TRANSNET INTEGRATED REPORT 2013

Integrated Report

2013

ORGANISATIONAL OVERVIEW (continued)

i

Contents
About the Integrated Report

1

About Transnet
– How Transnet creates value
– Business model
– Stakeholders’ key issues
– Risks and opportunities
– Governance

6
8
13
14
18

Strategic review
– First year of MDS execution
– Looking ahead

24
31

Performance review

36

Group performance
– Financial performance
– Financial position
– Capital investment
– Human capital
– Economic, social and environmental impact

36
38
40
43
45

PRODUCTIVITY
AND EFFICIENCY

Operating divisions’ performance

48

FINANCIAL
SUSTAINABILITY

Appendix A:
Market Demand Strategy

Abbreviations and acronyms

130

Glossary of terms

132

Corporate information

134

Throughout the reports, readers are referred to places where they can find more detail on particular topics, using these pointers: VOLUME
GROWTH

REGULATORY

128

Feedback on the reports is encouraged. CAPITAL
INVESTMENT

120

Appendix B:
Consolidated five-year review and value added statement

Transnet’s Integrated Report 2013,
Annual Financial Statements 2013 and Sustainability Report 2013
(reports) are available in PDF on www.transnet.net and via this
QR code on mobile devices.

Commentary on the Market
Demand Strategy focus areas and sustainability outcomes are indicated by these icons:

Forward looking information All references to forward looking information and targets in the 2013 reports are extracted from the 2013/14
Transnet Corporate Plan approved by the Board of
Directors.

IR

Refers to Volume 1 for further information.

AFS

Refers to Volume 2 for further information.

SR

Refers to Volume 3 for further information.

SAFETY, HEALTH,
ENVIRONMENT
AND QUALITY
(SHEQ)
HUMAN CAPITAL

GOVERNANCE

ECONOMIC
DIVIDENDS

SOCIAL
DIVIDENDS

ENVIRONMENTAL
DIVIDENDS

About the Integrated Report

About the Integrated Report
The Integrated Report 2013 (IR 2013) provides an overview of the performance and prospects of
Transnet SOC Ltd (Transnet or the Company) for the period 1 April 2012 to 31 March 2013. The IR 2013 presents the Company’s mandate, business model, strategy, governance, performance review and future outlook. It demonstrates how Transnet responds to its context, stakeholders, risks and opportunities in order to create sustainable value for the economy, society and the environment.
Transnet’s IR 2013, Annual Financial Statements 2013 (AFS 2013), and Sustainability Report 2013
(SR 2013) (the Reports) are complementary. Cross-references are provided throughout the reports for ease of reference.

Volume 1

Integrated Report

2013

Volume 2

Annual Financial
Statements

2013

Volume 3

Sustainability Report

2013

CONTENTS

The IR 2013 is Transnet’s primary report to all stakeholders. The AFS 2013 include reports of the independent auditors, the audit committee, the directors, the annual financial statements and the corporate governance reports. The SR 2013 documents
Transnet’s economic, social and environmental dividends. FR AMEWORKS
APPLIED

International Integrated
Reporting Council (IIRC)
Integrated Reporting
Framework Consultation
Draft, 2013.

International Financial
Reporting Standards
(IRFS).

King III.

King III.

The King Code of
Governance for South
Africa (2009)(King III).

The Companies Act, Act
No. 71 of 2008
(Companies Act).
The Public Finance
Management Act, Act
No. 1 of 1999 (PFMA).

Global Reporting Initiative
(GRI) G3.
United Nations Global
Compact (UNGC).
Carbon Disclosure Project
(CDP).
AA 1 000 stakeholders engagement standard.

1

ABOUT THE INTEGRATED REPORT (continued)

Concepts, principles and contents of integrated reporting
This is Transnet’s third year of integrated reporting, applying King III. As a member of the IIRC Pilot
Programme since 2012, Transnet has participated in developing the IIRC Integrated Reporting (IR) Framework which was published globally for comment in April 2013. Transnet will continue to adopt best practice in integrated reporting as the discipline evolves.
The IR 2013 applies the IR Framework’s fundamental concepts, guiding principles, content elements and presentation guidance. While the IR Framework suggests that the Integrated Report is primarily for investors, Transnet’s aim, as a State-owned company, is to communicate to all stakeholders, the factors that materially affect Transnet’s ability to create value.
The guiding principles of the IR Framework, adopted in the IR 2013, are: q

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Issues have been identified as material where they are of such importance and impact that they could substantially influence the assessments and decisions of the Company and its stakeholders.

