olume 2 tements 2015 · olume 3 t ansnet.net ated report 2015, annual financial statements 2015 and...

ANNUAL FINANCIAL STATEMENTS 2015VOLUME 2

ANN

UAL FINAN

CIAL STATEMEN

TSwww.transnet.net

ANNUAL FINANCIAL STATEMENTS 2015VOLUME 2

ANN

UAL FINAN

CIAL STATEMEN

TSwww.transnet.net

INTEGRATED REPORT 2015VOLUME 1

INTEG

RATED REPORT

www.transnet.net

Perform

ance highlights 1

Approval of the annual financial

statements

2G

roup company secretary certificate

3Independent auditor’s report

4A

udit Com

mittee report

8R

eport of the Directors

14A

ccounting policies44

Annual financial statem

entsIncom

e statements

70Statem

ents of comprehensive incom

e71

Disclosure of components of other

comprehensive incom

e72

Statements of financial position

73Statem

ents of changes in equity74

Statements of cash flows

75Segm

ental report76

Notes to the annual financial statements

78Annexure A

122Annexure B

140Annexure C

142Annexure D

144Annexure E

148Annexure F

150Annexure G

151A

bbreviations and acronyms

157G

lossary of terms

158C

orporate information

159

Volum

e 1The Integrated Report 2015 is the Com

pany’s primary

report to all stakeholders.

Volum

e 2The Annual Financial Statem

ents 2015 include reports of the independent auditors and directors.

Volum

e 3The Sustainability Report 2015 docum

ents Transnet’s sustainability perform

ance.

CO

NTEN

TS

SUSTAINABILITY REPORT 2015VOLUME 3

SUSTAIN

ABILITY REPORT

www.transnet.net

Transnet ’s Integrated Report 2015, Annual Financial Statem

ents 2015 and Sustainability Report 2015 are available in PDF on www.transnet.net and via this QR code on m

obile devices.

Feedback on the reports is encouraged.

Throughout the reports, readers are referred to places where they can find m

ore detail on particular topics, using these pointers

IR >

Refer to V

olume 1

for more inform

ation

AFS

> R

efer to Volum

e 2 for m

ore information

SR >

Refer to V

olume 3

for more inform

ation

Forward-looking inform

ationAll references to forward-looking inform

ation and targets in the 2015 reports are extracted from

the 2016 Transnet Corporate Plan approved by the Board of Directors.

Revenue

increased by 8,0%

to R61,2 billion.

EBITD

Aincreased by 8,2%

to R

25,6 billion.

Capital investment

increased by 5,7%

to R33,6 billion.

Cash generated from

operations after

working capital changes

increased by 21,1%

to R30,6 billion.

Gearing of 40,0 %

and cash interest cover at 3,6 tim

es.

Overall grow

th in real volum

es of 7,7%

to 226,6mt.

PERFO

RM

AN

CE H

IGH

LIGH

TS

20152014

20132012

2011 3,9

4,2

3,7

3,7

3,6

CASH

INTER

EST C

OVER

(TIMES)

Minim

um3,0

20152014

20132012

2011 19 420

25 808

33 449

38 848

45249

B-B

BEE SP

END

AS P

ER

DTI C

OD

ES (R M

ILLION

)

20152014

20132012

2011

EBITD

A(R

MILLIO

N)

12,9%

20152014

20132012

2011 21 504

22 259

27 471

31 766

33 565

CAP

ITAL IN

VESTM

ENT

(R M

ILLION

)

11,8%

20152014

20132012

2011 37 952

45 900

50 194

56606

61 152

REV

ENU

E(R

MILLIO

N)

20152014

20132012

2011 41,1

41,9

44,6

45,9

40,0

GEA

RIN

G (%

)

Maxim

um50,0

15 763

18 882

21 051

23 639

25 588

| 1

Transnet’s reporting for 2015 consists of three reports

12,7%

23,8%

Directors’ responsibilities

The Board of Directors is required, by the Companies Act, No 71 of 2008 of South Africa (Com

panies Act), and the Public Finance M

anagement Act No 1, 1999, of South Africa (PFM

A), to prepare annual financial statements

which fairly present the state of affairs of Transnet SOC Ltd (Transnet or the Company) and its subsidiaries (the

Group) as at the end of the financial year, the profit or loss and cash flows of the Company and the Group for

the financial year then ended.

In preparing these annual financial statements, the directors are required to:

• Select suitable accounting policies and apply them consistently;

• Make judgem

ents and estimates that are reasonable and prudent;

• State whether applicable accounting standards have been followed; and• Prepare the annual financial statem

ents on the going-concern basis unless it is inappropriate to presume

that the Company and/or the Group will continue in business for the foreseeable future.

The Board of Directors of the Company is responsible for the m

aintenance of adequate accounting records, m

aintenance of appropriate systems of internal control as well as the preparation and integrity of the annual

financial statements and related inform

ation.

Directors’ statem

entsThe Audit Com

mittee has evaluated the Com

pany and Group annual financial statements and has recom

mended

their approval to the Board of Directors. In preparing the Company and Group annual financial statem

ents, the Com

pany and the Group have complied with International Financial Reporting Standards (IFRS) and the

Companies Act. In addition, the Group has com

plied with the reporting requirements of the PFM

A, except as set out in the Report of the Directors on pages 28 to 30.

The Group has used appropriate accounting policies supported by reasonable and prudent judgments and

estimates. Judgem

ents and estimates m

ade in the application of IFRS, that have a significant impact on the

annual financial statements are disclosed in the notes to the annual financial statem

ents.

The Board of Directors have every reason to believe that the Company and Group have adequate resources and

facilities in place to be able to continue in operation for the foreseeable future. Therefore, the Board of Directors is satisfied that Transnet is a going concern and have continued to adopt the going-concern basis in preparing the annual financial statem

ents.

The external auditors, SizweNtsalubaGobodo, are responsible for independently auditing and reporting on the annual financial statem

ents in conformity with International Standards on Auditing. Their unm

odified audit report on the annual financial statem

ents, prepared in terms of the Public Audit Act of South Africa, Act No 25

of 2004 (PAA), appears on pages 4 to 7.

The internal audit activities are in accordance with the preapproved internal audit plan. The internal audit plan is reviewed and approved by the Audit Com

mittee annually. Transnet internal audit has executed the internal

audit plan during the year and has provided assurance to the Board of Directors as to the state of the internal controls of the Com

pany. Their assessment of the internal controls of the Com

pany is included in the Audit Com

mittee Report. The Audit Com

mittee has reviewed the effectiveness of the Com

pany’s internal controls and considers the system

s appropriate for the effective operation of the Company.

The Board of Directors is of the opinion that the Company and the Group have com

plied with applicable laws and regulations except as disclosed in the Report of the Directors as set out on pages 28 to 30.

The Board of Directors is of the opinion that these annual financial statements fairly present the financial

position of the Company and the Group as at 31 M

arch 2015, and the results of their operations and cash flow inform

ation for the year then ended.

The annual financial statements have been prepared under the supervision of the Group Chief Executive.

LC Mabaso

B Molefe

A SinghChairperson

Group Chief Executive Group Chief Financial Officer

1 June 2015Johannesburg

I hereby certify that in terms of section 88(2)(e) of the Com

panies Act, the Company has filed with the Com

panies and Intellectual Property Com

mission all such returns and notices for the year ended 31 M

arch 2015, as required in term

s of this Act, and that all such returns are true, correct and up to date. However, the Company has been

unable to file the latest CoR44 Form due to adm

inistrative delays.

ANC CebaGroup Com

pany Secretary


| 32 | Transnet Annual Financial Statem

ents 2015

APPR

OV

AL O

F THE A

NN

UA

L FINA

NCIA

L STATEM

ENTS

for the year ended 31 March 2015

GR

OU

P COM

PAN

Y SECR

ETAR

Y CER

TIFICATE


Report on the consolidated financial statem

ents Introduction

We have audited the consolidated and separate annual financial statem

ents of Transnet SOC Ltd and its subsidiaries as set out on pages 44 to 156, which com

prise the consolidated and separate statements of

financial position as at 31 March 2015, the consolidated and separate statem

ents of comprehensive incom

e, statem

ents of changes in equity and statements of cash flows for the year then ended, and the notes,

comprising a sum

mary of significant accounting policies and other explanatory inform

ation.

The accounting authority’s responsibility for the consolidated financial statements

The Board of Directors which constitutes the accounting authority is responsible for the preparation and fair presentation of these consolidated and separate annual financial statem

ents in accordance with International Financial Reporting Standards and the requirem

ents of the Public Finance Managem

ent Act (PFMA) of South

Africa, Act No 1 of 1999 and the Companies Act of South Africa (Com

panies Act), Act No 71 of 2008 and for such internal control as the accounting authority determ

ines is necessary to enable the preparation of consolidated and separate financial statem

ents that are free from m

aterial misstatem

ent, whether due to fraud or error.

Auditor’s responsibility

Our responsibility is to express an opinion on these consolidated and separate annual financial statements

based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those

standards require that we comply with ethical requirem

ents and plan and perform the audit to obtain

reasonable assurance about whether the consolidated and separate annual financial statements are free from

m

aterial misstatem

ent.

An audit involves performing procedures to obtain audit evidence about the am

ounts and disclosures in the consolidated and separate annual financial statem

ents. The procedures selected depend on the auditor’s judgm

ent, including the assessment of the risks of m

aterial misstatem

ent of the consolidated and separate annual financial statem

ents, whether due to fraud or error. In making those risk assessm

ents, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated and separate annual financial statem

ents in order to design audit procedures that are appropriate in the circum

stances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estim

ates made by m

anagement, as well as evaluating the overall presentation of

the consolidated and separate annual financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our

audit opinion.

Opinion

In our opinion, the consolidated and separate annual financial statements present fairly, in all m

aterial respects, the financial position of Transnet SOC Ltd and its subsidiaries as at 31 M

arch 2015, and their financial perform

ance and cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirem

ents of the PFMA and the Com

panies Act.

Other reports as required by the C

ompanies A

ct

As part of our audit of the consolidated and separate annual financial statements for the year ended 31 M

arch 2015, we have read the Report of the Directors and the Audit Com

mittee Report for the purpose of identifying

whether there are material inconsistencies between these reports and the audited annual financial statem

ents. These reports are the responsibility of the respective preparers. Based on reading these reports we have not identified m

aterial inconsistencies between the reports and the audited annual financial statements. However,

we have not audited these reports and accordingly we do not express an opinion on these reports.

Report on other legal and regulatory requirem

entsIn accordance with our responsibilities in term

s of sections 44(2) and 44(3) of the Auditing Profession Act (APA), we report that we have identified an unlawful act com

mitted by a person responsible for the

managem

ent of Transnet SOC Ltd which constitutes a reportable irregularity in terms of the APA and have

reported the matter to the Independent Regulatory Board for Auditors. The m

atters pertaining to the reportable irregularity has been described in note 36 to the consolidated and separate annual financial statem

ents.

In accordance with the Public Audit Act of South Africa, 2004 (Act No. 25 of 2004) and the General Notice issued in term

s thereof, we have a responsibility to report findings on the reported performance inform

ation against predeterm

ined objectives for the selected objectives, compliance with laws and regulations and

internal control. We perform

ed tests to identify reportable findings as described under each subheading but not to gather evidence to express assurance on these m

atters. Accordingly, we do not express an opinion or conclusion on these m

atters.

Predeterm

ined objectives

We perform

ed procedures to obtain evidence about the usefulness and reliability of the information in the

Shareholder’s Compact – Perform

ance Criteria (Performance Inform

ation) in the Report of the Directors of Transnet SOC Ltd as set out on pages 17 to 25 of the annual financial statem

ents for the year ended 31 M

arch 2015:

• Annexure A: Strategic deliverables on page 18;• Annexure B: Operational perform

ance on pages 19 to 23;• Annexure C: Social im

pact on page 23;• Annexure D: Econom

ic impact on page 24;

• Annexure F: Capital expenditure on page 24; and• Annexure G: Energy efficiency on page 25.

We evaluated the reported perform

ance information against the overall criteria of usefulness and reliability.

We evaluated the usefulness of the reported perform

ance information to determ

ine whether it was presented in accordance with the National Treasury’s annual reporting principles and whether the reported perform

ance was consistent with the planned objectives. W

e further performed tests to determ

ine whether indicators and targets were well defined, verifiable, specific, m

easurable, time bound and relevant, as required by the National

Treasury’s Framework for m

anaging programm

e performance inform

ation (FMPPI).

We assessed the reliability of the reported perform

ance information to determ

ine whether it was valid, accurate and com

plete.

IND

EPEND

ENT A

UD

ITOR

’S REPO

RT TO

PAR

LIAM

ENT

ON

TRA

NSN

ET SOC LTD



ents 2015

The material findings in respect of the selected objectives are as follows:

Usefulness of reported perform

ance information

Strategic deliverables – Annexure A

of the Shareholder’s Com

pact

Performance indicators or m

easures must be well defined by having clear data definitions so that data can be

collected consistently and is easy to understand and use. A total of 33% of the perform

ance indicators in this annexure were not well defined, specific and m

easurable.

The period or deadline for delivery of targets must be specified. A total of 29%

of the targets were not time bound.

This was due to the requirements of the National Treasury FM

PPI not being embedded into the current process

for determining the key perform

ance indicators and targets.

Reliability of reported perform

ance information

We did not identify any m

aterial findings on the reliability of the reported performance inform

ation for the following objectives:• Annexure A: Strategic deliverables;• Annexure B: Operational perform

ance; • Annexure C: Social im

pact; • Annexure D: Econom

ic impact;

• Annexure F: Capital expenditure; and • Annexure G: Energy efficiency.

