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Integrated Report 2018 - www.transnet.net
Integrated Report 2018
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www.transnet.net

                                                        Integrated Report 2018
Integrated Report 2018 - www.transnet.net
TRANSNET Integrated Report 2018      1

                                                                                                                                                                                                                                                           10

Navigating this report                                                                                                    Reporting formats                                                                                                               11
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Icons key
Strategic fundamentals
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                                                                                                                                                                                                                                                                                                                                                 Contents
         Financial                              Operational                               Sound governance                                                                                                                      5                         15 17 18
         sustainability                         excellence                                and ethics                                                                                                                12      4                       13      16
                                                                                                                          Available in print         Available online                                                                                14                                                                                          About this report                                              2
                                                                                                                                                                                                                      3                                              20 21
                                                                                                                          format and full            in PDF format                                                                                              19                     29 30
                                                                                                                                                                                                                                                                                 27 28
         Capacity creation                      Human capital                             Constructive                    HTML report                                                                                                                                 22 25 26
                                                                                                                                                                                                                                                                                                                                                 Leadership perspective                                         6
         and maintenance                        management                                stakeholder relations                                                                                                                                                         24
                                                                                                                                                                                                                                                                                         31
                                                                                                                                                                                                                                                                                                                                                 Chairperson’s foreword                                         7
                                                                                                                          Integrated                 Integrated   Annual       Sustainability   Operating                                                            23
                                                                                                                          Report                     Report       Financial    Outcomes         Division                                                                                                                                         Executive summary                                             10
                                                                                                                          2018                       2018         Statements   Report           Reports                                                                             32
                                                                                          Sustainable                                                             2018         2018             2018
                                                                                                                                                                                                                                                                                    33
         Market segment                         Organisational
                                                                                          Developmental                                                                                                                                                                                  35                                                      Organisational overview                                      12
         competitiveness                        readiness
                                                                                          Outcomes                                                                                                                                                                                        36
                                                                                                                                                                                                                                                                                          37              41
                                                                                                                                                                                                                                                                                         39 40
                                                                                                                                                                                                                                                                                                                                                 Creating value through the capitals                          20
                                                                                                                          The 2018                   The 2018 Annual Financial Statements                                                                                                                 42
Sustainable Developmental Outcomes (SDOs)                                                                                 Integrated Report          include reports of the directors and                                                                                         38                                                             Financial capital                                            24
                                                                                                                                                                                                                                                                                                   43
                                                                                                                          is the Company’s           independent auditors.                                                                                                                           44                                          Manufactured capital                                         26
                                                Investment                                Health
         Employment
                                                leveraged                                 and safety                      primary report to                                                                                                                                                         45                                           Human capital                                                28
                                                                                                                                                                                                                                                                                                    46
                                                                                                                          all stakeholders.          The 2018 Sustainability Outcomes                                                                                                                     48                                     Intellectual capital                                         30
                                                                                                                                                     Report documents Transnet’s                                                                                                              47
                                                                                                                                                                                                                                                                                                    49                                           Social and relationship capital                              32
         Skills                                 Regional                                  Community                                                  performance on the nine SDOs                                                                                                                                                                Natural capital                                              34
                                                                                                                                                                                                                                                                                          50
         development                            integration                               development                                                in greater detail.                                                                                                                   51 53
                                                                                                                                                                                                                                                                                                                     54
                                                                                                                                                                                                                                                                                                          55 56
                                                                                                                                                                                                                                                                                                                                                 Strategy and resource allocation                             36
                                                                                                                                                                                                                                                                                                          57
                                                                                                                                                                                                                                                                                                            58
                                                                                                                                                                                                                                                                                                                59
                                                                                                                                                                                                                                                                                                                                                 Strategic planning                                           37
         Industrial                                                                       Environmental
                                                Transformation
         capability building                                                              stewardship                     Forward-looking information                                                                                                                                                            60
                                                                                                                                                                                                                                                                                                                  61
                                                                                                                                                                                                                                                                                                                                                 From MDS to Transnet 4.0                                     42
                                                                                                                                                                                                                                                                                                                62 63            64
                                                                                                                          All references to forward-looking information and targets in                                                                                                                                                65
                                                                                                                                                                                                                                                                                                                                                 Managing our stakeholder relationships                        48
The Capitals                                                                                                              the 2018 reports are extracted from the 2019 Transnet                                                                                                                                                 66
                                                                                                                                                                                                                                                                                                                       67                        The Multi-stakeholder Perception Survey                       50
                                                                                                                          Corporate Plan and approved by the Board of Directors.                                                                                                                             68
                                                                                          Social and relationship                                                                                                                                                                                         69
                                                                                                                                                                                                                                                                                                                                                 Addressing key stakeholder concerns                           51
         Financial capital                      Intellectual capital
                                                                                          capital
                                                                                                                                                                                                                                                                                                           71
                                                                                                                          Feedback on this report                                                                                                                                                                          72
                                                                                                                                                                                                                                                                                                                                      73         Material aspects impacting our strategy                      54
                                                                                                                                                                                                                                                                                                                                            74
                                                                                                                          We welcome feedback on our 2018 Integrated Report.                                                                                                                                                           75        Levels of accountability for determining material aspects    55
                                                                                                                                                                                                                                                                                                                       76
         Manufactured capital                   Human capital                             Natural capital                 Please provide written feedback to Kilford Gondo at                                                                                                                                        77                          Directors’ approval of material aspects                      55
                                                                                                                          Kilford.Gondo@transnet.net.                                                                                                                                                              79 78                         The impact and relevance of material aspects                 56
                                                                                                                                                                                                                                                                                                                  80
                                                                                                                                                                                                                                                                                                                    81
                                                                                                                                                                                                                                                                                                                    82
                                                                                                                                                                                                                                                                                                                 83                              Opportunities and risks                                      58
Performance Key                                                                                                                                                                                                                                                                                           85
                                                                                                                                                                                                                                                                                                            84
         Improvement on prior year                                                        Equivalent performance to
                                                                                                                                                                                                                                                                                                                                                 Transnet’s top risks for 2018                                59
                                                Target achieved                                                                                                                                                                                                                                           87
         performance                                                                      prior year                                                                                                                                                                                                       88                                    Transnet’s risk control and assurance environment            66
                                                                                                                                                                                                                                                                                                               90     89                         The governance of risk                                       66
         Decline on prior year                                                                                                                                                                                                                                                                                        91
                                                Target partially achieved                 Target not achieved                                                                                                                                                                                                       92
         performance                                                                                                                                                                                                                                                                                                                             Our performance                                               72
                                                                                                                                                                                                                                                                                                                    94
                                                                                                                                                                                                                                                                                                                                                 Financial sustainability                                      73
                                                                                                                                                                                                                                                                                                                          95
Transnet 4.0 Strategy                                                                                                                                                                                                                                                                                                      96
                                                                                                                                                                                                                                                                                                                                                 Operating Divisions’ review                                  100
                                                                                                                                                                                                                                                                                                      99
                                                                                          Expanding the scope of                                                                                                                                                                                 100        98                  97
         Product and service                    Geographic                                Transnet’s manufacturing                                                                                                                                                                                  101                                          Outlook                                                      102
         innovation                             expansion                                 business                               Dedication                                                                                                                                       107
                                                                                                                                                                                                                                                                                                     102
                                                                                                                                                                                                                                                                                    108     105 104
                                                                                                                                 We were deeply saddened by the loss of fellow Board                                                                                                    106              103                                     Abridged governance                                          112
                                                                                                                                 member and dear friend, Mr Gideon J Mahlalela who                                                                                                                                                               Ethical and effective leadership and corporate citizenship   113
Material clusters                                                                                                                passed away on 29 March 2018. We are profoundly
         Build social trust through             Ensure long-term                          Promote transformation
                                                                                                                                                                                                                                                                                                                                                 Creating value through Transnet’s governance structure       116
                                                                                                                                 grateful for his dedicated service on the Transnet Board,
         ethical leadership and                 financial stability                       and growth in the wider                                                                                                                                                                                          109                                   Our control environment                                      133
         corporate citizenship                  in a tough economy                        South African economy                  and will forever remember him for his patient                                                                                                      114 113 112
                                                                                                                                                                                                                                                                                 116                                                             Regulatory compliance universe                               136
                                                                                                                                 resourcefulness and his unflinching commitment to the
                                                                                                                                                                                                                                                                                   117                              110
                                                                                                                                 organisation’s long-term well-being. Gideon was a
                                                                                                                                                                                                                                                                        122         118
         Unlock organisational                  Ensure customer-
                                                                                          Anticipating the future                founding member of the South African Railways                                                                       130
                                                                                                                                                                                                                                                                                                                       111
                                                                                                                                                                                                                                                                                                                                                 Annexures                                                    138
                                                                                          and developing methods                                                                                                                                    132 129           125 121 120 119
         value by attracting talent,            centricity and build                                                             Association (SARA), and he was the first Swazi Chief                                                                                126                                                                         Annexure A: Governance terms of reference for
                                                                                          of minimising the effects
         fostering innovation and               partnerships for                                                                 Executive Officer of the Swaziland Railway (SR), and a                                                              133
                                                                                          of shocks and stresses
                                                                                                                                                                                                                                                    134         128 127                                                                          the Integrated Report                                        138
         building unity                         sustainable growth
                                                                                          of future events                       recipient of an Honorary Doctorate in Philosophy from                                                     136                                                                                                   Annexure B: Remuneration report                              139
                                                                                                                                                                                                                                        138
                                                                                                                                 the University of California. He was thus a pioneer at                                               139
                                                                                                                                                                                                                                    140                                                                                                          Annexure C: Subsidiaries, associates and joint ventures      146
                                                                                                                                 heart, a mentor in business, and a philosopher in spirit.
                                                                                                                                                                                                                                 142                                                                                                             Annexure D: Material risk taxonomy                           148
Strategic thrusts                                                                                                                His passing was sudden and unexpected. Our thoughts                          149               143
                                                                              King IV references                                 are with his family and friends.
                                                                                                                                                                                                            151 148   146
                                                                                                                                                                                                                                                                                                                                                 Abbreviations and acronyms                                   150
                                                                              We have included references to                                                                                                                     144
                                                                              King IV principles where appropriate               In respectful memory of Gideon Mahlalela
                                                                              in this report.                                                                                                                                                                                                                                                    Glossary of terms                                            151
                                                                                                                                 and our late colleagues:
                                                                                                                                                                                                                                145
                                                                                                                                 Mr Edgar Masilela, 15 July 2017                                                                                                                                                                                 Corporate information                                        152
                                                                              P = Principle                                      Mr Tshiamo Alfred Meku, 15 October 2017
During the reporting year, Transnet adhered to some of the King IV principles and recommendations as evidenced in the
                                                                                                                                 Mr Frederick Hermanus Matthysen, 18 October 2017
Integrated Report, Remuneration Report and the Sustainability Outcomes Report. At the time of publishing this report,            Ms Thandeka Mzimela, 1 November 2017
the Company was attending to gaps identified through a King IV gap analysis performed during the 2018 financial year.            Ms Senzekile Mase Mthethwa, 6 December 2017                                152
Once complete, the outcomes – and appropriate steps taken to address the gaps through the applicable governance process
– will be reported on the Company’s website (www.transnet.net/GAI), as part of the 2019 Integrated Reporting Suite.
Integrated Report 2018 - www.transnet.net
2   About this report                                                                                                                                                                                TRANSNET Integrated Report 2018        3

