STRATEGIC INTENT SHAREHOLDER EXPECTATIONS Transnet is committed to enabling economic growth through providing integrated, appropriate port, rail and pipeline infrastructure and operations in a cost-effective and efficient manner and within acceptable benchmark standards. This commitment is consistent with Transnet’s shareholder’s expectation as set out in, amongst others, the Shareholder Compact between Transnet and the Government of the Republic of South Africa. The Company continues to give meaning to its strategic intent through the DELIVERING ON OUR COMMITMENTS implementation of the four-point turnaround strategy. STRATEGY SS TA NE R I GE US T B nt Redir E eme ect D G ag an S N an d r I m ee E O k ng C D ris i T ne O F nd e O a r R e th S T c e S n b a u O rn s • Implementation of risk • Efficiencies and i C e n v e o management strategy performance reliability R s g • Sustainability value • Integration (port/rail s E e t TRANSNET MANDATE a measurement framework interface) W r o • Contract lifecycle • Customer focus O p L r management • Infrastructure and o C • Corporate performance maintenance programme reporting • Safety FOUR-POINT TURNAROUND STRATEGY • Skills audit and matching • Strategic asset and liability • Recruitment and retention management • Capacity and skills • Disposal of non-core H t u • Performance management businesses n m • Talent management • Post-retirement funding e a m n • Culture • Gearing and cash flow e c g a a p management n i a ta • Cost of capital m l t d e e e ve sh lo e pm nc en ala t c b egi Strat E CON ENT OMIC DEVELOPM TRANSNET ANNUAL REPORT 2007 1 TRANSNET’S REACH Operational reach Maputo Johannesburg BULK INDUSTRIAL Sishen Richards Bay BULK Durban INDUSTRIAL BULK INDUSTRIAL Rail Saldanha Ports and East London Terminals Ngqura Cape Town Pipelines Mossel Bay Port Elizabeth Capital expenditure by corridor 35 30 25 20 R billion 15 10 5 0 Sishen-Saldanha Gauteng – Cape Town Gauteng – PE, Ngqura, EL Gauteng – Durban Gauteng – Richards Bay Country-wide Planned capital expenditure for the next five years Freight Rail Rail Engineering National Ports Authority Port Terminals Pipelines Other 2 TRANSNET ANNUAL REPORT 2007 GROUP STRUCTURE Transnet is the custodian of major rail, port and pipeline assets in South Africa. With more than R77 billion in assets and employing more than 48 000 people, it provides seamless and integrated bulk freight services through five interdependent operating divisions namely: Freight Rail, Rail Engineering, National Ports Authority, Port Terminals and Pipelines. Transnet Ltd’s only shareholder is the State. Transnet Freight Rail (previously Spoornet) operates freight trains serving customers in export mining (coal and iron ore), mining, manufacturing, agriculture and forestry and containers and automotive. It has a 22 247 km rail network, of which about 1 500 km are heavy haul lines. Its infrastructure represents about 80% of Africa’s rail infrastructure. Transnet Rail Engineering (previously Transwerk) is responsible for in-service and out-of-service maintenance, refurbishing, wreck repair, conversions and upgrade of locomotives, wagons and coaches, manufacture of new wagons, wheels, bogies and rolling stock components. Rail Engineering has 150 depots and seven factory centres countrywide. Transnet National Ports Authority (previously National Ports Authority) is responsible for the safe, efficient and effective economic functioning of the national ports system which it manages, controls and administers on behalf of the State. It manages the seven ports within South Africa, namely: Saldanha Bay, Cape Town, Mossel Bay, East London, Port Elizabeth, Durban and Richards Bay. The Port of Ngqura, when operational, will become the eighth port under National Ports Authority’s control. Transnet Port Terminals (previously South African Port Operations) is responsible for cargo handling and logistics management solutions. Its port operations service customers across a broad spectrum of the economy including the shipping industry, vehicle manufacturers, agriculture sector, steel and mining industry. The division operates 15 port terminals across six South African ports. ONE COMPANYVISION ONE Transnet Pipelines (previously Petronet), the pipeline operating division of Transnet, will ensure the security of supply of critical energy (in the form of petroleum products) through its network of 3 000 km of underground pipelines. It serves the South African oil industry and operates throughout the eastern parts of South Africa, along the Durban to Gauteng corridor, traversing five provinces: KwaZulu-Natal, Free State, Gauteng, North West and Mpumalanga. The above operating divisions are supported by Transnet Projects, Transnet Properties, Esselen Park and Group Services. TRANSNET