Additional m

atter

Although we identified no material findings on the reliability of the reported perform

ance information for the

selected objectives, we draw attention to the following matter below:

Achievem

ent of planned targets

Refer to the information in the Shareholder’s Com

pact – Performance Criteria (Perform

ance Information) in the

Report of the Directors of Transnet SOC Ltd as set out on pages 17 to 25 of the annual report for information

on the achievement of the planned targets for the year.

This information should be considered in the context of the m

aterial findings on the usefulness of the reported perform

ance information for the selected objectives reported in the Strategic deliverables – Annexure A of the

Shareholder’s Compact paragraph in this report.

Com

pliance with legislation

We perform

ed procedures to obtain evidence that the entity had complied with legislation regarding financial

matters, financial m

anagement and other related m

atters. Our findings on material non-com

pliance with specific m

atters in key applicable legislation, as set out in the General Notice issued in terms of the PAA, are as follows:

Expenditure managem

ent

As disclosed in Annexure E of the annual financial statements, the accounting authority did not take adequate

steps to prevent irregular expenditure, fruitless and wasteful expenditure and losses through criminal conduct,

as required by section 51(1)(b)(ii) of the PFMA in respect of the item

s detailed in that annexure.

Internal control

We considered internal control relevant to our audit of the financial statem

ents, annual performance report and

compliance with legislation. The m

atters reported below are limited to the significant internal control

deficiencies that resulted in the findings on non-compliance with legislation included in this report.

Financial and performance m

anagement

The matters identified and reported under the com

pliance with laws and regulations section above have arisen due to non-adherence with operational policies in the expenditure, procurem

ent and contract managem

ent processes. The controls over these areas have continually been im

proved since these matters occurred.

Other reports

Investigations

During the financial year under review, Transnet SOC Ltd initiated investigations into alleged irregularities or fraud. No m

aterial findings, other than those disclosed in Annexure E and note 36 of the annual financial statem

ents, were identified relating to investigations during the year. At the reporting date, certain investigations are still on-going.

Agreed-upon procedure engagem

ents

An agreed upon procedures engagement was perform

ed on the National Treasury consolidation template. The

report covered the period from 1 April 2014 to 31 M

arch 2015. SizweNtsalubaGobodo Inc.Per Collins M

ashishi CA (SA)DirectorRegistered Auditor

20 Morris Street East

Woodm

eadJohannesburg1 June 2015

IND

EPEND

ENT A

UD

ITOR

’S REPO

RT TO

PAR

LIAM

ENT

ON

TRA

NSN

ET SOC LTD



ents 2015

As required by the PFMA, the Audit Com

mittee report is prepared as prescribed by section 27 of the Treasury

Regulations and in line with the recomm

endations of the third King Report on Corporate Governance for South Africa and its Code of Governance Principles (King III). The Audit Com

mittee perform

s its duties in accordance with the PFM

A and in terms of section 94(7) of the Com

panies Act.

The terms of reference are set out in the Audit Com

mittee m

andate, which is approved by the Board of Directors and is continuously reviewed and updated for changes in legislation, business circum

stances and corporate governance practices. The Audit Com

mittee confirm

s that it has complied with its statutory obligations and

discharged its duties in accordance with the mandate.

The role of the Audit Comm

ittee is defined in its mandate and cover, am

ongst others, the following key aspects:• To assist the Board of Directors in discharging its duties relating to the safeguarding of assets and the

evaluation of internal control frameworks within Transnet;

• To review and assess the integrity and effectiveness of the accounting, financial, compliance and other

control systems;

• To consider the internal and external audit processes and the accounting principles and policies;• To strengthen the independence of the internal and external audit functions to ensure their effectiveness;• To ensure effective com

munication between the internal auditors, the external auditors, the Board of

Directors, managem

ent and regulators;• To ensure com

pliance and adherence to applicable legal, regulatory and accounting requirements through an

independent review;• To contribute to a clim

ate of discipline and control which will reduce the opportunity for fraud; and• To assist the Board of Directors in discharging its duties as pertains to ICT Governance.

Com

position and meetings of the A

udit Com

mittee

The Audit Comm

ittee comprises independent non-executive directors who are duly elected by the Shareholder

Representative at the annual general meeting in line with legislative requirem

ents. A total of five (three scheduled, one induction and one special) m

eetings were held during the year under review and all quorum requirem

ents were accordingly m

et. The meetings and attendance records are reflected in the table below.

Date of

Date of

19 May

14 August

20 October

4 February 5 M

arch N

ame of m

ember

appointment

resignation2014

20142014

2015*2015**

Prior Audit Comm

ittee mem

bers

Mr IB Skosana

(Chairperson)25 January

201110 Decem

ber2014

üü

ü

N/A

Mr M

A Fanucchi6 July2012

10 December

2014ü

Aü

Ms NR Njeke

6 July2012

1 September

2014ü

üN/A

Ms ZE Tshabalala

8 November

201210 Decem

ber2014

Aü

A

Ms NP M

nxasana31 January

201310 Decem

ber2014

üü

ü

Date of

Date of

19 May

14 August

20 October

4 February 5 M

arch N

ame of m

ember

appointment

resignation2014

20142014

2015*2015**

Current Audit Comm

ittee mem

bers

Mr BG Stagm

an (Chairperson)

11 December

2014–

N/A

üü

Mr GJ M

ahlalela11 Decem

ber2014

–ü

ü

Ms PEB M

athekga11 Decem

ber2014

–ü

ü

Mr PG W

illiams

11 December

2014–

üü

ü Attended.

A Absent.N/A Not an Audit Com

mittee m

ember.

* Induction meeting.

** Special meeting.

Mr BG Stagm

an was elected as Chairperson on 27 January 2015. The qualifications and experience of the m

embers are detailed in the abridged governance and assurance section in the 2015 Integrated Report.

The Chairperson of the Audit Comm

ittee has been appointed as a mem

ber of the Risk Comm

ittee to ensure alignm

ent between these functions.

The Group Chief Executive, the Group Chief Financial Officer, the Chief Audit Executive and other key executive m

anagement are required to attend m

eetings of the Audit Comm

ittee. In addition, the representatives from

the Office of the Auditor-General of South Africa, Transnet internal audit function together with the external auditors have a standing invitation to attend all Com

mittee m

eetings. The Transnet internal auditors, the external auditors and m

anagement are afforded individual closed sessions with the Audit Com

mittee.

Summ

ary of the main activities undertaken by the A

udit Com

mittee during the year

In line with the PFMA, the Com

panies Act and King III, the Audit Comm

ittee executed the following activities during the year:

External audit

• Reviewed and approved the Group external audit plan, with specific reference to the terms of engagem

ent thereof, the proposed audit scope and approach to Transnet’s risk activities, the effectiveness of the audit and the audit fee.

• Considered with managem

ent the quality and effectiveness of the external audit process, areas of special concern, the procedures being developed to m

onitor and contain risks in those areas, and the audit approach for those areas.

• Approved the guidelines for using the external auditors for non-audit work, pre-approve all the agreements

for non-audit services, annually assess the work done to ensure that the independence of the external auditors is retained and ensure full disclosure of these services in the Integrated Report.

• Reviewed, with managem

ent, reports and letters received from the external auditors concerning deviations

from, and weaknesses in, accounting and operational controls, and ensure that m

anagement takes prom

pt action and that issues are satisfactorily resolved.

• Monitored the relationship between the external auditors and m

anagement.

• Met with external auditors without m

anagement being present.


ents 2015

AU

DIT CO

MM

ITTEE REPO

RT


• Reviewed significant differences of opinion between the external auditors and managem

ent on the application of International Financial Reporting Standards (IFRS) and any other applicable accounting standard.

• Noted the independence of the external auditors.• Considered and approved any significant changes proposed in accounting policy, the external audit fee and

budgeted audit fee.• Reviewed significant differences of opinion between the external auditors and m

anagement on the application

of the framework for perform

ance information as issued by the National Treasury.

• Ensured that there is a process in place for the Comm

ittee to be informed of reportable irregularities identified

and reported by the external auditor.• Advised the Board of Directors of potential risks in irregular and fruitless and wasteful expenditure em

anating from

procurement practices.

Internal audit

• Provided oversight, evaluated and approved the following Transnet internal audit planning documentation:

–The rolling 3-year strategic risk- based internal audit plan; –The internal audit operational plan for the first year of the rolling plan; and –Any other audit plans including the scope of each audit in the annual internal audit plan.

• Reviewed and approved the internal audit mandate annually, which should form

ally define the purpose, authority and responsibility of the internal audit function.

• Assessed the performance of the Chief Audit Executive and internal audit function.

• Ensured that the Chief Audit Executive reports functionally to the Audit Comm

ittee.• Ensured that the internal auditors report at all of the Com

mittee’s m

eetings.• M

et with the internal auditors without managem

ent being present.• Reviewed written reports furnished quarterly and annually by Transnet internal audit detailing the adequacy

and overall effectiveness of internal control system, the scope and depth of audit coverage and audit

recomm

endations.• Obtained assurance from

managem

ent that internal audit findings are addressed.• Reviewed significant differences of opinion between m

anagement and the internal audit function.

• Evaluated the independence and effectiveness of the internal audit function and ensured that the function is adequately resourced and has appropriate standing within Transnet.

• Reviewed forensic investigation reports and ascertained the implem

entation of appropriate corrective action.

Risk m

anagement

• Received a report from the Chairperson of the Risk Com

mittee in instances where there are any m

atters which have im

plications on Transnet’s system of internal control.

• Obtained comfort from

the Risk Comm

ittee regarding Transnet’s processes for identifying, managing and

reporting on risk.• Provided oversight on financial reporting risks, internal financial controls, fraud and inform

ation technology (IT) risks, as they relate to financial reporting.

• Provided oversight of financial and IT controls.• Considered whether there are any m

atters arising from the review of internal controls and the reports of

internal and external auditors which require the attention of the Risk Managem

ent Comm

ittee of the Group Executive Com

mittee and/or the Risk Com

mittee.

Com

pliance

• Reviewed the Group Compliance plan, with specific reference to the procedures for identifying regulatory

risks and controlling their impact on Transnet as well as ensuring that Transnet policy com

plies with relevant regulatory and legal requirem

ents.• M

onitored compliance with the applicable com

pliance laws, rules and standards and reviewed all reports detailing the extent of com

pliance.• Considered reports and letters received from

relevant regulatory authorities or supervisors and m

anagement’s responses thereto, where they concern m

atters of compliance and the duties and

responsibilities of the Board of Directors of Transnet and/or its subsidiaries and associated companies.

• Requested and considered reports by executive managem

ent on measures im

plemented to ensure adherence

with applicable compliance laws, rules and standards.

• Reviewed the compliance policy developed and im

plemented by m

anagement.

• Considered adherence to applicable non-binding rules, codes and standards, if adherence thereto would result in good governance and practice.

• Engaged regulators to influence the drafting of legislation and/or obtain regulatory certainty relating to critical regulatory requirem

ents impacting Transnet’s operations.

• Training and awareness session provided to the Executive Comm

ittee and the Board of Directors with regards to Transnet’s regulatory requirem

ents and associated obligations and keeping governance/risk comm

ittee m

embers abreast of regulatory developm

ents.

Ethics

• Reviewed the process for handling anonymous calls from

the fraud hotline.• Reviewed internal audit reports on ethics m

anagement.

• Considered Transnet’s systems to m

onitor compliance with and enforcem

ent of the Code of Ethics.

Other m

atters

• Reviewed reports from m

anagement regarding Transnet’s ability to continue as a going concern and

recomm

ended to the Board of Directors that Transnet continues to adopt the going-concern basis in preparing the annual financial statem

ents.• Provided assistance to the Board of Directors in discharging its duties relating to Transnet’s system

of internal controls, risk m

anagement, com

pliance and information and com

munication technology (ICT)

governance.• Reviewed and m

onitored Transnet’s compliance with all applicable legislation and regulations, including

without limitation, the Com

panies Act, PFMA, Treasury Regulations and the Incom

e Tax Act No 58 of 1962, as am

ended.• Reviewed m

anagement’s reports on item

s of fruitless, wasteful and irregular expenditure as well as losses through crim

inal conduct in terms of the PFM

A.• Reviewed and recom

mended the Transnet Treasury Financial Risk M

anagement Fram

ework including treasury activities and the risk m

anagement strategies to the Board of Directors for approval.

• Reviewed the materiality fram

ework.• Reviewed and recom

mended the annual borrowing plan to the Board of Directors for approval.

• Reviewed and recomm

ended the Financial and Funding Plan for 2015.• Reviewed and proposed changes to the Delegation of Authority Fram

ework.


ents 2015

AU

DIT CO

MM

ITTEE REPO

RT


Annual evaluation by the A

udit Com

mittee

As required by the Companies Act, PFM

A and King III, the Audit Comm

ittee has performed an annual assessm

ent and evaluation of Transnet’s system

of internal controls together with the effectiveness of the finance function, including the com

petency of the Group Chief Financial Officer. The results are presented below.

Assessm

ent of the internal control environment

Based on the engagement with external and internal auditors, together with the review of their reports, the Audit

Comm

ittee’s overall assessment of Transnet’s internal control environm

ent is presented in the table below.

