Transnet Annual Report 2004

Transcription

delivering on our commitments
Tr a n s n e t A n n u a l R e p o r t 2 0 0 5
page 3
Consolidated salient
features
page 8
Board of directors
www.transnet.co.za
G R A P H I C O R
3 2 8 5 5
1
Group structure
2
Consolidated salient features
3
Consolidated performance indicators
4
Consolidated value added statement
5
Consolidated five-year review
6
Glossary of terminology
7
Board of directors
8
10
Chairman’s statement
11
Group Chief Executive’s statement
14
Sustainability report
21
Corporate governance
25
page 14
Operational report – Spoornet
30
Operational report – National Ports Authority (NPA)
34
Group Chief Executive’s
Operational report – South African Port Operations (SAPO)
38
statement
Operational report – Petronet
42
Operational report – Transwerk
46
Operational report – South African Airways (SAA)
50
Chief Financial Officer’s report
54
Audit Committee approval
58
Contents to the annual financial statements
59
05
Strategic intent
Executive Committee
page 11
Annual Report
Contents
Photography courtesy of Peter Morey,
Geoff Brown, Spoornet, SAA, SAPO,
NPA and Transwerk.
Corporate information
142
page 3
features
page 8
Board of directors
www.transnet.co.za
G R A P H I C O R
3 2 8 5 5
1
Group structure
2
3
4
5
6
7
Board of directors
8
10
11
14
21
25
page 14
30
34
38
statement
42
46
50
54
58
59
05
Strategic intent
Executive Committee
page 11
Annual Report
Contents
NPA and Transwerk.
142
Strategic intent
Transnet is committed to
transparency, integrity,
efficiency and
competitiveness
Transnet Limited is a public company, wholly owned by the South
African government, which operates and controls South Africa’s
major transport infrastructure.
Even as it accelerates the pace of its transformation from a
diversified conglomerate into a focused freight transport company,
it will continue to be a significant player in the South African
economy. The Group employs more than 70 000 people and has
an asset base in excess of R70 billion.
Our aim is to be a cost-effective and
efficient transport service provider.
Working with our clients, we are building
on existing corridors and clusters and exploiting the
synergy between port and rail to tailor our
solutions according to our customers’ needs.
www.transnet.co.za
1
Group structure
Strategy
To be a focused freight transport company
Structure
Core businesses
Holding company
Non-core businesses
Other non-core
businesses
SA Airways
(Pty) Ltd
98,2%
Investment Portfolio
Transport Portfolio
Support businesses
2
for the year ended 31 March 2005
2005
R million
2004
R million
%
change
Turnover
EBITDA
Operating profit
Net profit/(loss) for the year after taxation
46
8
5
6
259
972
818
810
43 637
7 442
187
(6 332)
6,0
20,6
>100
>100
Number of ordinary shares issued (millions)
Profit/(loss) per share (cents)
14 710
46,3
14 710
(43,0)
Total assets
Total debt
Capital and reserves
72 633
55 674
16 959
72 700
62 783
9 917
(0,1)
(11,3)
71,0
7 536
5 575
4 952
7 820
52,2
(28,7)
Cash flow from operating activities before cash effects
of derivative transactions
Capital expenditure (excluding intangibles)
EBITDA margin (%)
Operating profit margin (%)
Net profit margin (%)
19,4
12,6
14,7
17,1
0,4
(14,5)
Refer glossary of terminology on page 7
5 088
187
1 463
1 704
8 972
7 442
6 060
8 155
46 259
5 818
Operating profit
11 837
EBITDA
43 637
41 278
35 811
31 740
Turnover
01
02
03
04
05
01
02
03
04
05
01
02
03
04
05
3
March
2005
R million
PROFITABILITY MEASURES
Operating profit margin (%)
Net profit margin (%)
Return on average total assets (%)
Return on equity (%)
SOLVENCY RATIOS
Gearing ratio (%)
Total debt to total capital (%)
Interest cover (times)
CASH FLOW MEASURES
Operating cash flow to total debt (%)
EXCHANGE RATES
– ZAR to US$ – closing rate
– ZAR to US$ – average
March
2003
R million
March
2002
R million
March
2001
R million
4
10
5
16
5
10
6
17
13
15
9
40
0,4
(15)
(9)
(64)
12
(1)
(1)
(2)
67
77
2,2
83
88
0,1
65
74
1,9
52
71
0,3
53
68
0,9
18
12
17
11
12
6,21
6,56
6,61
7,15
8,06
9,53
11,38
9,64
8,03
7,33
Return on average
total assets (%)
02
03
04
05
01
02
03
04
05
Gearing (%)
52
01
02
01
4
02
0,1
0,3
0,9
53
65
1,9
83
2,2
Interest cover
67
01
(9)
0
4
(1)
5
5
6
9
12
13
Operating margins
(%)
March
2004
R million
03
04
05
03
04
05
2005
R million
%
2004
R million
Revenue
Cost of materials and services
46 259
(22 848)
43 637
(22 273)
Net operating expenses excluding impairments
Excluding: – Depreciation
– Amortisation
– Retirement benefit costs
– Salaries, wages and other benefits
(40 288)
2 390
73
1 469
13 508
(39 229)
2 536
64
1 681
12 675
Value added by operations
Income from investments
23 411
538
– Investment and other income
– Income from associates
– Fair value adjustments*
98
2
276
262
–
%
21 364
434
98
2
342
92
–
Value added/created
23 949
100
21 798
100
Applied as follows:
Employees
14 977
62
14 356
66
– Salaries, wages and other benefits
– Retirement benefit costs
13 508
1 469
Providers of capital
2 567
– Net finance costs
– Minority interests
2 588
(21)
Government
1 620
– South African normal taxation
– Secondary taxation on companies
1 635
(15)
Re-invested to maintain and expand operations
4 785
– Depreciation, amortisation and impairment
– Deferred taxation
– Net profit/(loss)*
2 616
9
2 160
Value apportioned
23 949
* The above figures are disclosed net of the fair value adjustments.
The comparative figures have been restated accordingly.
12 675
1 681
11
2 220
10
2 211
9
7
190
1
190
–
20
5 032
23
6 821
14
(1 803)
100
4 650
21 798
100
(4 529)
Value distribution
2005
2004
Re-invested to maintain
and expand operations
23%
Re-invested to maintain
and expand operations
20%
Employees
62%
Government
7%
Providers of capital
11%
Government
1%
Employees
66%
Providers
of capital
10%
5
INCOME STATEMENT AND CASH FLOW
Turnover
Operating profit
Net finance costs and
fair value adjustments
Depreciation and amortisation
Impairment of assets
Profit/(loss) before taxation
Taxation
Minority interest in income/(loss)
Net profit/(loss) for the year
EBITDA
Cash generated from operations
March
2005
R million
March
2004
R million
March
2003
R million
March
2002
R million
March
2001
R million
46 259
5 818
43 637
187
41 278
5 088
35 811
1 463
31 740
1 704
6
2
4
(6
740
600
221
211)
204
9
(6 332)
7 442
7 040
9 711
2 258
493
(625)
16
(220)
(421)
11 837
7 178
2 062
2 463
153
8 156
1 629
(21)
6 810
8 972
9 863
(416)
2 113
448
3 915
466
12
3 437
6 060
6 451
2 125
2 204
173
3 653
260
106
3 287
8 155
4 576
BALANCE SHEET
Equity (including minority interests)
Non-current liabilities
Current liabilities
16 959
30 710
24 964
9 917
32 217
30 566
17 641
32 669
18 456
21 201
29 695
21 390
18 998
19 571
19 957
Total debt
55 674
62 783
51 125
51 085
39 528
EQUITY AND LIABILITIES
72 633
72 700
68 766
72 286
58 526
Non-current assets
Current assets
55 282
17 351
57 156
15 544
54 883
13 883
43 702
28 584
42 018
16 508
TOTAL ASSETS
72 633
72 700
68 766
72 286
58 526
01
05
01
02
03
04
05
01
5 575
4 122
2 677
7 820*
16 959
9 917
02
10 601*
Capital
expenditure
17 641
7 040
18 998
7 178
6 451
04
4 576
03
21 201
Net assets
employed
9 863
Cash generated
from operations
02
03
04
05
* Includes significant investment in
renewal of SA Airways (Pty) Ltd
aircraft fleet
6
Current ratio
Net assets
Current assets divided by current liabilities.
Total assets less total liabilities.
Debt
Net profit/(loss)
Interest-bearing borrowings, retirement benefit obligations,
Profit or loss after taxation and minority interests.
derivative financial liabilities, less short-term investments and net
cash and cash equivalents.
Net profit margin
Net profit of loss expressed as a percentage of turnover.
EBITDA
Earnings (profit from operations before net finance costs, other
Operating profit
income and income from associates) before taxation, depreciation,
Profit or loss from operations before net finance costs.
amortisation and impairment.
Operating profit margin
EBITDA margin
Profit or loss from operations before net finance costs expressed
EBITDA expressed as a percentage of turnover.
as a percentage of turnover.
Equity
Return on average total assets
Issued capital, reserves and minority interests.
Net profit expressed as a percentage of average total assets.
Gearing
Return on equity
Debt expressed as a percentage of the sum of debt and equity.
Net profit expressed as a percentage of equity (excluding minority
interests)
Headline earnings
As defined in circular 7/2002 issued by the South African
Total debt
Institute of Chartered Accountants, separates from earnings all
Current and non-current liabilities
items of a capital nature. It is not necessarily a measure of
sustainable earnings.
Total debt to equity ratio
Total debt expressed as a ratio to equity.
Interest cover
Profit or loss from operations before net finance costs, divided by
net finance costs.
7
Board of directors
Mr F T M Phaswana
Ms M Ramos
Dr I Abedian
60
BA (Hons), MA, BCom (Hons)
(Energy Economics)
46
Institute of Bankers Diploma (CAIB)
(Institute of Bankers), BCom
(University of the Witwatersrand)
BCom Honours (Economics) (with a
first class pass) (University of the
Witwatersrand), MSc degree in
Economics (University of London)
49
BA (Hons) (Economics) University of
Cape Town, MA (Economics)
University of Cape Town, PhD
(Simon Fraser University in Canada)
Chairman: Transnet Limited
Other directorships
– Anglo American Corp. of SA
– Anglo American Plc
– Deputy chairman and treasurer:
Inyathelo (The SA Institute for
Advancement)
– Naspers Ltd
– Chairman: Ethos Private
Equity Ltd
Other directorships
– SA Airways (Pty) Ltd
– Sanlam Ltd
– Trustee: Transnet M-Cell Ltd Trust
Other directorships
– AFReC (Pty) Ltd
– Chairman: PBS (Pty) Ltd
– DBSA
– Munich Reinsurance Company
of Africa Ltd
– Trustee: Transnet Second Defined
Benefit Fund
– Trustee: Transnet M-Cell Ltd Trust
Ms N N A Matyumza
Mrs M A Moses
Mr B T Ngcuka
42
BCom (University of Transkei),
BCompt (Hons) University of
Transkei, LLB (University of Natal),
Passed Qualifying Exam of Public
Accountants and Auditors Board
40
BA (University of Witwatersrand),
Public Relations Diploma (PRISA),
Management Advancement Programme (Wits Business School)
51
BProc (University of Fort Hare), LLB
(University of South Africa), MA
(International Relations) (Webster
University, Geneva, Switzerland)
Businesswoman
Businessman
Other directorships
– Chairperson: Viamax (Pty) Ltd
– MTN Group Ltd
– Mobile Telephone Networks
Holdings (Pty) Ltd
– MTN Intl. (Pty) Ltd
Other directorships
– Chairman: Amabubesi
– STRB Attorneys
– Chairman: V&A Waterfront
Holdings (Pty) Ltd
– Trustee: Transnet Foundation Trust
– The PA Group Ltd
– Chairman: City Couriers
General Manager: Eastern Region
Eskom Distribution
Other directorships
– Born Free Investment (Pty) Ltd
– City Square Trading (Pty) Ltd
– Deputy chairperson: Member of
Council Medical Schemes
8
Group Chief Executive: Transnet
Limited
Chief Executive: Pan-African
Investment & Research Services
(Pty) Ltd
Prof G K Everingham
Ms N B P Gcaba
Dr S E Jonah KBE
Mr P G Joubert
55
BCom (UPE), BCom Hons (UCT),
MAS (Illinois), CA(SA)
34
BJuris (University of Fort Hare), LLB
(University of Natal)
55
ACSM, MSc, DIC, DSc (hc)
72
BA (Rhodes), DPWM (Rhodes), AMP
(Harvard)
Professor of Accounting at UCT
Partner at Spoor & Fisher Attorneys
Other directorships
– V&A Waterfront Holdings (Pty) Ltd
Other directorships
– Chairperson: Transnet M-Cell
Ltd Trust
Other directorships
– AngloGold Ashanti Ltd
– Commonwealth African Investment
Fund (COMAFIN) (Zimbabwe)
– Equator Exploration Ltd
– Anglo American Corporation of SA
– Anglo American Platinum
Corporation Ltd (Amplats)
– Chairman: Transnet Second
Defined Benefit Fund
– Ivanhoe Nickel and Platinum Ltd
Mr S Nicolaou
Ms K C Ramon
Mr C F Wells
40
Bachelor of Pharmacy (University of
Witwatersrand), International Trade
(Institute of International Trade of
SA)
38
CA(SA), Senior Executive
Programme graduate (Harvard
Business School in conjunction with
Wits Business School)
55
BCom (University of Cape Town),
CA(SA)
Senior Executive: Strategic
Development: Aspen Holding Ltd
Chief Executive Officer:
Johnnic Holdings
Other directorships
– Aspen Pharmacare Intl. (Pty) Ltd
– Garec Pharmaceuticals (Pty) Ltd
– Chairman: South African Express
Airways (Pty) Ltd
Other directorships
– Durban Add-Ventures Ltd
– Gallagher Estate Holdings Ltd
– Johnnic Communications Ltd
– Johnnic Properties Ltd
– National Health Laboratory
Services
– Chairperson: Autopax Passenger
Services (Pty) Ltd
– Tsogo Investment Holdings Ltd
– Fabcos Investment Holdings Ltd
Company Director and President:
AngloGold Ashanti
Director of Companies
Other directorships
– BDFM Publishers (Pty) Ltd
– Cycad Financial Holdings Ltd
– Hudaco Industries Ltd
– IMS Holdings (Pty) Ltd
– Munich Reinsurance Company of
Africa Ltd
– Sandvik (Pty) Ltd
– Protekon (Pty) Ltd
Chief Financial Officer: Transnet
Limited
Ms Z Stephen
31
BProc (University of DBN Westville),
LLB (University of Natal),
Post Graduate Diploma in Corporate
Law (UNISA)
Group Company Secretary: Transnet
Limited
9
Executive Committee
The Executive Committee
takes responsibility
for the day-to-day
execution of the
strategy and running
of the Company.
Standing left to right
Mr P Maharaj (Group Executive: Strategy and Transformation)
Mr K Phihlela (Chief Executive Officer: National Ports Authority)
Mr C Wells (Chief Financial Officer)
Mr T Morwe (Chief Executive Officer: South African Port
Operations)
Mr L van Niekerk (Chief Operating Officer)
Mr L R R Molotsane (Acting Chief Executive Officer: Transwerk)
Mr C Möller (Chief Executive Officer: Petronet)
Mr V Kahla (Group Executive: Legal and Risk)
10 Transnet Annual Report 2005
Seated
Mr S Gama (Chief Executive Officer: Spoornet)
Ms B S Tshabalala (Treasurer)
Ms M Ramos (Group Chief Executive)
Mr B Nomvete (Chief Information Officer)
Aligning skills and
expertise towards
achieving the overall
objectives lies at the
heart of the turnaround.
Fred Phaswana
Chairman
Economic perspective
The South African economy is experiencing one of the longest periods of
expansion since World War II. Macroeconomic stability has seen moderate rises
in inflation with interest rates at historic lows. Investment in both public and
private sectors has accelerated, bringing a steady expansion in productive
capacity. The economy has broken out of the 2,5% to 3% growth band, with
growth of 3,7% in 2004 and 4,2% forecast for 2005.
While South Africa has benefited from strong foreign demand, global growth is
expected to slow over the course of 2005 and 2006. A large current account
deficit in the United States and a change in the relative value of the major
currencies may precipitate a mild economic slowdown. However, a combination
of strong demand from Asia for commodities, rapid economic integration and
growth in our continent and a strong domestic economy, is expected to cushion
the local economy.
The volatility in the price of crude oil has been characteristic of the year and
the outlook for the foreseeable future indicates enduring higher prices. This will
continue to have a significant impact on both our airline and rail businesses.
Transformation
Transformation entails the change of the complexion, shape, size and behaviour
of our economy. Operating within this framework, we would also like to add
employment equity, affirmative procurement and black economic empowerment
into this mix.
We also believe, as suggested by Itumeleng Mahabane, last year’s Financial
Journalist of the Year in South Africa, that the delivery of economic development
is itself transformative and sometimes more important than the shape or make
up of power structures.
The past year has seen the start of massive transformation at Transnet – from a
diversified conglomerate into a freight transport company that focuses on the
Transnet Annual Report 2005 11
continued
The ultimate goal is to deal with the twin challenge of unemployment and poverty by
improving the competitiveness of the economy and
promoting higher levels of economic growth.
bulk and manufacturing sectors. A journey of a thousand miles
has begun with the first few steps. We will leverage our strength in
our rail, port and pipeline assets to contribute towards reducing
the costs of transport and logistics in the economy. The ultimate
The Minister of Public Enterprises, Mr Alec Erwin MP, appointed
the new Board on 27 August 2004. We have two executive and
11 non-executive directors charged with leading the Company
goal is to deal with the twin challenge of unemployment and
into the future in a sound, prudent and sustainable manner. The
poverty by improving the competitiveness of the economy and
Board is supported in the execution of its duties by three sub-
promoting higher levels of economic growth. This is to be done
committees covering remuneration, corporate governance and
with the objective of Transnet getting appropriate market related
nominations, as well as audit and risk issues. These structures are
returns on its assets.
also designed to enhance transparency and to prevent the repeat
of Transnet’s history of lapses in these vital areas.
The four-point turnaround strategy announced in August 2004
provides the framework for the transformation of Transnet. After
The Board has clarified and agreed to its role as setting the
transformation, our core operations will be in the port, rail and
direction of the Company. The responsibility of implementing the
pipeline businesses.
strategy lies with the executive team. At the heart of holding the
executive accountable is a practical measurement of performance.
Considerable progress has been achieved. We have finalised
A simple motto of “what is not measured does not get done”
discussion on what is non-core, and statutory approval for the
guides the performance management framework that is being put
disposal of these assets has been provided. Two major issues have
in place to drive change in the culture of the organisation.
been resolved: the SAA hedge book and the embedded derivative
liability arising from a US dollar-based iron ore contract between
While the members of the Board have quickly achieved the
Spoornet and one of our major clients. The book has been closed
delicate balance between paying attention to strategy and being
off, while the embedded derivative has been expunged after the
seized with compliance issues, we will undertake an evaluation
successful renegotiation of the agreement.
of its performance over the next few months.
After months of consideration and in consultation with the
An overarching ethics policy has been developed to act as the
executive management, we have agreed to revise our turnaround
lighthouse for our individual and collective behaviours in ensuring
plan to address a gap in the strategy. This sees the consolidation
that Transnet sets the benchmark in its business dealings.
of two related areas; risk management and corporate governance
and the addition of human capital development as the fourth pillar
Black economic empowerment (BEE)
of the four-point turnaround plan. This refinement takes into
Transformation of our economy is a necessary precondition for true
account the early gains recorded during the implementation of
democracy. As a corporate citizen, especially one that is owned by
the strategy. It is also informed by the realisation that the
the state, it is imperative that we lead the way in contributing to
transformation of Transnet will not succeed without people. Our
this transformation. Providing economic opportunities to previously
human capital is the cornerstone of the future of the Company.
disadvantaged individuals and entities forms an integral part of
Aligning skills and expertise towards achieving the overall
our procurement practices.
objectives lies at the heart of the turnaround.
Results
The board is pleased with this year’s results which reflect the
We will continue to explore innovative ways of supporting
empowerment enterprises through procurement reforms currently
being undertaken.
distance that has been travelled to date.
We will also use our exit strategy from non-core businesses to
While the progress is commendable, we have to keep in mind that
advance other public policy goals including meaningful BEE in
there is no quick fix to the challenges facing Transnet. This
the next financial year. We fully support the BEE Code of Good
transformation will take time and requires focus, energy, drive and
Practice enacted during the period under review, and look forward
commitment to ensure that its results are sustainable.
to further refinement.
Prospects
The year ahead will see Transnet accelerating the pace of
transformation. A number of the non-core entities will be disposed
of. The roll-out of our demanding infrastructure investment
programme gets underway. We have concluded agreements with
To our Group Chief Executive, Ms Maria Ramos, we would like
to commend her on her leadership, passion and energy. The
transformation of Transnet is a difficult and challenging task and
there can be no better captain of the ship to sail through the
stormy seas.
the iron ore sector, committing Transnet to substantially increase
its capacity. Within months, we will have concluded a similar
agreement with the coal industry. We have started the expansion
of container handling capacity at our ports. For the first time in
30 years, South Africa will see work begin on the construction of
a new multiproduct pipeline.
To the Board, my sincere appreciation for the manner in which
they took to the task of providing the leadership and direction
necessary in taking forward the transformation of Transnet.
Their collective experience and wisdom has been invaluable.
Let me also take the opportunity of welcoming Mr Chris Wells, the
Chief Financial Officer, as one of two executive directors on the
These are all exciting projects, but the need to focus on improving
our core operations remains the key challenge. We have to improve
the productivity at our ports, our trains need to run on schedule
Board, who joined us towards the end of the period under review.
During the review period Ms Zola Stephen was appointed as the
Company Secretary. We welcome and wish her well in this role.
and our commitments to our customers have to be met.
To Minister Alec Erwin MP, and his department, our heartfelt
A wise man once said: “When you stand at the bottom of the
mountain and contemplate the journey ahead, remember that it
thanks for the vision and support that you have provided in
helping us to settle in and take your mandate forward.
is not the long walk that will kill you, but the grains of sand that
get into your shoes”. Ours is indeed a long journey that we have
begun in earnest. Because of the critical role that Transnet plays
in the economy, there is no turning back. Our task is to stay
focused on the task ahead and make sure that we deal with the
grains of sand each step of the way.
Finally, and most importantly, I would like to thank our
many clients and customers for their ongoing support and
understanding. We are here because of you. Our commitment to
work with you to provide cost-effective solutions for your transport
needs is beginning to bear fruit. It is our intention to continuously
improve the service we provide.
Based on the team’s commitment, we are confident of a sustained
improvement in performance, on both the financial and the nonfinancial bottom-line.
Appreciation
The operations of the transforming Transnet are diverse yet central
Fred Phaswana
Chairman
to the functioning of the economy. In performing its role as the
custodian of the core transport infrastructure, it is reliant on over
30 June 2005
70 000 employees.
Accordingly, the Board wishes to express its gratitude to all our
staff and management for their effort, commitment and loyalty,
sometimes under trying circumstances.
What we have
achieved is a
platform on which
to build the future
of the Company.
Maria Ramos
Group Chief Executive
Background
The history of Transnet Limited will show 2004 as a defining year – one in
which the destiny of the Company was shaped in a way that will resonate within
the economy for the foreseeable future. The mandate from our shareholder
dictated that our role is to reduce the cost of doing business, whilst achieving
a market-related return on our investment, so that the competitiveness of the
economy can be improved.
However, as could be seen from our dismal performance in the last reporting
period, we could not fulfil this role unless there was a demonstrable corporate
behavioural change. As in last year’s report, I intend to give a frank account of
the progress we are making in tackling the challenges we identified in that
report, the results of our intervention and the risks we face going forward.
To measure our progress, let us recap on where we were last year and where we
are today:
• The capital base had been halved by the R6,3 billion losses we incurred – our
capital base has improved by R7,1 billion to R16,9 billion.
• There were significant gaps in the financial management processes – we now
have improved our financial management controls, appointed an experienced
Chief Financial Officer for the Group and have instituted an enterprise-wide
risk management focus.
• There was non-compliance with the Public Finance Management Act (PFMA)
– we have strengthened compliance with the appointment of the Group
Executive: Legal and Risk and set up a risk sub-committee within the Group’s
Executive Committee.
• There were significant corporate governance lapses – our new Board has
prioritised adherence to good corporate governance and institutionalised it
through the establishment of a corporate governance sub-committee. A new
compact with the shareholder is being negotiated.
• Our debt levels were unsustainable – we have reduced our gearing
substantially.
• Our equipment and work methods were old and tired – we will invest
R40 billion to replace and expand our asset base and we are re-engineering
all our business processes.
Maximising growth and competitiveness inherent in our economy.
• Related to the excessive diversification of the business, we had
Board, employees, shareholder and other stakeholders, we are
equally cumbersome executive management structures – not only
focusing our energies and limited resources to transforming the
do we have a new Executive Committee, we have also identified
Company into a world-class publicly owned freight transport
and agreed what our structure and focus will be in future.
provider to the bulk and manufacturing sectors of the economy.
• We had invested in a number of non-core assets that were a
drain on our human and financial resources – we have now
During the year under review, we created a post for a
agreed a plan to exit non-core assets and to focus on our core
Group executive responsible for transformation and strategy.
businesses.
• Our efforts to unlock efficiencies from the divisions were
Transnet’s turnaround plan is neither easy nor a quick fix. It
impacted by an oversized and costly head office – we have
requires a sustained effort over a three to five-year period to
redefined the size and skills profile of the head office and the
produce the desired outcome. This first year of that long journey
implementation of this rethink will reduce costs and enable the
clearly indicates that the transformation has begun and important
centre to drive efficiencies and to focus on our core businesses.
milestones have been achieved. The results tabled in this report
• Our balance sheet had been significantly weakened through
show a vast improvement on the previous year. We have seen a
SAA’s exposure to foreign exchange hedge risks and the
real increase in total revenue and importantly, operating profits,
embedded derivative liabilities arising from US dollar-based iron
margins and cash flows from operations are significantly up on
ore contracts Spoornet had entered into with two of our major
last year’s numbers.
clients – the hedge book has since been settled and the contract
with the Sishen Iron Ore Company Ltd was successfully
While the results achieved this year are pleasing, the road ahead
renegotiated. Together with the improved profitability, this has
is a challenging one. The turnaround of Transnet can only be
significantly strengthened the balance sheet.
successful if we can improve on these results in a sustained way
over the long term. What we have achieved is a platform on which
It is pleasing to report an increase in operating profit before
to build the future of this Company.
impairments and finance charges to R6 billion from R4,4 billion
a year earlier. This 35% increase has resulted in operating
Evaluation of the strategy
margins of 12,9% compared with 10,1% in the previous reporting
The strategy of Transnet was drawn up specifically to be simple
period. This is the highest improvement in margins recorded by
and practical with emphasis on implementation as a yardstick of
the business in the past six years.
success. Our goal remains to transform Transnet into a focused
freight transport company. We plan to use our assets in the rail,
However, the full improvement from last year is reflected in the
ports and pipeline divisions to provide solutions to the bulk and
increase in operating profit after impairments to R5,8 billion
manufacturing sectors. Our aim is to be a cost-effective and
compared with R187 million the previous year.
efficient transport service provider. Working with our clients, we
are building on existing corridors and clusters and exploiting the
Indeed, as evidence of the effectiveness of the turnaround
synergy between port and rail to tailor our solutions according to
strategy, cash generated from operating activities before cash
our customers’ needs.
effects of derivative transactions, increased by R2,6 billion to
R7,5 billion. Gearing improved from 83% to 67%. Accordingly,
Our four-point turnaround strategy covered in last year’s annual
the financial position of the Group has been strengthened
report remains our road map. However, with guidance from our
significantly.
Board, we have adapted it and elevated human capital
development as a critical element. Our revised four-point
The strategy
turnaround plan now seeks to:
Transnet responded to the crisis it faced by adopting a four-point
• re-direct the business;
turnaround strategy. In essence, the strategy, which remains our
• restructure our balance sheet;
corporate compass, seeks to restore the financial sustainability of
• implement and adopt strict corporate governance principles and
the Company thus allowing it to invest in much needed economic
infrastructure. Through the strategy, which has the support of our
adherence to a vigilant risk management process; and
• develop human capital.
continued
Each of these pillars is programme driven with identified projects
All other investments have been deemed “non-core” and
that give rise to the overall implementation plan for the strategy.
accordingly these interests in passenger transport, property
holdings, telecommunications, road haulage, fleet management
• Re-directing the business
The key project that underpins this programme is the re-engineering
of the core business units to focus on efficiency, productivity, cost
effectiveness and growth. Corridor improvements, cluster and key
client solutions with a focus on port-rail interfaces designed in
collaboration with customers, have already been rolled out.
and other businesses will exit the Transnet Group. The exit will
range from a transfer of ownership directly to Government, to sale
or closure. This will be done in a responsible and orderly manner
as well as in consultation with all key stakeholders over the next
18 months ending September 2006. It is important to note that,
subsequent to year-end we received ministerial authorisation in
terms of the Public Finance Management Act for the exit strategy
A five-year infrastructure investment plan of some R40 billion has
been approved. This is focused on addressing the backlog in
maintenance and upgrading and expanding our asset base to meet
the capacity demands of our customers.
It is important that this investment in infrastructure is delivered.
Accordingly, significant management attention is being given to
project management.
To ensure that implementation of this investment proceeds
smoothly, subsequent to the year-end we appointed a Chief
Operating Officer for the Group – a newly created position. This role
is also designed to coordinate the operations of the divisions and
help increase efficiencies.
relating to most of our non-core operations.
The implementation of this exit strategy will result in a reduction
in the Group’s borrowings. This reduction in borrowings will
contribute to the attainment of our target gearing level of
50% to 55% (currently standing at 67%).
Other elements of restructuring of the balance sheet include
initiatives to deal with specific transactions that impact on the
results of the Group. Some have already been completed. These
include the closure of the SAA hedge book, and the removal of the
embedded derivative liability arising from a US dollar-based iron
ore contract. Two significant post-balance sheet events occurred.
Firstly, agreement was reached to unwind the MTN structure,
The corporate office in the Carlton Centre, Johannesburg is being
restructured to enhance accountability and operations and to
further reduce costs. This review – which is also designed to rightsize the head office and match its skills base to a transformed
Transnet – is due for completion in September 2005.
subject to certain suspensive conditions. If this agreement is
implemented, it will result in a significant inflow of cash.
Secondly, as reported in the previous year, as part of its
recapitalisation of SAA, Transnet injected R4 billion into SAA by
way of an interest free compulsorily convertible subordinated loan.
Subsequent to the year-end, based on the improved financial
Head office restructuring is the start of a hard look at our cost
structures and the way we do things throughout the business.
The next phase in this programme will be about building the core
businesses by re-engineering their processes to improve
efficiencies, profit and service delivery. In addition, we will be
putting in place capacity and better management systems to
handle the capital investment programme at head office. This
effort will be driven by the Chief Operating Officer working with all
the chief executive officers of the core divisions.
• Restructuring the balance sheet
In order to focus on freight transport, Transnet will be made up of
its core divisions, Spoornet, Petronet, National Ports Authority and
South African Port Operations. These core operating divisions will
be supported by:
• Transwerk – the heavy rail maintenance and refurbishment
division;
• Protekon – the project management and engineering division;
and
• HSA – a specialist fuel procurement division.
During the year ahead, the structure of these support divisions
and their relationship to the core operating divisions will be
redefined.
position of SAA, it was agreed to convert R2,4 billion into ordinary
shares and to repay R1,6 billion.
As previously reported, the Group has a significant exposure to
an unfunded liability (R4,8 billion as at 31 March 2005) in the
Transnet Second Defined Benefit Fund. Whilst this liability has
been fully provided for, we are working on a sustainable funding
solution as required in terms of the fund rules.
• Corporate governance and risk management
Transparency in decision making and accountability for actions
have become the bedrock of the transforming Transnet. We have
significantly streamlined decision making. We now have a fully
functional Executive Committee.
The Executive Committee, which takes responsibility for the dayto-day execution of the strategy and management of the Company,
is supported by the Capital Investment, Risk, Asset and Liability
and Operations sub-committees.
To reverse the legacy of weak risk management, we upgraded
the Legal and Risks services function in the Group to the level of
Group Executive.
Similarly, we are focussing on implementing our financial strategy
including the strengthening of financial management and control.
Not only are we institutionalising these control measures, we are
also building strong and credible implementing teams.
One of the key responsibilities of the Board and the executive
team is to protect the shareholder’s business from significant and
inappropriate financial and business risks. In an enterprise as
wide ranging and as complex as Transnet, it is therefore
imperative that appropriate risk management structures and
processes are in place, both at divisional and Group level. During
the period under review, we began to map out an enterprise wide
risk management framework that will guide decision making and
support management in executing their tasks.
World class systems, procedures, money, equipment and
strategies, on their own, are insufficient instruments to make
great organisations work. It takes people and leadership.
We have spent considerable time during the review period building
a credible and strong team to lead the organisation’s day-to-day
operations. We now have this in place. During this time, we
moved Mr Siyabonga Gama, the Chief Executive Officer of NPA,
to lead Spoornet. Mr Gama was replaced at NPA by Mr Khomotso
Phihlela, hitherto a Transnet Group executive. In addition, we
made the following appointments: Mr Chris Wells as Chief
Financial Officer, Mr Louis van Niekerk as Chief Operating Officer,
Mr Vuyo Kahla as Group Executive: Legal and Risk and
Mr Pradeep Maharaj as Group Executive: Strategy and
Transformation.
After briefly acting as Chief Financial Officer, pending the
appointment of Mr Wells, Ms Swazi Tshabalala returned to her
role as Group Treasurer. Mr Charl Möller and Mr Tau Morwe,
respectively Chief Executive Officers of Petronet and SAPO,
continue in their present roles.
In summary, the Group Executive Committee (see page 10) is
chaired by the Group Chief Executive, and is composed of the
following: the two Group Executives (Legal and Risk, and
Transformation and Strategy); the Chief Financial Officer; the
Treasurer; the Chief Operating Officer; and the Chief Executive
Officers of the core businesses, namely SAPO, NPA, Petronet,
Spoornet and Transwerk.
• Human capital development strategy
At the heart of the turnaround plan for Transnet lies the need to
align the skills and expertise of our workforce to achieving the
objectives of the Company. The real strength of the business lies
not in its ability to invest in new cranes or trains, but rather in its
ability to sweat those assets productively. That requires changes
to the culture and behaviour of employees in a sustained and
measurable way. A performance-driven culture that focuses on
meeting customer needs in an ethical environment guides the
development of the human capital development strategy for
the Group.
Not only did Transnet suffer from the neglect of capital investment,
it also suffered from underinvestment in its key asset – its people.
Similarly, we are concerned about the fact that transformation of
the Company has failed to permeate the skilled labour and middle
management ranks. We are committed to more than meeting our
employment equity targets, especially the recruitment and
advancement of talented young black women into the
organisation.
Our human capital development strategy focuses on:
• organisational design and development to support the
implementation;
• talent management, including recruitment, retention, career and
succession planning;
• employment equity;
• training and development;
• performance management; and
• remuneration and reward systems.
During the first half of the new financial year, we will recruit
a senior professional to spearhead this component of our strategy.
Apart from just rejuvenating and shoring up the employment
equity profile of our workforce, we also plan to forge long-term
“smart partnerships” with professional bodies and tertiary
institutions to achieve the goals of the strategy.
It has to be pointed out that this is a long-term project whose
results will take time to become noticeable. So, in the short term,
the gaps – such as racial and gender imbalances – will still be
with us.
Letter to society
BEE and affirmative procurement
We support the spirit and the letter of the Broad-based Black
Economic Empowerment Act (BBEEA). During the period under
review, the Department of Trade and Industry published the Codes
of Good Practice on BEE to build on the BBEEA. We support
these fully.
Further, we believe that BEE is not only a socio-political
imperative, but also an economic one. If properly implemented, it
can yield measurable results on the financial bottom line.
We are committed to using our significant purchasing power to
promote the development of BEE firms and the growth of the
small, micro and medium sized enterprises especially those
belonging to people from disadvantaged backgrounds.
To ensure meaningful empowerment we are reviewing both our
procurement and BEE policy. This rethink is also designed to
fight the scourge of “fronting”. We will continue to blacklist the
unscrupulous individuals and firms found to be implicated in this.
We are also using the review to turn up the heat on those corrupt
employees within our ranks.
Related to our bid for an ethical procurement policy, we have now
agreed on a code of ethics for employees of the Group.
Finally, during the review period, we spent R11,9 billion on
procurement. Of this amount 29% went to black economic
empowerment firms. Of the R4,4 billion worth of contracts we
awarded, as much as 40% went to BEE companies.
Corporate social investment
Transnet is also committed to a sustainable way of doing business.
This commitment is covered in some detail in the Sustainability
report on page 21 and the operational reports commencing on
page 30. We are also actively involved in our communities. This
occurs mainly through the work of the Transnet Foundation. In the
period under review, the Foundation has consolidated its activities.
It strengthened partnerships, integrated some of its functions to
improve their impacts and it enhanced its monitoring and evaluation
capacity, especially insofar as it relates to the Integrated Rural
Development Strategy.
During the review period, it invested some R71 million in health
care, youth sports, education, entrepreneurial development, and
continued
Reporting and information and
communication technology
We have embarked on a wide-ranging programme to improve the
quality, consistency and timeliness of management reporting
throughout Transnet. In addition, as mentioned in the Chief
Financial Officer’s report, we are adopting International Financial
Reporting Standards (IFRS) for the year ending 31 March 2006.
