Engineering 2019

Highlights• Revenue decreased by 6,4% from R11,25 billion to

R10,5 billion in 2019• EBITDA decreased from a loss of R139 million to a loss of

R737 million• Transnet Engineering, achieved the Shareholder’s Compact

targets on train reliability and efficiency as summarised below:

Target Actual

Key performance indicator2019

%2019

%

Volume lost due to traction 7 7,5

Train delays due to traction 40 18,7

Train cancellation 6 3,1

Business overviewTransnet Engineering (TE or Engineering), an advanced manufacturing division of Transnet, has a rich and proud heritage spanning more than 150 years. TE’s solutions, underpinned by a strong innovation culture, help customers deliver goods and services with greater speed and efficiency using long refined advanced manufacturing techniques, industry expertise and highly-skilled personnel.

Over time, TE has established extensive core capabilities for research, design, testing, manufacturing, remanufacturing, assembly and maintenance of railway rolling stock including locomotives, freight wagons, passenger coaches and port equipment. To this end, TE has positioned itself as the first African independent original equipment manufacturer (OEM) for wagons.

With more than 11 600 employees countrywide, 143 depots and six main factories, Engineering is ideally positioned to serve its key customers locally and globally. Through its Vision 2021, Engineering aims to be the preferred brand in rail and related engineering solutions in Africa and across the world. This entails:• Becoming a world-class OEM of rolling stock and logistics

equipment;• Becoming a preferred maintenance, repairer and overhaul

partner for all rail and related equipment in Africa;• Establishing Centres of Excellence for technical and engineering

skills development in Africa; and• Driving economic development and growth in sub-Saharan

Africa.

Engineering’s range of services is designed to grow the customer base both nationally and across Africa. The maintenance service depots are strategically positioned for the key corridors of Freight Rail. This ensures that the train delays, cancellations and volumes lost are minimised to focus on improving operational efficiencies by concentrating on availability and reliability of rolling stock. National and African markets remain key customer growth areas for Engineering’s commercial prospects. The manufacturing and overhaul arms of TE provide local and African freight operations with new and refurbished locomotives and wagons.

Engineering continues to focus on growing its footprint in the African market and beyond. These new areas are an attractive growth market for the division due to increased investments in rail occurring across the continent. True to its aspirations of becoming the fully-fledged African OEM, Engineering has successfully researched, designed, manufactured and tested a new purpose-built locomotive, the TransAfrica Locomotive. This locomotive was successfully launched in April 2014, attracting impressive commercial interest from local and continental rail players.