2015

Risk and control

Key financial processes

Key operational processes

component

Adequacy

EffectivenessA

dequacyEffectiveness

GovernanceSatisfactory

SatisfactorySatisfactory

Requires improvem

ent

PeopleSatisfactory


Requires improvem

ent

Methods and practices


SatisfactoryRequires im

provement

Overall assessment



provement

2014

Risk and control

Key financial processes

Key operational processes

component

Adequacy

EffectivenessA

dequacyEffectiveness

GovernanceSatisfactory


Requires improvem

ent

PeopleSatisfactory


Requires improvem

ent

Methods and practices


Requires im

provement

Requires improvem

ent

Overall assessment



provement

The Audit Comm

ittee is of the view that the system of internal controls of Transnet are appropriate in term

s of:• M

eeting the strategic objectives of Transnet;• Evaluating and m

itigating the key risks facing Transnet;• Ensuring com

pliance with applicable laws and regulations;• Ensuring that Transnet’s assets are safeguarded; and• Ensuring that transactions undertaken are correctly recorded in Transnet’s accounting records.

The Audit Comm

ittee’s opinion is that there were no material breakdowns in internal control, including operational

controls, financial controls and maintenance of effective control system

s during the 2015 financial year.

Assessm

ent of the finance function and competence of the G

roup Chief Financial O

fficer

The Audit Comm

ittee is satisfied with:• The expertise and adequacy of the resources within the finance function of Transnet.• The experience of the senior m

embers of m

anagement responsible for the finance function.

• The expertise and experience of the Group Chief Financial Officer is appropriate to meet the responsibilities

comm

ensurate with the position.

Recom

mendation of the annual financial statem

entsThe Audit Com

mittee has evaluated the annual financial statem

ents for the year ended 31 March 2015 and

is of the view that they comply, in all m

aterial respects, with the requirements of the PFM

A and in the manner

required by the Companies Act. The Audit Com

mittee is further satisfied that the annual financial statem

ents have been prepared in accordance with IFRS and that the adoption of the going-concern basis is appropriate.

The Audit Comm

ittee is of the opinion that the annual financial statements fairly present the financial position

of Transnet as at 31 March 2015, and the results of their operations and cash flow inform

ation for the year then ended and has therefore recom

mended the adoption of these annual financial statem

ents by the Board of Directors.

Mr BG Stagm

anChairperson of the Audit Com

mittee



ents 2015

AU

DIT CO

MM

ITTEE REPO

RT


IntroductionThe Board of Directors is pleased to present its Integrated Report, in both printed and electronic form

ats, in line with the requirem

ents of the King III Code on Corporate Governance (King III) and the audited annual financial statem

ents of Transnet SOC Ltd (Transnet or the Company) and its subsidiaries (the Group) for the year ended

31 March 2015.

Ow

nership and Shareholder’s expectationsTransnet is a public com

pany, wholly owned by the Government of the Republic of South Africa and is the

custodian of the country’s rail, ports and pipelines. Transnet is responsible for enabling the competitiveness,

growth and development of the South African econom

y through delivering reliable freight transport and handling services that satisfy custom

er demand.

As the custodian of ports, rail and pipelines, Transnet has a responsibility to ensure the optimal developm

ent of the national freight system

. Furthermore, as a responsible corporate citizen and key im

plementing agent of the

developmental state, Transnet is required to conduct its activities in a m

anner that optimises developm

ental outcom

es such as job creation, skills development, econom

ic transformation, regional integration, industrial

capability building and energy efficiency.

Transnet’s Market Dem

and Strategy (MDS) has com

pleted its third year of implem

entation. The MDS and its

implem

entation plan are guided by the Statement of Strategic Intent issued by the M

inister of Public Enterprises, which defines the overarching objectives of the Com

pany as follows:• Reduce the cost of logistics as a percentage of transportable GDP;• Effect and accelerate m

odal shift by maxim

ising the role of rail in the national transport task;• Leverage the private sector in the provision of both infrastructure and operations where required;• Integrate South Africa with the region and the rest of the continent; and• Optim

ise sustainable economic, social and environm

ental outcomes of all activities undertaken by Transnet.

Board of D

irectorsThe com

position of the Board of Directors at 31 March 2015 is shown below:

Executive directors: B Molefe (Group Chief Executive), A Singh (Group Chief Financial Officer).

Independent non-executive directors: LC Mabaso* (Chairperson), Y Forbes, N M

oola, PEB Mathekga*, GJ M

ahlalela*, ZA Nagdee*, VM

Nkonyane*, MR Seleke*, SD Shane*, BG Stagm

an*, PG William

s*.*Appointm

ents effective 11 December 2014.

Ms NR Njeke resigned from

the Board of Directors effective from 1 Septem

ber 2014. On 10 Decem

ber 2014, the following independent non-executive directors resigned from the Com

pany: M

E Mkwanazi, M

A Fanucchi, HD Gazendam, IB Skosana, IM

Sharma, ZE Tshabalala, NP M

nxasana and DLJ Tshepe. Sum

mary curricula vitae of each director are set out on pages 24 and 25 of the 2015 Integrated Report.

The following matters are covered in the Corporate Governance report included in the Integrated Report:

• Board of Directors and Comm

ittees mandates, detailed on pages 190 to 198;

• Board of Directors and Comm

ittees attendance, detailed on page 32; and• Board of Directors evaluation and perform

ance, detailed on page 28.

Strategic overview

Over the past three years of the implem

entation of the MDS, revenue and EBITDA have grown by an average

annual rate of 10% and 11%

respectively, while rail and container volumes have grown by an annual average

rate of 4% and 2%

respectively. Over this period, Transnet has invested R92,8 billion directed at maintaining

and renewing the Group’s extensive infrastructure network and equipment fleet and at creating new capacity.

This is by far the highest level of investment in the Group’s history and was achieved by diversifying funding

sources both in the domestic and international m

arkets, while minim

ising market, foreign exchange, interest

rate, liquidity and refinancing risks. The funding plan was executed through reserves and borrowings and without receiving cash subsidies or guarantees from

the Government.

The R336,6 billion investment program

me which is the centrepiece of the strategy represents a significant

stimulus to job creation, skills developm

ent, industrial capacity building, economic transform

ation and regional integration and is an im

portant component of Governm

ent’s counter-cyclical approach to counter the effects of a weak global econom

y.

Over the past three years, Transnet has invested more than R2,2 billion in skills developm

ent. A key focus on engineering, technical and sector-specific skills has resulted in m

ore than 3 000 artisans and 1 000 technicians entering training. Transnet awarded 492 engineering bursaries to undergraduate, m

asters and doctoral students. Sector specific skills developm

ent focussed on marine, rail, and cargo handling rem

ains a key priority and more

than 5 900 learners were taken on over the three-year period. This is in addition to the various managem

ent and leadership developm

ent programm

es and courses which are made available to Transnet em

ployees.

Transformation and developm

ent of the Group’s supplier base remains a key priority. In the past financial year

Transnet recognised Broad-based Black Economic Em

powerment (B-BBEE) spend of 105,1%

of total measured

procurement spend (TM

PS) of R43,1 billion. Of this, R9,4 billion was spent on black-owned enterprises and R4,1 billion on black wom

en-owned enterprises.

Transnet is comm

itted to carrying out Enterprise Development initiatives as outlined in the Broad-Based Black

Economic Em

powerment (B-BBEE) Act. Enterprise Developm

ent interventions have the specific objective of assisting and accelerating the developm

ent, sustainability and ultimate financial and operational independence

of small, m

edium and m

icro businesses as defined in accordance with the Department of Trade and Industry Codes.

Transnet has spent R336,6 million or 6,3%

of net profit after taxation (NPAT) on Enterprise Development as

compared to 3,0%

of NPAT as required by the B-BBEE Act. This has been spent on providing both financial and non-financial support to black owned Sm

all-Micro and M

edium Enterprises (SM

ME’s).

Transnet’s Supplier Development (SD) program

me prom

otes skills development and the creation and preservation

of jobs. It further encourages the transfer of intellectual property and the localisation of supply; and ultimately

promotes industrialisation through contractually obligated supplier developm

ent plans. Since inception of the program

me, total contract value to date am

ounts to R46,2 billion (2014: R29,4 billion). Supplier Development

obligations concluded with suppliers amounts to R17,1 billion or 37,1%

of contract value (2014: R10,9 billion or 37,2%

of contract value). To date, R10,2 billion or 60,1% (2014: R5,9 billion or 54,3%

) of these Supplier Developm

ent obligations have been met.

Transnet’s R50 billion contract for the building of 1 064 locomotives has stringent local content, skills developm

ent and training com

mitm

ents as dictated by the SD programm

e. All the locomotives except 70 will be built at Transnet

Engineering plants in Pretoria and Durban. The suppliers have to date complied with and exceeded the m

inimum

local content criteria for rolling stock of 60%

for electric locomotives and 55%

for diesel locomotives. Transnet

Engineering will share approximately 16%

of the total build programm

e, about one third of which will be outsourced to em

erging local engineering and manufacturing firm

s. This will enable Transnet Engineering to create export capability for locom

otives and related products and support Transnet Engineering’s transformation into an

Original Equipment M

anufacturer (OEM) over tim

e. In total, the localisation elements are expected to contribute

over R90 billion to the South African economy.

Regional integration of the freight system is a strategic priority and the im

plementation of the Africa Strategy

has gathered pace in recent years. Revenue from over border activities has grown from

R2,1 billion in the first year of the M

DS to about R2,9 billion in the 2015 financial year. This represents growth in over border activities from

4,2% of revenue in the 2013 financial year to 4,7%

in 2015.


ents 2015

REPO

RT O

F THE D

IRECTO

RS


The investment in port, rail and pipeline infrastructure and operations will radically im

prove the competitiveness

and capacity of the national freight system. Key freight system

objectives include a significant shift of long distance freight from

road-to-rail, enhanced maritim

e connectivity, integration of the regional freight system

and the creation of capacity ahead of demand. Transnet has m

ade significant gains in these areas over the past three years and this trend is poised to accelerate as the investm

ents made in recent years start to bear fruit.

Growth in rail market share and m

aritime connectivity, coupled with increased capacity is expected to catalyse

a virtuous cycle of increasing freight systems com

petitiveness, thereby increasing economic growth and

development. The M

DS will position South Africa as a key logistics hub for the region and establish the country as a leading supplier of raw m

aterials and value added products to global markets.

At the same tim

e, a consistent focus on responsible corporate citizenship will ensure that the Group makes

ever-increasing contributions to job creation, skills development, industrial capacity building, econom

ic transform

ation and regional integration.

Outlook

The performance of the global econom

y has been mixed, but with a m

arked deterioration in sentiment about the

global economic outlook. Forecasts for econom

ic growth have fallen in the first quarter of 2015, as they have every year since 2011, as the m

uch anticipated recovery fails to take hold. The world gross domestic product

(GDP) estimate was revised downwards to 3,4%

for 2014 and is forecast to grow by 3,5% for 2015.

Growth in sub-Saharan Africa is however expected to remain strong, estim

ated at 5,0% in 2014 and forecast to

decline slightly to 4,5% in 2015 due to the com

bined effects of declining comm

odity prices and the epidemic in

Ebola-affected countries. Growth will be driven by sustained infrastructure investment, buoyant service

sectors and strong agricultural production, even as oil related activities provide less support. With the African

continent accounting for close to 30% of South Africa’s m

erchandise exports, growth in the region will provide an im

portant pillar for the manufacturing and logistics sectors.

South Africa’s economic perform

ance was significantly impacted by strikes in 2014, which were concentrated in

the mining and m

anufacturing sectors. South Africa’s GDP grew by 1,5% in 2014 and is forecast to grow by 2%

in 2015 and 2,1%

in 2016 respectively. The main drivers of im

proved growth are a return to normality and

expectations of a pick-up in the global economy from

its current lows.

Global trade has performed below expectations for a num

ber of years and this has negatively impacted all

segments of the shipping m

arket. Global container volumes grew by an estim

ated 5,0% in 2014 and are forecast

to grow by 5,5% in 2015 with the bulk of this driven by intra-Asian trade. For the dom

estic market a m

edium-

term average annual growth rate of 4,2%

per annum is anticipated after a num

ber of years of very low growth.

The per capita rate of steel consumption am

ong key developing economies relative to developed econom

ies indicates that there is still significant potential growth for steel and steel input m

aterials as countries industrialise and urbanise. W

orld trade of iron ore grew by an estimated 8,4%

in 2014. Over the medium

term,

world iron ore trade is projected to increase at an average annual rate of 3,6% to 2019. The South African

market rem

ains very cost-competitive with solid longer-term

growth prospects.

Manganese ore consum

ption is projected to rise at an average annual rate of 4,3% between 2014 and 2019.

Global production of manganese ore is also set to rise at 4,9%

over the same period. South Africa, endowed

with around 80% of global m

anganese reserves is set to emerge as a key export hub for m

anganese over the next few years, gaining m

arket share from other international producers.

Concern about the effect of coal use on the environment has prom

pted many countries to enact m

easures to reduce the role of coal in the energy m

ix. While the growth in the world’s coal use is unlikely to be as rapid as

other energy sources, it is still expected to play a large role in world electricity generation. Exports from South

Africa are projected to increase at an average annual rate of 6,1% to 98m

t in 2019.

Perform

ance for the yearM

archM

arch%

2015

2014change

Revenue (R million)

61 15256 606

8,0EBITDA (R m

illion)25 588

23 6398,2

EBITDA margin (%

)41,8

41,8–

Equity attributable to the equity holder (R million)

142 32897 113

46,6Gearing (%

)40,0

45,9(5,9)

Capital investment (R m

illion)33 565

31 7665,7

Cash generated from operations after working capital changes (R m

illion)30 607

25 27121,1

Cash interest cover (times)

3,63,7

(2,7)

Detailed comm

entary on the performance for the year is contained in the 2015 Integrated Report on pages 94

to 98.

