8335 2 Transnet 2017 Engineering · value by attracting talent, fostering innovation and building...

ENGINEERING 2017

Admired

Agile

Digital

United

Market Demand Strategy (MDS) Icons key

Financial sustainability

Organisational readiness

Capacity creation and maintenance

Sound governance and ethics

Market segment competitiveness

Constructive stakeholder relations

Human capitalmanagement

Operational excellence

Sustainable Developmental Outcomes

Sustainable Developmental Outcomes (SDOs)

Employment Transformation

Skillsdevelopment

Health and safety

Investment leveraged

Environmental stewardship

Industrial capability building

Community development

Regional integration

The Capitals

Financial capital Human capital

Manufactured capital Social and relationship capital

Intellectual capital Natural capital

Performance KeyImprovement on prior year performance Target achieved

Decline on prior year performance

Target partially achieved

Equivalent performance to prior year Target not achieved

MDS strategic thrustsMaterial clusters

Build social trust through ethical leadership and corporate citizenship

Unlock organisational value by attracting talent, fostering innovation and building unity

Ensure long-term financial stability in a tough economy

Ensure customer-centricity and build partnerships for sustainable growth

Promote transformation and growth in the wider South African economy

A

A

Navigating this report

CONTENTS

HIGHLIGHTS 1

BUSINESS OVERVIEW 2

REGULATORY ENVIRONMENT 4

The African Markets 4

PERFORMANCE CONTEXT 5

OPERATIONAL PERFORMANCE 6

Core initiatives for 2017 6

Overview of key performance indicators 7

Financial performance review 9

PERFORMANCE COMMENTARY 10

Financial sustainability 10

Looking ahead 11

Capacity creation and maintenance 11

- Africa Expansion 11

- TE and CRRC Joint Venture 11

- Transnet CSIR Partnership 11

Looking ahead 12

Market segment competitiveness 12

Looking ahead 13

Operational excellence 13

Looking ahead 13

Human capital 13

Organisational readiness 14

- High-performance culture 14

- Skills development 14

Health and Safety 15

Governance and ethics 16

Environmental stewardship 16

- Environmental Management System (ISO 14001) 16

- Waste management 16

- Water management 16

- Energy Efficiency Programme 16

- Pollution Management 17

Social accountability 17

TRANSNET ENGINEERING’S TOP 5 RISKS AND KEY MITIGATING ACTIVITIES

17

OPPORTUNITIES 18

ABBREVIATIONS AND ACRONYMS 19

CORPORATE INFORMATION 20

1TRANSNET Engineering 2017 1

Revenue earned from external customers remained strong at R1,6 billion.

Revenue earned R1,6 billion.

A rate of 99,4% availability of critical equipment exceeded the target of 98%.

99,4% availablity of critical equipment

A rate of 98,3% preventative maintenance exceeded the target of 98%.

98,3% preventative maintenance

Focused cost management initiatives reduced total operating costs by 4,9% to R9,8 billion, from R10,3 billion in the prior year.

Reduced total operating costs

HighlightsHighlights

ENGINEERING

Transnet Engineering’s success depends on agile innovation, which TE believes, comes only when deep-rooted expertise and inspired ideas are merged with hard work. It is from this impetus that Transnet Engineering’s Research and Development Business was fostered.

TE is focused on facilitating Transnet’s expansion into Africa and global markets. The Division will further direct its collective expertise to the creation of innovative products conceived, researched, designed and built in Africa for African markets, and beyond, in response to the full range of conditions pertinent to those environments.

1 Transnet Engineering’s Vision 2021 is an enabling framework to support its product and service expansion into the rest of Africa.

With over 11 000 employees, six main plants (factories) and 143 depots across South Africa, Transnet Engineering is strategically positioned to ensure maximum service opportunities for its customers. The six main plants are located in Bloemfontein, Durban, Johannesburg (Germiston), Pretoria (Koedoespoort), Cape Town (Salt River), and Uitenhage. Smaller depots are arranged as satellite operations around the main centres of excellence, thus bridging the gaps between the customers’ locations and the organisation, within Southern Africa.

In response to Transnet SOC’s Market Demand Strategy (MDS) goals, TE developed and is currently implementing its new strategy and Vision: ‘2021’ 1.This vision aims to establish the Division’s position as a major enabler of economic growth in Africa. The comprehensive strategy includes geographic expansion and regional integration, along with skills and knowledge transfer as vital components.