Transnet Engineering 2019 2

Durban

East London

Port Elizabeth

Mossel Bay George Knysna

Oudshoorn

TouwsrivierKalbaskraal

DalJosafat

Worcster

Malmesbury

Klawer Calvinia

Liebendal

Copperton

Beaufort West

Klipplaat

Avontuur Patensie

Uitenhage New Brighton Port Alfred

Alicdale

BeaufortFort

Blaney

Stormberg

Sterkstroom

Queenstown

Stutterheim

Umtata

Maclear

Burgersdorp

Dreunberg

Barkly East

Aliwal NorthSpringfontein

De Aar

BelmontKoffiefontein

Bloemfontein

SannasposMaseru

Kokstad

HardingPort Shepstone

Richmond

Franklin

UnderburgCato Ridge Stanger

Pietermaritzburg

GreytownCedaraEstcourt

LadysmithDanskraal

Vryheid

GolelaPiet RetiefDundee

Newcaslte

VolksrustErmelo

HarrismithBethlehem

Gunhill

KroonstadMakwassie

OrkneySasolburg

VereenigingKlerksdorpOttosdal

Warrenton

Pudimoe

VryburgVermaas Welverdiend

Coligny

KrugersdorpLichtenburg

Mafikeng

MacmullinsMagaliesburg

Pendoring

Rustenburg

Northam

Thabazimbi

Ellisras

Musina

Beit Bridge

Pienaarsrivier

Pretoria North Pyramid South

Roossenekal

RaytonPretoria

MaydaleBethal

DelmasOgies

Komatipoort

KaapmuidenNelspruit

GraskopSteelpoort

BelfastWitbak

Marble Hall Hoedspruit

Phalaborwa

Tzaneen

SoekmekaarMakhado

Polokwane

Naboomspruit

Nylstroom

SentrarandTrichardt

EmpangeniBergvilleMarseillies

Theunisen

Kimberley

Posmasburg

Sishen

Erts

Hotzal

Boksputs

Prieska

Kakamas

Upington

Nakop

Cookhouse

Cradock

Rosmead

Noupoort

Hutchinson

Somerset East

Bredasdorp

Cape Town

Atlantis

Kraaifontein

BellvilleCaledon

Saldanha Bay

Richards Bay

Machadodorp

Bitterfontein

Johannesburg

Northcor

Capecor

Southcor

Natalcor

R. Baycor

N. Westcor

Eastcor

N. Eastcor

Sishen-Saldanha

Sentracor

South East Cor

Westcor

Free State

Namibia

Central Region

Eastern Region

Western Region

Transnet Engineering factories

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Transnet Corporate Centre Johannesburg

Internally, TE continues to focus on improving operational efficiencies and a safe working environment through various interventions such as continuous improvement and process automation.

TE will continue to forge and strengthen partnerships with OEMs with the aim being to enhance the existing skills and know-how and to create new market opportunities.

The division continues to strengthen its research and development (R&D) initiatives to ensure that it has cutting-edge technologies and capabilities to deliver world-class products and services.

Skills, enterprise, rural and supplier development continue to be key focus areas of Engineering, with particular attention given to the youth and women. Significant expenditure over the next few years will create opportunities for the division to identify and implement programmes that will address developmental

objectives. Engineering’s new operating model below illustrates how the division is structured, how it intends to interface with customers and the products and services it will provide that will define its value proposition to the market.

Where we operateTE has plants and depots spread throughout South Africa, creating a network of sites that serve the main rail corridors and ports. The six main plants are located in Cape Town, Johannesburg, Durban, Bloemfontein, Pretoria and Uitenhage.

These plants serve as regional centres for their satellite depots and provide them with support services. There are a total of 143 maintenance depots. Out-of-service heavy maintenance and manufacturing are undertaken at the plants while the depots concentrate on in-service maintenance of rolling stock.

Regulatory environmentRegulatory universeEngineering currently adheres to compliance with approximately 70 legislations, various applicable regulations and supervisory requirements. These legislations impose strict engineering, governance, health and safety, environmental, labour and procurement compliance obligations and requirements. The legislations include the National Safety Regulator Act, No 14 of

2002 (as amended by Act 69 of 2008), which provides for the establishment of a Railway Safety Regulator whose mandate is to issue operating licences and oversee safety in the railway industry. Like other rail operators, Transnet complies with stringent application requirements of annual safety permits, which include the establishment and maintenance of the safety management system.

Figure 1: Transnet Engineering’s geographic spread

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Performance contextStrategic objective Contribution to strategic objective

Reduce the total cost of logistics as a percentage of transportable GDP

• Engineering will continue to source quality rolling stock components and material from low-cost suppliers in order to offer competitive products and services to the market.

• The division will continuously benchmark its operations in the industry and incorporate best practice in its operations.

Effect and accelerate modal shift by maximising the role of rail in the national transport task

• The division will assist Freight Rail in improving operational efficiencies by concentrating on rolling stock availability and reliability and thereby position rail as an attractive alternative to road transportation.

Leverage the private sector in the provision of both infrastructure and operations where required

• Engineering continues to anchor partnerships with the rolling stock component manufacturers and financial institutions in the provision of rolling stock and related services both in South Africa and the rest of the continent.

• Through research and development, Engineering is developing intellectual property in the rail-related industry with the view of partnering with the private sector in instances where other providers have manufacturing capacity and competencies.