                                                                                                About this
                        Figure 1                               Transnet Group
                                                                                                report
                                                               Specialist Units
                                                               Transnet Group Capital           Reporting philosophy                                                         •
                                                                                                                                                                             •
                                                                                                                                                                               International Financial Reporting Standards (IFRS);
                                                                                                                                                                               The Companies Act, No 71 of 2008 (Companies Act);
                                                               Transnet Property                and approach                                                                 • The Public Finance Management Act, No 1 of 1999 (PFMA);
                                                                                                Transnet SOC Ltd (“Transnet” or “the Company”) has been an active            • United Nations 2015 Sustainable Developmental Goals;
                                                                                                participant in the International Integrated Reporting Council (IIRC)         • The Greenhouse Gas Protocol Corporate Accounting and
                                                                                                Pilot Programme since its inception and has followed the                       Reporting Standard prescribed by the Carbon Disclosure
                                                                                                developments and application of the Integrated Reporting                       Project;
                                                               Operating Divisions              Framework. Our reporting is evolving as the Company’s strategic              • AA1000 Stakeholder Engagement Standard; and
                                                                                                focus, operational priorities and organisational thinking become             • Broad-Based Black Economic Empowerment (B-BBEE)
                                                               Freight Rail
                                                                                                more integrated, thereby enabling us to remain strategically                   Codes of Good Practice.
                                                                                                aligned with and responsive to stakeholders’ concerns.
                                                               Engineering                                                                                             138   Read more
                                                                                                                                                                             Governance terms of reference for the 2018 Integrated Report
                                                               National Ports Authority
                                                                                                Reporting boundary                                                           are contained in Annexure A.
                                                               Port Terminals                   The 2018 Integrated Report covers the financial reporting
                                                                                                period from 1 April 2017 to 31 March 2018. The boundary of
                                                               Pipelines                        this report (Figure 1) encompasses the Transnet Group, its                   Statement of stakeholder
                                                                                                Operating Divisions and Specialist Units. The boundary further
                                                                                                extends to include factors that impact Transnet’s ability to
                                                                                                                                                                             commitment
                                                                                                create value.                                                                We strive to communicate with our stakeholders regularly. Our
                                                                                                                                                                             core values – expressed in our Culture Charter – guide us in our
                                                               Factors                          There were no significant changes in scope or aspect                         interactions with stakeholders.
                                                                                                boundaries, save for the progress made during the year. Where
                                                               impacting
                                                                                                relevant, restatements or changes in measurement methods                     To meet stakeholder commitments, we continue to strive for:
                                                               Transnet’s ability               are disclosed in the annual financial statements.                            • An organisational culture that views change as an opportunity
                              Employees                        to create value                                                                                                 to improve quality in all we do;
                                                                                                The Transnet Integrated Report is published annually and                     • A safe working environment, and an ‘iBELONG’ culture;
                              Shareholder (DPE1)
                                                                                                approved by the Board of Directors (Board). The previous
                                                               Statement of Strategic                                                                                        • Customer-centric business innovations, and reliable service
                              Customers                                                         Integrated Report was approved by the Transnet Board on
                                                               Intent                                                                                                          offerings presented to customers as ‘One Transnet’;
                              Investors and                                                     1 June 2017.
                                                                                                                                                                             • Fair, equitable and transparent supply chain tender processes;
                              commercial                       Transnet’s business
                              partners                                                                                                                                       • Integrity, communication, diversity, continuous learning,
                                                               context and operating
                              Rating agencies                  environment                      Reporting frameworks                                                           accountability and excellence in everything we do;
                                                                                                                                                                             • Support for communities where we operate;
                              and financial
                              institutions                     Stakeholder concerns
                                                                                                and guidelines                                                               • Collaborative relationships with policymakers and regulators;
                                                                                                                                                                             • Demonstrable sensitivity and care for the environment; and
                              Suppliers and                    Material risks                   Primary framework                                                            • Superior returns to our investors as a reliable and credible
                              service providers                                                                                                                                borrower which, albeit state-owned, issues debt on the
                                                                                                This report was prepared according to the guidance of the
                                                                                                                                                                               strength of its financial position without any Government
                              Regulators                                                        International Integrated Reporting  Framework, as adopted
                                                                                                                                                                               guarantees.
                                                                                                by the Transnet Board.
                              Government
                              Media and the
                              general public                                                    Secondary frameworks, guidelines and standards                               Integrated approach to assurance
                                                                                                                                                                             The Board and management have applied Transnet’s Integrated
                                                                                                This report – read together with the accompanying detailed
                              Academia                                                                                                                                       Assurance Plan to the integrated reporting process to enhance
                              and research                                                      Annual Financial Statements and Sustainability Outcomes
                                                                                                                                                                             the value-creation narrative, and to provide an independent
                              institutions                                                      Report – was further informed by:
                                                                                                                                                                             perspective on the transparency and accountability of our
                                                                                                • The King IV Report on Corporate Governance for South
                              NGOs2                                                                                                                                          disclosures. Our Integrated Assurance Plan encompasses the
                                                                                                  Africa (2016) (King IV);
                                                                                                                                                                             assurance provided by management, internal specialists, internal
                              International                                                     • The Global Reporting Initiative (GRI-G4) – (General Standard
                              bodies                                                                                                                                         audit, external audit, external advisers and service providers.
                                                                                                  Disclosures);                                                              The Board serves as the last line of defence.
                              Communities
                                                                                                Read more
                              Organised labour
                                                                                          www
                                                                                                Transnet GRI checklist online at www.transnet.net

                        1
                            Department of Public Enterprises
                        2
                            Non-Governmental Organisations
Integrated Report 2018 - www.transnet.net
4         About this report continued                                                                                                                                                                                                                           TRANSNET Integrated Report 2018         5

     Integrated Reporting Assurance framework                                                                                                                  the prevailing difficult economic conditions, Transnet will continue to   Waste
                                                                                                                                                               aggressively pursue specific available project funding areas that are
         Content                             Assurance providers               Outcome                             Framework/Standard                          within the parameters of its funding strategy and continue to             Our operations generate a variety of waste materials as
                                                                                                                                                               optimise capital expenditure spend.                                       by-products and we strive to implement the principles of responsible
         Annual Financial Statements         • SizweNtsalubaGobodo             • Qualified opinion                 •   PFMA                                                                                                              waste management, i.e. avoidance, reduction, recovery, reuse,
         (consolidated and summary)                                            • Material findings on              •   Companies Act                                                                                                     recycling and disposal, if no other use can be found. In accordance
                                                                                 usefulness and reliability                                                    Further, the Board does not expect the actions by both rating
                                                                                                                   •   IFRS                                                                                                              with the requirements of section 36 of the National Environmental
                                                                                 of certain performance                                                        agencies against Transnet and the sovereign to negatively impact
                                                                                                                   •   Shareholder’s Compact                   the ability of the Company to access the debt capital markets as          Management: Waste Act, No 59 of 2008, we continue to identify
                                                                                 information                                                                                                                                             contaminated areas in our operations using scientific methods and
                                                                                                                                                               both rating agencies have assigned a stable outlook for the
         Integrated Report (in full)         • Transnet Board                  • Directors’ approval               • International Integrated                  Company. Transnet has managed to maintain an investment grade             visual site assessments. Management plans are developed for areas
                                             • Audit Committee                                                       Reporting  Framework                  stand-alone credit profile amidst a series of rating downgrades.          contaminated by asbestos and hydrocarbon waste.
                                             • Remuneration, Social
                                               and Ethics Committee                                                                                                                                                                      Pipeline spills present a challenge for the Company and surrounding

