Transnet Annual Report: briefing
Meeting Summary
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Meeting report
PUBLIC ENTERPRISES PORTFOLIO COMMITTEE19 September 2007
TRANSNET ANNUAL REPORT: BRIEFING
Acting Chairperson: Mr P Hendrickse (ANC)
Documents handed out:
Transnet Presentation
Transnet Strategic Intent
Transnet Annual Financial Report 2006/07 [available at www.transnet.co.za]
Audio recording of meeting
SUMMARY
The Committee was briefed on the annual report and financial statements of Transnet for the past financial year. The report included details on disposal of non-core assets and the use of the proceeds of the sales. Moreover, it contained particulars concerning the business growth strategies for the next five years, projections on the budgets and measurements of the key performance indicators. Specific details were given regarding the organization’s human development strategy and employment equity targets. All the five operating divisions reported on their financial performance and growth strategy for the next five years.
Members examined the procedure for the sale of non-core assets and the court case resulting from the sale of MTN shares. The Committee was curious about the organisation’s HIV/AIDS programme and gender imbalance. In addition, the purchasing of locomotives from outside the country, engagement with trade unions and the safety standards at ports were matters also scrutinized by the Committee.
MINUTES
Briefing by Transnet
Mr Fred Phaswana, Chairman of the Transnet Board, affirmed that the State Owned Enterprise (SOE) was committed to enabling economic growth through providing appropriate ports, rail and pipeline infrastructure and operations in a cost-effective and efficient manner and within acceptable benchmark standards. This commitment was consistent with Transnet’s shareholder’s expectations as set out in the Shareholder Compact between Transnet and the Government of the Republic of South Africa. This accord further outlined the four strategic objectives to be attained by Transnet and the Key Performance Indicators (KPIs) to measure the organisation’s performance. The Chairman concluded that Transnet’s turnaround was due to the radical restructuring of the organisation’s operations and finances. Disposal of non-core assets had freed management to focus on those operations that were core as well as helping the organisation to achieve a strong balance sheet.
Ms Maria Ramos, Group Chief Executive, Transnet, recapped the organisation’s vision, mission and values. The organisation’s growth strategy and implementation plan focused on four pillars, being human capital development, corporate governance and risk management, balance sheet restructuring and redirection and re-engineering of the core business. The new Transnet, as envisaged by the four-point turnaround strategy, was essentially driven by five operating divisions which complemented each other. All the non-core assets had been disposed of in the quest to build a focused and integrated freight transport and logistics business. The conclusion of the structural transformation prompted the organisation to reconfigure its brand and its relationship with sub-brands. Specific details were given on the progress of various projects, balance sheet restructuring, the sale of non-core assets and governance and risk management plans. In addition, the presentation highlighted that the organisation was on target to roll out an R11, 7 billion five-year investment plan. This was the biggest capital investment in the organisation’s history. It was stressed that the successful turnaround would depend upon human capital investment, and to this end, Transnet had introduced various strategies, including prioritising skills development and succession planning. Significant progress had been made to achieve equitable gender and racial representation across the operating divisions. Ms Ramos was satisfied to report another year of excellent results which underscored the correctness of the organisation’s strategy. Lastly, the budget for the next five years was tabled, which indicated a gross capex spending of R78 billion.
Mr Chris Wells, Chief Financial Officer, Transnet, guided the Committee through the organisation’s financial results for 2006/07. The 8, 4% revenue growth indicated a 3, 4% increase in real terms after an allowance for an inflation rate of about 5%. The presentation outlined key factors that impacted on the income statement. The capital and reserves figure had augmented while the gearing percentage had reduced to below the 50% threshold set by debtors. In wrapping up, the speaker discussed the key funding objectives and the financial strategy for the forthcoming years.
Mr Pradeep Maharaj, Group Executive: Human Resources, Transnet, explained the organisation’s comprehensive human resources strategy. The plan focused on enhancing the capacity and skills development, talent and leadership development and performance and reward incentives within the organisation. All these initiatives were aimed at creating the necessary skills, identifying individuals with potential and attracting and retaining the right capacity. Moreover, statistics were provided on the organisation’s gender and racial profile across all the operating divisions and job levels. Lastly, the presenter catalogued the organisation’s Employment Equity targets and capacity building plans for the 2007-2012 period.
Transnet Freight Rail Briefing
Mr Siyabonga Gama, Chief Executive: Transnet Freight Rail, provided a business overview of the operating division, of which the transportation of general rail freight constituted the biggest business. Transnet Freight Rail crafted its business plan around five key objectives, supported by a number of strategic initiatives. This included an emphasis on customer service delivery, scheduled freight railway, creating capacity, safety and leadership and employee capability. Analysis of the income statement showed that TFR had experienced a 4% increase in revenue. This was largely driven by the iron ore business. The operating division failed to achieve on most of the KPIs primarily due to lack of iron ore and coal to rail. Lastly, the presenter publicised the action plans to create capacity and improve service delivery.
Transnet Rail Engineering Briefing
Mr Richard Vallihu, Chief Executive: Transnet Rail Engineering, stated that the operating division specialised in the maintenance and refurbishment of rail rolling stock. Transnet Railway Engineering started various initiatives to support the growth of strategy from Transnet Freight Rail. This included an emphasis on customer service delivery, scheduled freight railway, creating capacity, safety and leadership and employee capability. Revenue increased mainly due to the integration of Spoornet maintenance operation. Analysis of the KPIs showed that the operating division achieved a lot from a low base. Lastly, the presenter publicised the action plans to create capacity and improve service delivery.
