12
ORGANISATIONAL OVERVIEW
Our vision Governance context EmployeeEmployee profile profile To meet customer demand for reliable Transnet SOC Ltd is a public freight transport and handling services by: company, constituted in terms of the 70 000 Fully integrating and maximising the Legal Succession Act of 1989, with 1 7 1 use of our unique set of assets; the South African Government being 60 000 2 7 1 2 its sole Shareholder. Continuously driving efficiency 50 000 improvements; and Owner of South Africa’s railway, ports Demonstrating concern for and pipelines infrastructure. 40 000 sustainability in everything we do. The Company’s Memorandum of 30 000 Incorporation (MoI) is aligned with the
provisions of the Public Finance 20 000 Management Act (PFMA), the Companies Act, and the National 10 000 Ports Act, No 12 of 2005, as Our mission amended (the National Ports Act). 0 To enable the competitiveness, growth The MoI was approved by the Shareholder Minister on 25 June Total employees and development of the South African 2013. As a State-owned company Permanent employees economy by delivering reliable freight (SOC), the PFMA serves as Transnet’s Fixed-term contract employees transport and handling services that primary legislation. Permanent male employees satisfy customer demand. Permanent female employees Transnet enters into an annual Shareholder’s Compact with the Government of the Republic of South Africa, represented by the Minister of Public Enterprises. 3,7% 14,8% Values The Shareholder’s Compact mandates We have a safety mindset. the Company to deliver on numerous strategic deliverables, including 10,0% We have good communication. sustainable economic, social and environmental outcomes. We treat each other with dignity 71,5% and respect. The Board of Directors adopted the Market Demand Strategy (MDS) in We are empowered to perform our jobs. response to the Statement of 71,5% African Strategic Intent (SSI). We are business focused. 10,0% Coloured 106 Read more We recognise and reward good work. 14,8% White
We deliver on our promises. 3,7% Indian
Total employees represented by collective bargaining as a Our mandate % of total headcount: Assist in lowering the cost of doing 89% business in South Africa; Permanent Enable economic growth; and employees represented by Ensure security of supply by providing appropriate port, collective bargaining as a rail and pipelines infrastructure in a cost-effective and % of total efficient manner, within acceptable benchmarks. headcount: 80% Transnet’s mandate and strategic objectives are aligned with national plans and the Statement of Strategic Intent People with issued by the Minister of Public Enterprises. disabilities: 2,3% TRANSNET Integrated Report 2017 13
Broad-Based Enterprise Our culture roadmap Black Economic and supplier To become an organisation that thrives Empowerment Transnet’s development and flourishes, the Group Chief (B-BBEE) supply chain (ESD) Executive has set out four strategic thrusts to drive organisational culture Transnet’s B-BBEE Transnet’s integrated Transnet’s Supplier and business conduct: verification covers six Supply Chain Management Development Programme of the seven elements (iSCM) function delivers is guided by Government’s of the Generic Transport economic value to the Competitive Supplier A Agile Public Sector Scorecard Company and provides Development Programme. To be agile in a volatile world the (excluding the ownership broader strategic value Our ESD Programme is Company must be fit, focused and element). The Maritime, to the Government of informed by the B-BBEE able to adapt rapidly to change. Property and Rail Charters South Africa. It optimises Codes of Good Practice. are also applied. inbound supply-chain Driven activities, which in turn Transnet’s ESD function Efficient Transnet achieved the enable efficient and aims to increase the Adaptable full points for enterprise reliable outbound services competitiveness, development and to the end customer. capacity and capability socio-economic of black-owned suppliers development for the 2017 Admired Transnet’s iSCM aligns through financial and financial year. We are with the MDS to achieve non-financial support The Company wants to be admired committed to optimising Platinum Standard levels services. The ESD by its stakeholders as leaders in our contribution to B-BBEE customer satisfaction, operational by capacitating under- department transforms in the execution of our excellence and innovation. resourced departments, the Company’s supplier mandate and aim to be an standardising performance base through targeted Impeccable exemplary SOC through management reporting ESD initiatives that the maximisation of our Innovative and providing automated support localisation and contribution to economic Motivated by excellence end-to-end procurement industrialisation, and transformation, and by business processes to provide opportunities for demonstrating innovation enhance contract black people, youth, in this area. Accordingly, Digital management. women, small businesses, strategies are in place to people with disabilities The future is digital and the address and maximise the and people living in rural Company needs to add intellectual scores for employment communities. capital to create value from equity, preferential its substantial investment in procurement and skills physical capital. development. Inventive Customer-centric Advanced
United
Transnet’s Group B-BBEE performance per pillar for the 2017 review period The Company will only succeed if it is united. This means working as one Element Actual score Target team to change Transnet with its Group Leadership Team, the Board of Equity ownership N/A N/A Directors, Shareholder, management Management control 8,33 11 and labour all pulling together Employment equity 13,59 18 coherently. Skills development 22,28 25 Preferential procurement 26,11 33 Single minded Enterprise development 15 15 Tolerant of others’ ideas Socio-economic development 5 5 Understand our impact Total 90,31 107 B-BBEE Level 2 14 ORGANISATIONAL OVERVIEW continued
Operating context1
Freight Rail Engineering National Ports Authority Port Terminals Pipelines
• Operates 30 400 km of • Provides manufacturing, • Services eight • Provides cargo handling • Transports fuel from rail track across South maintenance and commercial seaports in services to a wide coastal refineries and Africa. refurbishment services South Africa. spectrum of customers, crude oil imports to • Transports bulk, of rolling stock and • Core functions include including shipping lines, the inland market. break-bulk and specialised equipment the planning, provision, freight forwarders and • Transports gas from containerised freight. to Freight Rail, the maintenance and cargo owners. Secunda to industrial • Freight Rail network and National Ports Authority, improvement of port • Operates 16 terminals users in Durban and rail services provide Port Terminals and infrastructure. in eight ports spread Richards Bay. strategic links between external clients. Houses • Provides marine-related along the South African • The New Multi-Product mines, production hubs, Transnet’s Research and services, port services coastline. Pipeline (NMPP) distribution centres and Development (R&D) unit and navigation aids to • Operations are enables the increase ports, and connect with to capture opportunities assist the navigation of divided into four major in liquid fuels volume cross-border railways of for technology vessels within port limits business segments, throughput to meet the region. innovation. and along the coast. namely containers, forecast demand. bulk, break-bulk and automotive.
