Engineering 2019 Transnet Engineering 2019 2 Highlights • Revenue decreased by 6,4% from R11,25 billion to R10,5 billion in 2019 • EBITDA decreased from a loss of R139 million to a loss of R737 million • Transnet Engineering, achieved the Shareholder’s Compact targets on train reliability and efficiency as summarised below: Target Actual 2019 2019 Key performance indicator % % Volume lost due to traction 7 7,5 Train delays due to traction 40 18,7 Train cancellation 6 3,1 Business overview Transnet Engineering (TE or Engineering), an advanced manufacturing division of Transnet, has a rich and proud heritage spanning more than 150 years. TE’s solutions, underpinned by a strong innovation culture, help customers deliver goods and services with greater speed and efficiency using long refined advanced manufacturing techniques, industry expertise and highly-skilled personnel. Over time, TE has established extensive core capabilities for research, design, testing, manufacturing, remanufacturing, assembly and maintenance of railway rolling stock including locomotives, freight wagons, passenger coaches and port equipment. To this end, TE has positioned itself as the first African independent original equipment manufacturer (OEM) for wagons. With more than 11 600 employees countrywide, 143 depots and six main factories, Engineering is ideally positioned to serve its key customers locally and globally. Through its Vision 2021, Engineering aims to be the preferred brand in rail and related engineering solutions in Africa and across the world. This entails: • Becoming a world-class OEM of rolling stock and logistics equipment; • Becoming a preferred maintenance, repairer and overhaul partner for all rail and related equipment in Africa; • Establishing Centres of Excellence for technical and engineering skills development in Africa; and • Driving economic development and growth in sub-Saharan Africa. Engineering’s range of services is designed to grow the customer base both nationally and across Africa. The maintenance service depots are strategically positioned for the key corridors of Freight Rail. This ensures that the train delays, cancellations and volumes lost are minimised to focus on improving operational efficiencies by concentrating on availability and reliability of rolling stock. National and African markets remain key customer growth areas for Engineering’s commercial prospects. The manufacturing and overhaul arms of TE provide local and African freight operations with new and refurbished locomotives and wagons. Engineering continues to focus on growing its footprint in the African market and beyond. These new areas are an attractive growth market for the division due to increased investments in rail occurring across the continent. True to its aspirations of becoming the fully-fledged African OEM, Engineering has successfully researched, designed, manufactured and tested a new purpose- built locomotive, the TransAfrica Locomotive. This locomotive was successfully launched in April 2014, attracting impressive commercial interest from local and continental rail players. Transnet Engineering 2019 3 Internally, TE continues to focus on improving operational objectives. Engineering’s new operating model below illustrates efficiencies and a safe working environment through various how the division is structured, how it intends to interface with interventions such as continuous improvement and process customers and the products and services it will provide that will automation. define its value proposition to the market. TE will continue to forge and strengthen partnerships with OEMs with the aim being to enhance the existing skills and know-how and Where we operate to create new market opportunities. TE has plants and depots spread throughout South Africa, creating The division continues to strengthen its research and development a network of sites that serve the main rail corridors and ports. The (R&D) initiatives to ensure that it has cutting-edge technologies six main plants are located in Cape Town, Johannesburg, Durban, and capabilities to deliver world-class products and services. Bloemfontein, Pretoria and Uitenhage. Skills, enterprise, rural and supplier development continue to be These plants serve as regional centres for their satellite depots key focus areas of Engineering, with particular attention given to and provide them with support services. There are a total of the youth and women. Significant expenditure over the next few 143 maintenance depots. Out-of-service heavy maintenance and years will create opportunities for the division to identify and manufacturing are undertaken at the plants while the depots implement programmes that will address developmental concentrate on in-service maintenance of