Transnet National Ports Authority Briefing
Mr Pradeep Maharaj explained the operating division’s business overview. Moreover, he expanded on its strategic objectives and growth strategy. Over the past financial year, Transnet National Ports Authority managed to increase its revenue mainly due to volume increases in containers and vehicles. Apart from the capital expenditure on infrastructure, all the other KPIs were exceeded. Lastly, the presenter publicised the action plans to create capacity and improve service delivery.
Transnet Port Terminals
Mr Tau Morwe, Chief Executive: Transnet Port Terminals, remarked that he managed 15 cargo terminal operations situated across the country. Furthermore, he highlighted the strategic objectives and steps taken to transform and re-engineer the sub-entity. Compared to 2006, the operating division increased its revenue by 14% over the past financial year. Lastly, the speaker publicised the action plans to create capacity and improve service delivery.
Transnet Pipelines
Mr Charl Moller, Chief Executive: Transnet Pipelines, provided a business overview of the operating division. In addition, he underlined its strategic objectives and growth strategy. Compared to 2006, the operating division increased its revenue by 15% over the past financial year. The sub-entity scored full marks on the KPIs. Lastly, the speaker publicised the action plans to create capacity and improve service delivery.
Concluding Remarks by Transnet
Mr Vuyo D Kahla, Group Exexcutive: Office of the Group Chief Exective, Transnet, summarised the organisation’s evolution from a four-point turnaround to four-point growth strategy. He believed that Transnet’s transformation and restructuring had reached maturity. Consequently, he was confident that the organisation would continue to strengthen and soar to greater heights.
Discussion
Mr C Gololo (ANC) queried how Transnet arrived at a price for the sale of its non-core assets. He was particularly interested in the sale of the V & A Waterfront for R7. 8 billion.
Chris Wells admitted that the Waterfront was a difficult asset to price. Thereafter, he explained the three-step process that informed the final price. Firstly, two independent advisors, one national and the other international, were appointed to value the asset. Their calculations formed the minimum amount that would be accepted for the asset. Secondly, the organisation marketed the asset and requested people to make an offer. This created a competitive environment and guaranteed the highest possible bid. Thirdly, the organisation evaluated the bids and made a determination.
Mr Gololo expressed disappointment that the report did not mention anything about disabled people.
Mr Pradeep Maharaj replied that the organisation’s employment equity targets covered this subject. Currently, the disabled workforce was less than 0, 5%. The target was to increase this to 2% in the next 3 years. Lastly, he conceded that it was not easy appointing disabled people because of the nature of the work involved.
Mr Gololo sought to establish whether the HIV/AIDS pandemic impacted on the organisation.
Pradeep Maharaj unveiled that the organisation had carried out its own actuarial study into this matter. The findings showed that there was a prevalence rate of just under 10%. In response to this, Transnet had initiated a comprehensive strategy that dealt with both prevention and support programmes. In addition, anti-retrovirals were also provided in the case where the employee’s medical aid did not cater for this kind of treatment.
Mr S Kholwane (ANC) sought an explanation regarding the paucity of women that worked in the semi and unskilled categories.
Mr Maharaj stated the disparity was more pronounced in the unskilled category. Furthermore, he explained that this was a historical issue as this had been a male dominated workplace. In addition, he claimed that the targets that the organisation had set were most aggressive in those categories. Lastly, he pledged that Transnet would actively pursue the employment of females.
Mr Gololo posed two questions. Firstly, he queried whether Transnet Freight Rail intended to purchase or lease the 400 locomotives, contained in its five-year investment plan. Secondly, he sought to establish how much the Blue Train was sold for.
In response to the former question, Mr Gama clarified that the operating division preferred to own the locomotives because it was their core business. Regarding the latter question, he confirmed that the asset had not yet been sold. The bids were currently being short-listed and the winning bid was expected to be announced in the next two and a half months.
The Chairperson expressed confusion about the figures concerning the general freight business.
Ms Ramos explained that for the first time, the volumes for general freight business had stabilised and not decreased.
Mr Gololo noticed that the locomotives had been ordered from an American company. He wondered whether this could not have been purchased from a South African company.
Mr Gama responded that no South African company had the capability to manufacture locomotives. He added that some of the components of the locomotive will be assembled in the country.
Mr C Wang (ANC) asked where Salisbury Island was situated.
Mr Gama replied that it was a naval base in the port of Durban.
Mr Wang asked about the security arrangements at the ports.
Mr Gama confirmed that all ports needed to comply with the minimum security standards.
Mr Wang wondered how important the fishing trawler sector was to the National Ports Authority.
Mr Gama stated that this sector constituted an insignificant percentage (0, 001%) of their business.
Mr Wang enquired whether the organisation’s management engaged with the Unions on a continuous basis.
Mr Maharaj replied in the affirmative. He added that the organisation had a close relationship with the Unions.
Mr Wang voiced concern about the public fatalities listed in the report.
Mr Gama answered that the organisation recorded all the fatalities at level crossings He clarified that these were not employees of the organisation but members of the public.
Mr Gololo wanted clarity on the R2, 2 billion claim by Mtunzi that Transnet failed to meet its obligations concerning the sale of the MTN shares.
Mr Kahla clarified that the government was named as the first defendant and Transnet the second defendant. The MTN shares proceeds contributed to the organisations’ closed pension fund scheme. He concluded that Transnet was defending the case and had been advised that their position was solid.
The Chairperson noticed that some of the Board Members served on so many different boards. He sought Mr Phaswana’s view on whether this could render them inefficient.
Mr Phaswana answered that they conducted board evaluations every year at Transnet. It took the form of a self-assessment and an assessment by peers. Lastly, he was fairly relaxed about the performance of his board.
The Chairperson complimented the SOE for their report and outstanding attendance. He added that the Committee continued to be impressed with the kind of work done by Transnet.
The meeting was adjourned.