This is a material project which, apart from bringing Transnet in
line with international accounting standards, will be used to
improve the quality of measurement and information in the Group.
Furthermore, we are reviewing the cost and effectiveness of our
spending on information and communication technology. As part
of this process there is a project in place to:
• improve the reporting systems;
• embed the IFRS amendments into the systems; and
• improve the measurement and control of operational processes
through implementing the full functionality of SAP software in
all our core business units.
Highlights in core businesses
Spoornet
Spoornet has not seen any significant increase in the tonnage
transported in the year under review. This is reflected in the 6%
increase in revenue, while the 61% increase in operating profits to
R841 million, excluding embedded derivatives, enabled a bottom
line near break-even position (2004: R220 million loss).
safety initiatives. The Phelophepa train, which provides mobile
health care to needy rural communities in eight provinces of our
country (save for Gauteng), continues to be a runaway success in
our social responsibility programmes.
There are approximately 20 000 kilometres of rail track and the
intention is to split this into the core network and the low and light
density network. The low and light density network will be housed in
a separate entity and made available to private sector operators.
In the year ahead, the Foundation will undertake a major review
of its activities in line with the transformation of Transnet Ltd.
Crucially, the intent of the exercise is not to discontinue the work
of the foundation. In line with best practice, it will continue to
operate as a non-profit organisation that is expertly run.
Investor relations
Besides regularly interacting with the media in various forums, we
have demonstrated our commitment to transparency by organising
road shows to brief our bankers, bond holders and credit rating
The objective of the restructuring is to increase capacity on the
iron ore export channel to 41 million tons per annum, the coal
export channel to 86 million tons per annum and the general
freight lines to 160 million tons per annum over the next five
years. An agreement with a major iron ore producer for the ramp
up in capacity has been reached and a similar agreement with the
coal industry is being finalised. These contracts are on a “take or
pay” principle that allows for long-term planning of investments
and provides certainty to the respective industries.
agencies about our strategy. During the year under review, we
organised one such round of interactions. We also use the
financial press to convey information to investors about our
strategy and its implementation.
We actively participate in the CEO Forum that is convened by the
shareholder minister. Similarly, when required, we brief the
portfolio committee on public enterprises on our plans and
A detailed analysis of corridor freight transport has been
undertaken to identify key clusters and clients with rail friendly
freight that can be targeted to make up the 160 million tons per
annum. Together with this analysis a market capture strategy per
cluster and or client has been drawn up. A start has been made to
run a scheduled freight train service that has seen noticeable
shifts in goods from road to rail.
projects. On a regular basis, we further shed light on our projects
by giving inputs to the Minister’s responses asked of him in
parliament. At their request, we also assist members of parliament
with site visits to our operations.
Aligned with this is the refurbishment and renewal of the fleet
coupled with a human capital development strategy to meet
customer demands.
National Ports Authority
National Ports Authority continues to produce excellent results
with all indicators improving including a 10% increase in
operating profit. However, we anticipate certain challenges with
the imminent introduction of regulation in the port sector.
During the review period, parliament passed the National Ports
Act of 2005, confirming NPA as part of the Transnet family.
Apart from reaffirming the soundness of our strategy, it also
Petronet
Our pipeline business, which continues to be led by
Mr Charl Möller as its Chief Executive Officer, has for the first
time exceeded the R1 billion mark in revenue. A detailed project
to re-engineer the business has seen a 2% cost reduction in real
terms to convey a litre of fuel over a kilometre in 2004 than was
the case five years ago. This project was done in anticipation of
imminent regulation in the sector and the overall Transnet
objective of reducing the cost of doing business.
brings much needed certainty to our stakeholders.
Our ports have seen a declining number of vessel calls but an
increase in the size of the vessels calling. As shipping costs
worldwide come under scrutiny, larger vessels carrying over
12 000 twenty foot equivalent (TEU) containers will become the
norm on major trade routes. The major shipping lines have
indicated that the current fleet of 4 500 to 6 500 TEU vessels
will be redeployed to the secondary routes such as South Africa.
The current depth and length of our berths will not be adequate
for this size of vessel and work has begun to address this problem.
The development of the Port of Ngqura (formerly Coega) will
continue to make up the bulk of the investment programme for
the next financial year. Work is under way together with South
African Port Operations to develop an operational plan for the port
and a number of other initiatives are in progress.
The key challenge for Petronet is the ageing and insufficient
capacity of the current pipelines. Approval for the construction of
a new 16-inch multi-purpose pipeline between the coast and
Gauteng has been granted. It is anticipated that the new pipeline
will come into operation in 2010. The balance between the
investment required for this project and tariff increases allowed over
the medium term by the Energy Regulator will have to be found.
Major subsidiary
South African Airways
The new management at SAA, led by Dr Khaya Ngqula, who
joined the airline as Chief Executive Officer during the period
under review, has managed to stem the tide of static passenger
numbers and massive losses. Overall passenger numbers have
increased by 5% but yields have declined due to competition
especially by low cost carriers in the domestic market. SAA
increased turnover by 7% to R17,4 billion and operating profit
to R935 million (2004: R134 million).
South African Port Operations
The decision to retain SAPO, under the continued leadership of
Mr Tau Morwe, as a core division of Transnet has galvanised them
into achieving year-on-year improvement in results. Operating
A comprehensive review of routes and cost structures has given
rise to project Bambanani. The aim is to reduce costs by
R1,6 billion over a three-year period.
profits have increased by almost 54% to over R1 billion and
cash flow improved significantly. Containers and vehicle volumes
continue to grow whereas bulk and break bulk cargoes handled
remain static.
Approval has been granted for SAA to join the Star Alliance.
This will offer SAA access to an increased global network of
flights and destinations and will bring benefits from cost-sharing
arrangements as well.
Collaboration with industry has seen substantial improvements at
the container terminals and has resulted in the waiver of the
100 US dollar surcharge imposed by shipping lines due to delays
at the Durban container terminal since 2002. This has cost the
South African economy an estimated R1 billion. Every target set
by the collaborative advisory board has been met and exceeded
and continues to be improved upon.
Apart from restoring the business to financial health, the
management of SAA and Transnet are also involved in another
key project namely, the orderly exit of the airline. We expect to
make considerable progress in this regard in the year ahead. Joint
working teams, supported by independent expert advisers, are
involved in preparing SAA to be a standalone state-owned
enterprise under the auspices of the Department of Public
Enterprises.
However, the container terminal at the Port of Cape Town has
reached capacity and the Durban container terminal is fast
Infrastructure plans
reaching that point. Substantial investments to increase capacity
The five-year R40 billion infrastructure plan for Transnet
announced by the Minister of Public Enterprises is a demanding
programme designed to overcome the legacy of underinvestment
in the port, rail and pipeline infrastructure of the country. The key
driver is the need to meet the existing demands of the economy
over the short term. Further work to plan for the long-term
demands is underway.
at Cape Town and the redevelopment of Pier 1 at the Port of
Durban are under way to meet demand. Further expansions for
container handling facilities at the Port of Durban and the
development of the container terminal at the Port of Ngqura
operated by SAPO are designed to meet the demands of
customers into the future.
The guiding factor in the ultimate investment in infrastructure still
remains sound economic returns premised on detailed feasibility
studies and a bankable business case. The key criterion used to
guide decision making is the need for the internal rate of return
of any project to exceed the weighted average cost of capital.
Key projects that have been approved include:
• expansion of the iron ore export channel that includes rail and
port investments;
• the Port of Durban 2005 project that includes the initial work
on the widening and deepening of the entrance channel, the
redevelopment of Pier 1 as a container handling facility and
increased capacity at the car terminal;
• the widening, deepening and equipping of the Cape Town
container terminal;
• the refurbishment and renewal of the general freight rolling
stock;
• the continued development of the Port of Ngqura; and
• the construction of the new multi-purpose pipeline.
We are acutely aware of the challenges posed by such a
demanding programme especially from a capacity perspective.
To deal with these concerns, we are establishing a dedicated team
in the office of the Chief Operating Officer to co-ordinate, track
and monitor implementation. Furthermore, we have made
implementation an explicit performance measure for senior
management.
Prospects
The path we have chosen is not an easy one. We have deliberately
made the strategy a simple and practical one with the emphasis
on implementation. The strategy belies the complex nature of that
implementation and the time frames within which it can be
achieved. We will act transparently and responsibly in fulfilling our
mandate. We will take accountability for our actions.
Transnet contributes a critical element of the infrastructure
backbone for the prosperity of the South African economy and its
ability to deal with the challenges of unemployment and poverty.
We cannot fail in our mandate to focus our limited resources in
pursuit of our objectives.
The Board and the executive team are passionate about and
committed to the transformation of Transnet from a conglomerate
of disparate businesses into a focused freight transport company
harnessing our interests in port, rail and pipelines to improve the
competitiveness of our economy. Accordingly, we expect 2006 to
be a further year of progress in implementing our turnaround
strategy and improving our financial performance.
continued
Appreciation
I want to thank the Chairman, Mr Fred Phaswana and his Board
for their collective wisdom, experience and guidance in the
exacting journey that we have embarked upon. I am grateful to
the shareholder’s representative, Minister Alec Erwin MP, and his
team for their support and for always challenging us to think
beyond the next 10 years.
Similarly, let me thank Mr Yunus Carrim MP, the chair of the
Portfolio Committee on public enterprises, for his interest in our
business. His and the committee’s tough questions help focus our
minds on this national asset.
The executive team is now in place and we have a wealth of
talent that gives me confidence for the task ahead. My heartfelt
appreciation for their unflinching effort in demanding
circumstances.
To all our staff, the results tabled are the collective efforts of each
one of you. My sincere appreciation and gratitude goes out to you
in achieving the levels of service that we have.
Finally, to our customers and clients, it has been a pleasure
serving you. We will endeavour to continuously improve on our
service in meeting your needs and expectations.
They say that a journey of a thousand miles begins with one step.
This is a tough and demanding journey. We have begun that
journey and have made it through the first day. Many days lie
ahead, each with new, exciting and, most certainly, daunting
challenges. The key to our success is to remain focused. We will
rely on each member of the team to support and help one another
to achieve our goals.
Maria Ramos
30 June 2005
Introduction by the Chairman
The shareholder
Transnet Limited is responsible to its Shareholder, the Government
of the Republic of South Africa, to maximise shareholder value.
Bearing in mind that the Shareholder has invested in the Group as
a representative of the citizens of the Republic of South Africa,
as directors of the Group, we conduct our responsibilities to the
Group very conscious of this important fact and of the fiduciary
duties we have to exercise.
To ensure that the Shareholder gets a fair return on its investment,
we have committed ourselves to, amongst others, restructuring the
balance sheet, refocusing and re-engineering our business,
complying with sound principles of corporate governance and a
vigilant risk management focus. We have set out in the corporate
governance report section of this annual report the steps that we
are taking to ensure that we comply with best practice corporate
governance requirements.
We have begun a process of ensuring that we do not only focus on
the single bottom line. In order to execute our duty to reduce the
cost of doing business in South Africa on a sustainable basis, we
have decided that, for the first time, Transnet must properly embrace
the global move to the triple bottom line, which takes into account
the economic, environmental and social aspects of a company’s
business. The King II Report on Corporate Governance states:
“The economic aspect involves the well-known financial issues
as well as the non-financial ones relevant to that company’s
business. The environmental aspects include the effect on the
environment of the products or services produced by the company.
The social aspects embrace values, ethics and the reciprocal
relationships with stakeholders other than just the shareowners.”
We decided that strict adherence to sound principles of corporate
governance be given appropriate focus because we believe that the
Group’s turnaround plan will not be sustainable without such focus.
The turnaround must indeed embrace, not only the interests of the
shareholder, but also those of our customers, employees, suppliers,
society and the community, and the environment.
We reflect that we care for the communities we serve and live in
through the many activities we carry out mainly under the auspices
of the Transnet Foundation. We are heartened by the difference
that the Phelophepa train makes in the promotion of primary health
care in many disadvantaged communities.
The memoranda of understanding which we have been entering
into with certain of our customers, together with the many
interactions the Group Chief Executive and her team have been
having with customers, are giving rise to true partnerships which
we are committed to nurturing.
We are determined to provide an appropriate return on the
shareholder’s investment on a sustainable basis; make Transnet
an employer of choice for our employees; demonstrate not just
concern, but care for our communities; and make our customers
feel that they are truly valued. We have no doubt that with such
determination Transnet’s turnaround will be sustainable and
beneficial to the South African economy.
Fred Phaswana
Chairman
Further, as indicated in the corporate governance report section of
this annual report, emphasis is placed on communication with the
shareholder on the Group’s implementation of its turnaround
strategy and on our financial performance.
Customers
As can be seen from the rail/road split of bulk freight transportation in South Africa, the rail share has over the years
declined significantly due to poor customer service.
We have set ourselves an objective to grow our market share
through providing customer-focused freight solutions. It is for this
reason that considerable attention is given to, for example,
ensuring that our train service operates on a scheduled basis and
is therefore reliable.
We have been entering into memoranda of understanding with
certain customers as part of an effort to build sustainable
partnerships with our customers. We now strive to properly
understand the business of our customers and their multi-year
plans so as to ensure that we continue to build the capacity
necessary to facilitate the growth of their businesses. The
successful renegotiation of our contract with one of the
subsidiaries of Kumba Resources, the Sishen Iron Ore Company
(Pty) Ltd, in respect of the transportation and handling of their
iron ore destined for export, itself reflects the kind of partnerships
that we are building with our customers.
Employees
Our turnaround strategy will come to naught if our employees are
not motivated to be conscientious executors of all that we have
committed ourselves to. They are key to the success we seek
for the Company. It is for this reason that the strategy that was
released at the Company’s annual general meeting last year has
been revised specifically to give proper focus to human capital
management.
We are engaged in the appointment and retention of talented
individuals, especially from historically disadvantaged backgrounds
and redesigning our business processes to ensure that we utilise
available human resources to their fullest potential. Transformation
at all levels is accordingly critical to ensure that we are a
sustainable business. The promotion of equity in our employment
practices remains a focus. While we have made significant strides
over the years on that front at executive and senior management
continued
Table 1: Transnet Employee Demographics by occupational category, race and gender as at 31 March 2005
Asian (A)
Occupational category
African (B)
M
F
Executive management
Coloured (C)
M
F
Total (Black)
M
F
White
M
F
M
Total
F
M
TOTAL
F
M+F
7
1
29
13
0
1
36
15
17
3
53
18
71
49
8
123
63
19
5
191
76
180
27
371
103
474
Management
312
109
934
581
274
148
1 520
838
2 502
339
4 022
1 177
5 199
Sub-total
368
118
1 086
657
293
154
1 747
929
2 699
369
4 446
1 298
5 744
Non-managerial
1 587
606
30 663
6 391
4 844
1 536
37 094
8 533
17 254
3 014
54 348
11 547
65 895
Grand Total
1 955
724
31 749
7 048
5 137
1 690
38 841
9 462
19 953
3 383
58 794
12 845
71 639
Senior management
level, we remain concerned at our slow pace of transformation at
the middle management level. Table 1 sets out the breakdown of
employees of Transnet by occupational category, race and gender.
We have been concerned that targets set for Health, Safety and the
Environment (“HSE”) are not stringent enough. Focus has now been
given to setting appropriate standards and ensuring that progress is
continually monitored and stringent action plans are put in place
We are focusing on the recruitment of young talent and training
where necessary. The Group HSE programmes are subjected to
them to fill many critical positions, including those of train and
independent external audits by the National Occupational Health
crane drivers and train control officers.
and Safety Association of South Africa (“NOSA”).
Whilst we are restructuring and transforming the Group in line with
In the financial year under review, the Group registered 256 HSE
programmes of which 139 were audited and an overall NOSA
rating of 71,26% was achieved compared to 69% in the 2004
financial year. The Disabling Injury Frequency Rating was 1,60
compared to 1,98 in the 2004 financial year.
the turnaround strategy, morale has in some places been low. In
these circumstances, emphasis has been placed on communication
and transparency. The Group Chief Executive has communicated
with both organised labour and employees directly, through various
media, on the case for our transformation and why we have no
option but to implement the turnaround strategy if we are to
succeed. Counselling services are also being provided to employees.
While the Group exceeded its target in reducing the number
of accidents that cause injuries, we remain concerned that
24 employee fatalities were suffered during the year, compared
to 29 during 2004.
We are well aware that, in order to transform this business and fairly
reward achievers, we must focus on performance management. We
have adopted a new performance management system which
We continue to motivate employees towards a focus on safety
through, amongst others, the annual Transnet Safety Competition.
requires that we properly reward performers and implement proper
processes with regards to non-performers.
Employee health and safety
Transnet is committed to safeguarding the health and safety of
its employees by ensuring compliance with all applicable laws,
including the Occupational Health and Safety Act, 1993 (Act
No. 85 of 1993) and with requirements of regulatory and
governmental agencies.
HIV and AIDS
The high prevalence of HIV and AIDS in our country has required
us to develop appropriate interventions to deal with the challenges
imposed by this pandemic.
The Group’s Lifestyle Management Programme’s HIV and AIDS
component, covering both employees who are medically insured
and those who are not, provides our strategic response to
managing the potential human and financial consequences of
HIV and AIDS on the Group. The overall aim of this programme
is to lessen the potential consequences of HIV and AIDS within
Transnet, its business units and subsidiaries, so as to ensure that
Transnet continues to remain economically sustainable.
Environment
Environmental management, especially as regards energy and
water conservation, remains a key challenge. Spoornet derailments
and the resultant spillage of diesel from some derailments, impact
on the environment in ways we cannot accept. It is for this reason
that, as part of our operational risk management focus, we
are putting measures to properly manage our impact on the
environment. We are pleased to report that, for the period under
The core elements of the programme encompass:
• Prevention strategies to minimise and prevent the number of
new infections within the environment. These include awareness
programmes, condom dispensing, HIV and AIDS education and
training for employees and management, voluntary counselling
and testing campaigns; and
• Ensuring that employees that are currently HIV positive remain
in active, productive employment through appropriate health
management, including the provision of anti-retroviral
medication to HIV positive employees and their dependants.
Support and treatment is also made available for post-exposure
prophylaxis relating to injury on duty and post-sexual trauma,
prevention of mother-to-child transmission and the treatment of
specific opportunistic infections.
review, no spillage incidents in respect of our pipeline operation,
Petronet, were recorded.
Suppliers
Affirmative procurement
We are required by the Constitution of the Republic of South
Africa and the Preferential Procurement Policy Act to redress
inequities of the past by, amongst others, putting in place
measures to facilitate the procuring of goods and services from
persons from designated groups (Africans, Indians, Coloureds,
women and people with disabilities) and businesses meeting
standards of Black Economic Empowerment (“BEE”).
Transnet’s divisional tender boards awarded contracts to the value
of R1,7 billion to BEE, amounting to 40% of awarded contracts
Code of ethics
in the Group. In respect of “discretionary” procurement spend,
A Code of Ethics has been developed for the Group. This Code
R3,4 billion went to BEE.
provides principles and values that must guide employees in
conducting the business of the Group and themselves. The Code
Society and the community
also provides for a Client-Supplier Code of Conduct, in terms of
For the year under review, we have, through the Transnet
which our trading partners are required to consent to being
Foundation and other Transnet divisions, concentrated on a
subjected to an agreed set of norms and standards for good
process of continuous improvement in corporate social investment
business practice. Our suppliers are further required to report all
– strengthening partnerships, improving the integration of different
attempted or actual fraudulent or corrupt activities and to consent
functions necessary to support communities and raising the bar in
to the disciplinary jurisdiction of Transnet and to their blacklisting,
terms of monitoring and evaluation of our interventions, in
in the event of a breach of the Code. A Fraud Tip-Off Line is
particular with regard to our Integrated Rural Development
provided for reporting breaches of the code and seeking guidance
Strategy. The Foundations’ education portfolio has focused on
on appropriate conduct. The Group has adopted a zero tolerance
supporting educational infrastructure development, teaching
position on breaches of the Code and, in accordance with the
capacity development in maths, science and technology and early
Code, a failure to report a breach of the Code is itself a violation
childhood development in impoverished areas.
of the Code.
continued
National Ports Authority and South African Port Operations have
also given support for programmes for maritime education. The
Foundation has further supported the growth in cultural industries
through sponsoring the Internal Choirs Competition, the North
West Cultural Calabash Festival, the Women in Arts Festival and
the Theatre Trucks Programme which provides a platform for
performing arts in many rural communities. Our primary health
care interventions outlined below, truly make a difference to many
communities.
Conclusion
We have taken our first steps on triple bottom line reporting. Our
focus is on ensuring that sustainability is embedded as a strategic
management instrument. Ours is to move beyond mere reporting,
to ensuring that our managers and employees, on a day to day
basis, are conscious of their responsibilities to each other, the
shareholder, our customers and suppliers, the communities we
serve or live in, safety and the environment. When our focus on
sustainability becomes our way of life, we will be satisfied that our
turnaround will itself be sustainable.
Transnet Phelophepa Health Care Train (“Phelophepa”)
Phelophepa is an effective response to the primary health
care needs of provinces like the Eastern Cape, Northern Cape,
KwaZulu-Natal, North West, Mpumalanga, Free State and
Western Cape. Phelophepa, supported by 16 contract staff
members and 37 final year students in medical disciplines,
concentrates in areas where there is mostly only one doctor for
every 3 500 people or, in some instances, no health care at all.
In the year under review the following was achieved:
• patients registered = 46 109 ; prescriptions issued = 20 553
• school children screened and educated in audiometry and
health care = 31 558; school children exposed to eye care
education and screening = 20 383; school children exposed to
oral hygiene and dental care education = 65 607; community
volunteers trained in basic health and hygiene = 899
• children screened for diabetes = 2 417; children and adults
reached through counselling workshops = 25 825
• more than 1 million people were reached in the HIV and AIDS
education programme in the Eastern Cape.
The Transnet Board of Directors (“the Board”) assumed office at
Chief Executive exercises the powers delegated to her with the
the Group’s annual general meeting on 27 August 2004 in
members of the Executive Committee, (“Group Exco”). Group Exco
circumstances where a number of regulatory compliance and
in turn has the following sub-committees: Group Risk Management,
risk management lapses had exposed Transnet’s poor commitment
Asset and Liability Management, Group Operations and
to sound corporate governance principles. Through the Transnet
Capital Investment.
four-point turnaround strategy, we are now refocusing the
Company to adherence with sound principles of corporate
In order to facilitate effective control, executive management
governance and to a vigilant risk management approach. We have
reporting is constantly modified to keep pace with, amongst
taken a number of initiatives to ensure that we not only comply
others, the requirements of the Board. The Board has unrestricted
with the provisions of the King Report on Corporate Governance
access to all Group information, records, documents and property
(King II), but properly understand corporate governance as, to
that it may need or request. All Board and committee mandates
borrow from Deutsche Bank’s Beyond the Numbers, a component
entitle Board members to take independent advice at the
of equity risk.
company’s expense should they require.
Analysts of corporate governance refer to the “four pillars of
The roles and responsibility of the Chairman and the Group Chief
corporate governance”, namely board independence, shareholder
Executive are separate and distinct and their performance is
treatment, information disclosure and corporate compensation. As
assessed through a process facilitated by the Group Corporate
we have sought to transform corporate governance at Transnet, we
Governance and Nominations Committee and the Group
have, as reflected in this report, taken proper account of, amongst
Remuneration Committee.
others, these pillars.
Directors
Given that all the non-executive directors of Transnet who
commenced the financial year under review with the Company
retired on 27 August 2004, we felt that we might not be able
to do justice in any commentary on that board and have therefore
elected to focus on corporate governance since the new Board
assumed office.
Governance structure and
management systems
As indicated above, at the last annual general meeting all nonexecutive directors of the previous Board retired from the Board.
Following the resignation of Ms Sindi Mabaso as the Chief
Financial Officer, Ms Swazi Tshabalala was appointed to act in
that capacity pending the appointment of a Chief Financial
Officer. Ms Tshabalala accordingly joined the Board as an
executive director and resigned on 24 January 2005, when
Mr Chris Wells joined Transnet as the Chief Financial Officer
and executive director.
Transnet is incorporated in South Africa as a public company in
accordance with the provisions of the Legal Succession to the
South African Transport Services Act, 9 of 1989. As a Schedule
2 public entity, it is subject to the provisions of the Public
Finance Management Act, 1 of 1999 (“the PFMA”), and the
Public Audit Act, 25 of 2004.
The Board consists of 13 directors, two of whom are executive
directors. The non-executive directors may, in the main, be
regarded as independent directors (as defined in King II).
The Board is satisfied that considerable thought was given to
Board balance and composition when the shareholder appointed
the new Board and believes that the current mix of knowledge
and skill meets the present needs and requirements of Transnet
Limited. A summary curriculum vitae of each director of Transnet
Limited is published on pages 8 and 9.
The Board has subjected itself to a Board performance self
assessment process facilitated by two independent advisors.
The general powers of the directors of Transnet Limited are
conferred in the Company’s articles of association. Further, the
Board mandate which the Board adopted at its constitutive
Attention will be given to recommendations arising from such
assessment and to regular group corporate governance
assessments.
meeting on 22 October 2004, reserves certain powers to be
exercised by the Board only.
Induction
On appointment, an induction programme designed to meet the
Board accountability and delegated functions
needs of each new director is implemented. The Group Company
While retaining overall accountability and responsibility for
Secretary manages the induction programme. On 21 and 22
ensuring that clear strategic direction is provided to the Group and
October 2005 the Board members participated in such a
subject to matters reserved to itself, the Board has delegated to
programme. Directors are advised of the provisions of the PFMA
the Group Chief Executive, with the power of sub-delegation,
and other laws and regulations and the changing risks that may
authority to run the day-to-day affairs of the Company. The Group
affect the affairs of the Company.
continued
Board meetings
Prof Geoff Everingham, the Group Remuneration Committee
The Board meets, at a minimum, once every quarter with an
chaired by Dr Sam Jonah KBE, and the Corporate Governance and
additional meeting to discuss strategy, the corporate business plan
Nominations Committee chaired by Mr Fred Phaswana. Certain of
and the annual budget. Three Board meetings were held by the new
the functions of the Board are delegated to these committees in
Board from 22 October 2004 to the end of the financial year under
terms of written mandates which the Board approved at its
review and details of individual attendances are set out below.
constitutive meeting on 22 October 2005. These mandates set
out, amongst others, these committees’ powers, functions,
Schedule of Attendance at Board Meetings:
responsibilities, reporting mechanisms and authority to act.
Director
Date
22 Oct
7 Dec
15 Feb
The members of all these committees are non-executive directors
and, in respect of the Group Audit Committee, all of them are
Mr F T M Phaswana
(Chairman)
✓
✓
✓
Ms M Ramos
✓
✓
✓
Dr I Abedian
✓
✓
✓
Prof G K Everingham
✓
✓
✓
Ms N B P Gcaba
✓
✓
✓
Dr S E Jonah KBE
✓
✓
A
Mr P G Joubert
✓
✓
✓
Ms N N A Matyumza
✓
✓
✓
Mrs M A Moses
✓
✓
✓
Mr B T Ngcuka
✓
✓
✓
Mr S Nicolaou
A
✓
✓
Ms K C Ramon
✓
✓
✓
Ms B S Tshabalala
*
✓
*
Mr C F Wells
*
*
✓
✓ = Present
A = Apologies
* = Not a member
Board committees
In order to ensure effective corporate governance and give proper
attention to providing support and oversight to the turnaround
strategy’s implementation, the Board decided to restructure its
workings. The nine committees of the previous Board were
financially literate. Further, the Group Chief Executive, the Chief
Financial Officer, the Group Executive: Legal and Risk, the
external and internal auditors are required to attend meetings of
the Group Audit Committee. Relevant members of the Group
Executive Committee are also required to attend, or attend by
invitation, meetings of the other committees. The chairman of
each of these committees reports at Board meetings on activities
of the committee. The membership of, and attendance to,
committees for the year under review since the appointment of the
Board was as follows:
Schedule of Attendance at Group Audit Committee Meetings
of the Board:
Director
Date
1 Dec
7 Dec
18 Feb
11 Mar
(Chairman)
✓
✓
✓
✓
Dr I Abedian
✓
✓
✓
✓
Mr P G Joubert
✓
✓
✓
✓
Ms N N A Matyumza
✓
✓
✓
A
Mr S Nicolaou
✓
✓
✓
✓
Ms K C Ramon
✓
✓
A
✓
Prof G K Everingham
reduced to three, namely, the Group Audit Committee (which
✓ = Present
incorporates oversight for risk management), chaired by
A = Apologies
Schedule of Attendance at Group Remuneration Committee
Group compliance; internal audit, (which is being outsourced to
Meetings of the Board:
ensure that more value is derived from this function); Group legal
services and the Group company secretariat, which is responsible
for sound corporate governance. In the divisions there are
Director
Date
8 Mar
Dr S E Jonah KBE (Chairman)
✓
Dr I Abedian
A
Mr P G Joubert
✓
Mrs M A Moses
✓
divisional risk committees.
Issues of risk management pertaining to the relevant business
units are dealt with in their respective operational reports
commencing on page 30.
✓ = Present
Group Company Secretary
A = Apologies
In order to enable her to carry out her responsibilities, the Group
Company Secretary is fully empowered by the Board and has
adequate access to people and resources to fulfil this function.
Schedule of Attendance at Corporate Governance and
Nominations Committee Meetings of the Board:
The Group Company Secretary provides an important support
function to the Chairman and the Group Chief Executive.
Director
Date
4 Feb
The Group Company Secretary is also a central source of
Mr F T M Phaswana (Chairman)
✓
information and advice to the Board as a whole. The appointment
Prof G K Everingham
✓
and removal of the Group Company Secretary is reserved for Board
Ms N B P Gcaba
✓
decision-making.
Mr B T Ngcuka
A
✓ = Present
Going concern
A = Apologies
In accordance with the requirements of the Companies Act, the
Board considers the going concern concept in the context of its
Risk management
deliberations on the annual financial statements. The facts and
The King Code of Corporate Practices and Conduct provides
assumptions underlying the Board’s assessment are documented.
guidelines relating to the management of risk and the
The directors’ approval of the annual financial statements,
responsibilities of the Board and the Audit Committee in that
containing the going concern declaration is set out on page 61.
regard.
Sustainability
Fundamental to the management of risk in Transnet is the
The Group recognises its obligation to contribute to broader socio-
establishment of an enterprise wide risk management focus. The
economic goals and general social upliftment. This is done
Board has ultimate responsibility for risk management and has
primarily through the Transnet Foundation. Greater details on
mandated the development of a Transnet specific enterprise wide
Transnet’s sustainability activities are contained in the report
risk management framework which will be adopted by the Board.
commencing on page 21. The format of this report follows the
Where appropriate, certain of the Board’s risk management
Guidelines released by the Global Reporting Initiative, with
functions have been delegated to the Group Audit Committee
consideration given to Transnet’s relationship with various
and to the Group Chief Executive, who in turn chairs the Risk
stakeholders, including the shareholder, customers, employees,
Management Committee.
suppliers, society and the community, and the environment.
In order to ensure the strategic management of the Group’s
assets and liabilities, there is an Asset and Liability Management
Organisational integrity/ethical
behaviour
Committee, chaired by another executive director, the Chief
The Group has approved a code of ethics which is referred to on
Financial Officer.
page 23 of the sustainability report.
The Group risk function is headed by the Group Executive: Legal
Internal Audit and the Group Company Secretary assist in
and Risk, who reports directly to the Group Chief Executive. The
monitoring adherence to the Group’s values.
function covers Group risk management (under three main streams
– financial markets risks, operational risks and commercial risks);
continued
Communication with the shareholder
The Group appreciates the constructive relationship it has
with Minister Alec Erwin MP, the shareholder representative
(“the Minister”) and his department, the Department of Public
Enterprises (“DPE”). Over and above the interactions which the
Chairman, the Group Chief Executive and other Board members
and officers of the Group have with the Minister and DPE in the
normal course of carrying out the business of the Group, we
appreciate the Minister’s establishment of a forum for regular
formal interaction between the Minister and the chairmen and
chief executives of state owned enterprises.
The Group takes seriously its statutory and regulatory obligations
to properly inform the shareholder on the business of the Group.
Remuneration
The Board recognises that it is in the interest of all stakeholders
to retain and motivate executives of the Group. Noting that the
Group’s past practices in respect of performance management
have not always properly rewarded good performance and taken
appropriate action against poor performers, the Group
Remuneration Committee (“Remco”) has given attention to,
amongst others, the proper remuneration of executives and the
introduction of an appropriate performance management system
for the Group.
Fees for non-executive directors are recommended by Remco to
the Board for further recommendation for the shareholder’s
approval.
page 30
Operational reports
page 54
Operational report Spoornet
Spoornet focuses on the transportation of freight, containers and
mainline passengers by rail.
Business overview
The core competency of Spoornet is the movement of freight
on rail. Spoornet is positioning to become a profitable and
sustainable freight railway business that will help drive the
competitiveness of the South African economy.
Spoornet has a 20 000 km rail network which represents 80% of
Africa’s rail infrastructure. This extensive rail network connects
the ports and hinterland of South Africa with the rail networks of
the sub-Saharan region. Spoornet has a proud reputation for
heavy haul leadership internationally as well as in Africa.
Overborder operations focus on the seamless movement of traffic
across all rail corridors in the Southern African Development
Community (SADC) while Spoornet International pursues
opportunities beyond the borders of South Africa, primarily within
SADC and the rest of the African sub-continent. Government is
driving the strategy to reposition the passenger operations outside
of Spoornet, thus enabling Spoornet to focus on freight operations
and infrastructure.
Performance highlights and
operational achievements
A number of performance highlights were recorded during the
year:
• During October 2004, the coal export line set a new weekly
R668 million. The current year’s profit is primarily the
record railing at a tempo of 74,42 million tons per annum.
consequence of fair value gains resulting from the elimination of
• In March 2005, the ore export line set a new weekly record by
certain embedded derivatives totalling R3 473 million. The major
transporting 622 740 tons of iron ore against the previous
embedded derivative eliminated related to the Kumba Iron Ore
record of 617 350 tons.
contract, which was renegotiated into a rand-based railage
• In co-operation with Transnet and other divisions, an agreement
contract. If the impact of the embedded derivatives is excluded,
was signed with Kumba Resources and other industry players to
the current year loss is R21 million compared to a loss of
increase the capacity of the ore export line to 41 million tons.
R220 million in the prior year. The improvement is the result of
• Spoornet successfully accommodated Sasol’s expanded Octene
II output.
control over discretionary expenditure.
• Coal export capacity was enhanced through the supply of
Capital investment
80 additional jumbo wagons to the coal line. This released
smaller wagons that were used to increase the railings to Majuba
Power Station relieving congestion on the road.
Financial overview
2005
2004
R million
R million
Turnover
14 171
13 422
Operating costs
12 927
12 427
1 244
995
841
521
8 907
5 455
8 965
8 986
Operating profit including
embedded derivatives
Operating profit excluding
embedded derivatives
Net asset value (including
embedded derivatives)
Net asset value (excluding
Profit/(loss) before tax
(including embedded derivatives)
3 452
(668)
Loss before tax (excluding
(21)
(220)
Average net assets
(excluding embedded derivatives)
8 976
8 986
Return on average net assets (%)
(excluding embedded derivatives)
improved resource allocation, detailed revenue tracking and better
(0,2)
(2,4)
Number of employees
32 516
34 771
Turnover per employee
0,44
0,39
Coal line
67
66
Iron ore line
28
27
General freight lines
86
83
The following projects commenced during the 2005 financial year:
• Wagon fleet renewal
• Upgrade of 200 6E locomotives
• Replating of coal line jumbo wagons
• Upgrade of 11E locomotives
The Transnet Board has approved R16 billion in capital
expenditure as part of the initial investments required to ensure
Spoornet has the capacity to meet expected demand.
Operational performance
Spoornet’s main operational thrust is to run a scheduled railway.
The key focus areas for the year under review were the elimination
of unscheduled trains and the appropriate allocation of wagons
to trains. The focus area for the 2006 financial year is the on-time
departure and arrival of trains.
Safety, health and environment (SHE)
The National Railway Safety Regulator Act, 2002 (Act 16 of
2002) requires each operator to be in possession of a safety
permit in order to continue operations. Spoornet was granted a
temporary safety permit on 27 August 2004, valid until 31 August
2005. Spoornet has successfully completed a safety management
system and has applied for a permanent safety permit.
Spoornet’s train operations safety performance for 2005 was
nevertheless unsatisfactory with both the number of incidents and
the costs thereof increasing against 2004. This is an area of
ongoing management focus.
Volume railed (tons million):
Capital expenditure split as follows:
Expansion
Replacement
38
150
1 307
1 340
Financial performance
Spoornet recorded a net profit of R3 452 million before tax for
the financial year, compared to the previous years’ loss of
Spoornet has tested the hearing of employees and has addressed
the locomotive environment with its high ambient noise. To date
4 000 special headsets have been issued to employees with a
further 2 000 ordered. The estimated cost of this initiative is
R56 million.
No environmental complaints were registered against Spoornet
by any government agency in respect of the 2005 financial year.
During the year there were derailments with potentially significant
environmental degradation and the affected sites have since been
rehabilitated to the satisfaction of the appropriate regulatory
authorities.
Operational report Spoornet
continued
Human capital management
Strategic objectives
The employee complement decreased by 2 255 from 34 771
Spoornet is fully aligned with the Transnet four-point turnaround
employees to 32 516 employees mainly through natural attrition
plan. Spoornet’s statement of strategic intent in support of the
and the retrenchment of 546 employees in February 2005.
Transnet plan is “Spoornet will be a freight railway that satisfies
the needs of our customers”.