Transnet Engineering (TE) has a rich and proud history of outstanding supply and service to South Africa’s railway networks, that dates back more than 150 years. Today, the organisation proudly continues in its role as a leading manufacturer of rail [stock] products and has also expanded its networks of satisfied customers well outside the borders of South Africa. As the Transnet SOC advanced manufacturing division, Transnet Engineering has dedicated its formidable human and capital resources to the research, design, manufacturing, remanufacturing and maintenance of its products, namely: locomotives, freight wagons and passenger coaches.

Business overview

TRANSNET Engineering 20172

3TRANSNET Engineering 2017 3F

igu

re 1

Transnet Engineering’s geographic spread

Central RegionEastern RegionWestern RegionTransnet Engineering factories

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

KomatipoortKaapmuiden

Nelspruit

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

NorthcorCapecorSouthcorNatalcorR. BaycorN. WestcorEastcorN. EastcorSishen-SaldanhaSentracorSouth East CorWestcorFreestateNamibia

TE’s expansion into the Continent requires an understanding of the various regulatory requirements in the countries the Division will be operating in. Accordingly, environmental analyses are being conducted in these countries to mitigate potential risks to the successful penetration of these markets.

The African marketsTransnet Engineering’s Vision 2021 is an enabling framework to support its product and service expansion into the rest of Africa. To date, various memoranda of understanding have been signed with partner countries for advanced manufacturing solutions, thereby evidencing the growing interest in Transnet’s products and services on the Continent.

TE adheres to 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 and oversees safety in the railway industry, of which Transnet and PRASA are signatories. According to the Act, Transnet Engineering’s role, among others, is to comply with the provisions of the Act, rail safety standards, as well as to notices of nonconformance and non-compliance issued by the Regulator. Transnet Engineering has an obligation to oversee and promote safe railway operations through appropriate support, monitoring and enforcement.

Regulatory environment



The strategic imperative of becoming a preferred Maintenance, Remanufacturing and Overhaul (MRO) partner for rail and related equipment on the African Continent implies TE being:• An Original Equipment Manufacturer (OEM) of

world-class rolling stock and logistics equipment;

• A leading Enterprise in driving Economic Development and Growth in Sub-Saharan Africa; and

• A Centre of Excellence for Technical and Engineering Skills Development in Africa.

In executing Vision ‘2021’, which complements the MDS, Transnet Engineering is employing a model that will allow it to become the preferred supplier of rolling stock engineering solutions for rail and ports equipment across the continent.

Performance context

Core initiatives for 2017

Operational performance

Reduction of operating expenses by approximately R700 million, while maximising on potential and planned revenue opportunities.

Expansion of Engineering’s footprint in the rest of Africa by setting up maintenance workshops in targeted countries.

Roll-out of advanced traction motor designs.

Establishing world-class motor test facilities.

Transnet Engineering has developed a new operational model centred on strong project management, including four core organisational areas that represent the key value chain of the business:

Supply Management organisation – from sourcing of materials and components to procurement and payment; and responsible disposal.

Manufacturing organisation – converting raw material and base components to final products of high quality.

Maintenance organisation – from condition monitoring to sustainable in-service availability.

Trading organisation – from the opportunity to lead generation to order placement, contracting and on time delivery.

Reduction

Expansion

Roll-out

Test facilities

Supply Managementorganisation

Manufacturingorganisation

Maintenance organisation

Tradingorganisation



Overview of key performance indicators

2016 2017 2017 2018Key performance area and indicator Unit of measure Actual Target Actual Target


EBITDA margin % 3,6 4,2 4,9 (5,3)

Operating profit margin % 0,5 1,4 (9,5) (9,1)

Gearing % 56,6 62,9 73,7 86,8

Net debt to EBITDA times 11,4 14,5 (32,6) (20,8)

Return on average total assets % 0,5 1,2 (6,59) (6,7)

Asset turnover times 0,97 0,90 0,69 0,73

Cash interest cover times (0,7) 0,4 (1,0) (0,6)