Shareholder’s Com

pact – performance criteria

The Shareholder’s Compact Key Perform

ance Indicators (KPI’s), which are revised annually by agreement between

the Board and the Shareholder Representative, serve as the performance m

onitoring framework for the Com

pany. Perform

ance against the Shareholder’s Compact 2015 targets, is outlined below, as required by section 55(2) (a)

of the PFMA. This perform

ance information has been subjected to audit review and the Com

pany’s auditors have reported their findings in their audit report.

The Company achieved an aggregate volum

e performance of 98,4%

, despite low domestic and global econom

ic growth challenges. Aggregate operational efficiency im

proved by 16,6% com

pared to the prior year’s 13,8% with

the support of the Transnet value chain co-ordinator (TVCC) initiatives, such as quick recoveries from on-route

disruptions, regular customer liaison and im

proved integrated collaboration between operating divisions to address resource challenges. M

easuring the company’s perform

ance against the operational KPI targets of the Shareholder’s Com

pact Annexure B (including skills development KPIs in Annexure C); 60%

of the targets for the 2015 financial year were fully achieved. The perform

ance gap on operational KPIs is mainly attributed to 12 of

22 rail comm

odities that did not meet their individual budgeted volum

es. While com

modity by com

modity

analysis focuses attention on internal and external constraints and identifies required performance

improvem

ent interventions, it is important to note that in aggregate, Group weighted volum

e performance for

total freight volumes on rail, ports and pipelines increased from

the prior year’s 95,1% to 98,4%

due to positive growth in export iron ore, export coal, total petroleum

products, vehicles and break bulk.

Export coal and iron ore grew substantially by 12% and 10%

respectively year-on-year to 76,3mt and 59,7m

t. They also grew by 2%

and 3% com

pared to budget. Product availability improved as key export iron ore

customers recovered from

the production constraints of prior year. Internal resource availability improved

through sustained implem

entation of the capital expenditure programm

e and the two comm

odities also benefitted from

operational efficiency improvem

ents supported by the TVCC initiatives. The protracted trend of declining international coal and export prices in 2015 is negatively affecting the outlook for 2016.

When all Shareholder’s Com

pact Annexures (i.e A, B, C, D, F and G) are considered, the achievement decreases to

58%. Annexure E is excluded from

the analysis as it relates to compliance to the Significance and M

ateriality Fram

ework in terms of section 55 (2) of the PFM

A. Transnet notifies the Shareholder Representative where relevant upon acquisition or disposal of an asset that is at least equal to the m

ateriality threshold. Detailed performance

against all the other annexures is reported in the quarterly reports to the Shareholder Representative.

A total of 33% of the perform

ance indicators in Annexure A were not well defined, specific and measurable. In

addition, 29% of the tim

elines for delivery of targets were not specified. This was due to the requirements of

the National Treasury FMPPI not being em

bedded into the current process for determining the key perform

ance indicators and targets.


ents 2015

REPO

RT O

F THE D

IRECTO

RS


The company has taken note of this shortcom

ing and will be engaging with the Department of Public Enterprises to

ensure that these requirements are em

bedded into the targets and agreed with the Shareholder Representative.

Annexure A

: Strategic deliverables

Key perform

ance areaK

ey performance indicator

Delivery

timeline

Actual

Transnet’s Sustainability Fram

ework•

Economic dividends.

March 2015

100%•

Social dividends.M

arch 2015100%

• Environm

ental dividends.M

arch 2015100%

Cost Logistics•

Quantify Transnet’s contribution to the total cost of logistics as a percentage (%

) of transportable GDP.April 2014

100%

• 0,5%

reduction in total cost of logistics by 2019 as per m

arket demand.

April 20140%

Domestic Interm

odal Solution

• Quantify and com

mit to m

odel split target.April 2014

75%•

Quantify the fixed infrastructure capacity, operational perform

ance and financial performance of existence

intermodal capacity.

April 2014

• Develop a long term

intermodal/container strategy supported

by an appropriate infrastructure and funding plan.April 2014

NMPP Strategy and

infrastructure plan•

Develop medium

to long-term strategy and infrastructure

plans to drive Transnet Pipeline’s market share.

April 201450%

Africa Business Developm

ent and Regional Intergration

• Develop a short, m

edium and long-term

strategy to improve

intra-Africa trade from a transport perspective.

April 201488%

• Prom

ote regional connectivity through the integration of the freight rail and m

aritime infrastructure.

April 201431,25%

• Position Transnet Engineering to becom

e the preferred supplier of rolling stock within the African m

arket.April 2014

45%

Private Sector Particitipation (PSP)

• Delivery of R2,5bn in PSP funding as per the 2013 Corporate Plan.

Subject to PFM

A Section 54 Approval.

77%

• Identify clear and sustainable opportunities for PSP.

100%•

Identify and develop clear industry solutions within varoius sectors supported by business cases for approval by the Shareholder.

90%

• Develop defined tim

eline for implem

entation of identified PSP opportunities.

100%

• Concession of three branch lines as identified by Transnet and the Departm

ent.Subject to PFM

A approval.0%

Policy and Regulation•

Full co-operation with the department to finalise joint

positions on rail and maritim

e policy.Ongoing.

n/a

• On-going com

pliance with policy and regulation.Ongoing.

n/aResearch and Developm

ent (R&D) Excellence

• Establishm

ent of R&D Centre of Excellence.April 2014

60%•

Quantify how technology has been leveraged to reduce capital outlay and reduce operating expenditure in all spheres of business.

June 201490%

• Quantify how technology has been leveraged to im

prove productivity in all spheres of business.

June 201478%

• Quantify how technology has been leveraged to im

prove and increase m

odal shift.June 2014

91%

• Quantify how technology has been leveraged to increase m

arket share.June 2014

100%

n/a not applicable.

Annexure B

: Operational perform

anceTransnet G

roup

2015

Unit of

Com

pact K

ey performance area

Key perform

ance indicatorm

easuretarget

Actual

Financial value creationReturn on total average assets

%≥7,8

6,0Cash interest cover (a)

times

≥3,23,6

Gearing%

≤46,740,0

Operating expenditure as a % of revenue

%≤55,6

58,2

InnovationResearch and developm

ent costR m

illion≥262

83,2

SafetyDIFR (for all Transnet operating divisions)

Total ratio≤0,75

0,7Em

ployee fatalitiesNum

ber0

4

ProductivityRevenue per em

ployeeR m

illion≥0,98

1,1

(a) Subject to Minister of Finance approval to change the cash interest cover condition from

3,3 times to 3,2 tim

es in regard to the foreign borrowing lim

it conditions.

Transnet Freight Rail

2015

Key perform

anceK

ey performance

Unit of

Com

pactarea

indicatorm

easure target

Actual

FinancialReturn on total average assets

%≥11,4

8,3

TariffsRevenue from

tariff increases

– General freight business (GFB)

%≤8,7

3,0M

arket shareVolum

e Total volum

esm

t ≥228,4

226,6Bulk

– Export coal

mt

≥7576,3

– Export iron orem

t≥58,1

59,7– Export m

anganese (PE)m

t≥4,9

5,3– Export m

anganese (DBN) m

t≥1,2

0,9– Export coal non-RBCT

mt

≥6,63,8

– Eskom coal

mt

≥11,513,4

– Domestic coal

mt

≥9,37,5

– Chrome and ferrochrom

em

t≥8,0

5,0– Dom

estic iron orem

t≥8,3

7,6– Dom

estic manganese

mt

≥1,92,1

– Mineral m

ining m

t≥13,5

15,8– Other

mt

≥1,11,8

Intermediate m

anufacturing and m

anufacturing– Agriculture

mt

≥3,73,2

– Bulk liquidsm

t≥2,1

1,6– Iron and steel

mt

≥0,60,4

– Wood and wood products

mt

≥2,12,5

– Fertilisersm

t≥0,1

0,2– Industrial chem

icalsm

t≥1,2

1,2– Cem

entm

t≥7,7

7,4– Interm

odal wholesalem

t≥10,5

8,9– FM

CG long distancem

t≥0,8

0,6– Autom

otivem

t≥0,4

0,4


ents 2015

REPO

RT O

F THE D

IRECTO

RS


Transnet Freight Rail (continued)

2015

Key perform

anceK

ey performance

Unit of

Com

pactarea

indicatorm

easure target

Actual

ProductivityAsset utilisation

Manganese

Gtkm/Ntkm

≤1,51,6

Steel and cement

Gtkm/Ntkm

≤1,71,7

Mineral m

ining and chrome

Gtkm/Ntkm

≤1,71,6

Container and automotive

Gtkm/Ntkm

≤3,53,4

Agriculture and bulk liquidsGtkm

/Ntkm≤2,1

2,1Locom

otive utilisation

Export coalGtkm

/loco/m≥26 868

26 489Cycle tim

eExport coal

Hours≤56

63,8Export iron ore

Hours≤76

84,8M

anganeseHours

≤155,5190,1

Wagon turnaround

time

GFBDays

≤10,310,6

DensitySaldanha

Tonkm/Routekm

≥58,161,7

RBaycorTonkm

/Routekm≥37,5

41,1Natalcor

Tonkm/Routekm

≥7,06,5

NEastcorTonkm

/Routekm≥6,8

8,4Sentracor

Tonkm/Routekm

≥5,04,9

CapecorTonkm

/Routekm≥4,0

4,1NW

estcorTonkm

/Routekm≥4,0

4,5Eastcor

Tonkm/Routekm

≥3,03,2

SouthcorTonkm

/Routekm≥2,9

3,6Northcor

Tonkm/Routekm

≥1,71,6

ServiceOn-tim

e departureExport coal

Average deviationfrom

schedulestim

es (minutes)

≤900,6

Export iron ore≤60

(24,3)Export m

anganese≤160

(75,4)Steel and cem

ent≤295

(73,6)M

ineral mining and chrom

e≤90

(41,4)Containers and autom

otive≤300

93,9Agriculture and bulk liquids

≤200132,8

On-time arrival

Export coal

Average deviationfrom

schedulestim

es (minutes)

≤180170,0

Export iron ore≤225

57,1Export m

anganese≤200

183,2Steel and cem

ent≤325

269,0M

ineral mining and chrom

e≤140

179,8Containers and autom

otive≤380

250,0Agriculture and bulk liquids

≤290265,3

Transnet Engineering2015

Key perform

anceU

nit ofC

ompact

areaK

ey performance indicator

measure

targetA

ctual

FinancialExternal revenue

R million

2 4001 718

InnovationResearch and developm

ent costR m

illion150

93

Volume growth

(a)Train cancellations due to traction

GFB%

≤61,5

Export coal≤6

3,8Export iron ore

≤60,1

Net volume lost due to traction

(a)GFB

mt

≤7NR

1

Export coal≤7

NR1

Export iron ore≤7

NR1

Traction delaysGFB

≤408

Export coal≤40

12,5Export iron ore

%≤40

11,9

ProductivityLean six sigm

a impact on

business efficiencyValue add per em

ployeeR

≥450 000429 000

Asset turnoverAsset turnover

Ratio≥1,3

1,2

Number of defects per products

Number of

defects per products

Number

≤302,5

(a) Transnet should ensure not to lose volumes of m

ore than 4mt, due to traction.

NR1 = Not reported. No inform

ation available on Transnet Execution Monitoring System

.

Transnet National Ports A

uthority2015

Key perform

anceK

ey performance

Unit of

Com

pact

areaindicator

measure

targetA

ctual

ProductivityAnchorage

– DurbanHours

≤4041

– Cape Town ≤34

31– Port Elizabeth

≤3037

– Ngqura≤45

32– Richards Bay

≤8039

Ship turnaround time

(a)Containers– Durban

Hours≤57

51– Cape Town

≤3027

– Port Elizabeth≤26

26– Port of East London

≤6050

– Richards Bay≤109

78– Ngqura

≤4534

Dry bulk– Coal (RBCT)

Hours≤46

43– Iron ore (Saldanha)

≤5446

– Manganese (PE)

≤7870


ents 2015

REPO

RT O

F THE D

IRECTO

RS



uthority (continued)2015

Key perform

anceK

ey performance

Unit of

Com

pact

areaindicator

measure

targetA

ctual

ProductivityBerth occupancy

– Durban%

70 – 8077

– Cape Town 60 – 70

45– Port Elizabeth

55 – 6552

– Ngqura70 – 80

55

Berth utilisation– Durban

%70 – 80

70– Cape Town

50 – 6062

– Port Elizabeth55 – 65

42– Ngqura

75 – 8555

(a) Shipping delays to be quantified and reported on a quarterly basis.