Spoornet had embarked on a comprehensive Diversity
Management Programme since 2003 which continued into the
This is a movement away from the desire to be an integrated
year under review. Challenges to achieving employment equity
freight logistics solution provider and represents a return to the
include matching business optimisation requirements, decreasing
roots of Spoornet.
employee numbers and enhancing skill levels. Satisfactory
progress has been made in addressing the overall demographics.
Spoornet’s long-term strategic objectives to achieve its strategic
The lifestyle management programme (LMP) was launched to
intent are:
address the impact of HIV/Aids within the Company.
• to be a financially successful and sustainable business;
• to be an efficient and safe railway;
Corporate social investment
Spoornet’s Corporate Social Investment (CSI) focuses on HIV/Aids
with 21 major flagship projects throughout the provinces. The aim
is to ensure development of the implementing organisation and
• to serve customers through best practice processes and
initiatives; and
• to develop leadership capability and invest in the growth of
employees.
surrounding community and to guarantee the sustainability of
projects. Spoornet spent R2,1 million on CSI projects for the year
Summary of the capital expenditure programme over the next
under review.
five years:
Risk management
Projects
R million
The major potential risks areas have been identified. A risk
management framework together with appropriate processes is
Shosholoza Meyl
being developed to manage and mitigate these risks.
Coal export line
3 892
Ore export line
2 971
Spoornet management believes that good progress will have been
General freight (including support services)
8 973
made in the elimination or mitigation of these risks by 2006
Total
financial year-end.
254
16 090
Prospects
Business development
At the beginning of the 2006 financial year Spoornet prepared a
In addition to the expansionary plans for both the coal and iron
five-year strategic plan and a new corporate business plan for
ore export lines, Eskom and Spoornet are investigating building a
2006. The core of this plan is aimed at stabilising the business,
67 km dedicated railway line from Ermelo to the Majuba Power
achieving the growth strategy and redirecting the business by
Station with an annual capacity of nine million tons.
focusing on our core business of rail freight. Over the next five
years, implementation of plans for major restructuring at Spoornet
Spoornet, a major automotive manufacturer and other Transnet
will positively impact the financial health of the business and also
divisions are collaborating on a joint initiative to increase motor
dramatically alter the South African rail industry. The established
vehicle exports through the Durban harbour.
presence of rail safety and economic regulators will oversee
operator safety and pricing. A change leadership strategy will
In the third quarter of the 2005 financial year, Spoornet
underpin all operational interventions and is supported by a
introduced a scheduled service of five container trains a day
human capital development plan.
between Durban and the City Deep terminal in Gauteng to
demonstrate capacity and commitment and is confident of the
Major capital expenditure over the next 12 months:
Projects
take-up of this service in the new financial year.
R million
Conclusion
Spoornet is committed to the transformation of the South African
Wagon fleet renewal and modernisation
rail industry and to the turnaround of the business. The rail
for General Freight
550
industry does, and will in future, play a critical role in the
Ore line: capacity expansion (29 mt to 41 mt)
332
economy of the country. The new strategic direction will ensure
Coal line: capacity expansion (71 mt to 86 mt)
256
that the business, in co-operation with Transnet divisions,
Upgrade 200 additional class 18E 1 locomotives
contributes to lowering the cost of doing business and is relevant
for general freight
200
in contributing to the competitiveness of South Africa’s emerging
Ore line: sustain 05/06 to 09/10
108
economy.
Building of 256 CCR11 jumbo coal wagons
on the coal export line
Total
71
1 517
Spoornet is confident of meeting the challenges of the future and
of being “At the heart of it all”.
The above table represents the major projects of the
R2 587 million capital expenditure budget.
Operational report National Ports Authority (NPA)
NPA provides port infrastructure and marine-related services and
manages port activities in a landlord capacity at South Africa’s
major ports.
Business overview
The NPA is the custodian of the country’s primary trading hubs,
managing the most vital conduits of the country’s imports and
exports. Our business performance is therefore integral to the
well-being of the South African economy.
NPA offers a combination of port facilities and services which
complement each other. Each port has a natural hinterland with
a defined market, which drives the nature of services, facilities
and the types of cargo handled at each port. Hence, each port
operates and develops its own specialised services, which supports
a defined customer base.
The regulatory environment
The adoption of the National Ports Bill by the National Assembly
in Parliament (1 March 2005) is a milestone towards ensuring an
effective regulatory framework for the ports sector.
• Turnover increased 9,8% year-on-year
• Turnover coupled with positive cost containment resulted in
operating profit increasing 10,5% year-on-year
• Capital expenditure of R1 012 million primarily on the Port of
Ngqura and the Port of Durban
• All ports operate at the highest level of the five Helmet Fire
Programme
• Four-star rating on NOSA external audit of the safety
on the domestic market resulting in exports being depressed in
management system
the current financial year. There were negative effects from
• All ports except for the Port of Mossel Bay have achieved
derailments and other rail infrastructure problems. The
ISO 14001 certification
unfavourable weather patterns also negatively affected fruit
• Human resources have been certified as ISO 9001 compliant
exports.
• Renegotiation of the disciplinary and grievance code enhancing
accountability
The sensitivity of the import/export scale continues to be
carefully managed throughout the business operations. Each of
Financial overview
the ports continually assess the impacts of the macro-economic
factors that drive the mechanics of managing the business.
2005
2004
R million
R million
Turnover
4 994
4 549
Operating profit
3 250
2 942
in the performance highlights. The sensitivity balance between
Net asset value
10 536
7 215
imports and exports has been successfully managed and the
1,46
1,28
30
34
3 419
3 544
Return on average net assets (%)
Number of employees
Year under review
NPA’s financial performance has exceeded expectations as stated
flexibility in adapting to changes in the macro-economic
environment and consequently customer demands has delivered a
pleasing financial performance for NPA. NPA’s cost-containment
initiatives and streamlining of its business has played an integral
Container (TEU million)
role in driving operating profit.
Imports
1,143
1,021
Exports
1,080
1,016
Trans-shipments
0,482
0,411
Imports
43,477
43,841
Exports
123,94
128,07
NPA’s customer relationship management remains a focal point in
0,717
0,297
the business which is being driven at the top by the Group’s focus
Bulk and Breakbulk (tons million)
Trans-shipments
NPA has a good working relationship with labour and their unions
which facilitates improved mediation.
on “one seamless transport company”. This evolved interaction
Expansion
with business units in the Group is benefiting our customer base
993
1 152
19
52
Minor maintenance
64
53
Major overhauls/maintenance
10
10
Replacement
by assisting in future planning and enhancing decision making
thereby improving service delivery. The “silo” mentality of the past
has been put to bed and NPA understands its customers’ needs.
Operational expenditure includes:
NPA is proud of its SHE achievements to date. Subsequent to the
Revenue: Imports
Bulk and breakbulk revenue decreased year-on-year by 2%.
The volumes imported were suppressed due to adverse crude oil
prices, which hit record levels during the current financial year.
This was further exacerbated by the restrictions on oil tankers
due to the expansion at the oil jetties at the Port of Saldanha.
Vehicle imports increased phenomenally year-on-year by 68%.
The strengthening of the rand against the US dollar and the low
2004 NOSA grading, NPA scooped ten prestigious awards from
NOSA, which recognises the quality of the ports safety, health and
environmental systems. These awards have culminated from the
considerable time and energy invested by NPA and affirms that
the organisation has the best SHE systems in the various regions
we operate in.
In addition to the excellent ratings reported in the performance
highlights and achievements, the environmental self-assessment
programme (ESAP) audits were conducted in all ports based on
interest rates have increased consumer spending. The knock-on
the 16 principles of sustainable development as packaged by the
effects of the increase in demand for commodities have impacted
International Chamber of Commerce. The overall score was 3,5,
NPA positively.
which is a performance level of 88%.
Revenue: Exports
NPA strives to continually enhance the current SHE performance
Export revenue was negatively affected by the strengthening of
levels and proactively pursue best practice to maintain the best
the rand against the US dollar. Local manufacturers focused
SHE systems in the regions we operate in.
Operational report National Ports Authority (NPA)
continued
Macroeconomic factors
Human capital management and development (HCMD) is one of
• Globalisation and its effects in the South African context
the key strategic drivers for running a successful world-class port
• Technology advancements internationally
authority.
• The dynamics of the import/export scale play a vital role in the
NPA’s succession and retention strategy has proven successful
• The economic policies of the South African Government drives
success of the business
with 67% of the senior management vacancies being filled
through our succession planning pools. Through this strategy
senior levels filled were four executive managers and one general
infrastructure development and initiatives undertaken by NPA
• Interest rate sensitivity, inflation and foreign exchange rate
fluctuations
manager.
Risk management
NPA’s employment equity targets for the management cadre
NPA has completed their enterprise wide risk management
(inclusive of gender) have been achieved. The challenge going
identification and assessment. The results have been incorporated
forward, however, is in correcting the critical technical grades.
into our corporate plans for 2006. All ports have been
Arising from this short coming we have improved access to
subjected to annual business continuity management (BCM)
training resources and increased competence development
audits to identify and prepare for disasters that threaten delivery
initiatives.
of service.
NPA’s HIV/Aids programme is on track with employees
Management challenges
participating in voluntary counselling and testing initiatives. Our
We face the following challenges in driving the business over and
awareness and educational campaigns are ongoing ensuring that
above the exceptional performance achieved in the current
NPA’s employees are provided with the support that this pandemic
financial year:
necessitates.
• Removal of bottlenecks to growing imports and exports;
• Meeting customer demands on current capacity constraints i.e.
NPA’s remuneration and reward strategy is currently being
there is increased pressure from shipping lines that are
reviewed with a heightened focus on the reinforcement of a
increasing the size of their container ships from 2 400 TEU’s
culture of performance at all employee levels. As part of
implementing a performance driven culture, we continued with
the Inkanyezi Awards which identified and rewarded high
achievers in 2004, thereby encouraging employees to stretch
themselves further in aspiring for recognition.
to 4 500 TEU’s;
• Achieving synergies and elimination of duplication of effort to
contain costs;
• Achieving government’s objective of fostering economic
development in the Eastern Cape by careful management of the
development of the Port of Ngqura and addressing the need for
NPA has participated in the “best company to work for” survey
dedicated traffic for this port;
conducted by the Financial Mail. This has provided us with an
• Effective project management and delivery of infrastructure plans;
opportunity to benchmark ourselves in the industry. We strive to
• Collaboration with customers and stakeholders;
be the “employer of choice”.
• Effective utilisation of resources in multi-skilling; and
• Succession and retention of skilled workforce.
Corporate social investment (CSI)
NPA’s CSI initiatives have targeted the communities close to each
port’s operations. Our primary focus has been on education, the
environment and HIV/Aids campaigns. This has resulted in a
positive contribution to the wider South African community
allowing mutual development of respectful and collaborative
partnerships.
Prospects
In line with Transnet’s four-point turnaround plan, NPA’s
NPA had a good year and the milestones have been set in the
contribution will be measured on the successful achievement of
organisation to exceed the current performance levels at each of
the following strategic objectives:
its ports.
• Continuing with the expansion of the capacity of the container
handling facility at the Durban, Cape Town and Port Elizabeth
NPA’s outlook for the next 12 months is driven by:
ports;
• Infrastructure deliverance, efficiency and management; and
• Efficient operation of all ports;
• Business growth with a focus on commodity clusters
• Consolidate cargo handling in Durban, Cape Town;
Port Elizabeth and East London ports; and
The deliverables that will contribute towards achieving this
• Creation of additional capacity in the Richards Bay and the
Saldanha Bay ports.
outlook are:
• Finalising port master plans;
• Achieving the capital expansion and development plan for
Project management of NPA’s infrastructure development is
2006 which will realise enhanced infrastructure capacity;
critical to delivering on the strategic objectives outlined above.
Port expansion will be based on the framework plans developed for
the South African ports and aims to achieve a positive risk-reward
relationship between the port authority and its terminal operators.
• Working towards completion of the Port of Ngqura construction
and preparation for operations;
• Increased collaboration within freight chains to facilitate
logistics solutions for port users;
• Contribute towards reducing the cost of doing business by
Summary of the capital expenditure programme over the next five
launching the B2B Portal to create a platform for customers to
years:
transact electronically with NPA including access to cargo and
information flow; and
Port
R million
• High levels of safety and security within the port environment
by aligning with international standards as well as retaining
Richards Bay
1 772
Durban
7 243
East London
Port Elizabeth (including Ngqura)
Cape Town
858
1 442
700
Saldanha Bay
2 342
All ports
1 053
Total
ISO accreditation.
15 410
Port
R million
Richards Bay
251
Durban
632
East London
10
Port Elizabeth
15
Cape Town
69
Saldanha Bay
32
Ngqura
556
Marine Services (lighthouse and dredging)
85
Head office – National Project (IT and Security)
77
Total
1 727
Operational report South African Port Operations (SAPO)
SAPO manages port terminal and cargo operations through a
number of strategically segmented and commercially viable
business units.
Business overview
SAPO manages 13 cargo terminal operations which are situated
across six South African ports.
SAPO is the dominant terminal operator in each of these ports and
interfaces with road and rail transport to provide an efficient and
reliable service to a wide spectrum of customers. The operations
are divided into four sectors namely: container, dry bulk,
breakbulk and automotive.
• Turnover increased 15,5% year-on-year
• Turnover coupled with positive cost containment resulted
in profit from operations increasing 53,9% year-on-year
(including embedded derivative)
• SAPO along with key stakeholders was able to reduce congestion
and eliminate the US$100 surcharge per container
• Crane productivity has improved from 19% to 74% over a threeyear period, beginning 2002
• SAPO won a gold award at the 2004 Logistics Achiever Awards
• In a joint venture with the private sector, SAPO established a
state-of-the-art citrus terminal that handles steri-fruit destined
primarily for the Japanese market
• The Durban car terminal maintained its top 100 company
NOSCAR status for the second year in succession
• The iron ore export channel achieved ISO 9002 accreditation.
increased 43% year-on-year. The three car terminals (Durban,
This is the first “ore channel” in the world to achieve such
East London and Port Elizabeth) continue to provide excellent
accreditation
service levels.
Financial overview
Year under review
SAPO’s financial performance is pleasing in light of the
2005
2004
R million
R million
3 405
2 949
1 048
681
897
552
Profit before taxation
1 902
348
Net asset value
3 083
1 151
0,66
0,54
Turnover
Operating profit
Operating profit
(excluding embedded derivative)
performance highlights are illustrative of SAPO’s commitment
to achieving improved financial performance.
Turnover has been boosted by solid volume growth in the container
and automotive sectors. The drive and ongoing focus by
management in achieving cost reduction through efficiency
improvements has delivered a pleasing increase in profit from
operations of 53,9%. The positive trend in cost containment,
together with a reduction in the total number of employees was
achieved despite SAPO’s volume growth.
Return on average assets (%)
58
24
The embedded derivative liability of R1 039 million at 31 March
(excluding embedded derivative)
Number of employees
implementation of Transnet’s four-point turnaround plan. Our
41
39
5 196
5 464
2004, as a result of a service contract with one of our customers,
was addressed in the current financial year. The contract was
renegotiated from a US dollar to a rand denominated contract,
Volumes handled:
Containers (TEU million)
Dry bulk (tons million)
Breakbulk (tons million)
2,8
2,5
44
44
which removed the embedded derivative and increased the net
asset value of SAPO.
12
12
332
232
571
324
14
61
Minor maintenance
26
26
around time and enables the terminal to load and discharge
Major maintenance
74
76
vehicles 24 hours a day. The terminal is experiencing exponential
Automotive (vehicles thousand units)
Expansion
Replacement
In line with Transnet’s four-point turnaround plan to increase
capacity across the Group, the R100 million expansion of the
Durban car terminal was a highlight during the year. The
total parking bays were increased from 3 500 to 6 500 bays; with
a double carriageway bridge linking the parking garage directly to
the quay side. The direct link reduces risk, improves vessel turn-
growth. Barely a year after completion of the expansion, plans are
SAPO was under pressure to continuously create additional
capacity arising from the 12% growth in container volumes.
Despite the historical delay in investment in equipment and
container stacking space, the terminals achieved satisfactory
under way for the second phase of the expansion project.
The capacity at the Durban container terminal has improved with
the acquisition of three-post Panamax container cranes, which are
each capable of loading/unloading 35 to 40 containers an hour.
productivity levels.
Three more cranes are presently being constructed in Durban.
Growth in certain break bulk commodities has been offset by a
general trend to containerisation coupled with increased private
sector competition in this cargo segment.
SAPO plans to commission these cranes during the 2006
financial year. The improved crane concentration will enable
a higher crane ratio per vessel, resulting in quicker vessel
turnaround.
Dry bulk volume growth has been restricted by capacity
constraints in both the logistics chain and SAPO terminals. These
The development of a second container terminal in Durban is in
volumes are expected to increase substantially in the coming years
progress.
as capacity expansion projects are completed.
The R1 billion expansion project at the Saldanha iron ore terminal
The increase in demand in the automotive sector had a
is under way. Once completed the volume throughput will increase
phenomenal impact on our vehicle units loaded, which
to 42 millions tons per annum.
Operational report South African Port Operations (SAPO)
continued
In keeping with international best practice, the ISO 14001
Total CSI spend for the 2005 financial year was R1 million in the
Environmental Management System is presently being
areas of maritime education, arts, culture and recreation, support
implemented at all terminal operations. SAPO aims to
of non-governmental organisations and support for victims of
continuously improve and reduce the environmental impact from
natural disasters.
terminal operations. The bulk and multipurpose terminals in
Saldanha have already been certified compliant. All terminals will
be compliant by the end of the 2006 financial year.
• Global commodity trends impact the demand for products
shipped through SAPO’s bulk terminals. The present outlook
The ISO 9001 Quality Management System is currently being
implemented at all terminal operations. East London, Port
Elizabeth, Saldanha bulk terminal and the Durban car terminal
remains bullish in this sector and the exchange rate position
does not materially impact this market.
• The lower interest rates increased demand for fully imported
have been certified compliant and the balance will be compliant
luxury vehicles. The car terminal export volumes are dependent
before the end of the 2006 financial year.
on the success of local manufacturing operations in securing
export contracts. The benefits accruing from the “motor industry
SAPO’s commitment to the implementation of these standards
evidences management’s intention to continuously improve cargo
handling processes.
development programme” play an important role in their
success.
• The global trend towards containerisation, coupled with
increased competition in the private sector increases pressure
A comprehensive security strategy has been implemented at all
terminal operations to attain a safe and hazard-free operating
on the break bulk volumes.
• The balance of imports versus exports in the container sector
environment. All terminals are ISPS code compliant (International
is impacted by exchange rate fluctuations. However, this has
Standard Port Facility Security Code).
a minor impact on overall container volumes as excess import
containers results in empty containers being exported and
vice versa.
Part of delivering on Transnet’s four-point turnaround plan, SAPO
completed a review of the management structures. A competence
audit was undertaken, which resulted in significant changes to
the structure to support the new strategic direction of SAPO.
This rejuvenation process will continue during the 2006 financial
year, with greater emphasis on the development of the required
Risk management
The critical risks facing SAPO, in its attempt to deliver on the
strategy, have been identified. Initiatives to eliminate or mitigate
these risks have been developed and are in the process of being
implemented.
competencies to support the success of SAPO’s business
operations.
Business continuity and disaster recovery plans are adequate and
regularly tested.
Management has started the process of assessing the impact of
the HIV/Aids pandemic on the business. Whilst a clear picture
of SAPO’s exposure has yet to emerge, the implementation of a
voluntary counselling and testing programme is ongoing and
has yielded results. An accelerated and focused approach is
anticipated during the 2006 financial year, when SAPO expects
to have a better understanding of its prevalence rates.
Labour relations are continually improving in SAPO. The
challenges associated with balancing the socio-economic needs of
the unemployed and ongoing pressures of automation and flexible
labour practices continue. In order to effectively compete with the
private sector, SAPO needs extensive engagement on these issues
to forge ahead.
The enterprise wide risk assessment has identified the challenges
that management faces in their drive to contribute to the strategic
direction of Transnet. These challenges include:
• Alignment with internal and external stakeholders
• Creation of capacity
• International benchmarking of operations
• Skills development
• Project management
• Corporate governance
Prospects
SAPO’s strategic intent is to create capacity before demand and
The primary objectives for the coming year are:
deliver improved productivity levels whilst containing costs to
• to be benchmarked as an efficient and cost competitive
an optimum level. In doing so we aim to fulfil our role in the
operator;
national economy of:
• growing the business through diversified revenue streams;
• stimulating economic growth;
• creation of capacity ahead of demand;
• facilitating trade through increased competitiveness; and
• containment of costs per unit of volume to less than CPIX
• eliminating waste and creation of predictability and reliability in
the import/export supply chain.
increases; and
• human capital development and retention.
Financial health, international productivity benchmarking and
development and retention of employees are key drivers for the
business.
Terminal
Summary of the capital expenditure programme for the next five
Durban container
years:
Durban multi purpose
70
Durban 2nd container
23
Richard’s Bay bulk
96
Terminal
R million
R million
180
Richard’s Bay multi purpose
91
895
Cape Town container
83
Durban multi purpose
192
Saldanha iron ore
211
Durban 2nd container
748
Other terminals
141
Richard’s Bay bulk
795
Total
895
Richard’s Bay multi purpose
274
Cape Town container
665
Durban container
Saldanha multi purpose
422
SAPO is confident that the business is well positioned to meet
Saldanha iron ore
412
growing demand. Continual improvement in efficiencies and
Other terminals
686
operational integration will ensure that we contribute to a
Total
5 089
reduction in logistics costs for both importers and exporters.
Operational report Petronet
Petronet pumps and manages the storage of petroleum and gas
products through its network of high-pressure, long distance
pipelines.
Business overview
Petronet is the custodian of the country’s strategic pipeline assets,
servicing primarily two key industries (fuel and gas) by transporting
petroleum and gas products over varying distances. Our business
performance is therefore integral to the well-being of the South
African economy.
The liquid fuel network traverses the provinces of KwaZulu-Natal,
Free State, Gauteng, North West and Mpumalanga. The intake
stations are the two Durban refineries, the crude refinery at
Coalbrook (Natref) and the Sasol 2 and Sasol 3 synthetic fuel
plants at Secunda. The network includes a tank farm with a
capacity of 30 million litres at Tarlton.
The regulatory environment
The appointment of a single energy regulator is imminent and
heralds a new era for South Africa of commercial and technical
regulation of the petroleum and gas pipelines.
• Turnover exceeded the R1 billion mark for the first time in
Petronet’s history achieving an increase of 11% year-on-year
• Operating profit increased 14% year-on-year
• Positive cost containment; cost to convey a litre of fuel over a
attributed to an increased vigilance of servitude integrity
distance of one kilometre was 2% lower than five years ago
monitoring brought about by urban creep and risks associated with
• Labour cost per litre conveyed decreased in real terms leading
the transporting of valuable commodities.
to a productivity improvement of 10% in real terms over the
Year under review
past 10 years.
This was the first full year of operations since the termination of
Financial overview
the Sasol Supply Agreement in December 2003, which resulted in
a fundamental change of the supply pattern of petroleum products
Turnover
Profit before tax
Net asset value
Number of employees
2005
2004
R million
R million
1 019
919
333
239
2 405
1 722
1,88
1,62
8,8
7,2
542
568
4,96
5,54
11,41
11,65
5,99
5,99
Volumes transported:
Crude (billion litres)
Refined products (billion litres)
Distribution (trillion litre kilometres)
in the country.
In support of Transnet’s four-point turnaround plan, particular
emphasis was placed on improved efficiencies and productivity,
mainly through our re-engineering project called SMART. The result
of these actions were that the cost to convey a litre of fuel over a
distance of one kilometre was 2% lower in 2004 in real terms than
five years ago. Our labour cost per litre conveyed decreased in real
terms leading to a productivity improvement of 10% in real terms
over the past ten years. These achievements bode well in Petronet’s
drive in lowering the real cost of energy transportation in South
Africa and our preparations for future commercial regulation.
Our improved financial performance as stated in the performance
Expansion
38
10
highlights is testimony to Petronet’s commitment to achieving the
Replacement
98
72
Group’s drive for improved financial performance and illustrates
management’s drive to successfully manage Petronet’s changing
business environment and to ensure long-term economic and
Minor maintenance
8
7
Major maintenance
18
11
operational sustainability.
Total volumes transported decreased by 4,8% year-on-year.
Petronet’s key distribution indicator of megalitre/km was however
unchanged primarily due to the increase in volume of refined
Petronet improved its international annual environmental rating
through a combination of good operating practices and focused
maintenance which culminated in no leaks or spillages being
reported for the year.
products transported from the coast. Although there was an
increase in the volumes of refined products transported from the
Petronet maintained its impeccable record of having no employee
coast, it was nullified by a corresponding decrease in the volumes
fatalities as a result of industrial accidents. However there was an
of crude oil transported, resulting in an overall decrease of total
unfortunate incident with the death of two contract workers whilst
volumes transported.
cleaning the tanks at our tank farm at Tarlton. We wish to again
express our sincere condolences to the families of the two men who
The multi-product pipeline out of Durban is oversubscribed and
lost their lives. This incident emphasised the need for ongoing
capacity had to be allocated to our customers on a fair and
vigilance in Petronet’s activities and its associated activities.
equitable basis and in an operationally feasible manner. This has
resulted in the line operating close to 100% capacity throughout
Petronet achieved a four star NOSA rating. This achievement is
the year. This was one of the main challenges during the year,
attributed to enhanced training, employee dedication and
especially ahead of regulation.
continuous business focus and improvement.
Petronet successfully worked with customers in achieving agreed
service delivery levels.
Petronet has progressed with its business transformation
initiatives, Project SMART, by retrenching 87 employees in
In line with Transnet’s four-point turnaround plan, Petronet’s focus
March 2005. This has addressed the skills-mix gaps as identified
on maintenance of ageing assets resulted in an increase in
by benchmarking initiatives and Petronet’s business requirements.
maintenance costs by 38% year-on-year. This increase is also
The impetus in the re-engineering and transformation process
Operational report Petronet
continued
has led to a significant change in Petronet’s human capital
levels. The structure also incorporated facilitation of cross risk
management philosophy and practices following from the
management between the three levels as well. A risk register has
Transnet’s four point turnaround plan. Employees in key positions
been established and risks are identified, assessed, mitigated and
have been identified and this has led to the drafting of a plan for
monitored continuously.
Petronet’s succession and retention strategy.
Best practices in human capital training and development will be
• Preparing for regulation
harnessed to ensure that Petronet’s benchmark of 550 employees
• Successfully implementing the IFRS and SMART projects
will be appropriately skilled to meet imperative business needs for
• Grow the non-regulated side of the business
the years ahead.
• Management of risks
Petronet continues its action plan against the HIV/Aids pandemic.
Currently 60% of all employees have participated in the process
The appointment of a single energy regulator NERSA (National
and know their status. The prevalence rate for Petronet is 4%.
Energy Regulator of South Africa) is imminent and during 2005
Petronet will be ensuring that it meets all commercial and technical
Lost man hours for the year was 1,14%, which is below our target
regulatory requirements. Substantial progress was made in 2004 to
limit. This is commendable during a year filled with change
prepare Petronet for the challenges of the new era of commercial
management and challenges of uncertainty and consolidation in
and technical regulation of petroleum and gas pipelines.
Petronet’s labour force.
Assurance was also given to the shareholder that Petronet will
continue to conform to all legislative requirements and uphold
CSI projects in Petronet are managed through the Vusisizwe
high corporate ethics.
Development Trust (the Trust) and R1 million (2004: R1 million)
was transferred to the Trust. The Trust’s projects encompass
The realisation of strategic initiatives are supported by an
health, HIV/Aids, education, environment and job creation.
approved capital funding plan as part of Transnet’s overall
These projects are undertaken in conjunction with the provincial
investment plan amounting to R4,6 billion for the next five years.
and local authorities along our pipeline routes.
This will amongst other include the provision of the new multiproducts pipeline, the refractionator to ensure petroleum product
specifications are met, increased gas pipeline capacity and
The primary macroeconomic factor that affects Petronet is the
meeting new business challenges. The challenge of the new multi-
constant increase and ongoing fluctuations in the crude oil price
products pipeline is to ensure that the deadline of 2010 is met
and the rand/US dollar exchange rate which impacts on the basic
and that Petronet’s client infrastructure up and down stream of
fuel price thus creating a fluctuation in demand of products
the pipeline is able to meet the new capacity. A further challenge
flowing through the pipeline.
is to ensure that current capacity is managed optimally and new
solutions are found to manage the current supply dispensation and
Risk management
problems associated with it in a pro-active fashion.
Petronet’s number one risk is that of pilferage and third party
activity damaging our pipelines. Petronet has embarked on an
Petronet will continue to redirect and re-engineer its business to
awareness campaign of educating communities along the pipeline
be an integral part of Transnet and provide shareholder value.
route of the dangers of tampering with the petroleum pipelines.
The completion of Project SMART will align skill requirements
Education and communication will help Petronet and our
and address business requirements.
communities to avoid incidents similar to elsewhere in Africa
where a 1 000 people have been killed in the past year due to
Petronet’s capacity plan study indicates physical capacity
tampering with the petroleum pipelines.
constraints in the whole pipeline system by 2010 and capacity
upgrades are planned to address these capacity needs. An
The inherent risks of transporting petroleum products was
additional 15 million litres will for example be made available for
managed by constant focus and drive by the management team
transportation between Sasolburg and Alrode through the de-
resulting in no spillage incidents recorded for the year.
bottlenecking project due for completion in October 2005.
Ultimate capacity requirements will, however, only be addressed
As part of Transnet’s four-point turnaround plan, Petronet focused
by the construction of our new multi-products pipeline between
on the establishment of a risk management structure to manage
Durban and Gauteng at a cost of R3 billion. Petronet anticipates
and cascade risks on the strategic, managerial and operational
that this line will be completed in 2010.
Summary of the capital expenditure programme over the next five
Petronet is structured and manned in such a way that it can
years:
optimally manage its network and grow. Our skilled and dedicated
workforce is ready to face the challenges and play the role
Projects
R million
expected of Petronet by our stakeholders. Celebrating 40 years of
pipeline excellence in the 2006 financial year will be a highlight
New multi-products pipeline
2 980
and a tribute to the pioneers who envisaged the need for a
Refractionator Project
100
pipeline and whose dreams we have realised and surpassed and
Gas line de-bottlenecking (Lilly 2)
400
will keep improving on as part of a new and successful Transnet.
Maputo/Gauteng pipeline
360
Telecontrol project
100
Terminalling and logistics
184
Gauteng/Beit Bridge pipeline
100
Total
Projects
R million
4 224
New multi-products pipeline
30
Refractionator
63
The increase in pipeline capacity will ensure that the economy of
Telecontrol Phase 2
23
South Africa is not constrained and that the pivotal role Petronet
Workshop/training centre
34
plays in the supply of fuel is realised and maintained.
Intelligent pigging gas line
16
Alrode/Secunda manifold
27
The transportation of gas was put on a new growth cycle with the
Modification to block valves
12
introduction of a new long-term contract. Future growth in this
Inspection and refurbishment of DJP pipeline
11
sector is projected to an extent that will soon require more
Total
216
investment in our gas pipeline system.
Petronet will continue to explore new business opportunities. This
The above table represents the major projects of the R344 million
will include the growth of the non-regulated side of the business
capital expenditure budget.
such as providing terminalling and logistics services for our clients
as well as investigating transportation of other commodities by
pipeline.
Prospects
In the coming year, emphasis will be placed on the cost structures
within Petronet in order to optimise operations and realise further
efficiencies with the ultimate aim of reducing the real cost of
transporting fuels and hence reducing the cost of doing business
in South Africa.
Operational report Transwerk
Transwerk focuses on the refurbishment, conversion, upgrade and
manufacturing of rail related rolling stock.
Business overview
Transwerk services the railway rolling stock market, based in South
Africa and is geographically spread across seven locations.
Transwerk has eight product-focused business units providing
services, ranging from refurbishment, conversions, and upgrades
as well as manufacturing of rail related rolling stock.
Consequently, Transwerk is a decentralised and incentivised
business with accountability and decision-making located at
critical points. This approach to managing the business has
promoted a culture of transparency, accountability, integrity,
excellence and innovation dedicated to simplifying the operations
of our customers, in line with commercial imperatives.
Transwerk’s overall objective is to enhance shareholder value
through real growth in earnings as well as exceed the expectations
of all its stakeholders.
• Turnover increased by 18% year-on-year
• Operating profit increased by 28% year-on-year
• Design and implementation of a modular concept in the
refurbishment and upgrading of Metro coaches
• BEE spend increased by 689% since the 2001 financial year;
R80 million was procured and this has grown to R631 million
in the 2005 financial year
• Staff complement increased by 12% year-on-year to meet
as aesthetics are the hallmark of the new 10M5 (GOMOD) Metro
increased demand.
coaches. The prototypes as well as the industrialised product line
were completed in accordance with strict principles in project
Financial overview
management. The 10M5 coaches will provide the SARCC with an
evolutionary Metro coach that refurbishes and upgrades existing
2005
2004
R million
R million
3 029
2 571
Operating profit
413
322
Net asset value
1 199
768
0,45
0,42
43,8%
50,8%
Number of employees
6 797
6 064
6 830
8 402
the industry norm. The slight reduction year-on-year arises from
214
160
the significant capital investment of R150 million in support of
130
168
397
291
Turnover
Volumes handled (units):
Wagons refurbished
Wagons manufactured
Locomotives refurbished/upgraded
components reduces the period that coaches stay out of traffic,
as well as a reduction in operating costs.
Year under review
Transwerk has reported a significant improvement in financial
performance as stated in the performance highlights.
future growth, which is in line with Transnet’s four-point turn-
Coaches suburban vehicles
refurbished/upgraded
improved turn around of repairs/upgrades from fit-off/fit-on
The 43,8% return on average assets is substantially higher than
Coaches mainline vehicles
refurbished/upgraded
coaches to high standards while increasing their life cycle. The
around plan. The capacity building is evidenced in the 12%
increase in the staff complement.
312
265
2 133
1 267
65 877
61 492
Expansion
65
38
achieved largely through intensive engagements with our top
Replacement
85
52
suppliers who have also taken up the challenge within the last
Traction motors refurbished/upgraded
Wheels refurbished/upgraded
In the 2001 financial year, R650 million was procured in total,
and this has grown to R1 900 million in the 2005 financial year.
Within this period support to BEE through procurement spend has
increased from R80 million to R631 million. This has been
four years. Transwerk now boasts that of its top five suppliers only
The increase in volumes is mainly attributed to customer demands
as well as the establishment of new product lines to effectively
address client requirements.
Although wagon refurbishment volumes decreased by 19% yearon-year, the work content increased significantly resulting in
improved sales. Client budget constraints are the main reason
for the decrease in mainline coach repairs.
one, an overseas owned company, is not empowered.
To ensure that systems and processes comply with world-class
standards a number of initiatives in support thereof were launched
during the year. These include amongst others:
• Enterprise wide risk management;
• Installing formal project management;
• Various training initiatives as well as a range of technical
training programmes;
• Quality management; and
Transwerk’s healthy operating performance stems from the
realisation of its strategy i.e. consolidating its competencies while
experiencing growth by leveraging capabilities into a pro-active
total service.
• Various capacity building initiatives in creating centres of
excellence for various products.
The Transwerk SHE Corporate Standards was adopted on
Operationally the focus has been and will continue to be on
1 April 2004. This is a major improvement as they complement
instilling a culture of continuous dynamic reconfiguring of the
the Transwerk environment more appropriately and ensure
business, not only to provide a total service to customers, but to
effective SHE management and loss control. The external audits
ensure that the portfolio of product-focused business units are
conducted resulted in an upgrade to a three Star NOSA Rating.
sustainable and financially sound.
The Transwerk environment is a highly technical one and the high
Transwerk has over the past two years designed and implemented
incident rate was concerning. Management has implemented
a modular concept in the refurbishment and upgrading of Metro
various initiatives which led to an improvement in the DIFR from
coaches. Modern technology, equipment and ergonomics as well
2,31 in April 2004 to 2,10 in March 2005.
Operational report Transwerk
continued
Transwerk has approved a plan to have its seven sites ISO 14000
accredited. The eradication and rehabilitation of asbestos from its
sites is a priority. It is managed on a project management basis.
Transwerk’s CSI programme seeks to be active in the communities
within the proximity of its operations. Two major community
projects are:
All sites within Transwerk have appointed persons with Certificate
• Tshepo House for HIV/Aids patients; and
of Competence as Engineer under the Occupational Health and
• Kopano workshop for the physically challenged.
Safety Act (Act No. 85 of 1993); General Machinery Regulations,
regulation 2(1), to ensure that the business and its activities are
In both projects Transwerk has leveraged its support by attracting
compliant with the Act as well other relevant legislation.
other contributors to the projects.
Risk management
At Transwerk people are our greatest assets; it is their passion,
Through the implementation of enterprise risk management
dedication and resourcefulness that drive the success of the
processes in Transwerk, critical risks impacting strategy and
business.
business objectives are identified on an on-going basis. On a
bi-annual basis the risk management committees convene to
Transwerk has set out to recruit, retain and develop the best
reassess business risks and identify new ones. Actions to mitigate
talent and skills through training, rewards and recognition
the impact of the risks are put in place.
initiatives.
Enterprise risk management has been introduced in all structures
A number of programmes within South Africa’s business schools
of Transwerk, from executive management down to line personnel
and universities have been established to foster and enhance
inclusive of labour. Such measures are beneficial as risk is no
Transwerk’s leadership and management skills.
longer perceived as a “management problem” anymore but a
collective effort in the business.