         Review of internal                  • Transnet Internal Audit (TIA)   • Financial controls:               • Committee of Sponsoring                   Integrating sustainability reporting                                      communities, and we continue to educate property owners and
                                                                                                                                                                                                                                         contractors on safe and responsible work procedures; remedial
         controls and risk                   • National Occupational Safety      Requires improvement                Organisations                             The 2018 Integrated Report aims to communicate the full value of          activities include revegetation of sites, excavation of contaminated
         management                            Association (NOSA)              • Operational controls:             • PFMA                                      the Group and draws on the interdependencies between financial            soil, monitoring of groundwater and backfilling of soil.
                                             • International Standards           Requires improvement              • NOSA standards                            and non-financial information. We have integrated performance
                                               Organisation (ISO)              • Legislative assessment            • ISO standards relating to                 information relating to Transnet’s commercial outcomes with that
                                               accreditation bodies            • Functional risk management          safety and environment                    of the nine Sustainable Developmental Outcomes (SDOs) in our              Modal shift from road to rail
                                             • Legal firms                       and compliance maturity             including ISO 9000 and              P.2   discussion on value creation (p18) and our performance
                                                                                 assessment                          ISO 14000                                 disclosures (p73).                                                        Transnet’s programme to accelerate the modal shift from road to rail
                                                                                                                   • Legislative requirements                                                                                            is a flagship carbon mitigation programme for South Africa. Rail
                                                                                                                                                               The Board has reviewed Transnet’s sustainability performance              transport is three to four times more efficient than road transport,
                                                                                                                   • Enterprise risk management
                                                                                                                                                               disclosures in the 2018 Integrated Report for the year ended              offering cleaner, safer, cheaper and reliable freight mobility through
                                                                                                                     ISO 31000 standard
                                                                                                                                                               31 March 2018, and the external auditor’s assurance statement             improved road safety, reduced road congestion and carbon
         BEE contributor level               • TIA                             • Level confirmed as ‘Level 2’      • B-BBEE Act and Charters                   issued to the directors on the subject matters contained in the           emissions, and ultimately a lower cost of doing business.
                                             • Beever Agency CC                                                    • Rail sub-sector scorecard                 online Sustainability Outcomes Report 2018 available at
                                                                                                                   • Marine sub-sector scorecard               www.transnet.net.
                                                                                                                                                                                                                                         Governance and ethics
         Corporate Governance                • TIA                             • Maturity assessment: Fully        • King IV                                   Read more
                                                                                 established                       • PFMA                                                                                                                As a logistics state-owned company, our large infrastructure
                                                                                                                                                         www
                                                                                                                                                               Transnet Sustainability Outcomes Report online at
                                                                               • Assessment of controls:           • Companies Act                             www.transnet.net                                                          development projects pose a risk in terms of ethical and transparent
                                                                                 Requires improvement                                                                                                                                    procurement practices and ‘rent-seeking’ behaviour. Our mandate
                                                                                                                                                                                                                                         relies on domestic and foreign investment and perceptions of
         Selected information in the         • SizweNtsalubaGobodo             • Conclusion: Selected              • Transnet’s sustainability
         Transnet Sustainability                                                 sustainability information has      reporting criteria                        Statement of precautionary                                                anti-competitive behaviour and corruption negatively impact our
                                                                                                                                                                                                                                         reputation, brand and investment sentiment. Given the challenges
         Outcomes Report 2018 and                                                been prepared in all material
         contained in summary form in                                            respects in accordance with                                                   approach                                                                  during the reporting period, we will continue to work towards greater
                                                                                                                                                                                                                                         transparency and accountability, enhancing our procurement
         this report                                                             Transnet’s reporting criteria.
                                                                                                                                                               Human health and well-being                                               practices and stakeholder relationships, and refining our Code of
                                                                                                                                                                                                                                         Ethics to ensure the protection of all stakeholder rights. Refining
                                                                                                                                                               Our operating context is industrial- and infrastructure-driven, and       our governance framework to accurately track and address ethical
                                                                                                                                                               necessitates occupational training, as well as comprehensive
     Materiality in our reporting                                                The directors have also assessed the going-concern ability of the
                                                                                 Group as a result of the qualified audit opinion.                             policies and procedures to safeguard our employees, communities
                                                                                                                                                                                                                                         transgressions remains a priority for Transnet.

     The 2018 Integrated Report provides information that we consider                                                                                          within and around our operations and the public.
     to be of material significance in creating short-, medium- and
     long-term value. We have identified 24 material aspects for the
                                                                                 Bilateral and syndicated loans amounting to R15,8 billion have a
                                                                                 clause relating to a qualified audit opinion as an event of default.
                                                                                                                                                                                                                                         Directors’ approval
     2018 reporting year and have organised these into six clusters.             The qualification of Transnet’s Annual Financial Statements is an             Balancing stakeholder interests                                           The Board has applied its collective mind to ensure the integrity
     We are confident that the report provides information that is of            event of default under these financing agreements.                                                                                                      of the 2018 Integrated Report and any supplementary information
     material interest to all stakeholders wishing to make informed                                                                                            We recognise that our keystone expansion projects – such as our           referenced in the report. The Board has considered the
     assessments of our performance and our ability to create and                                                                                              large-scale port infrastructure improvement project at the Port           completeness of the material aspects addressed in the report,
                                                                                 On declaration of the qualified opinion, the bilateral and
     sustain long-term value.                                                                                                                                  of Durban – need to balance the economic benefits for the                 and the reliability of reported performance information presented,
                                                                                 syndicated loan lenders have a right to accelerate their loans
                                                                                                                                                               Shareholder Minister and the country with the social and                  based on the integrated assurance process followed.
                                                                                 which then become due and payable.
     Read more                                                                                                                                                 environmental concerns raised by surrounding communities.
56
                                                                                                                                                               Adverse impacts on local communities include the possibility of           The Board is satisfied that the 2018 Integrated Report provides
     The impact and relevance of material issues.                                The Board and management have engaged these lenders to share
                                                                                                                                                               social and small business displacement and extensive waste                a fair representation of the integrated performance of the
55
     Process for identifying, validating and approving material aspects.         the nature of the modification, root causes, remedial actions and
                                                                                                                                                               generation during the construction phase. We continue to engage           Company during the year. Further, it has concluded that the report
                                                                                 timelines for remediation. The engagements took place in a
                                                                                                                                                               project stakeholders to support the most reasonable, responsible          is presented in accordance with the International Integrated
                                                                                 positive environment, gaining confidence from the lenders that the
                                                                                                                                                               and beneficial balance of outcomes for all concerned.
     Qualified opinion                                                           partnership with Transnet remains strong, against the backdrop                                                                                          Reporting  Framework and aligns with the King IV guidelines.
                                                                                 of the strong financial position and cash flow generating capability                                                                                    The report also contains Standard Disclosures from the GRI
     The external auditors issued a qualified opinion relating to the            of Transnet.                                                                                                                                            Sustainability Reporting Guidelines.
     completeness of the identification and reporting of irregular                                                                                             Environmental health
     expenditure, including a material uncertainty relating to the               To date, half of the lenders granted waivers and/or reserved                                                                                            The 2018 Integrated Report was approved by the Board and signed
     Company’s going concern status in the year under review.                    rights to immediate acceleration to allow Transnet the
                                                                                                                                                               Water                                                                     on its behalf by:
                                                                                 opportunity to implement remedial actions to improve the control              Some of our operations are in water-stressed catchments with
                                                                                 environment around the prevention and detection of irregular                  resultant risks, including water contamination and water supply
     Going-concern status                                                        expenditure.Transnet is confident that an agreement will be                   shortages. We continue to ensure that water use licences are
     The Board reviewed the Group’s performance for the year and                 reached with all affected lenders to the satisfaction of all parties.         obtained timeously and are appropriate to the scale and nature of
     considered the robustness of budgets and business results, cash                                                                                           water use. Where water is required to reduce the environmental            PS Molefe
     flow projections for the 15 months ending 30 June 2019, cost-               A funding strategy has been developed to ensure that the Company              impact of dust from our Saldanha iron ore terminal, a reverse             Chairperson
     saving opportunities, the cost of capital projects and related              is able to successfully fund its capital investment plan without              osmosis plant has been constructed to limit the demand on
                                                                                 breaching the set financial parameters. Taking into consideration             municipal water by desalinating seawater for use in the terminal.         10 August 2018
     optimisation opportunities, the funding plan and loan covenants.
                                                                                                                                                                                                                                         Johannesburg
Integrated Report 2018 - www.transnet.net
6   Leadership perspective                                                                                                                                                                                                                  TRANSNET Integrated Report 2018          7

                                                                                                                                             Chairperson’s
                                                                                                                                             foreword
                                                                                                                                             The current Board of Directors (Board) of Transnet SOC Ltd
                                                                                                                                             was appointed on 24 May 2018, approximately two months
                                                                                                                                             after the end of the year under review. Its appointment
                                                                                                                                             coincided with the new epoch defined by the President of the
                                                                                                                                             Republic of South Africa as the “New Dawn”.