Total revenue R million 10 734 11 340 9 380 9 508

– External R million 1 356 3 750 1 622 2 962

– Internal R million 9 378 7 590 7 758 6 546


Capital expenditure R million 1 002 1 185 945 860

Planned maintenance R million 243,8 230 203 196


Train cancellations due to traction % 1,54 6,0 5,0 6,0

Net volume lost due to traction mt 0,63 2,16 7,0 7,0

Traction delays % 8,94 40,00 6,5 40

Human capital

Training spend % of personnel cost 2,35 3,0 3,63 3,0

Employee turnover % 7,27 6,00 5,4 6,00

Employee headcount permanent 10 969 11 220 11 731 10 310

Revenue per employee R million 0,98 1,01 0,80 0,92

Overview of key performance indicators (continued)

2016 2017 2017 2018Key performance area and indicator Unit of measure Actual Target Actual Target

Transformation

Total blacks % 79,7 80,0 80,2 88

Total females % 22,3 40,0 22 30

Total people with disability % 1,6 3,0 1,4 3,1

Skills development

Apprentice trainees headcount 102 250 250 200

Technician trainees headcount 113 30 43 30

B. Engineering trainees headcount 40 20 22 20

Sector specific headcount 271 250 514 250

Training spend % 2,35 3,0 3,6 3,0

Risk, safety and health

Cost of risk % of revenue 1,59 5,00 1,9 5,00

DIFR rate 0,45 0,75 0,61 0,74

Regional integration

Africa sales revenue R million 319 1 250 227 1 250

Industrial capability building

R&D costs R million 207 310 185 267



Financial performance review for the 2017 financial year

Year ended Year ended31 March 31 March

2017 2016 %Salient features R million R million change

Revenue 9 380 10 734 (12,6)

– Internal 7 758 9 378 (17,3)– External 1 622 1 356 19,6

Operating expenses (9 837) (10 345) (4,9)

– Energy costs (213) (208) 2,4– Maintenance (203) (244) (16,8)– Materials (3 584) (4 506) (20,5)– Personnel costs (5 033) (4 579) 9,9– Other (784) (808) (3,0)

Profit from operations before depreciation, derecognition, amortisation and items listed below (EBITDA) (457) 389 (117,5)Depreciation, derecognition and amortisation (437) (334) (30,8)

Profit from operations before items listed below (894) 55 (1 625,5)Impairments and fair value adjustments 2 (15) 113,3Net finance costs (715) (463) 54,4

Profi t before taxation (1 607) (423) (279,9)

Total assets (excluding CWIP) R million 15 289 11 840 29,1

Profitability measuresEBITDA margin1 % (4,9) 3,6 (8,5)Operating margin2 % (9,5) 0,5 (10,0)Return on average total assets (excluding CWIP)3 % (6,59) 0,50 (6,09)Asset turnover (excluding CWIP)4 times 0,69 0,97 (28,9)Capital investments5 R million 945 1 002 (5,7)

EmployeesNumber of employees (permanent) number 11 731 11 377 3,1Revenue per employee R million 0,80 0,94 (14,9 )

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 assets

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.6 Not reported.

Performance commentary


• Transnet Engineering’s total revenue of R9,4 billion for the year, (2016: R10,7 billion) is 12,6% lower than the prior year. In light of Transnet’s capital optimisation programme, the demand for new rolling stock built for Transnet Freight Rail (TFR) was reduced. This resulted in a 17,3% reduction in revenue from TFR to R7,8 billion (2016: R9,4 billion).

• Despite the deteriorating economic outlook both in the country and the rest of Africa, demand for TEs products resulted in an increase in external revenue by 19,6% to R1.6 billion (2016: 1.4 billion).

• As a result of ongoing cost containment initiatives operating expenses were reduced by 4,9% to R9,8 billion (2016: R10.3 billion). Other operating expenses, excluding labour costs, were reduced by 16,7% to R4.8 billion (2016: R5.8 billion), despite the upward inflationary environment experienced in the economy.

• As a result EBITDA for the reporting period was a R457 million loss (2016: R389 million profit).

Engineering’s total revenue

External revenue

Variance 19,6 %

Variance 12,6%

Key

Improvement on prior year performance


Equivalent performance to prior year

Target achieved


Target not achieved

Actual (2016)

Target (2017)

Actual(2017)

R11,3 billion

R10,7 billion

R9,4 billion

Actual (2016)

Target (2017)

Actual(2017)

R3,75 billion

R1.4 billion

R1.6 billion



TE and CRRC Joint Venture

• The Joint Venture is based on a Co-Operation Agreement between China Railway Rolling Stock Corporate (CRRC) and Transnet whereby both parties agree to manufacture, remanufacture or upgrade traction systems which include the following eight major components:

– Traction Motors – Traction Convertors – Traction Motor Blowers – Cooling Towers – High Voltage Cubicles – Low Voltage Cubicles – Combos and Pantographs

• TE employees will receive training related to the above-mentioned components from CRRC, thus increasing its technical capacity and contributing towards its OEM ambitions.