Transnet Port Terminals

2015

Key perform

anceK

ey performance

Unit of

Com

pact

areaindicator

measure

targetA

ctual

FinancialReturn on total average assets

%≥8

7,9

Tariff increasesAverage tariff increase (containers)

%≤6

8,1

ProductivityDwell tim

eDCT – Pier 1

– Imports

Days≤3

2,5– Exports

Days≤5

5,3– Transshipm

ent (a) Days

≤108,4

DCT – Pier 2

– Imports

Days≤3

1,9– Exports

Days≤5

6,5– Transshipm

entDays

≤108,5

CTCT

– Imports

Days≤3

1,7– Exports

Days≤5

4,2– Transshipm

entDays

≤153,9

Moves per gross

DCT – Pier 1 M

oves/GCH≥26

22,2crane hour (b)

DCT – Pier 2 (prime

berths 203, 204)≥28

24,0CTCT

≥3231,8

Ngqura≥30

26,8

Transnet Port Terminals (continued)

2015

Key perform

anceK

ey performance

Unit of

Com

pact

areaindicator

measure

targetA

ctual

Service deliveryTrain turnaround tim

eDCT – Pier 1

Hours≤6

3,3DCT – Pier 2

Hours≤6

3,3CTCT

Hours≤6

1,0Saldanha

(c) M

inutes≤105

112,3Richards Bay

Hours≤12

7,9Port Elizabeth

Hours≤12

9,4

Truck turnaround time

DCT – Pier 1M

inutes≤35

43,8DCT – Pier 2

Minutes

≤3551,6

CTCTM

inutes≤35

17,3Ngqura

Minutes

≤3535,3

Richards BayM

inutes≤35

26,8

(a) Transnet Port Terminals shall not encourage transshipm

ent dwell times of greater than five days.

(b) Transnet Port Terminals shall report on m

oves/GCH for the Ports of Richards Bay and East London on a quarterly basis.(c) Rake process tim

e inside tippler.

Transnet Pipelines

2015

Unit of

Com

pactK

ey performance area

Key perform

ance indicatorm

easuretarget

Actual

Market share

Petroleum volum

esBillion litres

≥16,817,2

Service reliabilityOrdered versus delivered volum

es (%

of deliveries within 5% of order)

%≥95

100Planned versus actual delivery tim

e (%

of deliveries within two hours of plan)%

≥8384

Operational efficiencyOperating cost per M

ℓ.km (Nom

inal R/Mℓ.km

) Rand

≤129120

Capacity utilisationDJP and NM

PP – actual usage (Mℓ-week)

Ratio≥113:152

115:152

Annexure C

: Social impact

Key perform

ance indicatorU

nit of measure

Target A

ctual

Training spend%

of personnel costs≥4,4

2,8Technician trainees

Number of learners

≥363563

Engineering traineesNum

ber of learners≥220

254Artisan trainees

Number of learners

≥605613

Sector specific traineesNum

ber of learners≥2176

3 320Jobs created (Transnet perm

anent employees)

Number of jobs

≥44262 905

Health (Teenage health project)R m

illion≥13

13,90 Health (Phelophepha I and II)

R million

≥93105,72

Teacher and learner development

R million

≥15,612,00

Sports development

R million

≥35,932,40

Container assistanceR m

illion≥10,4

10,43 Transnet em

ployee volunteer programm

eR m

illion≥29,9

27,10


ents 2015

REPO

RT O

F THE D

IRECTO

RS


Annexure D

: Economic im

pactK

ey Perform

ance IndicatorU

nit of Measure

Target*A

ctual

Export promotion

% of SD value

≥ 0,5–

Technology transfer/Intellectual property%

of SD value≥ 1

NRInvestm

ent in plant%

of SD value≥ 1

10,13Local content

% of total spend

≥ 7594

CSDP/SD value%

of contract value subject to SD≥ 37

37Job creation

Number of jobs created

TBANR

Skills development

% of SD value

≥ 32

B-BBEE%

of TMPS

≥ 60105,05

Black women owned

% of TM

PS≥ 3

9,59Black owned

% of TM

PS≥ 10

21,73Black youth owned

% of TM

PS≥ 0,5

1,56QSE/EM

E%

of TMPS

≥ 1012

People living with disability%

of TMPS

≥ 0,250,18

* Without PPPFA exem

ption.NR Not reported.TBA To be advised.

Annexure F: C

apital expenditureP

rojects which have reached the execution phase

Estimated

– Front end loading (FEL) 4total costR

million

Target 1A

ctual

1.Coal line expansion to 81m

t5 100

32%35%

2.Acquisition of 95 electric locom

otives for GFB2 662

85%86%

3.Acquisition of wagons for M

DS2

15 115100%

100%4.

Ngqura Container Terminal Ph2A

1 099100%

100%5.

New Multi-Product Pipeline

23 400100%

76%6.

Reconstruction of sheetpile quaywalls at Maydon W

harf1 594

15%60%

7.Straddle carrier replacem

ent 1 835

10%100%

8.Acquisition of 465 diesel, 599 electric, 100 electric and 60 diesel locom

otives61 094

2%37%

9.Expansion of the ore line to 82,5m

t 29 500

FEL 3FEL 2

10.Coal export line expansion to 97m

tpa2

4 350FEL 1

FEL 011.

Manganese expansion (excluding rolling stock) to 16m

t 217 000

FEL 4FEL 4

12.Swaziland rail link

25 000

FEL 4FEL 3

13.W

aterberg expansion to 27mt 2

5 090FEL 4

FEL 314.

Deepening of DCT berths2

6 000FEL 4

FEL 315.

Export iron ore line: Capitalisation of infrastructure wagon and locom

otive maintenance

29 001

100%100%

16.Coal line: Capitalisation of infrastructure, wagon and locom

otive m

aintenance2

16 029100%

100%17.

General freight rolling stock capacity increase to support the Market

Demand Strategy – wagons upgrade

215 115

100%100%

18.General freight business: Capitalisation of infrastructure, wagon and locom

otive maintenance

250 056

100%100%

1 Estimated percentage of com

pletion at year end.2 The estim

ated total costs are work in progress, subject to the finalisation of the budgeting process.

Annexure G

: Energy efficiencyC

ompact

Electrical energy efficiencyM

easurement

targetA

ctual

Transnet Freight Rail – tractiongtk/kW

h1,0%

4,7%Transnet Freight Rail – real estate

kWh/m

23,0%

5,8%Transnet Properties

kWh

6,0%0,8%

Transnet Pipelineslkm

/kWh

1,0%5,2%

Transnet Port Terminals

ton/kWh

1,0%8,4%

Transnet National Ports Authorityem

ployee/kWh

2,0%7,8%

Transnet Engineeringm

an-hour/kWh

2,5%0,2%

Fuel energy efficiency Transnet Freight Rail – traction

gtk/litre1,0%

8,0%Transnet Port Term

inalston/litre

1,0%10,2%

Transnet Engineeringm

an-hour/litre2,5%

24,5%

Accounting policies

The accounting policies applied in the preparation of the annual financial statements for the year ended

31 March 2015 are in accordance with IFRS and are consistent with those applied in the prior year except for

the adoption of the revaluation policy for rail infrastructure assets as described on page 67.

Judgements m

ade by managem

ent in the application of IFRS that have a significant impact on the annual

financial statements are disclosed in the accom

panying notes to the annual financial statements.

Share capitalThere has been no change in the authorised or issued share capital of the Com

pany during the year. The issued share capital of the Com

pany is 12 660 986 310 ordinary shares of R1 each. Further details pertaining to the Com

pany’s share capital are contained in note 21 of the annual financial statements.

Dividends

No dividend was declared in the current year. The dividend policy is reviewed annually and approved by the Shareholder Representative in the annual general m

eeting. The main objective is to utilise cash to support the

capital investment program

me. The policy provides that dividends will be declared to the Shareholder

Representative in circumstances where cash cannot be effectively utilised in the business; where retaining cash

does not create shareholder value; and provided that appropriate gearing and cash interest cover ratios are m

aintained.

Divisions, subsidiaries and associate com

paniesThe Com

pany intends to finalise the liquidation of Spoornet do Brasil Ltda (SdbL) during the course of the next financial year. A detailed list of subsidiaries and associate com

panies are contained in annexure D to the annual financial statem

ents.

Revaluation of property, plant and equipm

ent The accounting policies of the Com

pany require rail infrastructure, port infrastructure assets, port operating assets and pipeline networks to be carried at revalued am

ounts. A full revaluation of these assets is conducted every three years, with an index revaluation being perform

ed in the intervening years. During the current year, a full revaluation was perform

ed by independent valuation experts on rail infrastructure and pipeline networks and an index valuation was applied for port infrastructure and port operating assets.


ents 2015

REPO

RT O

F THE D

IRECTO

RS


Port facilities

The carrying value of port infrastructure was revalued by R4 442 million (2014: R6 838 m

illion) and port operating assets were revalued by R177 m

illion (2014: R945 million).

Pipeline netw

orks

The carrying value of pipeline networks was revalued by R843 million (2014: R467 m

illion).

Rail infrastructure

In the current financial year, the Group prospectively changed its accounting policy for rail infrastructure assets from

the historical cost basis to the revaluation model in accordance with IAS 16 Property, Plant and

Equipment. The policy change was as a result of the following factors:

• Capital interventions over the last five years have positively impacted on the average age and condition of

the rail infrastructure assets, consequently increasing their value;• To accurately reflect the econom

ic value of the assets to the Group in the statement of financial position;

and• To ensure consistency and alignm

ent across all Transnet Operating divisions with respect to accounting for infrastructure assets.

The Group applied the depreciated optimised replacem

ent cost and the discounted cash flow methods in

assessing the fair value of the assets. Accordingly, the carrying value of rail infrastructure assets was revalued by R49,8 billion to R75,2 billion. Additional details are provided on page 86.

Capital expenditure and com

mitm

entsThe Group’s capital investm

ent for the year ended 31 March 2015 am

ounted to R33,6 billion (excluding capitalised borrowing costs). This represents a 5,7%

increase from the prior year capital investm

ent of R31,8 billion, mainly

as a result of accelerating the locomotive, tugs and dredger acquisition program

me. The capital investm

ent for the year represents R14,5 billion invested in the expansion of infrastructure and equipm

ent, while R19,1 billion was invested to m

aintain capacity in the rail and ports divisions.

Further details regarding capital expenditure and comm

itments are contained in note 30 of the annual financial

statements.

FundingAs at 31 M

arch 2015, the Company’s total borrowings am

ounted to R110,4 billion (2014: R90,4 billion), an increase of R20 billion com

pared to the prior year.

The following sources of funding were actively utilised in reaching the funding requirement of R23,8 billion for

the year; comm

ercial paper, inaugural TN30 and TN40 bonds, private placements and bilateral long-dated loans

with an export credit agent and a local life insurance company.

In spite of the additional funding raised, the gearing ratio reduced to 40,0% com

pared to the 45,9% at

31 March 2014 m

ainly due to the first time revaluation of rail infrastructure assets. This level is still below the

Group’s target range of 50,0%, reflecting the additional capacity available to fund future capital expenditure.

The funding requirement for the next 15 m

onths to 30 June 2016 is R34,6 billion, including the cash buffer of R1 billion. Sufficient facilities are available to Transnet (detailed in the following table) to reduce liquidity risk and thus adopt the going concern assum

ption.

Sources of fundingR

billion

Cash on hand at 31 March 2015

6,3GM

TN7,0

DMTN

9,3Other loans

7,0Com

mitted facilities

5,0

Total34,6

Credit rating

Transnet is officially rated by two credit rating agencies, namely, Standard and Poor’s (S&P) and M

oody’s. During the year under review, both credit rating agencies, downgraded the sovereign rating. As an SOC, Transnet’s credit rating was affected and hence S&P changed the issuer credit rating to BBB- from

BBB in line with the sovereign rating, the rating outlook is stable and the standalone credit profile rem

ained unchanged at bbb+. Moody’s also

changed the Transnet issuer rating to Baa1 from A3 with a negative outlook and standalone to baa1 from

a3. M

oody’s rating is still 2 notches above sub investment grade, whilst S&P is in the last band before sub investm

ent grade. Transnet’s credit rating is depicted below:

Long-term rating category

Moody’s

Standard & Poor’s

Foreign currency Baa1/Negative outlook

BBB-/Stable outlookLocal currency

Baa2/Negative outlookBBB+/Stable outlook

National rating A1.za/A2.za

zaAA+/zaA-1

Post-retirement benefit obligations

Benefit funds

The Group provides various post-retirement benefits to its active and retired em

ployees, including pension, post-retirem

ent medical and other benefits. The two defined benefit funds, nam

ely the Transnet Sub-fund of the Transport Pension Fund (TTPF) and the Transnet Second Defined Benefit Fund (TSDBF), are fully funded with actuarial surpluses of R3,1 billion (2014: R2,3 billion) and R3,5 billion (2014: R2,6 billion) respectively. Transnet has not recognised any portion of the surplus on these funds, as the fund rules at present do not allow for the distribution of a surplus to the Group.

The Board of Trustees of the TTPF and TSDBF approved the payment of ad hoc bonuses to their beneficiaries,

during the year and up until April 2015, amounting to R36 m

illion and R320 million respectively. The total value

of ad hoc bonuses paid by the TTPF (since December 2011) and TSDBF (since Novem

ber 2007) to their beneficiaries am

ounts to R160 million and R2,2 billion respectively.

These payments continue to supplem

ent the current statutory increase of the beneficiaries of the TTPF and TSDBF to provide pensioners with increases above CPI. In addition to the paym

ents by the TTPF and TSDBF, Transnet has again m

ade an ex gratia payment to its m

ost disadvantaged pensioners of both the TTPF and TSDBF, am

ounting to R75 million in Novem

ber 2014. The payment has been m

ade in particular to those pensioners with very low pensions despite long service. This brings the total am

ount of ex gratia payments m

ade by Transnet to beneficiaries of the defined benefit funds (since July 2007) to R523 m

illion.


ents 2015

REPO

RT O

F THE D

IRECTO

RS


SATS pensioners’ post-retirem

ent medical benefit obligations

Transnet is comm

itted to identifying a sustainable long-term solution for the provision of m

edical scheme

benefits to SATS pensioners and their dependants.