Revenue R39,1 billion Revenue R9,4 billion Revenue R10,4 billion Revenue R11,2 billion Revenue R4,4 billion
Total employees: 30 305 Total employees: 12 164 Total employees: 4 188 Total employees: 8 891 Total employees: 686 Female employees: 28% Permanent Permanent Permanent Permanent Permanent Maleemployees: employees: 27 679 72% employees: 11 731 employees: 4 160 employees: 7 087 employees: 642 Fixed-term contract Fixed-term contract Fixed-term contract Fixed-term contract Fixed-term contract employees: 2 626 employees: 433 employees: 28 employees: 1 804 employees: 44
28% 22% 33% 27% 34%
78% 66% 72% 67% 73%
28% Female employees 22% Female employees 33% Female employees 27% Female employees 34% Female employees 72% Male employees 78% Male employees 67% Male employees 73% Male employees 66% Male employees 2,6% People with disabilities 1,4% People with disabilities 2,1% People with disabilities 1,2% People with disabilities 2,9% People with disabilities
98 Read more
1 Operating context refers to Operating Divisions.
Specialist Units Customer profile • Transnet Group Capital Large mining, shipping, manufacturing, agricultural, industrial, • Transnet Property Transnet retail and energy contributors to the South African economy. Corporate • Transnet Foundation Centre o anne rg e t r dge Services provided Engineering oedoe poort er ton oe onte n r an ten age Sa t R er • Transnet’s services are both outbound (South African I businesses moving products to international markets) and inbound (bringing products to South African markets). • Commodities transported include mining exports, general Rail Corridors ap to A TEN A AN A N RT freight and petroleum products. EST Pipelines • General freight includes: containerised cargo, local manganese, SIS EN S en minerals, local coal, local iron ore, chrome and ferrochrome, REE STATE A agricultural products, iron and steel, fertilisers, cement, NATA R ard a fast-moving consumer goods, bulk liquids, wood and wood r an products, industrial chemicals, intermediate products and N RT ERN A E automotive products. EASTERN A E • Petroleum products include: crude oil, refined petroleum products, aviation turbine fuel and methane-rich gas products. Port Sa dan a Ea t Terminals ESTERN Ng ra ondon A E Where we operate ape To n o e a ort E a et • Five Operating Divisions spread throughout South Africa • Four satellite offices in Lesotho, Tanzania, Namibia and Swaziland • Three joint operating centres in Mozambique, Botswana and Zimbabwe National Ports Authority TRANSNET Integrated Report 2017 15
Strategic context Financial context Transnet’s strategic direction is expressed through Transnet is funded through reserves and borrowings and does the MDS. not receive subsidies or guarantees from Government. It The MDS and its implementation is guided by the SSI raises funds in the debt markets based on the strength of its issued by the Minister of Public Enterprises and the own balance sheet, having raised funding without Government Shareholder’s Compact. guarantees since March 1999. Legacy Government- The Company has adopted a new strategic blueprint, guaranteed debt amounts to R3,5 billion comprising Eurorand namely Transnet 4.0 – to gear the MDS to meet the bonds under the Euro Medium-Term Note (EMTN) Programme challenges and opportunities of the 4th Industrial maturing in 2028 (R2,0 billion) and 2029 (R1,5 billion) Revolution. respectively.
Main growth thrusts of Transnet 4.0 include: As an SOC, the financial strategy reflects the higher risk • Accelerated efforts to extend Transnet’s footprint in profile of the business. To meet long-term market demand, the fast-growing regions of Africa, Middle East and Transnet must invest for long-term growth prospects, but be South Asia; • Product and service innovation to transform from a cognisant of short- to medium-term volatility in the domestic transport and cargo handling-focused business to an and international markets. The Capital Investment Plan has integrated, end-to-end logistics service provider; and reduced from R277,8 billion to R229,2 billion over the next • Scope expansion of Transnet’s manufacturing business, seven years in response to the predicted lower-than-planned with leading technologies to enhance new and existing freight demand. products and improve business processes. Key financial interventions • Revenue diversification Market context • Stringent cost management and optimisation • Global growth for 2016 is estimated to have slowed to • Aggressive working capital management 3,1%, recovering to 3,4% in 2017. • Generating a return on assets commensurate with the risk • Partially recovered commodity prices. • Maintaining Transnet’s standalone investment grade • Global asset markets appear calm, equity prices are at credit ratings high levels. • Structured funding at cost-effective levels • Renewed capital inflows to emerging market economies. • During the year, there were no significant changes to • Subdued outlook for advanced economies, placing downward pressure on interest rates as monetary the way in which Transnet is owned, structured or in policy could remain accommodative for longer. the way it functions • Prospects for 2017 differ sharply across countries and regions, with emerging Asia and India showing robust growth. • Sub-Saharan Africa forecast to experience overall Socio-economic context growth of only 2,9%. • Continuing trend of weaker gross domestic product (GDP). Transnet SOC Ltd is a freight transport and logistics company. • The South African ratings downgrade greatly limits the The Company’s strategic focus is guided by the SSI issued options for Government to intervene to boost economic by the Minister of Public Enterprises and the Shareholder’s activity through fiscal or monetary actions. Compact, which stipulate medium-term strategy and • While commodity markets could improve, demand objectives, including: for value-added and consumer goods could struggle to grow. Transnet’s regional demand prospects Reduce the cost of logistics as a percentage of transportable remain positive, especially if greater connectivity GDP; can be engineered. Effect and accelerate the modal shift by maximising the role • The 4th Industrial Revolution promises a fusion of technologies poised to disrupt almost all industries of rail in the national transport task; and transform systems of production, management Leverage the private sector in the provision of both and governance. infrastructure and operations where required;
Integrate South Africa with the region and the rest of the Regulatory context continent; and The Company operates in compliance with 200 regulations. Optimise sustainable economic, social and environmental Tariffs charged by the National Ports Authority and Pipelines outcomes of all activities undertaken by Transnet. are determined by independent economic regulators, namely the Ports Regulator of South Africa (Ports Regulator) and Nine Sustainable Developmental Outcomes (SDOs) have been the National Energy Regulator of South Africa (Nersa) negotiated with the Shareholder and are aligned with the respectively. Government’s vision as per the National Development Plan and The Railway Safety Regulator regulates the safety of the the medium-term initiatives that Government is driving to rail operations of the Company, issues safety permits address poverty, inequality and unemployment. (for a fee), and conducts inspections and audits on the Company. Transnet also operates within a policy context which is determined by the Department of Public Enterprises and the Department of Transport respectively. TRANSNET Integrated Report 2017 16
Endorsement of external charters and frameworks (not limited to)
Generic Transport Public Sector Charter
Rail Charter
Maritime Charter
Property Charter
United Nations Global Compact (since 2012)
International Integrated Reporting Framework
Memberships of associations (not limited to)
New Partnership for Africa’s Development (NEPAD)
South African Railways Association (SARA)
International Union of Railways
Association of American Railroads (AAR)
Railroad Association (RRA)
Union of African Railways (UAR)
Maputo Corridor Logistics Initiatives (MCLI)
International Association of Marine Aids to Navigation and Lighthouse Authorities (IALA-AISM)
List of awards for the 2017 financial year
• Chartered Secretaries Southern Africa Integrated Report Awards (winner: Large State-owned Company category)
• 2016 Ernst & Young Award for Excellence in Integrated Reporting
• Top Employers South Africa 2017 certification by Top Employers Institute
• CFO Awards: Transformation and Empowerment Award (winner)
Women in Transport Awards
Best Innovation Partnership in Service Delivery (Project): Freight Rail (Maria Mzimela)
Best Head of Department in Transport: Sylvia Siyo, National Ports Authority