In order for Transwerk to address its challenge of ensuring the
availability of critical skills, an internal student bursary scheme
In order to comply with any legislative requirements, Transwerk
is in place. This scheme addresses amongst others, the
keeps abreast of new trends and emerging practices in risk
apprenticeship and technical training. There has been a
management and is aligning itself with the new risk management
significant intake of students in the 2005 financial year.
framework introduced by Transnet.
This additional capacity helps develop skills for Transwerk and
contributes to the broader South African economy.
• Meeting growing demand from Spoornet and the SARCC
A new remuneration strategy and evaluation system has been
• Investment in infrastructure development and equipment
established. The primary objective is to provide Transwerk with a
• Training and recruitment of critical skills and retention thereof
system that will enable it to attract, retain and appropriately
• Transformation of the organisation to reflect the demographics of
reward its employees.
The gain sharing scheme for junior employees has played a pivotal
role in improving productivity and profitability of the business.
Transwerk has a comprehensive Lifestyle Management Programme
for all its employees to manage incidences of HIV/Aids. During
the year the lifestyle management and voluntary counselling and
testing (VCT) programmes were successfully rolled out; 61% of
the total workforce trained and 40% of the employees participated
in the VCT programme, reflecting a tremendous success of the
HIV/Aids awareness campaign.
our democracy
Prospects
In June 2005, Transwerk embarked on a two day strategic
As freight in the main dominates its revenue in Southern Africa,
breakaway session. The objective of the strategic session was to
Transwerk is well placed in its product portfolio to benefit from
engage discussion and debate with the relevant stakeholders as to
sales emanating from the current growth, fuelled by the expansion
the future role of Transwerk to align with Transnet’s four-point
from mining activity.
turnaround plan.
Major capital expenditure planned over the next five years:
Projects (Major)
Projects
R million
R million
GOMOD facility
11
840
Upgrade Bays 6 and 7
10
Upgrade facilities
115
Power supply
9
Machinery upgrade
500
Upgrade perway
7
New machinery and equipment
GOMOD set-up
35
Laser cutter
6
Data enhancement
30
Cannon box Centre of Excellence
4
Chopper facility
3
Portal lathe upgrade
2
Wheel lathes
130
Perway upgrade
Total
50
1 700
Total
52
The business environment over the next five years is expected to
The above table represents the major projects of the R181 million
grow strongly in the locomotive and wagon manufacture areas as
capital expenditure budget.
capacity for iron ore, coal and general freight continue to expand.
This coupled with the passenger/commuter increases as forecasted
by the SARCC as a result of the 2010 World Cup, places
Transwerk in a favourable position. Transwerk has conducted
successful business in Africa over the last 15 years and these
endeavours will continue with greater effort.
Operational report South African Airways (SAA)
South African Airways (SAA) is Africa’s leading airline, servicing
more than 20 destinations across the continent, carrying
passengers and freight to 40 cities in more than 30 countries on
six continents.
Highlights
• Net profit for the year increased to R966 million
• Business Class lie-flat seat voted best in the world
• Twelve international awards of excellence received
Economic environment
In the calendar year 2004, the global economy experienced mixed
performance with strong growth, at 4,4%, in the US economy.
However, results were muted in Europe with growth at less than
2%. The Japanese economy continued to attempt to shake off its
deflationary spiral. Strong performance in China and India, both of
which are experiencing high single digit growth rates, is creating a
worldwide impact. China and India are also experiencing strong air
travel market growth.
The domestic macroeconomic fundamentals remain favourable for
many sectors of the South African economy. The strong rand and
low inflation have allowed the South African Reserve Bank to
substantially ease its monetary policy stance, and these factors
have continued to hold true in the first half of the calendar year
2005. This, and renewed confidence in the economy, translated
into an unprecedented boom in the financial, retail and property
sectors. Spill-over effects have also been felt in the travel and
tourism industries as more South Africans can afford domestic
and international holidays.
However, the twin factors of unstable oil prices and a volatile
Bambanani is to ensure a reduction of R1,6 billion in operating
currency market are expected to continue impacting negatively on
costs over the next three years. A new era of profitability will be
the SA economy and SAA’s performance.
achieved by new sales and marketing strategies.
The new Board and management team have stabilised the
The clients gained and retained from these new strategies will
Company within a short period of time. However, they continue
experience substantially improved service. SAA’s staff is
to work tirelessly to ensure that achievements are sustainable
undergoing a new and rigorous customer service training process.
and that there is focus on increasing efficiencies and bringing the
Those who fly most frequently and especially those in the
volatile cost base under control. One of the key pillars of the SAA
premium segments will realise that for the most attentive, most
turn-around strategy (Bambanani Programme) is people and it
comfortable and for the most competitively priced flights, SAA is
aims to improve the quality of the staff’s skill base to ensure that
the airline of choice.
SAA maintains a positive growth trajectory.
While SAA has won numerous awards recently for the quality
Financial overview
and innovation of our product and customer service, we recognise
the need to continually improve on this to maintain a competitive
2005
2004
R million
R million
17 442
16 339
Operating profit before impairments
935
134
Net profit/(loss)
966
(8 610)
Net asset value
2 228
(2 697)
edge.
The comprehensive turnaround strategy SAA launched early in
Turnover
November 2004 will ensure the long-term health and success of
the airline.
Financial performance
1,5
1,30
South African Airways realigned its structures, improved customer
Number of employees
11 601
12 556
services, controlled costs and enhanced operating efficiencies, all
6,8
6,5
176
166
Passengers uplifted (million)
Cargo (thousand tons)
key deliverables of the “People, Patronage, Profit” strategy. The
impact of this is already seen in revenue increasing 7% while
enhanced efficiencies saw operating costs inch up by only 1,9%.
Expansion
Replacement
1 799
–
South African Airways Group performed very well despite the rand
55
4 706
strengthening 14% from R7,15 per US$1 to an average of R6,56
per US$1 during the year. In addition, the average oil price
The new strategy
increased 42% during the year ended 31 March 2005.
In November 2004, the Board of Directors approved a new
The operating profit from airline operations before impairments,
corporate strategy based on three pillars – “People, Patronage and
improved from R134 million in 2004 to R935 million for the year
Profit” – to return the airline to profitability by improving customer
under review.
service, implementing a cost reduction programme, re-aligning the
skills of the staff to the needs of the business and implementing
SAA achieved a pleasing turnaround in performance with a net
strict corporate governance principles, including a robust
profit after tax of R966 million for the year ended 31 March 2005
enterprise risk management framework. The new strategy aims to
(2004: loss of R8 610 million).
achieve the following outcomes for each of the three pillars:
• People: to develop and nurture world-class talent by improving
Recapitalisation
training and performance management and to source best talent
During the year, Transnet Limited provided South African Airways
from the market when the need arises;
with a R4 billion loan to restore SAA to technical solvency.
• Patronage: to provide a seamless travel experience to
customers by providing superior quality service; and
• Profit: to provide sustainable return on capital to our
shareholders.
The Board of South African Airways, subsequent to year-end,
has agreed with Transnet Limited that SAA will issue R2,4 billion
ordinary shares of R1 each to Transnet Limited to strengthen
the SAA Group balance sheet. The subscription price debt of
R2,4 billion will be settled by way of set off of the loan and the
The new strategy is being implemented through a programme
remaining R1,6 billion will be repaid to Transnet Limited as soon
called “Bambanani”. Bambanani is a Zulu term which means
as practicable. Transnet Limited has agreed to provide credit
“holding hands and working together”. The primary objective of
facilities to SAA of R1,5 billion.
Operational report South African Airways (SAA)
continued
Star Alliance
Improved service
By 2006, South African Airways will be a full member of the Star
To give a better flying experience to premium class passengers –
Alliance – an important development in growing our market. This
and increase competitiveness – SAA introduced lie-flat seats on
follows SAA signing a memorandum of understanding with Star
long-haul flights. In 2004, Skytrax which conducts the world’s
Alliance on 12 December 2004.
largest passenger surveys gave SAA the award for the Best
Business Class lie-flat seat in the world. SAA also upgraded and
Membership of the Star Alliance will offer South African Airways
expanded the comfort of South African Airways lounges in the
access to 152 countries, 834 airports, 15 166 daily departures,
African market to further enhance the product offering.
14 787 code-share flights, access to global frequent-flyer
programmes and joint purchasing and cost-saving initiatives.
The new leadership team
SAA will bring to the Star Alliance their expertise on the African
A strong new executive team was appointed in April 2005
continent.
including Mr Dan Moeti as the Chief Risk Officer and Mr Kyrl
Acton as the Chief Operating Officer.
The fleet
The current fleet renewal programme, which was initiated in
The executive team are spearheading improvements including the
2002, has been completed – the last of the 26 orders of the
ongoing fleet renewal programme, expanding the network through
Airbus fleet placed in 2002 was received on 30 June 2005.
alliances and strategic partnerships and developing new markets,
as well as enhancing the frequent flyer programme, “Voyager”.
The new fleet has enabled South African Airways to retire its
entire fleet of B747 classic aircraft, the youngest of which was
Transformation and staff development
more than 23 years old and the oldest in excess of 30 years.
Transformation is reflected in the overall demographic profile of
the staff and in SAA complying with various employment equity
In pursuit of making SAA one of the safest and most modern
and black economic empowerment strategies. The leadership of
airlines in the world, it has phased out all the 15 B737-200Adv
the organisation embodies the spirit and the fact of this positive
aircraft which were in excess of 23 years old and replaced them
change with 77% of the leadership being black and a male to
with 11 A319-100 aircraft.
female ratio of 56:44.
Africa strategy
As the leading airline in Africa, SAA’s intent is to bring the world
SAA are enhancing the corporate governance process in line with
to Africa and take Africa to the world.
international best practice, the Public Finance Management Act
and King II Code of Corporate Governance Practices. During the
South African Airways’ contribution to the success of the New
year under review, changes were made to the composition of the
Partnership for Africa’s Development is embodied in the Africa
Board with four new non-executive directors being appointed.
growth strategy. Significant areas of Africa are still not served by
reliable and efficient services, and this creates considerable
In August 2004, Mr Andre Viljoen resigned as the Chief Executive
opportunities for South African Airways to penetrate those markets
Officer of South African Airways and as an executive director on
and develop improved cargo and passenger carrying ratios on the
the Board. Dr Khayakhulu Ngqula succeeded him as Chief
continent. This, in turn, will boost Africa’s capacity to become
Executive Officer and executive director on the South African
globally competitive and to sell its products on world markets.
Airways Board.
Open skies policies on the continent will ensure that the African
renaissance will become a reality.
Expansion plans for the African route network include broadening
the flight network to new destinations. South African Airways
will focus on expanding its presence in the Southern African
Development Community, in particular to Mozambique,
Madagascar, Angola and Zambia. In Central Africa, the markets
receiving the most attention include the Democratic Republic
of Congo, Cameroon and Chad. Markets in Tanzania, Uganda,
Nigeria and Ghana are also a key focus.
Shortly SAA will move out of the Transnet family and become a
separate business. South African Airways, as the national carrier,
has a tremendous responsibility to the people of this country, and
the continent, to run this flagship as a healthy, profitable national
asset and to retain its status as an internationally acclaimed
airline. The sight of SAA livery, anywhere in the world, should
bring a smile of pride to all Africans and a sense of admiration
from every traveller and aviation industry expert.
Cash flow from
operating activities
before cash effects of
derivative transactions
increased by R2,6 billion
to R7,5 billion.
Chris Wells
Chief Financial Officer
Group operating performance
Group turnover has increased by R2,6 billion to R46,3 billion in 2005, an
increase of 6,0%.
The most significant contributors to the increase by segment are as follows:
Segment
Rail
Maritime
Aviation
2005
2004
Variance
%
R million
R million
R million
increase
19 563
18 176
1 387
7,6
8 400
7 512
888
11,8
18 175
17 106
1 069
6,2
The turnover in the rail sector increased by 7,6% despite being negatively
impacted by continued competition from road, delays in capital upgrade
programmes and numerous derailments that occurred during the year.
The maritime segment delivered a strong performance and increased turnover by
11,8% with the buoyant economic conditions leading to higher demand for
imported goods, particularly vehicles.
Whilst the aviation segment increased turnover by 6,2% it was adversely
affected by the strengthening exchange rate and the competition in the
domestic market.
Group operating expenses increased by 2,7% to R40,3 billion, which reflects
some progress in the Group’s cost reduction programme. A major re-engineering
of the Group’s operating processes is underway targeting cost reductions,
efficiency and service delivery.
As a consequence of the above, net operating margins increased to 12,9%
resulting in a 35% increase in profit from operations to R6,0 billion (2004:
R4,4 billion). Operating margins increased in all the core business units.
Impairments of assets showed a significant decrease from the
The taxation charge for the Group has been raised at the
prior year. The prior year impairment of assets related mainly to
statutory rate of 30% at 31 March 2005. The effective tax
SAA aircraft.
rate (after adjusting for fair value adjustments) is 46%. This
has been influenced by disallowable items and the non-
Net finance costs have increased by R377 million to R2,6 billion
recognition of deferred taxation on temporary differences as
as a result of increased borrowings. Borrowings increased primarily
these would result in a deferred taxation asset being
due to the issue of the T018 bonds totalling R6 billion.
recognised.
The interest cover of 2,2 times, whilst much improved, is still well
The unrecognised temporary differences resulted in a deferred
below our medium term target.
taxation asset of R4,4 billion (2004: R6,3 billion) which has not
been recognised. The Group has previously not recognised this
The Group’s borrowings, together with the associated interest rate
asset due to the uncertainty of sufficient future taxable income
exposures, are disclosed in Annexure A of this report.
being generated.
The Group uses approved financial instruments, in particular
Cash flow
forward exchange contracts, cross-currency swaps, interest rate
As an indication of the start of the Group’s turnaround, cash flow
swaps, and jet fuel derivatives to hedge the financial risks
from operating activities before the cash effects of derivative
associated with underlying business activity. All derivative
financial instruments including embedded derivatives have been
recorded at fair value with the resulting gain or loss taken to the
income statement.
In the prior year the Group incurred significant fair value losses as
a result of the SAA hedge book and the embedded derivatives
contained in two service contracts for the transport of commodity
products by rail.
In the current year the SAA hedge book has been unwound.
The financial effect of the hedge book this year is a R211 million
profit compared to a R4,4 billion loss in the prior year.
transactions increased by R2,6 billion to R7,5 billion. However,
net cash generated from operating activities reduced by
R2,6 billion to R484 million mainly as a result of R6,0 billion
paid to unwind the SAA hedging positions.
In line with the Group’s capital investment plan, R1,9 billion was
spent on maintaining operations and R3,7 billion on expanding
operations during the year.
Borrowings
Total interest-bearing borrowings increased by R2,4 billion to
R30,3 billion. This increase resulted from new borrowings of
R10 billion and repayments of R7,6 billion.
Gearing at 67% (2004: 83%) reflects a substantial improvement
In December 2004 one of the service contracts mentioned above
with the Sishen Iron Ore Company (Pty) Ltd, has been
successfully renegotiated thus eliminating the Group’s exposure
to fluctuations of the rand/US dollar exchange rate and
the international iron ore price. As a consequence the Group
derecognised the derivative liability of R3,9 billion associated
over last year despite the payment of R6,0 billion during the
year to settle the SAA hedge book. However, the Group’s gearing
is significantly in excess of the targeted 50% – 55%. The
Group’s gearing will be substantially reduced through
disinvestment from non-core businesses and improved
operating cash flows.
with this derivative instrument.
In the course of the Group’s business operations it is exposed to
The other service contract, which still remains, has a derivative
liquidity, credit, foreign exchange, commodity, interest rate and
liability balance of R24 million at 31 March 2005. This contract
price risk with respect to its borrowings.
has also been successfully renegotiated with an effective date of
1 July 2005.
A detailed analysis of all the Group’s borrowing and related
exposures is contained in Annexure A.
Included in derivative financial assets (current assets) is an
investment in “C” class preference shares. The value of these
The Group has adequate cash on hand and short and long-term
preference shares moves in concert with movements in the MTN
banking facilities to meet its short-term commitments. At the end
Group Limited’s share price in terms of a gain share redemption
of the financial year the Group had unused borrowing facilities of
formula. The unrealised surplus on the fair valuation of these
R30,2 billion of which R3,7 billion is available immediately as
shares for the year ended 31 March 2005, was R932 million.
short-term loans.
Treasury risk management
The Group has a centralised risk management and treasury
function that manages the financial risks relating to the Group’s
operations. The Group’s existing policies with respect to the
hedging of foreign currency exposures and the management of
treasury risk are under review to ensure risks are identified and
managed in a structured, transparent and controlled manner.
New governance structures were introduced during December
2004 to enhance the risk management process by the
introduction of a Risk Management Committee and an Asset and
Liability Management Committee. These committees meet on a
monthly basis and are responsible for monitoring and reporting all
risks, including financial risk, to the Transnet Board of Directors.
Guarantees
The various entities within the Group have issued guarantees to
third parties for various reasons amounting to R1,1 billion. The
most significant of which relates to the M Cell promissory notes
amounting to R1,8 billion.
continued
Further information regarding the above, is contained in notes 21
and 29 of the annual financial statements.
Restructuring and closures
One of the main initiatives underpinning the four-point turnaround
strategy is the redirecting of the business and the consequent
disposal of non-core businesses.
In the current year under review the following business units have
ceased operations or were disposed of:
• B2B Africa Holdings (Pty) Ltd
• Virtual Care
• Marine Data Systems (Pty) Ltd
The following business units have been identified as non-core and
their disposal/transfer was approved by the shareholder
subsequent to year-end:
• freightdynamics
• Autopax Passenger Services (Pty) Ltd
• Metrorail
• Shosholoza Meyl
• Transnet Housing
The sole shareholder in Transnet Limited being the South African
Government has guaranteed the borrowings of the Group to the
extent of R21,0 billion (2004: R19,0 billion).
• Transnet Pension Fund Administrators
• V&A Waterfront Holdings (Pty) Ltd
• Viamax (Pty) Ltd
• Equity Aviation Services (Pty) Ltd
Assets pledged in support of the secured loans and capitalised
• VAE Perway (Pty) Ltd
finance leases amount to R7,0 billion (2004: R4,4 billion).
Capital expenditure
Financial reporting
Change in accounting policies
Capital expenditure amounted to R5,6 billion (2004: R7,8 billion)
These financial statements are prepared in accordance with South
of which R3,7 billion was spent on expansion projects.
African Statements of Generally Accepted Accounting Practice,
the requirements of the Companies Act 1973 (as amended), the
Capital expenditure plans for the core businesses over the next
Public Finance Management Act 1999 (as amended) and the
five years amount to R40,8 billion and relate mainly to the
Public Audit Act 2004. These financial statements incorporate
upgrading of rail and port infrastructure and building added
accounting policies which are consistent with those of the
capacity.
previous financial year, with the exception of the following:
• Amendments to AC116 (IAS19): Employee benefits;
These capital commitments will be financed by the cash flow from
• AC128 (IAS36): Impairment of assets;
operations, together with borrowings.
• AC129 (IAS38): Intangible assets;
Pension and post retirement benefits
• AC140 (IFRS3): Business combinations; and
• AC501: Secondary taxation on companies.
The Group provides various post retirement benefits to its active
and retired employees including pension, post retirement health
The amendments to AC116 allow the Group to recognise actuarial
and other life benefits.
gains and losses arising from defined post retirement benefit
schemes directly in equity. Although the amendments to AC116
The unfunded status of the Group’s pension and medical plans
are applicable to annual periods beginning on or after 1 January
amounts to R7,6 billion, an increase of R1,2 billion compared to
2006 the Group has elected to early adopt the amendments and
the prior year. Various initiatives are being explored to ensure that
has applied them as from 1 April 2004. Comparative figures have
this deficit is extinguished in accordance with the fund rules.
been restated.
The effects of the adoption of these standards have been
disclosed on page 86 of this report.
Subsequent events
Unwinding of the MTN structure
In line with our turnaround strategy, we have reached agreement
International Financial Reporting Standards
The Group will implement International Financial Reporting
Standards (IFRS) and present its first annual financial statements
subject to the fulfilment of certain suspensive conditions on the
early unwinding of the MTN structure entered into in the 2003
financial year.
under these standards for the year ending 31 March 2006.
Accordingly the comparative figures for 2005 will be restated.
Should this agreement be implemented, the “C” class preference
shares (included in current derivative financial assets), will be
It is expected that the adoption of these new standards will result
in an increase in the net assets of the Group, but a significant
impact on the income statement of the Group is not anticipated.
sold, realising a significant amount of cash, the amount of which
depends on the 20 day volume weighted average price of
MTN shares prior to the agreement’s implementation date.
In the announcement of the interim results for the six months
ending 30 September 2005, which will be presented in terms
of IFRS, the effects of these new accounting standards will be
disclosed fully.
Transnet Business Intelligence Project
The Group has embarked on a business intelligence project and
an impact assessment of this project has been completed.
SAA – Compulsorily Convertible Subordinated Loan (CCSL)
Agreement
In the prior year Transnet advanced R4,0 billion by way of
a CCSL to cover SAA’s technical insolvency. Subsequently SAA
and Transnet have investigated various governance issues which
have delayed the conversion of the loan to ordinary shares.
After 31 March 2005, based on SAA’s improved financial position,
the board of SAA and Transnet have agreed to convert R2,4 billion
The purpose of the project is to:
• enable compliance with the IFRS reporting requirements;
of the loan into ordinary shares and R1,6 billion will become
repayable to Transnet.
• to significantly improve the quality of financial and non-financial
reporting; and
• to assist in the re-engineering of the core operational businesses
through production of quality, timely information and enhanced
control.
Chris Wells
30 June 2005
We are pleased to present our report for the financial year ended
• made appropriate recommendations to the Board of Directors
31 March 2005 as recommended by the King II Report on
regarding the corrective actions to be taken as a consequence
Corporate Governance.
of audit findings.
The Audit Committee of the Transnet Board of Directors is
In the opinion of the audit committee, the internal controls of
composed of six non-executive directors. The committee held
the Group are, with the exception of certain weaknesses set out
four scheduled meetings and six special audit committee meetings
below, considered appropriate to:
in the 2005 financial year.
• meet the business objectives of the Group;
• ensure the Group’s assets are safeguarded; and
The Audit Committee reports that is has adopted appropriate
formal terms of reference as its Audit Committee charter and
• ensure that transactions undertaken are recorded in the Group’s
records.
has regulated its affairs in compliance with this charter,
and has discharged all of its responsibilities as contained
Where weaknesses in specific controls have been identified,
therein. This process is supported by the audit sub-committees
management has undertaken to implement the appropriate
which are in place for all business units and subsidiaries.
corrective action to mitigate the weaknesses identified.
These sub-committees meet in terms of a formal mandate and
Specifically, however, the controls in the Transnet Housing division
deal with all issues arising at the business unit or subsidiary level.
were unsatisfactory and have been for several years. In addition,
These sub-committees then elevate any unresolved issues of
certain internal controls in Spoornet did not operate effectively
concern to the Transnet main Audit Committee. Internal and
during the year. In both these cases, management has taken
external auditors also elevate issues identified at the business
appropriate action and audit procedures were extended.
units and subsidiaries to the Transnet main Audit Committee.
The Audit Committee has evaluated the annual report for the year
In the conduct of its duties, the audit committee has, inter alia,
ended 31 March 2005 and considers that it complies, in all
performed the following activities:
material respects, with the requirements of the Companies Act,
• received and reviewed reports from both the internal and
as amended, the Public Finance Management Act, the Public
the joint external auditors concerning the effectiveness of the
Audit Act and Statements of South African Generally Accepted
Group’s internal control systems;
Accounting Practice. The Audit Committee concurs that the
• reviewed the reports of both internal and the joint external
adoption of the going concern premise in framing the annual
auditors detailing their concerns arising out of their audits and
financial statements is appropriate. The Audit Committee has
requested appropriate responses from management which will
therefore recommended the adoption of this annual report by the
result in their concerns being addressed;
Board of Directors at their meeting on 30 June 2005.
• considered the effectiveness on internal audit and the adherence
of internal audit to its annual programme;
• approved of the Group executive committee’s initiatives
to develop an enterprise wide risk management focus for
the Group;
• reviewed and recommended for adoption by the Transnet Board
such financial information that is publicly disclosed, which for
Prof G K Everingham
the year under review included:
Chairperson: Transnet Audit Committee
– the annual report for the year ended 31 March 2005; and
– the interim results for the six month period ended
30 September 2004.
• considered the independence and objectivity of the joint external
auditors and ensured that the scope of their additional services
provided were not such that they could be seen to have impaired
their independence; and
30 June 2005
Approval of the annual financial statements
61
Group Company Secretary certificate
61
Report of the independent auditors
62
Report of the directors
63
Accounting policies
71
Income statements
80
Balance sheets
81
Statements of recognised income and expenditure
82
Cash flow statements
83
Segmental analysis
84
Notes to the annual financial statements
86
Annexure A – Financial risk management
128
Annexure B – Property, plant and equipment
136
Annexure C – Investment in subsidiaries and associates
138
Approval of the annual financial statements
The directors are required, by the Companies Act, the Public Finance Management Act and the Public Audit Act
to prepare annual financial statements which fairly present the state of affairs of the Company and the Group
as at the end of the financial year and the profit or loss of the Company and the Group for the year then ended.
In preparing these annual financial statements, the directors are required to:
• select suitable accounting policies and apply them consistently;
• make judgements and estimates that are reasonable and prudent;
• state whether applicable accounting standards have been followed; and
• prepare the annual financial statements on the going concern basis unless it is inappropriate to presume that
the Company and/or the Group will continue in business for the foreseeable future.
The directors of the Company are responsible for the maintenance of adequate accounting records and the
preparation and integrity of the annual financial statements and related information. The annual financial
statements have been prepared in accordance with Generally Accepted Accounting Practice. The external
auditors, Deloitte & Touche and APF Inc, are responsible for independently auditing and reporting on the
financial statements in conformity with South African Auditing Standards. Their unqualified report on the
annual financial statements in terms of the Companies Act, Public Finance Management Act and Public
Audit Act appears on page 62.
The directors have every reason to believe that the Company and Group have adequate resources in place to be
able to continue in operation for the foreseeable future. Therefore the directors are satisfied that Transnet is a
going concern and have continued to adopt the going concern concept in preparing the financial statements.
The Audit Committee has reviewed the effectiveness of the Group’s internal controls, and, except for those
matters set out in the director’s report on page 63, considers the systems appropriate to the effective operation of
its business. The Audit Committee has evaluated the Group’s annual financial statements and has recommended
their approval to the Board of Directors. The Audit Committee’s approval is set out on page 58 of the annual report.
In preparing the annual financial statements and Group annual financial statements set out on pages 63 to 141,
the Group has complied with South African Statements of Generally Accepted Accounting Practice and the
Companies Act in South Africa. Except for the performance information required, the Group has complied with
the reporting requirements of the Public Finance Management Act and the Public Audit Act and has used
appropriate accounting policies supported by reasonable and prudent judgements and estimates. The directors are
of the opinion that these annual financial statements fairly present the financial position of the Company and the
Group at 31 March 2005, and the results of their operations and cash flow information for the year then ended.
M Ramos
F T M Phaswana
Chairman
30 June 2005
30 June 2005
Group Company Secretary certificate
I hereby certify that in terms of section 268G(d) of the Companies Act, 61 of 1973, to the best of my knowledge and
belief, the Company has lodged with the Registrar of Companies all such returns for the year ended 31 March 2005
as are required of a public company in terms of this Act, and that all such returns are true, correct and up to date.
Z Stephen
Group Company Secretary
Johannesburg
30 June 2005
Report of the independent auditors
TO THE MINISTER OF PUBLIC ENTERPRISES
We have audited the annual financial statements of Transnet Limited and the Group set out on pages 63 to 141
for the year ended 31 March 2005. The annual financial statements of Transnet Limited and the Group are
the responsibility of the accounting authority. Our responsibility is to express an opinion on these financial
statements based on our audit. The performance information is the responsibility of the accounting authority. Our
responsibility is to express an opinion on whether the performance information furnished in terms of sub-section
55(2)(a) of the Public Finance Management Act, 1 of 1999, as amended, is fair in all material respects and on
a basis consistent with that of the preceding year.
Scope
We conducted our audit in accordance with Statements of South African Auditing Standards issued by The South
African Institute of Chartered Accountants. Those standards require that we plan and perform the audit to obtain
reasonable assurance that the financial statements are free of material misstatement. The audit was also planned
and performed to obtain reasonable assurance that our duties in terms of sections 60 and 61 of the Public
Finance Management Act, 1 of 1999, as amended, and sections 27 and 28 of the Public Audit Act, 25 of 2004,
have been complied with.
An audit includes:
• examining, on a test basis, evidence supporting the amounts and disclosures in the annual financial
statements;
• assessing the accounting principles used and significant estimates made by management; and
• evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
Audit opinion
In our opinion:
• the financial statements fairly present, in all material aspects, the financial position of Transnet Limited and
the Group at 31 March 2005, and the results of their operations and cash flows for the year then ended,
in accordance with South African Statements of Generally Accepted Accounting Practice and in the manner
required by the Companies Act, 61 of 1973 in South Africa, the Public Finance Management Act, 1 of 1999,
as amended, and the Public Audit Act, 25 of 2004.
Without qualifying our audit opinion, we draw your attention to:
• the performance information as envisaged in sub-section 55(2)(a) of the Public Finance Management Act,
1 of 1999, as amended, and section 28(1)(c) of the Public Audit Act, 25 of 2004, has not been included
in the annual financial statements and we are therefore unable to express an opinion; and
• the transactions of Transnet Limited and the Group that had come to the auditor’s attention during the audit
were in all material respects in accordance with the mandatory functions of Transnet Limited, as determined
by law or otherwise, with the exception of the four matters, detailed in the directors’ report on pages 64 and
65. These four matters relate to investments in Spoornet Zambia branch and Allport Logistics Terminal Ltd;
Reserve Bank approval for working capital in Air Tanzania Company Limited and Transnet Housing deposits.
Deloitte & Touche
Registered Accountants and Auditors
Chartered Accountants (SA)
Johannesburg
8 July 2005
APF Inc.
Registered Accountants and Auditors
Chartered Accountants (SA)
The Directors have pleasure in presenting their report and the audited annual financial statements of Transnet
Limited and the Group for the year ended 31 March 2005.
NATURE OF BUSINESS
The Group operates businesses that provide transport and logistics services occupying a strategic position in the
logistics and supply value chain of some of South Africa’s major industries. The Group operations span railways,
road transport, commercial aviation, port operations and fuel pipeline networks.
Further details relating to the nature of the business and operations can be found in the core business units’
operational reports on pages 30 to 49.
REGISTRATION DETAILS
Transnet Limited (“the Company”) is incorporated in South Africa. The Company’s registration number is
1990/000900/06. The registered office is 47th Floor, Carlton Centre, 150 Commissioner Street, Johannesburg,
2001.
SHAREHOLDER RESOLUTIONS
Changes in Articles and Memorandum of Association
The Articles were amended by the deletion of Article 67, which related to the resignation of directors on attaining
the age of 70, and Article 76, which related to the appointment of alternate directors.
OWNERSHIP
Transnet Limited is wholly-owned by the Government of the Republic of South Africa as represented by the
Minister of Public Enterprises, Mr Alec Erwin MP, and his department.
SHARE CAPITAL
There were no changes to either the authorised or issued share capital of the Company during the year ended
31 March 2005. Details of the authorised and issued share capital can be found in note 18 of the annual
financial statements.
YEAR UNDER REVIEW
The year under review is fully covered in the Chairman’s statement on page 11 and the Group Chief Executive’s
statement on page 14.
GROUP FINANCIAL PERFORMANCE
The financial performance of the Company, the Group and the business segments are contained in the Company
and the Group consolidated annual financial statements set out on pages 63 to 141.
The review of the Group’s consolidated financial performance can be found in the Chief Financial Officer’s report
on page 54.
DIVIDENDS
There were no dividends declared for the current financial year (2004: R nil).
GOING CONCERN
The directors confirm that they are satisfied that the Group has adequate resources to continue in business for
the twelve month period from the date of this report.
For this reason they continue to adopt the going concern basis for preparing the financial statements, as
confirmed in the directors’ approval of the annual financial statements on page 61.
BORROWING POWERS
In terms of the Articles of Association, the Company has borrowing powers limited to those approved by the
Company in a general meeting and subject to the Public Finance Management Act, 1 of 1999. This limitation
shall be evidenced by means of a written certificate issued under the joint signatures of the Chairman, Group
Chief Executive and the Chief Financial Officer.
In addition, the prior sanction of the Company in a general meeting shall be required for the exercise of borrowing
powers in excess of any limitation previously stipulated by the Company in general meeting.
continued
CAPITAL EXPENDITURE AND COMMITMENTS
The capital commitments of the Company and the Group are set out in note 27 of the annual financial
statements.
CHANGES IN ACCOUNTING POLICY
The Group has adopted the following South African Statements of Generally Accepted Accounting Practice:
• AC 116 (IAS19 revised 2005): Employee benefits (the amendments to the standard have been early adopted);
• AC 128 (IAS36 revised 2004): Impairment of assets;
• AC 129 (IAS38 revised 2004): Intangible assets;
• AC 140 (IFRS3 revised 2004): Business combinations; and
• AC 501: Accounting for secondary tax on companies.
In addition the South African Airways Share Incentive Trust has been consolidated for the first time in the current
year. The comparative figures have been restated accordingly.
The effects of adopting the above statements and policies are disclosed on page 86 of the notes to the annual
financial statements.
SUBSIDIARIES AND ASSOCIATES
A detailed list of the subsidiaries and associates in the Group can be found in Annexure C on page 138.
The attributable interest of the Company in the aggregate income and losses of its subsidiaries after taxation for
the year under review was as follows:
Income
Losses
2005
R million
2004
R million
1 119
213
125
8 982
CORPORATE GOVERNANCE AND COMPLIANCE
The Board complies with the code of corporate practice as set out in the King II Report on corporate governance
in conjunction with the Public Finance Management Act (PFMA), 1 of 1999, as amended, the Public Audit Act,
25 of 2004, and the related Treasury Regulations. A detailed report can be found on page 25.
PUBLIC FINANCE MANAGEMENT ACT (PFMA)
Transnet Limited has implemented governance structures and processes in compliance with the provisions of the
PFMA. PFMA compliance is one of the key business issues that the Group manages and monitors. Sections 51
and 55 of the PFMA impose certain obligations on the Company. These obligations relate to the prevention,
identification and reporting of all fruitless, wasteful and irregular expenditure, and the collection of all revenue.
In order to comply appropriately with these responsibilities, Transnet management has prepared a materiality
framework which has been forwarded to the Minister of Public Enterprises for his review and approval. This has
recently been received subject to certain conditions.
During the year under review Transnet has not fully complied with all the requirements of the PFMA, and a
comprehensive report detailing all identified instances of non-compliance with the PFMA during the period 1 April
2003 to 31 March 2005, has been prepared and will be submitted to the Minister in due course. For reporting
purposes the materiality limits of the delegated authority for each business unit were utilised, all of these being
within the materiality limits set out in the framework referred to above.
The Board reports the following contraventions, which came to its attention in the current year. The transactions
which gave rise to these contraventions occurred in prior years.
Investment in Spoornet Zambia
The operation, maintenance and upgrade agreement was implemented on 3 December 2003 in the form of
Spoornet Zambia – a branch of Transnet Limited. Authorisation was not obtained from the Executive Authority
in terms of S54(2) of the PFMA.
Investment in Allport Logistics Terminal Ltd
National Ports Authority of South Africa (NPA), a division of Transnet Limited, has contravened section 54(2) of
the Public Finance Management Act, 1 of 1999. Transnet, through its division NPA, does not have a signed
shareholders’ agreement in respect of its participation in a port related joint venture in Ghana, which was a
prerequisite of the Minister of Public Enterprises’ approval.
South African Airways contravention of Reserve Bank regulations
South African Airways have contravened the South African Reserve Bank regulations through an investment in the
working capital of Air Tanzania Company Limited.
Transnet Housing governance procedures
Transnet Housing has for many years taken deposits from employees and utilised surplus funds therefrom to
finance operations. This may potentially be in contravention of the Banks Act, 94 of 1990. Appropriate corrective
action is in place.
The Board of Transnet is addressing the above matters and taking appropriate action.
SHAREHOLDER COMPACT
In pursuance of its objective to promote good corporate governance in state-owned enterprises, the Government as
sole shareholder and Transnet signed a Shareholder Performance Agreement (shareholder compact) in July 2001.
An updated shareholder’s compact has been drafted and is currently undergoing discussion and review with the
shareholder in order to achieve finalisation.
As the terms of the updated shareholder compact have not been finalised, performance information and other
criteria normally reported as required by section 55(2) of the PFMA have not been reported.
REQUIREMENTS IN TERMS OF THE PROTOCOL ON CORPORATE GOVERNANCE FOR STATE-OWNED
ENTERPRISES
Introduction
Transnet is required to adhere to a framework on corporate governance which governs state-owned enterprises and
is outlined as follows:
Organisational structure
The Group’s organisational structure is set out on page 2 of the annual report.
SIGNIFICANT EVENTS NOTIFIED TO THE EXECUTIVE AUTHORITY
The following significant events were notified to the Executive Authority during the year under review:
Head office restructuring and disposal of certain non-core businesses
The corporate plan containing the detailed plan to close or dispose of certain non-core business units as well as
the intention to restructure the Transnet head office was forwarded to the Minister on 28 February 2005.