The post-retirement m

edical benefit obligation is approximately R1 billion as at 31 M

arch 2015 (2014: R1,2 billion).

Passenger R

ail Agency of South A

frica (PR

ASA

)PRASA owed Transnet R1,8 billion at 31 M

arch 2014 and repaid R1,3 billion during the 2015 financial year. Additional services provided to PRASA during the year am

ounting to R1,2 billion, resulted in an outstanding am

ount of R1,1 billion at 31 March 2015.

Transnet remains com

mitted to working with PRASA in providing passenger rail services in South Africa.

Com

pliance and legislationTo the best knowledge and belief of the Directors, the Com

pany has, during the year, complied, in all m

aterial respects, with all legislation and regulations applicable to it, except as noted below.

PFM

A com

pliance

Transnet has implem

ented and maintained sound governance structures and processes in com

pliance with the provisions of the PFM

A. PFMA com

pliance is one of the key business issues that the Company m

anages and m

onitors. This monitoring function is achieved through the following:

• an approved PFMA policy and guideline;

• an automated reporting process on Cura system

;• an accreditation process on the Delegation of Authority Fram

ework, Procurement and PFM

A Policy and Procedures;

• intensified PFMA training and awareness program

me;

• data analytics to detect/prevent potential PFMA violations;

• integrated systems and processes; and

• a materiality fram

ework that has been established at Group-level with the support of the Shareholder Representative and cascaded throughout the Com

pany.

Sections 51 and 55 of the PFMA im

pose certain obligations on the Company relating to the prevention,

identification and reporting of fruitless and wasteful expenditure; irregular expenditure; expenditure that does not com

ply with operational policies; losses through criminal conduct and the collection of all revenue. To

comply with the PFM

A’s obligations, the Board has a materiality fram

ework, which was approved by the Minister

of Public Enterprises, subject to certain conditions.

The Shareholder Representative has determined that the m

ateriality limit for reporting in term

s of sections 55(2)(b)(i), (ii) and (iii) of the PFM

A is R25 million per transaction.

In terms of this m

ateriality framework, the following item

is reported as criminal conduct. This item

occurred prior to 2013 and was detected by the Com

pany’s internal processes. The Company is com

mitted to handling alleged

governance breaches in a firm and expeditious m

anner and accordingly comm

issioned an investigation which revealed that an em

ployee fraudulently gave clients lower rates for the transportation of manganese. The losses

arising from crim

inal conduct as contemplated by the PFM

A (as amended) am

ount to R488 million. The em

ployee was suspended during the investigation, and he later resigned. This m

atter has been reported to the South African Police Services com

mercial unit as well as the National Prosecuting Authority. The Board of Directors is confident

that appropriate corrective action has been taken and that the irregularity is no longer in effect. In addition, the Board of Directors is satisfied that all reasonable steps have been taken to prevent further losses to the Com

pany.

PFM

A reporting in 2015

Category of reportable item

s%

#R

million

Num

ber of item

s

Num

ber of finalised

disciplinaries/crim

inal cases

Fruitless and wasteful expenditure***0,04

23,0 27*

24/7Losses through crim

inal conduct***1,02

519,326*

11/600Total irregular expenditure***

0,0632,2

31*15/1

* Represents cumulative reportable item

s of the same nature.

*** Refer to annexure E for further disclosure.# Reportable item

s expressed as a % of total expenditure of R50,8 billion, which is net operating expenditure less personnel costs plus capital

expenditure.

The above table also reflects the number of finalised disciplinary cases instituted against em

ployees for non-com

pliance to the PFMA. However, it m

ust also be noted that there are numerous other cases that are still

pending finalisation, and are tracked and will be reported in the annual financial statements for the year ending

31 March 2016.

Incidents with R nil values are not included in the reportable numbers, however, the related South African Police

Services cases and disciplinary actions are included.

608 criminal cases have been lodged with the South African Police Services and the bulk relates m

ainly to losses through crim

inal conduct.

PFM

A reporting in 2014

Category of reportable item

s%

#R

million

Num

ber of item

s

Num

ber of finalised

disciplinaries/crim

inal cases

Fruitless and wasteful expenditure0,02

13,032*

21/0

Losses through criminal conduct

0,0839,9

54*10/334

Non-collection of revenue***–

0,81

2/0

Total irregular expenditure0,10

49,6**18

7/0Less: Irregular expenditure condoned

0,01(6,8)

(4)0/0

Remaining irregular expenditure

0,0942,8

147/0

* Represents cumulative reportable item

s of the same nature.

** Includes an item under investigation pending finalisation.

*** Refer to annexure E for further disclosure.# Reportable item

s expressed as a % of total expenditure of R48,1 billion, which is net operating expenditure less personnel costs plus capital

expenditure.

334 criminal cases were lodged with South African Police Services and the bulk related to losses through

criminal conduct.


ents 2015

REPO

RT O

F THE D

IRECTO

RS


Transnet is comm

itted to prevent and reduce irregular expenditure by embarking on various initiatives to

achieve sustainable results. 19 initiatives have been implem

ented of which 12 have been completed.

Num

berInitiative

Status

"1.Updating PFM

A policy and guideline.Com

pleted.

"2.Roll out of PFM

A training to all Operating divisions. Com

pleted.

"3.Inclusion of PFM

A training in new employee induction m

anual.Com

pleted.

"4.Presentation to Operating Division Exco m

embers.

Completed.

"5.M

igration of PFMA from

Cura system to SAP GRC.

SAP GRC system feasibility study com

pleted, and roadmap in progress for next

phase.On track.

"6.Additional data analytic indicators developed.

Completed.

"7.(a) Developm

ent and implem

entation of PFMA online training and accreditation

– completed.

(b) Accreditation rolled out to all Exco and extended Exco mem

bers and manager

levels C, D and E completed (Phase 1 and 2).

Roll out preparations to levels F, G and new appointments from

level A to E in progress. Targeted roll out July 2015 (Phase 3).

On track.

"8.PFM

A control self assessment.

Development com

pleted. Establishing workaround links for duplicate controls in other processes which currently SAP GRC cannot facilitate.

On track.

"9.Training on standard operational procedures at Operating divisions.

Completed.

10.Developm

ent and implem

entation of supplier integrity pacts. Com

pleted.

11.Forensics and procurem

ent training on procurement related violations.

Completed.

12.Fraud resistance assessm

ents and compliance checks.

Completed.

13.Forensics data analytics.

Completed.

14.Knowledge sharing with other Public Entities.

Completed.

15.Activation of SAP request for quotation functionality across all Operating divisions.Business case prepared and approved, tender awarded and process to be included in the Procurem

ent Pyramid Program

me.

On track.

16.Developing and im

plementing contract lifecycle m

anagement system

. Contract lifecycle m

anagement system

upgrade and migration of all contracts into a

single repository completed. Integration, user access, linking to purchase order,

reporting and tender automation to com

mence when system

is fully functional.

On track.

17.Im

plementing data quality im

provement project for vendor, m

aterial and service m

aster data clean ups.On track.

18.Im

provement to data analytics solution to m

onitor effectiveness and efficiency of ‘Procure to Pay’ process across Transnet.

On track.

19.Com

pliance review by TIA on adequacy of implem

entation of delegation of authority on the SAP system

.Com

pleted.

Economic regulation and regulatory reform

The tariffs of two Operating divisions, namely Transnet Pipelines (Pipelines) and Transnet National Ports Authority

(National Ports Authority) are regulated by independent regulators. The National Energy Regulator of South Africa (NERSA ) regulates the tariffs of the petroleum

pipeline system, storage facility at Tarlton and gas

transmission pipeline for Pipelines. The Ports Regulator regulates the tariffs charged by National Ports Authority.

With approxim

ately 19,0% of Transnet’s revenue and 34,0%

of its EBITDA impacted by econom

ic regulation, unless the relationships with regulators are m

anaged proactively and strategically their decisions could have a significant im

pact on investment decisions, investor confidence and ultim

ately on the execution of the MDS

R336,6 billion capital investment plan.

Transnet believes that understanding regulatory issues in extreme detail is a prerequisite not only for

anticipating risks and opportunities but also for building mutually beneficial relationships, based on trust and

transparency, with the economic regulators. Significant progress has been m

ade between Transnet and the Ports Regulator following recent engagem

ents on the regulatory framework. In the com

ing months em

phasis will be placed on finalising the pricing strategy which would achieve the spirit of the National Ports Act, No 12 of 2005 (Ports Act) whilst at the sam

e time afford National Ports Authority and Transnet the ability to deliver

on its MDS and m

aintain financial sustainability.

The potential for making decisions in determ

ining and setting tariffs that may negatively im

pact the future sustainability of the M

DS remains a key risk for Transnet given the capacity constraints faced by econom

ic regulators, and lim

ited recourse by the regulated entities in the absence of an appeal mechanism

. Credible appeal m

echanisms need to be put in place and attention needs to be paid to m

onitoring the performance and decisions

of regulators in line with international best practice and benchmarks.

Transnet Pipelines

Petroleum

levy and corporatisation of Transnet Pipelines

One of the conditions of the levy, paragraph 6.1.5 of the Grant Funding Agreement, was that Transnet provide

the Department of Energy (DoE) with explicit details on the progress in respect of the corporatisation of

Pipelines in line with the directive of the Shareholder Representative. Transnet presented to the Department of

Public Enterprises (DPE) a brief overview of the key issues that will arise with the corporatisation of Pipelines and highlighted areas for further investigation. On 5 February 2013, the form

er Chairperson of Transnet wrote to the form

er Shareholder Representative, requesting him to reconsider the corporatisation of Pipelines and

rescind the previous decision as per the letter of 30 April 2010.

On 24 May 2013, the form

er Shareholder Representative responded to the Chairperson of Transnet stating that he has written to the M

inisters of Finance and Energy recomm

ending that the condition for Pipelines to be corporatised be waived at this point in tim

e. The Shareholder Representative however pointed out that in the future there m

ay be a government im

perative which needs to be fulfilled and would necessitate the need for the corporatisation of Pipelines. Should this be the case, it m

ay be necessary to resuscitate the issue of corporatisation. Transnet awaits the response from

the Ministers of Finance and Energy through the office of

the Shareholder Representative.

The potential corporatisation of Pipelines poses significant risks to Transnet, as it could have a material

adverse impact on Transnet, both financially and strategically, and could constitute an event of default under

some of Transnet’s funding agreem

ents.


ents 2015

REPO

RT O

F THE D

IRECTO

RS


Tariffs

On 31 October 2014, Pipelines submitted its 2016 Petroleum

Pipeline System Tariff Application to the NERSA.

Pipelines filed for an allowable revenue requirement of R3 395 m

illion for the 2016 tariff period, a 15,58%

increase in allowable revenue from the 2015 allowable revenue of R2 938 m

illion as set by NERSA.

On 12 March 2015, NERSA decided on Pipelines’ application for the 2016 period. NERSA increased Pipelines

allowable revenue to R3 357 million (14,28%

) for the 2016 financial year.


uthority

The potential corporatisation of Transnet National Ports A

uthority

The National Ports Act, No 12 of 2005 (Ports Act) provides for the corporatisation of the National Ports Authority. On 17 June 2008, the Governm

ent, through the President of the Republic of South Africa, informed Transnet in

writing that it would not initiate the corporatisation process and that appropriate amendm

ents to the Ports Act will be considered.

On 28 September 2012, at a National Ports Consultative Com

mittee M

eeting (NPCC) held in Cape Town between port stakeholders and the National Ports Authority, the issue of the National Ports Authority corporatisation was tabled. The consensus of the NPCC m

embers, representing the Departm

ent of Public Enterprises (DPE), Departm

ent of Transport (DoT), Department of Trade and Industry (DTI), port users and the Ports Regulator, was

that changes to the section 3(2) of the Ports Act and other relevant sections of the Ports Act be effected.

On 10 January 2013 correspondence was sent to the Shareholder Representative as a recomm

endation to take the process of legislative review forward in the least cum

bersome way possible. To this end, Transnet

recomm

ended a one worded amendm

ent to the Ports Act which would have the effect of giving the Shareholder Representative the discretion to corporatise instead of the current obligatory provision in section 3(2) which m

andates the Shareholder Representative to corporatise without any discretion in this regard. This can be done by substituting the word ‘m

ust’ with the word ‘may’ in section 3(2) of the Ports Act.

On 10 June 2013, DoT informed Transnet of The National Ports Act Am

endment Bill, 2013, which states that

section 3 of the principal Act is hereby amended by the substitution of section 3(2) for the following:

‘As soon as this Act takes effect, the shareholding Minster [m

ust] may ensure that the necessary steps are taken

for the incorporation of the National Port Authority of South Africa as a company contem

plated in subsection 3.’

Transnet awaits the finalisation of this amendm

ent. Transnet is currently conducting a comprehensive review of all

aspects of the Ports Act, to be presented to the DPE for discussions with the DoT.

The engagements between Transnet and DPE are aim

ed at ensuring that the appropriate amendm

ents to the Ports Act are effected. The potential corporatisation of National Ports Authority poses significant risks to Transnet, as it could have a m

aterial adverse impact on the Com

pany, both financially and strategically, and could trigger default clauses of Transnet’s funding agreem

ents.

Tariffs

On 1 September 2014, the National Ports Authority subm

itted its multi-year tariff application to the Ports

Regulator. Using the approved multi-year tariff m

anual, the National Ports Authority’s resultant revenue requirem

ent for the 2016 financial year is R11 208 million. The average m

ulti-year tariff increase amounted

to 9,47%.