Best Skills Contributor: Khomotjo Mphahlele, Transnet Maritime School of Excellence (South Africa)
BASA Awards for the National Arts Festival ORGANISATIONAL OVERVIEW continued 17
Our operating structure
Oce of the Group Chief Executive
Group Internal Audit – Internal Audit Group Company Secretariat – Governance Strategy Group Strategy Corporate and Public Affairs Transnet International Holdings Shareholder’s Compact In-house Consultancy Group Finance Management of critical • Financial and capital planning financial parameters, • Treasury, funding and investor relations including capital structure • Procurement • Reporting • Tax • Income statement and statement of financial position • Capital assurance
Group Capital Specialist Units Lead the execution of • Long-term planning Group Capital Transnet’s capital expenditure • Capital business case support programme, project support • Capital mega project execution and engineering, procurement • Engineering and technical and construction management • Capital project support
Corporate Governance and Regulatory Risk and compliance aligned • Stakeholder relations with legislative and • Risk regulatory requirements • Compliance • Legal • Security
Group Operations Operating Divisions • Rail operations Freight Rail Drive a Group-wide integrat- • Port Terminal operations ed operational philosophy. • Port Authority operations Engineering The Chief Executives of • Pipeline operations National Ports Authority the Operating Divisions will • Property management Port Terminals report to this position • TVCC and RMO Pipelines
Business Development Specialist Units Support the MDS and co-create • Customer long-term contracts Transnet Property Transnet 4.0 by optimising and • Product and service innovation diversifying Transnet’s business • Commercial capability portfolio through growth in • Branding existing and new markets • Market intelligence
Advanced Manufacturing Four customer-facing • Locomotive and wagon design, businesses: manufacturing and sales • Manufacturing • Maintenance of locomotives and wagons • Maintenance and services • Research and development • OEM partnerships • Supply management • Services development and sales • Trading
Information, Communication and Technology Transitioning Transnet from • IT architecture a company with high levels • IT build application of operational autonomy to • IT infrastructure significantly higher levels • Digital capability and of integrated, Group-wide solution delivery orchestration
Group Human Resources Specialist Units Lead Group-wide • Reward Transnet Foundation performance management, • Performance management labour relations and • Talent management Corporate Social Investment • EVP • CSI • Labour relations 18 ORGANISATIONAL OVERVIEW continued Revenue streams Commodity-based revenue from commodities transported: Our value proposition Our business model Freight solutions Coal Forestry Refined As a State-owned Company, our What we do • Iron ore products petroleum World-class, competitive and overarching value proposition is founded Aggregate products in our Shareholder mandate and enabled customer-centric end-to-end Manganese Value for our Shareholder automotives Crude oil through the MDS: freight solutions (value chain) Chrome • Fast-moving Aviation Sustained financial returns and broad The modernisation and renewal of South Added capabilities and Steel consumer turbine fuel Africa’s transport and logistics socio-economic value through sound capital partnerships to enhance Cement goods Methane-rich infrastructure through strategic investment investments in infrastructure ahead of demand, general freight positioning Agricultural Containerised gas regulatory compliance, accountable business (4PL) in rail, ports and oil and gas pipeline products cargo and practices, ethical leadership and responsible • infrastructure; cost-effective logistics crude oil value chains; value-added services; and corporate citizenship Africa dimension – port advanced engineering solutions. and rail concessions • Non-commodity revenue from: Foster regional trade Value for financial partners Engineering Value for customers A funding strategy based on Transnet Property strategic priorities Other revenue at Freight Rail, Predictable and reliable delivery of Main activities Capital investments that are Advanced National Ports Authority, Port customer volumes facilitated likely to yield the best financial manufacturing Terminals and Pipelines Customer-centric business innovations and social returns Freight Rail through five • Operating Full value-chain service propositions A reliable and credible borrower Africa’s own rail, ports Divisions and transport OEM Distinctive product and service designs which, albeit State-owned, • issues debt on the strength of its per market segment Customer-focused External variables financial position without Integrated cross-operating divisional packaged asset lifecycle impacting our customer support across the logistics Government guarantees solutions (design, finance, Pipelines build, maintain and business value chain and ‘lifecycle of requirements’ Engineering replace) Digital transformation across the Socio-economic Slow rates of global and local value chain value and economic growth environmental Widening social inequality Structural unemployment Value for suppliers and stewardship Climate change adaptation service providers Digital The modernisation Flow of imports, Volatile commodity prices impacting and renewal of • An ethical and transparent procurement exports and freight volumes and revenue South Africa’s transport Leveraging and monetising process Energy and water supply challenges and logistics infrastructure transshipments freight- and infrastructure-related Fair and equitable tender processes through cargo digital capabilities – e.g. South Africa’s creditworthiness Regional integration Port Terminals impacting borrowing costs terminals fibre and telecommunications, Fair, transparent and efficient contract to support data solutions and management South Africa’s market information-driven business A proactive and collaborative approach competitiveness • to local supplier development CSI initiatives National Ports Authority Creation of digitised value-added that contribute services (e.g. alerts to value chain participants) Opportunities meaningfully to the Value for employees socio-economic Growth opportunities in Africa well-being of Oversight of the total Grow market share in the domestic Employer of choice communities where port system and transport market through the road-to-rail strategy A work ethos of ‘safety in all we do’ we operate logistics chain Liquids and gas Private-sector partnerships An ‘iBelong’ culture Activities that • enhance the natural Service expansion through Facilitate integrated and value-added services Opportunities to grow personally, professionally environment’s capacity reliable access and and academically to meet the resource distribution of liquid and Research and development in renewable energy Exposure and connectivity to broader national needs of future generations gas energy resources and regional opportunities • Strength of Transnet’s financial Liquefied natural gas (LNG) position and investment grade A supportive environment in which to prosper credit rating for domestic opportunity borrowings Infrastructure and • spatial solutions Energy opportunities Figure 3 (local and regional) • Top 10 risks Funding sources Cost considerations Creating and enhancing logistics Pricing risk International and Fuel and electricity costs ecosystems to enable and accelerate Capital investment risk domestic capital markets economic growth Asset depreciation • Macroeconomic risk Loan market (public and private) Personnel costs Port and inland hubs Volume growth risk Development finance institutions Investment in infrastructure projects • Operational risk (domestic and international) and equipment Optimise local, national and regional Human resources risk freight logistics networks Export credit market Regulatory and compliance costs Productivity/efficiency risk • Structured financing Supplier and support services Core and leveraged Regulatory risk ICT infrastructure risk Partial funding by customers and/or Borrowing costs partnerships interested parties that are part of Sustainability risks Transnet’s investment plan Inflation Project-specific funding Materials and maintenance costs TRANSNET Integrated Report 2017 19 Revenue streams Commodity-based revenue from commodities transported: Our value proposition Freight solutions Coal Forestry Refined As a State-owned Company, our What we do • Iron ore products petroleum World-class, competitive and overarching value proposition is founded Aggregate products in our Shareholder mandate and enabled customer-centric end-to-end Manganese Value for our Shareholder automotives Crude oil through the MDS: freight solutions (value chain) Chrome • Fast-moving Aviation Sustained financial returns and broad The modernisation and renewal of South Added capabilities and Steel consumer turbine fuel Africa’s transport and logistics socio-economic value through sound capital partnerships to enhance Cement goods Methane-rich infrastructure through strategic investment investments in infrastructure ahead of demand, general freight positioning Agricultural Containerised gas regulatory compliance, accountable business (4PL) in rail, ports and oil and gas pipeline products cargo and practices, ethical leadership and responsible • infrastructure; cost-effective logistics crude oil value chains; value-added services; and corporate citizenship Africa dimension – port advanced engineering solutions. and rail concessions • Non-commodity revenue from: Foster regional trade Value for financial partners Engineering Value for customers A funding strategy based on Transnet Property strategic priorities Other revenue at Freight Rail, Predictable and reliable delivery of Main activities Capital investments that are Advanced National Ports Authority, Port customer volumes facilitated likely to yield the best financial manufacturing Terminals and Pipelines Customer-centric business innovations and social returns Freight Rail through five • Operating Full value-chain service propositions A reliable and credible borrower Africa’s own rail, ports Divisions and transport OEM Distinctive product and service designs which, albeit State-owned, • issues debt on the strength of its per market segment Customer-focused External variables financial position without Integrated cross-operating divisional packaged asset lifecycle impacting our customer support across the logistics Government guarantees solutions (design, finance, Pipelines build, maintain and business value chain and ‘lifecycle of requirements’ Engineering replace) Digital transformation across the Socio-economic Slow rates of global and local value chain value and economic growth environmental Widening social inequality Structural unemployment Value for suppliers and stewardship Climate change adaptation service providers Digital The modernisation Flow of imports, Volatile commodity prices impacting and renewal of • An ethical and transparent procurement exports and freight volumes and revenue South Africa’s transport Leveraging and monetising process Energy and water supply challenges and logistics infrastructure transshipments freight- and infrastructure-related Fair and equitable tender processes through cargo digital capabilities – e.g. South Africa’s creditworthiness Regional integration Port Terminals impacting borrowing costs terminals fibre and telecommunications, Fair, transparent and efficient contract to support data solutions and management South Africa’s market information-driven business A proactive and collaborative approach competitiveness • to local supplier development CSI initiatives National Ports Authority Creation of digitised value-added that contribute services (e.g. alerts to value chain participants) Opportunities meaningfully to the Value for employees socio-economic Growth opportunities in Africa well-being of Oversight of the total Grow market share in the domestic Employer of choice communities where port system and transport market through the road-to-rail strategy A work ethos of ‘safety in all we do’ we operate logistics chain Liquids and gas Private-sector partnerships An ‘iBelong’ culture Activities that • enhance the natural Service expansion through Facilitate integrated and value-added services Opportunities to grow personally, professionally environment’s capacity reliable access and and academically to meet the resource distribution of liquid and Research and development in renewable energy Exposure and connectivity to broader national needs of future generations gas energy resources and regional opportunities • Strength of Transnet’s financial Liquefied natural gas (LNG) position and investment grade A supportive environment in which to prosper credit rating for domestic opportunity borrowings Infrastructure and • spatial solutions Energy opportunities (local and regional) • Top 10 risks Funding sources Cost considerations Creating and enhancing logistics Pricing risk International and Fuel and electricity costs ecosystems to enable and accelerate Capital investment risk domestic capital markets economic growth Asset depreciation • Macroeconomic risk Loan market (public and private) Personnel costs Port and inland hubs Volume growth risk Development finance institutions Investment in infrastructure projects • Operational risk (domestic and international) and equipment Optimise local, national and regional Human resources risk freight logistics networks Export credit market Regulatory and compliance costs Productivity/efficiency risk • Structured financing Supplier and support services Core and leveraged Regulatory risk ICT infrastructure risk Partial funding by customers and/or Borrowing costs partnerships interested parties that are part of Sustainability risks Transnet’s investment plan Inflation Project-specific funding Materials and maintenance costs 20 ORGANISATIONAL OVERVIEW continued
External environment Pipeline and gas Our activities are influenced by various external factors: • South Africa’s energy resources are dominated by coal; more than 80% of electricity generated by Eskom is from coal-fired power stations. To align with the global objectives of lower greenhouse Economic environment gas emissions, Government aims to diversify South Africa’s • Global markets appear calm, equity prices are at high levels and energy supply mix; doing so will improve the security of energy renewed capital is flowing to emerging market economies. supply and reduce the overall carbon footprint of the country. • Stable growth performance has reduced concerns about China’s Natural gas is a significant alternative energy source for growth prospects, and commodity prices have partially recovered. South Africa. The challenge of declining demand for commodities, however, has not entirely abated. Key issues that will influence long-term pipeline and terminal planning: • Sub-Saharan Africa is forecast to experience overall growth • The need for sustainability in developing infrastructure of 2,9%. In South Africa, the economic situation remains 1 solutions, as well as increased stakeholder engagement challenging, with growth of around 1,0% anticipated in 2017, on key issues; continuing the general trend of weaker gross domestic product (GDP) growth performance since the 2008 global • Government’s Clean Fuels 2 Programme and the impact financial crisis. on security of supply; and • In the domestic context, South Africa has been downgraded to • Slowdown in local economy and lower fuel demand. non-investment grade BB+ from BBB-, so-called ‘junk’ status by rating agencies Standard and Poor’s and Fitch. Following on this Technological innovation rating agency Moody’s placed South Africa on a ratings review. • The ‘digital evolution’ is reshaping industries across the board, The Sovereign credit rating saw the further downgrade of SOCs, and the pressure to innovate is increasingly compelling transport including Transnet, impacting our credit rating going forward. and logistics providers to become ‘fast digital followers’ to • Transnet’s demand picture is mixed. While commodity markets remain competitive. are expected to improve slightly, demand for value-added and • Customer value chains are changing, with many clients already consumer goods will struggle to grow. Transnet’s regional demand ahead of the technological curve, and evidencing ever-increasing prospects remain positive, especially if greater connectivity service expectations. can be engineered. • The emerging digital environment is also enabling new business models, particularly regarding collaborative solutions and Industry trends modal connectivity. Rail sector • The new digital landscape is characterised by a fusion of • Containerised freight traffic is increasing globally, and in technologies that are poised to disrupt almost all industries and developing countries, such as South Africa, the growth in port transform systems of production, management and governance. container handling is expected to be even greater over the next • Governance and compliance will be significantly enhanced by three decades. ‘click-of-a-button’ transparency on performance. Return on • International trends indicate that one of the main drivers to assets will be maximised by deploying tools to drive asset increased freight forwarding is the development of mega- productivity in yards and networks; and by improving service terminals and super-terminals in strategically located corridors. reliability through data and advanced analytics.