• As part of the 1064 project and previous locomotive supply agreements, Transnet has procured 554 Electric Locomotives from CRRC (CSR). CSR, as the primary Contractor, has supplied 95 sets of 20E, 100 sets of 21E and is currently supplying 359 sets of 22E locomotives to Transnet from 2014 to 2018.

Transnet and CSIR Partnership

• Following on from the success of the three-year MOU TE signed with the Council of Scientific and Industrial Research (CSIR) in 2013, which resulted in the development of the first African locomotive, the Trans Africa Locomotive (TAL), a further MOU was signed in 2017.

• The new MOU signed with CSIR pertains to the entire Transnet and will encourage innovation in all Divisions.


• Capital expenditure for the year was 20,3% below the budget of R1,2 billion at R945 million, due to project optimisation and savings.

• The Division continued with the implementation of the locomotive maintenance strategy and technology advancements improvement.

• Maintenance and Services business includes: – Wheel Business – Assembly of new and

remanufactured wheels for the Locomotive, Wagon and Coach Businesses.

– Rotating Machine Business – Remanufacturing of electrical and mechanical rotating machines in the rail and ports industry for the Locomotive and Coach Businesses, as well as for other external customers.

– Foundry Business – Casting components for assembly for the Locomotive, Wagon and Coach businesses.

– Leading Knowledge and Know-how – due to partnerships/ Joint ventures with leading OEMs.

African expansion

• TE further expanded its footprint in the rest of Africa by setting up maintenance workshops in targeted countries. The Division has signed Memoranda of Understanding (MOU) with several African countries, such as Tanzania, Zambia and the Democratic Republic of Congo (DRC); the intent of which is for TE to supply and maintain rolling stock as well as provide skills transfer.

• The expansion of Transnet Engineering’s footprint into the African market has been slower than expected. Legislative and policy hurdles have curtailed its progress, (including costs associated with moving employees outside the country) reducing the competitiveness of our endeavours.

• TE expects to increase its revenue by 1%, to R9,5 billion in the coming financial year. Growth will largely be achieved from external customers mostly in the locomotive build programme, as well as growth in the Africa market share, where over R1 billion sales is expected.

• TE has enhanced its strategic focus to increase its footprint in the continent.• Cost optimisation and reduction initiatives will be reviewed to ensure implementation happens

sustainably.

Looking ahead

2018

• Revenue Diversification through training, and maintenance consulting services.• Provision of remote, technical, and field service support to customers as part of warranty maintenance

services.• Roll-out of fleet condition monitoring services.• Provision of spare parts and logistics support.• New Product Development.• Reduction of outsourcing costs.• External funding and partnering with funding houses.• Through newly registered Transnet International Holdings, TE will forge ahead with the expansion of

its footprint in the rest of Africa.

Looking ahead

2018

Market segment competitiveness

• Transnet Engineering successfully completed development, researching, designing, prototyping, testing and commission of the TransAfrica Locomotive. The completion of testing and commissioning of the Trans-Africa Locomotive was also a success.

• TE concluded designing, developing and prototyping the locomotive condition monitoring system, which is used for condition monitoring and asset-based maintenance of locomotives.

• The division is currently finalising development of Transnet’s Industrial Internet of Things (IoT) platform (IRIS - Intelligent Real-time Information Services).

• TE completed the prototype of a scaled model of Transnet’s own traction motor, and• Successfully designed, developed and prototyped various Africa wagons.

Completed development and prototyping TransAfrica locomotiveLocomotive condition monitoring system

Transnet’s Industrial Internet of Things (IoT)

Traction motor

Africa wagons



Permanent employee headcount

Variance 6,9%

Human capital

• Transnet Engineering achieved a permanent employee headcount of 11 731 against a target of 11 220.

• Black employees represented 80,2% of the total employee base (target: 80%).

• Female employees represented 22% of the total employee base (target: 40%).

• People with disabilities represented 1,4% of the total employee base (target: 3%).

Key

Improvement on prior year performance


Equivalent performance to prior year

Target achieved


Target not achieved

Black employees represented 80,2% of the total employee base (target: 80%).