On 25 February 2015, the Ports Regulator approved the National Ports Authority’s tariffs and granted a 4,8%

increase in average tariffs and adjusted the volume forecast to 4,3%

resulting in an allowable revenue of R11,1 billion for the 2016 financial year.

The National Environm

ental Managem

ent: Integrated Coastal M

anagement (IC

M) A

ct 24 of 2008 A

mendm

ent Bill

The ICM Act contains a num

ber of sections detrimental to Transnet, the m

ost important of which were withheld

from com

ing into effect in order to prevent Transnet losing ownership of Port Assets. The amendm

ent Bill issued by the Departm

ent of Environment Affairs (DEA) in Decem

ber 2011 for comm

ent failed to address these concerns and Transnet continued its engagem

ent with the Department of Public Enterprises (DPE) throughout 2012,

attempting to find a solution.

On 7 November 2012, Cabinet approved another version of the Bill (the Bill 2013) for subm

ission to Parliament in

2013. On 21 December 2012, DEA published an Explanation Sum

mary of the Bill 2013 in which it claim

ed to have addressed Transnet’s concerns. Transnet was advised by Senior Counsel that the current version of the Bill m

ay still result in Transnet losing ownership of its assets in the sea, seashore and seabed within ports. Further to that the loss of ownership of those assets could trigger a default event or be considered to be a m

aterial adverse event in respect of Transnet’s existing loan covenants.

The Minister of Public Enterprises was inform

ed of Transnet’s revised submissions to the Portfolio Com

mittee on

Environmental Affairs and the Com

pany made a request for the Departm

ent of Public Enterprise’s support in Transnet’s Parliam

entary engagements on this issue.

The current wording of section 6(4) only protects Transnet’s ownership of port infrastructure constructed prior to the Act com

ing into effect and does not protect Transnet’s ownership of new infrastructure. On 13 March 2014,

Transnet’s Group Chief Executive wrote to the DEA expressing Transnet’s concern with the present wording of section 6(4) and suggesting that it be am

ended to expressly preserve Transnet’s ownership of channels and basins, as well as port infrastructure and installations to be constructed in the future. The letter also requested the M

inister of Environmental Affairs to furnish Transnet with a written exem

ption which states that Transnet is, from

the date of coming into operation of section 11, exem

pt from the provisions of section 11 in relation to

its ownership of installations and infrastructure within ports, including channels and basins, whether constructed before or after section 11 com

es into operation. Section 11 stipulates that “ownership of coastal public property vests in the citizens of the Republic and coastal public property m

ust be held in trust by the State on behalf of the citizens of the Republic”.

On 8 May 2015 the M

inister of Environmental Affairs exem

pted Transnet from the application of section 11, read

with section 6(4), of the ICM Act to the extent it applies to port infrastructure. The exem

ption is subject to certain specified conditions and is valid from

the date of comm

encement of section 11 of the ICM

Act.

Port of Ngqura C

ontainer Licence

On 9 November 2011, the Cabinet directed National Ports Authority to licence Transnet Port Term

inals (Port Term

inals) to operate the Port of Ngqura for a limited period of three years. This is subject to National Ports

Authority beginning a competitive process for the licensing of the Port of Ngqura in accordance with Section 56

of the National Ports Act, 2005 (Act No. 12 of 2005) (the Ports Act). The three-year period comm

enced upon the receipt of the instruction from

the Minister of Transport to National Ports Authority dated 27 January 2012.

On 12 September 2012, Port Term

inals presented its proposal to the Policy and Regulation Comm

ittee and was requested to further evaluate the risks and strengthen their proposal prior to subm

ission to the Transnet Exco for approval. On 3 October 2012, the M

inister of Transport informed the M

inister of Public Enterprises of the am

endment to the Directive dated 27 January 2012 to perm

it National Ports Authority to issue four (berths) licences instead of the two (berths) as was directed in the previous Directive.

This Directive in terms of Section 79 of the Ports Act allowed National Ports Authority to issue a licence to Port

Terminals to operate the four berths at the container term

inal at the Port of Ngqura for a period of three years,


ents 2015

REPO

RT O

F THE D

IRECTO

RS


which National Ports Authority did. National Ports Authority then embarked on a section 56 process as per the

Directive from the M

inister of Transport.

A subsequent Directive was received from the M

inister of Transport to suspend the section 56 process for Ngqura Container Term

inal, and National Ports Authority complied im

mediately. A letter was sent to the M

inister of Transport requesting clarity on the way forward. The M

inister of Transport responded requesting copies of all relevant docum

entation, which copies were provided by National Ports Authority. A response from the M

inister of Transport is awaited.

Freight Rail

The DoT Draft Green Paper on Rail Reform was issued to various stakeholders in April 2012 for com

ment.

Transnet, supported by the DPE, presented its position to DoT and engagements are ongoing to ensure

alignment before the Draft Green Paper is subm

itted to Cabinet.

DPE hosted numerous workshops with DoT and Transnet Freight Rail (Freight Rail) for inform

ation sharing and alignm

ent. During these meetings, DoT acknowledged the value of the M

DS and that the proposed rail policy should not underm

ine the MDS’s objectives, rather, that it should support or enhance the M

DS, the rail policy needs to be explicit about short, m

edium and long-term

interventions over a period of 30 to 40 years. DoT also acknowledged that the policy does not provide sufficient details, and is not explicit in other areas and that m

ore analysis needs to be done in consultation with DPE/Freight Rail/National Treasury.

Following the meeting held on the 23 October 2014 between the M

insters of Transport and Public Enterprises, on 10 Novem

ber 2014, Transnet’s chairperson sent a letter to the Minister of Public Enterprises providing

further comm

ents on the National Rail Policy and the Draft Bill on the Single Transport Economic Regulator.

On 10 March 2015, DPE provided Freight Rail with an update on the following:

(1)# The Interim

Rail Economic Regulator (IRER) M

emorandum

of Understanding has been signed by the M

inisters of Transport and Public Enterprises; and(2)#

The Situational Analysis Document on Transport Econom

ic Regulation Bill is currently being reviewed by DoT and DPE.

Judicial proceedingsThe annual financial statem

ents include a best estimate of expected settlem

ent costs for judicial proceedings entered into by Transnet, as either defendant or plaintiff, where the outcom

e can be assessed with reasonable certainty. These estim

ates take into account the legal opinions obtained for the Group. The contingent liabilities of the Group have been disclosed in note 31 to the annual financial statem

ents.

Transnet Pensioner’s C

lass Action

In the 2014 financial year, Transnet received a Notice of Motion in term

s of which two Transnet pensioners applied to the North Gauteng High Court to institute a class action against seven respondents, including Transnet. The applicants sought to institute action for the injection of m

onies into the Transnet Second defined Benefit Fund and the Transport Pension Fund: Transnet Sub-fund.

On 17 December 2014 the Suprem

e Court of Appeals issued an order dismissing Transnet’s (and the Pension

Funds’) petition for special leave to appeal the certification of the class action, on the grounds that there are no prospects of success on appeal. Transnet took a decision not to appeal the certification any further, but to defend the action on the m

erits once instituted. The action has not been instituted yet.

Transnet remains confident, based on legal advice, that it will be able to successfully defend the class action.

Going concern

The successful execution of the MDS is critical to Transnet as it form

s the basis of future growth for the Group and the South African econom

y. Consequently the successful execution of the funding strategy and the ability of the Group to m

eet its comm

itments to investors are of param

ount importance.

Given the dynamic m

anagement reporting approach to achieve the agreed financial m

etrics and improve

profitability based on operating and financial indicators, the Board of Directors are confident that the Group will be a going concern for the foreseeable future.

The Board of Directors, having considered all significant variables that may im

pact the Group’s cash flow requirem

ents, are of the opinion that adequate funding is available. This, together with the fact that the underlying net worth of the Group has increased and is projected to continue to increase over the M

DS period, supports the going-concern assum

ption as appropriate in the preparation of the Group results for the year ended 31 M

arch 2015.

Rem

uneration Introduction

The remuneration report provides an overview of the Transnet rem

uneration philosophy and strategic intent and details of specific reward interventions that occurred during the 2015 reporting year for independent non-executive directors, m

embers of the Group and operating divisional executive com

mittees, m

anagers and bargaining unit em

ployees.

Terminology

For the purposes of this report:• The term

executives refers to mem

bers of the Transnet Group Executive Comm

ittee and the operating divisional executive com

mittees (grade levels A and B),

• Managem

ent refers to the rest of the managem

ent employees (grade levels C to F),

• Bargaining unit employees refers to all em

ployees whose conditions of employees are negotiated. This term

includes first line m

anagers, specialists and technicians (grade level G refers to first line manager, specialist

and technician and grade levels H to L to the rest of the bargaining unit employees), and

• Junior employees refer to bargaining unit em

ployees on the grade levels below the first line managers,

specialists and technicians.

Rem

uneration philosophy and strategy

Transnet is entering the fourth year of the MDS which entails the achievem

ent of rigorous financial and operational perform

ance objectives over a period of seven years. The successful execution of the MDS, not only

serves the interest of Transnet, but will hugely impact the South African econom

y.

The Human Resources strategy, inclusive of the reward strategy, is designed to facilitate the achievem

ent of the strategic objectives of the M

DS. The Transnet remuneration philosophy and fram

ework form an integrated

part of the key deliverables of the human resources strategy and therefore the reward strategies rem

ain focused on entrenching a perform

ance driven culture.

The objective of the Transnet reward philosophy is to provide a framework for a fair and transparent reward

dispensation that:• Supports the objectives of the business strategy;• Ensures the long-term

sustainability of the business;


ents 2015

REPO

RT O

F THE D

IRECTO

RS


• Ensures that all employees are paid a fair and com

petitive salary;• Aim

s to attract and retain valued employees; and

• Ensures that employees are rewarded and recognised for high perform

ance.

The remuneration philosophy for Transnet takes into account the different hierarchical levels inform

ed by com

plexity, decision making and judgm

ent.

Transnet has clustered these hierarchical levels into three respective categories of employees, sum

marised

as follows:• Executive and m

anagement levels;

• First line managers, specialists and technicians (grade level G) form

part of the bargaining unit; and• Junior em

ployees (grade levels H to L) form part of the bargaining unit.

The objective of the Transnet remuneration strategy is to:

• Provide an integrated approach for remuneration m

anagement across Transnet that effectively attracts,

motivates, engages and retains the talent required to achieve Transnet’s business objectives;

• Align remuneration practices with Transnet’s business strategy thereby ensuring that the rem

uneration practices support the business objectives.

• Inform rem

uneration decisions that will be made across Transnet to ensure:

–Remuneration related cost is contained;

–Performance is recognised and rewarded;

–Performance im

provement is incentivised;

–Changing business requirements can be accom

modated;

– Optimal return on expenditure is achieved;

–Legal, ethical and best practice standards are adhered to; –The business rem

ains sustainable over the long term;

–Compliance with corporate governance and citizenship; and

–Compliance with em

ployment and taxation legislation.

The different reward elements are discussed in detail in the paragraphs below:

Guaranteed pay

Transnet remains com

mitted to fair rem

uneration practices that support the business objectives and create a culture and environm

ent for superior performance and facilitate em

ployee development and retention of

critical and key skills.

In general, Transnet strives to align guaranteed remuneration with the m

arket median. The determ

ination of individual rem

uneration levels is, however, strictly controlled across the business and subject to directives in this regard and also inform

ed by the various collective agreements.

Annual salary increases are informed by an approved m

andate obtained from the Rem

uneration, Social and Ethics Com

mittee of the Board.

Annual increases for managem

ent levels are impacted by individual perform

ance scores.

Increases for bargaining unit employees are determ

ined by the outcome of the annual wage negotiation

process. The 2015 financial year was the second and last year of the two year wage agreement that Transnet

concluded with the recognised unions. Transnet will, in the 2016 financial year, engage labour to again negotiate

a multi-year wage agreem

ent to ensure stability in employee relations and a reduced risk of industrial action.

Transnet does not support interim/ad-hoc salary increases.

It is compulsory for all perm

anent employees to join the Transnet Retirem

ent Fund, which provides for retirem

ent funding, risk cover and a death benefit.

Bargaining unit employees, who opt to becom

e a principal mem

ber of one of the Transnet recognised medical

schemes, are eligible to receive a m

edical subsidy.

Variable pay

Transnet has implem

ented a short- and a long-term incentive schem

e.

The short-term incentive schem

e is applicable to all employees and is governed by detailed ground rules,

annually approved by the Remuneration, Social and Ethics Com

mittee of the Board. The long-term

incentive schem

e is applicable to executive and selected senior managers.

The objective of the incentive schemes is to encourage stretch perform

ance and reward performance above

target. Individual strategic objectives of managem

ent employees are derived from

and aligned with key perform

ance indicators as stated in the Shareholder’s Compact.

The detail of the short- and long-term incentive schem

es are described in more detail below:

Short-term incentive schem

e

The design of the short-term incentive schem

e aims to drive the achievem

ent of stretch business targets and to reward em

ployees for this effort.

The bonus pool, funding the payment of the annual short-term

incentive, is generated by the achievement of the

Transnet “earnings before interest, taxation, depreciation and amortisation” (EBITDA) target. The pool is

modified by a productivity m

easure relating to the key performance indicators as per the Shareholder’s Com

pact as well as the safety achievem

ent. The non-achievement of productivity and safety targets can reduce the bonus

pool with up to 50%.