Port sector Regulatory environment Key issues impacting port operations include: • Transnet faces regulatory uncertainty, particularly regarding • A worldwide trend towards industrialisation and specialisation, lower-than-required tariff escalation as determined by the creating a need for large shipments of goods and materials over Ports Regulator and the Nersa. Approximately 22,5% of significant distances; Transnet’s revenue and 35,4% of its EBITDA is impacted by • An increase in free trade agreements – and an unprecedented economic regulation. Unless relationships with regulators are expansion in trading volumes and widespread deregulation of proactively and strategically managed, tariff decisions could many economies – has led to the private sector playing an have a significant impact on investment decisions, investor increasingly important and profitable role in port terminal confidence and ultimately on the execution of the Company’s management; strategy. • Exponential increase in vessel sizes in pursuit of economies of • Sharp escalations in safety permit fees charged by the Rail scale in transporting cargo; Safety Regulator is also a critical consideration for the • Restructuring of logistics networks and improvement in dealing Company’s revenue planning. with hinterland congestion and intermodal transport links; • Institutional investors have pointed out policy uncertainty as a • Awarding of concessions to global terminal operators to significant factor that may result in sluggish investment growth. improve productivity, efficiencies and profitability of ports; and Furthermore, the socio-economic climate is growing increasingly • Ports accommodating and including infrastructure for the precarious following the downgrade of the Sovereign credit transport and handling of alternative forms of energy, such as rating. Should investment slow down, there is reduced scope, liquefied petroleum gas (LPG) and liquefied natural gas (LNG). nationally, for improving employment statistics as businesses grapple with reduced spending and reduced investment. Transnet must face these challenges, not only as a corporate but also as an agent of Government’s imperatives, which include remediating the country’s challenges of poverty and inequality.
1 Bureau for Economic Research – January 2017. Natural environment • The Critically endangered Wilge River is crossed by the Crude • Transnet’s business is conducted across South Africa’s diverse Oil Pipeline; and ecosystems where it builds infrastructure, operates equipment • Critically endangered Wetland Habitats are concentrated as the and handles large volumes of cargo. Our employees, lines approach Gauteng and the coastal cities and extend along contractors, suppliers and customers have an impact on the the KwaZulu-Natal coastline. natural environment and depend on it for their livelihoods. • Transnet recognises the potential impacts of its operations on Regular maintenance and monitoring must be undertaken to the biodiversity of areas where it operates. The Company’s mitigate the risk of leaks and ensure that, when they occur, they operational footprint spans across kilometres of ecosystems. are quickly addressed. Accordingly, we seek to avoid, minimise and mitigate the impacts arising from our operations and, where possible, Ports restore the environment to maintain healthy ecosystem • Over time vessel berths experience a gradual filling of fine silt services for the future well-being of all South Africans. and clay sediment, known as shoaling. Excessive shoaling leads • Transnet is one of South Africa’s largest industrial consumers to a decrease in water depth at a berth, which in turn leads to of electricity. Energy and carbon management is, therefore, limiting the drafts of visiting vessels. The conventional approach Transnet’s primary focus for its environmental stewardship to mitigating shoaling is through maintenance dredging, which initiatives. The Company has realised significant gains in terms is expensive and has several environmental implications. As an of energy efficiency and reduced carbon emissions in recent alternative to maintenance dredging, a series of submerged jet years, moving more cargo with less energy. water pumps can be installed at the berth. The pumps will • Transnet aims to further improve the protection and restoration periodically increase the speed of passing water currents, thus of natural habitats as a critical outcome of our biodiversity reducing the likelihood of shoaling. management approach. • On dredging, it is commonly assumed that dredged material is contaminated waste and should, therefore, be disposed of; Pipelines however, a substantial portion of dredged material is usable and untainted, with contaminated dredged material usually Transnet has identified the following environmental sensitivities2 limited to industrial sites. Recently, the stigma of dredged for its pipelines operations: material has shifted from a waste product to a beneficial • The Critically Endangered Vaal River is crossed by the Refined resource through recycling. However, cost is a major obstacle Products Pipeline; in determining how best to manage dredged material – • Biodiversity sensitivities along the Refined Products Pipeline recycling is costlier than securing a disposal site. include the Critically Endangered Blesbokspruit and Klip River Highveld Grassland Habitats;
2 As per the Transnet Long-term Planning Framework SEA conducted for existing Transnet pipelines. 22 ORGANISATIONAL OVERVIEW continued Figure 4
Our value creation model P. 4
Our capitals Inputs Activities Key outputs of Outcomes Value created for Transnet Value created for others
our business Cost-effective funding Ensure long-term financial Through our activities, we deliver nine Financial capital Continued financial stability and strength stability in a tough economy Sustainable Developmental Outcomes Share capital and reserves Investment-grade credit rating (SDOs) for our Shareholder, the Our financial sustainability relies on the availability and management of our own and borrowed Positive outputs Cash interest cover of 2,9 times economy and our stakeholders funds. Financial capital – as a stock of value – enables value creation with all other capitals. Through Cash and cash equivalents Our efforts enable us to build financial Gearing at 44,4% the combined use of capital inputs, such as share capital, cash reserves and borrowings, we fund our Long- and short-term borrowings stability in the short, medium and long Port Terminals infrastructure projects, build manufactured assets, such as rolling stock and wagons, enhance the Investment in infrastructure, Transportation of a range of term as guided by gearing and cash Employment general bulk and containerised interest cover productive capacity of our people through training, innovate around technology and services, and expansion and maintenance Flow of imports, exports and Create measurable direct, indirect freight commodities benefit our community relationships through our investment in CSI initiatives. The current business transshipments through cargo A modern, integrated freight and logistics and induced employment for South strategy, as encapsulated in the MDS, aims to create pre-emptive long-term capacity ahead of system for South Africa Africans terminals Build stable, Align with regulatory validated demand. Provision of in-service Mega- and critical projects, such as the secure requirements to maintenance, repair, upgrade, New Multi-Product Pipeline, Durban Container infrastructure maintain the required Skills development conversion and manufacture of Terminal Expansion and extension of Saldanha Tippler 3 compliances within our Enhance and improve human Manufactured capital various types of wagons, coaches, operations capabilities and productive capacity Property, plant and equipment locomotives, as well as equipment, Business continuity Maintain our within the South African job market Through our manufactured assets – such as our buildings, equipment and transport infrastructure – Investment property machines and services Large-scale shift from road to rail standalone we create value for the Company in the form of revenue from operations; and create infrastructural credit rating Maintain agility within a Rail and branch-line networks Infrastructure reliability Industrial capability building value for the wider economy, while reducing the cost of doing business in South Africa. While our and attract cost structure in which road-to-rail strategy impacts positively on natural capital by reducing carbon emissions and air Multi-cargo ports Capacity through new and Operational efficiencies and improved Promote industrial development for productivity funding from 80% to 90% of fixed pollution, new rail, ports and pipeline infrastructure projects could adversely impact ecosystems 3 800 km of petroleum and refurbished locomotives and Engineering various costs and assets have South Africa and improved and result in contamination of the natural environment and generate a variety of outputs in the gas pipeline infrastructure wagons Ability to avail analytics to end-users through competitiveness multiple digital platforms sources lifecycle times of 30 form of waste materials as by-products. Locomotives and rolling stock Engineering solutions to support to 100 years Vastly improve rail and freight Port terminals rail and port operations Provision of cargo-handling infrastructure services to a range of customers