Transcript Transnet in Parliament
TRANSNET PRESENTATION TO PORTFOLIO COMMITTEE OF PUBLIC ENTERPRISES BRIEFING BY STATE OWNED ENTERPRISES ON BUDGETS AND STRATEGIC PLANS 2009/10
Mr Chris Wells Acting Group Chief Executive 17 June 2009
CONTENT OF THE PRESENTATION
• Introduction • Overview – Achievements • Changes in Economic Environment • Transnet Strategy • Regulatory Environment • 2009/10 Corporate Plan • Risks and Mitigating Plans • Conclusion - Strategic Priorities 2009/10
1
INTRODUCTION
Shareholde r Mandate
• • Transnet’s key role is to assist in lowering the cost of doing business in South Africa and 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 Transnet is self-funded and does not receive subsidies from the State.
Vision and Mission
• Transnet is a focused freight transport company, delivering integrated, efficient, safe, reliable and cost-effective services to promote economic growth in South Africa • This is to be achieved through increasing our market share, improving productivity and profitability and by providing appropriate capacity to our customers ahead of demand We would like our customers: • to prefer us because we are reliable, trustworthy, responsive and safe;
Values
and because: • our employees are committed, safety conscious, accountable, ethical, disciplined and results orientated 2
TRANSNET STRUCTURE
• Luxrail • arivia.kom
*
3
KEY STATISTICS
Port Infrastructure
9 Commercial Ports 19 container berths 3 automotive terminals 26 dry bulk berths 39 break bulk berths 13 liquid bulk berths Current Volumes • (TNPA) – Containers: 3.8 m TEUs • • • • Dry bulk: 122 mtpa Auto: 527 000 units Liquid: 49 mtpa Break Bulk: 7.5 mtpa
Rail Infrastructure Pipeline Infrastructure
30 000 km of track 22 300 route km Network Electrification: – 50kV AC (861km), – 25 kV AC (2309km) – 3kV DC (4935km) • • Crude line: 580 km Design Cap = 6,8 bill. l/a Current Cap = 5,8 bill.l/a Axle loading: – Main lines at 22t / axle – Coal and ore lines 30t / axle (coal line operates at 26 ton) • • Refined line:725 km Design cap = 3,5 bill. l/a Current cap = 4,3 bill. l/a • • Avtur: 94 km Design cap = 1,2 bill. l/a Current cap = 1,1 bill. l/a Current Volumes – – GFB: 78mt – Coal: 62mt – Iron Ore: 37mt
CONTENT OF THE PRESENTATION
• Introduction • Overview – Achievements • Changes in Economic Environment • Transnet Strategy • Regulatory Environment • 2009/10 Corporate Plan • Risks and Mitigating Plans • Conclusion - Strategic Priorities 2009/10
5
TRANSNET HAS EFFECTED A SUCCESSFUL FINANCIAL TURNAROUND OVER THE PAST FIVE YEARS
Revenue EBITDA Gearing (%)
CAGR
R billion
• Continuous increase in revenue showing results of initiatives to grow the business, with revenue increasing from R25.3bn in 2004/05 to R30.1bn in 2007/08 (19.0% increase) – 2008/09 in process of being finalised 25.3
04/05 • • Improvements through: Operational efficiency improvements, effective cost cutting initiatives mainly due to reengineering projects Sale of discontinuing non-core businesses Improvement from R7.3bn in 2004/05 to R12.8bn in 2007/08 (75.3% improvement) 7.3
04/05 26.0
+7%
30.1
26.9
05/06 06/07 07/08 08/09 10.3
+13%
11.1
12.8
33.6
12.0
05/06 06/07 07/08 08/09 • • Balance sheet restructuring and cost effective debt structures yielding positive results with consistent below target gearing from 61% in 2004/05 to 30% in 2007/08 (50.8% improvement) This enables Transnet to fund capital investments more cost effectively and without government guarantees 61% 04/05 46%
-11%
39% 30%
50% Max
39% 05/06 06/07 07/08 08/09 6
SIGNIFICANT IMPROVEMENT IN OPERATIONAL EFFICIENCIES
Rail Key Performance Indicators
Net Ton Kilometre per Wagon (GFB ‘000) 620 +3% 637 Net Ton Kilometre per Loco (GFB ‘000) +15% 27 23 Weighted Loco Availability (GFB, Coal and Ore - %) 82% +7% 88% Improvement in asset utilization releasing the pressure on rolling stock requirements.