Judicial proceedings
During the year under review, there were numerous judicial proceedings entered into with Transnet either as
the plaintiff or the defendant. Where the outcome can be assessed with reasonable certainty, the financial
statements include a best estimate of the expected liability arising from those judicial proceedings. Where the
outcome is not certain and the case could have a material impact on the Company and the Group’s financial
results, the details of the cases have been set out in note 28 dealing with the Company and the Group’s
contingent liabilities.
Protocol for communication with the stakeholder
The Group reports to Minister Alec Erwin MP, the Minister of Public Enterprises and has regular communication
with him and his department.
POST-BALANCE SHEET EVENTS
The following matters arose between 31 March 2005 and 30 June 2005:
Unwinding of the MTN structure
Subsequent to year-end, in line with the Group turnaround strategy, we have reached agreement on the unwinding
of the MTN structure entered into in the 2003 financial year, subject to certain suspensive conditions.
continued
Capitalisation of loan to South African Airways (Pty) Ltd (SAA)
During the current financial year Transnet advanced a R4 billion compulsory convertible subordinated loan
(CCSL) to SAA.
Subsequent to the year-end the provisions of the loan have been reviewed in the light of SAA’s financial position
and agreement has been reached with SAA that R2.4 billion of the loan is to be converted into 2.4 billion
ordinary shares as soon as is practicable. The balance of R1.6 billion is to be repaid to Transnet out of existing
cash flows.
Appointment of new executives post year-end
Louis van Niekerk was appointed as Chief Operating Officer with effect from 1 May 2005.
GROUP EXECUTIVES
Guaranteed remuneration
A component of the compensation of the Group Chief Executive and members of the Group Executive Committee
is in the form of guaranteed remuneration, which is reviewed on an annual basis with the adjustments being
effected from 1 April each year. Adjustments are based on the achievement of predetermined key performance
measures, which are set annually and reviewed through a process of performance evaluation.
Performance incentive bonus scheme
The Group Chief Executive and members of the Group Executive Committee participate in a performance incentive
bonus scheme, in terms of which specific financial and non-financial targets are set. These are reviewed annually
and agreed upon individually before the start of the financial year or prior to the commencement of their contracts
in respect of new appointees. The performance bonus is measured and calculated in terms of the above criteria.
The Company’s external auditors review management’s assessment of the achievement of the determined financial
targets and the final calculation of the performance incentive bonus payable. The bonuses so calculated are then
reviewed and approved by the Group Remuneration Committee. Bonuses are only calculated and paid after the
completion of the audit of the Group’s financial results.
Share options
The executive directors of the Group do not participate in any share incentive schemes.
Service contracts
The Group Chief Executive is on a three-year contract which expires on 31 October 2006. The contractual
conditions of her service include a notice period of four months. The Group Chief Executive, on termination of
service under any circumstances (with the exception of a breach of fiduciary duties), is entitled to a termination
benefit equivalent to a year’s guaranteed remuneration. The following additional benefits are also applicable:
• Performance bonus – 25% of guaranteed remuneration as at date of appointment and based on Company
performance in achieving operational targets
• Medical aid scheme benefits
• Travel concessions
Other Group executives
The following members of the Group Executive Committee were appointed during the current financial year:
Name
Position
Date appointed
VD Kahla
P Maharaj
Group Executive – Legal and Risk
Group Executive – Strategy
and Transformation
Treasurer
1 July 2004
BS Tshabalala
CF Wells
1 July 2004
1 June 2004
24 January 2005
The following Group executives resigned during the current financial year.
Name
Date resigned
Z Danana
SN Mabaso
MV Phiyega
30 September 2004
22 September 2004
31 January 2005
With the exception of the Chief Financial Officer, the Chief Operating Officer, the Group Executive – Legal and
Risk and the Group Executive – Strategy and Transformation, the Group executives are on a five-year fixed term
contract of employment and are on a notice period of three months. The Group Executives, on termination of
service under any circumstances (with the exception of a breach of fiduciary duties), are entitled to a termination
benefit equivalent to the residual portion of the fixed term contract.
The Company has granted an additional 25% of guaranteed remuneration, subject to the achievement of
budgeted targets and the performance of the Company. The Chief Financial Officer and Group Executives are
allowed to participate in the following Company benefits:
• Transnet Retirement Fund;
• Medical Aid Scheme; and
• Travel concessions.
Remuneration
Executive guaranteed remuneration
Name
Months
in office
(if less than 12)
Current executives
VD Kahla
P Maharaj
LRR Molotsane
B Nomvete
K Phihlela
M Ramos†
CF Wells†
BS Tshabalala
S Gama
T Morwe
C Möller
Former executives
Z Danana
SN Mabaso
ME Mkwanazi
D Mokgatle
MV Phiyega
Total
9
9
2
10
6
6
10
10
Retirement
fund
contribuSalary
tions
R’000
R’000
Other Termination
contribenefits
butions
paid
R’000
R’000
Other
payments
R’000
2005
R’000
2004
R’000
1 231
941
1 465
1 192
1 177
2 352
430
1 162
1 145
1 140
1 077
100
76
135
94
90
218
39
71
93
97
130
17
11
–
–
–
–
–
–
39
40
44
–
–
–
–
–
–
–
–
–
–
–
29
13
64
27
15
29
2
28
50
35
28
1
1
1
1
1
2
377
041
664
313
282
599
471
261
327
312
279
1
1
1
1
–
–
584
834
796
014
–
–
869
808
765
547
767
–
1 672
1 203
53
62
–
113
76
–
–
–
35
–
2 619
2 773
–
–
4 006
36
12
–
23
37
3 255
3 614
–
1 843
5 322
1
1
4
1
1
227
713
385
360
587
17 501
1 447
186
9 398
428
28 960
1
1
1
1
1
19 940
† Group executives who are members of the Board of Directors.
continued
Performance bonus
Name
2005
2004
ME Mkwanazi
SN Mabaso
–
–
1 661
934
Total
–
2 595
Note:
1 The bonuses paid relate to the previous financial year. To date, there have been no payments in respect of the year ended 31 March 2004.
2. The performance bonuses for the year ended 31 March 2005 will only be finalised after the approval of the audited annual financial
statements.
NON-EXECUTIVE DIRECTORS
Appointment and remuneration
Non-executive directors, who in the main are independent directors, are appointed at the annual general meeting
of the shareholder. The fees paid to non-executive directors vary based on their attendance at, and their
appointments to, the various committees of the Transnet Board.
The schedule of attendance of non-executive directors to the various committees of the Transnet Board is
contained in the corporate governance report as set out on page 25.
Company
Months
in office
Fees
R’000
Disbursements
R’000
2005
R’000
2004
R’000
Current Board members
FTM Phaswana
I Abedian
GK Everingham
NBP Gcaba
SE Jonah KBE
PG Joubert
NNA Matyumza
MA Moses
S Nicolaou
BT Ngcuka
KC Ramon†
7
7
7
7
7
7
7
7
7
7
7
508
56
77
39
31
64
48
44
52
40
43
–
–
2
–
–
–
–
–
–
–
–
508
56
79
39
31
64
48
44
52
40
43
–
–
–
–
–
–
–
–
–
–
–
Former Board members
BA Khumalo
F Abrahams
GS Andrews
SK Bhattacharyya
SN Buthelezi
N Gomomo
FP Lembede
J Molobela
AMSS Mokgabudi
Y Muthien
HN Ndude
M Ramano
JH Rowlands
PA Thompson
5
5
5
5
5
5
5
5
5
5
5
5
5
5
567
100
63
38
67
132
76
95
89
71
99
75
112
71
–
–
–
–
–
–
–
–
–
–
–
–
–
12
567
100
63
38
67
132
76
95
89
71
99
75
112
83
850
206
12
38
241
374
155
29
159
158
191
135
368
134
2 657
14
2 671
3 050
Name
Total
† Paid to Johnnic Holdings Ltd
The corporate governance report as set out on page 25 contains details of appointments and resignations of nonexecutive directors during the current financial year.
SUBSIDIARY DIRECTORS
Executive directors
Name
Retirement
fund
Months
contribuin office Salary
tions
(if less than 12) R’000
R’000
SAA (Pty) Ltd
AN Viljoen
R Forson
O Mabandla
T Ramano
K Ngqula
5
Performance
incentive
bonus
R’000
Other
R’000
Gain on
share
options
R’000
2005
R’000
2004
R’000
1 181
–
916
1 489
2 180
–
–
84
137
115
–
–
–
–
–
3 674
–
1 101
–
–
–
–
–
–
–
4 855
–
2 101
1 626
2 295
3 945
1 632
–
–
–
865
–
–
49
–
914
1 618
734
916
56
84
–
–
–
1 483
–
–
790
2 483
1 238
550
1 070
85
–
38
1 193
1 388
Viamax (Pty) Ltd
N Hariparsad
720
–
–
181
–
901
2 658
Autopax Passenger
Services (Pty) Ltd
MC Bester
951
–
–
16
–
967
1 022
Protekon (Pty) Ltd
CM Xaba
777
62
–
54
–
893
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2 438
986
647
5
–
1 110
290
–
44
12
–
–
–
–
–
–
–
–
–
–
1 154
302
128
–
–
7
1 049
835
386
–
65
314
–
–
–
–
63
700
–
–
–
1 049
963
1 400
1 091
–
–
15 469
1 058
–
7 359
–
5
7
SAA City Centre (Pty) Ltd
M Stoltzing
SAA Technical (Pty) Ltd
L Olitzki
R Ramkissoon
9
B2B Africa Holdings (Pty) Ltd
NN Shikwane
Marine Data Systems (Pty) Ltd
PFH Winterbach
A van den Berg
KH Burchell
SA Express Airways (Pty) Ltd
BPB Dibate
S Mzimela
FJ Oberholzer
Air Chefs (Pty) Ltd
B Fischer
V Kona
J van Jaarsveld
Total
23 886 19 341
continued
Non-executive directors
Name
Months
in office
(if less than 12)
SAA (Pty) Ltd
D Ncube
D Konar
AMSS Mokgabudi
AP Nkuna
MTK Moerane
R Doganis
CC Okeahalam
GJ Gerwel
LM Mojela
MV Moosa
A Ngwezi
M Ramos
L Nyhonya
N Matyumza
Autopax Passenger Services (Pty) Ltd
F Lembede
KC Ramon†
Fees
R’000
Other
R’000
2005
R’000
2004
R’000
–
–
208
300
510
530
400
250
150
150
160
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
208
300
510
530
400
250
150
150
160
–
688
77
167
150
150
261
150
–
–
–
–
–
10
14
3
–
–
14
3
36
–
7
5
78
36
2
–
80
36
–
–
7
–
–
–
45
–
111
41
71
48
5
7
7
7
7
7
F Abrahams
CR Jardine
JH Rowlands
6
45
–
111
Protekon (Pty) Ltd
M Mohohlo
PG Joubert
7
5
–
8
–
–
–
8
28
–
Viamax (Pty) Ltd
J Giltrow
J Rowlands
M Moses
6
5
107
134
58
–
–
–
107
134
58
32
7
–
3 252
2
3 254
1 906
Total
† Paid to Johnnic Holdings Ltd
GROUP COMPANY SECRETARY
Zola Stephen
Group Company Secretary’s physical and business address:
47th Floor, Carlton Centre
150 Commissioner Street
Johannesburg
2001
PO Box 72501
Parkview
2122
South Africa
Telephone +27 11 308 2424
Telefax +27 11 308 2430
Accounting policies
BASIS OF PREPARATION
The annual financial statements are prepared on the historical cost basis, except as modified by:
• The revaluation of pipeline networks and port facilities;
• Measurement at fair value of derivative financial instruments, available-for-sale and held for trading financial
assets; and
• The measurement at fair value of investment properties.
The financial statements have been prepared in accordance with South African Statements of Generally Accepted
Accounting Practice. The principal accounting policies adopted in the preparation of these consolidated financial
statements are set out below and are consistent in all material respects with those applied in the previous year
with the exception of the adoption during the year of:
• AC116 (IAS19 revised 2004) – Employee Benefits (the amendment to this standard has been early adopted);
• AC128 (IAS36 revised 2004) – Impairment of Assets;
• AC129 (IAS38 revised 2004) – Intangible Assets;
• AC140 (IFRS3 revised 2004) – Business Combinations; and
• AC501 – Accounting for Secondary Taxation on Companies.
Furthermore, the Group has consolidated the South African Airways Share Incentive Trust with effect from
1 April 2004 and has restated the comparative figures accordingly.
PRESENTATION OF FINANCIAL STATEMENTS
These financial statements are presented in South African rands since that is the currency in which the majority
of the Group’s transactions are denominated.
BASIS OF CONSOLIDATION
A subsidiary (including a special purpose entity) is a company in which the Group controls the composition of its
Board of Directors, or has the power to govern the financial and operating policies of the investee enterprise so as to
obtain benefits from its activities. Typically this will be where the Group holds more than 50% of the voting power.
The consolidated financial statements include the results of the Company and its subsidiaries, from the effective
dates of acquisition to the effective dates of disposal. The cost of an acquisition is measured as the fair value of
the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs
attributable to the acquisition. Identifiable assets acquired and liabilities, as well as contingent liabilities
assumed in a business combination are measured initially at their fair values at acquisition date, irrespective of
the extent of any minority interest.
Special purpose entities are consolidated when the substance of the relationship between the Group and the
special purpose entity indicates that it is controlled by the Group.
All inter-company transactions and balances are eliminated on consolidation.
JOINT VENTURES
A joint venture is an entity in which the Group holds an interest and which is jointly controlled by the Group and
one or more other venturers under a contractual arrangement. The Group’s interest in a jointly controlled entity is
accounted for by proportionate consolidation in the Group accounts from the effective date of acquisition until the
effective date of disposal.
Where the Group transacts with its jointly controlled entities, unrealised profits and losses are eliminated to the
extent of the Group’s interest in the joint venture, except to the extent that unrealised losses provide evidence
of an impairment of the asset transferred.
INVESTMENTS IN ASSOCIATES
An associate is an enterprise over which the Group is in a position to exercise significant influence, but not
control, through participation in the financial and operating policy decisions of the investee. Investments in
associates are equity accounted, in the consolidated financial statements, for the period in which the Group
exercises significant influence. Significant influence is typically assumed in instances where the Group has an
equity stake greater than 20% but less than 50% in a company. Equity accounted income represents the Group’s
proportionate share of the profits of these companies and the share of taxation thereon, net of the Group’s
proportionate share of inter-group profits. Losses incurred by associates (including impairment losses where such
indications exist) are brought to account in the consolidated financial statements until the investment in such
associates is written down to a nominal value. Thereafter, losses are accounted for only insofar as the Group is
committed to providing financial support to such associates. The carrying amount of such investments is reduced
to recognise any decline in the value of the investment.
Accounting policies
continued
The Group’s interest in an associate is carried in the balance sheet at an amount that reflects its share of
the net asset value of the associate, plus goodwill, less an impairment loss, if applicable.
Where the Group transacts with an associate of the Group, unrealised profits and losses are eliminated to the
extent of the Group’s interest in the relevant associate, except to the extent that unrealised losses provide
evidence of an impairment of the asset transferred.
INTANGIBLE ASSETS
Goodwill
Goodwill arising on consolidation represents the future economic benefits arising from assets that are not capable
of being individually identified and separately recognised.
Goodwill arising on the acquisition of subsidiaries and jointly controlled entities is presented separately as an
asset on the balance sheet. Goodwill arising on the acquisition of an associate is included within the carrying
amount of the associate.
Goodwill is tested annually for impairment as well as when there are indications of impairment and carried at cost
less accumulated impairment losses. Goodwill is allocated to cash generating units for the purpose of impairment
testing. Goodwill is tested for impairment by the end of the year in which an acquisition arises. The Group does
not recognise the reversal of impairment losses for goodwill.
Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.
Negative goodwill
Negative goodwill represents the excess of the Company’s interest in the net fair value of the identifiable assets,
liabilities and contingent liabilities acquired over the cost of the acquisition of the Group’s interest in subsidiaries,
associates and jointly controlled entities.
Negative goodwill arising on acquisition will be credited to income on the date of acquisition, provided the
negative goodwill is supported by the re-assessment of the identification and measurement of the acquiree’s
identifiable assets, liabilities and contingent liabilities and the cost of the business combination.
Software and licences
Software and licences are carried at cost less accumulated amortisation and any impairment in value. Internally
developed and packaged software and the direct costs associated with the development and installation thereof
are capitalised and recognised as intangible assets. Software is amortised in full on a straight-line basis over
three to five years from the date of being commissioned.
Costs associated with developing or maintaining computer software programs are recognised as an expense as
incurred. Costs that are directly associated with the production of identifiable and unique software products
controlled by the Group and that will probably generate economic benefits exceeding costs beyond one year,
are recognised as intangible assets. Direct costs include the software development, employee costs and an
appropriate portion of relevant overheads.
Costs relating to the acquisition of licences are capitalised and amortised on a straight-line basis over three years
or the licence’s useful life, whichever is shorter.
RESEARCH AND DEVELOPMENT
Research costs are charged against operating income as incurred. Development costs are also charged against
operating income as incurred, except where:
• an asset is created that can be identified;
• it is probable that the asset will generate future economic benefits; and
• the development cost of the asset can be reliably measured; in which event the costs are capitalised.
Development costs that have finite useful lives that have been capitalised are amortised on a straight-line basis
over their useful lives.
Development costs previously recognised as an expense are not recognised as an asset in a subsequent period.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost or revalued amounts, less accumulated depreciation and any
impairment losses.
Owned assets
Property, plant and equipment in the categories of port facilities and pipeline networks are revalued annually.
These assets are independently revalued every fifth year, with valuations in the intervening years being performed
by the application of appropriate indices. Revaluation surpluses and deficits that arise are taken directly to the
revaluation reserve.
Major improvements to property, plant and equipment are capitalised. Repairs and maintenance are expensed as
and when incurred. Minor items of purchased property, plant and equipment are also recognised in the income
statement as incurred.
Exchangeable units such as aircraft engines are classified as property, plant and equipment. Costs of repairing
and exchanging such units are recognised in the income statement as incurred. Exchangeable units are held at
cost less accumulated depreciation and any required impairment in value.
Depreciation
Depreciation is provided on a straight-line basis over the estimated useful life of the asset. Land, commercial land
and assets in the course of construction are not depreciated. All other property, plant and equipment, including
capitalised leased assets, are depreciated on a straight-line basis over their estimated useful lives at the following
rates:
Rate per annum
Aircraft
Buildings and structures
Machinery, equipment and furniture
Permanent way and works
Pipeline networks
Port facilities
Rolling stock and containers
Vehicles
%
4–6
2–5
6,67 – 50
1,05 – 5
1,05 – 33,3
1,05 – 10
2,5 – 10
10 – 20
Impairment of tangible and intangible assets (excluding goodwill)
The carrying amounts of the Group’s assets are reviewed at each balance sheet date to determine if there is any
indication of impairment, in which case their recoverable amounts are estimated. Where the asset does not
generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the
cash generating unit to which the asset belongs. An intangible asset with an indefinite useful life is tested for
impairment annually and whenever there is an indication that the asset may be impaired.
Where the carrying amount of an asset exceeds its recoverable amount, an impairment loss is recognised as an
expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss
is treated as a revaluation decrease. Any excess of the impairment loss over the revaluation surplus is charged
to profit or loss. A previously recognised impairment loss will be reversed if the recoverable amount increases as a
result of a change in the estimates previously used to determine the recoverable amount, to an amount not higher
than the carrying amount that would have resulted had no impairment loss been recognised. A reversal of an
impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount,
in which case the reversal of the impairment loss is treated as a revaluation increase.
The recoverable amount is the higher of the fair value less cost to sell and the value-in-use. Fair value is
determined by ascertaining the current market value of an asset and deducting any costs relating to the
realisation of the asset. In assessing the value-in-use, the expected future cash flows from the asset are
discounted to their net present values using a pre-tax discount rate that reflects current market assessments
of the time value of money and the risks specific to the asset.
For an asset whose cash flows are largely dependent on those of other assets, the recoverable amount is
determined for the cash-generating unit to which the asset belongs. The pre-tax discount rate applied varies
from business unit to business unit and takes into account the specific risks attributable to that business unit.
In addition, certain business units apply a discount rate that is reduced below normally acceptable commercial
returns. This is applicable where the business unit undertakes services in keeping with the Government’s
socio-economic responsibilities from which a commercial return cannot be earned.
INVESTMENT PROPERTIES
Investment property, which is property held to earn rentals and/or for capital appreciation, is stated at its fair
value at the balance sheet date. Gains and losses arising from changes in the fair value of investment property
are included in the income statement for the period in which they arise.
Accounting policies
continued
LEASES
Finance leases are leases where the Group assumes substantially all the risks and rewards incident to the
ownership of the underlying assets. All other leases are operating leases. Leases that are classified as operating
leases are not capitalised. Payments made under operating leases are recognised in the income statement on
a straight-line basis over the period of the lease.
Group as lessor
When assets are leased out under a finance lease, the present value of the lease payments is recognised as
a receivable. The difference between the gross receivable and the present value of the receivable is recognised
as unearned finance income. Lease income is recognised over the term of the lease using the net investment
method, which reflects a constant periodic rate of return.
Assets leased to third parties under operating leases are included in property, plant and equipment in the balance
sheet. They are depreciated over the expected useful lives on a basis consistent with similar owned property, plant
and equipment. Rental income is recognised on a straight-line basis over the lease term.
Group as lessee
Assets held under finance leases are recognised as assets of the Group at their fair value or, if lower, at the present
value of the minimum lease payments, each determined at the inception of the lease. The corresponding liability to
the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between
finance charges and the reduction of the lease obligation so as to achieve a constant rate of interest on the
remaining balance of the liability. Finance charges are charged directly against income. Leased assets are depreciated over the shorter of the normal depreciation rates applicable to the class of asset into which the leased asset
falls and the lease period and are carried at cost less accumulated depreciation and plus any impairment in value.
Rentals payable under operating leases are charged to income on a straight-line basis over the term of the
relevant lease.
Improvements in respect of leased premises are capitalised and amortised over the shorter of the remaining
lease period or their economic lives.
Sale and leaseback
Where a sale and leaseback agreement is classified as a finance lease, any excess of the sales proceeds over
the carrying values is deferred and recognised in the income statement over the period of the lease.
Where a sale and leaseback agreement is classified as an operating lease, any excess or deficit of the sales proceeds
over the carrying values of the assets sold is recognised in the income statement in the year in which it arises.
FOREIGN CURRENCIES
Transactions and balances
Transactions in foreign currencies are accounted for at rates ruling on transaction dates. Monetary assets and
liabilities denominated in foreign currencies are translated into South African currency at the rate of exchange
ruling at the balance sheet date. In the case of aviation business units, the ruling rate of sales denominated
in foreign currencies is taken as being the International Air Transport Association (IATA) five day average rate
applicable to the transaction month.
Non-monetary items originally denominated in foreign currencies are carried at the exchange rates ruling at the
original transaction date, except where the underlying asset or liability is carried at fair value denominated in
the foreign currency, in which case the asset or liability is translated into South African rand at the exchange
rate ruling when the fair value was determined.
All gains or losses arising on translation are recognised in the income statement and are classified as finance costs.
In order to hedge its exposure to foreign exchange risks, the Group enters into forward contracts. The accounting
treatment for these is detailed under “Financial Instruments” below.
Foreign entities
The financial statements of foreign entities are translated into South African rand as follows:
• Assets and liabilities at rates of exchange ruling at balance sheet date;
• Income and expenditure at weighted average rates;
• Goodwill and fair value adjustments arising on acquisition at rates of exchange ruling at balance sheet date.
All resulting exchange differences are reflected as part of shareholders’ equity. On disposal, such translation
differences are recognised in the income statement as part of the cumulative gain or loss on disposal.
The financial statements of foreign entities that report in the currency of a hyper-inflationary economy are restated
in terms of the measuring unit current at the balance sheet date before they are translated into the Group’s
reporting currency.
Inventories
Inventories are stated at the lower of cost and estimated net realisable value. Net realisable value is the estimated
selling price in the ordinary course of business less any costs of completion and disposal. Inventories are valued
as follows:
• Raw materials and consumable stores are stated at weighted average cost; and
• Manufactured goods and work in progress are valued at raw material cost, plus direct labour cost, and an
appropriate portion of related manufacturing overhead cost, based on normal capacity.
Write-downs to net realisable value and inventory losses are expensed in the period in which the write-downs
and/or losses occur.
TAXATION
Deferred taxation
Deferred taxation is provided using the balance sheet liability method on all temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation
purposes, except for differences relating to goodwill (negative goodwill), which is not deductible or taxable for
taxation purposes, and the initial recognition of assets or liabilities (other than in a business combination), which
affect neither accounting nor taxable profit or loss.
A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available,
to be utilised against the associated unused tax losses and deductible temporary differences.
Deferred taxation is calculated using taxation rates that have been enacted or substantially enacted at the balance
sheet date. Deferred tax is charged or credited in the income statement except where it relates to items charged
or credited directly to equity, in which case the deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority
and in the same entity and the Group intends to settle its current tax assets and liabilities on a net basis.
Current tax
The charge for current tax is the amount of income taxes payable in respect of the taxable profit for the current
period. It is calculated using tax rates that have been enacted or substantially enacted by the balance sheet date.
Secondary tax on companies (STC)
STC is provided in respect of the expected dividend payments net of dividends received or receivable and is
recognised as a taxation charge in the year in which the dividend is declared.
FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are recognised on the balance sheet when the Group has become party
to the contractual provisions of the instruments.
Financial instruments recognised on the balance sheet include:
• Standalone derivative instruments
• Embedded derivatives
• Transnet bonds and other money market instruments
• Cash and cash equivalents
• Trade and other receivables
• Trade and other payables
• Investments, including subsidiaries and associates classified as available for sale
• Borrowings
Measurement
Financial instruments are initially measured at cost, which includes transaction costs. Subsequent to initial
recognition these instruments are measured as set out below:
Recognition
The Group recognises financial liabilities held for trading on the date it becomes party to the contractual
provisions to purchase/sell the liabilities and applies trade date accounting for “regular way” purchases and sales.
Investments
After initial recognition, investments, which include the Company’s listed investments in associates and
subsidiaries and the Group’s market making portfolios in both bonds and money market instruments, which are
Accounting policies
continued
classified as held for trading, and available-for-sale, are measured at fair value. Fair value is the market value
(listed investments) or either the market price of a substantially similar investment or the present value of
expected future cash flows of the net asset base (unlisted investments). Gains or losses on investments held for
trading are recognised in the income statement. Gains or losses on available-for-sale investments are recognised
as a separate component of the Group’s equity until the investment is sold, collected or otherwise disposed of,
or until the investment is determined to be impaired, at which time the cumulative gain or loss previously
reported in equity is recognised in the income statement. The gains or losses arising from the application
of the above policy, in respect of associates and subsidiaries, are reversed at a Group level where normal
consolidation and equity accounting principles apply.
The Company’s investments in unlisted associates and subsidiaries are carried at cost less a provision
for impairment where applicable.
Other long-term investments that are intended to be held to maturity are subsequently measured at amortised
cost using the effective interest rate method. Amortised cost is calculated by taking into account any discount or
premium on acquisition over the period to maturity. For investments carried at amortised cost, gains and losses
are recognised in profit or loss when the investments are derecognised or impaired, as well as through the
amortisation process.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and on hand, and instruments which are readily convertible,
within 90 days, to known amounts of cash and are subject to an insignificant risk of change in value. For the
purposes of the consolidated cash flow statement, cash and cash equivalents consist of cash and cash equivalents
as defined above, net of outstanding bank overdrafts, all of which are available for use by the Group unless
otherwise stated.
Trade and other receivables
Trade and other receivables, which generally have 30 to 90 day terms, are recognised and carried at the original
invoiced amount less an allowance for any estimated irrecoverable amounts.
Pre-delivery payments and other aircraft deposits
Pre-delivery payments paid to the manufacturers of aircraft in terms of the contractual arrangements governing
the purchase of aircraft are initially recognised as part of capital work in progress at the cost of the consideration
delivered.
In the event that a decision is taken that it is likely that the underlying aircraft will not be purchased at the
expected delivery date, but will be leased under an operating lease, then the related pre-delivery payments will be
re-measured to the present value of the consideration expected to be received from the ultimate lessor. This
consideration will, if it is denominated in foreign currency, be translated into the measurement currency by
applying the ruling exchange rate at the reporting date.
In calculating the value of the future consideration receivable, any benefit or loss that will result as a
consequence of the Group having secured the aircraft at the original contractual price as against the fair value of
the aircraft at the date of delivery to the lessor, which is taken into consideration in the future operating lease
payments, forms part of the consideration receivable. Any loss arising on re-measurement is classified as
impairment.
Once the operating lease agreement related to the aircraft has been formally concluded, the receivable amount so
arising is transferred from capital work in progress to refundable deposits.
Where an aircraft is delivered under short-term bridging finance, pending the finalisation of an operating lease,
the related pre-delivery payments and the final instalment paid to the manufacturer are again re-measured at the
present value of the expected consideration from the lessor in the same manner as outlined above. Under these
circumstances the full consideration receivable is classified under refundable amounts.
Financial liabilities
After initial recognition, financial liabilities other than trading liabilities and derivatives are subsequently
measured at amortised cost using the effective interest rate method. Amortised cost is calculated by taking into
account any transaction costs, and any discount or premium on settlement.
Financial liabilities held for trading purposes and derivative liabilities are measured at fair value and the resultant
gains and losses are included in profit or loss.
Trade and other payables
Liabilities for trade and other amounts payable which are normally settled on 30 to 90 day terms are stated at
nominal value.
Derivative financial instruments
The Group uses derivative financial instruments which include forward exchange and currency option contracts,
cross-currency and interest rate swaps, interest rate options and jet fuel derivatives. The Group analyses its
portfolio of derivative financial instruments based on the existence and designation of economic hedging
relationships as follows:
• Fair value hedges, which hedge the Group’s exposure to changes in the fair value of the underlying assets
or liabilities recognised on the Group’s balance sheet;
• Cash flow hedges, which hedge the Group’s exposure to the variability of future cash flows occasioned by
movements in exchange rates, interest rates and the price of jet fuel, where the underlying exposure has not
been recognised as either an asset or a liability on the balance sheet, or as an item of income or expense in
the income statement; and
• Other derivatives held.
Cash flow hedges are only classified as cash flow hedges where the circumstances of the hedges meet the criteria
for hedge accounting as contained in the South African Accounting Statement AC133 – Financial Instruments:
Recognition and Measurement. The effective portion of the hedge is recognised in equity.
Where derivatives do not meet these criteria, they are classified as “other derivatives held” even though there may
be an economic hedging relationship between the derivatives and the Group’s current or future exposures.
All derivative financial instruments are measured at fair value by marking the instruments to market at the
financial year-end.
The gains or losses arising in respect of the derivative financial instruments in the categories of fair value hedges
and other derivatives held are recognised immediately in the income statement.
The gains or losses arising in respect of the derivative financial instruments relating to future cash flow hedges are
recognised directly in equity until the underlying exposure/transaction occurs, or until the future transaction is no
longer expected to occur. Any asset or liability ultimately resulting from the conclusion of a hedged transaction is
recognised, at the initial measurement of the hedged item, incorporating the cumulative gain or loss on the hedge
from inception of the hedge to the time of the recognition of the transaction. Where the initial recognition of the
hedged transaction results in either a profit or a loss effect, the gain or loss from the hedge is recognised in profit
or loss in the same period that the underlying hedged transaction is recognised. Where the transaction is no longer
expected to occur, the net cumulative gain or loss resulting from the hedge is recognised in profit or loss.
Derivatives embedded in other financial instruments or non-derivative host contracts are treated as separate
derivatives when their risks and characteristics are not closely related to those of host contracts and the host
contracts are not carried at fair value with unrealised gains or losses reported in profit or loss.
The Group does not speculate in the trading of derivative instruments.
Impairment and non-collectability of financial assets
An assessment is made at each balance sheet date to determine whether there is objective evidence that a
financial asset or group of financial assets may be impaired. If such evidence exists, the estimated recoverable
amount of the asset is determined and an impairment loss is recognised for the difference between the
recoverable amount and the carrying amount as follows:
• For financial assets held at either cost or amortised cost – the carrying amount of the asset is reduced
to its discounted estimated recoverable amount, either directly or through the use of an allowance account,
and the resulting loss is recognised in the income statement for the period; and
• For financial assets at fair value – where a loss has been recognised directly in equity as a result of the writedown of the asset to recoverable amount, the cumulative net loss recognised in equity is transferred to the
income statement for the period.
Offset
Where a legally enforceable right of offset exists for recognised financial assets and liabilities, and there is an
intention to settle the liability and realise the asset on a net basis, all related financial effects are offset.
Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
Accounting policies
continued
PROVISIONS
Provisions are recognised when the Group has a present obligation (legal or constructive), as a result of a past
event, for which it is probable that an outflow of resources embodying economic benefits will be required to settle
the obligation, and a reliable estimate can be made of the amount of the obligation.
Provisions for restructuring costs are recognised when the Group has a detailed formal plan for the restructuring
and the Group has raised a valid expectation in those affected that it will carry out the restructuring by starting to
implement that plan or announcing its main features to those affected by it. Restructuring provisions only include
those direct expenditures which are necessarily entailed by the restructuring and not associated with the ongoing
activities of the enterprise.
FREQUENT FLYER PROGRAMME
A subsidiary of the Group manages a travel incentive programme (Voyager), whereby frequent travellers
accumulate mileage credits that entitle them to free travel. The airline accrues the estimated incremental cost
of providing free travel awards. The accrued incremental cost is included in current liabilities.
EMPLOYEE BENEFITS
Pension benefits
The Group operates two defined benefit funds and a defined contribution fund. The assets of each scheme are
held separately from those of the Group and are administered by the schemes’ trustees. The funds are actuarially
valued by professional independent consulting actuaries.
The Group’s contributions to the defined contribution fund are charged to the income statement during the year
to which they relate.
The benefit costs and obligations under the defined benefit funds are determined separately for each fund using
the projected unit credit method. The benefit costs are recognised in the income statement. Actuarial gains and
losses are recognised in the period in which they occur in equity.
Past service cost is recognised immediately to the extent that the benefits are already vested, and are otherwise
amortised on a straight-line basis over the average period until the amended benefits become vested.
When the benefits of a plan are improved, the portion of the increased benefit relating to past service by the
employees is recognised as an expense in the income statement on a straight-line basis over the average period
until the benefit becomes vested. To the extent that the benefits vest immediately, the expense is recognised
immediately in the income statement.
The amount recognised in the balance sheet represents the present value of the defined benefit obligation
reduced by the fair value of plan assets.
Post-retirement medical benefits
Post-retirement medical benefits are provided by the Group to qualifying employees and pensioners. The medical
benefit costs are determined through annual actuarial valuations by independent consulting actuaries using
the projected unit credit method. Actuarial gains and losses are recognised in the period in which they occur
in equity.
Short and long-term benefits
The cost of all short-term employee benefits, such as salaries, bonuses, housing allowances, medical and other
contributions is recognised during the period in which the employee renders the related service.
The Group’s net obligation in respect of long-term service benefits, other than pension plans, is the amount
of future benefit that employees have earned in return for their service in the current and prior periods.
The obligation is calculated using the projected unit credit method and is discounted to its present value
and the fair value of any related assets is deducted.
Termination benefits
Termination benefits are payable whenever an employee’s employment is terminated before the normal retirement
date or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises
termination benefits when it has demonstrated a commitment to either terminate the employment of current
employees according to a detailed formal plan without possibility of withdrawal or to provide termination benefits
as a result of an offer made to encourage voluntary redundancy.
Share-based payment transactions
South African Airways (Pty) Limited (SAA), a subsidiary of Transnet Limited, operates via the South African Airways
Share Incentive Scheme, three incentive schemes created for the benefit of the employees of SAA namely:
• The FDC Share Scheme (for the flight deck crew members);
• The Share Incentive Scheme (for certain management individuals in SAA only); and
• The Employee Share Ownership Programme (allowed SAA employees who were employed by SAA on 1 April
1999 and who were still in the employment of SAA on 1 March 2001 to acquire shares in SAA).
Each of the above schemes operate as follows:
The employee share incentive plan grants non-transferable options to employees. The Group uses the intrinsic
value accounting method for share awards under which there is no charge to earnings for employee share option
awards (because the exercise price equals the market value of the share on the date of grant). There is no dilutive
effect of outstanding options as the exercise price of the options exceeds the most recent value of the shares.
REVENUE
Revenue is recognised when it is probable that the economic benefits associated with the transaction will flow
to the Group and the amounts of revenue can be reliably measured. Revenue is net of value-added taxation.
Transportation and other related services
Revenue from transportation and other related services is recognised by reference to the stage of completion of
transactions at the balance sheet date.
Property services
Revenue arising from the rental of property is recognised on an accrual basis in accordance with the substance
of the relevant agreements.
Interest income
Interest is recognised on a time proportion basis that takes into account the principal outstanding and the
effective rate over the period to maturity, when it is determined that such income will accrue to the Group.
All interest income is separately disclosed as part of other income in the income statement except for interest
earned on the housing bond book, which is disclosed as part of turnover.
Dividend income
Dividends are recognised when the Group’s right to receive payment is established and are included in other
income, which is separately disclosed in the income statement.
BORROWING COSTS
Borrowing costs are recognised in the income statement in the period in which they are incurred.
GOVERNMENT GRANTS
Government grants are recognised at their fair value where there is reasonable assurance that the grant will
be received and all suspensive conditions will be complied with. When the grant relates to an expense item,
it is recognised as income over the periods necessary to match the grant on a systematic basis to the costs that
it is intended to compensate. Where the grant relates to an asset, the fair value is credited to a deferred income
account and is released to the income statement over the expected useful life of the relevant asset on a straightline basis.