ANNUAL REPORT 2007 3 GROUP KEY PERFORMANCE INDICATORS for the year ended 31 March 2007 TOTAL REVENUE INCREASE (%) Target Actual Target Performance Forecast performance 2007 2007 2008 The Group did not achieve its The Group is confident that it will be able revenue objective in the current year, to improve performance in the year ahead. Total Group 12,7 8,4 13,0 due mainly to the under-performance The focus for the year ahead will be aimed Freight Rail 13,9 4,0 12,0 at the Freight Rail operating division. at achieving targeted revenue growth National Ports Authority 9,0 12,0 11,4 This division experienced capacity from increased volumes transported. Port Terminals 12,0 14,0 15,0 constraints and derailments as well Pipelines 6,3 15,0 17,0 as customer-related problems. INFRASTRUCTURE INVESTMENTS Target Actual Target Performance Forecast performance 2007 2007 2008 The Group exceeded its target and The target for the year is 42% higher than the demonstrates the commitment of the current year spend. The Group is confident that Actual capital Group to provide customer service, the target will be achieved. A Capital Projects expenditure compared address the investment backlog and operating division has been established to to budget (R million) 11 847 11 674 16 935 provide a stable platform to support drive and manage all infrastructure projects in % achieved 90 99 > 90 economic growth. excess of R300 million. The focus of the division will be to improve capital planning and execution processes within the Group. Target Actual Target Performance Forecast performance 2007 2007 2008 The Group exceeded its target and The programme addressing the historical continues to address backlog under-maintenance of locomotives, wagons Total maintenance spend maintenance in an effort to improve and infrastructure, which was in its second compared to budget poor reliability and availability of year during the year, will further address poor – Freight Rail 3 890 5 495 5 247 rolling stock and consequently reliability. This programme is expected to % achieved 90 125 > 90 improve customer service. come to an end during 2009, by which stage a comprehensive preventative maintenance plan, covering all aspects of the Freight Rail fleet, will be implemented. CAPITAL AND FINANCIAL EFFICIENCY Target Actual Target Performance Forecast performance 2007 2007 2008 The Group exceeded its target for the The Group adopted a medium-term target year by 17%. All operating divisions of margins in excess of 35%. EBITDA margin (%) 34,8 40,7 > 35* contributed to the Group’s performance. Revenue growth (refer above) and operating efficiencies contributed to this performance. Target Actual Target Performance Forecast performance 2007 2007 2008 The Group exceeded its target The Group adopted a medium-term target and demonstrated its ability to earn of greater than 6%. However, in the year ahead Cash flow return on an appropriate return on investment the capital expenditure programme will make investment (CFROI) (%) 5,8 6,8 > 6* capital. the target difficult to achieve. Target Actual Target Performance Forecast performance 2007 2007 2008 The Group exceeded its target and this The Group adopted a medium-term target provides a stable platform from which of between 40% and 50%. Gearing ratio (%) 47,9 39,0 < 50* to support the capital expenditure programme. The improvement is due mainly to the reduction in the post- retirement benefit obligations of the Group. Target Actual Target Performance Forecast performance 2007 2007 2008 The Group achieved its target and this The Group adopted a medium-term target demonstrates the ability to generate of greater than 5 times. However, in the year Cash interest cover (times) 5,4 5,4 > 5* strong operational cash flows and ahead the capital expenditure programme * Medium-term targets service its obligations. will make the target difficult to achieve. 4 TRANSNET ANNUAL REPORT 2007 CONSOLIDATED SALIENT FEATURES for the year ended 31 March 2007 2007* 2006* % R million R million change Revenue 28 214 26 034 8,4 EBITDA 11 488 10 301 11,5 Operating profit 8 470 8 138 4,1 Profit for the year 6 322 4 828 30,9 Number of ordinary shares issued (millions) 12 661 14 710 (13,9) Profit per share (cents) 49,9 32,8 52,1 Total assets 77 254 78 346 (1,4) Total debt 39 821 48 820 (18,4) Capital and reserves (including minorities) 37 433 29 526 26,8 Cash flows from operating activities 13 488 11 244 20,0 Capital expenditure (excluding intangibles) 11 674 6 601 76,9 EBITDA margin (%) 40,7 39,6 2,8 Refer glossary of terms on page 245 * Continuing operations 14 000 6 12 000 12 000 5 10 000 11 674 11 5,4 13 488 13 4,8 10 000 10 601 4 4,5 8 000 4,3 11 244 11 8 000 10 089 10 7 820 3 3,5 6 000 6 000 6 601 7 178 7 040 2 4 000 5 641 4 000 2 000 1 2 000 0