Promote a Create increased capacity at South push for Build partnerships African ports Global operational standards business for sustainable Secure inland petroleum Facilitate a new multi-product pipeline Strong governance structure and oversight performance growth product supply without Increase capacity for South African Intellectual capital Agile digital technologies and capabilities commodity exports ‘Project factory’ support of large and compromising A knowledge-based organisation Through our intellectual capital (e.g. intellectual property in the form of patents, copyrights complex programmes An organisational culture to drive on safety Strengthen our credibility Reduce cost of logistics as a percentage of transportable GDP and licences) and organisational capital (e.g. our tacit knowledge in the form of procedures and Continuous enhancements on project health and safety of our people World-class technological innovations in terms of infrastructure knowledge-based systems of governance, compliance and leadership), we create both tangible lifecycle programme methodologies Freight Rail and the public in and around our Integrated planning and resourcing reliability and our delivery operations Enable us to be (monetised) value in the form of revenue from value-add services and new product innovations, Research and development (Engineering Enhanced transparency through advanced, of customer-centric Investment leveraged Integrated rail transportation flow of various agile in an and intangible (non-monetised) value in the form of brand value and thought leadership. research and development unit) integrated digital platforms solutions goods and commodities from inland customers ever-changing Leverage private-sector investment Standard operating procedures to ports and from ports to inland customers Rail Engineering R&D initiatives: socio-economic in the country’s freight logistics Such as a traction motor for system Policies, frameworks and processes environment Enhance human rugged conditions; a control Responsible leadership capabilities and system for diesel and electric productive capacity of Regional integration locomotives; and a new diesel A skilled and representative workforce our people – particularly Improve freight logistics locomotive A safe working environment which promotes Promote Human capital diversity and equal opportunity as well as employment in terms of scarce skills connectivity on the continent Responsible leadership training and education equity within Exponential value is created for and on behalf of Transnet and the country through our most 64 467 skilled and motivated employees Adverse outputs Responsible leadership the Company critical asset: our people. Through our employees’ collective accomplishments, collaborations, Transformation as at 1 April 2016 year-end Improve physical and innovations and discipline, we are able to provide innovative solutions to infrastructural logistics An ‘employer of choice’ Promote black economic empowerment Remuneration philosophy and process mental health and challenges, foster lasting relationships with our customers, and build and maintain the Waste materials as by-products of within supplier entities Responsible leadership structure our infrastructure projects in the Promote safety of our employees infrastructure capacity required to sustain economic growth. Pipelines Promote supplier localisation form of asbestos and hydrocarbon ethical and other stakeholders Integrated rail and pipeline solution to ensure reliable waste Retain social licence to operate business practices as Health and safety and safe transportation of gas and petroleum products Collective agreements with organised labour well as sound Optimise ‘that which Improve physical and mental health, Pipeline spills and marine pollution Partnerships with customers and other environmental makes Transnet great’ and safety of the public and logistics providers along the value chain Social and relationship capital Relationship with customers and suppliers (e.g. plastics entering marine stewardship by living the Transnet communities where we operate water at ports) Proactive interaction with our stakeholders Through our social and relationship capital (e.g. relationships with commercial and academic Constructive and equitable dealings with within our culture – ‘our unity partners, regulators, suppliers, customers, communities, labour unions, the media and more), Government and regulators Positive contribution to the socio-economic operations shows in our shared well-being and health of the communities in Community development Positive relationship with employees and practices’ we build both tangible and intangible value expressed through mutual trust, collaborative which we operate Measurably improve economic, ventures, new innovations and value-added products and services. Positive stakeholder relations organised labour An ethos of tolerance and respect social, cultural and environmental contribute to commercial stability (e.g. through strong customer and supplier relationships, and Proactive interaction with communities, National Ports well-being of communities a social licence to operate) and organisational stability (e.g. healthy employee morale). citizens, institutions, media and pensioners Authority Collaborative relationships with the Shareholder and funders Oversight of the total port Environmental stewardship system and logistics chain Environmental stewardship Enhance capacity of the natural 1,2% improvement in energy efficiency environment to meet the resource Natural capital Water Identifying opportunities for improving needs of future generations water consumption Our business is conducted across diverse ecosystems where we build and maintain infrastructure, Air Promote a modal shift from operate equipment and handle large volumes of cargo. Our employees, contractors, suppliers Land Cost saving from recycling road to rail in the national and customers have an impact on the natural environment and depend on it for their livelihoods. Biodiversity and ecosystem health transport task The ‘natural capitals’ in the context of our commercial activities include air, water, land, minerals and forests, as well as biodiversity and ecosystems health. Our operations generate waste, including greenhouse gases, which in turn contribute to global warming. TRANSNET Integrated Report 2017 23
Our capitals Inputs Activities Key outputs of Outcomes Value created for Transnet Value created for others
our business Cost-effective funding Ensure long-term financial Through our activities, we deliver nine Financial capital Continued financial stability and strength stability in a tough economy Sustainable Developmental Outcomes Share capital and reserves Investment-grade credit rating (SDOs) for our Shareholder, the Our financial sustainability relies on the availability and management of our own and borrowed Positive outputs Cash interest cover of 2,9 times economy and our stakeholders funds. Financial capital – as a stock of value – enables value creation with all other capitals. Through Cash and cash equivalents Our efforts enable us to build financial Gearing at 44,4% the combined use of capital inputs, such as share capital, cash reserves and borrowings, we fund our Long- and short-term borrowings stability in the short, medium and long Port Terminals infrastructure projects, build manufactured assets, such as rolling stock and wagons, enhance the Investment in infrastructure, Transportation of a range of term as guided by gearing and cash Employment general bulk and containerised interest cover productive capacity of our people through training, innovate around technology and services, and expansion and maintenance Flow of imports, exports and Create measurable direct, indirect freight commodities benefit our community relationships through our investment in CSI initiatives. The current business transshipments through cargo A modern, integrated freight and logistics and induced employment for South strategy, as encapsulated in the MDS, aims to create pre-emptive long-term capacity ahead of system for South Africa Africans terminals Build stable, Align with regulatory validated demand. Provision of in-service Mega- and critical projects, such as the secure requirements to maintenance, repair, upgrade, New Multi-Product Pipeline, Durban Container infrastructure maintain the required Skills development conversion and manufacture of Terminal Expansion and extension of Saldanha Tippler 3 compliances within our Enhance and improve human Manufactured capital various types of wagons, coaches, operations capabilities and productive capacity Property, plant and equipment locomotives, as well as equipment, Business continuity Maintain our within the South African job market Through our manufactured assets – such as our buildings, equipment and transport infrastructure – Investment property machines and services Large-scale shift from road to rail standalone we create value for the Company in the form of revenue from operations; and create infrastructural credit rating Maintain agility within a Rail and branch-line networks Infrastructure reliability Industrial capability building value for the wider economy, while reducing the cost of doing business in South Africa. While our and attract cost structure in which road-to-rail strategy impacts positively on natural capital by reducing carbon emissions and air Multi-cargo ports Capacity through new and Operational efficiencies and