Ports
04/05 18 23 08/09 04/05 Moves per Crane Hour (No. of moves) 21 18 17 08/09 22 04/05 08/09 Containers per Berth (No.) +26% 189,989 150,261 Sweating the Port assets to create additional capacity and alleviate pressure on investment
Pipe lines
04/05 08/09 DCT 88.5% 104.2% 04/05 08/09 CTCT Capacity Utilisation (%) 71.7% 76.5% 04/05 08/09 PE 83.0% 87.1% 04/05 08/09 Refined 04/05 08/09 Crude
* Net ton kilometer excluding the weight of the wagon
04/05 08/09 Avtur 04/05 08/09 Production Interruptions (Internal & External - Hours) 965 -22% 06/07 755 08/09 Operational improvements and introduction of Drag Reducing Agents allow TPL to exceed design capacities for Refined products
CONTENT OF THE PRESENTATION
• Introduction • Overview – Achievements • Changes in Economic Environment • Transnet Strategy • Regulatory Environment • 2009/10 Corporate Plan • Risks and Mitigating Plans • Conclusion - Strategic Priorities 2009/10
8
KEY MESSAGES: CHANGES IN ECONOMIC ENVIRONMENT
The financial crisis sparked the worst worldwide recession since the Great Depression.
• Expectations of a quick resolution to the credit crisis have not been realised • The IMF has revised its global GDP 2009 forecast to 0.5%, from 2.2% in November 2008 The global recession cause both commodity prices and inflation to ease further on the back of weak demand International trade is projected to decelerate sharply, with global trade volumes falling by 2.8% in 2009.
2008/09 Budget 2009/10
GDP (%)
2008/09 5.0% 0.2% 08/09 CP = 4% • Commodity prices have fallen sharply since September 2008.
• Oil has fallen more than 60% from its peak and is forecast to increase to an average of $60 -$70/barrel in 2009.
• Iron Ore price had declined by almost 70% before recovering slightly.
• Thermal coal price has fallen by more than 50% since July 2008 Q1 11.5
2.5
Q2 11.5
2.8
-1.8% Q3
Baltic Dry Bulk Index
$000/Tonne 11.4
3.5
-6.4% Q4 11.6
3.6
• The Baltic Dry Index has fallen over 90% in the past 6 months • Drewry forecasts container growth of only 2.8% in 2009 • Container volumes through US ports have been negative for 17 consecutive months • Lower ocean freight rates benefit SA Week 8 Week 9 Week 10 Week 11
GFB Volumes
(mt)
21.8
22.3
21.1
-9% 19.1
-20% 19.9
15.9
Transnet’s short term focus will shift towards sustaining the business • Transnet is well equipped to weather the storm • The growth strategy will continue to provide the strategic framework • The timing of the implementation of the growth strategy will be delayed as a result of revisions to volume forecasts • The short term focus is on protecting volumes and preserving cash Q2 Q3
Containers
(000TEUs)
974 986 +4% 935 972
Q4
-14% 899 770
Q2 Q3 Q4 9
CONTENT OF THE PRESENTATION
• Introduction • Overview – Achievements • Changes in Economic Environment • Transnet Strategy • Regulatory Environment • 2009/10 Corporate Plan • Risks and Mitigating Plans • Conclusion - Strategic Priorities 2009/10
10
GROWTH STRATEGY: THE NEXT HORIZON OF THE TRANSFORMATION PROCESS Transformation horizon
Three turnaround horizons Grow Stabilise
Individual programme focus: • • Getting the basics right Stabilising operations
Optimise
Interactions: • Leveraging benefits of an intermodal business • Effective commercial management of the network business • Operational and functional teams jointly optimise their interaction areas Integration: • Accelerated rollout of operational improvements • Integrated business model – End-to-end corridor view – Integrated customer view • Achieve world class performance Four-point
turnaround
strategy
2005
Corporate governance and risk
1 2
Balance sheet restructuring Redirect and re-engineer
4 3
Human capital development
2007/2008
Four-point
growth
strategy
Growth through : Reengi neering – integration, productivity and efficiency Capital optimisa tion and financial manage ment Safety, risk and effective governance Human capital execution
Positioning the Company for growth in the future
2010
11
TRANSNET’S GROWTH STRATEGY
Growth through Client orientated planning and execution through integrated commercial management
• Focusing on 5 key corridors, providing end-to end logistics services to customers • Focus on key commodities • Productivity and efficiency improvements
Re-engineering, integration, productivity and efficiency Capital optimisation and financial management Safety, risk and effective governance Human capital execution Investment plans
• Replacement and expansion of existing infrastructure to support growth • Integrated investments of R80bn across rail, ports and pipelines • Maintenance of core asset base • Disposal of non-core properties (e.g. hostels/houses)
Governance and performance management
• Financial strength and sustainability • Enterprise wide performance management linked to benchmarked operating KPIs • Risk and safety management • Transnet culture charter 12
GOVERNANCE – MEDIA REPORTS
• Article attempted to conflate two different issues both apparently the subject of leaks from employees with their own agendas • Succession • Totally incorrect and without foundation • Capital Projects Report has neither served at Board or provoked discussion at prior Board meetings therefore has of course no bearing on succession discussion • Acting CEO, Chris Wells informed Board in January 2009 that he was not available to be appointed as CEO. This also is in Public Domain.