                                                                                                                                             The New Dawn is characterised by a resolute determination to
                                                                                                                                             rid public institutions of all malfeasance, which set in over the
                                                                                                                                             past nine years of our democracy, accompanied by their
                                      “We have set what we believe to                                                                        systemic destruction or weakening. Our task now is to rebuild
                                      be an ambitious but entirely achiev-                                                                   our public institutions, restore the loss of their integrity and to
                                      able goal of restoring Transnet, and                                                                   refocus them on their mandates. For the Board of Transnet, the
                                      its previously sound reputation, to                                                                    strategic challenge flowing from the aforegoing vision relates                                         Dr Popo Molefe
                                      its position as an integral asset of                                                                   directly to the biggest logistics, transport and infrastructure
                                                                                                                                                                                                                                                    Chairperson
                                      the people of South Africa.”                                                                           company of the State of which the strategic mandate is to drive
                                                                                                                                             socio-economic development. The outcomes of its successful
                                      Mr Popo Molefe                                                                                         discharge of this task must be the stimulation of economic
                                      (Chairperson)                                                                                          growth, growth of other businesses, especially small and
                                                                                                                                             medium-sized ones, increased jobs and the reduction of
                                                                                                                                             poverty and inequalities.

                                                                                                                                             The Board considers itself privileged to have been appointed          result in fruitless and wasteful expenditure, it is evident that the
                                               3000

                                                             1
                                                                                                                                             to the stewardship of the largest logistics, transport and            corporate governance of the Company is inadequate and

                                                                                                      y

                                                                                                                                         x
                             AXZZ_TDDE_222_1_0_89010230--A                                                                                   infrastructure company of the people of South Africa. The             requires improvement, which enforces the dire need for
                                                                                                                                             Directors, without exception, appreciate the depth of                 strengthened controls, particularly in the procurement
                                                                                                                                             dedication required of them, together with the management             environment. Since the appointment of the new Board we have
                                                                                                                                             collective and the more than 50 000 Transnet employees.               undertaken the following steps:
                                                                                                                                             We also acknowledge the concomitant collaboration with our            • Engaged certain forensic specialists to review the reports
                                                                                                                                             customers and service providers that is necessary to drive the           prepared relating to the much-talked about 1 064
                                                                                                                                             economic growth and sustainable development of Transnet’s                locomotives contract, where Transnet has been accused of
                                                                                                                                             human capital, and that of society at large.                             mismanaging the supply-chain management process
                                                                                                                                                                                                                      resulting in associated costs increasing from approximately
                                                                                                                            B-0-11

                                                                                                                                             Our first days in office coincided with sustained negative               R38 billion to R54 billion.
                                                                                                      B-0-11

                                                                                                                                             media coverage of the Company’s business dealings. At the             • Formulated the key governance sub-committees of the Board.
                                                                                     C-6_44

                                                                                                                                             same time, the preparation of Transnet’s 2018 Integrated              • Abolished the ‘Acquisitions and Disposals’ (ADC) sub-
                                                                                                                                             Report and Financial Statements were near completion.                    committee, as we do not believe the Board should be directly
                                                                                                      A

                                                                                                                                             According to King IV, the annual Integrated Report represents            involved in procurement processes.
                                                                              3889

                                                                                                                                             the voice of the governing body. As Directors, we owe our
                                                                                                                                     B

                                                                                                                                                                                                                   • Commenced interactions with key state institutions charged
                                                                 A-0-11

                                                                                     2567

                                                                                                                                             duties to the legal entity that is Transnet SOC Ltd. In
                                                                                                       C

                                                                                                                                                                                                                      with investigating “state capture”.
                                                                                                                                             acknowledging the diverse interests representing the
                                                                                                                                                                                                                   • Reviewed the progress of the investigations instituted by
                                                                                                                                             Company, which include the interests of our Shareholder, our
                                                                                                                                                                                                                      management, relating to payments made to companies
                                                                                                                                             employees, customers and communities, we are duty-bound to
                                                                                                           657xd

                                                                                                                                                                                                                      identified in various media reports.
                                                                                                                                             act in good faith, not only in signing off on the year’s
                                                                                                                                             performance but also in setting the direction and tone for
                                                                                                                                                                                                                   The reporting period was further marked by a credit downgrade
                                                                                                                                             Transnet’s strategic aspirations going forward.
                                                                          33ois

                                                                                                                                                                                                                   of Transnet’s foreign and local currency ratings, due to the
                                                                                                                                                                                                                   rating action on the sovereign, as Transnet is viewed to be
                                                                                                                                             Given the brief period available to us to examine, approve and
                                                                                     B-0-11

                                                                                                                   C-6_44

                                                                                                                                                                                                                   closely linked to the Government. The downgrades precipitated
                                                                                                                                             sign off the Transnet 2018 integrated reporting suite, we have
                                                                                                                                                                                                                   an increase in financing costs and a forced slowdown in capital
                                                                                                                                             relied heavily on the work done by Management and attempted
                                                                                                                                                                                                                   expenditure, necessitating a need to supplement investments
                                                                                                                                             to interrogate and provide our own observations where we
                                                                                                                                                                                                                   with capital raised through private-sector partnerships.
                                                                                              33ois

                                                                                                                                             could.
                                                                                                                                                                                                                   The rating agencies have, however, noted significant growth
                                                                                                                                                                                                                   potential for the country, even though they acknowledge that
                                                                                                                                             From the work of the various Board committees, it has become
                                                                                                                                                                                                                   the new political administration will require time to improve
                                                                                                                                             apparent that certain irregularities derive from lapses in
                                                                                                                                                                                                                   economic growth, accelerate employment and stabilise the
                                                                                                                                             financial discipline. While these irregularities do not necessarily
                                                                                                                                                                                                                   fiscal position, given the country’s structural weaknesses.

                                                                                                                                             1
                                                                                                                                                 https://www.youtube.com/watch?v=w1NxcRNW_Qk
Integrated Report 2018 - www.transnet.net
8   Leadership perspective continued                                                                                                                                                                              TRANSNET Integrated Report 2018         9

                                       Together with management, we have set what we believe to be an          As the Transnet Board, we are committed to improving                    Our sincere gratitude to the Minister of Public Enterprises,
                                       ambitious but entirely achievable goal of restoring the integrity       coordination, oversight and sustainability of the business, by          Mr Pravin Gordhan – who represents our Shareholder and the
                                       and reputation of Transnet. As a Board, with appropriately diverse      enhancing internal governance oversight and supporting the              people of South Africa – for his confidence in our ability to deliver
                                       skill-sets and depth of commercial experience befitting the             Auditor-General to strengthen external audit processes. In this         on our DPE mandate, for his encouragement, guidance and his
                                       task, we intend to ride the coat-tails of our President, who, in        way, we hope to help restore public trust in Transnet as a SOC, a       belief in the leadership to take Transnet forward. On behalf of the
                                       December 2017 began to usher in a new era of greater cooperation        national infrastructure provider, a progressive business partner,       Board of Directors, we pledge our unwavering support for his vision
                                       between the Government, business, labour and civil society, and         and a national employer of choice.                                      for our company.
                                       to foster greater inclusivity in South Africa’s policy environment,
                                       as evidenced by his success to date in his R1,2 trillion investment     We will also improve our engagements and interaction with various       Our deep appreciation to our regulators, including ministries with
                                       drive. His market-friendly approach and firm stance against             stakeholders, customers, service providers and emerging business.       which we work closely; as well as various committees in Parliament;
                                       corruption and maladministration is steadily building greater                                                                                   provincial governments; and municipalities that contribute their
                                       confidence among consumers, businesses and investors alike. In his      Notwithstanding the various governance challenges experienced in        oversight responsibilities and partnership commitments. To
                                       words, “a restoration of confidence is the quickest                     recent years, we are convinced that Transnet can be an extraordinary    community partners across the country, we are privileged to serve
                                       and cheapest form of stimulus available, especially in light of our     company that, given the opportunity, will grow and impact positively    as the custodians of South Africa’s largest infrastructure state-
                                       fiscal constraints”. This is true at the macro-economic level for       on the economy of our country. A valuable point of departure is         owned company. We look forward to partnering with you in our
                                       our country, and at the micro-business level for Transnet.              to restate Transnet’s core mandate, particularly as it facilitates      various enabling projects.
                                                                                                               the broader economic and developmental goals of the country as
                                       At the heart of the business is our obligation to assist in lowering    articulated by President Cyril Ramaphosa in his 2018 State of the
                                       the cost of doing business in South Africa, while ensuring              Nation Address (SONA); and to express our own understanding of
                                                                                                               and commitment to the mandate bestowed on us as the new Board
                                       security of supply by providing appropriate port, rail and pipeline
                                                                                                               in steering the Company towards its vision. The excellent financial
                                       infrastructure. As a SOC, Transnet must deliver on national
                                                                                                               performance appears clearly in the Annual Financial Statements          PS Molefe
                                       developmental goals, as they pertain to the transport and logistics
                                                                                                               and is further articulated in the Executive summary of the Group
                                       sector, ensuring that the country remains competitive on the                                                                                    Chairperson
                                                                                                               Chief Executive and Acting Chief Financial Officer.
                                       continent and globally. In many respects, our country is a driving
                                       force for the growth and expansion of the African continent,                                                                                    10 August 2018
                                       with infrastructure to match any first-world country. This said,                                                                                Johannesburg
                                       the World Bank and International Finance Corporation (IFC) rank         Condolences
                                       South Africa in 39th place in the world for ease of doing business.     Regrettably, during the year five employees passed away in
                                       Cost is of concern, particularly when trading across borders. The       our operations. On behalf of the Board of Directors, we wish to
                                       Company’s Transnet 4.0 strategy, formally set in motion during          express our heartfelt condolences to their families and all who
                                       the 2018 financial year, is geared to accelerate efforts to extend      were touched by their passing. The Company also lost a friend and
                                       the Company’s – and indeed South Africa’s – commercial footprint        mentor in Gideon Mahlalela, whose passing two days before year-
                                       in the fast-growing regions of Africa, the Middle East and Asia         end was sudden and unexpected.
                                       (AMEA), by offering affordable rail, port and pipeline infrastructure
                                       support to our cross-border neighbours. This vision proudly aligns      We further wish to convey our sympathies to the families of the
                                       with the “Africa 2063” strategic framework for socio-economic           102 members of the public who lost their lives during the year in
                                       transformation of the continent over the next 50 years into a           and around our operational activities. As the Board, we undertake
                                       uniquely African trade environment, which fosters growth and            to review the nature and causality of all fatalities and do our best
                                       sustainable development for Africans, by Africans.                      to entrench Group-wide safety awareness.