Female employees represented 22% of the total employee base (target: 40%).

People with disabilities represented 1,4% of the total employee base (target: 3%).

22%

1,4%

80,2%


• Developing control systems for diesel and electric locomotives as well as the Diesel Multiple Units (DMUs) and Electric Multiple Units (EMUs).• TE continued to develop motors for different applications.• TE is developing an integrated productivity measurement system.

• Roll-out of advanced traction motor designs.• Establishing world-class motor test facilities.• Introducing various initiatives with regards to the motor development.• Introducing flexible design strategies capable of adapting to different market needs.

Looking ahead

2018

• TE will research and develop the next versions of the:• Trans-Africa Locomotive;• Passenger coach transportation (MC-25); and• Train Control and Monitoring System (TCMS).

• Production of an energy storage system for application on waysides and in factory/workshop environments.

• Development of a standard gauge wagon bogie.

Looking ahead

2018

Actual (2016)

Target (2017)

Actual(2017)

11 220

10 969

11 731

Organisational readiness

High-performance culture and environment

Transnet Engineering has established Operational Efficiency Committees to drive key business strategic objectives focusing on effective labour utilisation and maximising outputs with current resources. This includes having the appropriate people and skills, managing attrition, optimising outputs from fixed-term contractors and closely managing discretionary overtime.

Skills development

• Training spend for the year – as a percentage of total labour costs – was 3,4%, against a target of 3%.

• A minimum of 3 482 employees were trained during the period under review.

• The School of Engineering received the Best Skills Development Award during the 2016 Africa Rail Conference.

• 250 Learners were recruited for training as apprentices in various trades.

Training spend

250 Learners recruited

Best Skills Development Award

3 482 employees

Operational Efficiency Committees



Health and safety

The Division’s health and safety management system complies with Occupational Health and Safety Assessment Series (OHSAS) 180011 requirements and integrates the railway safety management system. During the 2017 financial year the following National Businesses were audited and certified on the OHSAS 18001 System:

TE has implemented additional initiatives aimed at improving health and safety, which include:• Hazardous chemical substances management

Assessment of toxicity levels and decanting of hazardous chemicals has been concluded, and guidelines for management of hazardous chemical substances in TE have been established to ensure a standard approach.

• Proper Management of Confined Space WorkThe Drafting of a Standard Operating Procedure (SOP) for the management of working in confined spaces in TE was completed, and implementation is underway. During the 2018 financial year, the focus will be on training of all employees working in confined spaces. Defining emergency rescue systems and procedures will follow during the 2018 financial year.

• Wagons• Locomotives• Coaches• Wheels• Rotating Machines• Rolling Stock Equipment

• Fire Management and Risk AssessmentsFire is recognised as a significant risk, which must be properly managed to protect company assets and ensure the safety of employees. A fire management standard and related SOPs have been concluded for implementation. Furthermore, Fire Risk Assessments continue to be conducted to deploy proper control measures to mitigate against fire risks.

• Safety Behavioural Risk AssessmentsSafety behavioural risk assessment aimed at subjecting employees in safety-critical grades to a comprehensive psychological assessment are currenctly being conducted. This will give TE an indication of psychosocial and behavioural disorders that might impact on their ability to perform safety critical work. All service drivers and employees in railway safety critical grades have been subjected to these assessments, and this will be extended to other employees in 2018.

1 Occupational Health and Safety Management systems certification.

• Ports• School of Engineering• Plant, Equipment and Machinery Maintenance• Product Development• Foundry

Governance and ethics

The implementation of Transnet’s MDS has brought about fundamental changes to Transnet’s business processes and its internal control environment. MDS initiatives have introduced new emerging risks to the business environment. This has necessitated that Transnet Engineering ensures these risks are properly mitigated.

A pilot Ethics Risk and Climate Assessment was conducted as part of the Fraud Risk Management Plan during the 2017 financial year.

Environmental stewardship

• Environmental Management System (ISO 140011)Transnet Engineering has implemented the Safety, Health, and Environmental Integrated Management System (SHE IMS), in line with the requirements of OHSAS 180012, ISO 140013 and SANS 3000-14 (Railway Safety). Certification Audits were conducted during the 2017 financial year for the following TE businesses: Wagons, Locomotives, Coaches, Wheels, Rotating Machines, Rolling Stock Equipment, Ports, School Of Engineering, Plant, Equipment and Machinery Maintenance, Product Development, and Foundry, to assess the level of compliance with standard requirements. These businesses were confirmed to be compliant and were officially certified on ISO 14001 (Environmental Management) and OHSAS 18001 (Health and Safety Management). It is important for TE to maintain the standard and remain certified going forward.