• Board united on process.
• Capital Project Internal Audit Report • Alleged evidence of financial mismanagement • Transnet Internal Audit outsourced to Ernst & young • Strong control environment in line with best international practice • Audit report in question was the result of a normal audit and evidence of proactive and very thorough governance processes • Senior Ernst & Young partner responsible issued press release saying that issues are “not material” and are part of normal process. • Normal forensics in place to find source of leaks as this was a breach of Transnet’s ethics and employment contract and sought to bring harm to Transnet • Other • Transnet has an independent tip-offs line for any anonymous reports of alleged corruption or malpractice.
13
STRATEGY IMPLEMENTATION THROUGH CORRIDOR APPROACH
NOC Procurement Maintenance Yards Functions Projects
Sentrarand Kaserne
Newcastle
Yard Depot Port
Corridors
Danskraal Durban
DCT Bitterfontein a k o p Calvinia Naroegas Kakamas Sakrivier Kootjieskolk Messina B e t B r L o u d g e Soekmekaar Upington E Copperton Hotazel E r Palingpan s s h e n Manganore Postmasburg Douglas Prieska Hutchinson Middelwit Rustenburg T h a b a m b s r a s Northam Vaalwater Drummondlea Naboomspruit Nylstroom P T r e r s b u c h Steelpoort d Hoedspruit Graskop Phalaborwa Kimberley Belmont Pudimoe Potchestroom Ottosdal Orkney Schweizer-Reneke K Vierfontein Warrenton Makwassie e Ancona k s d o Westleigh K Theunisen Whites n s Koffiefontein a d Bloemfontein Sannaspos o Ladybrand Maseru De Aar Mafikeng Noupoort Welverdiend Springfontein Bethulie Aliwal North Dreunberg Jamestown Pretoria S R Welgedag J’burg n n r a o n Wolwehoek a n d Matatiele Barkley East Maclear Witbank Ogies Vrede Warden Bethlehem Bergville Underberg o w c k Hilton Richmond Mid Ilovo Kokstad / p a Breyten Standerton Moorleigh Harding Simuma Belfast Lothair Utrecht Ladysmith Machadodorp Kranskop Kelso Plaston Baberton Hlobane Vryheid Nkwalini Eshowe Greytown Durban Port Shepstone G o e a Stanger Komatipoort Empangeni Richards Bay
Network
Rosmead Schoombee Hofmeyer Umtata Tarkastad Beaufort West K
Saldanha
a w Porterville Prins Alfred Hamlet Touwsrivier Cape Town Atlantis Simonstad Worcester Franschhoek Stellenbosch Strand Protem Bredasdorp Ladysmith a Riversdale z d r p Oudtshoorn George Avontuur
Mosselbaai
Knysna Klipplaat Somerset East Cookhouse Kirkwood Seymour Amabele Fort Beaufort Blaney East London Alexandria Port Elizabeth Port Alfred
Benefits of corridor approach
• Transnet as a network business needs to operate in an integrated manner throughout the logistics corridor • Provide a common transformation and long-term planning backbone • Maximise growth opportunities across all operating divisions (rail, port, pipeline) • Capture operational and functional synergies across operating divisions through integrated solutions • Improve efficiency and effectiveness of logistics supply chain • Providing an end-to-end logistics service to customers • Provide optimal capital base for network infrastructure evolution • Focus on key commodities and aligning capital investment to high-growth potential corridors 14
KEY OPERATIONAL AND FINANCIAL STRATEGIC INITIATIVES
Growth Strategy Reengineering integration, productivity and efficiency Growth through Capital optimi sation and financial management Safety, risk and effective governance Human capital execution Key Focus Areas
-
Revenue optimisation Deliver on committed volumes for export coal and iron ore Domestic coal Containers on rail Optimise Capex on value creating growth and sustainability Targeted cost reduction including introducing shared services & procurement review Improve key productivities and operational efficiencies Implement funding plan at cost effective rates Financial Value Creation Target coal (74mt) and iron ore (60mt) volumes by 2013/14 R80,5 billion Capex spend over five years on key corridors Maintain operating cost increases below revenue increases over the 5 year plan Drive KPI’s to benchmark levels Proactive cash management Gearing to remain <47% and cash interest cover >3 times over 5 year plan
15
CONTENT OF THE PRESENTATION
• Introduction • Overview – Achievements • Changes in Economic Environment • Transnet Strategy • Regulatory Environment • 2009/10 Corporate Plan • Risks and Mitigating Plans • Conclusion - Strategic Priorities 2009/10
16
REGULATORY ENVIRONMENT
The following Acts impact on the operations of the business
• National Port Act (2005) – Transnet National Ports Authority responsible for ensuring
safety efficient and effective functioning of the ports. Setting of tariffs.