                                       The founding principles of the Transnet 4.0 strategy further echo
                                       a key tenet of the President’s 2018 Address, in that our prosperity     Appreciation
                                       as a nation depends on our ability to take full advantage of rapid
                                       technological change. The new Board is committed to transitioning
                                                                                                               We wish to acknowledge the ongoing efforts by all Transnet              “The erosion of trust in SOCs and
                                                                                                               employees. As the Board, we appreciate that the 2018 reporting
                                       the business to adapt to global industry 4.0 trends, particularly in
                                                                                                               year was harrowing, given the pervasive and sustained media             public institutions has negatively
                                       the ambitious goal of transitioning from our current second-party
                                                                                                               reports on State Capture, which cast a cloud over many SOCs,
                                       logistics provider (2PL) status to becoming a third-party logistics
                                                                                                               Transnet included. As disheartened as many might feel at this
                                                                                                                                                                                       affected our social licence to
                                       provider (3PL) in the short to medium term, and ultimately striving
                                       for fourth-party logistics provider (4PL) status in the long term.
                                                                                                               time, we owe it to ourselves and our colleagues to remain strong
                                                                                                               and grounded. We also wish to thank the leadership of organised
                                                                                                                                                                                       operate. Our challenge is to
                                       Ultimately, Transnet must progress with the times by becoming a
                                       digitally driven organisation, both from the perspective of driving
                                                                                                               labour for their guidance, leadership and willingness to share in the   win back the trust of the public,
                                                                                                               Company’s long-term vision.
                                       efficiencies to lower business costs, and to innovate around new                                                                                investors and Government.
                                       products and services.                                                  Thank you to our customers and commercial partners for your
                                                                                                               support and confidence in our abilities amid difficult economic and     The only way to do this is to
                                       It is prudent that we first and foremost guard against the financial,   operational conditions during the year. As the new Board, we look
                                       operational and governance challenges that have in recent years         forward to learning more about our customer environment and to
                                                                                                                                                                                       demonstrate unwavering
                                       both directly and indirectly impacted negatively on the overall
                                       performance of the economy and, consequently placed pressure
                                                                                                               finding innovative ways to improve Transnet’s service offerings
                                                                                                               to you.
                                                                                                                                                                                       commitment to good corporate
                                       on the very fiscus we, as a SOC, serve to protect.                                                                                              governance.”
                                                                                                                                                                                       Dr Popo Molefe
                                                                                                                                                                                       Chairperson
Integrated Report 2018 - www.transnet.net
10   Leadership perspective                                                                                                                                                                       TRANSNET Integrated Report 2018         11

                                                                                                    Transnet has initiated various geographic expansionary projects
                                                                                                    under a new subsidiary, Transnet International Holdings (TIH)

                              Executive
                                                                                                    SOC Ltd, such as the Nigerian railway concession project worth
                                                                                                    approximately $2 billion; the approval of a private-sector
                                                                                                    participation investment proposal to operate three berths in

                              summary
                                                                                                    the Port of Lamu, as per the LAPSSET Corridor Memorandum
                                                                                                    of Understanding (MOU) signed between South Africa and
                                                                                                    Kenya in 2016; and a tender awarded to the Transnet-Diaspora
                                                                                                    Infrastructure Development Group (DIDG) Consortium to raise
                                                                                                    finance for the rehabilitation and renewal of key equipment,
                                                                                                    systems and infrastructure for the National Railways of Zimbabwe.

                              Revenue growth and profits have been erratic for many                 Other important developments relating to our advanced
                              transport and logistics companies over the last 10 years, with        manufacturing sector include the launch of the TransAfrica
                              revenue increasing but profits not matching up to the rate of         Locomotive during April 2017 and the prototyping of a fully                                          Mr Siyabonga Gama
                              revenue increases on average. Return on capital employed              autonomous (self-drive) Special Inspection Device (SID) in                                           Group Chief Executive
                              (ROCE) and profits are relatively low for many companies in this      collaboration with the Council for Scientific and Industrial
                              sector compared to other industries, such as technology,              Research (CSIR) to detect obstacles on rail ahead of travelling
                              consumer non-durables and retail.                                     trains. We are hopeful that the SID’s capabilities will
                                                                                                    revolutionise rail safety.
                              Despite the challenges faced during the year, the Company has
                              achieved unparalleled financial results for the year ended            We are actively leveraging technological advancements to
                              31 March 2018. Revenue for the year increased by 11,3% to             improve operational efficiencies. Technologies such as the
                              R72,9 billion. Stringent cost-containment measures and working        Internet of Things, Machine Learning and Artificial Intelligence
                              capital management contained operating costs at R40,4 billion         (AI) will provide valuable insights into improving operational
                              (2017: R37,9 billion), a 6,5% increase, resulting in a R3,1 billion   reliability and service delivery to customers; whereas blockchain
                              saving against planned costs. As a result, earnings before            technology will modernise legacy systems and offer new
                              interest, taxation, depreciation and amortisation (EBITDA) –          customer service platforms. The aCTES system – serving as an                                         Mr Mohammed Mahomedy
                              Transnet’s key measure of profitability – increased by 18% to         industry-wide service platform – will help to generate relevant                                      Acting Chief Financial Officer
                              R32,5 billion (2017: R27,6 billion and 2016: R26,3 billion), with     transportation and logistics data from multiple sources across
                              the EBITDA margin increasing by 2,4% to 44,6%. Gearing at             the entire transport eco-system, thereby radically enhancing our
                              43,4% and cash interest cover at 3,0 times were well within the       customers’ experiences across the logistics value chain.
                              approved financial parameters.
                                                                                                    Going forward, Transnet’s growth will rely on our ability to
                              Revenue performance was underpinned by solid growth in                diversify value-added services, and to harness some of the
                              strategic rail sectors:                                               megatrends shaping the global transport and logistics sector.
                              • 6,1% increase in port containers                                    This implies diversifying revenue streams to tap into logistics
                              • Record general freight volumes of 90,8 mt, an increase of           opportunities presented by rapidly developing economies, such
                                                                                                    as logistics advisory services, infrastructure development and      Our point of departure draws from our view of long-term
                                3,1% from the prior year
                                                                                                    freight forwarding over large distances. Consolidation of the       sustainability. As a SOC, we cannot defer our developmental
                                – 6,5% growth in railed containers and automotive volumes
                                                                                                    logistics sector, where larger players acquire small or niche       mandate. Hence, our sustainable developmental outcomes form
                                – 17,5% growth in chrome                                            players, is also a growing trend in the transport and logistics     part of the essential blueprint for our new strategic direction.
                                – 13,2% increase in manganese                                       sector, in part due to companies’ reduced payloads, low             This means we need to consider our local suppliers in our
                              • Record of 77,0 mt export coal volumes (Richards Bay                 profitability levels and evolving customer preferences. In terms    expansion aspirations, acknowledge the new ways in which many
                                Container Terminals)                                                of the latter, our own customer surveys reflect that we are still   ‘new economy’ enterprises and youth entrepreneurs work so that
                                                                                                    slow to respond to their fast-changing requirements, which is a     they benefit from our enterprise development programmes,
                              Progress on major projects is also largely on track with 402          combined factor of our systems, customer support structures         involve our communities in our move to ‘digitalisation’, and
                              locomotives from the 1 064 locomotive programme having been           and our organisational culture, all of which need to undergo a      consider developing the technologies and skills we will need
                              accepted into operations during the year, and 16 more delivered       fundamental transformation.                                         30 years from now.
                              and currently undergoing acceptance testing. Further, Transnet
                              has commenced its manganese expansion project, which aims to
                              expand the capacity for transporting manganese volumes
                              beyond 5,5 million tonnes (mt). South Africa accounts for 75% of
                              globally identified manganese reserves and 31% of manganese
                              exports by value, making it a sustainable, lucrative supply market                                                                        SI Gama
                              to Europe and China. During the year, demand for manganese
                              exceeded budget by a substantial 46,6%.
                                                                                                    “We are committed to                                                Group Chief Executive