SEGMENT REPORTING
The Group conducts business in all aspects of transport and maritime operations, as well as related services.
On the primary segment basis, the main business groupings of the Group are rail, maritime, pipeline, aviation,
road and property. On the secondary segment basis, which is the reporting format by geographic analysis, the
directors consider that there is only one material geographic segment, being the Republic of South Africa.
Therefore it is not considered necessary to disclose secondary segments.
Income statements
Company
2004
R million
2005
R million
25 744
(29 516)
27 381
(23 061)
(3 772)
(694)
4 320
(62)
(4 466)
(1 760)
4 258
(2 180)
(6 226)
852
(833)
2 078
379
3 559
(6 207)
(130)
6 016
(1 433)
(6 337)
4 583
Group
Notes
2005
R million
2004
R million
Turnover
Net operating expenses excluding impairments
1
2
46 259
(40 288)
43 637
(39 229)
Profit/(loss) from operations before net finance costs
and impairment of assets
3
5 971
(153)
4 408
(4 221)
Profit/(loss) from operations
before net finance costs
Net finance costs
3
4
5 818
(2 588)
187
(2 211)
Profit/(loss) before other income and
fair value adjustments
Other income
Fair value adjustments
5
6
3 230
276
4 650
(2 024)
342
(4 529)
Taxation
7
8 156
(1 629)
(6 211)
(204)
6 527
262
21
(6 415)
92
(9)
6 810
(6 332)
7 127
(1 760)
Profit/(loss) after taxation
Income from associates
Minority interests
(6 337)
4 583
Profit/(loss) for the year attributable
to shareholder
2 573
5 262
Headline earnings/(loss)
12
20
32
Balance sheets
at 31 March 2005
Company
2004
R million
Group
2005
R million
ASSETS
Non-current assets
Property, plant and equipment
Intangible assets
Long-term loans and advances
Derivative financial assets
Investments in subsidiaries
Investments in associates
Other investments
36 615
47
3 241
2 555
1 031
838
244
39 054
118
2 720
274
2 972
792
314
44 571
46 244
922
3 153
512
1 110
1 468
1 213
3 292
417
1 380
1 996
7 165
8 298
51 736
54 542
Total assets
14 710
(2 883)
14 710
1 859
EQUITY AND LIABILITIES
Capital and reserves
Issued capital
Reserves
11 827
16 569
Shareholder’s interest
6 405
11 454
6 668
498
–
7 548
15 670
515
647
–
Minority interests
Retirement benefit obligations
Long-term borrowings
Derivative financial liabilities
Long-term provisions
Deferred taxation
25 025
24 380
5 304
7 392
130
1 439
423
196
4 447
5 600
1 514
551
1 264
217
14 884
13 593
51 736
54 542
Current assets
Inventories
Short-term investments
Current liabilities
Trade payables and accruals
Short-term borrowings
Taxation
Short-term provisions
Bank overdraft
Total equity and liabilities
Notes
2005
R million
2004
R million
8
9
10
16
11
12
13
49 939
125
2 717
308
–
1 242
951
46 854
14
3 241
4 910
–
1 019
1 118
55 282
57 156
14
15
16
13
17
819
622
909
445
556
1 525
7 359
535
1 566
4 559
17 351
15 544
72 633
72 700
14 710
2 161
14 710
(4 904)
16 871
9 806
20
88
111
21
22
16
23
24
7 639
21 689
559
779
44
6 413
18 309
6 797
663
35
30 710
32 217
12 379
8 645
1 545
668
1 478
249
12 568
9 537
164
7 396
666
235
24 964
30 566
72 633
72 700
18
19
25
26
16
23
17
1
6
3
2
2
Statements of recognised
income and expenditure for the year ended 31 March 2005
Company
Group
2004
R million
2005
R million
510
1 067
136
239
135
66
652
349
–
–
(3)
2 850
920
2 263
28
14
8
(225)
(158)
1
–
38
(947)
20
(941)
–
(20)
13
22
(41)
Gains on revaluation of investment
in the MTN Group Limited
Gains on revaluation of port facilities
Gains on revaluation of pipeline networks
Gains/(losses) on foreign currency translation
(Losses)/gains on cash flow hedges
Net (decrease)/increase in other reserves
Actuarial (losses)/gains related to defined
benefit post-retirement schemes
– Actuarial gain on the Transnet Pension Fund
– Actuarial (loss)/gain on the Transnet Second
Defined Pension Fund
– Actuarial gain on the Transnet Top
Management Pensions
– Actuarial (loss)/gain on the Transnet Workmen’s
Compensation Act Pensioners
– Actuarial gain on the Transnet Black Widows
Pension Benefit
– Actuarial gain/(loss) on the Transnet
SATS Pensioners medical benefits
– Actuarial loss on the Transnet Employees
1 079
499
19
19
19
78
652
349
124
240
135
19
19
19
3
(51)
(2)
19
(947)
29.1.2
29.1.3
29.1.4
20
(941)
–
29.1.4
(20)
29.1.5
13
29.2.1
29.2.2
22
(41)
–
Effect of changes in accounting policies
AC133 – Adjustment to opening retained income
(132)
(194)
–
(3 964)
49
–
–
–
–
–
– Impairment of debtors
– Revaluation of funding bonds
– Amortised cost of current liabilities
– Valuation of embedded derivatives
– Impairment of loans
(1 901)
–
AC116 – Adjustment to opening reserves
IFRS3 – Adjustment to opening retained income
– Derecognition of negative goodwill
Restatement of retained income/pension funds
Restatement of prior year fair value adjustment
–
–
–
2004
R million
Gains on revaluations
(4 241)
–
244
–
2005
R million
Notes
19
(81)
1 442
75
2 850
920
2 263
28
14
8
(225)
(158)
–
(4 290)
–
–
–
–
–
(133)
(194)
1
(3 964)
–
19
–
(1 901)
19
19
19
173
–
–
–
248
(221)
(2 541)
(6 337)
159
4 583
Net income/(expenditure) recognised directly to equity
255
6 789
(1 379)
(6 323)
(8 878)
4 742
Total recognised income/(expenditure) for the year
7 044
(7 702)
(8 878)
–
4 742
–
Attributable to:
Equity holder of the parent
Minority interests
7 065
(21)
(7 711)
9
(8 878)
4 742
7 044
(7 702)
20
Cash flow statements
Company
Group
2004
R million
2005
R million
2005
R million
2004
R million
5 850
4 962
Cash flows from operating activities before cash effects
of derivative transactions
7 536
4 952
5 933
1 382
8 150
(1 212)
Changes in working capital
9 863
329
7 040
457
7 315
(1 864)
854
–
(455)
–
6 938
(2 021)
379
(49)
(285)
–
after working capital changes
Interest paid
Investment income
Taxation paid
Settlement of retirement obligations
Dividend paid to minorities
10 192
(2 397)
276
(239)
(285)
(11)
7 497
(2 361)
346
(31)
(499)
–
(228)
(1 108)
Cash effects of derivative transactions
(7 052)
(1 839)
5 622
(6 970)
3 854
(5 641)
Cash flows from operating activities
Cash flows from investing activities
484
(4 938)
3 113
(5 468)
(4 391)
(3 866)
Investment to maintain operations
(2 017)
(2 880)
(890)
(81)
(1 543)
(16)
(1 897)
(17)
(5 232)
(86)
51
13
7
(25)
1 596
424
603
(6 089)
87
–
–
(1)
(2 419)
295
(269)
–
Replacements to property, plant and equipment
Additions to intangible assets
Proceeds on the disposal of property,
plant and equipment
Proceeds on the disposal of intangible assets
Proceeds on the disposal of subsidiaries
31.4
Acquisition of associates
Loans to subsidiaries and associates
Net receipts of long-term loans and advances
(Increase)/decrease in other investments
SAA recapitalisation
237
–
–
(1)
(8)
298
(629)
–
449
13
7
(26)
14
412
1 569
–
(2 579)
(1 775)
Investment to expand operations
(2 921)
(2 588)
(2 579)
–
(1 775)
–
Expansions – property, plant and equipment
Refunded pre-delivery payments on aircraft
(3 678)
757
(2 588)
–
1 783
2 294
2 437
5 696
(2 676)
4 459
5 334
(3 040)
5 477
(3 040)
(486)
6 182
(2 017)
3 341
Notes
31.1
31.2
31.3
Cash flows from financing activities
Net long-term borrowings raised/(repaid)
Short-term loans (repaid)/raised
435
507
837
1 272
Net (decrease)/increase in cash
and cash equivalents
at the beginning of the year
1 272
1 779
at the end of the year
17
4 324
983
2 307
4 324
Segmental analysis
Based on risk and returns the directors consider that the primary reporting format is by business segment.
The Group is organised into different business units. These business units are the basis on which the Group reports
its primary segment information. The secondary reporting format is by geographic analysis and directors consider
that, with the exception of Aviation there is only one geographic segment being the Republic of South Africa.
Group
Rail
Maritime
2005
R million
2004
R million
2005
R million
2004
R million
2005
R million
2004
R million
External turnover
Internal turnover
46 259
43 637
16 784
2 779
15 770
2 406
8 025
375
7 158
354
Total turnover
46 259
43 637
19 563
18 176
8 400
7 512
(4 110)
(4 216)
Net operating expenses
Profit/(loss) from operations
before net finance costs
Net finance cost
(40 441) (43 450) (17 980) (17 754)
5 818
(2 588)
187
(2 211)
1 583
(906)
422
(804)
4 290
(671)
3 296
(916)
3 230
276
4 650
(2 024)
342
(4 529)
677
72
3 026
(382)
105
(34)
3 619
94
881
2 380
39
(20)
8 156
(1 629)
(6 211)
(204)
3 775
–
(311)
–
4 594
–
2 399
–
Income from associates
Minority interests
6 527
262
21
(6 415)
92
(9)
3 775
–
–
(311)
–
–
4 594
–
–
2 399
–
–
Profit/(loss) for the year
6 810
(6 332)
3 775
(311)
4 594
2 399
Profit/(loss) before other income, fair value
adjustments and income from associates
Other income
Fair value adjustments
Taxation
Other information
Operating assets
Investments in associates
71 391
1 242
71 681
1 019
20 000
–
18 747
21
17 974
10
16 223
22
Consolidated total assets
72 633
72 700
20 000
18 768
17 984
16 245
Operating liabilities
26 302
38 026
3 715
7 298
1 221
2 735
5 575*
7 820
1 492
1 580
1 598
1 589
2 463
2 600
727
678
610
620
Capital expenditure
Significant non-cash item:
– Depreciation and amortisation
* Prior to set-off of pre-delivery payments refunded on SA Airways (Pty) Ltd aircraft amounting to R757 million.
Pipeline
Aviation
Road
Property
Other operations**
2005
R million
2004
R million
2005
R million
2004
R million
2005
R million
2004
R million
2005
R million
2004
R million
1 019
1
918
1
18 175
–
17 106
–
1 206
520
1 315
523
179
90
142
95
871
(3 765)
1 228
(3 379)
1 020
919
18 175
17 106
1 726
1 838
269
237
(2 894)
(2 151)
(437)
(409)
(17 196)
(20 883)
(1 513)
(1 657)
(204)
(330)
583
(286)
510
(293)
979
(541)
(3 777)
(782)
213
(96)
181
(116)
65
(11)
(93)
(19)
(1 895)
(77)
(352)
719
297
36
–
217
22
–
438
219
219
(4 559)
138
(4 488)
117
16
–
65
20
–
54
20
–
(112)
25
–
(1 972)
(181)
524
367
(7)
13
333
–
239
–
876
(98)
(8 909)
39
133
(63)
85
(45)
74
–
(87)
–
(1 629)
(1 468)
373
(198)
333
–
–
239
–
–
778
–
43
(8 870)
–
10
70
–
(22)
40
6
(18)
74
–
–
(87)
–
–
(3 097)
262
–
175
86
(1)
333
239
821
(8 860)
48
28
74
(87)
(2 835)
260
3 957
–
3 573
–
15 702
–
17 854
1
1 759
–
1 623
2
971
6
860
5
11 028
1 226
12 801
968
3 957
3 573
15 702
17 855
1 759
1 625
977
865
12 254
13 769
386
160
9 222
15 423
446
447
118
127
11 194
11 836
136
83
4 015
362
355
109
92
29
106
174
157
847
240
231
9
9
206
58
1 849*
497
2005
R million
999
2004
R million
1 799
** Other operations incorporate all other business units plus Company/Group adjustments, reclassifications and eliminations.
CHANGE IN ACCOUNTING POLICY
The Group has fully adopted the following South African Statements of Generally Accepted Accounting Practice
and amendments thereto:
• AC116 (IAS19 revised 2004): Employee benefits (the amendment to this has been early adopted);
• AC128 (IAS36 revised 2004): Impairment of assets;
• AC129 (IAS38 revised 2004): Intangible assets; and
• AC140 (IFRS3 revised 2004): Business combinations.
Furthermore, the Group has consolidated the South African Airways Share Incentive Trust with effect from 1 April
2004 and has restated the comparative figures accordingly.
The principal effects of this decision are discussed below:
AC116: Employee benefits
The amendments to AC116 allow the Group to recognise actuarial gains and losses arising from defined postretirement benefit schemes directly in equity. Previously the Group recognised actuarial gains and losses as income
or expenses when the cumulative unrecognised actuarial gains or losses for each fund at the beginning of the year
exceeded 10% of the greater of the defined benefit obligation and the fair value of the plan assets at the beginning
of the year.
Although the amendments to AC116 are applicable to annual periods beginning on or after 1 January 2006,
the Group has elected to early adopt the amendments and have applied them with effect from 1 April 2004.
Comparatives have been restated for the effect of adopting the amendments.
AC128: Impairment of assets
The adoption of AC128 has led to significant changes to the accounting policy pertaining to the frequency of
impairment testing and the allocation of goodwill to cash generating units. This however has not resulted in
adjustments to the opening accumulated loss or changes to what have ordinarily been recorded as impairments
in prior years, in the current year.
AC128 requires the annual testing of the following assets for impairment, irrespective of whether there is any
indication of impairment:
• Goodwill acquired in a business combination;
• Intangible assets with an indefinite useful life; and
• Intangible assets not yet available for use.
The statement also requires that goodwill be allocated to the acquirer’s cash generating units that are expected to
benefit from the synergies of the business combination, irrespective of whether other assets or liabilities of the
acquiree are assigned to these units.
AC129: Intangible assets
The adoption of AC129 has resulted in the Group ceasing annual goodwill amortisation and testing for impairment
annually at the cash generating unit level (unless an event occurs during the year which requires the goodwill to
be tested more frequently). The carrying amount of positive goodwill of R111 million was impaired in the current
financial year.
Further, the carrying amount of negative goodwill that arose from either:
• a business combination for which the agreement date was before 31 March 2004; or
• an interest in a jointly controlled entity obtained before 31 March 2004 and accounted for by applying
proportionate consolidation, was derecognised at 1 April 2004, with a corresponding adjustment to the
opening accumulated loss. The carrying amount of the negative goodwill of R173 million arising on the
reacquisition of 20% of SAA (Pty) Ltd was written back to accumulated loss.
AC140: Business combinations
AC140 applies to accounting for business combinations for which the agreement date is on or after 31 March
2004. The effect of the adoption of AC140 upon the Group’s accounting policies will impact the recognition of
restructuring provisions arising upon an acquisition. The Group is now only permitted to recognise an existing
liability contained in the acquiree’s financial statements on acquisition. Previously this type of restructuring
provision could be recognised by the acquirer regardless of whether the acquiree had recognised this type of
liability or not. The restructuring provision of R2 million (2004: R1 million) arose from the costs of internal
restructuring and not from a business combination.
Upon acquisition the Group initially measures the identifiable assets and liabilities acquired at their fair values
as at the acquisition date hence causing any minority interest in the acquiree to be stated at the minority’s
proportions of the net fair values of those items. There were no business combinations entered into in the current
financial year.
CHANGE IN ACCOUNTING POLICY (continued)
Company
2004
R million
Group
2005
R million
2005
R million
2004
R million
The effect of the adoption of the amendments
to AC116 on opening accumulated loss, reserves and
current year profit is summarised as follows:
949
–
–
(947)
–
–
Actuarial (losses)/gains in equity
Gross
Taxation
Minority interest
(947)
–
–
949
–
–
949
(947)
Net effect
(947)
949
244
–
–
–
–
–
Impact on opening accumulated loss
Gross
Taxation
Minority interest
–
–
–
248
–
–
244
–
Net effect
–
248
The effect of the adoption of AC129 on opening
accumulated loss and current year profit is
summarised as follows:
–
–
–
–
–
–
Negative goodwill
Gross
Taxation
Minority interest
173
–
–
–
–
–
–
–
Net effect on opening accumulated loss
173
–
–
–
–
–
–
–
Positive goodwill
Gross
Taxation
Minority interest
(111)
–
–
–
–
–
–
–
Net effect on current year profit
(111)
–
The effect of the consolidation of the South African
Airways Share Incentive Trust on current year profits
is as below:
–
–
–
–
–
–
Impact on current year profit
Gross
Taxation
Minority interest
(28)
–
–
–
–
–
–
–
Net effect
(28)
–
Other restatement
–
–
–
–
–
–
Gross
Taxation
Minority interest
–
–
–
(221)
–
–
–
–
Net effect
–
(221)
25 744
27 381
1.
TURNOVER
Included in turnover is a contractual payment
from Government via the South African Railway
Commuter Corporation (SARCC) of R1 312 million
(2004: R1 262 million). This payment is applied
in the operation of the commuter rail network
operated by Metrorail.
46 259
43 637
continued
Company
2004
R million
Group
2005
R million
2.
123
1 526
561
1 967
343
105
1 620
509
2 158
170
8 096
136
826
612
152
989
318
2 489
–
283
2 809
–
82
1 287
54
1 175
–
9 150
1 504
76
–
9 843
1 189
65
131
5
(13)
139
442
332
104
(103)
29 516
23 061
3.
2004
R million
577
2 390
1 030
5 711
229
693
2 536
1 221
4 947
399
197
309
309
1
304
313
419
4 180
957
289
3 863
888
73
2 869
64
3 089
1 337
13 508
1 469
125
1 288
12 675
1 681
154
NET OPERATING EXPENSES EXCLUDING
IMPAIRMENTS
Accommodation and refreshments
Depreciation (refer note 3)
Electronic data costs
Energy costs
Health and sanitation
Impairment provision for loss making
subsidiaries and associates
(refer note 3)
Insurance
Maintenance
Managerial and technical consulting fees
(refer note 3)
Material costs
Navigation, landing and parking fees
Net amortisation of intangible assets
(refer note 3)
Operating leases (refer note 3)
Passenger handling, rescheduling and
airline costs
Personnel costs
Post-retirement benefit costs
Printing and stationery
(Profit)/loss on disposal of property, plant and
equipment (refer note 3)
Profit on disposal of intangible assets
(refer note 3)
Promotions and advertising
Security
Telecommunications
Transport
Other
–
78
492
259
105
389
2005
R million
(33)
–
567
590
349
663
2 463
408
(13)
849
524
428
676
1 952
40 288
39 229
PROFIT/(LOSS) FROM OPERATIONS
BEFORE NET FINANCE COSTS
is stated after taking into account the
following amounts:
43
56
Auditors’ remuneration
94
55
38
55
Group auditors
83
45
33
–
2
3
38
4
1
12
Audit fees
Fees for other services
Expenses
Underprovision prior year
55
7
2
19
38
1
3
3
5
1
Other auditors
11
10
4
1
–
1
Audit fees – prior year underprovision
Fees for other services
11
–
8
2
Company
2004
R million
Group
2005
R million
3.
2005
R million
2004
R million
73
64
–
–
73
5
(57)
116
82
54
PROFIT/(LOSS) FROM OPERATIONS
BEFORE NET FINANCE COSTS (continued)
Amortisation of intangible assets (refer note 9)
–
–
82
–
–
54
Goodwill
Released negative goodwill
Software and licences
1 526
1 620
Depreciation
2 390
2 536
1 345
1 403
Depreciation – Owned assets at historic cost
2 147
2 012
–
110
236
158
96
264
404
77
–
123
258
163
105
279
403
72
Aircraft
Land, buildings and structures
Pipeline networks
Port facilities
Vehicles
499
135
298
163
105
279
404
264
438
121
278
158
96
264
405
252
201
217
Depreciation – Owned assets revalued portion
217
201
46
155
56
161
Pipeline networks
Port facilities
56
161
46
155
(20)
–
Depreciation – Leased assets
26
323
(28)
8
–
–
Rolling stock – including change in estimate
Aircraft
–
26
(27)
350
318
1 287
283
1 175
Managerial and technical consulting fees
Operating lease charges
419
2 869
289
3 089
1
413
873
1
158
1 016
Aircraft
Other
1 499
240
1 130
1 645
476
968
131
(13)
5
–
(Profit)/loss on disposal of property, plant
and equipment
Profit on disposal of intangible assets
subsidiaries and associates
197
153
1
4 221
115
38
–
12
4 027
182
(33)
–
408
(13)
8 096
694
612
62
–
694
–
–
62
–
Intangible assets
70
65
66
76
26
32
Research and development costs
Directors’ emoluments (full details are
disclosed in the directors’ report)
59
29
16
3
7
7
3
22
Executive directors
Non-executive directors
Senior executives
31
6
22
19
2
8
continued
Company
2004
R million
Group
2005
R million
2005
R million
4.
(277)
173
1 864
(29)
188
2 021
1 760
2 180
5.
(2)
–
1
677
102
74
–
–
5
228
146
–
852
379
6.
(1 722)
–
1 043
(93)
(61)
3 621
–
–
–
(62)
(833)
3 559
(833)
–
61
–
3 559
554
178
(6)
(772)
4 285
7.
130
–
1 451
–
–
–
–
–
130
–
(18)
NET FINANCE COSTS
Net foreign exchange gains/(losses) on translation
Discounts on bonds amortised
Interest paid
OTHER INCOME
Loss on sale of interests in subsidiaries and
associates
Profit on sale of unlisted investments
Dividends received
Interest received from subsidiaries
Interest received from other investments
Profit on sale of treasury investments
FAIR VALUE ADJUSTMENTS
Derivative fair value adjustments
Revaluation of investment arising from disposal
of the MTN Group Limited shares
Reversal of guarantee provision for zero coupon
promissory notes
Forward exchange cover cost
Other fair value adjustments
2004
R million
3
188
2 397
(323)
173
2 361
2 588
2 211
–
–
3
–
273
–
(7)
2
1
–
272
74
276
342
3 894
932
–
–
(176)
(6 210)
1 835
–
(93)
(61)
4 650
(4 529)
Reconciliation of fair value adjustments to note 16
Balance per above
Embedded derivative recognised in revenue
Treasury bonds
Other fair value adjustments
4 650
554
178
–
(4 529)
–
61
–
Fair value adjustments per note 16
5 382
(4 468)
TAXATION
South African normal taxation
– Current year
– Prior year
Deferred taxation
– Current year
Secondary taxation on companies
– Current year
– Prior year
1 433
1 511
124
190
–
9
14
3
(18)
1 629
–
–
204
Company
2004
R million
Group
2005
R million
2005
R million
7.
%
30,00
(32,09)
%
30,00
(6,18)
(24,48)
–
(19,10)
–
11,49
–
7,60
(0,30)
(14,63)
1,15
–
–
(2,09)
23,82
–
8.
36 615
39 054
59 437
(22 822)
64 004
(24 950)
34 982
37 581
7
3
6
9
1
6
50
090
786
985
766
152
153
7
3
7
10
1
7
50
134
826
096
798
123
554
(10 433)
(11 064)
(50)
(918)
(2 220)
(2 024)
(4 324)
(897)
(50)
(994)
(2 243)
(2 191)
(4 725)
(861)
(450)
(867)
–
(200)
(250)
–
–
–
(289)
–
–
(578)
24 099
25 650
TAXATION (continued)
Reconciliation of rate of taxation
Standard rate – South African normal taxation
Adjust for differences and assessed loss
%
30,00
(10,03)
%
30,00
(33,33)
Permanent differences
Secondary tax on companies
Deferred taxation not provided
Change in rate
Assessed loss utilised
Adjustment to prior year current taxation charge
8,51
(0,18)
(21,68)
1,85
(0,02)
1,49
18,35
–
(63,37)
–
11,69
–
Effective tax rate
–
2004
R million
19,97
(3,33)
The Group has estimated tax losses of
10 745
9 250
(refer Annexure B)
Net book value
49 939
46 854
82 322
(32 383)
76 717
(29 863)
Historical cost
Gross carrying value
55 899
52 262
–
–
–
–
–
–
–
14
7
4
7
10
2
8
11
7
4
6
9
2
9
Accumulated depreciation and impairment
Aircraft
Vehicles
Capital work in progress
Accumulated depreciation
–
–
–
–
–
–
Aircraft
Vehicles
933
925
347
096
826
611
161
(15 100)
(13 946)
140)
099)
546)
191)
745)
379)
(2 664)
(979)
(2 560)
(2 024)
(4 345)
(1 374)
Accumulated impairment
(4 264)
(3 978)
–
–
–
–
–
(3 380)
(291)
(9)
(6)
(578)
(3 522)
(200)
(251)
(5)
–
36 535
34 338
Aircraft
Vehicles
Capital work in progress
Historical net book value
(3
(1
(2
(2
(4
(1
401
798
403
985
793
511
371
continued
Company
2004
R million
Group
2005
R million
8.
2005
R million
2004
R million
26 423
24 455
7 940
18 483
7 306
17 149
(12 587)
(11 184)
(4 737)
(7 850)
(4 350)
(6 834)
24 455
26 423
PROPERTY, PLANT AND EQUIPMENT (continued)
Revaluation
7 306
17 149
7 940
18 483
– Pipeline networks
– Port facilities
(11 184)
(12 587)
(4 350)
(6 834)
(4 737)
(7 850)
(755)
(432)
Accumulated impairment
(432)
(755)
(318)
(437)
–
(432)
– Port facilities
–
(432)
(318)
(437)
Accumulated depreciation
– Port facilities
12 516
13 404
Revalued net book value
13 404
12 516
36 615
39 054
Net carrying value
49 939
46 854
6 173
4 297
493
518
Property, plant and equipment is stated at
historical cost except for pipeline networks and
port facilities, which are stated at revalued amounts.
During the year under review the directors
revalued certain categories of property, plant
and equipment on the basis of depreciated
replacement cost/modern equivalent asset value.
Where the revaluation resulted in a carrying
value greater than the expected recoverable
amount, the recoverable amount was impaired
to the expected value in use.
Aircraft
Aircraft in use were impaired to the higher of
their value in use and recoverable amount.
–
–
Included in aircraft are capitalised leased assets
with a net carrying value of
These capitalised aircraft are encumbered as
security for the repayment of lease commitments
(refer notes 22 and 27.3).
A register of land, buildings and structures is
open for inspection at the registered office of
the Company.
Rolling stock
Included in rolling stock are locomotives that
were leased and leased back. The locomotives
are leased to a third party, refurbished and then
leased to a financier who in turn leases the assets
back to the Company. This has been treated as a
structured loan. The loan is secured by virtue of
the lease agreements and a collateral covering
bond over the refurbished locomotives. The book
value of the refurbished locomotives which are so
encumbered amounts to R879 million.
518
493
Included in rolling stock assets are capitalised
leased assets with a carrying value of
These assets were part of a sale and lease back
arrangement giving rise to a finance lease entered
into in 1997. The present value of the lease
commitments has been settled in full.
Company
2004
R million
Group
2005
R million
8.
2005
R million
2004
R million
2 113
5 635
2 241
6 612
PROPERTY, PLANT AND EQUIPMENT (continued)
Pipeline networks
The Group’s policy is to perform a revaluation of
its pipeline networks every five years and an internal
index revaluation in the intervening years. The last
external revaluation was performed in the financial
year ended 31 March 2001, by Arthur D Little Inc.,
an independent firm of professional valuers. An
internal revaluation was performed in the current
year using indices relevant to the pipeline industry.
This revaluation resulted in a net increase of
R349 million (2004: R135 million) to the carrying
value of the Company’s and the Group’s pipeline
networks, which has been adjusted accordingly.
Port facilities
The property, plant and equipment owned by
South African Port Operations and National
Ports Authority was valued during the
year ended 31 March 2003 by SAFX Marine Services,
a firm of independent professional valuers. The
valuation methodologies employed in the valuation
were MEA, which was used for obtaining fair market
values for non-specialised assets, and the
depreciated replacement cost which was used for
specialised assets where market values were not
easily obtainable. This revaluation resulted in a net
increase of R652 million (2004: R245 million) to
the carrying value of the Company’s and the Group’s
port facilities, which has been adjusted accordingly.
2 241
6 612
2 113
5 635
The historic carrying values of these assets
amount to:
Pipeline networks
Port facilities
Investment property
(included in land, buildings and structures)
–
–
–
4
Fair value at the beginning of the year
Increase/(decrease) in fair value during the year
30
7
32
(2)
–
4
Fair value at the end of the year
37
30
The fair value of the Group’s investment property
at 31 March 2005 was arrived at on the basis
of valuations carried out at that date by
Propnet’s valuers.
The valuations, which conform to the Property
Valuers Profession Act (Act 47 of 2000), were
arrived at by capitalising the first year’s normalised
net operating income by a market derived
capitalisation rate.
The property rental income earned by the Group
from its investment property, all of which is leased
out under operating leases, amounted to
R5 million (2004: R6 million).
Direct operating expenses arising on the
investment property in the period amounted to
continued
Company
Group
2004
R million
2005
R million
47
118
9.
189
(142)
INTANGIBLE ASSETS
Net intangible assets
2005
R million
2004
R million
125
14
408
(290)
Cost
Accumulated amortisation and impairment
668
(543)
161
(147)
47
118
Finite life intangible assets
Software and licences: Net carrying value
125
76
189
408
Cost
504
284
108
81
–
–
189
16
205
(2)
Balance at the beginning of the year
Additions
Transfers in from property, plant and equipment
Disposals
284
17
205
(2)
199
86
–
(1)
(142)
(290)
(379)
(208)
(60)
–
–
–
(82)
(142)
–
2
(96)
(54)
Impairment
Disposals
Transfers in from property, plant and equipment
Amortisation
(208)
(4)
2
(96)
(73)
(81)
(12)
1
–
(116)
–
–
Indefinite life intangible assets
Positive goodwill: Net carrying value
–
–
Cost/carrying value
–
–
(111)
(53)
–
–
–
–
–
–
Impairment
Amortisation
–
(111)
–
(48)
–
(5)
–
–
Negative goodwill
–
(173)
–
–
Cost
–
(287)
–
–
–
–
Adoption of IFRS3 (AC140)
– Business combinations
–
–
–
–
–
–
47
118
–
111
111
164
(173)
(287)
173
–
Accumulated amortisation
–
114
Amortisation
Adoption of IFRS3 (AC140)
– Business combinations
–
–
57
57
–
–
125
14
Net intangible assets
As of 1 April 2004, software and licences were assessed as having a finite life and are amortised under the
straight-line method over a period of 3 to 5 years.
As of 1 April 2004, positive goodwill was no longer amortised and was annually tested for impairment (refer to
discussion below). The opening accumulated amortisation balance was set off against the gross carrying value as
at 1 April 2004.
Patents and trademarks represent intangible assets purchased through the effect of a business combination. The
useful lives of these intangible assets were estimated as having indefinite lives and the cost method was utilised
for their measurement. As at 31 March 2005, these intangible assets were tested for impairment (refer to
discussion below).
9.
INTANGIBLE ASSETS (continued)
The negative goodwill arising on the acquisition of 20% of SA Airways (Pty) Ltd was written off against the
opening accumulated reserves reducing the balance as at 1 April 2004 to R nil. The opening accumulated
amortisation balance was set off against the gross carrying value as at 1 April 2004.
Impairment testing of indefinite life positive goodwill and patents and trademarks
The opening balance of goodwill acquired through business combinations was allocated to the following cash
generating units for impairment testing as at 1 April 2004:
R million
14
Air Chefs (Pty) Ltd
12
Air Tanzania Company Ltd
85
111
The above cash generating units sustained losses and as a result the goodwill relating to their acquisition is
considered to be impaired. The impairment is recorded in the current year.
Note that the comparatives have been restated.
Company
Group
2004
R million
2005
R million
3 241
2 720
3 734
512
(783)
–
(222)
3 241
633
(856)
(151)
(147)
9
5
12
1
(4)
9
1
(5)
10. LONG-TERM LOANS AND ADVANCES
Comprising
Advances
Repayments
Impairment
Less: Short-term portion
Directors’ and managers’ loans
Advances
Repayments
2005
R million
2004
R million
2 717
3 241
3 241
633
(859)
(151)
(147)
3 810
436
(783)
–
(222)
4
9
9
1
(6)
12
1
(4)
3 183
2 636
Employee housing and other loans
2 634
3 037
3 658
511
–
(764)
3 183
441
(120)
(721)
Advances
Impairment
Repayments
3 037
440
(120)
(576)
3 632
391
–
(764)
3 405
2 783
2 781
3 259
(222)
(147)
49
79
49
–
110
(31)
3 241
2 720
Short-term portion transferred to trade
and other receivables (refer note 15)
Other loans and advances
Advances
Impairments
(147)
(222)
79
195
110
(31)
195
–
2 717
3 241
continued
10. LONG-TERM LOANS AND ADVANCES (continued)
Included in directors’ and managers’ loans are the following:
Mr SS Ntsaluba*
Ms M Ramos
Ms SN Mabaso
Ms NV Phiyega**
Opening
balance
R’000
Capitalised
interest/
advances
R’000
751
549
352
1 386
122
–
–
160
3 038
282
Closing
balance
housing
R’000
Closing
balance
vehicles
R’000
2005
R’000
2004
R’000
–
(128)
(352)
(269)
853
–
–
1 223
20
421
–
54
873
421
–
1 277
751
549
352
1 386
(749)
2 076
495
2 571
3 038
Repaid
R’000
TOTAL
These loans are secured and bear variable interest that is linked to prime. The current rates are 7,9% for
motor vehicles and 10,0% to 11,5% for housing loans.
Repayment terms vary between 3 and 5 years for motor vehicles and up to a maximum of 25 years
for housing loans.
Housing loans are secured by first mortgage bonds over the related property and other guarantees.
* Past director
** Past executive
Company
2004
R million
2005
R million
8 936
1 755
8 936
4 176
10 691
13 112
(9 660)
1 031
Group
(10 140)
11. INVESTMENTS IN SUBSIDIARIES
(refer Annexure C)
Shares at cost
Amounts owing by subsidiaries (net)
Provision for impairment and losses
(refer Annexure C)
2 972
2005
R million
2004
R million
–
–
–
141
–
141
–
(141)
–
–
1 500
700
150
109
250
1 500
400
100
6
–
2 709
2 006
For a detailed breakdown of investments in
subsidiaries refer to Annexure C.
Loans to subsidiaries that have been subordinated
in respect of these subsidiaries amount to
R3 188 million (2004: R438 million). In addition,
the Company has issued letters of support to the
following subsidiaries:
– SA Express Airways (Pty) Ltd
– B2B Africa Holdings (Pty) Ltd
– Autopax Passenger Services (Pty) Ltd
– Marine Data Systems (Pty) Ltd
The financial support available in terms of these
letters is as follows:
– SA Express Airways (Pty) Ltd
– B2B Africa Holdings (Pty) Ltd
– Autopax Passenger Services (Pty) Ltd
– Marine Data Systems (Pty) Ltd
In addition, subsequent to year-end, Transnet has
agreed to provide support to a maximum of
R1 600 million to SA Airways (Pty) Ltd in the event
that liabilities exceed assets fairly valued. The
support is until the shares in SA Airways (Pty) Ltd
are transferred to Government.
Company
2004
R million
Group
2005
R million
12. INVESTMENTS IN ASSOCIATES
(refer Annexure C)
Comprising
2005
R million
2004
R million
1 242
1 019
838
792
703
135
–
–
703
133
–
(44)
Shares at cost
Loans
Share of post-acquisition reserves
Impairment
704
133
450
(45)
704
125
190
–
210
210
Investment in arivia.kom (Pty) Ltd
203
185
210
–
210
–
Shares at cost
210
(7)
210
(25)
–
–
–
–
Current year equity earnings
(25)
18
(34)
9
424
424
Investment in V&A Waterfront Holdings (Pty) Ltd
811
611
424
–
424
–
Shares at cost
424
387
424
187
–
–
–
–
–
–
Other reserve movements
187
200
–
(2)
70
119
69
35
Minor associates
105
98
69
–
69
–
Shares at cost
70
70
70
28
–
–
–
–
–
–
–
–
Dividends received
Other reserve movements
28
44
(2)
–
20
13
–
(5)
(35)
–
–
(34)
703
669
135
123
136
(1)
–
135
(2)
(10)
838
792
1 029
1 242
Impairment
1 119
894
Loans
123
125
Advances/(repayments)
Impairment
125
8
(10)
140
(15)
–
Directors’ valuation of unlisted investments
in associates
Total income from associates amounted to
1 242
1 019
1 242
1 019
262
92
continued
Company
Group
2004
R million
2005
R million
220
24
–
290
24
–
1 110
1 380
1 354
1 694
1 110
1 380
244
314
24
24
13. OTHER INVESTMENTS
Listed investments at market value
Unlisted investments
Defeasance deposit
Short-term investments including market
making positions
Total investments
Less: Short-term investments including market
making positions disclosed as current assets
Directors’ valuation of unlisted investments
2005
R million
2004
R million
313
104
534
241
118
759
2 445
1 566
3 396
2 684
2 445
1 566
951
1 118
104
118
183
474
227
125
197
405
178
99
1 009
879
98
416
95
21
–
214
283
14
630
511
180
135
1 819
1 525
4 149
2 326
4 101
3 036
147
222
6 622
7 359
A register of all listed investments is open for
inspection at the registered office of the Company.