-
Ports regulatory body appointed
• Petroleum Pipelines Act (2003) – to licence petroleum pipelines and storage facilities
and to set tariffs
-
Nersa as regulated body
Port directives/regulations not finalised as yet which makes it difficult to manage and plan
future revenues Pipeline regulations /directives issued but principles inconsistently applied between years
• Significant uncertainty on future revenues do not allow for alternative funding options • No policy on funding for capital work in progress
Regulation in its current form and application is not conducive for investment in major infrastructure projects.
CONTENT OF THE PRESENTATION
• Introduction • Overview – Achievements • Changes in Economic Environment • Transnet Strategy • Regulatory Environment • 2009/10 Corporate Plan • Risks and Mitigating Plans • Conclusion - Strategic Priorities 2009/10
18
SALIENT FEATURES: TRANSNET CORPORATE PLAN 2009/10 (as submitted to Shareholder)
Economic recession put Transnet volumes under pressure (-4.7% average growth against 2008/09) and lower volumes specifically in: General Freight Containers Export volumes (excluding iron ore and coal) Revenue growth 8.8% y-o-y Cost containment to keep cost increases to 8.4%, notwithstanding sharp increases in input costs such as electricity, fuel and other input costs.
Profitability (EBITDA) of the Group increases by 9.6% y-o-y The 5 year capital investment program remains on a R80bn level and approximately R21bn to be invested in 2009/10 Cash from operations will remain a healthy R10.6bn in 2009/10 Gearing and cash interest cover remain within set limits over the 5 years 19
KEY COMMODITY VOLUMES AND TARIFF INCREASES: 5 YEAR PLAN
Commodity Volumes Average Tariff increases 4,059 5.9% Containers (000 TEUs) 3,710 08/09 3,315 09/10 43.0
3,666 10/11 44.4
11/12 47.6
09/10-13/14 7.4% All numbers reflected as per Corporate Plan •
Average tariff increase impacted by underlying product mix (Containers & GFB)
Export Iron Ore (mtpa) 36.8
Export Coal (mtpa) GFB (mtpa) 08/09 61.9
08/09 78.4
09/10 69.0
09/10 68.0
10/11 71.0
10/11 71.6
11/12 72.0
11/12 76.2
09/10-13/14 9.7% 09/10-13/14 6.3% •
Including negotiated contract tariffs (export coal and iron ore) to:
•
Increase infrastructure capacity to
•
meet customer demand, and Service requirements of clients
08/09 09/10 10/11 11/12 09/10-13/14 20
INCOME STATEMENT – CORPORATE PLAN 2009/10
Budget 33 615 (21 569) 12 046 (5 329) 6 717 2 682 8.0
(2 477) (11.5) 205 (921) 1.7
(17.3) (716) (10.7)
Critical to maintain profitability to be able to fund major component of capex plans through internal funding sources
Operating Profit Margin (%)
16,5 15,0 17,1 19,7 20,8 09/10 10/11 11/12 12/13 13/14 All numbers as per Corporate Plan 21
EXTERNAL REVENUE CONTRIBUTION BY DIVISION – 5 YEAR VIEW
All numbers as per Corporate Plan
33.6
TRE 8% TPL Specialist Units 6% 1% TPT 14% 53% TFR TNPA 18%
Budget
22
OPERATING COST CONTRIBUTION – 5 YEAR VIEW
All numbers as per Corporate Plan
21.6
Materials & Other 30% 6% Electricity Fuel 8% 56% Personnel
Budget
• Labour cost increase over 5 year period on average 6% (reduction in numbers 3%) • Electricity cost increases by 158% from 2008/09 to 2013/14 23
BALANCE SHEET
Budget 100 967 8 454 109 421 54 216 12 661 41 555 41 988 13 217 109 421
Must maintain headroom to be able to withstand unforeseen economic circumstances
Gearing (%)
46,4 43,1 46,8 44,6 39,3
50
09/10 10/11 11/12 12/13 13/14 All numbers as per Corporate Plan 24
CASH FLOW : CORPORATE PLAN 2009/10
Cash flow from operating activities Cash flow from investing activities
All numbers as per Corporate Plan Estimate 2008/09 R million
7 747 (19 451) Budget 2009/10 R million 10 557 (23 438)
2010/11 R million
11 577 (21 137)
Projections 2011/12 2012/13 R million R million
13 156 (18 765) 14 440 (14 140)
2013/14 R million
16 840 (10 151)
Capital expenditure Capitalised borrowing costs Other investing activities (19 373) ( 682) 604 (21 913) (1 849) 324
Net cash surplus / (shortfall)
* Excluding the redemption of current loans
(11 704) Cash Interest Cover (times) *(12 880)
Critical ratio for investors to ensure sufficient cash to service and repay loans 3,6 3,3 3,1 3,6 (19 442) (1 854) 158
(9 560)
4,4 (16 337) (2 213) ( 215)
(5 609)
3,5 (13 330) ( 663) ( 147)
300
(9 480) ( 488) ( 183)
6 689
09/10 10/11 11/12 12/13 13/14 25
SALIENT FEATURES OF FIVE YEAR CAPITAL INVESTMENT PLAN
The 5 year capital investment plan approved in the 2008/09 Corporate Plan amounts to R80.5bn
Latest approved 5-Year Investment Plan amounts to R80.5bn.