rolling stock. Beit Bridge Musina Makhado Soekmekaar Ellisras Polokwane Naboomspruit Tzaneen Thabazimbi Central Region Nylstroom Phalaborwa Northam Pienaarsrivier Marble Hall Hoedspruit Eastern Region Steelpoort Pretoria Rustenburg Pyramid South Graskop Western Region North Macmullins Pendoring Roossenekal Nelspruit Magaliesburg Belfast Kaapmuiden Transnet Engineering factories Rayton Mafikeng Witbak Machadodorp Pretoria Komatipoort Krugersdorp ▲ Ogies Transnet Corporate Centre Johannesburg Lichtenburg Sentrarand Delmas Vryburg Coligny Johannesburg Trichardt Bethal Vermaas Welverdiend ▲ Maydale Vereeniging Ermelo Hotzal Klerksdorp Volksrust Ottosdal Sasolburg Orkney Pudimoe Newcaslte Northcor Erts Makwassie Kroonstad Piet Retief Golela Sishen Dundee Nakop Gunhill Vryheid Capecor Warrenton Bethlehem Upington Harrismith Posmasburg Theunisen Danskraal Southcor Empangeni Kimberley Ladysmith Kakamas Marseillies Bergville Boksputs ▲ Estcourt Natalcor Bloemfontein Cedara Greytown Richards Bay Koffiefontein Maseru Pietermaritzburg Prieska Belmont Sannaspos Underburg Cato Ridge Stanger R. Baycor Kokstad Franklin Copperton Aliwal North Springfontein Richmond N. Westcor Barkly East ▲ Durban Bitterfontein De Aar Dreunberg Eastcor Burgersdorp Harding Liebendal Port Shepstone Noupoort Stormberg Maclear N. Eastcor Rosmead Hutchinson Sterkstroom Klawer Calvinia Umtata Cradock Queenstown Sishen-Saldanha Cookhouse Stutterheim Malmesbury Beaufort West Fort Sentracor Somerset East Kalbaskraal Beaufort Klipplaat Blaney Touwsrivier South East Cor Dal Alicdale Saldanha Bay Atlantis Josafat East London New Worcster Uitenhage ▲ Brighton Port Alfred Westcor Oudshoorn Avontuur Kraaifontein Patensie Cape Town Port Elizabeth Bellville Free State Mossel Bay Caledon George Knysna Bredasdorp Namibia Figure 1: Transnet Engineering’s geographic spread Regulatory environment Regulatory universe Engineering currently adheres to compliance with approximately 2002 (as amended by Act 69 of 2008), which provides for the 70 legislations, various applicable regulations and supervisory establishment of a Railway Safety Regulator whose mandate is to requirements. These legislations impose strict engineering, issue operating licences and oversee safety in the railway industry. governance, health and safety, environmental, labour and Like other rail operators, Transnet complies with stringent procurement compliance obligations and requirements. The application requirements of annual safety permits, which include the legislations include the National Safety Regulator Act, No 14 of establishment and maintenance of the safety management system. Transnet Engineering 2019 4 Performance context Strategic objective Contribution to strategic objective Reduce the total cost of logistics as a percentage of • Engineering will continue to source quality rolling stock components and material transportable GDP from low-cost suppliers in order to offer competitive products and services to the market. • The division will continuously benchmark its operations in the industry and incorporate best practice in its operations. Effect and accelerate modal shift by maximising the • The division will assist Freight Rail in improving operational efficiencies by role of rail in the national transport task concentrating on rolling stock availability and reliability and thereby position rail as an attractive alternative to road transportation. Leverage the private sector in the provision of both • Engineering continues to anchor partnerships with the rolling stock component infrastructure and operations where required manufacturers and financial institutions in the provision of rolling stock and related services both in South Africa and the rest of the continent. • Through research and development, Engineering is developing intellectual property in the rail-related industry with the view of partnering with the private sector in instances where other providers have manufacturing capacity and competencies. Integrate South Africa with the region and the • Engineering is positioning itself as a preferred manufacturer and maintenance rest of the world partner for rail and related equipment in Africa. Partnerships will be forged with local companies in Africa where synergies exist. Optimise the social and economic impact of all • Engineering is positioned as a centre of excellence for technical and engineering interventions undertaken by the SOC in the skills. The division is leveraging this capability to provide artisanal status, achievement of these objectives including the conversion of semi-skilled individuals into artisans through the recognition of prior learning. Operational performance Core initiatives for 2019 • Extend Engineering’s maintenance services to other Transnet • Engineering