189
405
28
96
177
474
49
120
718
820
–
37
66
14
98
36
87
21
117
242
87
151
922
1 213
2 360
571
2 554
591
222
147
3 153
3 292
14. INVENTORIES
At weighted average cost
Raw materials
Maintenance material
Consumables
Finished goods
At net realisable value
Raw materials
Maintenance material
Consumables
Finished goods
Work in progress
15. TRADE AND OTHER RECEIVABLES
Trade receivables
Prepayments and other amounts receivable
Short-term portion of loans and advances
(refer note 10)
The pre-delivery payments (PDPs) made to secure the manufacture and delivery of three A319-100 aircraft
(2004: eleven) have been disclosed as a short-term receivables as the Company has entered into operating
leases for these aircraft. The short-term monetary receivables represent the present value of the expected future
proceeds to be received from the lessor when the aircraft is delivered. R236 million (2004: R1 267 million) of
the refundable deposit arising from the A319-100 aircraft forms security for the loans granted to finance the
payment of PDPs.
Company
2004
R million
Group
2005
R million
2005
R million
2004
R million
4 217
5 445
5 445
13
1 272
(2 513)
3 608
2
2 206
(371)
16. DERIVATIVE FINANCIAL ASSETS
AND LIABILITIES
Both the Company and the Group use approved
financial instruments, in particular forward
exchange contracts, cross-currency swaps, interest
rate swaps and jet fuel derivatives to hedge the
financial risks associated with underlying business
activities. All derivative financial instruments have
been recorded at fair value with the resulting gain
or loss taken to income statement.
3 067
691
3 466
2
(30)
(371)
3 067
12
88
(2 476)
8 107
1 066
5 045
3 966
742
(1 646)
–
8 107
–
(4 197)
(2 844)
–
(772)
4 285
Opening balance
Adjustment to opening balance
Income statement charge
Derivatives raised and settled
1 227
Opening balance
Adjustment to opening balance
Derivatives raised and settled
Recognised in equity
14 193
–
(4 110)
(8 856)
–
Net income statement charge (refer note 6)
5 382
14 193
8
3
6
(3
(1
275
966
674
276)
446)
(4 468)
Comprise the following financial instruments
2 555
274
Non-current assets
308
4 910
202
2 286
84
–
–
(17)
48
181
44
–
–
1
Forward exchange contracts
Cross currency swaps and options
Interest rate swaps and options
Jet fuel derivatives
C-class preference shares*
Other
47
217
44
–
–
–
3 014
2 153
117
(2 729)
2 355
–
512
417
Current assets
3 909
535
151
308
33
–
–
20
90
304
23
–
–
–
C-class preference shares*
Other
91
308
23
199
3 287
1
135
–
–
400
–
–
continued
Company
2004
R million
Group
2005
R million
2005
R million
2004
R million
(6 668)
(515)
16. DERIVATIVE FINANCIAL ASSETS
AND LIABILITIES (continued)
(145)
(1 547)
(60)
–
(3 877)
(1 039)
(108)
(343)
–
–
(9)
(55)
Embedded derivatives
Other
(152)
(343)
–
–
(9)
(55)
(258)
(3 124)
(60)
522
(3 877)
–
(1 439)
(551)
Current liabilities
(668)
(7 396)
(268)
(1 496)
(24)
–
(695)
1 044
(122)
(407)
–
–
(22)
–
Embedded derivatives
Other
(191)
(455)
–
–
(22)
–
(266)
(1 387)
(24)
(5 024)
(695)
–
(559)
(6 797)
In the previous year Transnet recognised a liability of R4 532 million for embedded derivatives arising on two
major customer contracts. The contracts were service related contracts to handle and transport iron ore products
by rail. The contracts constituted hybrid contracts under AC133, containing embedded derivatives, as the tariffs
charged under the contracts were linked to the US dollar iron ore price. Transnet renegotiated the terms of one of
the contracts resulting in the move to a rand-based contract and hence reversed the previously recognised
embedded instrument.
A total amount of R4 326 million pertaining to the opening liability has been reversed to fair value adjustments
in the current year. A further R1 669 million has been reversed which relates to the net movement in the liability
until December 2004.
The net impact of the re-negotiation of the contract on the current year results is a credit of R5 995 million.
The one contract which still remains a hybrid under AC133 has a derivative liability balance of R24 million.
* Includes the Group’s asset being an investment in C class preference shares via Newshelf 697 (Pty) Ltd. The shares were subscribed to at a cost
of R1 511 million as part of the sale process surrounding the 309 million MTN Group Ltd shares. The value of these preference shares moves in
concert with movements in the MTN Group Ltd’s share price in terms of a gain share redemption formula. The shares have been valued by a
professional valuer. The profit on fair valuation is disclosed under note 6. The preference shares are redeemable at Transnet Ltd’s option at any
time between 2006 and 2008.
Company
2004
R million
2005
R million
1 468
(196)
1 996
(217)
1 272
1 779
30 000
14 710
Group
2005
R million
17. CASH AND CASH EQUIVALENTS
Bank overdraft
2004
R million
2 556
(249)
4 559
(235)
2 307
4 324
30 000
18. ISSUED CAPITAL
Authorised
30 000 000 000 ordinary par value shares
of R1 each
30 000
30 000
14 710
Issued
14 709 986 310 ordinary par value shares
of R1 each
14 710
14 710
The unissued share capital is under the control
of the South African Government, the sole
shareholder of the Company.
Company
Group
2004
R million
2005
R million
2005
R million
2004
R million
5 361
6 428
6 547
5 468
4 176
4 828
Revaluation of port facilities
4 828
4 176
3 937
239
4 176
652
Revaluation during the current year
4 176
652
3 936
240
1 006
1 355
Revaluation of pipeline networks
1 355
1 006
871
135
1 006
349
1 006
349
871
135
179
245
MTN Group Ltd – revaluation of investment
to market value
245
167
43
136
179
66
167
78
43
124
–
–
V&A Waterfront Holdings (Pty) Ltd fair value
adjustment
119
119
–
1
Foreign currency translation reserve
(82)
(85)
949
2
Actuarial gains on post-retirement
defined benefit schemes
–
(1 901)
2 850
949
–
(947)
19. RESERVES
Revaluation reserves
2
Adjustment to opening reserves
(Reversed)/arising during the current year
949
–
(947)
–
(1 901)
2 850
1 084
1 122
–
–
Cash flow hedges
–
–
–
–
–
–
Fair value increase
Other movement
51
–
(51)
–
839
38
839
65
853
67
853
245
245
Other transfers
Profit on sale of interest in SAA (Pty) Ltd
Share of pension fund surplus (retained for
application against pensioners)
245
245
(10 277)
(5 694)
57
244
–
(4 241)
–
–
(6 337)
(10 277)
–
–
–
–
–
4 583
(2 883)
1 859
Other reserves
949
Accumulated loss for the year
AC116 – Employee benefits
AC140 – Business combinations
AC133 – Financial instruments
Net transfers
1 163
1 216
–
51
(1 391)
1 442
–
(5 469)
(12 452)
(12 452)
–
173
–
–
–
6 810
(1 862)
248
–
(4 290)
(221)
5
(6 332)
2 161
(4 904)
continued
19. RESERVES (continued)
Reconciliations of movement in capital and reserves
at 31 March 2005
Attributable to equity holders of the parent
Foreign
Re- currency Actuarial
Accumuvaluatransgains
lated
Issued
tion
lation
and
(loss)/
capital reserves
reserve
losses
Other
profit
Total
R million R million R million R million R million R million R million
GROUP
Balances at 31 March 2003
Restatement of pension funds
Restatement of prior year
fair value adjustment
Total recognised
income and expenditure
Transfer (to)/from
accumulated loss
14 710
4 969
1
–
–
–
–
–
–
–
499
–
–
(1 862)
17 517
–
248
–
–
(221)
(221)
(81)
2 850
1 517
(10 622)
(5 837)
–
(5)
–
–
14 710
5 468
(85)
949
1 216
–
–
–
–
–
–
1 079
3
14 710
6 547
COMPANY
14 710
4 851
–
–
–
–
(1 901)
–
510
–
2 850
14 710
5 361
–
949
–
1 067
1
(947)
14 710
6 428
1
Restatement of negative
goodwill
Total recognised income
and expenditure
Restatement of pension funds
and expenditure
and expenditure
(82)
(1 901)
(301)
(947)
(53)
5
(12 452)
6 810
6 892
–
1 087
57
–
244
2
(5 469)
(3) (10 578)
1 122
9 806
173
1 163
38
–
173
2
1 084
(1 653)
(10 277)
4 583
(5 694)
16 871
20 705
(1 657)
(7 221)
11 827
4 742
16 569
Company
2004
R million
Group
2005
R million
2005
R million
20. MINORITY INTERESTS
Transfer (to)/from the income statement
Dividends paid to minorities
Minorities purchased
Adjustment to minorities
6 405
7 548
7 193
1 901
(2 850)
616
(455)
6 405
(36)
947
517
(285)
165
101
3 439
99
4 750
99
204
9
–
224
(8)
–
1 751
1 629
738
753
6 405
7 548
21. RETIREMENT BENEFIT OBLIGATIONS
Comprising:
Effects of adoption of amendments to AC116
Actuarial losses/(gains)
Current year provision
Settlement during the year
Transnet Pension Fund (refer note 29.1.2)
Transnet Second Defined Benefit Fund
(refer note 29.1.3)
Top Management (refer note 29.1.4)
Workmen’s Compensation Act Pensioners
(refer note 29.1.4)
Black Widows’ Pensions (refer note 29.1.5)
Flight Deck Crew (refer note 29.1.6)
SATS Pensioners’ post-retirement medical
benefits (refer note 29.2.1)
Transnet employees post-retirement medical
benefits (refer note 29.2.2)
2004
R million
111
(21)
(11)
–
9
124
9
–
(22)
–
88
111
7 639
6 413
6 413
–
947
564
(285)
7 249
1 901
(2 850)
612
(499)
132
165
4 750
99
3 439
99
224
(8)
5
204
9
5
1 629
1 751
808
741
7 639
6 413
21 689
18 309
21 686
10 035
(4 370)
(137)
(5 525)
20 177
6 238
(5 436)
707
(3 377)
Prior year balances have been restated for the
effect of adopting the amendments to AC116,
which permits the recognition of the accumulated
actuarial (gains)/losses as at period end to be
recorded directly to equity.
11 454
15 670
14 502
208
(2 264)
240
(1 232)
12 686
6 529
(1 007)
(58)
(2 480)
22. LONG-TERM BORROWINGS (refer Annexure A)
Comprising:
Total long-term borrowings at the beginning of
the year
Raised
Repaid
Foreign exchange movement
Current portion repayable within 1 year
continued
Company
2004
R million
Group
2005
R million
(continued)
Unsecured liabilities
Rand denominated
2005
R million
2004
R million
16 587
10 271
10 242
16 552
11 668
(1 480)
17 668
(1 160)
Bonds at nominal value
Unamortised discounts
17 668
(1 160)
11 668
(1 480)
10 188
54
16 508
44
Bonds at carrying value
Other unsecured liabilities
16 508
79
10 188
83
952
83
117
959
1 492
1 515
Secured loans and capitalised leases
8 624
8 715
878
614
1 070
445
Rand denominated
Foreign currency denominated
4 756
3 868
2 834
5 881
–
–
Promissory notes
1 886
1 741
–
–
Rand denominated
1 886
1 741
12 686
18 150
Total long-term borrowings
27 214
21 686
(1 232)
(2 480)
Current portion of long-term borrowings redeemable
within one year transferred to short-term borrowings
(refer note 26)
(5 525)
(3 377)
11 454
15 670
21 689
18 309
Unsecured foreign currency denominated
The rand denominated unsecured local bonds are redeemable between 2006 and 2014 and bear interest between
10,39% and 14,90% (refer Annexure A). Rand denominated unsecured eurorand bonds bear interest between
13,87% and 15,09% and are repayable in 2028 and 2029 (refer Annexure A).
Foreign currency unsecured loans are denominated in Japanese yen and United States dollars. The yen loan bears
interest at 3% and is repayable in March 2009. The unsecured US dollar loan bears interest at 6% and has no fixed
terms of repayment.
Rand denominated capitalised finance lease liabilities bear interest at rates ranging between 9% and 14% with
all rates linked to prime. These liabilities are repayable over periods between 2007 and 2017.
Foreign currency denominated capitalised finance lease liabilities bear interest between 2% and 6% and are
repayable between 2005 and 2016.
The promissory notes are zero coupon notes and bear interest at JIBAR plus 40 basis points. They are redeemable
at the Company’s discretion between 2006 and 2008.
Company
2004
R million
Group
2005
R million
2005
R million
2004
R million
6 173
4 297
779
663
(continued)
The Company has guaranteed the repayment of these
promissory notes and the fair value of this guarantee
is included in derivative liabilities (refer note 16).
Assets pledged in support of the secured loans and
capitalised finance leases are in the category of
aircraft.
–
–
The book value of these assets amount to
The South African Government has guaranteed
repayment of R21 billion (2004: R19 billion)
in loans.
498
906
383
(368)
(423)
113
169
66
(122)
647
921
1 578
(588)
(1 264)
96
113
213
(230)
23. PROVISIONS
Comprising:
Total provisions at the beginning of the year
Additional provision
Provisions released/utilised
Short-term provisions classified as current liabilities
Third party claims
Additional provision
Provisions released/utilised
3
3
Freight insurance
3
–
–
3
8
(8)
19
82
11
20
(12)
19
128
(65)
Additional provisions
Utilised during the year
704
782
Leave pay
621
264
(181)
704
352
(274)
1 329
1 745
(817)
(1 478)
97
113
216
(232)
1 126
649
(446)
(666)
113
173
66
(126)
3
3
3
8
(8)
3
–
–
Customer claims
87
19
19
137
(69)
19
12
(12)
39
83
Provision for onerous contracts
89
–
(50)
39
51
(7)
1 031
925
423
(317)
125
39
93
(7)
925
828
351
(254)
39
89
–
(50)
continued
Company
Group
2004
R million
2005
R million
38
93
10
29
(1)
38
55
–
23. PROVISIONS (continued)
Environmental rehabilitation
2005
R million
2004
R million
93
38
38
55
–
10
29
(1)
–
274
Incentive bonuses
302
–
–
–
–
–
274
–
–
302
–
–
–
–
1
492
Restructuring
504
1
1
–
–
1
492
(1)
1
508
(5)
1
–
–
4
6
2
4
(2)
4
5
(3)
Other
15
191
3
(179)
191
3
191
(3)
921
1 911
Total provisions
2 257
1 329
423
1 264
Less: Short-term provisions classified as
current liabilities
1 478
666
112
3
19
288
–
–
1
–
94
3
57
323
18
274
489
6
Third party claims
Freight insurance
Customer claims
Leave pay
Onerous contracts
Incentive bonuses
Restructuring
Other
95
3
61
449
60
302
495
13
112
3
19
396
–
–
1
135
498
647
Total long-term provisions
779
663
Third party claims
The provision represents the best estimate of known
third party claims together with an allowance for
claims incurred but not yet reported based on
historical experience.
Freight insurance
The provision for excess claims for the transportation
of goods. Costs relating to the settlement of claims
are expected to be paid out in the following year.
Company
2004
R million
Group
2005
R million
2005
R million
2004
R million
23. PROVISIONS (continued)
Customer claims
Provision for claims made by customers in respect
claims arising from non-performance of contracts
or damage to goods in transit. Costs relating to the
settlement of claims are expected to be paid out in
the following year.
Leave pay
Provision for unutilised leave at year-end. The leave
is expected to be taken over the next two financial
years.
Onerous contracts
Provision for the maintenance and repairs of buildings
and structures in terms of a lease agreement.
Environmental rehabilitation
Provision for environmental clean-up costs in terms
of legislative requirements.
Incentive bonuses
Provision for incentive bonuses in terms of
employment contracts.
Restructuring
Provision for restructuring costs in terms of
strategic plans.
–
–
–
–
–
–
–
–
24. DEFERRED TAXATION
Comprising:
Income statement charge (refer note 7)
Other
(44)
(35)
(35)
(9)
–
79
(14)
(100)
Analysis of major categories of temporary differences
5 968
5 124
– Deferred tax asset
8 680
9 439
2 666
–
61
–
167
–
37
636
994
–
1 407
–
–
2 997
–
–
–
–
–
39
666
1 316
–
104
–
2
Provisions
Estimated tax losses
Lump sum pension fund contributions
Forward sales liability
Doubtful debts
Fair value adjustment
Income received in advance
Capitalised lease liability
Impairment of investments*
Section 24I foreign exchange adjustment
Derivatives
Maintenance reserve payments
Other
3 457
3 116
–
943
–
35
162
707
–
–
84
151
25
2 944
2 775
61
838
225
–
108
653
54
273
1 444
–
64
continued
Company
Group
2004
R million
2005
R million
3 166
3 126
52
3 017
–
–
97
–
43
2 998
19
–
51
15
2 802
(2 802)
1 998
(1 998)
2005
R million
2004
R million
24. DEFERRED TAXATION (continued)
– Deferred tax liability
4 312
3 152
Deferred expenditure
Future expenditure allowance
Retention debtors
Undrawn funds
Doubtful debts
86
4 113
47
–
51
15
111
2 930
10
5
96
–
4 368
(4 412)
6 287
(6 322)
(44)
(35)
Net deferred tax asset
Deferred tax asset not raised
–
–
Deferred tax liability
–
–
Estimated taxation losses available for set-off
against future taxable income (refer note 7)
10 745
9 250
2 047
10 332
2 107
10 461
2 803
4 969
5
55
147
896
330
718
221
188
2 792
4 273
17
72
136
809
1 151
650
373
188
12 379
12 568
* Deferred tax asset calculated at the capital gains tax rate.
The utilisation of this portion of the deferred tax asset will
depend on whether the Company makes capital gains in
the future.
The Company and the Group have not raised
deferred taxation assets in the current year. The
probability of there being sufficient taxable profits
against which the deferred tax assets can be utilised
is uncertain due to the fact that it is too early to
predict with sufficient probability the profitable
outcome of the Group’s restructuring initiatives.
641
4 663
1 118
3 329
–
1 936
25
22
–
796
786
608
319
171
–
1 328
20
20
–
838
165
641
151
166
5 304
4 447
25. TRADE PAYABLES AND ACCRUALS
Trade payables
Accruals
Forward sales liability*
Accrued expenditure
Deposits received
Deferred income
Frequent flyer rewards programme
Interest
Personnel costs
Public creditors
Revenue received in advance
SARS – value added tax
* This balance represents the unrealised income from tickets
sold but not yet flown. The above balance includes the value of
coupons sold by SAA, which will be flown and claimed in future
periods by code-share and inter-line partners.
Company
2004
R million
Group
2005
R million
1 232
6 160
2 480
3 120
7 392
5 600
26. SHORT-TERM BORROWINGS
Current portion of long-term interest-bearing
borrowings (refer note 22)
Other short-term borrowings
2005
R million
2004
R million
5 525
3 120
3 377
6 160
8 645
9 537
19
23
11
–
1 383
4 989
226
17
22
1 581
1 436
48 192
6 835
23 195
49 628
30 030
5 858
43 770
7 564
22 466
49 628
30 030
16
5
4
15
1
090
089
224
410
700
430
194
–
4 680
69
–
1 682
60
14 531
907
3 764
4 782
150
455
128
42
4 913
8
3
347
–
49 628
30 030
Other short-term borrowings relate to the market
making portfolio and comprises the Group’s position
on bonds and other financial instruments.
76
226
17
22
1 496
19
23
11
–
637
1 837
22 922
690
42 447
24 759
43 137
5 385
19 374
5 177
37 960
24 759
43 137
14 531
907
3 764
4 782
150
455
128
42
16
5
4
15
1
090
089
224
410
700
430
194
–
24 759
43 137
27. COMMITMENTS
27.1 Capital commitments
Contracted for in US dollars
Contracted for in euros
Contracted for in British pounds
Other foreign currencies
Contracted for in SA rands
Total capital commitments contracted for
Authorised by the directors but not yet contracted for
Total capital commitments are expected to be
incurred as follows:
Within one year
After one year, but not more than five years
These capital commitments will be financed by the
net cash flow from operations, capital market
borrowings, joint ventures with strategic equity
partners, through project finance and the use of
operating leases.
These commitments relate to the following divisions
and subsidiaries:
Spoornet
South African Port Operations
Petronet
National Port Authority
Transwerk
Transtel
Propnet
Holding Company/Group services
SA Airways (Pty) Ltd
Protekon (Pty) Ltd
Viamax (Pty) Ltd
continued
Company
2004
R million
Group
2005
R million
–
2
–
1
–
–
2
1
78
281
113
368
903
108
472
1 379
56
121
13
85
371
3
190
459
698
1 121
1
550
737
91
1 820
1 378
46
179
1
46
39
–
226
85
27. COMMITMENTS (continued)
27.2 Operating lease commitments
Future minimum rentals under non-cancellable
leases are as follows:
Aircraft
Within one year
More than five years
Within one year
Machinery, equipment, furniture and motor vehicles
Within one year
Security and maintenance contracts
Within one year
Other
Within one year
2005
R million
2004
R million
1 812
6 860
4 025
1 513
6 316
4 293
12 697
12 122
382
932
109
88
292
118
1 423
498
120
384
3
66
129
14
507
209
550
737
91
698
1 121
1
1 378
1 820
46
39
–
62
181
1
85
244
357
428
–
294
603
–
785
(158)
897
(173)
627
724
27.3 Finance lease commitments
The Group has leases classified as finance leases
principally for aircraft.
Future minimum lease payments under finance
leases together with the present value of the net
minimum lease payments are as follows:
60
76
–
71
–
–
Aircraft, machinery, equipment and furniture
Within one year
136
(10)
71
(5)
Total minimum lease payments
Amount representing finance charges
126
66
Present value of minimum lease payments
Company
2004
R million
Group
2005
R million
338
959
268
419
2 233
282
27. COMMITMENTS (continued)
27.4 Lease rentals receivable
Future minimum rentals under operating leases
are as follows:
Property
Within one year
1 565
2 934
131
553
–
72
45
44
684
161
Within one year
2005
R million
2004
R million
424
2 241
292
338
957
268
2 957
1 563
72
45
44
131
553
–
161
684
–
367
275
275
28. CONTINGENT LIABILITIES
Cameroon (Camair)
A US$55,5 million claim was filed against Transnet
Limited following Transnet’s termination of a contract
with the above entity relating to the maintenance of
Camair aircraft. The Arbitration Tribunal of the
International Chamber of Commerce (ICC) awarded
Camair US$8,4 million. However, following the High
Court of Justice, Queens Bench Division Commercial
Court’s review of that award, the parties decided to
settle this matter for US$26 million during the year
under review.
367
–
Sun Air (Pty) Ltd
The liquidators of Sun Air (Pty) Ltd and a previous
shareholder instituted legal proceedings against
SA Airways (Pty) Ltd for certain alleged conduct by
SA Airways (Pty) Ltd. The maximum liability in this
respect is estimated at R275 million.
–
–
Nationwide (Pty) Ltd
The Competition Commission is acting against
SA Airways (Pty) Ltd regarding a Nationwide
(Pty) Ltd complaint. The maximum penalty that
SA Airways (Pty) Ltd could be fined is up to 10%
of the preceding year’s total revenue.
continued
Company
2004
R million
Group
2005
R million
2005
R million
2004
R million
–
96
54
83
50
50
842
1 809
28. CONTINGENT LIABILITIES (continued)
Comair Limited
The Competition Commission is acting against
SA Airways (Pty) Ltd regarding a Comair Limited
complaint. The maximum penalty that SA Airways
(Pty) Ltd could be fined is up to 10% of the
preceding year’s total revenue.
Code share agreement and fuel levies
The Competition Commission is investigating SA
Airways (Pty) Ltd’s code share agreements and fuel
levies. The maximum penalty that SA Airways
(Pty) Ltd could be fined is up to 10% of the
preceding year’s total revenue on each matter.
SARCC
Pursuant to an action by Metrorail requiring SARCC
to pay an outstanding management fee, SARCC
lodged a counter claim for R96 million.
The counter claim against Transnet was dismissed.
However, a facilitator was appointed to assist
the parties in devising a formula to compute the
penalties. The formula has been tabled for comment
by the parties.
96
–
Grinaker LTA and others
The members of a joint venture between Grinaker
LTA, Interbeton and Bafokeng Civil Works that was
appointed by NPA to construct a quay wall at the
Durban Port brought action against Transnet for
damages. They allege that Transnet delayed clearing
the seabed and, as a result, construction was delayed
and they allegedly suffered damages.
83
54
SAA Pilots
The Group has a contingent liability in respect of an
agreement reached with the pilots in terms of which
the Group has accepted liability for the difference
between the total cost of employment and the total
amount to be paid by the pension fund. The liability
is only due if pilots lose their licences on account of
disability. The liability is estimated at
–
–
Rolling Stock
The future lease commitments in respect of rolling
stock assets have been paid in full to an intermediary
lessee. This amount has been deposited with an
AAA-rated international institution for the redemption
of the lease obligations. These obligations are
guaranteed by the Company. No loss is expected to
materialise in respect of this guarantee.
1 809
842
Company
2004
R million
Group
2005
R million
2005
R million
2004
R million
–
98
–
71
47
–
–
–
122
264
1 130
1 453
28. CONTINGENT LIABILITIES (continued)
Afro-Comp International (Pty) Limited
This is a claim against NPA, a division of Transnet
Limited, pertaining to an awarded contract for a
computer software system. Transnet requested
Afro-Comp International (Pty) Ltd to provide security
for costs over a year ago. Following Afro-Comp
International (Pty) Ltd’s failure to provide the
requested security for costs, the matter has been
dormant for more than a year. As a result the
probability of success of the claim is considered
remote.
98
–
Maruba SCA
The matter arises from a claim by Maruba
against alleged negligence on the part of NPA to
furnish information consistently to vessels, the
MV Decurion and the MV Giovanna. The matter
was settled out of court for US$1 million in the
current financial year.
71
–
Zaire Railway Lines (“SNCC”)
A letter of demand was received from SNCC.
SNCC are claiming for the reimbursement of an
over payment made to Spoornet on a loan agreement
arising from the foreign exchange rates used in
translating the amounts repaid by SNCC.
–
47
Transnet Pension Fund
Following a class action claim brought by certain
pensioners against the Transnet Pension Fund (TPF),
the TPF in turn brought a conditional claim against
Transnet Limited. Transnet’s counsel has advised
that the prospect of success in the claim against
Transnet is remote.
–
–
Other
Various other contingent liabilities estimated where
no material losses are expected to materialise from
these contingencies
206
1 040
64
621
Various guarantees issued in the normal course
of business
29. RETIREMENT BENEFIT OBLIGATION
The Group offers pension benefits through two defined benefit pension funds and one defined contribution fund.
The Group also offers post-retirement medical benefits to its employees. Specific retirement benefits are offered
to top management and under the Workmen’s Compensation Act. The following sections summarise the relevant
components of the different pension benefits and post-retirement medical benefits:
29.1
Pension benefits
Transnet has three pension funds, namely Transnet Retirement Fund, Transnet Pension Fund and Transnet
Second Defined Benefit Fund. Except for the Transnet Retirement Fund, the actuarial valuations for the
funds are performed annually.
29.1.1 Transnet Retirement Fund
The fund was structured as a defined contribution fund from 1 December 2000. All employees of Transnet
Limited are eligible members of the fund. There were 64 803 members (2004: 66 255) at 31 March 2005.
Actuarial valuations are done at intervals not exceeding three years to determine the financial position. An
actuarial valuation was performed as at 31 March 2004. The actuaries were satisfied with the status of the
members’ credit account then. The Group’s contributions for the period to 31 March 2005 amounted to
29.1.2 Transnet Pension Fund
The fund is a closed defined benefit pension fund. Members are current employees of Transnet who elected to
remain as members of the fund at 1 November 2000 and pensioner members who retired subsequent to that
date. There were 9 217 members (2004: 10 316) at 31 March 2005. An actuarial valuation was done based on
the projected unit credit method. The principal actuarial assumptions used were as follows:
continued
Group
29. RETIREMENT BENEFIT OBLIGATION (continued)
29.1
Pension benefits (continued)
29.1.2 Transnet Pension Fund (continued)
Discount rate
Salary increases
Inflation
Promotional
Pension increases
First three years
After three years
The results of the actuarial valuation are as follows:
Benefit liability
Present value of obligation
Fair value of plan assets
2005
2004
8,50%
9,75%
4,00%
5,50%
5,25%
1,50%
2,00%
2,00%
2,00%
2,00%
R million
R million
(4 950)
4 818
(4 199)
4 034
Net liability per the balance sheet
(132)
(165)
Charge to the income statement
Expected return on assets
Service cost
Interest cost
388
(132)
(402)
318
(148)
(419)
(146)
(249)
Charge to the statement of recognised income and expense
Actuarial gains
20
920
The cumulative actuarial losses recognised in equity at 31 March 2005
are R271 million (2004: R291 million).
Movements in the net liability recognised in the balance sheet
Opening net liability
Expense as above
Actuarial gains recognised in equity
Contributions paid
(165)
(146)
20
159
(991)
(249)
920
155
Closing net liability
(132)
(165)
Reconciliation of movement in benefit liability
Opening benefit liability
Service cost
Interest cost
Actuarial (losses)/gains
Benefits paid
(4 199)
(132)
(402)
(491)
274
(4 111)
(148)
(419)
317
162
Closing benefit liability
(4 950)
(4 199)
Group
29.1
Pension benefits (continued)
29.1.2 Transnet Pension Fund (continued)
Reconciliation of movement in fair value
of plan assets
Opening fair value of plan assets
Expected return
Actuarial gains
Contributions by employer charged to the
income statement
Contributions by members
Benefits paid
2005
R million
2004
R million
4 034
388
511
3 119
319
603
92
67
(274)
Closing fair value of plan assets
91
64
(162)
4 818
The major categories of plan assets as a percentage of total plan assets are:
Equity
Property
Bonds
Foreign equity
Unlisted companies
Cash
Other
4 034
54%
8%
19%
9%
4%
12%
(6%)
Total
57%
8%
21%
6%
3%
7%
(2%)
100%
100%
Summary of actuarial valuation
results for past periods:
2005
2004
2003
2002
2001
(4 950)
4 818
(4 199)
4 034
(4 111)
3 120
(2 983)
3 228
(2 708)
2 860
(Deficit)/surplus
Experience adjustments on
plan liabilities
plan assets
(132)
(165)
(991)
245
152
–
–
–
–
–
–
–
–
–
–
The estimated contributions by both employer and members for the year beginning 1 April 2005 are
R167 million.
continued
Group
2005
R million
2004
R million
7,59%
–
6,77%
2,00%
10,75%
10,25%
9,75%
2,00%
(20 839)
16 089
(18 463)
15 024
Liability recognised in the balance sheet
(4 750)
(3 439)
Interest charge
Return on plan assets
(1 984)
1 614
(2 058)
1 483
(370)
(575)
29.1.3 Transnet Second Defined Benefit Fund
The fund was established on 1 November 2000 for the benefit of the retired
members and qualifying beneficiaries. There were 45 075 members (2004: 48 068)
at 31 March 2005. This figure excludes widows and children of pensioners. The all
inclusive membership is 87 236 (2004: 90 798) at 31 March 2005. The actuarial
valuation was based on the projected unit credit method. The principal actuarial
assumptions used are as follows:
Discount rate
Period to May 2005
Next five years
Remaining years thereafter
Pension increases
The results of the actuarial valuation are as follows:
Benefit liability
Actuarial (loss)/gain
(941)
2 263
The cumulative actuarial gains recognised in equity at 31 March 2005
are R575 million (2004: R1 516 million).
Movements in the net liability recognised in the balance sheet
Opening net liability
Expense as above
Actuarial (loss)/gain recognised in equity
(3 439)
(370)
(941)
(5 127)
(575)
2 263
Closing net liability
(4 750)
(3 439)
Interest cost
Actuarial losses
Benefits paid
(18
(1
(2
2
463)
984)
754)
362
(18 370)
(2 058)
(432)
2 397
(20 839)
(18 463)
Reconciliation of movement in fair value of plan assets
Expected return
Actuarial gains
Benefits paid
15
1
1
(2
16 089
024
614
813
362)
13
1
2
(2
243
483
695
397)
15 024
Group
29.1.3 Transnet Second Defined Benefit Fund (continued)
The major categories of plan assets as a percentage of total plan assets are:
Equity
Property
Bonds
Foreign equity
MCell
Cash and net current assets
Total assets at market value
2005
R million
2004
R million
34%
12%
9%
7%
22%
16%
30%
12%
22%
10%
16%
10%
100%
100%
2002
2001
Summary of actuarial valuation results for past periods:
2005
Deficit
Experience adjustments on plan
liabilities
assets
2004
2003
(20 839)
16 089
(18 463)
15 024
(18 521)
13 239
(18 992)
16 048
(20 140)
16 502
(4 750)
(3 439)
(5 282)
(2 944)
(3 638)
–
–
–
–
–
–
–
–
–
–
8,50%
4,00%
6,75%
2,00%
9,75%
5,25%
5,50%
2,00%
29.1.4 Top Management pensions and Workmen’s Compensation Act pensioners
These are additional benefits to top up pensions received to eliminate the effects
of any early retirement penalties applied under the Group’s existing pension fund
schemes to top management. There were 530 members (2004: 499) at
31 March 2005.
The Workmen’s Compensation Act benefit relates to the pension benefits that the
Company pays to current and former employees who were disabled whilst in
service prior to the corporatisation of Transnet in 1990. There were 1 925 members
(2004: 2 098) at 31 March 2005.
Actuarial valuations for both benefits were performed to determine the present
value of the obligations. Similar valuations were done at the previous balance
sheet date. The projected unit credit method was used to value the obligations.
There are no plan assets held to fund these obligations.
The following summarises the components of expense and liability recognised in
the financial statements together with the assumptions adopted:
Top management benefit
The principal assumptions in determining the benefits are as follows:
Discount rate
Salaries increase: Inflation
Promotion
Pension increase
continued
Group
2005
R million
29.1.4 Top Management pensions and Workmen’s
Compensation Act pensioners (continued)
Benefit liability
Present value of obligations
Interest cost
Actuarial gain
2004
R million
(99)
(99)
(99)
(99)
(9)
(13)
(9)
(13)
–
28
The cumulative actuarial gain recognised in equity at 31 March 2005
is R18 million (2004: R18 million).
Expense as above
Actuarial gains
Benefits paid
(99)
(9)
–
9
(123)
(13)
28
9
(99)
(99)
2005
2004
2003
2002
2001
(99)
–
(99)
–
(123)
–
(93)
–
(105)
–
Deficit
liabilities
(99)
(99)
(123)
(93)
(105)
–
–
–
–
–
8,50%
4,00%
9,75%
5,25%
The estimated contribution for the year beginning 1 April 2005 is R9 million.
Workmen’s Compensation Act pensioners
The principal assumption in determining the benefits are as follows:
Discount rate
Pension increase
Benefit liability
(224)
–
(204)
–
(224)
(204)
Group
2005
R million
29.1.4 Top Management pensions and Workmen’s
Compensation Act pensioners (continued)
Interest cost
Actuarial (loss)/gain
2004
R million
(19)
(22)
(19)
(22)
(20)
14
Expense as above
Actuarial (losses)/gains
Benefits paid
(204)
(19)
(20)
19
(211)
(22)
14
15
(224)
(204)
2005
2004
2003
2002
2001
(224)
–
(204)
–
(211)
–
(211)
–
(131)
–
Deficit
plan liabilities
(224)
(204)
(211)
(211)
(131)
–
–
–
–
–
29.1.5 Black Widows’ Pension Benefit
The benefit relates to pensions that the Group has voluntarily elected to make
payable to the widows of black pensioners who retired from Transnet during the
period 16 December 1974 to 1 April 1986 and who subsequently died prior to
1 November 2000 and whose spouses are currently not entitled to a spouse’s
pension from either the Transnet Pension Fund or the Transnet Second Defined
Benefit Fund.
A liability was recognised for the first time in 2003. An actuarial valuation was
performed as at the 31 March 2005 to determine the present value of the
obligation based on the number of 3 417 approved black widows and an
actuarially valued entitlement of R23 000 per pensioner to fund a monthly
pension of R206 per month.
Benefit liability
Net asset/(liability) recognised in the balance sheet
(75)
(64)
83
55
8
(9)
continued
Group
2005
R million
29.1.5 Black Widows’ Pension Benefit (continued)
Return on asset
Interest cost
2004
R million
5
(6)
9
(6)
(1)
3
13
8
Interest cost
Actuarial losses
Contributions by employer
Benefits paid
(64)
(6)
(19)
4
10
–
–
–
–
–
(75)
–
Reconciliation of movement in fair value of plan assets
Return on assets
Actuarial gains
Contributions by employer
Benefits paid
55
5
29
4
(10)
–
–
–
–
–
83
–
2003
2002
2001
(64)
55
–
–
–
–
–
–
8
(9)
–
–
–
–
–
–
–
–
–
–
–
–
–
Actuarial gains
2005
Surplus/(deficit)
liabilities
assets
(75)
83
2004
No actuarial valuations were performed for this fund in previous financial years.
Hence no comparative data for the reconciliation of the movements in the liability
and fair value of the plan assets have been reported.