•
Projects in plan have been reviewed and re-prioritised as well as rescheduling of cash flows over 5 years to - Remain within the financial parameters - Ensuring that revised customer demands are still met - Capacity is created on time to meet future volume demands
Of the planned Capital Investment of R80.5bn spending will be as follows:
•
32% in rolling stock (R25.8bn)
• •
59% in Infrastructure related projects (R47.5bn) 9% in Acquisition of machinery & equipment and floating craft (R7.2bn)
The capital expenditure over the next three years of R57.7bn will be funded by borrowings of R28.4bn and cash from operations of R29.3bn.
26
TRANSNET 5 YEAR CAPITAL HISTORICAL SPEND AND INVESTMENT PLAN
R billion Average investment per annum 2000/01 – 2004/05
80.5
9.5
13.3
46.9
16.3
19.4
19.4
15.8
21.9
11.7
2006/07 2007/08 2008/09
Cumulative 3 yr Actual
2009/10 2010/11 2011/12 2012/13 2013/14 5 yr plan
Invested cumulatively the last 4 years more than the previous 15 years
27
CAPITAL INVESTMENT: 5-YEAR PLAN R80.5bn
Annual Capex (Rbn)
21,912 19,442 9,071 8,121 16,336 13,331 7,180 9,480 9,439 12,841 11,321 9,156 7,718 11/12 3,892 12/13 1,762 13/14 09/10 10/11
Capex per Division
TPL R11.1bn
Other R1.2bn
TPT R6.3bn
14% 8% 1% TNPA R16.3bn
20% 3% TRE R2.1bn
54% TFR R43.5bn
Expansion Sustaining
Sustaining vs Expansion (3 year view)
42%
Capital spending will be closely monitored during year to ensure that financial metrics are maintained
58%
CAPITAL INVESTMENT: PLANNED SPENDING PER CORRIDOR
Capex spread over the Country
All numbers as per Corporate Plan 29
MAJOR EXISTING PROJECT TNPA: DURBAN HARBOUR ENTRANCE CHANNEL WIDENING Spending (Rm) Latest Estimated Total Cost (ETC) Spending since inception
3 756 1 942
Overview
The Durban Harbour Entrance Channel Widening and Deepening project is essential in enabling the Port of Durban to accommodate larger vessels through its entrance and to improve the safety of navigation. The widening of the entrance to 330m will enable the super post panamax container vessels to enter the port without any constraining factors.
Current Status
Excavation of the North revetment continues and is progressing well. Armouring of the new north grove and the south breakwater is making good progress. Design of the sand bypass system at A-berth is nearing completion while commissioning of the temporary bypass system is scheduled for June 2009. The project has reached a 60% stage of completion.
2008/09 Spending Actual
1 176
Cost Time Investment Criteria Quality Local Content Safety Risk
30
MAJOR EXISTING PROJECTS FREIGHT RAIL: ORE LINE EXPANSION TO 47mtpa Spending (Rm) Latest ETC Spending since inception
2 800 1 264
Overview
The aim of the ore line expansion project is to increase the ore carrying capacity on the Sishen to Saldanha corridor from 41mtpa to 47mtpa. The project entails the upgrading of infrastructure and the procurement of rolling stock to enable the increase in the conveyance of the additional tonnages. The Ore Line is an expansion project aimed at increasing capacity for ore exports. A project to further increase capacity to 60mtpa to address client demand has been approved with the feasibility having been completed and the early stage of execution of the project in progress.
complete.
Current Status
New control software to improve reliability of tipplers, conveyors and reclaimers has been successfully implemented. Passing loops are handed over to operations after completion on a continual basis. Various contracts for the power upgrade and material acquisition are underway. The project is 56%
Investment Criteria 2008/09 Spending Actual
516
Cost Time Quality Local Content Safety Risk
31
MAJOR EXISTING PROJECTS FREIGHT RAIL: COAL LINE EXPANSION TO 78 mtpa Spending (Rm) Latest ETC
4 989
Spending since inception
1 749
Overview
The aim of this project is to increase the coal carrying capacity of the line from the mines in Mpumalanga to the Port of Richards Bay. This is an expansion project and of major economic importance as it affects exports. The expansion of the Coal line entails the upgrade and building of new infrastructure as well as the acquisition of rolling stock.
