An introduction toTransnet18 October 2004

Agenda

• Results

• Strategy

• Key stats on human resources

Financial results summary

• Turnover +6% to R43,6bn

• EBITDA -37% to R7,4bn

• Operating profit -96% to R187m

• Cash flow from operating activities -9% to R3,1bn

• Capital and reserves -49% to R8,9bn

• Total debt to equity increased to 7,1:1

Consolidated income statement

2004 R million

2003 R million

Turnover 43 637 41 278

Expenses (43 450) (36 190)

Operating profit 187 5 088

Finance costs (2 211) (2 637)

Other income 434 3 998

Fair value adjustments (4 529) (7 074)

Minority interest and taxation (213) 204

Loss after tax and minority interests (6 332) (421)

Key factors that impacted the income statement

SAA aircraft: R3,5bn Transtel: R526m Propnet: R134m

SAA hedge book: R4,5bn (2003: R5,3bn) Embedded derivatives in two long term service contracts:

R0.6bn

Continued weak global aviation sector High cost structure

Significant increase reflects R1,5bn credit in 2003 from change in valuation basis

AC128 asset impairments of R4,2bn (2003: R493m)

AC133 fair value adjustment of R4,5bn (2003: R7,1bn)

SAA operating loss of R0,3bn (2003: R0,5bn)

Retirement funding expense of R1,7bn (2003: R347m)

Consolidated balance sheet

2004 R million

2003 R million

% change

AssetsNon-current assets 57 156 54 883 4%Current assets 15 544 13 883 12%Total assets 72 700 68 766 6%

Equity and reservesShareholder’s equity 8 941 17 641 (49%)Non-current liabilities 33 414 32 669 2%Current liabilities 30 345 18 456 64%Total equity and liabilities 72 700 68 766 6%

What impacted the balance sheet?

• Reported loss of R6,3bn• AC133 fair value liability opening adjustment of R4bn

–primarily service contract embedded derivativesShareholder’s equity impacted by

• R14,2bn relating mainly to SAA’s hedge book, of which R4,5bn incurred in 2004

• Hedge book closed out by 30 June 2004 at a cost of R5,9bn

Increase in current liabilities driven by

• Interest bearing borrowings increased from R22,6bn to R27,8bn• Recapitalisation of SAA by R6,1bn

Borrowings

• Unfunded obligation of R7,6bn (2003: R7,2bn) relates mainly to Transnet’s Second Defined Benefit FundPost-retirement benefits

Key factors for Transnet’s underperformance

Unfocused conglomerate • Disparate businesses• Lack of synergies

SAA • Net losses of R15bn over past 2 years

People / Skills • Need to align skills with changes required by new strategic direction

Excessive head office structure • Bloated structure that costs R600m per annum

Poor risk management • Significant gaps in financial management procedures• Hedge losses, embedded derivatives and pension fund deficits

Corporate governance • Poor regulatory compliance

• Resulting in congestion and service delays at ports and rail networksOutdated infrastructure

4-Point Turn-Around Plan

1. Redirect the business

2. Restructure the balance sheet

3. Implement and adopt strict corporate governance principles

4. Adhere to a vigilant risk management process

Strategy

Cape Town Port Elizabeth

Durban

Saldanha

Richards Bay

East London

Maputo

Sishen

Beitbridge

Gauteng

There are significant shifts in the SA economy that warrant a closer examination of the supply chains necessary to support the economy.

SA needs to reduce logistics costs by one third to sustain our competitiveness.