Group
2005
R million
2004
R million
29.1.6 Flight Deck Crew (FDC)
The liability relates to additional benefits to members of FDC, who are
employees of SAA (Pty) Ltd. These additional pension benefits are
required to equate to the increases that would have been applied to the
total cost of employment for the years commencing 16 March 1999 to
16 March 2000. This liability was recognised for the first time in 2003.
Benefit liability
Settlement during the year
(5)
–
(49)
44
(5)
(5)
29.2
Post-retirement medical benefits
SATS Pensioners’ post-retirement medical benefits
Pensioners include retired employees and the widow(er)s of employees and the
retired employees of the former South African Transport Services (SATS).
The liability is in respect of pensioners who have elected to belong to the
Transnet in-house medical scheme, Transmed, whose membership is voluntary.
A medical aid benefit liability was created at the corporatisation of Transnet.
With effect from 1 April 2000 the liability has been actuarially valued on an
annual basis. Actual benefits contributed on behalf of the pensioners are settled
against the provision.
Transnet employees post-retirement medical benefits
This includes the current and past employees of Transnet who are members of
Transnet’s in-house medical aid, Transmed Medical Fund. Membership is voluntary.
Transnet currently subsidises members at a flat contribution of R213 per month
per member.
To enable the Company to fully provide for such post-retirement medical liabilities,
since April 2000 actuarial valuations are obtained annually. There are no assets
held to fund the obligation.
Analysis of benefit expense
The following table summarises the components of net benefit expense recognised
in both the income statement and balance sheet as at 31 March 2005 for both
SATS pensioners and Transnet employees.
29.2.1 SATS pensioners
Discount rate
The projected unit credit method has been used for the purposes of determining
the actuarial valuation.
8,50%
9,00%
Benefit liability
(1 629)
(1 751)
(1 629)
(1 751)
continued
Group
2005
R million
29.2
Post-retirement medical benefits (continued)
29.2.1 SATS pensioners (continued)
Interest cost
Actuarial gain/(loss)
2004
R million
(152)
(197)
(152)
(197)
22
(225)
is R338 million (2004: R360 million).
Interest cost
Member/company contributions
Actuarial gain/(loss)
(1 751)
(152)
252
22
(1 715)
(197)
386
(225)
(1 629)
(1 751)
Discount rate
7,50%
9,50%
Present value of the obligation as at 31 March 2005
1 737
1 532
per member, the medical inflation has no impact on the aggregate current service
cost, interest cost and the benefit liability, however the assumed discount rate
has an impact. The impact of varying the assumed discount rate of 8,5% on
the present value of the obligation is as follows:
2005
2004
2003
2002
2001
Benefit liability
(1 629)
(1 751)
(1 715)
(2 914)
(3 433)
Deficit
liabilities
(1 629)
(1 751)
(1 715)
(2 914)
(3 433)
–
–
–
–
–
8,50%
9,00%
29.2.2 Transnet employees
Discount rate
The projected unit credit method has been used for the purposes of determining
the actuarial valuation.
Benefit liability
(808)
–
(741)
–
(808)
(741)
(12)
(62)
(12)
(65)
(74)
(77)
Charge to the Income Statement
Current service cost
Interest on accrued liability
Group
2005
R million
29.2
Post-retirement medical benefits (continued)
29.2.2 Transnet employees (continued)
Actuarial loss
2004
R million
(41)
(158)
Service cost
Interest cost
Actuarial losses
Benefits paid
(741)
(12)
(62)
(41)
48
(545)
(12)
(65)
(158)
39
(808)
(741)
The cumulative actuarial losses recognised in equity at 31 March 2005
amount to R10 million (2004: gains of R31 million).
per member, the medical inflation has no impact on the aggregate current service
cost, interest cost and the benefit liability, however the assumed discount rate
has an impact. The impact of varying the assumed discount rate of 8,5% on
the above mentioned balances is as follows:
Discount rate
Present value of the obligation as at 31 March 2005
7,50%
9,50%
904
726
2005
2004
2003
2002
2001
Benefit liability
(808)
(741)
(545)
(519)
(747)
Deficit
plan liabilities
(808)
(741)
(545)
(519)
(747)
–
–
–
–
–
30. RELATED PARTY TRANSACTIONS
Parties are considered to be related if one party has the ability to control the other
party or exercise significant influence over the other party in making financial or
operational decisions.
The following related parties have been identified:
The South African Government and all entities controlled by it, subsidiaries, directors
and associates. Related-party transactions are concluded on an arm’s length basis.
Details of material transactions and outstanding balances are dealt with as follows:
Shareholder
The sole shareholder is the South African Government. The Company is not
required to disclose the details of transactions with State controlled entities in
terms of the South African Statement of Generally Accepted Accounting Practice,
AC126, Related Parties.
continued
Company
2004
R million
Group
2005
R million
Note
2005
R million
2004
R million
30. RELATED PARTY TRANSACTIONS (continued)
Subsidiaries
Details of investments in subsidiaries are disclosed
in note 11 and Annexure C.
Directors
The directors’ names are disclosed on page 8
whilst their emoluments are disclosed in the
directors’ report. The directors’ loans are disclosed
in note 10.
R1,95 million (2004: R1,30 million) was paid for
services rendered by KPMG Inc, a company in which
one of the directors has an interest.
Associates
Details of income from associates and investments
in associates are disclosed in the income statement
and in note 12.
Transnet Pension Fund
The Transnet Pension Fund has made payments
to the Transnet Pension Fund Administrators to
the value of R76 million (2004: R73 million).
5 933
8 150
(6 207)
1 864
(854)
6 016
2 021
(379)
11 130
492
1 608
860
8 096
–
1 674
517
612
–
–
694
–
–
(5)
22
2
–
(438)
131
173
(13)
–
–
–
–
2
62
–
–
841
149
–
(58)
(3 559)
5
188
–
–
–
(4)
63
31. CASH FLOW INFORMATION
31.1 Cash generated from operations
Interest paid
Investment income
Elimination of non-cash items
–
–
–
–
–
Depreciation and amortisation
Increase in provision for retirement obligation
Impairment of investments
Impairment of intangible assets
Mark to market of foreign exchange cover in
operating costs
– Impairment of property, plant and equipment
– Profit revaluation of investments
– Impairment of trade and other receivables
– Increase/(decrease) in short-term provisions
– Movement in long-term provision
– Loss on sale of subsidiaries
31.4
– Unrealised foreign translation gains
– Derivative fair value adjustment
– (Profit)/loss on disposal of property, plant and
equipment
– Amortisation of discount on bonds
– Profit on sale of intangible assets
– Reversal of deferred cash flow hedges to
income statement
– Adjustment/write down of minorities
– Fair value adjustment of investment property
– Other non-cash items
9 863
7 040
8 156
2 397
(276)
(6 211)
2 361
(346)
(414)
11 236
2 463
564
197
115
2 600
860
1
12
(37)
38
(1)
–
812
116
–
(137)
(4 650)
–
4 027
–
182
123
83
7
–
2 773
(33)
188
–
(51)
9
(7)
–
408
173
(13)
–
–
–
–
Company
2004
R million
1 382
(129)
391
1 120
–
Group
2005
R million
(1 212)
(291)
(64)
(857)
(130)
(130)
(1 433)
130
1 514
–
31. CASH FLOW INFORMATION (continued)
31.2 Changes in working capital
Increase in inventories
Decrease/(increase) in receivables
Increase/(decrease) in payables
31.3 Taxation paid
– normal taxation (net)
Taxation as per income statements
– normal taxation
Balance at the end of the year
– normal taxation (net)
(49)
2005
R million
2004
R million
329
457
(294)
812
(189)
(155)
(617)
1 229
(164)
(5)
(1 620)
(190)
1 545
164
(239)
(31)
31.4 Disposal and acquisition of subsidiaries
and associates
Included in the proceeds on disposal is all of the
Group’s shareholding in Fleetcall (Pty) Ltd,
disposed of in the previous year.
The fair value of the assets and liabilities
disposed of are the following:
1
2
11
(4)
(1)
–
–
–
–
–
Accounts receivable and prepayments
Trade payables and provisions
Short-term loans
–
–
–
–
–
1
2
11
(4)
(1)
9
–
Net asset value
–
9
9
–
Cost of disposal
–
9
9
–
Loans made to investees
–
9
7
–
Sale price: made up as follows
–
2
7
–
–
–
– Proceeds
– Post-acquisition reserves
–
–
7
(5)
(2)
–
Loss on disposal of investments in subsidiaries
–
(7)
continued
Company
2004
R million
Group
2005
R million
(6 337)
–
4 583
–
131
(13)
5
–
2
694
–
62
8 096
612
2 573
5 262
Notes
32. HEADLINE EARNINGS/(LOSS)
Amortisation of goodwill (refer note 3)
(Profit)/loss on disposal of property, plant and
equipment (refer note 2)
Profit on disposal of intangible assets (refer note 2)
Loss on sale of interests in subsidiaries and
associates (refer note 5)
Impairment of assets (refer note 3)
subsidiaries and associates (refer note 3)
Headline earnings/(loss)
2005
R million
6 810
–
(33)
–
2004
R million
(6 332)
(52)
408
(13)
–
153
7
4 221
197
1
7 127
(1 760)
page 128
Annexure A – Financial risk management
page 136
Annexure B – Property, plant and equipment
page 138
Annexure C – Investment in subsidiaries and associates
Annexure A
INTRODUCTION
The Group has a centralised risk management and treasury function that manages the financial risks relating to
the Group’s operations in close consultation with the respective business units. The Group’s liquidity, credit,
foreign exchange, commodity, interest rate and price risks are being monitored continually. All approved policies
for managing these risks are currently under review.
RISK PROFILE
In the course of the Group’s business operations it is exposed to liquidity, credit, foreign exchange, commodity,
interest rate, and price risk. The risk management policy of the Group relating to each of these risks is discussed
under headings below.
FINANCIAL RISK MANAGEMENT
New governance structures were introduced during December 2004 to enhance the risk management process by
introducing an EXCO Risk Management Committee and EXCO Asset and Liability Management Committee. Both
committees meet on a monthly basis and are responsible for monitoring and reporting all financial risk exposures
to the Transnet Board of Directors.
FUNDING ACTIVITIES
Rand interest rate risk
The challenge is to manage the Group’s average interest rates on fixed interest rate rand bonds in such a manner
that they follow the long-term rand interest rate trend as closely as possible during the downward phase of the
interest rate cycle and to keep the Group’s effective interest rate below the average market rate during the upward
phase of interest cycles.
TRANSNET RAND BONDS
Domestic rand bonds
Transnet Limited issues domestic bonds listed on the Bond Exchange of South Africa. The following rand bonds,
excluding market-making positions, which are separately analysed, were in issue at 31 March 2005:
2005
Bond
T004*
T011*
T017*
T018*
Redemption
date
Coupon
rate
%
Effective
yield to
redemption
%
1/Apr/2008
1/Apr/2010
15/Mar/2006
15/Jul/2014
7,50
16,50
12,00
10,75
14,90
14,89
12,35
10,39
Fair value
R million
4
1
2
6
A
568
751
275
794
15 388
2004
Nominal
value
R million
Fair value
R million
Nominal
value
R million
662
325
181
000
4 310
1 721
2 309
–
4 662
1 325
2 181
–
14 168
8 340
8 168
4
1
2
6
* These domestic rand bonds are for both Company and Group as no bonds were issued at Group level
Transnet Limited does not make a market in the T018 bond.
EuroRand Bonds
The following EuroRand Bonds were in issue at 31 March 2005:
2005
Bond
Euro 42
Euro 42A
2004
Redemption
date
Coupon
rate
%
Effective
yield to
redemption
%
18/Apr/2028
30/Mar/2029
13,50
10,00
13,87
15,09
3 105
1 792
2 000
1 500
2 863
1 491
2 000
1 500
B
4 897
3 500
4 354
3 500
Group and Company bonds
at nominal value (refer note 22)
(A & B)
Fair value
R million
Nominal
value
R million
Fair value
R million
Nominal
value
R million
17 668
11 668
OTHER RAND BORROWINGS
Fair
value
R million
2005
Company
nominal
R million
Group
nominal
R million
Fair
value
R million
2004
Company
nominal
R million
Group
nominal
R million
83
Other rand denominated
liabilities*
Secured rand denominated
capital finance leases*
Promissory notes
Other short-term borrowings**
Coupon stock**
–
44
79
–
54
–
–
3 120
–
1 070
–
2 601
–
4 756
1 886
2 601
–
–
–
2 861
3 299
878
–
2 601
3 299
Domestic rand loans
3 120
3 715
9 322
6 160
6 832
10 558
21 383
26 999
18 500
22 226
Total domestic borrowings
2
1
2
3
834
741
601
299
* Refer note 22
** Disclosed as short-term borrowings (Note 26)
Transnet Limited was an issuer of commercial paper (trade named coupon stock) that was actively traded on the
money market. The issue of this paper was stopped in June 2004 and a new commercial paper programme is
under development.
Interest rate swaps with a notional value of R550 million (2004: R550 million) and with a positive fair value of
R67 million (2004: R23 million positive) were open at 31 March 2005. During the financial year a gain of
R28 million was recognised in the income statement comprising cash of R28 million. The swaps were done to
switch part of the T004 borrowings from fixed to floating.
After accounting for the above interest rate swaps, the interest rate exposure on the long-term domestic
borrowings as at 31 March 2005 was:
Total
borrowings
R million
Floating Floating rate
exposure exposure as
R million
% of total
Fixed
borrowings
R million
31 March 2005
Company
Group
17 622
23 229
562
4 573
3,19
19,69
17 060
18 656
31 March 2004
Company
Group
12 372
15 869
550
1 412
4,45
8,90
11 822
14 457
Company
Nominal
R million
2004
Company
Group
Fair value
Nominal
R million
R million
DOMESTIC INVESTMENTS
Company
Nominal
R million
1 169
2005
Company
Group
Fair value
Nominal
R million
R million
1 380
2 234
Group
Fair value
R million
2 445
1 059
1 110
1 515
Group
Fair value
R million
1 566
Annexure A
continued
FOREIGN CURRENCY EXPOSURES
Currency risk arises from exposures to foreign currencies when the value of the rand changes in relation to these
currencies. Forward exchange contracts and cross currency swaps were utilised to hedge foreign currency
exposures against exchange rate fluctuations.
Details of significant foreign currency exposures in respect of borrowings at 31 March 2005 are as follows:
FORWARD EXCHANGE CONTRACTS USED AS HEDGES
Description
Company
US dollars
Japanese yen
Group
US dollars
Japanese yen
Currency
amount
Ccy million
Fair
value
R million
(6)
1 515
(6)
1 515
Maturity
date
2006
R million
2007
R million
2008
R million
2009
R million
–
(72)
–
(17)
–
(18)
–
(18)
–
(19)
(72)
(17)
(18)
(18)
(19)
–
(72)
–
(17)
–
(18)
–
(18)
–
(19)
(72)
(17)
(18)
(18)
(19)
FOREIGN CURRENCY EXPOSURES AND COVER
Currency
Company
US dollars
Euros
GBP
Japanese yen
Total exposure in rands
Total
Exposures
borrowings
for future
(foreign currency) expenditure
Ccy million Ccy million
72
–
–
1 419
Total
exposure
Ccy million
Total
cover
Ccy million
Investments
and cash
allocated
Ccy million
Uncovered
exposure
Ccy million
19
23
11
–
91
23
11
1 419
72
–
–
1 419
4
–
–
–
15
23
11
–
19
23
11
641
23
11
1 419
72
–
–
1 419
23
7
2
73
528*
Group
US dollars
Euros
GBP
Japanese yen
622
–
–
1 419
Total exposure in rands
3 985*
* Refer to liquidity risk below
546
16
9
(73)
FOREIGN CURRENCY INTEREST RATE RISK
Foreign currency interest rate swaps and cross currency swaps were utilised to hedge foreign currency interest
rate risks.
The following were significant positions at 31 March 2005:
Company
Interest rate swaps
US dollars
Rand
Cross currency swaps
US dollar – rand
Euro – rand
Group
Interest rate swaps
US dollars
Rand
Cross currency swaps
US dollar – rand
Euro – rand
Fair
value
R million
2005
Notional
amount
Currency
million
2005
–
–
–
–
–
(84)
–
687
78
–
(197)
(273)
204
105
–
–
–
(84)
–
687
78
–
(1 517)
(273)
496
105
(263)
–
–
–
(263)
–
Fair
value
R million
2004
Notional
amount
Currency
million
2004
The foreign currency interest rate exposures after taking the interest rate and cross currency swaps into account
on 31 March 2005 are presented in the table below:
Total
borrowings
R million
Floating
borrowings
R million
Fixed
borrowings
R million
Company
US dollars
Japanese yen
445
83
221
–
224
83
Total*
528
221
307
100%
42%
58%
Group
US dollars
Japanese yen
3 902
83
3 527
–
375
83
Total*
3 985
3 527
458
100%
89%
11%
Currency
* Refer to liquidity risk below
Annexure A
continued
FOREIGN CURRENCY INVESTMENTS
At year-end the Group had foreign currency investments of R1 065 million (2004: R456 million). These amounts
include the short-term portion of defeasance deposits. (Refer domestic investments above).
MARKET MAKING IN TRANSNET BONDS
Transnet Limited makes a market in its own domestic bond issues, hence being the buyer and seller of last resort.
Government, Public Corporation and Corporate bonds listed on the Bond Exchange of South Africa, domestic
interest rate swaps, domestic money market instruments and buy and sell back financial instruments that are
utilised to hedge the resulting interest rate and liquidity risks.
The resulting basis risk is computed on a rand per point per million basis expressed in terms of a weighted
average T011 nominal exposure. On 31 March 2005 this exposure amounted to a net short nominal position of
R1,6 million (2004: R1,4 million short).
The following significant positions were held at year-end.
2005
Fair value
R million
2004
Fair value
R million
Short positions in listed bonds
Bonds
Sell and buyback financial instruments
2 016
184
1 704
554
Short positions at all in price
less accrued interest
2 200
519
2 258
260
Short positions at clean price*
2 719
2 518
461
725
23
816
Long positions at all in price
less accrued interest
1 186
173
839
51
Long positions at clean price**
1 359
890
Long positions in listed bonds
Bonds
Sell and buyback financial instruments
* The carrying value of the short position is R2 719 million (included in rand borrowings above)
** The carrying value of the long position is R1 359 million (included in domestic investments above)
No collateral was held against any market making positions at reporting date.
The market making risk profile at 31 March 2005, measured against a 1% movement in bond rates is reflected below.
Market making risk profile
93 273
80
72 562
60
52 904
34 273
20
16 646
0
0
(15 688)
-20
Sensitivity analysis
Market making
M+100
M+80
M-0
M-20
M-40
M-60
M-80
-80
M-100
-60
M+60
(30 441)
(44 280)
(57 227)
(69 304)
-40
M+40
’000
40
M+20
100
LIQUIDITY RISK
Liquidity risk is managed to ensure that the Group is able to meet its financial obligations as they fall due on a
cost effective basis by utilising surplus cash and bank facilities, whilst still ensuring Transnet’s ability to attract
funds over the long term. Market making in Transnet bonds is undertaken to enhance the tradability and hence
minimise the liquidity risk within established cost and risk parameters.
The following is a summary of long-term on balance sheet borrowings by currency and redemption.
Total borrowings repayable during the financial year ended 31 March
Total
borrowings
2005
Currency
Company
US dollars
Japanese yen
R million
Repayable during the financial year ended 31 March
2006
2007
2008
2009
2010
onwards
R million
R million
R million
R million
R million
445
83
259
21
39
21
41
21
42
20
64
–
Total foreign currencies
Total SA rand
528
17 622
280
2 200
60
161
62
172
62
4 043
64
11 046
Total interestbearing borrowings
Current portion of borrowings
18 150
(2 480)
2 480
(2 480)
221
–
234
–
4 105
–
11 110
–
Total long-term interestbearing borrowings
15 670
–
221
234
4 105
11 110
100
–
1
2
26
71
Group
US dollars
Japanese yen
3 902
83
886
21
439
21
418
21
426
20
1 733
–
Total foreign currencies
3 985
907
460
439
446
1 733
Total SA rand
23 229
4 618
2 521
588
4 424
11 078
Total interestbearing borrowings
Current portion of borrowings
27 214
(5 525)
5 525
(5 525)
2 981
–
1 027
–
4 870
–
12 811
–
Total long-term interestbearing borrowings
21 689
–
2 981
1 027
4 870
12 811
100
–
14
5
22
59
Redemption period as
percentage of total (%)
Redemption period as
percentage of total (%)
Annexure A
continued
CREDIT RISK
Financial assets that potentially subject the Group to concentrations of credit risk consists primarily of cash,
short-term deposits, Government and public corporation bonds listed on the Bond Exchange of South Africa, the
market value of derivatives and trade receivables. The Group’s exposures to credit risks in respect of all Treasury
related transactions are confined to credible counterparties and are managed within Board approved credit limits.
Trade receivables are presented net of provisions. Credit risks with respect to trade receivables are limited due to
the large number of customers comprising the Group’s customer base and their dispersion across different
industries and geographical areas. It is the policy of the Group to perform ongoing credit evaluations of the
financial position of counterparties and appropriate security is obtained where necessary. The Group has no
significant concentration of credit risk that has not been adequately provided for.
Below is a summary of all significant exposures, all within the approved limits, as at 31 March 2005.
Credit risk (inclusive of marginal risk)**
Bond issuer risk**
Guarantees
Trade and other receivables*
2005
R million
2004
R million
3 350
811
3 016
6 622
6 237
421
1 465
7 359
13 799
15 482
* Refer note 15
** Definitions
• Credit risk
Credit risk is the potential loss that may arise when a counterparty cannot fulfil its commitments in respect of a
financial transaction.
• Marginal risk
The risk that a counterparty is not in a position to fulfil its financial obligations according to the terms and
conditions of the transaction and that the transaction has to be closed-out at a market value loss.
• Bond issuer risk
The risk that an issuer of bonds will not be able to fulfil its financial obligations according to the terms of the
bond issues.
The following diagrams reflect the distribution of credit risk, expressed in terms of long-term credit ratings,
excluding guarantees and trade receivables. The non-rated banks are financial institutions primarily situated in
Africa and Asia. These accounts are monitored on a daily basis to ensure that credit limits are not breached.
Credit risk exposure
Transnet Limited
AAA Issuers
28,07%
Transnet Group
AA Banks
43,37%
AAA Issuers
19,37%
Non-related Banks
1,16%
AA Banks
43,74%
AA- Issuers
0,12%
AA- Issuers
0,17%
AA- Banks
28,38%
Rating definitions
A
Long-term rating with strong capacity for timely repayment
AA Long-term rating with very strong capacity for timely repayment
AAA Long-term rating with exceptionally strong capacity for timely repayment
AA- Banks
35,00%
A Banks
0,61%
COMMODITY PRICE HEDGING
The fuel price risk of SA Airways (Pty) Ltd is managed within a SA Airways (Pty) Ltd Board approved risk
management framework to ensure that the Company is not adversely affected by increases in jet fuel prices.
The strategy to manage the risk as approved by the SA Airways (Pty) Ltd Board is to hedge up to 60% of the
airline’s annual rolling consumption of jet fuel.
Jet fuel prices are hedged by means of vanilla derivative financial instruments, i.e. swaps and options. The
underlying commodity to the derivative financial instruments used must be highly correlated to jet fuel.
The fair market value of all derivative financial instruments in respect of the SA Airways (Pty) Ltd jet fuel portfolio
at year-end was positive by R199 million (Brent $53,4).
FAIR VALUE
At 31 March 2005 and 2004 the carrying amounts of cash, short-term deposits, accounts receivable, accounts
payable and short-term borrowings approximated their fair values due to the short-term maturities of these assets
and liabilities. The fair values of bonds listed on the Bond Exchange of South Africa and those of derivative
financial instruments have been based on mid-market values at the reporting date. The fair values represent an
approximation, but these may differ from the values that will finally be realised.
CURRENCY CONVERSION
The rates of exchange at 31 March 2005 used for conversion purposes were:
US dollar
Pound sterling
Japanese yen
Euro
2005
2004
6,2058
11,6201
17,1251
8,0654
6,6108
11,9173
16,0525
8,0413
Annexure B
GROUP
Opening net carrying value at 1 April 2003
Aircraft
R million
Land,
buildings
and
structures
R million
Machinery,
equipment
and
furniture
R million
6 811
6 659
1 508
Cost/fair value/revaluation
Accumulated depreciation (including impairment)
9 187
(2 376)
7 572
(913)
3 967
(2 459)
Prior year movements
Additions
Disposals
Depreciation
Revaluation
Impairment – cost/revaluation
3 798
(1 273)
(788)
–
–
(3 333)
296
(63)
(121)
–
(2)
(150)
625
(55)
(278)
–
–
(208)
Carrying value at 31 March 2004
5 215
6 619
1 592
11 401
(6 186)
7 798
(1 179)
4 403
(2 811)
Current year movements
Additions
Disposals
Depreciation
Revaluation
PDP’s transferred to receivables
Transferred to intangibles
Reclassifications/transfers
843
(40)
(525)
–
–
38
–
–
2 882
171
(43)
(135)
–
7
(73)
–
–
(11)
354
(31)
(298)
–
–
(8)
–
(109)
292
Closing net carrying value at 31 March 2005
8 413
6 535
1 792
14 933
(6 520)
7 925
(1 390)
4 347
(2 555)
6 122
1 172
50
(42)
6 987
(865)
3 318
(2 146)
–
–
(8)
–
–
180
(70)
(110)
–
(150)
642
(54)
(236)
–
(208)
COMPANY
Opening net carrying value at 1 April 2003
Prior year movements
Additions
Disposals
Depreciation
Revaluation
Carrying value at 31 March 2004
Current year movements
Additions
Disposals
Depreciation
Revaluation
Impairment transferred directly to equity
Transferred to intangibles
Reclassifications/transfers
Closing net carrying value at 31 March 2005
8
–
50
(50)
–
–
–
–
–
–
–
–
–
–
50
(50)
5 972
1 316
7 090
(1 118)
3 786
(2 470)
166
(43)
(123)
–
4
(72)
–
–
(53)
327
(31)
(258)
–
–
3
–
(109)
335
5 851
1 583
7 134
(1 283)
3 826
(2 243)
Permanent
way
and
works
R million
Port
facilities
R million
Rolling
stock
and
containers
R million
Pipeline
networks
R million
4 977
6 849
(1 872)
196
(54)
(158)
–
–
–
Vehicles
R million
Capital
work
in
progress
R million
Total
R million
2 764
9 695
6 972
(4 208)
16 578
(6 883)
5 102
1 070
8 140
46 726
9 073
(3 971)
2 399
(1 329)
8 140
–
70 737
(24 011)
199
–
(142)
135
–
(318)
372
3
(419)
245
–
(18)
799
(75)
(378)
–
–
–
377
(63)
(252)
–
–
–
1 158
73
–
–
–
–
7 820
(1 507)
(2 536)
380
(2)
(4 027)
4 961
2 638
9 878
5 448
1 132
9 371
46 854
6 985
(2 024)
7 306
(4 668)
17 149
(7 271)
9 793
(4 345)
2 511
(1 379)
9 371
–
76 717
(29 863)
108
(1)
(163)
–
–
–
–
–
–
60
–
(161)
349
–
5
–
–
312
166
(9)
(440)
652
–
6
–
–
(52)
1 010
(1)
(404)
–
–
–
–
–
28
365
(76)
(264)
–
–
(6)
–
–
75
2 498
(3)
–
–
–
–
(757)
–
(3 526)
5 575
(204)
(2 390)
1 001
7
(38)
(757)
(109)
–
4 905
3 203
10 201
6 081
1 226
7 583
49 939
7 096
(2 191)
7 940
(4 737)
18 483
(8 282)
10 826
(4 745)
2 611
(1 385)
8 161
(578)
82 322
(32 383)
4 976
2 764
9 695
5 086
5 056
35 168
6 848
(1 872)
6 972
(4 208)
16 578
(6 883)
9 037
(3 951)
1 198
(909)
5 056
–
56 044
(20 876)
197
(54)
(158)
–
–
199
–
(142)
135
(318)
372
3
(419)
245
(18)
807
(75)
(376)
–
–
48
(5)
(77)
–
–
1 024
73
–
–
–
3 469
(182)
(1 526)
380
(694)
255
6 153
36 615
6 153
–
59 437
(22 822)
289
4 961
2 638
9 878
5 442
6 985
(2 024)
7 306
(4 668)
17 149
(7 271)
9 766
(4 324)
1 152
(897)
108
(1)
(163)
–
–
–
–
–
–
60
–
(161)
349
–
–
–
–
317
166
(8)
(440)
652
–
7
(1)
–
(53)
1 007
(1)
(403)
–
–
–
–
–
28
14
(5)
(72)
–
–
–
–
–
70
4 905
3 203
10 201
6 073
7 096
(2 191)
7 940
(4 737)
18 483
(8 282)
10 798
(4 725)
262
1 123
(861)
1 470
(3)
–
–
–
–
–
–
(644)
3 318
(92)
(1 620)
1 001
4
(62)
(1)
(109)
–
6 976
39 054
7 554
(578)
64 004
(24 950)
Annexure C
Shares issued
Effective holding
SUBSIDIARIES
2004
%
2005
%
100
80
100
100
100**
100
100
80
100
100
95
100
100
80
100
100
95
100
Property Holdings
Transhold Properties (Pty) Ltd
Esselen Park Developments (Pty) Ltd†
Transite Properties (Pty) Ltd†
Point Waterfront (Pty) Ltd†
Proptrade (Pty) Ltd
The Bay Waterfront (Pty) Ltd†
100
100
100
51
100
100
100
100
100
51
100
100
100
100
100
51
100
100
Construction
Protekon (Pty) Ltd
100
100
100
IT Procurement
B2B Africa Holdings (Pty) Ltd*
100
100
100
100
100
100
Rolling Stock
Transwerk Foundries (Pty) Ltd
Transwerk Rollstock (Pty) Ltd†
Transwerk Traction (Pty) Ltd†
100
100
100
100
100
100
100
100
100
Insurance Captive Cells
Spoornet Guard Risk
Freight Dynamics Guard Risk
100
100
100
100
100
100
57
100
100
100
57
100
95
100
57
100
100
100
100
100
100
100
100
49
95
95
100
95
95
49
100
100
100
100
100
>50
100
60
60
100
100
100
60
60
100
100
100
60
60
100
100
100
100
100
Million
2005
%
Voting power
held
SUBSIDIARIES HELD BY TRANSNET
LOCAL SUBSIDIARIES
Transport Logistics
Viamax (Pty) Ltd
Marine Data Systems (Pty) Ltd*
Owner Driver Management (Pty) Ltd†
Southern African Airline Holdings (Pty) Ltd
South African Airways (Pty) Ltd
Autopax Passenger Services (Pty) Ltd
Marketing
Transtrade (Pty) Ltd†
FOREIGN SUBSIDIARIES
Transport Logistics
African Joint Air Services Ltd (Uganda)
Freight Logistics International (British Virgin Islands)
Translease International (Mauritius)
Spoornet Do Brazil (Brazil)
15
9 060
20
1
23
SUBSIDIARIES HELD BY OTHER SUBSIDIARIES
Incorporated in the Republic of South Africa unless stated otherwise.
Held within South African Airways (Pty) Ltd
Air Chefs (Pty) Ltd
Air Chefs International (Pty) Ltd
SAA City Center (Pty) Ltd
SAA Technical (Pty) Ltd
International Aviation Personnel (Pty) Ltd
Air Tanzania Company Ltd (Tanzania)
2
160
Held within Viamax (Pty) Ltd
HSA Management Systems (Pty) Ltd
KNVL Zimbabwe (Pty) Ltd (Zimbabwe)
Viamax Fleet Solutions (Pty) Ltd
Viamax Logistics (Pty) Ltd*
Viamax Fleet Management (Pty) Ltd
Held within Southern African Airline Holdings (Pty) Ltd
South African Express Airways (Pty) Ltd
57
* In the process of winding up
** Transnet holds 98,2% of SAA and the other 1,8% is held by the SAA Share Incentive Trust which was consolidated for the first time in the
current year. Transnet effectively holds 100% of SAA
† Dormant
Interest of holding
company net profit/(loss)
Shares at cost
2005
R million
Impairment and
provision for losses
2005
R million
2004
R million
15
15
–
–
–
–
–
58
8 815
20
58
8 815
20
(145)
966
(11)
(107)
(8 720)
(11)
352
2 427
82
–
–
–
–
–
–
–
–
–
–
–
–
(2)
(15)
97
10
92
9
–
–
10
10
–
–
–
–
–
–
–
–
18
36
25
25
–
–
–
–
–
–
–
110
10
108
(7)
–
2004
R million
Interest of holding
company indebtedness
94
(90)
–
2005
R million
2004
R million
2005
R million
472
219
447
215
–
–
217
220
–
–
–
270
35
103
87
9 231
18
–
8 815
–
–
–
–
–
–
–
6
(1)
–
–
–
17
19
(279)
–
–
(48)
(14)
110
1
1
–
–
–
–
–
–
–
–
–
–
–
–
8
–
–
3
1
3
1
6
2
–
–
23
23
1
5
–
–
–
–
–
–
8 936
8 936
906
(226)
85
2004
R million
(1)
(1)
–
–
–
–
–
–
–
–
–
121
141
27
141
–
–
–
–
–
–
–
–
6
3
–
–
–
–
–
–
–
–
382
166
383
166
382
33
383
–
–
–
–
–
–
56
4 176
1 755
10 140
9 660
3
(24)
–
–
(8 857)
–
–
Annexure C
continued
Effective holding
2005
%
2004
%
2005
R million
2004
R million
32
32
210
210
35
35
6
6
Storage and bondage
30
30
–
–
Railway operator
Transport logistics
Property development
and management
28
32
28
32
–
13
–
13
26
26
424
424
and management
15
15
2
2
Transport logistics
49
49
35
35
Port operations
Port operations
and management
50
50
50
50
1
–
1
–
50
50
–
–
Railway operator
19
19
–
–
Port operations
and management
30
30
10
10
20
20
2
2
703
703
1
1
704
704
ASSOCIATES*
Principal activity
Arivia.kom (Pty) Ltd
VAE Perway (Pty) Ltd
IT service provider
Refurbishment
of Perway
Commercial Cold Storage (Ports)
(Pty) Ltd
Port Shepstone and Alfred
County Railway Ltd
Comazar (Pty) Ltd
V&A Waterfront Holdings
(Pty) Ltd
Mossel Bay Waterfront
Development (Pty) Ltd
Equity Aviation
Services (Pty) Ltd
Cape Town Bulk Storage
(Pty) Ltd
Durban Coal Terminal Ltd
Belldev Properties (Pty) Ltd
Railway Systems of
Zambia (Zambia)
AllPort Logistics Terminal Ltd
(Ghana)
RainProp (Pty) Ltd
HELD BY SUBSIDIARIES
Shares at
cost
Various
Summarised financial information
of significant associates
Financial position
Assets
Liabilities
Results of operations
Revenue
Profit before tax
Income tax credit/(expense)
Net profit for the year
* Incorporated in the Republic of South Africa unless stated otherwise
V&A Waterfront
Holdings (Pty) Ltd
Arivia.kom (Pty) Ltd
2005
R million
2004
R million
2005
R million
2004
R million
3 878
2 386
3 173
2 452
935
413
895
439
538
602
176
778
657
383
(115)
268
1 594
90
(26)
64
1 605
74
(18)
56
Interest of holding company
Indebtedness
Provision
for losses
Share of post
acquisition reserves
2005
R million
2004
R million
2005
R million
2004
R million
–
–
–
–
(7)
–
–
–
–
19
13
9
11
–
–
14
12
2
8
2
8
–
22
–
–
–
–
–
9
–
–
–
–
387
187
–
–
–
–
–
–
114
114
12
–
36
–
–
–
–
–
–
–
–
3
–
3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
10
–
–
–
–
–
–
–
(2)
1
133
135
44
–
450
190
1
–
–
–
45
–
450
190
–
133
(10)
125
2005
R million
2004
R million
(25)
(10)
GROUP COMPANY SECRETARY
Z Stephen
BUSINESS ADDRESS AND REGISTERED OFFICE
47th Floor, Carlton Centre
Johannesburg
2001
PO Box 72501
Parkview
2122
South Africa
Telephone +27 11 308 2424
Telefax +27 11 308 2430
AUDITORS
Deloitte & Touche
Deloitte & Touche Place
The Woodlands
Corner Woodlands and Kelvin Drives
Woodmead
2199
Private Bag X6
Gallo Manor
2052
South Africa
Telephone +27 11 806 5000
Telefax +27 11 806 5118
APF Incorporated
Carlton Centre
Johannesburg
2001
PO Box 260144
Excom
2023
South Africa
Telephone +27 11 308 2540
Telefax +27 11 308 2543
COMPANY REGISTRATION NUMBER
1990/000900/06
page 3
features
page 8
Board of directors
www.transnet.co.za
G R A P H I C O R
3 2 8 5 5
1
Group structure
2
3
4
5
6
7
Board of directors
8
10
11
14
21
25
page 14
30
34
38
statement
42
46
50
54
58
59
05
Strategic intent
Executive Committee
page 11
Annual Report
Contents
NPA and Transwerk.
142
page 3
features
page 8
Board of directors
www.transnet.co.za
G R A P H I C O R
3 2 8 5 5
1
Group structure
2
3
4
5
6
7
Board of directors
8
10
11
14
21
25
page 14
30
34
38
statement
42
46
50
54
58
59
05
Strategic intent
Executive Committee
page 11
Annual Report
Contents
NPA and Transwerk.
142

Transnet Annual Report 2004

Transcription

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