Current Status
Rail and power infrastructure work is progressing well and is progressing well. Locomotive upgrades and wagon refurbishments are progressing according to plan.
2008/09 Spending Actual
546
Cost Time Investment Criteria Quality Local Content Safety Risk
32
MAJOR EXISTING PROJECTS TNPA: NGQURA CONTAINER TERMINAL Spending (Rm) Latest ETC
4 142
Spending since inception
1 372
Overview
Ngqura Container Terminal is a Greenfield project with the objective of providing a full service container terminal together with rail links to the port. The scope is to develop a 4 berth container terminal and further extending the port infrastructure for a small craft basin, tugs, buildings and other landside infrastructure for the functioning of a container terminal. The project will provide 700 000 TEUs/a capa city when complete.
Current Status
30 hectares of paving have been completed behind the first 2 berths while work on the trailer park and admin buildings is progressing well. The terminal handled its first two vessels in September 2008. Transformers for Eskom and cargo handling equipment for Port Terminals were offloaded from these vessels.
Investment Criteria Cost Time Quality Local Content 2008/09 Spending Actual
1 009
Safety Risk
33
MAJOR EXISTING PROJECTS TPL: NEW MULTI-PRODUCT PIPELINE Spending (Rm) Latest ETC Spending since inception
12 600 3 278
Overview
The aim of this project is to build a 550 km new trunk line from Durban to Jameson Park (Gauteng), 24 inch in diameter, addressing the increased demand for fuel in Gauteng and surrounding areas. The trunk line will connect an inland and coastal terminal with significant storage capacity. The existing pipeline is 40 years old and needs replacing. With the front-end engineering design phase completed, Transnet was granted licence to construct the NMPP by NERSA. It also entails the replacement of two northern network pipelines that have outlived their sustainable life. Given the energy problem facing South Africa, the Board has granted unconditional approval to commence construction in February 2008. This project is considered a strategic project for the Company, and is of national importance.
Current Status
In May 2008 a R3.3 Billion contract was awarded to Spiecapag Group 5, a South African French Consortium for the construction of the NMPP. Favorable Environmental Approvals for the project scope has also been received. Manufacturing for the 16” pipe commenced in April 2008 and all 105 000 tons of steel for the main 24” pipe has arrived in South Africa. As at end March 2009, the first 6 out of a total of 170 km of 16” pipe had been laid in the Kendall/Waltloo area. It is expected that the last phase of this project will be completed at the end of 2011.
2008/09 Spending Actual
2 565
NMPP System Configuration in 2010 GAUTENG PRETORIA WEST RUSTENBURG AIRPORT NORTH - WEST POTCHEFSTROOM TARLTON MEYERTON ALRODE ø406,4 ( 16" ) ø457,2 (18")
10
WITBANK KENDAL MPUMALANGA SECUNDA KLERKSDORP SASOLBURG COALBROOK STANDERTON MAGDALA KROONSTAD BETHLEHEM FREE STATE BHT WILGE QUAGGA NEWCASTLE VAN REENEN INGOGO VRYHEID SCHEEPERSNEK FORT MISTAKE KWAZULU / NATAL MAHLABATINI
6
VOLKSRUST EMPANGENI RICHARDS BAY LESOTHO ø323,8 ( 12" ) MOOIRIVER ø406,4 ( 16" ) HOWICK DUZI ø457,2 ( 18" ) HILLCREST
2
MNGENI
1
N INDIAN OCEAN PPT-0231-/L
0
Investment Criteria Cost Time Quality Local Content Safety Risk
COMPETITIVE SUPPLIER DEVELOPMENT PROGRAMME (CSDP)
• • The aim of the Transnet Competitive Supplier Development Programme (CSDP) is to localise Transnet supply chain to a reasonable level and to promote South Africa as an off-shore source of goods and services for Original Equipment Manufacturers (OEM’s). This will secure source of supply, provide industrialisation opportunities for national businesses and reduce lead times • Initially, the programme is being piloted over three years with rolling stock and port equipment purchases as its focus. The following is the progress to date:
Company & Investment
Kalmar - R350 million port equipment and maintenance EMD - R800 million :5 year parts deal • • •
Programme
Kalmar has a previous NIPP obligation. They are first building a Cargotec (port handling equipment and freight solutions) training school. Their initial obligation for CSDP will be for free training hours and a discount rate per R10 million purchased Working with Kalmar on skills transfer to local organisations in respect of motor and engine maintenance EMD has already committed to the transfer of Intellectual Property to TRE in building a world class traction motor assembly line (EMD’s estimate of $15 million value) EMD R800m contract “50 Like New” Locomotives • Local assembly and engineering done by TRE and with transfer of skills, TRE now able to do substantially more of the total Loco’s build.
