnet’s security posture through • Managers are responsible for Guaranteed pay • Total cost-to- • Cost-to-company • Basic salary • Ensure that talented • The monitoring and evaluation of the initiated cybersecurity ensuring compliance as it relates to company package • Service bonus individuals are stakeholder engagement is improvement initiative. reported to the Remuneration, their areas of accountability. • Salary increases • Excludes medical (13th cheque) attracted and • Incidents such as ransomware Social and Ethics Committee and to • More than 200 primary regulatory based on mandate subsidy • Increases negotiated retained outbreak and cloning of the Transnet. the Board. requirements impact Transnet. and individual • 13th cheque is • Reward superior net website have occurred during the performance structured as part of performance • Transnet has adopted guidelines course of the year, necessitating the • Compliance is implemented through • 13th cheque can be package from the AA1000 standards strengthening of our incident a risk-based approach using a structured as part of (Accountability Principles Standard response process and ICT continuity decentralised model, with • Increases negotiated, package 2008 and the AA1000 Stakeholder management. Compliance Officers appointed partially based on Engagement Standard 2011). within Operating Divisions and • Travel allowance individual • Transnet ICT continues to monitor its Corporate Centre functions. structured if required performance strategic risk – Inadequate Addressing stakeholder to conduct business Information and Communication • The compliance function 42 concerns travel Technology (ICT) Infrastructure and independently monitors and reports Technology to enable Business to on compliance controls relating to Other benefits • Cell phones (tool of • Medical subsidy if an • Housing allowance • Ensure that employees 7. ICT management and governance high-priority regulatory achieve its Objectives – through the trade) employee is a • Medical subsidy if an can perform their role • The Board, supported by the requirements. strengthening of effective controls • Computers (tool of principal member of a employee is a member efficiently thereby Corporate Governance, Audit in domains of contract and vendor • The compliance function assists and trade) recognised medical of a recognised increasing productivity Committee and Risk Committee, is supports the Board and management, strategy and • Members of the aid medical aid responsible for IT governance and management to discharge their architecture, data management and Executive Committee • Cell phones (tool of • Cell phones (tool of oversight. compliance responsibilities. asset management. are eligible for drivers trade) if job trade) if job • The Board has delegated the • Business value engineering • A Transnet POPI Steering and personal security requirement requirement responsibility for the implementation Committee, sponsored by the processes enforce monitoring and based on risk • Computers (tool of • Computers (tool of of the IT governance framework to CHRO, has been established to evaluating the value delivered from assessment trade) if job trade) if job management with the mandate to ensure that all specialist functional ICT investments following Transnet’s requirement requirement implement effective ICT and digital project delivery process for ICT; to areas comply with the requirements structures, principles, processes and principles to plan for, monitor and of POPI. These include HR, iSCM, Short-term • All eligible employees • Manage and facilitate practices that will enable effective track benefits throughout the project ICT, Security, Business Incentive (STI) • Support and reinforce the desired behaviour to ensure the delivery and the performance of ICT and Digital governance within delivery process. Development, Foundation, Scheme performance against the financial, non-financial, operational and strategic employees through a Transnet. results-driven • Transnet has implemented a King Insurance and Internal Audit. Each metrics that have been agreed, and to reward when these targets have been approach • ICT and Digital is governed by the IV-aligned governance framework to functional area has developed achieved and exceeded. CIO Council, responsible for Compliance Control Plans which achieve continuous improvements Long-term • Applicable to grade • Not applicable • Not applicable • Ensure long-term directing, controlling and measuring detail the controls required to and to achieve the following: Incentive (LTI) levels A, B and C sustainability of the