Integrate South Africa with the region and the rest of the world

• Engineering is positioning itself as a preferred manufacturer and maintenance partner for rail and related equipment in Africa. Partnerships will be forged with local companies in Africa where synergies exist.

Optimise the social and economic impact of allinterventions undertaken by the SOC in the achievement of these objectives

• Engineering is positioned as a centre of excellence for technical and engineering skills. The division is leveraging this capability to provide artisanal status, including the conversion of semi-skilled individuals into artisans through the recognition of prior learning.

Operational performanceCore initiatives for 2019• Extend Engineering’s maintenance services to other Transnet

Operating Divisions to ensure that they leverage the available technical knowledge embedded in Engineering.

• In order to provide an enhanced service to Transnet Freight Rail, maintenance depots will be aligned with key Transnet channels as an enabler to achieve Transnet’s volumes.

• Engineering will focus on expanding its maintenance footprint in Africa by marketing its maintenance capability and forging closer collaboration with Transnet International Holdings.

• The continuous improvement team has identified a potential to reduce production inefficiencies within the manufacturing and maintenance operations.

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Overview of key performance indicatorsKey performance area and indicator

2017 2018 2019 2019 2020Unit of measure Actual Actual Target Actual Target

Financial sustainability

EBITDA margin % 4,9 (1,2) 0,9 (7,0) 3,3Operating profit margin % (9,5) (9,5) (3,6) (11,3) (0,6)Gearing % 73,7 88,4 92,8 102,1 104,8Net debt to EBITDA times (32,6) 45,9 110,2 (25,7) 26,4Return on total average assets % 6,6 (0,9) (2,4) (6,5) (0,5)Asset turnover times 0,7 0,7 0,8 0,6 0,9Cash interest cover times (1,0) (3,6) 2,6 0,6 1Total revenue R million 9 380 11 250 10 871 10 524 12 973

– External R million 1 622 2 467 4 065 1 657,4 1 753,5– Internal R million 7 758 8 783 6 806 8 867,1 11 219,5

Capacity creation and maintenance

Capital expenditure R million 945 275 748 301 510Planned maintenance R million 203 223 209 199 198,6

Operational excellence

Train cancellations due to traction

General freight business % 3,4 3,1 ≤ 6,0 3,2 ≤ 6,0Export coal % 4,1 8,2 ≤ 6,0 5,7 ≤ 6,0Export iron ore % 1,6 1,5 ≤ 6,0 1,9 ≤ 6,0Net volume lost due to tractionGeneral freight business % 4,1 3,1 ≤ 7,0 4,1 ≤ 6,6Export coal % 5,8 14,8 ≤ 7,0 11,7 ≤ 6,6Export iron ore % 4,1 5,5 ≤ 7,0 1,3 ≤ 6,6Traction delaysGeneral freight business % 14,2 5,1 ≤ 40,0 16,6 ≤ 36Export coal % 18,6 23,5 ≤ 40,0 41,5 ≤ 36Export iron ore % 9,6 8,8 ≤ 40,0 17,5 ≤ 36

Human capital

Employee turnover % 5,4 8,5 6,0 5,0 6,0Employee headcount permanent 11 731 10 838 10 962 10 370 10 786Revenue per employee R million 0,80 0,96 1,0 1,0 1,2

Transformation

Total blacks % 80,2 80,8 89,0 81,7 90,0Total females % 22 23 32 23,6 35Total people with disabilities % 1,4 1,6 3,2 1,9 3,3

Skills development

Apprentice trainees headcount 250 200 200 223 200Technician trainees headcount 43 87 30 83 20B. Engineering trainees headcount 22 12 20 28 30Sector specific headcount 514 570 250 279 250Training spend % of personnel cost 3,6 2,6 3,0 2,4 3,0

Risk, safety and health

Cost of risk % of revenue 1,9 1,1 4,0 4,0 4,0DIFR rate 0,61 0,66 0,70 0,66 0,69

Regional integration

Africa sales revenue R million 227 254 1 979 166,1 254

Industrial capability building

R&D costs R million 185 147 300 275 304

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Financial performance reviewYear ended Year ended