                              R1,3 billion was invested in the NMPP project during the year.         improving coordination,
                              The coastal terminal (tight-line solution), inland terminal,
                              24” main pipeline and 16” inland pipelines have been fully             oversight and sustainability
                              commissioned and are operational, having transported more                                                                                 MS Mahomedy
                              than 199,48 billion litres of diesel from Durban to the inland
                              region since commissioning. Following the coastal terminal
                                                                                                     of the business, by                                                Acting Chief Financial Officer

                              commissioning in August 2017, the pipeline is now operating as
                              a multi-product pipeline (various grades of diesel and petrol)
                                                                                                     enhancing internal                                                 10 August 2018
                                                                                                                                                                        Johannesburg
                              functioning at full phase 1 flow rates, thereby securing fuel
                              supply for the South African economy over the medium to long
                                                                                                     governance oversight”
                              term. The inland terminal was commissioned and became fully
                              operational in December 2017.
Integrated Report 2018 - www.transnet.net
12   Organisational overview                                                                                                                                                                                                                  TRANSNET Integrated Report 2018        13

                                                                                                                                                                                                                          Employee profile

                                                                                                                                                       Organisational
                                                                                    x

                                                                                                                                                                                                                          Total employees            55 666
                                                                                    y

                                                                                                                                                       overview                                                           Black 73,9% Indian 3,4% Coloured 9,7% White 13%

                                                                                                                                                                                                                          Total employees represented by
                                                                                                                                                                                                                          collective bargaining as a % of total headcount   89,0%
                                                                                    1                                                                                                                                     People with disabilities    2,4%

                                                                                        TRANS AFRICA LOCOMOTIVE/TRANSNET
                                                                                3000                                                                   Our mandate                                                        Permanent employees 51 324
                                                                                                                                                       Assist in lowering the cost of doing business in South Africa      Male 36 683        Female 14 641
                                                                                                                                                       Enable economic growth
                                                                                                                                                       Ensure security of supply by providing appropriate port, rail      Permanent employees represented by
                                                                                                                                                       and pipeline infrastructure in a cost-effective and efficient      collective bargaining as a % of total headcount   81,4%
                               Our                                                                                                                     manner, within acceptable benchmarks
                                                           Fuelling Africa’s
                               vision
                                                             growth and                                                                                                                                                   Non-permanent employees                     4 342
                                                            development                                                                                Governance context
                                                       as the leading provider                                                                         Transnet SOC Ltd is a public company (constituted in terms
                               What we                      of innovative
                               have to                 supply-chain solutions.
                                                                                                                                                       of the Legal Succession to the South African Transport             Integrated Supply-Chain Management
                                                                                                                                                       Services Act, No 9 of 1989), with the South African
                               deliver                                                                                                                 Government as the sole Shareholder.                                function
                                                                                                                                                       Transnet is the owner of South Africa’s railway, ports and
                                                                                                                                                       pipelines infrastructure.                                          Optimises inbound supply-chain activities

                               Our                                                                                                                     The Company’s Memorandum of Incorporation – approved               Enables efficient and reliable outbound services to the
                               mission                                                                                                                 by the Shareholder Minister on 25 June 2013 – aligns with          end-customer
                                                          Linking economies;                                                                           the provisions of the Public Finance Management Act (PFMA),
                                                          connecting people;                                                                           the Companies Act and the National Ports Act, No 12 of 2005,       As we enter the 4th Industrial Revolution,
                                                          and growing Africa!                                                                          as amended (the National Ports Act).                               opportunities for suppliers include:
                               What
                               we do                                                                                                                   As a state-owned company (SOC), the PFMA serves as                 • Internet-based service provider platform for suppliers
                                                                                                                                                       Transnet’s primary legislation.                                      working in the ‘Gig-economy’;
                                                                                                                                                       Transnet signs an annual Shareholder’s Compact with the            • Mentoring network of industry leaders to guide small,
                                                                                                                                                       Government of South Africa, represented by the Minister of           medium and micro-enterprises (SMMEs) in sector changes
                                                                                                                                                       Public Enterprises. The Shareholder’s Compact mandates the           due to digital trends;
                               Our                       I believe in zero harm                                                                        Company to deliver on numerous strategic deliverables, including   • Transnet ‘Mega Hubs’ to support SMME suppliers;
                               values             I am, because of the customer                                                                        sustainable economic, social and environmental outcomes.           • Market access to SMMEs through revenue-sharing model;
                                                                                                                                                       The Board directs the Company’s strategy in response to the          and
                                                    I deliver excellence, simply
                                                                                                                                                       Statement of Strategic intent.                                     • ‘Common purpose’ technology platforms for SMME
                                                       I am trusted and ethical                                                                                                                                             collaboration (tools and templates).
                               What we
                               stand for
                                                     I care, I make a difference                                                                       Broad-Based Black Economic                                         As Transnet expands regionally, we will spearhead regional
                                                           I am a team player                                                                          Empowerment (B-BBEE)                                               supply-chain opportunities for South African-based SMMEs
                                                                                                                                                       Transnet’s B-BBEE verification covers six of the seven             and expand Transnet’s Enterprise and Supplier Development
                                                                                                                                                       elements of the Generic Transport Public Sector Scorecard          Strategy to support regional supplier development in
                                                               I innovate                                                                              (excluding the ownership element). The Maritime, Property          countries where we operate.
                               Leadership                       I inspire                                                                              and Rail Charters are also applied.
                               brand
                               attributes             I put the customer first                                                                         Transnet achieved the full points for enterprise development       Enterprise and supplier development
                                                         I know my business                                                                            and socio-economic development for the 2018 financial year.        (ESD)
                                                             I am trusted                                                                              The post-MDS Transnet 4.0 strategic blueprint will address
                               How we                           I deliver                                                                              and maximise the scores for employment equity, preferential        • Guided by Government’s Competitive Supplier
                               should lead                    I am ethical                                                                             procurement and skills development.                                  Development Programme
                                                            I create value                                                                                                                                                • Informed by the B-BBEE Codes of Good Practice
                                                                                                                                                       Transnet Group’s B-BBEE performance per pillar                     • Aims to increase the competitiveness, capacity and
                                              Agile              Admired                                                   Digital     United
                                                                                                                                                       for the 2018 review period                                           capability of black-owned suppliers through financial
                               Strategic                                                                                                                                                                                    and non-financial support
                                              Fit and            Trusted,                                                  Evolve      Together        Element                              Actual score        Target
                               thrusts        focused in a       innovative South                                          or die      we succeed
                                                                                                                                                                                                                          • Targeted ESD initiatives support localisation and
                                              volatile world     African brand                                                                         Equity ownership                             N/A           N/A       industrialisation, and provide opportunities for black
                                                                                                                                                                                                                            people, youth, women, small businesses, people with
                                              Driven             Impeccable                                                Inventive   Single-minded   Management control                           8,59            11
                                                                                                                                                                                                                            disabilities and people living in rural communities
                               How we         Efficient          Innovative                                                Customer-   Tolerant of     Employment equity                           14,17            18
                                              Adaptable          Motivated by                                              centric     others’ ideas
                               will deliver                                                                                                            Skills development                          19,56            25    Our integrated Enterprise and Supplier Development Strategy
                                                                 excellence                                                Advanced    Understand
                                                                                                                                       our impact
                                                                                                                                                       Preferential procurement                    28,51            33    supports the rise of young black entrepreneurs through the
                                                                                                                                                       Enterprise development                      15,00         15,00    various developmental levels – from high-school innovation
                                                                                                                                                       Socio-economic development                    5,0           5,0    programmes through business case development and
                                                                                                                                                       Total                                       90,83          107     business incubation to our Black Industrialist Programme and
                                                                                                                                                       B-BBEE Level 2                                                     our regional and global exporting and trade programmes.
Integrated Report 2018 - www.transnet.net
14          Organisational overview continued                                                                                                                                                                                                                                  TRANSNET Integrated Report 2018          15