Abridged governance continued of overall ICT and Digital strategic ensure compliance to the Act. – Improved delivery on Transnet’s Scheme based on individual business definition and implementation within Further, POPI training was also strategic goals and outcomes. performance and Transnet. conducted across the business. A – Improved ICT business talent cluster • As part of the work plan for a new review process is currently enablement. • Attract and retain the year, various artefacts, such as the underway in order to determine the required talent to ICT Governance Framework and the – Improved stakeholder adequacy of the controls sustain business IT Governance Charter, are added to communication. implemented. performance the Board agenda for review, – Effective service delivery approval and assessment for through ICT-enabled services. Recognition • All eligible employees • Improve employee effectiveness. To ensure business – Lower costs. Programme • Support a culture where success is celebrated and employees feel valued for engagement, resilience, ICT’s disaster recovery – Increased alignment of their contribution to the business productivity and plans, tests and reports are regularly investment towards strategic quality of work submitted to the Board for review. goals. 100 Transnet Integrated Report 2019 101
Annual salary increases 10 Table 47: Guaranteed pay of the Transnet Executive Committee Annual increases for management levels 8,25% The table below depicts the guaranteed pay of the Transnet Group Executive team for the reporting year: are informed by individual performance 7,5% 8 7,1% ratings. Increases occur once annually or 7,0% 7,0% 6,4% Retirement in the event of a promotion. Transnet 6,0% 6 5,3% 5,3% benefit fund Other Other Total Total does not allow interim or ad hoc salary 5,0% increases. 4,6% 4,5% Salary contributions contributions payments 2019 2018 4 Exco member R’000 R’000 R’000 R’000 R’000 R’000 Transnet concluded a three-year wage agreement with the recognised labour Mr TC Morwe1,9 3 666 — 1 — 3 667 — 2 unions which expires at the end of the Mr S Gama1,2 4 297 442 1 — 4 740 8 108 2020/21 reporting period. The three- 0 6 year wage agreement provides labour 2015/16 2016/17 2017/18 2018/19 Mr MM Buthelezi 5 225 446 2 11 543 17 216 5 401 stability during the period and allows an Ms EAN Sishi7 4 555 443 2 — 5 000 4 591 opportunity for employees to focus on CPI Executive management Bargaining unit the achievement of the Transnet Ms DC Moephuli12 — — — — — 2 484 strategic objectives. Ms MMA Mosidi12 1 597 123 1 — 1 720 3 443 The graph on the right depicts the Ms GJ Pita1,12 261 29 — — 290 5 406Ms increases differentiated between executive management and a bargaining seniority, such as grade level in the Individual performance management for Mr T Jiyane12 4 578 445 2 — 5 025 4 748 unit compared to CPI for the past organisation, individual performance as junior employees provides employees Mr GJE de Beer 5 029 534 2 — 5 565 5 258 three years. well as results from the talent with clear visibility of their contribution management framework. Following the to business drivers in the value chain and Mr KV Reddy 4 044 430 2 — 4 476 4 212 completion of the three-year banking is based on both business and team Short- and Long-term 5 period, the vesting payment is also performance objectives and measures. Mr XB Mpongoshe 1 635 127 1 — 1 763 — Incentive Schemes Individual behavioural aspects within an subject to individual performance-rating Mr N Silinga4 — — — — — 1 399 employee’s control, such as attendance, and talent-rating criteria. The banked LTI Short-term Incentive Scheme discipline and safety, are also 1,3,10 amounts accrue interest over the Mr MS Mahomedy 4 272 206 2 — 4 480 — The Transnet Short-term Incentive (STI) considered. Scheme is well entrenched and designed three-year banking period. Ms SA Vorster3 178 17 — — 195 — to drive the achievement of stretch The performance management score The LTI scheme has specific clauses Ms R Madiba3 990 83 1 — 1 074 — business targets and to reward informs the annual salary progression dealing with the Company’s performance employees for this effort. The scheme’s payment and the individual components Mr T Majoka3 1 472 118 1 — 1 591 — design emphasises the integration of the over the banking period. Accordingly, a of the performance score impact on the 8 total business and focuses on improved group modifier has been introduced. The value of the STI payment. This Ms GLN Sithole 694 50 — — 744 — measure of total average assets (ROTA) customer service. groundbreaking intervention is in line Ms S Qalinge7 679 66 — — 745 — (excluding capital work in progress) is with Transnet’s drive to create a Annual incentive payments relate to used as the Group LTI modifier. high-performance culture. Ms N Mdawe3 141 12 — — 153 — performance achieved against annual Mr LM Moodley8,11 506 43 — — 549 — objectives consistent with long-term Transnet will review both the STI and LTI Remuneration of the value. Individual and corporate schemes during the 2019/20 financial Mr R Nair6 806 69 — 12 483 13 358 — performance targets, both financial and period to align with the DPE Transnet prescribed 3 sustainability related, are tailored to the Remuneration Guide. officers Mr LL Tobias 216 18 — — 234 — needs of the business and reviewed The successful execution of the Transnet Mr MA Fanucchi 729 77 — — 806 — regularly to ensure they remain strategy requires sustained effort and appropriate. Individual performance Total 45 570 3 778 18 24 026 73 392 45 050 energy of the executive leadership to management 1 The bonus pool is distributed based on ensure high performance as well as a Group executives who are members of the Board of Directors. Transnet’s overall Performance 2 the results from measuring the Operating sustainable and profitable long-term Contract terminated. Framework aligns to the Statement of 3 Divisions’ productivity and safety growth path. As part of the Transnet Acted as Exco member. 