31 March 31 March2019 2018 %

Salient features R million R million change

Revenue 10 524 11 250 (6,5)

– Internal 8 867 8 783 1,0– External 1 657 2 467 (32,8)

Operating expenses (11 261) (11 369) (0,9)

– Energy costs (217) (231) (6,1)– Maintenance (199) (223) (10,8)– Materials (4 241) (4 398) (3,6)– Personnel costs (5 598) (5 809) (3,6)– Other (3 395) (728) 366,3

Profit from operations before depreciation, derecognition, amortisation and items listed below (EBITDA) (737) (139) 430Depreciation, derecognition and amortisation (450) (447) 0,7

Profit from operations before items listed below (1 187) (586) 103Impairments and fair value adjustments (159) (52) 205,8Net finance costs (1 085) (1 116) (2,8)

Profit before taxation (2 431) (1 754) 38,6Total assets (excluding CWIP) R million 18 035 18 687 (3,5)

Profitability measuresEBITDA margin1 % (7,0) (1,2) (5,8)Operating margin2 % (11,3) (5,2) (6,1)Return on average total assets (excluding CWIP)3 % (6,5) (3,4) (3,1)Asset turnover (excluding CWIP)4 times 0,57 0,66 (13,6)Capital investments5 R million 301 275 9,5

EmployeesNumber of employees (permanent) number 10 370 10 838 (4,3)Revenue per employee R million 1,02 1,04 (1,9)1 EBITDA expressed as a percentage of revenue.2 Profit from operations before impairment of assets, fair value adjustments, net finance costs and taxation expressed as a percentage of revenue.3 Profit from operations before impairment of assets, fair value adjustments, net finance costs and taxation expressed as a percentage of average total assest

excluding capital work in progress.4 Revenue divided by average total assets excluding capital work in progress.5 Actual capital expenditure (replacement + expansion) excluding borrowing costs.

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Financial performance reviewThe 2019 financial year presented a difficult trading environment for Engineering where cross-border orders were less than the quantum received in 2018 and ultimately less than 2019 expectations. The decline in orders had an overall negative impact to financial performance, which showed a total revenue reduction of 6,4% to R10,52 billion (2018: R11,25 billion). The marginal increase of internal revenue by 1% to R8,87 billion (2018 R8,78 billion) minimally negated unsatisfactory results due to the overall influence of a substantial 32,8% decline in the external revenue to R1,66 billion (2018: R2,47 billion).

Engineering, like other entities, was exposed to inflationary pressure on its costs which exceeded 7% on most cost categories such as labour, material and electricity. In order to respond to the decline in revenue, Engineering persisted with aggressive cost optimisation initiatives, which helped to cushion the division against much worse financial performance. Notable initiatives included personnel cost containment (constituting 47% of operating costs) and material costs (constituting 36% of operating costs).

Personnel cost initiatives, which included strict management of headcount and related labour costs interventions resulted in a R305,5 million saving on budget. In addition, interventions to reduce procurement costs and improve efficiency resulted in R171,4 million cost savings.

The aggressive adoption and implementation of cost optimisation initiatives enabled Engineering to mitigate against further adverse performance. An EBITDA loss of R1 billion, resulting from reduced external sales as well as the inflationary pressure of rising costs, was averted through cost-optimisation initiatives. Through the initiatives the EBITDA loss was limited to R737 million (2018: R139 million loss). Engineering expects the next five years to be profitable in light of the anticipated revenue pipeline and turnaround initiatives that are under implementation.

Performance commentary Financial sustainabilityEngineering’s total revenue for the year was R10,5 billion, which is 6,4% lower than the R11,3 billion achieved in the prior year.

Internal revenue (about 99% from Freight Rail) increased to R8,9 billion (2018: R8,8 billion). External revenue decreased by 32,8% to R1,7 billion (2018: R2,5 billion). As a result, EBITDA reflected a loss of R737 million.