• Waste ManagementTE’s main objective with respect to waste management is to be environmentally responsible and compliant with regulations, by reducing the quantities of waste going to landfill sites and ultimately reducing waste transportation and disposal costs. Waste minimisation and recycling initiatives are on-going at all TE main Centres. This includes education and awareness training in order to change behavior and embed a culture of waste separation in all businesses. Waste management contractors are being closely monitored to ensure they comply, as well as assist Transnet Engineering in complying, with waste management regulations and requirements. All Waste Contractors were audited during the 2nd Quarter of 2016/17 financial Year. Areas of noncompliance continue to be addressed, and monitoring is on-going.

• Water ManagementTransnet Engineering assessed all its water use activities during the financial year, and only Koedoespoort and Durban were confirmed to have water use activities. The two regions commenced the water use license application processes with regional Water and Sanitation Departments and are awaiting responses on the applications. TE responded to the water crisis in the country by rolling out a nationwide of water saving awareness campaign and has plans to implement water saving initiatives in the coming financial year.

• Energy Efficiency ProgrammeTE commenced with the development of an Energy Management System (ISO 50001) to improve energy efficiency in the business. The Rolling Stock Equipment (RSE) Business is the pilot site for implementation. This project will continue into the coming financial year.

1 ISO 14001:2015 sets out the criteria for an environmental management system and can be certified to. It maps out a framework that a company or organisation can follow to set up an effective environmental management system.

2 Occupational Health and Safety Management systems certification.3 SANS 3000-1 is the South African National Standard for Railway safety management.4 ISO 50001:2011 specifies requirements for establishing, implementing, maintaining and improving an energy management system, whose purpose

is to enable an organisation to follow a systematic approach in achieving continual improvement of energy performance, including energy efficiency, energy use and consumption.

Officially certified on ISO 14001 and OHSAS 18001

Environmentally responsible

License application processes

Development of an Energy Management System

Fundamental changes to Transnet’s business processes



• Pollution ManagementSoil assessments were conducted at all 11 of TE’s historically contaminated sites, revealing a continued need for groundwater monitoring, annually. The remaining recommendations are currently being implemented. In addition, pollution has also been monitored through regular inspections and auditing.Several alternatives, including non-landfill options such as waste stabilisation and in situ1 treatment for the handling of historical Asbestos pollution in Koedoespoort, were assessed during the year. The project has been integrated into the Transnet Asbestos Project, which is considering a remedial solution for Transnet.Both Transnet Engineering Foundries in Koedoespoort and Bloemfontein have obtained preliminary Atmospheric Emission Licenses (AEL) with the Tshwane and Mangaung Municipalities respectively during the 2017 financial year. The final licenses expected after the relevant authorities have completed internal processing procedures. 80% of the recommendations emanating from the Air Quality Study and Analysis, concluded during the 2016 financial year for both Foundries, have been implemented. TE will continue implementing the remaining recommendations into the coming financial year.

Social accountability

The Division endeavors to align its social contributions with the most critical needs of communities where it operates. Education and health remain a top priority for social investment initiatives.

Desks were donated to underprivileged schools nationally, as part of the continuing initiative: “Build a Desk, Build a learner.” Career Expos were also held nationally at various high schools to assist learners with career guidance and provide exposure to the various career paths catered for through Transnet operations.

Transnet Engineering also donated refurbished containers that were converted into libraries and other facilities, to assist in school operations. Schools were also painted and maintenance repairs were done to create a more conducive learning environment in underprivileged schools. Additionally, the Division assisted underprivileged schools nationally by providing dignity packs, school uniforms, shoes and stationery.

Social investment initiatives

Desks donated to underprivileged schools

Initiative: “Build a Desk, Build a learner.”

Engineering’s top 5 risks and key mitigating activities

Key risks Mitigation activities

1. Market competitiveness • Execute projects on time and deliver enhanced value propositions to the client.• Manage operational excellence and quality of projects and products.

2. Ensure that all processes for registering new products and innovations with the Patents office are fully adhered to

• Ensure that patents against all new products and innovations are fully registered to protect our Intellectual Property.