4 achievements as derived from the Strategic Intent and the Shareholder’s strategy, the Company designed a reward Acted as Exco member from 1 November 2017 to 31 March 2018. 5 Shareholder’s Compact and Corporate Compact. Each year, the framework is philosophy for executive management to Hired in October 2018. 6 Plan, as well as the employees’ individual translated into a Transnet Scorecard, as drive the implementation of the strategy Resigned – 31 March 2019. 7 performance scores. well as the scorecard of the Group Chief while ensuring that key role players are Suspended. Executive and then cascaded to all retained in the Company. This is also 8 Appointed as Exco member during the year. 9 managers. The Balanced Scorecard aligned with the Remuneration Guide as Hired during the year. Contract expired. Long-term Incentive Scheme 10 Performance Management Methodology issued by the Department of Public Appointed acting Group Chief Executive after year end. Mr MD Gregg-Macdonald was appointed acting Chief Financial Officer after year end. 11 Abridged governance continued Transnet has implemented a Long-term is well-entrenched across the business Enterprises. Suspended after year end. Incentive (LTI) Scheme to sustain the 12 Services terminated in August 2019. and is utilised for the management achievement of Transnet’s strategy; to Transnet is committed to the creation, category as well as for first line retain key talent who ensure the success facilitation and development of an In the 2019/20 financial period, Transnet will review the DOA Framework in respect of separation benefits to align with the DPE of the strategy; to continuously managers, specialists and technicians. organisation that supports the equality Remuneration Guide. encourage stretch performance; and to of all South Africans. Each year, managers’ individual reward performance above target. performance ratings are ratified to align The executive directors and prescribed The LTI conditional award to eligible individual performance with the overall officers will not receive salary increases participants is banked over a three-year performance of Transnet and its for the 2019/20 financial period, based period to ensure sustained business Operating Divisions. Both corporate and on the directive issued by the office of performance and to retain key talent individual scorecards inform the the Minister of Public Enterprises. over the banking period. Participation in determination of STI payments and the scheme is informed by level of annual increases. 102 Transnet Integrated Report 2019 103
Variable pay for prescribed • The payment must not result in the Long-term Incentive Fee structure for non- at the Company’s annual general meeting. their appointments to the various group breaching key debt covenant Among the issues considered by the committees of the Board. 0fficers ratios; The 2015/16 conditional award in executive directors Shareholder Representative prior to Ex-Gratia Payment for • The payment must not place the Group respect of the Transnet Long-term The fee structure for non-executive re-election is the individual non- The executive directors and prescribed in financial distress; and Incentive (LTI) scheme vested at the end directors will be aligned with the executive director’s performance. The officers will not receive salary increases 2018/19 for the 2019/20 financial period, based • The payment must not result in a net of the 2018 financial period and payment Shareholder remuneration guidelines and Shareholder Representative approves will take place on 26 July 2019. The value the strategic intent of Transnet in the the fees payable to non-executive on the directive issued by the office of Transnet did not pay a Short-Term loss after tax for the financial period. of the LTI payment is impacted by the 2019/20 reporting period. Non-executive directors in advance. The non-executive the Minister of Public Enterprises. Incentive (STI) for the 2018/19 financial EBITDA, before incentives, for the level of achievement of specific company directors are appointed by the directors are paid an annual retainer as The table below depicts the actual year. The rationale for the non-payment 2018/19 financial period is 1,7% lower and individual performance objectives. Shareholder Representative for a well as an additional retainer fee for remuneration for the Transnet non- was based on the ground rules of the STI than that achieved in the prior year. In three-year term. Transnet’s Memorandum committee membership. They are, executive directors for the reporting scheme, where payment is subject to terms of the incentive scheme rules, the The members of the Transnet Executive of Incorporation, however, requires that however, not paid for attendance of year: compliance with specific gatekeepers. bonus pool for 2018/19 is therefore