TRANSNET LIMITED PRESENTATION BY MS MARIA RAMOS 27 MAY 2008
AGENDA • Context • Achieving business stability – The four-point turnaround plan – Achievements against plan – Financial performance overview • From stability to growth • Growth opportunities • Four-point growth strategy • Growth enablers 2
SOUTH AFRICA FREIGHT SYSTEM PERFORMING RELATIVELY WELL Top Quintile, Highest Performance 4th Quintile, Low Performance High income countries are generally top Bottom Quintile, 2nd Quintile, High Performance performers but there are big differences Lowest Performance 3rd Quintile, Average Performance between countries at other income levels. Distribution of countries by income groups across LPI Quintiles (%) 100% South Africa placed 24th out of 150 countries and is the highest ranked 75% middle income country in a list which includes Malaysia (27), Chile (32), Turkey (34) and Hungary (35). 50% Singapore, Netherlands and Germany are the top 3 ranked countries respectively. 25% China (30) is the top performer amongst lower middle income countries. 0% Upper Lower High High Low High High Upper Low er Low Middle Middle Income Income Income India (39) is the top performer amongst Income Income Income OECD Income Non- Middle Middle Income low income countries. OECD OECD Non-OECD Income Income 3 Source: World Bank, Connecting to Compete: Trade Logistics in the Global Economy, October 2007
THE SOUTH AFRICAN FREIGHT SYSTEM MUST NEVERTHELESS CONFRONT MANY CHALLENGES • Large infrastructure backlogs across all modes. • A skills shortage. • A lack of intermodal planning. • As a very transport intensive economy, South Africa contributes less than 0.5% to the world GDP but more than 2% of surface freight ton/kilometres. South Africa must apply transport far more efficiently than the norm. 4 Source: Centre for Supply Chain Management, University of Stellenbosch
TOTAL FREIGHT DEMAND WILL DOUBLE (OR TRIPLE) IN THE NEXT TWENTY YEARS Freight demand in the economy (million tons) 2500 2000 million tons 1500 1000 500 0 2006 2011 2016 2021 2026 Likely growth High growth Likely growth based on average 4.7% growth over 20 years, high growth based on 5 average 5.5% over the 20 years Source: Centre for Supply Chain Management, University of Stellenbosch
INTEGRATED AND COORDINATED ACTION IS NECCESARY • Implementing a high performance rail corridor backbone for the country that will alleviate corridor congestion and provide the capacity to meet the long term demand for freight in the economy. • Operating the ports in a complementary manner to make the port system more efficient, increase maritime connectivity and reduce ocean freight rates. • Formulating and implementing integrated service strategies for key customer segments to realise the synergies of the port, rail and pipeline systems. • Enhancing the connectivity of the South African freight system with the regional freight system. 6
AGENDA • Context • Achieving business stability – The four-point turnaround plan – Achievements against plan – Financial performance overview • From stability to growth • Growth opportunities • Four-point growth strategy • Growth enablers 7
THE FOUR-POINT TURNAROUND PLAN WAS DEVELOPED TO STABILISE TRANSNET Transnet situation in 2004/05: Growing a Delivering Growing a Delivering Enabling Enabling Strategic focused freight efficient and Strategic focused freight efficient and economic • Lack of clear strategic economic intent transport competitive intent transport competitive growth growth direction; company services company services • Weak financial 1 2 3 4 performance and controls; • Unfocussed and inefficient business structure - significant non-core Four-point Ensure Redirecting and Strategic investments; Ensure Redirecting and Strategic Turn- Develop Corporate Reengineering Balance Develop Corporate Reengineering Balance around Human Capital Governance the Business Sheet Human Capital Governance the Business Sheet • Low morale: Lack of Strategy and Risk Management and Risk Management investment in Human Management Management Capital; • Poor risk management and governance; and • Lack of capital 8 investment.