improved Promote industrial development for productivity funding from 80% to 90% of fixed pollution, new rail, ports and pipeline infrastructure projects could adversely impact ecosystems 3 800 km of petroleum and refurbished locomotives and Engineering various costs and assets have South Africa and improved and result in contamination of the natural environment and generate a variety of outputs in the gas pipeline infrastructure wagons Ability to avail analytics to end-users through competitiveness multiple digital platforms sources lifecycle times of 30 form of waste materials as by-products. Locomotives and rolling stock Engineering solutions to support to 100 years Vastly improve rail and freight Port terminals rail and port operations Provision of cargo-handling infrastructure services to a range of customers Promote a Create increased capacity at South push for Build partnerships African ports Global operational standards business for sustainable Secure inland petroleum Facilitate a new multi-product pipeline Strong governance structure and oversight performance growth product supply without Increase capacity for South African Intellectual capital Agile digital technologies and capabilities commodity exports ‘Project factory’ support of large and compromising A knowledge-based organisation Through our intellectual capital (e.g. intellectual property in the form of patents, copyrights complex programmes An organisational culture to drive on safety Strengthen our credibility Reduce cost of logistics as a percentage of transportable GDP and licences) and organisational capital (e.g. our tacit knowledge in the form of procedures and Continuous enhancements on project health and safety of our people World-class technological innovations in terms of infrastructure knowledge-based systems of governance, compliance and leadership), we create both tangible lifecycle programme methodologies Freight Rail and the public in and around our Integrated planning and resourcing reliability and our delivery operations Enable us to be (monetised) value in the form of revenue from value-add services and new product innovations, Research and development (Engineering Enhanced transparency through advanced, of customer-centric Investment leveraged Integrated rail transportation flow of various agile in an and intangible (non-monetised) value in the form of brand value and thought leadership. research and development unit) integrated digital platforms solutions goods and commodities from inland customers ever-changing Leverage private-sector investment Standard operating procedures to ports and from ports to inland customers Rail Engineering R&D initiatives: socio-economic in the country’s freight logistics Such as a traction motor for system Policies, frameworks and processes environment Enhance human rugged conditions; a control Responsible leadership capabilities and system for diesel and electric productive capacity of Regional integration locomotives; and a new diesel A skilled and representative workforce our people – particularly Improve freight logistics locomotive A safe working environment which promotes Promote Human capital diversity and equal opportunity as well as employment in terms of scarce skills connectivity on the continent Responsible leadership training and education equity within Exponential value is created for and on behalf of Transnet and the country through our most 64 467 skilled and motivated employees Adverse outputs Responsible leadership the Company critical asset: our people. Through our employees’ collective accomplishments, collaborations, Transformation as at 1 April 2016 year-end Improve physical and innovations and discipline, we are able to provide innovative solutions to infrastructural logistics An ‘employer of choice’ Promote black economic empowerment Remuneration philosophy and process mental health and challenges, foster lasting relationships with our customers, and build and maintain the Waste materials as by-products of within supplier entities Responsible leadership structure our infrastructure projects in the Promote safety of our employees infrastructure capacity required to sustain economic growth. Pipelines Promote supplier localisation form of asbestos and hydrocarbon ethical and other stakeholders Integrated rail and pipeline solution to ensure reliable waste Retain social licence to operate business practices as Health and safety and safe transportation of gas and petroleum products Collective agreements with organised labour well as sound Optimise ‘that which Improve physical and mental health, Pipeline spills and marine pollution Partnerships with customers and other environmental makes Transnet great’ and safety of the public and logistics providers along the value chain Social and relationship capital Relationship with customers and suppliers (e.g. plastics entering marine stewardship by living the Transnet communities where we operate water at ports) Proactive interaction with our stakeholders Through our social and relationship capital (e.g. relationships with commercial and academic Constructive and equitable dealings with within our culture – ‘our unity partners, regulators, suppliers, customers, communities, labour unions, the media and more), Government and regulators Positive contribution to the socio-economic operations shows in our shared well-being and health of the communities in Community development Positive relationship with employees and practices’ we build both tangible and intangible value expressed through mutual trust, collaborative which we operate Measurably improve economic, ventures, new innovations and value-added products and services. Positive stakeholder relations organised labour An ethos of tolerance and respect social, cultural and environmental contribute to commercial stability (e.g. through strong customer and supplier relationships, and Proactive interaction with communities, National Ports well-being of communities a social licence to operate) and organisational stability (e.g. healthy employee morale). citizens, institutions, media and pensioners Authority Collaborative relationships with the Shareholder and funders Oversight of the total port Environmental stewardship system and logistics chain Environmental stewardship Enhance capacity of the natural 1,2% improvement in energy efficiency environment to meet the resource Natural capital Water Identifying opportunities for improving needs of future generations water consumption Our business is conducted across diverse ecosystems where we build and maintain infrastructure, Air Promote a modal shift from operate equipment and handle large volumes of cargo. Our employees, contractors, suppliers Land Cost saving from recycling road to rail in the national and customers have an impact on the natural environment and depend on it for their livelihoods. Biodiversity and ecosystem health transport task The ‘natural capitals’ in the context of our commercial activities include air, water, land, minerals and forests, as well as biodiversity and ecosystems health. Our operations generate waste, including greenhouse gases, which in turn contribute to global warming. TRANSNET Integrated Report 2017 24
Our capitals Inputs Activities Key outputs of Outcomes Value created for Transnet Value created for others our business Cost-effective funding Ensure long-term financial Through our activities, we deliver nine Financial capital Continued financial stability and strength stability in a tough economy Sustainable Developmental Outcomes Share capital and reserves Investment-grade credit rating (SDOs) for our Shareholder, the Our financial sustainability relies on the availability and management of our own and borrowed Positive outputs Cash interest cover of 2,9 times economy and our stakeholders funds. Financial capital – as a stock of value – enables value creation with all other capitals. Through Cash and cash equivalents Our efforts enable us to build financial Gearing at 44,4% the combined use of capital inputs, such as share capital, cash reserves and borrowings, we fund our Long- and short-term borrowings stability in the short, medium and long Port Terminals infrastructure projects, build manufactured assets, such as rolling stock and wagons, enhance the Investment in infrastructure, Transportation of a range of term as guided by gearing and cash Employment general bulk and containerised interest cover productive capacity of our people through training, innovate around technology and services, and expansion and maintenance Flow of imports, exports and Create measurable direct, indirect freight commodities benefit our community relationships through our investment in CSI initiatives. The current business transshipments through cargo A modern, integrated freight and logistics and induced employment for South strategy, as encapsulated in the MDS, aims to create pre-emptive long-term capacity ahead of system for South Africa Africans terminals Build stable, Align with regulatory validated demand. Provision of in-service Mega- and critical projects, such as the secure requirements to maintenance, repair, upgrade, New Multi-Product Pipeline, Durban Container infrastructure maintain the required Skills development conversion and manufacture of Terminal Expansion and extension of Saldanha Tippler 3 compliances within our Enhance and improve human Manufactured capital various types of wagons, coaches, operations capabilities and productive capacity Property, plant and equipment