zero Committee were eligible for payment in the non-executive directors be submitted meetings. Fees paid to non-executive The payment of an incentive bonus, in (no year-on-year improvement). Having respect of the LTI Scheme based on the for re-election for each of the three years directors are differentiated based on terms of the STI scheme rules, requires considered the risks of a non-payment of ground rules of the scheme. The table below reflects the short- and long-term the following conditions to be present: a STI, the Transnet Board approved an Table 49: Guaranteed pay of Transnet non-executive directors ex-gratia payment to employees to the incentive payments for Transnet • A year-on-year improvement in actual value of 50% of a thirteenth cheque, executives. Other Total Total EBITDA (before provision for translated as 4,167% of guaranteed Fees payments 2019 2018 incentives); earnings. Board member R’000 R’000 R’000 R’000
Ms LC Mabaso (Chairperson)2 112 — 112 1 350 Table 48: Short- and Long-term Incentive payments for Transnet executives Ms Y Forbes2,4 62 — 62 656 LTI LTI Ex-gratia STI 7 2019 2018 2019 2018 Ms PEB Mathekga 67 — 67 550 Transnet executive R’000 R’000 R’000 R’000 Mr GJ Mahlalela5 — — — 642
Mr TC Morwe1,9 — — — — Mr ZA Nagdee7 67 — 67 581 1,8 Mr S Gama — 1 881 — — Mr VM Nkonyane2 60 — 60 642 Mr MM Buthelezi6 — 980 — 3 658 Mr BG Stagman1 — — — 625 Ms EAN Sishi7 — 1 145 — 3 086 Ms AC Kinley2 91 — 91 160 Ms DC Moephuli2 — — — — Mr SM Radebe4, 7 121 — 121 192 Ms MMA Mosidi2 — — — 2 261 Mr GJ Pita1,2 — 896 — — Mr PS Molefe (Chairperson)3 1 076 2 1 078 — Mr T Jiyane8 — 607 — — Mr LL von Zeuner3 647 — 647 —
Mr GJE de Beer — — 232 3 452 Prof EC Kieswetter3 566 — 566 — Mr KV Reddy 237 716 186 2 766 Ms RJ Ganda3 566 — 566 — Mr XB Mpongoshe5 — 70 Ms DC Matshoga3 566 — 566 — Mr N Silinga4 — 947 148 2 012 Ms UN Fikelepi3 485 — 485 — Mr MS Mahomedy1,3 221 — 187 — 3 Ms SA Vorster3 15 — 8 — Ms GT Ramphaka 472 — 472 — Ms R Madiba3 — — 41 — Adv OM Motaung3 472 — 472 — Mr T Majoka3 97 — 64 — Dr FS Mufamadi3 550 — 550 — 7 Ms GLN Sithole 36 — 31 — Mr AP Ramabulana3 472 — 472 — Ms S Qalinge7 — — — — Ms ME Letlape3 517 — 517 — Ms N Mdawe3 — — 6 — Ms V McMenamin2,3 278 — 278 — Mr LM Moodley7 — — — — Total 7 247 2 7 370 5 398 Mr R Nair6 — — — — 1 Mr LL Tobias3 16 — 10 — Resigned during the prior year. 2 Resigned during the year. Abridged governance continued Mr MA Fanucchi — — 34 — 3 Hired in May 2018. Total 662 7 172 1 016 17 235 4 Trustees fees included. 5 Deceased during the prior year. 1 Group executives who are members of the Board of Directors. 6 Directors’ fees paid to Integrated Capital Management (Pty) Ltd. 2 Resigned during the year. 7 Removed during the year. 3 Acted as Exco member. 4 Acted as Exco member from 1 November 2017 to 31 March 2018. 5 Hired in October 2018. 6 Resigned – 31 March 2019. 7 Suspended. 8 Contract terminated. 9 Hired during the year. Contract expired. 104 Transnet Integrated Report 2019 105
Annexure A: Audit Committee Terms of Abbreviations and acronyms Reference for Integrated Reporting
Audit Committee Terms of Reference for the Integrated Report
Glossary of terms Notes
Asset turnover (times) Operating profit Revenue divided by total assets (total assets excluding capital Profit/(loss) from operations after depreciation, work-in-progress). derecognition and amortisation but before impairment of assets, dividends received, post-retirement benefit obligation (expense)/income, fair value adjustments, income/ Cash interest cover (times) (loss) from associates and net finance costs. Cash generated from operations after working capital changes, divided by net finance costs (net finance costs include finance costs, finance income and capitalised Operating profit margin borrowing costs from the cash flow statement). Operating profit expressed as a percentage of revenue.
Debt (for gearing calculation) Return on total average assets Long-term borrowings, short-term borrowings, employee Operating profit expressed as a percentage of total average benefits, derivative financial liabilities plus overdraft less assets (total average assets exclude capital work-in- other short-term investments, less derivative financial assets progress). and less cash and cash equivalents. Total assets EBITDA Non-current and current assets. Profit/(loss) from operations before depreciation, derecognition, amortisation, impairment of assets, dividend received, post-retirement benefit obligation (costs)/income, Total average assets fair value adjustments, income/(loss) from associates and net Total assets, where average is equal to the total assets at the finance costs. beginning of the reporting year plus total assets at the end of the reporting year, divided by two. EBITDA margin EBITDA expressed as a percentage of revenue. Total debt Non-current and current liabilities. Equity Issued capital and reserves.
Gearing Debt expressed as a percentage of the sum of debt and Shareholder’s equity.
Headline earnings As defined in Circular 2/2013, issued by the South African Institute of Chartered Accountants, all items of a capital nature are separated from earnings (by headline earnings).