Operating context1                                                                                                                                             Customer profile                                                                                             Where we operate
Figure 2
                                                                                                                                                               Large mining, shipping, manufacturing, agricultural,                                                         Five Operating Divisions
                                                                                                                                                                                                                                                                            spread throughout South Africa
            Freight Rail                    Engineering           National Ports Authority          Port Terminals                    Pipelines                industrial, retail and energy contributors to the
• Operates 30 400 km of rail • Provides advanced          • Services eight                     • Provides cargo handling     • Transports fuel from            South African economy                                                                                        Four satellite offices
                                                                                                                                                                                                                                                                            in Lesotho, Tanzania, Namibia
  track across South Africa    manufacturing,               commercial seaports in               services to a wide            coastal refineries and
                                                                                                                                                                                                                                                                            and Swaziland
• Transports bulk,             maintenance and              South Africa                         spectrum of customers,        crude oil imports to
  break-bulk and               refurbishment              • Core functions include               including shipping lines,     the inland market
  containerised freight        of rolling stock and         the planning, provision,             freight forwarders and      • Transports gas from             Specialist Units                                                                                             Three joint operating centres
                               specialised equipment to     maintenance and                      cargo owners                  Secunda to industrial
                                                                                                                                                                                                                                                                            in Mozambique, Botswana and Zimbabwe
• Freight Rail network and
  rail services provide        Freight Rail, the National   improvement of port                • Operates 16 terminals in      users in Durban and             Transnet Group CapitalTransnet Property
  strategic links between      Ports Authority, Port        infrastructure                       seven ports spread along      Richards Bay
  mines, production hubs,      Terminals and external     • Provides marine-related              the South African           • The New Multi-Product
  distribution centres and     clients                      services, port services              coastline                     Pipeline (NMPP)
                                                                                                                                                                                                                                                                              Transnet Corporate Centre
                                                                                                                                                               Satellite
  ports, and connect with    • Houses Transnet’s            and navigation aids to             • Operations are                enables the increase                                                                                                                           Johannesburg
                               Research and
                                                                                                                                                                offices
  cross-border railways of                                  assist the navigation of             divided into four major       in liquid fuels volume
  the region                   Development (R&D) unit       vessels within port limits           business segments:            throughput to meet                Tanzania
                             • Delivers customer-centric    and along the coast                  containers, bulk,             forecast demand                                                                                                                                Pipeline
                               products and services as                                          break-bulk and                                                   Namibia
                                                                                                                                                                                                                                  Beit Bridge                                 Johannesburg – Durban
                               a growing hub and                                                 automotive                                                    Swaziland
                               systems integrator of rail
                               in the AMEA region                                                                                                               Lesotho
                                                                                                                                                                                                                          LIMPOPO

                                                                                                                                                                                                                                                                              Rail corridors
       Total employees: 28 392          Total employees: 11 602     Total employees: 4 178        Total employees: 8 816        Total employees: 660                                                                          MPUMALANGA
       Permanent employees:             Permanent employees:        Permanent employees:          Permanent employees:          Permanent employees:                                                                                              Maputo
       26 694                           10 838                      4 161                         7 096                         639                                                                             GAUTENG
                                                                                                                                                                                              NORTH
       Fixed-term contract              Fixed-term contract         Fixed-term contract           Fixed-term contract           Fixed-term contract                                           WEST
       employees: 1 698                 employees: 764              employees: 17                 employees: 1 720              employees: 21                                                                                                                                 Engineering
                                                                                                                                                                                              Sishen                                                                          Koedoespoort, Germiston,
                                                                                                                                                                                                           FREE                                   Richards
                                                                                                                                                                                                                                                                              Bloemfontein, Durban,
                                                                                                                                                                                                           STATE                       KWAZULU-   Bay                         Uitenhage, Salt River
                                                                                                                                                                                                                                       NATAL

                                                                                                                                                                                                                                      Durban
                                                                                                                                                                             NORTHERN CAPE                                                                                    Port Terminals
                                                                                                                                                                                                                   EASTERN CAPE                                               Richards Bay, Durban, East
                                                                                                                                                                                                                                                                              London, Ngqura, Port Elizabeth,
                                                                                                                                                                                                                                                                              Saldanha, Cape Town
                                                                                                                                                           Saldanha                                                East
                                                                                                                                                                                                                 London
          71%         29%                77%          23%             66%          34%              72%         28%               67%          33%                                                     Ngqura
           Male     Female                Male     Female             Male     Female               Male     Female               Male     Female                           WESTERN CAPE
                                                                                                                                                            Cape Town
         employees employees            employees employees         employees employees           employees employees           employees employees                                            Port Elizabeth                                                                 National Ports Authority
                                                                                                                                                                                 Mossel Bay
                                                                                                                                                                                                                                                                              Richards Bay, Durban, East London,
               2,7%                            1,6%                         1,9%                         1,3%                           2,4%                                                                                                                                  Ngqura, Port Elizabeth, Mossel Bay,
       People with disabilities        People with disabilities     People with disabilities     People with disabilities       People with disabilities                                                                                                                      Saldanha, Cape Town
     1
         Operating context refers to Operating Divisions.

 100
          Read more                                                                                                                                            Services provided                                                                         Strategic context
                                                                                                                                                               Outbound services (South African businesses moving                                        Transnet is transitioning from the Market Demand Strategy
                                                                                                                                                               products to international markets) and inbound services                                   (MDS) – first implemented in 2012 – to a new blueprint for
           Freight Rail                     Engineering           National Ports Authority           Port Terminals                    Pipelines                                                                                                         growth and diversification, the Transnet 4.0 Strategy
                                                                                                                                                               (bringing products to South African markets)
                                                                                                                                                                                                                                                         (Transnet 4.0).
                                                                                                                                                               Commodities transported: mining exports, general freight
     Revenue                           Revenue                      Revenue                       Revenue                       Revenue                        and petroleum products                                                                    The MDS has largely achieved its objective of closing the
                                                                                                                                                                                                                                                         market demand capacity gap for freight logistics
     R43,7 billion                     R11,3 billion                 R11,7 billion                R12,4 billion                 R4,5 billion                   General freight: containerised cargo, local manganese,                                    infrastructure, with approximately R165,6 billion invested
                                                                                                                                                               minerals, local coal, local iron ore, chrome and ferrochrome,                             in the previous six years. Transnet 4.0 provides a framework
                                                                                                                                                               agricultural products, iron and steel, fertilisers, cement,                               for Transnet’s growth and diversification within the context
                                                                                                                                                               fast-moving consumer goods, bulk liquids, wood and wood                                   of the 4th Industrial Revolution.
                                                                                                                                                               products, industrial chemicals, intermediate products and
                                                                                                                                                               automotive products                                                                       Main growth thrusts of Transnet 4.0 include:
                                                                                                                                                                                                                                                         • Extending Transnet’s footprint in Africa, the Middle East
                                                                                                                                                               Sub-saharan Africa’s estimated regional growth is 3,4%                                      and South Asia;
                                                                                                                                                               Petroleum products: crude oil, refined petroleum products,                                • Product and service innovation; and
                                                                                                                                                               aviation turbine fuel and methane-rich gas products                                       • Expanding Transnet’s advanced manufacturing business,
                                                                                                                                                                                                                                                           with leading technologies to enhance new and existing
                                                                                                                                                                                                                                                           products, and improve business processes.
Integrated Report 2018 - www.transnet.net
16       Organisational overview continued                                                                                                                                                                                                                                                                       TRANSNET Integrated Report 2018       17

     Market context                                                     Financial context                                               Operating structure                                                                                                                               Summary performance
                                                                                                                                             Office of the Group Chief Executive
     Global growth of 3,9% estimated for 2018, with 4,9% growth         As a SOC, the financial strategy reflects the higher risk
                                                                                                                                             Group Internal Audit – Internal Audit                                                                                                                                           2018             2017
     forecast for developing and emerging markets.                      profile of the business. To meet long-term market demand,
                                                                        Transnet invests for long-term growth prospects, but                 Group Company Secretariat – Governance                                                                                                       Revenue                         R72,9 billion    R65,5 billion
     Continued strong growth in emerging Asia and Europe, and           considers short- to medium-term volatility in domestic and
                                                                        international markets. Transnet raises funds in the debt             Group Strategy                  Strategy
     a modest upswing in commodity exports after three years
                                                                                                                                                                             Corporate and Public Affairs                                                                                 Operating expenses              R40,4 billion    R37,9 billion
     of weak performance.                                               markets based on the strength of its financial position,
                                                                                                                                                                             Transnet International Holdings
                                                                        having raised funding without Government guarantees since                                            Shareholder’s Compact                                                                                        Savings against
     The International Monetary Fund forecasts South Africa’s           March 1999.                                                                                          In-house Consulting                                                                                                                          R3,1 billion     R2,4 billion
                                                                                                                                                                                                                                                                                          planned costs
     economy to grow by 1,5% in 2018, an improvement on the
     1,3% growth rate of 2017. Business confidence improved             Funded through reserves and borrowings with no subsidies         Group Finance                      • Financial and capital planning                                                                              EBITDA                          R32,5 billion    R27,6 billion
     following a period of political uncertainty, with the growth       or guarantees received from Government.                                                             • Treasury, funding and
                                                                                                                                         Management of critical               investor relations
     rate set to keep improving beyond 2018.                                                                                             financial parameters,              • Procurement                                                                                                 Profit                          R4,9 billion     R2,8 billion
                                                                        Remain within the medium-term target – Gearing 2,5 times.                                                              • Taxation
     Sub-saharan Africa’s estimated regional growth is 3,4%.                                                                                                                • Income statement and statement                                                                              Gearing                            43,4%            44,2%
                                                                        Legacy Government-guaranteed debt amounts to                                                          of financial position
                                                                                                                                                                            • Capital assurance                                                                                                                            3,0 times         2,9 times
     Still unclear whether projected improvements in GDP and            R3 500 million comprising Eurorand bonds under the Euro
     business confidence will provide sufficient relief from the        Medium-Term Note Programme maturing in 2028                                                                                                                                                                                                       (within loan      (within loan
                                                                                                                                                                                                                                                                                          Cash interest cover
                                                                        (R2 000 million) and 2029 (R1 500 million) respectively.         Group Capital                      • Long-term planning                                                                                                                           covenant          covenant