locomotives, as well as equipment, Business continuity Maintain our within the South African job market Through our manufactured assets – such as our buildings, equipment and transport infrastructure – Investment property machines and services Large-scale shift from road to rail standalone we create value for the Company in the form of revenue from operations; and create infrastructural credit rating Maintain agility within a Rail and branch-line networks Infrastructure reliability Industrial capability building value for the wider economy, while reducing the cost of doing business in South Africa. While our and attract cost structure in which road-to-rail strategy impacts positively on natural capital by reducing carbon emissions and air Multi-cargo ports Capacity through new and Operational efficiencies and improved Promote industrial development for productivity funding from 80% to 90% of fixed pollution, new rail, ports and pipeline infrastructure projects could adversely impact ecosystems 3 800 km of petroleum and refurbished locomotives and Engineering various costs and assets have South Africa and improved and result in contamination of the natural environment and generate a variety of outputs in the gas pipeline infrastructure wagons Ability to avail analytics to end-users through competitiveness multiple digital platforms sources lifecycle times of 30 form of waste materials as by-products. Locomotives and rolling stock Engineering solutions to support to 100 years Vastly improve rail and freight Port terminals rail and port operations Provision of cargo-handling infrastructure services to a range of customers Promote a Create increased capacity at South push for Build partnerships African ports Global operational standards business for sustainable Secure inland petroleum Facilitate a new multi-product pipeline Strong governance structure and oversight performance growth product supply without Increase capacity for South African Intellectual capital Agile digital technologies and capabilities commodity exports ‘Project factory’ support of large and compromising A knowledge-based organisation Through our intellectual capital (e.g. intellectual property in the form of patents, copyrights complex programmes An organisational culture to drive on safety Strengthen our credibility Reduce cost of logistics as a percentage of transportable GDP and licences) and organisational capital (e.g. our tacit knowledge in the form of procedures and Continuous enhancements on project health and safety of our people World-class technological innovations in terms of infrastructure knowledge-based systems of governance, compliance and leadership), we create both tangible lifecycle programme methodologies Freight Rail and the public in and around our Integrated planning and resourcing reliability and our delivery operations Enable us to be (monetised) value in the form of revenue from value-add services and new product innovations, Research and development (Engineering Enhanced transparency through advanced, of customer-centric Investment leveraged Integrated rail transportation flow of various agile in an and intangible (non-monetised) value in the form of brand value and thought leadership. research and development unit) integrated digital platforms solutions goods and commodities from inland customers ever-changing Leverage private-sector investment Standard operating procedures to ports and from ports to inland customers Rail Engineering R&D initiatives: socio-economic in the country’s freight logistics Such as a traction motor for system Policies, frameworks and processes environment Enhance human rugged conditions; a control Responsible leadership capabilities and system for diesel and electric productive capacity of Regional integration locomotives; and a new diesel A skilled and representative workforce our people – particularly Improve freight logistics locomotive A safe working environment which promotes Promote Human capital diversity and equal opportunity as well as employment in terms of scarce skills connectivity on the continent Responsible leadership training and education equity within Exponential value is created for and on behalf of Transnet and the country through our most 64 467 skilled and motivated employees Adverse outputs Responsible leadership the Company critical asset: our people. Through our employees’ collective accomplishments, collaborations, Transformation as at 1 April 2016 year-end Improve physical and innovations and discipline, we are able to provide innovative solutions to infrastructural logistics An ‘employer of choice’ Promote black economic empowerment Remuneration philosophy and process mental health and challenges, foster lasting relationships with our customers, and build and maintain the Waste materials as by-products of within supplier entities Responsible leadership structure our infrastructure projects in the Promote safety of our employees infrastructure capacity required to sustain economic growth. Pipelines Promote supplier localisation form of asbestos and hydrocarbon ethical and other stakeholders Integrated rail and pipeline solution to ensure reliable waste Retain social licence to operate business practices as Health and safety and safe transportation of gas and petroleum products Collective agreements with organised labour well as sound Optimise ‘that which Improve physical and mental health, Pipeline spills and marine pollution Partnerships with customers and other environmental makes Transnet great’ and safety of the public and logistics providers along the value chain Social and relationship capital Relationship with customers and suppliers (e.g. plastics entering marine stewardship by living the Transnet communities where we operate water at ports) Proactive interaction with our stakeholders Through our social and relationship capital (e.g. relationships with commercial and academic Constructive and equitable dealings with within our culture – ‘our unity partners, regulators, suppliers, customers, communities, labour unions, the media and more), Government and regulators Positive contribution to the socio-economic operations shows in our shared well-being and health of the communities in Community development Positive relationship with employees and practices’ we build both tangible and intangible value expressed through mutual trust, collaborative which we operate Measurably improve economic, ventures, new innovations and value-added products and services. Positive stakeholder relations organised labour An ethos of tolerance and respect social, cultural and environmental contribute to commercial stability (e.g. through strong customer and supplier relationships, and Proactive interaction with communities, National Ports well-being of communities a social licence to operate) and organisational stability (e.g. healthy employee morale). citizens, institutions, media and pensioners Authority Collaborative relationships with the Shareholder and funders Oversight of the total port Environmental stewardship system and logistics chain Environmental stewardship Enhance capacity of the natural 1,2% improvement in energy efficiency environment to meet the resource Natural capital Water Identifying opportunities for improving needs of future generations water consumption Our business is conducted across diverse ecosystems where we build and maintain infrastructure, Air Promote a modal shift from operate equipment and handle large volumes of cargo. Our employees, contractors, suppliers Land Cost saving from recycling road to rail in the national and customers have an impact on the natural environment and depend on it for their livelihoods. Biodiversity and ecosystem health transport task The ‘natural capitals’ in the context of our commercial activities include air, water, land, minerals and forests, as well as biodiversity and ecosystems health. Our operations generate waste, including greenhouse gases, which in turn contribute to global warming. ORGANISATIONAL OVERVIEW continued 25
Highlights
Economic
Revenue increased by 5,3% to R65,5 billion EBITDA grew by 5,0 % Operating expenses were to contained at a 5,6% increase R27,6 billion to R37,9 billion
Profit of the year increased to R2,8 billion Operational 14,9% (2016: R393 million) more than 600% higher e ciency at than the prior year
Aggressive management of costs resulted in a Capital investment of R2,4 billion saving in planned costs R21,4 billion SA GDP growth of 0,7% for the financial year
Gearing at 44,4% and cash interest cover B-BBEE spend: % of total at 2,9 times measured procurement spend: 103,1% R62,6 billion spend on SD, R38,6 million on ED R37 billion
Social Environmental
Skills development: Electricity consumption Amount invested: reduction: 1,7% R746 million or 3,6% of the wage bill Electricity generated by new locomotives: 242 788 MWh 3,1% Traction energy- efficiency improvement: 0,6 % Electricity Apprentice bursars in talent pool: consumption: 3 207 544 MWh Transport sector carbon emissions avoided 1 700 (road-to-rail gains): 637 152 tCOe Volume gains/ Engineering bursars in emissions avoided 2 857 365 tons/ talent pool: (road to rail): 313 699 tCOe Total fuel 597 consumption: 238,9 megalitres Total overall energy- Corporate social efficiency improvement: 1,2% investment: Transnet carbon emissions: 3,95 mtCOe R234 Scope 1 emissions: 681 016 tCOe million Scope 2 emissions: 3 295 208 tCOe
DIFR rate: Scope 3 emissions: 16 368 tCOe Carbon emission 0,69 intensity reduction: 2,3%