Risk management and assurance
One of the responsibilities of the Board is effective risk management for the attainment of Transnet’s objectives and thus is a key focus area for the Company.
Against the backdrop of the economic crisis that equally affected the volumes and revenue growth of
Transnet, there was a need to ensure vigilant risk management with a specific focus on regulatory compliance, health, safety, environmental compliance, organisational reputation, business processes, and the credit environment. The Board continued to demonstrate its support and commitment to the enterprise risk management (ERM) framework and recognise the importance of a strong control environment in managing risks, improving performance, enhancing governance, instilling stakeholder confidence and strengthening the reputation of the Company.
The Board and management’s persistent and concerted effort to have a strong control environment provides growing evidence that the culture of control is taking root as evidenced by the sustained improvement in the internal control environment, particularly financial controls.

Koedoespoort Bay 1: New Class 43 diesel locomotive under construction.

2

INTEGRATED REPORT 2013

About the Integrated Report

In the year ahead, the Company is tightening its control frameworks around the capital programme as well as controls aimed at mitigating the key MDS risks and other emerging risks inherent in major change initiatives.
Transnet’s control framework encompasses a range of governance and operational components comprising: q
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Values and ethics form the keystone of an effective control environment and strong emphasis is placed on applying the Transnet Code of Ethics and Culture Charter.
A combined assurance plan has been designed to emphasise high-risk areas. It encompasses the assurances provided by management, internal specialists, internal audit, external audit and other consultants and service providers. The plan enables the
Board and its sub-committees, including the Board Risk and the Board Audit
Committees, to remain appraised of management efforts to mitigate risks to an acceptable level and to improve the control environment. Collectively the activities performed from which assurance is provided by various role players are referred to as the integrated combined assurance model, involving: q
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BTTVSBODF Independent assurance functions provide independent and objective assurance on the overall adequacy and effectiveness of controls, governance and management of critical risks. This is predominantly the role of internal audit, external audit and other credible assurance providers.

IR

Refer to page 19 for

AFS

Refer to page 12 for

further information.

further information.

3

ABOUT THE INTEGRATED REPORT (continued)

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Content

Assurance providers

Outcome

Framework/standard

Annual financial statements. q

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The Company has not commissioned additional external assurance of the non-financial information provided in the IR 2013 and SR 2013. The responsibility for review and approval of the IR 2013 and AFS 2013 resides with the Board Audit Committee. Responsibility for the SR 2013 resides with the Board Remuneration, Social and Ethics Committee. These Board sub-committees recommended the reports to the Board and the reports were approved by the Board. The combined assurance approach, including consideration of additional independent assurance, is being further developed for all aspects of the reports.

Condolences
The Board deeply regrets the loss of nine employees’ lives in the course of the year: five to motor vehicle accidents, three to violent criminal acts and one to a health condition. The sincere condolences of the
Company go to their families, colleagues and friends. Every effort continues to be made to bolster safety, security and wellness in Transnet.
The Board also conveys its deepest condolences to the families and friends of 125 members of the public who lost their lives on Transnet property. The largest single contributor to these tragedies occurred in
Hectorspruit on 13 July 2012, when a truck carrying 48 farmworkers collided with a goods train.
Notwithstanding increased public awareness and proactive training campaigns, level crossing accidents accounted for 23,0% of the public fatalities, with the balance due mainly to people trespassing onto operating railway lines. Management is proactively seeking solutions to reduce the number of level crossing incidents.

4

INTEGRATED REPORT 2013

The Board would like to express its appreciation to the Minister of Public Enterprises, Mr Malusi Gigaba, the
Minister of Transport, Mr Ben Martins and their respective deputy Ministers, the Director-General of the
Department of Public Enterprises, Mr Tshediso Matona, the various officials under the leadership of the
Director-General, and the Chairperson of the Portfolio Committee on Public Enterprises, Mr Peter Maluleke, for their strategic direction and oversight in the year under review. Thanks also go to the industry and economic regulators for their oversight responsibilities. Special thanks go to the members of the Executive and Extended Executive, employees and labour union partners who, together, drive Company performance.
Transnet’s investors, bond holders and financiers are acknowledged for the continued confidence shown in the strategy and management of the Company. The gratitude of the Company as a whole goes to the communities in which Transnet operates and to the customers and suppliers who work with Transnet staff every day to ensure that the rail, ports and pipelines deliver the quality of service needed to support the growth prospects of the South African economy.

Approval of the Integrated Report
The Board acknowledges its responsibility to ensure the integrity of the IR 2013. The Board confirms that it has collectively reviewed the contents and that the IR 2013 addresses the material issues and provides a fair representation of the performance and prospects of the Company.
The IR 2013 was approved by the Board and signed on its behalf by:

Mafika Mkwanazi
Chairperson

Brian Molefe
Group Chief Executive

Anoj Singh
Group Chief Financial Officer

29 May 2013
Johannesburg

29 May 2013
Johannesburg

29 May 2013
Johannesburg

5

About the Integrated Report

Appreciation

About Transnet
How Transnet creates value
Transnet is wholly owned by the Government of the Republic of South Africa and is the custodian of the country’s freight railway, ports and pipelines infrastructure. In line with Government’s New Growth Path,
State-owned companies are required to contribute to economic growth through the provision of worldclass infrastructure and technologies, expansion of economic infrastructure, job creation and skills development as well as and industrial capacity building through a strategic approach to procurement and operations.
The Minister of Public Enterprises, articulated his Statement of Strategic Intent (SSI) for Transnet in
November 2012 as follows: q
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achievement of the above objectives.
Transnet’s specific mandate, vision and mission reflect the Minister’s objectives:
MANDATE
To assist in lowering the cost of doing business in South Africa, enabling economic growth and ensuring security of supply through providing appropriate port, rail and pipeline infrastructure in a cost-effective and efficient manner, within acceptable benchmarks.
VISION
To meet customer demand for reliable freight transport and handling through: q
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To enable the competitiveness, growth and development of the South African economy by delivering reliable freight transport and handling services that satisfy customer demand.
Transnet’s complex mandate involves a balance between commercial and developmental objectives which requires prudent planning and bold action, particularly in a volatile global and local economic context.
Transnet is making strides in catching up on decades of under-investment in South Africa’s freight system and in driving operating efficiencies to match world best practice. There is clear recognition by the Shareholder, Board and management that the Company must find ways to invest counter-cyclically
– through the peaks and troughs of economic cycles – in order to both stimulate and support periods of higher growth. There is also recognition that logistics productivity and reliability are determining factors shaping South Africa’s ability to compete in global trade. The Market Demand Strategy (MDS) is
Transnet’s response to these imperatives articulated in the Minister’s SSI.
Transnet adopted the MDS in 2012, committing the Company to invest R300,1 billion in infrastructure to support a ramp up in freight volumes, operational efficiencies, jobs and skills while championing transformation and delivering sustainable economic, social and environmental outcomes. The MDS capital investment target was raised further in 2013, committing Transnet to invest R307,5 billion by 2020.

6

INTEGRATED REPORT 2013

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Transnet’s unique assets include:
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The way in which Transnet deploys these assets, people and skills, along with its use of financial and natural resources, carries significant responsibility. This is because the quality and sustainability of Transnet’s freight infrastructure and services directly affects both the short- and long-term prospects of thousands of companies, tens of thousands of employees, all spheres of Government, and hundreds of communities across the country.
Transnet’s sustainability framework sets out the economic, social and environmental dividends that the
Company aims to deliver from the MDS. This framework enables Transnet to drive and monitor specific outcomes from its business practices, showing every year, where long-term, sustainable value is being created for the economy, society and the environment. Transnet’s sustainability performance and prospects are reported in the SR 2013 and summarised in the Performance Review section of this IR 2013.
The Company faces a number of risks and opportunities in the execution of the MDS. The risks must be mitigated and the opportunities to create value must be adopted into business practice. The quality of a company’s relationships with its stakeholders plays a major part in how these risks are mitigated and how these opportunities are seized. Transnet recognises that enhanced shared value can be built from finding common purpose with its stakeholders. Stakeholders’ material issues and the Company’s approach to strategic risk assessment and mitigation is summarised in the sections that follow.
Transnet’s value proposition is depicted on the next page of the IR 2013. The Company deploys the valuable inputs it owns into the business (freight rail, ports, pipelines infrastructure and operations) to deliver outputs every year (investment, volumes, efficiencies, financial stability, skills and jobs), targeting to create sustainable economic, social and environmental outcomes for future generations.

7

ABOUT TRANSNET (continued)

How Transnet creates value1

2013 HIGHLIGHTS

INPUTS:
OUR WEALTH
VALUE
DEPLOYED IN 2013

Capital investment: R27,5 billion
(23,4% increase).

FINANCIAL CAPITAL
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R22,6 billion.

Volumes: 91,8% of target.
Rail: 207,7mt (3,3% increase).
Ports: 4,4m TEUs (1,2% increase).
Pipelines: 15,9 billion litres.
Revenue: R50,2 billion (9,4% increase).
EBITDA: R21,1 billion (11,5% increase).
Gearing: 44,6%.
Cash interest cover: 3,7 times.
Investment grade ratings: maintained.

MANUFACTURED CAPITAL
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R176,9 billion.

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R7,9 billion.

DCT Pier 2: 28 GCH (21,7% improvement).
Ngqura terminal: 32 GCH (6,6% improvement).
Cape Town terminal: 31 GCH
(10,7% improvement).
Durban: TEUs/STAT hour improved 18,7%.
Pipelines: delivered 100% to order.

HUMAN CAPITAL
š

New employees: 3 804 (7,5% increase).
Indirect jobs: 24 689.
Skills investment: R846 million (4,4% of payroll).
Trained 2 042 apprentices: awarded
122 engineering bursaries.

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INTELLECTUAL CAPITAL
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RELATIONSHIPS CAPITAL

IN T HE T R A NSN ET BUSIN ESS

FREIGHT
RAIL

20 500km railway including
1 500km heavy haul.

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2 255 locomotives,
71 036 wagons in service.

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