Engineering saw a negative return on invested capital (return on total average assets) of -6,5% (2018: -1,2%) during 2019.

Looking ahead• Engineering plans to maximise external revenue by, amongst

others: – Commercialising key projects emanating from the division’s

R&D capabilities; and – Enhancing marketing and customer-centered approaches that

will secure additional revenue. • Engineering’s products offerings from its internal manufacturing

business are being reviewed with a view to focus on profitable activities in a streamlined business model.

• The division will focus on building a sustainable and economically responsive cost structure in the year ahead.

Operational performanceOperational efficiency and productivityTrain cancellations due to traction was at 3,2% which was well within the target of 6%. Net volumes lost due to traction for the financial year was marginally off target at 7,5%. The coal line was the main contributor to the unfavourable losses due to traction.

Traction delays were within target, however, there is constant effort to bring it down further. With the introduction of new (1 064) locomotives into service, these numbers should reduce significantly in the near future.

Looking ahead• In the coming year TE will continue with the implementation of

the flexible workforce model to support the variable order book, enabling production lines to be flexible in relation to demand.

• TE will continue with kinetic energy recovery systems research on wagon bogies to assess the feasibility of a dynamic kinetic energy recovery system application in the rail sector.

• TE will evaluate a pre-production locomotive condition monitoring device and begin production and commercialisation.

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Capacity creation and maintenanceCapital investment for the year, at R301 million against a budget of R748 million, was 9,5% higher than the prior year (2018: R275 million). Maintenance of plant, equipment and machinery totalled R199,4 million against a budget of R271,1 million. Some of the key revenue-generating projects that were financed during the year were as follows:

Project Name Description

MC 25 MC 25 (Baluleka) – Passenger Coaches to showcase TE’s capabilities in manufacturing state-of-the-art trainsets. The trainset consists of a power car, an executive sleeper, a dining room, a lounge, conference cars, a staff sleeper and kitchen.

TransAfrica Locomotive (TAL) TAL 2 & 3 – Locally designed, manufactured and assembled locomotive by Transnet Engineering. Following the successful launch of TAL1, in pursuit of OEM status, it was decided to build additional TAL version improvements. TAL was successfully tested and a certificate from the Railway Safety Regulator was obtained. It’s currently being utilised for no-fault trips.

Africa wagons The gondola wagon, container wagon and the fuel tank wagon have been completed and tested. They are currently being showcased to potential customers.

Intelligent Real-time Information Services (IRIS) IRIS consolidates all Transnet asset management data into a single cloud-based platform to improve end-to-end operational and maintenance efficiencies through advanced analytics and intelligent data-driven services.

Locomotive Condition Monitoring System (LCMS) The LCMS is a stand-alone device capable of capturing data from on-board locomotive systems, and then collating, storing and ultimately transmitting this data to off-board databases.

Port hauler A vehicle specifically designed to haul bulk and container commodities around commodity-handling facilities.

TE Electric Locomotive CNR 1 064 DBN Setting up manufacturing lines for the manufacturing of the CNR and BT locomotives entails procurement of the required machinery, tooling and equipment.TE Electric Locomotive BT 1 064 DBN

TE Electric Locomotive BT 1 064 RSE DBN

Demo coach Advanced Manufacturing Technology Demonstrator Coach (Amdec) — The coach is being built to showcase manufacturing capabilities for marketing purposes. The coach will be used to demonstrate different interior offerings to potential customers.

Looking aheadThe division aims to execute a balanced portfolio of projects with continued focus on projects that support revenue generation in Africa, R&D and entry into new markets.

TE aims to improve delivery and efficiency, expand current maintenance service offerings and increase product offerings. Some of the initiatives that will be used to achieve these goals include: • Focus on training of employees and enhancing maintenance

skills on new technology locomotives in the year ahead;• Further alignment of maintenance depots with Freight Rail

channels to support the achievement of volume targets.