Mitsui (VENUS /MARS) - Extension of the 19E contract - electric locomotive - by 35 vehicles – R600 million Current 100 Locomotive tender (first time CSDP was used in a tender) • • • • Original contract has NIPP obligations – Significant portion of assembly & engineering done locally. Mitsui will build a training facility to satisfy their NIPP obligations. We have also negotiated free training for TRE maintenance practitioners Both companies are proposing approximately a R1 billion investment over several years Adjudication process currently underway. Locomotive steering Committee 35 set up to ensure adequate governance
5-YEAR FUNDING REQUIREMENT PER 2009/10 CORPORATE PLAN
Cash flow from operating activities Cash flow from investing activities
Capital investment Capitalised borrowing cost Other investing activities
Net cash surplus / (shortfall)*
* Excluding the redemption of current loans All numbers reflected as per Corporate Plan
Budget 2009/10 R million 10 572 (23 438) (21 912) (1 850) 324 (12 866)
2010/11 R million
11 696 (21 137)
(19 442) (1 854) 159
(9 441)
Projections 2011/12 R million
13 169
2012/13 R million
14 474 (18 765)
(16 336)
(14 140)
(13 331) (2 212) (217)
(5 596)
(663) (146)
334
2013/14 R million
16 941 (10 151)
(9 480) (489) (182)
6 790
More than 50% of the funding requirements for the 2009/10 financial year has already been raised to date on the strength of Transnet’s balance sheet.
36
TRANSNET FUNDING SOURCES TO TAP INTO
The following funding sources have been initiated. The amounts are indicative & subject to market conditions •
Domestic bonds (TN17, TN23 and T27 Bonds)( ± R6 bn)
Currently tapping R1 bn per month and plan to launch at least 1 new bond & increase the size as liquidity increases •
ECA Supported Funding (R2 bn)
1 st transaction with Finvera to be concluded by early April 2009.
•
Development Finance Institutions (R4bn)
– JBIC loan agreement signed 26 March –first drawdown mid April 2009 approximately R2 bn and balance (R2bn) in line with project payment dates – AfDB at due diligence stage expected to conclude end May 2009 •
Domestic Loans (R7 bn)
Rand Bilateral loans from banks(8) and other financial institutions(2) •
International Bond (
bonds
± R5 bn)
Close to concluding documentation & update with year-end financials, if not implemented will replace with domestic •
Other International Initiatives
AFLAC Loan ( ± R1.5 bn) – legal documentation finalized - still negotiating pricing levels •
Commercial Paper
Bi-weekly issues of CP varying between R500m and R750m – plan to replace maturities with bonds.
•
Pipeline Financing
Considering a ring-fenced financing structure to align with regulatory environment.
Transnet has committed banking facilities in excess of R4 billion that can be utilised when required
CONTENT OF THE PRESENTATION
• Introduction • Overview – 2008/09 Preliminary Results • Changes in Economic Environment • Transnet Strategy • Regulatory Environment • 2009/10 Corporate Plan • Risks and Mitigating Plans • Strategic Priorities 2009/10 • Conclusion
38
GROUP’S KEY RISKS (as at May 2009)
1 Revenue/Volume Growth 2 Non compliance with Safety and Standard Operating Procedures (SOPs) 3 Economic Regulation (Ports Regulator
and National Energy Regulator of South
Africa) 4 Funding/Liquidity Risk 5 Delivery of capital projects on time and within budgets and affordability thereof 6 Asset Regime Performance and Maintenance 7 Human Resources Capability to deliver on growth strategy 8 Environmental Risks 9 Input costs including: Energy (electricity), Fuel, Steel, Pricing & Supply 10 Commodity & Concentration Risks (Third Party Supplier Risks)
E D C B
Strategic residual risks heat map 9 10 6 7 8 3 4 5 1 2
A 7 6 5 4 3
Consequence Rating
2 Priority I risk – Transnet Group CE and Board level Priority II risk - Operating Divisions’ CEOs Level Priority III risk - General Managers’ level Priority IV risk – Managers’ level Priority V risk – Employees’ level 1
Mitigating plans are in place to manage the key risks
39
IMPLEMENTED A DYNAMIC MANAGEMENT FRAMEWORK WITHIN EPM OPERATING MODEL
Performance Assessment and Rewards Strategy and Targets Performance interactions EPM Creating Realistic Budgets and plans Track and monitoring Dynamic Management Framework to actively assess performance and plan/reallocate resources to achieve goals Weekly Activity Reporting Monthly Performance Assessment Quarterly Performance Assessment Focus on weekly trends volume trends, year end estimates and impact analysis on Group Revenue Monthly assessment of performance, success of cost cutting and capex initiatives and updated year end estimates Quarterly workshop (Ext. Exco) on year-to-date results, year-end estimates and effectiveness of initiatives 95%
Corporate Plan
Where we are?