                                                                                                                                                                                                                                              Specialist Units
     effects of South Africa’s sovereign credit-rating downgrade
                                                                                                                                                                            • Capital business case support

                                                                                                                                                                                                                                                                       Group Capital
     in 2017.                                                                                                                                                                                                                                                                                                            requirements)     requirements
                                                                                                                                         Lead the execution of Transnet’s   • Capital mega project execution
                                                                                                                                         capital expenditure programme,     • Engineering and technical
                                                                                                                                         project support and engineering,   • Capital project support                                                                                     Cash generated
     The new presidential dispensation should help buy growth                                                                                                                                                                                                                                                             R34,9 billion    R31,0 billion
     in private consumption and fixed investment. Higher prices
                                                                        Socio-economic context                                           procurement and construction
                                                                                                                                         management
                                                                                                                                                                                                                                                                                          from operations

     for commodities will sustain growth in the mining sector.                                                                                                                                                                                                                            Borrowings raised               R40,9 billion    R17,0 billion
                                                                        Transnet’s strategic focus is guided by the Statement of
                                                                        Strategic Intent issued by the Minister of Public Enterprises    Corporate Governance               • Stakeholder relations
     The 4th Industrial Revolution ushers in a fusion of technologies                                                                                                       • Risk                                                                                                        Borrowings repaid               R41,0 billion    R24,9 billion
                                                                        and the Shareholder’s Compact, which stipulate medium-           and Regulatory
     poised to disrupt every industry, with major economic and                                                                                                              • Compliance
     technological ramifications and systemic transformation of         term strategic objectives, including:                            Risk and compliance aligned        • Legal                                                                                                       Capital investment
                                                                                                                                         with legislative and regulatory    • Security
     civil society, production, governance structures and human                                                                                                                                                                                                                           (expenditure for the
                                                                                                                                                                                                                                                                                                                          R21,8 billion    R21,4 billion
                                                                        – Reducing the total cost of logistics as a percentage           requirements                                                                                                                                     MDS period reaching
     identity. Transportation and communication costs are likely to
                                                                          of transportable gross domestic product (GDP);                                                                                                                                                                  R165,6 billion)
     reduce, and logistics and global supply chains will become more

                                                                                                                                                                                                           Operating Divisions
                                                                                                                                         Group Operations                   • Rail operations

                                                                                                                                                                                                                                 National Ports Authority
     effective. The cost of trade is rapidly diminishing to drive new   – Accelerating the modal shift by maximising the role                                                                                                                                                             Locomotives accepted
                                                                                                                                                                            • Port Terminal operations                                                                                                                        402              452
     markets and economic growth.                                         of rail in the national transport task;                        Drive a Group-wide integrated      • Port Authority operations                                                                                   into operations
                                                                        – Leveraging the private sector in the provision of both         operational philosophy. The        • Pipeline operations

                                                                                                                                                                                                                                 Port Terminals
                                                                                                                                         Chief Executives of the            • Property management                                                                                         % of personnel costs
     Transnet’s primary focus remains volume growth of the core           infrastructure and operations where required;                                                                                                                                                                                                                       3,1%

                                                                                                                                                                                                                                 Engineering
                                                                                                                                                                                                                                                                                                                             2,9%

                                                                                                                                                                                                                                 Freight Rail
                                                                                                                                         Operating Divisions will report    • TVCC and RMO                                                                                                invested in training

                                                                                                                                                                                                                                 Pipelines
     business, while seeking new growth paths to compensate for         – Integrating South Africa with the region and the rest          to this position
     low growth expectations and instability in traditional markets.      of the world; and                                                                                                                                                                                               Disabling injury
                                                                                                                                                                                                                                                                                                                              0,73             0,69
     Organic growth in the current freight transport and handling       – Optimising the social and economic impact of all                                                                                                                                                                frequency rate (DIFR)
     divisions will account for the bulk of this growth as we             interventions undertaken by the Company in the                 Business                           • Customer long-term contracts

                                                                                                                                                                                                                                                                      Transnet Property
                                                                                                                                                                                                                                                                                          B-BBEE spend                                     R37,0 billion

                                                                                                                                                                                                                                              Specialist Units
     improve connectivity, density and capacity of an increasingly        achievement of these objectives.                                                                                                                                                                                                                R25,8 billion
                                                                                                                                         Development                        • Product and service innovation
     integrated port, rail and pipeline network.                                                                                                                            • Commercial capability
                                                                                                                                         Support Transnet 4.0 by            • Branding                                                                                                    B-BBEE spend as %
                                                                                                                                         optimising and diversifying        • Market intelligence                                                                                         of total measured                  86,9%           103,1%
     Strategic private-sector partnerships in the freight logistics                                                                      Transnet’s business portfolio      • Procurement                                                                                                 procurement spend
     sector will accelerate new business ventures and new revenue       Endorsement of external charters and                             through growth in existing and
     growth.                                                            frameworks (not limited to)                                      new markets
                                                                                                                                                                                                                                                                                                                         R12,47 billion    R12,2 billion
                                                                                                                                                                                                                                                                                                                            (42,0% of       (34,0% of
                                                                                                                                         Advanced                           • Locomotive and wagon                                                                                        Spend with black-
                                                                        Generic Transport Public Sector Charter                          Manufacturing                        design, manufacturing and sales                                                                                                            total measured   total measured
                                                                                                                                                                                                                                                                                          owned enterprises
                                                                        Rail Charter                                                                                        • Maintenance of locomotives                                                                                                                  procurement      procurement
     Regulatory context                                                                                                                  Four customer-facing businesses:     and wagons
                                                                                                                                                                                                                                                                                                                              spend)          spend)
                                                                        Maritime Charter                                                 • Manufacturing                    • Research and development
                                                                        Property Charter                                                 • Maintenance and services         • OEM partnerships
     The Company operates in compliance with 200 regulations.                                                                                                               • Services development and sales                                                                                                              R9,34 billion     R4,6 billion
                                                                                                                                         • Supply management
     Tariffs charged by the National Ports Authority and Pipelines      United Nations Global Compact (since 2012)                       • Trading                                                                                                                                                                          (31,4% of        (12,8% of
                                                                                                                                                                                                                                                                                          Spend with black
     are determined by independent economic regulators, namely          International Integrated  Reporting Framework                                                                                                                                                                 women-owned                    total measured   total measured
     the Ports Regulator of South Africa (Ports Regulator) and the                                                                       Information and                    • IT architecture                                                                                             enterprises                     procurement      procurement
     National Energy Regulator of South Africa (Nersa) respectively.                                                                     Communications                     • IT build application                                                                                                                            spend)           spend)
                                                                                                                                         Technology (ICT)                   • IT infrastructure
                                                                                                                                                                            • Digital capability and
     The Railway Safety Regulator regulates the safety of the rail      Membership of associations                                       Transitioning Transnet from a        solution delivery                                                                                           Transnet's B-BBEE level           Level 2          Level 2
     operations of the Company, issues safety permits (for a fee),      (not limited to)                                                 company with high levels of
                                                                                                                                         operational autonomy to
     and conducts inspections and audits on the Company.                                                                                                                                                                                                                                  Corporate social
                                                                                                                                         significantly higher levels of                                                                                                                                                  R219 million      R234 million
     Transnet also operates within a policy context determined by                                                                        integrated, Group-wide                                                                                                                           investment
                                                                        New Partnership for Africa’s Development (Nepad)                 orchestration
     the Department of Public Enterprises and the Department of                                                                                                                                                                                                                           Number of patients
                                                                        South African Railways Association
     Transport respectively.                                                                                                                                                                                                                                                              treated on board the              157 418          173 016
                                                                        International Union of Railways                                  Group Human Resources • Reward

                                                                                                                                                                                                                                                                 Specialist Units
                                                                                                                                                                            • Performance management                                                                                      Phelophepa trains
                                                                        Association of American Railroads                                Lead Group-wide performance        • Talent management
                                                                        Railroad Association                                             management, labour relations and   • EVP                                                                                                         Number of individuals
                                                                                                                                         corporate social investment        • CSI                                                                                                         benefiting from
                                                                        Union of African Railways                                                                                                                                                                                                                           435 332          438 807
                                                                                                                                                                            • Labour relations                                                                                            community outreach
                                                                        Maputo Corridor Logistics Initiatives                                                                                                                                                                             services
                                                                        International Association of Marine Aids to Navigation and
                                                                        Lighthouse Authorities
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