Sustainable developmental outcomes

Human capital (employment and transformation)• Engineering achieved a permanent employee headcount of

10 370 against the target of 10 842• Black employees represented 81,8 % of the total employee base

(target: 89%)• Female employees represented 23,6% of the total employee

base (target: 32%)• People with disabilities represented 1,9% of the total employee

base (target: 3,2%)Due to increased focus on internal talent development and deployment, the employment equity profile has improved slightly year on year. Although this strategy assisted in containing labour costs, TE remained below the target in terms of blacks, women and people with disabilities. TE is currently rolling out the Workplace Skills Programme targeted at people with disabilities, which will

see an improvement on the employment equity profile over the next two to three years. TE continues with the implementation of the flexible workforce strategic objective, focusing on effective labour utilisation and maximising output with less resources. This includes, amongst others, multi-skilling, effective attrition management, fixed-term contractors and discretionary overtime.

Skills developmentNotwithstanding the target performance below on the overall training spend as a percentage of personnel costs, skills development key performance indicators for artisan trainees, engineering trainees, technician trainees and sector-specific training have been exceeded.• Training spend as a percentage of labour costs: 2,39% was

spent against the 3% target.• Artisan (apprentices) trainees: A total of 223 apprentices were

recruited against the target of 200. • Engineering trainees: In total, 28 full-time bursaries were issued

against the target of 20.• Technician trainees: A total of 83 apprentices phase 1 and

phase 2 students were recruited against the target of 30. • Sector-specific training: 279 employees were trained against

the target of 250. • Employees trained against the Industrial Development Plan:

6 816 of employees trained against the target of 5 926.

Regional integrationThe divisions achieved Africa sales revenue of R166 million (2018: R254 million) against the target of R1,98 billion.

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Industrial capability buildingR&D expenditure of R275 million (2018: R147 million) was below the target of R300 million for the financial year. The shortfall was due to an underspend of R26,5 million on the projects tabled below, which was mainly caused by the quality of tenders received (e.g. completion of all tender documentation) thus leading to non-awards and timeous appointment of international suppliers. These projects had to be rolled over to 2019/20:

Project Description R&D spend

D-Kers Regenerative add-on system to capture kinetic energy on wagons R9 million

Composite and alternative material Building of parts for coaches using composite and alternate materials R4,7 million

IRIS IRIS consolidates all Transnet asset management data to a single cloud-based platform to improve end-to-end operational and maintenance efficiencies through advanced analytics and intelligent data-driven services

R2,2 million

LCMS The LCMS is a stand-alone device capable of capturing data from on-board locomotive systems, collating, storing and ultimately transmitting this data to off-board databases

R3 million

Project online Cloud-based project management solution with integrated Bi-Reports pulled from SAP and other platforms

R3,6 million

Transnet bogie An undercarriage pivoted beneath a railway wagon R4 million

Environmental stewardship• Transnet Engineering maintained its ISO 14001:2015

Environmental Management System certification during the reporting year.

• Alien and invasive species eradication and control plans were submitted to the Department of Environmental Affairs on 27 March 2019. Implementation of invasive species control plans will continue during the 2020 financial year.

Waste management • In addition to existing waste management, TE has undertaken a

waste minimisation project with the objectives of reducing waste generated from source at operations. A significant reduction in waste generation has been realised and this translated into a reduction in waste management costs. Waste management in TE continues to improve with the cost of waste reducing every year.

Energy efficiency• Energy efficiency improvement covers both electricity and fuel

(petrol, diesel and oil). Electricity and fuel contribute 90% and 10% respectively of total energy consumption. TE achieved a 4,1% improvement on electricity savings and 5,07% improvement in fuel savings in 2019. Improvement in electricity savings are attributable to less operational man-hours worked during the financial year. Fuel savings are attributed to a reduction in mileage covered by the TE fleet.

• Opportunities for further energy savings are in the planning stages. Initiatives include the installation of solar PV in all TE office blocks as well as producing less energy-consuming plants. Inefficient energy utilisation including heat ventilation, air conditioning, refrigeration and lighting systems will be phased out and replaced with energy-efficient systems. The phasing out process is dependent on the availability of budget.