SIGNIFICANT ACHIEVEMENTS HAVE BEEN REALISED 1 2 Re-direct and Strategic Balance Reengineering the Sheet Management 3 Business � Vulindlela projects to Corporate Governance � Disposal of non-core 4 improve productivity and Risk Management Human Capital assets, including levels - Viamax Development - Efficiency improvements � Established Governance - C Pref Share - GFB priority flows (+3mt) Structures - Housing loan book - Port handling activities - SAA (TEU’s from 158000 to � Skills demand planning � Implementation of - V&A 186000 at DCT) - Transtel FSN Enterprise Performance - Availability and reliability � Talent management and - Metrorail Management (“EPM”) of all wagon and loco succession planning framework fleets improved - Progress towards � Monthly risk Approximate proceeds � Leadership development operational stability identification and +R10bn - Procurement savings programme reporting >R500m p.a � Pension funds � Reward model, - Safety: reduced incidents � Focused attention on risk - TSDBF (R1.9bn) and TPF (R200m) performance (R1.0bn) in surplus - Safety risk management and - Rule amendments approved - Implementation of fraud incentive scheme - Act amended risk management plan Overall improvement of R2bn - Ex-gratia bonuses - Compliance risk since inception in 2005-06 � Change management � Transnet Business � Gearing programme � Revised Articles - From 83% to 39% Intelligence of Association � Employment equity plan - Implementation of � Effective capital approval systems/processes - Returns exceed cost of � Shareholder Compact to improve quality of capital information, control and � Funding plan analysis 9 - KPI project
SUBSTANTIAL IMPROVEMENTS IN FINANCIAL PERFORMANCE DEMONSTRATED Transnet Performance Highlights: Three-Year View 2004 2007 Improvement Measures Actual Actual vs 2004 Operating profit R4 750bn R8 470bn 78% EBITDA (%) 17% 40,7% 139% Cash interest cover 3,5 times 5,4 times 54% Cash flow return on investment (“CFROI” 4,0% 6,8% 70% in real returns) Gearing 83% 39% 53% Capex R3,8 bn R11,7 bn 208% (excluding Aviation) Shareholders equity R9,9 bn R37,4 bn 278% Four-point turnaround 10 plan starting point
AGENDA • Achieving business stability • From stability to growth – Shareholder mandate – Transportation in SA – Levers for growth • Growth opportunities • Four-point growth strategy • Growth enablers 11
OVERVIEW OF SHAREHOLDER MANDATE Key role as defined in Shareholder Compact Transnet challenges (Within context of agreed KPIs) • Reduce the cost of doing business in SA • Embed growth through providing To create Retain a appropriate ports, rail and pipeline capacity, strong AND improve infrastructure financial efficiencies position and • Cost effectiveness and efficiency grow within acceptable benchmark volumes standards • Volume growth in the core divisions 12
IMPROVED TRANSNET EFFICIENCY SHOULD ALSO REDUCE CUSTOMER LOGISTICS INDIRECT COSTS Percentage of total delivered cost TYPICAL TRANSNET 19 PRIORITY CUSTOMER 3 • Indirect costs Transnet 7 (e.g. storage and direct 1 handling) are a costs 20 significantly Storage and sea higher 100 9 freight costs strongly component of influenced by total customer reliability, frequency landed cost than and speed of land direct transport 42 transport costs • Improved Transnet Mining Land Storage Insurance Customs/ Handling Sea Total reliability and cost Transport Clearing Freight landed speed should cost reduce these indirect costs Logistical flow 13
TRANSFORMATION HORIZONS Transformation horizons for a networked organisation Current ‘Expand competitive advantage’ position ‘Optimise and extend growth’ • Develop customer services (e.g. capacity management and supply chain integration products) • Accelerate Human Capital strategy ‘Stabilise the core’ implementation • Strategic organisational initiatives • Implement integrated commercial management • Develop and implement long term network improvement • Implement critical infrastructure • Long-term capacity planning ‘Stop the bleeding’ concepts projects • Focus Vulindlela on integrated, • Achieve world-class • Launch Vulindlela to stabilise key cross functional corridor rollout performance levels operational functions and capture (using “standardised” • Financial restructuring productivity improvements) • Build long term stakeholder relationships • New freight strategy and • Implement critical capability • Improve cross-divisional capital disposal of non-core assets building projects and financial planning • Restructure corporate • Complete disposals • Implement focussed management centre reporting, KPI analysis and • Shareholder Compact Enterprise Performance • Create Human Capital Management strategy • Best practice CAPEX • Risk and governance • Funding strategy 14
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