(measurement) Corrective measures (action) Dynamic Process Where we planned to be?
(evaluation)
40
2009/10 EXECUTIVE SUMMARY WEEKLY ACTIVITY REPORTING Week 11 Results – Key Commodities
1,35 1,41 4,1% 1,37 -9,5% 1,24 0.83
0.69
-17%
Extract of Week 11 Report
Actual +9% 61,102 66,644 7.39
1.0% 5.89
5.95
-3,6% 5,1 6,1 5,8 2.50
1.1% 3.68
3.72
Previous year Budget Current Estimate -1,0% 251 271 268 GFB (mt) 872 447 -49% Export Coal (mt) 166,613 Export Iron Ore (mt) -34% 109,400 Containers (TPT) 369,753 358,376 -3% GFB (mt) Export Coal (mt)
Global Bulk Indicators
Export Iron Ore (mt) Containers (000 TEUs)
Current Year Prior Year
Liquid Bulk (TNPA) Break Bulk (TPT) Other Bulk (TPT)
Analysis of Volume and Revenue Variance - Year end Estimate (2009/10)
Size Revenue contribution to Group
8% 6% 4% 2% 0% -2% -4% -6% -8% -10% -12% -14% -16% -18% -20% -22% -42%
Petroleum Containers Automotives Gas
-10%
Coal (TNPA) Coal (TFR)
-8% Iron Ore (TNPA)
Iron Ore (TFR) Other Bulk Liquid Bulk
-6% -4% -2% % Revenue Variance 0%
Iron Ore (TPT)
2%
GFB
4% 6% 115.75
122.95
133.5
129.15
56.15
56.15
59.2
60.6
TRANSNET STATUS 177.5
67 181.5
67.5
181.5
69 172.5
76.5
11,459 11,465 11440 2544 2786 3494 11612 3646 8 9 10 11 Spot Price $/Tonne Coal 8 9 10 10 Spot Price $/Tonne Iron Ore 8 9 10 11 Baltic Dry Bulk Index $/Tonne
•
Comments
The Transnet weighted volume variance estimate for 2009/10 is negative 1.4% (estimated 2.5% negative for June 2009).
• Group revenue (all commodities) is estimated to be 4.7% below budget for the 2009/10 year, mainly due to limitation on petroleum tariff increases, container volumes and negative price mix, export coal volumes and other bulk commodities.
• The Group revenue variance for 2009/10 would only be 2.0% below budget if the impact of TPL’s tariff increases are excluded.
Negative 4.7% revenue variance, including TPL tariffs Negative 2% revenue variance, excluding TPL tariffs
41
CONTENT OF THE PRESENTATION
• Introduction • Overview – 2008/09 Preliminary Results • Changes in Economic Environment • Transnet Strategy • Regulatory Environment • 2009/10 Corporate Plan • Risks and Mitigating Plans • Conclusion - Strategic Priorities 2009/10
42
CONCLUSION - 2009/10 STRATEGIC PRIORITIES
Volume and revenue opportunities
• • • • Increasing export iron ore volumes by 11.6% above the budget to contractual levels (47.9mt compared to budget of 43mt); Increasing current throughput in domestic coal to at least achieve the budgeted volumes of 21.5mt; Containers on rail to increase by 10% above the current budget of 544 460 TEUs to 600 000 TEUs; To maintain at least the current trends in magnetite and cement volumes which are on average 70% and 20% in excess of budgets respectively.
Cost savings
• • • Whilst most divisions have made good progress on committing to cost savings initiatives, we have only managed to obtain plans to substantiate R1bn savings compared to the R1.4bn (level 1) required.
It is essential that the cost structures must be reduced through efficiency improvement and elimination of non-revenue related costs.
The Group minimum requirement remains R1.4bn reduction in costs and operating divisions will be measured monthly against these targets going forward.
Capital optimisation
• • Focusing on the execution of the capex plans with optimal phasing Committed to investing R80.5bn over the next 5 years
Safety and environment
• • The objective is to reduce the number of incidents and the cost of losses by 33% from 2009/08 actual levels (approximately R200m reduction at Group level).
Environmental compliance has been elevated as a key priority in Transnet and we agreed to perform the following at all main areas of operations: • • • Review of maintenance and implementation of proper and structured maintenance programmes Getting housekeeping up to standard and comply with all environmental requirements To start with a compliance review/audit to identify areas of non-compliance/unsatisfactory standards
Operational efficiencies
• We will drive to achieve “a world-class” (otherwise known as best-in-breed) operational performance in each key area of operations, in the near future. Accordingly, the KPI project will be driven hard this year with the focus on at least achieving the KPIs set out in the Corporate Plan 43