Water management • TE continues to monitor, mitigate, and prevent contamination

and overexploitation of water resources at all its operations countrywide through continual effluent, ground water and surface water monitoring. TE is in the process of conducting water audits, storm water assessments and developing integrated water quality management plans to ensure that water leaks (wastage) are detected. Furthermore, improved accounting of water consumption and water-saving initiatives are planned in the coming years.

Pollution management • In an effort to prevent, control and mitigate pollution, TE has

cleaned up 80 m2 of historical hydrocarbon pollution at its Germiston factory, and continues to explore feasible options of cleaning up historical asbestos pollution. In an effort to clean up and remediate asbestos contaminated sites, a service provider was appointed to conduct optioneering on feasible options to remediate asbestos contamination at the Koedoespoort factory. Once feasible options have been identified and confirmed for suitability by Department of Environmental Affairs, remediation will be undertaken.

• TE continues to monitor compliance with atmospheric emission licences for its Bloemfontein and Koedoespoort foundries as per the National Environmental Management Air Quality Act. Atmospheric emission monitoring for Koedoespoort could not be executed as planned due to procurement delays, however, other licence conditions continue to be met. Engagements with relevant authorities continue to take place to ensure that they are notified of progress and challenges in pursuing full compliance.

Community development (social accountability)At the heart of the division’s corporate social investment initiatives is the commitment to uplift the lives of communities in areas where TE operates. To ensure maximum impact of its socio-economic development interventions, TE focuses its resources on the following areas:• Education• Socio-economic infrastructure development• Employee volunteerism• Sports• Health

Highlights for the reporting period included the donation of 12 containers to the Free State government to benefit poor and vulnerable communities in the province. These containers were re-purposed for several community development applications such as libraries, classrooms, ablution facilities and makeshift informal trading stores.

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Key risks Mitigating activities

Renewal of Atmospheric Emissions Licence for Koedoespoort Foundry facility as a result of non-compliance with specific conditions of the Air Emission Licence and a directive that was issued regarding non-compliance

• Service provider to monitor and report to the authority that has been appointed. Reporting to the authority to start at the end of June 2019

• Continuous engagements with the authority regarding progress made on initiatives that need to be implemented to ensure compliance is taking place

• Permanent solution required to monitor pollution from foundry facility is currently being investigated

There is a possibility of a fine or penalty as a result of pollution that emanated from one of the TE depots in Durban during the storm that occurred on 23 April 2019. As a result of heavy downpours, a Kingsrest Effluent Plant overflowed, drained into a nearby stream and resulted in significant pollution. The City of eThekwini issued a contravention notice after an inspection was conducted on 10 May 2019

• A clean-up is being undertaken through a contracted service provider• Interim measures to prevent reoccurrence of the incident have been

identified and will be implemented• Permanent measures to prevent reoccurrence are currently being

investigated• Engagements with relevant authorities are taking place to provide progress

on measures being implemented and investigations

Opportunities• New rail corridors are being developed within sub-Saharan

Africa allowing Engineering to exploit these markets with the supply of rolling stock.

• Offering of funding packages for rolling stock procurement to customers in targeted markets.

• New discoveries of bulk commodity mines across the world provides for an expanding market.

• Mining companies purchasing their own rolling stock and not relying on traditional railway operators.

• Rolling stock overhauls and upgrades will continue to be strong in Africa and this provides an opportunity to sell refurbished rolling stock.

• The ability to offer turnkey products and services solutions for locomotives, wagons and maintenance to customers – very few competitors have the ability to do so.

• Leverage on technical skills to offer both manufacturing and maintenance and services of port equipment.

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Abbreviations and acronymsDIFR Disabling injury frequency rate

EBITDA Earnings before interest, taxation, depreciation and amortisation

IRIS Intelligent Real-time Information Services

LCMS Locomotive Condition Monitoring System

OEM Original equipment manufacturer

R&D Research and development

SOC State-owned company

TE Transnet Engineering

Transnet Engineering 2019 11

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