3. Lack of organisational market intelligence • Design a framework and supporting tools for entering markets in new countries, including mechanisms of market development, market penetration, situational market segmentation and market expansion.

4. Adverse economic conditions • Cost optimisation and strengthened relationships with investors, strategic partners and customers.

5. Supply-chain management process conflicts with strategy

• Build a supplier network and develop suppliers into a long-term sustainable OEM supply chain system, while building targeted market capabilities.

• Enhance current detailed Procurement Procedures Manual (PPM) to support an appropriate supply chain and manufacturing operating system.

1 On-site contaminated sand remediation.

• The ability to package locomotives, wagons and maintenance services as a product offering to customers, remains a competitive niche.

• TE is also exploring opportunities in the Ports business and has already started to develop a variety of products for TPT such straddle carriers and more.

• Transnet Engineering will focus on new rail corridors being developed within sub-Saharan Africa, allowing the division to exploit these markets with the supply of rolling stock.

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

• Rolling stock overhauls will continue to be in high demand in Africa, and this provides an opportunity to sell remanufactured rolling stock.

Opportunities



AEL Atmospheric Emission Licenses

CWIP Capital work in progress

CRRC China Railway Rolling Stock Corporate

CSIR Council for Scientific and Industrial Research

CSR China South Rail

DIFR Disabling injury frequency rate

DMU Diesel Multiple Unit

DRC Democratic Republic of Congo

EBITDA Earnings before interest, taxation, depreciation and amortisation

EMU Electric Multiple Unit

IoT Internet of Things

IRIS Intelligent Real-time Information Services

MDS Market Demand Strategy

MOU Memorandum of Understanding

MRO Maintenance Repair and Overhaul

OEM Original Equipment Manufacturer

PPM Procurement Procedures Manual

PRASA Passenger Rail Agency of South Africa

R&D Research and Development

RSE Rolling Stock Equipment

SHE IMS Safety, Health and Environmental Integrated Management System

SOC State-owned company

SOP Standard Operating Procedure

TAL Trans Africa Locomotive

TCMS Train Control and Monitoring System

TE Transnet Engineering

TFR Transnet Freight Rail

ABBREVIATIONS AND ACRONYMS

Reporting formats Forward-looking informationAll references to forward–looking information and targets in the 2017 reports are extracted from the 2018 Transnet Corporate Plan approved by the Board of Directors.

Transnet ’s Integrated Report 2017, Annual Financial Statements 2017 and Sustainability Report 2017 are available in PDF on www.transnet.net.

Feedback on this reportWe welcome feedback on our Engineering Operating Division Report to ensure that we continue to disclose information that is pertinent to all our stakeholders.

Available in print format and full HTML report

The 2017 Integrated Report is the Company’s primary report to all stakeholders.

Integrated Report 2017

Available onlinein PDF format

The 2017 Annual Financial Statements includereports of the directors and independent auditors.

The 2017 Sustainability Report documentsTransnet’s sustainability performance in greaterdetail.

Annual Financial Statements2017

SustainabilityReport2017

Operating DivisionReports2017

Integrated Report 2017

Transnet SOC Ltd47th Floor, Carlton Centre150 Commissioner StreetJohannesburg2001

Incorporated in the Republic of South Africa.Registration number 1990/000900/30

Executive directorsSI Gama (Group Chief Executive)GJ Pita (Chief Financial Officer)

Independent non-executive directorsLC Mabaso (Chairperson), Y Forbes, GJ Mahlalela, PEB Mathekga, ZA Nagdee, VM Nkonyane, SD Shane, BG Stagman

Group Company SecretaryNE Khumalo

47th Floor, Carlton Centre150 Commissioner StreetJohannesburg2001

PO Box 72501Parkview2122South Africa

AuditorsSizweNtsalubaGobodo Inc.20 Morris Street EastWoodmeadJohannesburg2191

The Internal Audit function has been outsourced to SekelaXabiso (Pty) Ltd, Nkonki Inc. and KPMG Services (Pty) Ltd.

SekelaXabiso (Pty) Ltd1st Floor, Building 22BThe Woodlands Office Park20 Woodlands DriveWoodmeadJohannesburg

Nkonki Inc.3 Simba RoadSunninghillJohannesburg

KPMG Services (Pty) Ltd85 Empire RoadParktownJohannesburg

CORPORATE INFORMATION


www.transnet.net

8335 2 Transnet 2017 Engineering · value by attracting talent, fostering innovation and building...

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