Aligning Strategic Focus with the Economy

PE

East London

Maputo

RichardsBay

Durban

Cape Town

Coega

Heavy Manufacturing zonesMining zones

Micro-economic strategy:• Support SA’s export-led growth strategy• Reduce the cost of doing business

SA’s economy:1. Mining (6%) 49%2. Manuf. (20%) 45%3. Agriculture (4%) 6%

Why Strategic corridors?• Majority of export/ import traffic (excl.

containers) is typically bulk and heavy manufacturing on rail

• Majority of road haulage is for domestic distribution

• To support the export strategy and economic growth for current key sectors, connectivity between inland transportation systems and ports are critical

• Create efficient export systems for growing sectors

Freight Typology:Up to 70% of

economy is bulk, heavy-haul, long

distance and low to medium value

traffic

Production location of key sectors

Transnet Strategic Direction• Focus on Rail and Ports (Operations & Infrastructure)• Focus on improving key corridors/ clusters

TransnetFocus

The Role of Transnet

Contribute to the sustainable economic development of

South Africa by providing the best connected and

efficient transport network run by world-class rail,

pipeline and port operators

Transport Portfolio

PipelineNetwork

PipelineOperations

Transnet Business Portfolio

RailInfrastructure

RailOperations

Port Infrastructure

Port Operations

HoldingCo

Investment Portfolio

Aviation

Other

Independent Regulators

Transnet into the future

Transport Portfolio

TransnetInfrastructure

TransnetOperations

HoldingCo

RailInfrastructure NPA Rail

OperationsSAPO

PipelineInfrastructure

PipelineOperations

• Operational integration with private sector (port and rail)

• Partnerships (local and global) established for growth

Deliver the Mandate

2004/05 2006/072005/06

Implement New Business Model

• Operational synergy

between SAPO, NPA

& Spoornet

• Restructured portfolio

• Operational efficiency

• Vertical separation

• Corporate office

Restructuring

• Divestment

Building a SolidFoundation

Migration Path for Transnet Integrated, Inter-modal Transport Solution

Transnet Strategy

Effective & EfficientNational Logistics System

Economic Growth

Stra

tegi

cC

orrid

ors Strategic

Clusters

Change Management

Financial Strategy

Freig

ht R

ailway

s

PortsPipelines

• Vertical Separation• Infrastructure Planning• Head Office Restructuring• Divestment• Operational Synergies

Human resource stats

Overall Transnet Workforce

Transnet Workforce as at March 2004

Indian4%

African53%

Coloured10%

White33%

Indian 4% 2774

African 54% 40078

Coloured 10% 7075

White 33% 24495

74422

Race gender breakdown

Trained Employees per Occupational Category

training and development is structured through our workplace skills plan, and based on company and individual needs

African Coloured Indian White African Coloured Indian White TotalTop Management (101-104) 2 0 0 3 1 0 0 0 6

Senior Management (106) 118 42 47 154 64 18 40 42 525Mid-Management (108-109) 198 62 75 1054 103 37 74 66 1669

Junior Management (610) 2665 618 509 2197 2234 590 553 1173 10539Semi Skilled 7466 1359 917 3788 2272 538 852 829 18021

Unskilled 2080 121 48 69 205 9 17 5 2554Total 12529 2202 1596 7265 4879 1192 1536 2115 33314

Male FemaleAs at 31 March 2004

Historical Picture

1999-2000 2000-2001 2001 - 2002 2002-2003 2003-2004

Category Levels Actual Target Actual Target Actual Target Actual Target Actual

                     

Black Managers

102-103 50% 70% 61% 70% 65% 70% 67% 75% 73%

104-106 39% 42% 37% 44% 50% 55% 55% 60% 55%

109-610 34% 36% 36% 37% 40% 44% 43% 52% 44%

Females

102-103 18% 25% 18% 25% 16% 18% 22% 29% 24%

104-106 16% 20% 15% 21% 26% 30% 23% 33% 23%

109-610 16% 17% 9% 20% 21% 25% 35% 32% 24%

Females At All levels 13% 15% 9% 15% 15% 25% 17% 20% 17%

Disability All levels 0.8% 1.5% 1% 2% 1% 2.0% 1% 2.0% 1,5%

Challenges

• A restructured organisation

• Managing disability in the workplace

• Subtle diversity issues in regions

• Recruitment of females in senior management and technical positions

Thank you