Employees on m

anagement levels qualify for an annual short-term

incentive payment provided that the

business objectives have been achieved. Eligibility percentages are differentiated based on the grade level of the m

anager. Managem

ent has a higher component of at-risk pay (variable pay) which is dependent on the

achievement of set business objectives. Individual bonus percentages are further m

odified with individual perform

ance assessment ratings.

In addition to the annual component of the short-term

incentive scheme, a gain share incentive schem

e was im

plemented for bargaining unit em

ployees. The objective of the gain share is to enhance line of sight between targets and actual perform

ance as well as to ensure internal parity. This provided that the majority of

bargaining unit employees could potentially earn:

• An annual on-target bonus component, aim

ed at achieving performance targets with an on-target eligibility

of 10% for junior em

ployees and 12% for first line m

anagers, specialists and technicians; plus• A quarterly gain-share bonus com

ponent, which becomes accessible by exceeding the quarterly EBITDA and

relevant secondary measure targets. Em

ployees have the opportunity to gain up to a maxim

um of 16%

per annum

when super stretch business targets are exceeded (120% of EBITDA).

The combined annual and gain share com

ponents of the short-term incentive schem

e allows bargaining unit em

ployees to earn up to a maxim

um of 26%

of annual pensionable salary for junior employees and 28%

of annual cost to com

pany package for first line managers, specialists and technicians.


ents 2015

REPO

RT O

F THE D

IRECTO

RS


Long-term incentive schem

e

Transnet has implem

ented a long-term incentive schem

e. The objectives of the long-term incentive are to

sustain the achievement of the Transnet strategy, to retain key talent who ensure the success of the growth

strategy, to encourage stretch performance and reward perform

ance above target.

The long-term incentive is designed on a three year rolling basis to ensure sustained business perform

ance and retention over the three year banking period. Participation in the schem

e is informed by level of seniority in the

organisation, individual performance as well as results from

the talent managem

ent framework which inform

s key talent who m

ay participate in the long-term incentive schem

e. Individual performance and talent ratings

also impact on the vesting of the conditional award.

The long-term incentive schem

e has specific clauses dealing with company perform

ance over the banking period and to this effect a Group m

odifier has been introduced. Return on total average assets (ROTA) (excluding capital work in progress) is used as the Group LTI m

odifier.

Individual performance m

anagement

Transnet has implem

ented the balanced scorecard performance m

anagement m

ethodology for the managem

ent category as well as for first line m

anagers, specialists and technicians.

The annual company objectives as per the Shareholder’s Com

pact are translated into a corporate scorecard and then cascaded to all m

anagers across Transnet. Performance in term

s of the corporate as well as individual scorecards form

s the basis for the determination of short-term

incentive payments and annual increases.

Rew

ard interventions during 2015

Integrated and standardised reward m

odel for bargaining unit employees

Transnet has, since 2007, embarked with the design and im

plementation of an integrated and standardised

reward model for all Transnet bargaining unit em

ployees.

To date, Transnet has implem

ented four different reward agreements, each addressing a specific category of

employees, sum

marised as follows:

• The train movem

ent agreement, im

plemented in October 2007;

• The first line managers, specialists and technicians agreem

ent, implem

ented in March 2008 and am

ended in M

arch 2013;• The artisan agreem

ent, implem

ented in April 2008; and• The new reward agreem

ent for the rest of the bargaining unit employees, not covered by the other three

reward agreements, im

plemented in M

arch 2012.

The new reward agreement introduced, standardised grades for jobs/positions in the bargaining unit across

Transnet as well as entry level pay points per grade level for permanent bargaining unit em

ployees (except for Port Term

inals and National Ports Authority). No agreement was, however, reached on pay scales, i.e. a

maxim

um pay point per grade level was not agreed and thus there was also no agreem

ent on the pay progression m

ethodology to be followed in order to reach the maxim

um.

During the year, negotiations have progressed to the point where the labour representatives have circulated the draft agreem

ent to their constituents for mandating. The draft agreem

ent includes the maxim

um pay scales per

grade level and performance m

anagement as a m

ethod for pay progression.

Career advancem

ent for managem

ent

As a result of specific challenges experienced with the reward of the managem

ent cadre, Transnet is embarking

on a reward solution for the managem

ent category.

The proposed solution is summ

arised as follows:• The im

plementation of a career path fram

ework, differentiating between specialist, managerial and technical

categories of employm

ent;• The introduction of an integrated com

petency and performance fram

ework to provide for monetary

recognition based on individual growth, development and perform

ance within a job; and• The introduction of specific m

easures to provide for increased flexibility in the reward approach, that will continue to ensure sufficient control over the wage cost.

Collective agreem

ent in respect of fixed-term contract em

ployees

The Labour Relations Act (LRA) amendm

ents have introduced fundamental changes to the future way of

employing fixed-term

contract employees, part-tim

e employees and labour broker em

ployees. The amendm

ents aim

to prevent abuse and discrimination of lower earning fixed-term

contract employees and part-tim

e em

ployment contracts.

In terms of the am

endments to the LRA, those em

ployees earning below the BCEA earnings threshold of R205 433 per annum

can only be engaged on a fixed-term contract or successive fixed-term

contracts subject to specific em

ployment conditions.

An employer who does not com

ply with the amendm

ents, runs the risk that the employm

ent of the fixed-term

contract employee m

ay be deemed to be of an indefinite basis, in which the event the provision of section

198B(8) may apply. This section provides that if a fixed-term

contract is longer than three months, the

employee m

ust not be treated “less favourably” than an employee em

ployed on a permanent basis, perform

ing sim

ilar work, unless there is a “justifiable reason” for different treatment.

Transnet’s employm

ent realities place the organisation at considerable risk in terms of com

pliance with the am

endments and changes to the LRA. The LRA am

endments, however, provided Transnet with an opportunity to

conclude a collective agreement and section 198B (2) (c) provides that the provisions described above only

apply to the extent that they are not varied in a collective agreement.

Transnet has concluded a collective agreement with labour during Decem

ber 2014 on the terms and conditions

of fixed-term contract em

ployees across Transnet. The collective agreement varies the term

s of the LRA am

endments.

The signed collective agreement m

itigates the impact of the law com

ing into effect and the cost impact

associated with the amendm

ents.

The terms of the collective agreem

ent were implem

ented with effect from 1 January 2015.


ents 2015

REPO

RT O

F THE D

IRECTO

RS


Rem

uneration for Group Executive C

omm

ittee mem

bers

The guaranteed remuneration of the m

embers of the Transnet Group Executive Com

mittee was adjusted with an

average of 6%, allocated based on individual perform

ance rating and market com

parison, effective 1 April 2014.

The table below depicts the guaranteed pay of the Group Executive Comm

ittee for the 2015 financial year.

Guaranteed pay of Transnet G

roup ExecutivesPost-retirem

ent benefit fund

Other

Other

TotalTotal

Executive Com

mittee

Salarycontributions

contributionspaym

ents2015

2014m

ember

R000

R000

R000

R000

R000

R000

B Molefe

*6 115

561–

26 678

6 421S Gam

a4 632

330–

975 059

4 800M

Gregg-Macdonald

2 889281

–2

3 1723 108

CA Möller**

1 319104

–341

1 7643 255

T Morwe

13 571

2556

1643 996

3 722KC Phihlela

3 328223

–84

3 6353 529

A Singh*

4 005389

–2

4 3964 322

KXT Socikwa3 721

340–

1744 235

3 995R Vallihu

3 656289

–169

4 1143 880

EAN Sishi2 818

274–

1333 225

2 953DC M

oephuli2 715

288–

23 005

2 835S Chetty

2 185183

–2

2 3702 205

NJ Mabandla***

78877

–518

1 3832 520

RE Lepule2 818

274–

23 094

2 919M

A Sukati2 687

226–

22 915

2 062M

A Matooane

(Dr)2 363

251–

302 644

523LM

H Msagala****

1 551151

–107

1 809–

ZE Lebelo****1 441

110–

1071 658

–N Silinga****

1 431120

–68

1 619–

54 0334726

62 006

60 77153 049

* Group Executives who are m

embers of the Board of Directors.

** Retired during the year.

*** Resigned during the year.

**** Appointed during the year.(Dr) Doctor.1

Retired post year end.

Executive remuneration – variable

The mem


ittee qualify for an annual short-term incentive paym

ent provided that the strategic objectives, as agreed with the Shareholder Representative, have been achieved. Individual bonus percentages are further m

odified with individual performance assessm

ent ratings.

The eligibility percentages linked to specific business performance achievem

ent is indicated in the table below:

Employm

ent categoryG

rade level

Qualifying percentage

ThresholdO

n-targetM

aximum

Group Executive Comm

itteeA

25%50%

100%

Extended Executive Comm

itteeB

20%40%

80%

Short- and long-term incentive paym

ents

The short-term incentive paym

ent for the 2015 financial year was based on the actual achievement of the annual

EBITDA as well as the productivity and safety modifiers at Group and Operating division levels, which resulted in a

reduction modifier of 40%

being applied.

The highlights of the business results for the financial year are summ

arised as follows:• Revenue increased by 8,0%

to R61,2 billion;• EBITDA increase by 8,2%

to R25,6 billion;• Operating profit increase of 13,4%

to R14,6 billion;• Capital investm

ent for the year of R33,6 billion constituting an increase of 5,7% on the prior year;

• Cash generated from operations increased by 13,5%

to R27,3 billion; and • Gearing at 40,0%

and cash interest cover at 3,6 times.

The 2012 conditional award in respect of the Transnet long-term incentive schem

e vested at the end of the 2015 financial year. The value of the long-term

incentive payment is im

pacted by the level of achievement of specific

company and individual perform

ance objectives.

The mem


ittee were eligible for payment in respect of the long-term

incentive schem

e based on the ground rules of the scheme.

The payment of these vested am

ounts took place at the end of April 2015.


ents 2015

REPO

RT O

F THE D

IRECTO

RS


The table below reflects the short- and long-term incentive paym

ents for the Group Executives.

LTILTI

STISTI

20152014

20152014

Transnet executiveR

000R

000R

000R

000

B Molefe

*6 835

–1 551

2 952S Gam

a5 194

2 6531 153

2 259M

Gregg-Macdonald

3 1032 115

7451 447

CA Möller**

2 9532 036

3091 001

T Morwe

13 769

1 964901

1 297KC Phihlela

3 4102 381

8351 645

A Singh*

4 5052 857

1 0211 989

KXT Socikwa4 158

2 716976

1 880R Vallihu

4 0402 199

8741 781

DC Moephuli

2 1411 199

6361 336

S Chetty1 567

893735

1 045NJ M

abandla***–

––

1 111RE Lepule

––

7101 361

EAN Sishi–

–702

1 353M

A Sukati–

–708

1 013M

A Matooane (Dr)

––

572307

LMH M

sagala****1 709

–644

–ZE Lebelo****

––

567–

N Silinga****636

–581

–

44 02021 013

14 22023 777

* Group Executives who are m

embers of the Board of Directors.

** Retired during the year.

*** Resigned during the year.

**** Appointed during the year.(Dr) Doctor.1

Retired post year end.

Rem

uneration structure for independent non-executive directors

Independent non-executive directors are appointed by the Shareholder Representative for a three-year term.

The Mem

orandum of Incorporation of the com

pany, however, require that the independent non-executive directors be subm

itted for re-election for each of the three years at the Company’s annual general m

eeting.

Among the issues considered by the Shareholder Representative prior to re-election is the individual independent

non-executive director’s performance. The new Transnet Board was appointed during Decem

ber 2014.

The Shareholder Representative approves, in advance, the fees payable to independent non-executive directors. The independent non-executive directors are paid an annual retainer as well as an additional retainer fee for com

mittee m

embership.

Fees paid to independent non-executive directors are differentiated based on their appointments to the

various comm

ittees of the Board.

The table below depicts the actual remuneration for the Transnet independent non-executive directors for the

financial year.

Other

TotalTotal

Feespaym

ents2015

2014Independent non-executive directors

R 000

R 000

R 000

R 000

LC Mabaso (Chairperson) 1

3371

338–

ME M

kwanazi (Chairperson) 2760

1761

1 050NR Njeke

3274

–274

630Y Forbes

691–

691653

MA Fanucchi 2

370–

370472

NK Choubey4

––

–98

HD Gazendam2

702–

702634

IB Skosana* 2432

–432

551N M

oola493

–493

472IM

Sharma

2434

–434

551ZE Tshabalala

2456

–456

574DLJ Tshepe

2493

–493

630NP M

nxasana2

370–

370472

PEB Mathekga

1123

–123

–GJ M

ahlalela1

123–

123–

ZA Nagdee1

123–

123–

VM Nkonyane

1144

–144

–M

R Seleke1

144–

144–

SD Shane1

144–

144–

BG Stagman

1144

–144

–PG W

illiams

1123

–123

–

6 8802

6 8826 787

* Director’s fees paid to Kapela Investment Holdings Proprietary Lim

ited.1 Appointed during the year.2 Retired during the year.3 Resigned during the year.4 Resigned during the prior year.

Rem

uneration, Social and Ethics Com

mittee of the B

oardConsistent with the King III report and regulation 43 of the new Com

panies Act, the Board has established the Rem

uneration, Social and Ethics Comm

ittee to assist in discharging its responsibilities. The mandate outlining

the authority delegated to it by the Board includes the purpose of the Remuneration, Social and Ethics

Comm

ittee, composition, reporting responsibilities, term

s of reference and the right of any mem

ber to seek and be provided with independent advice at the Com

pany’s expense if such mem

ber considers that necessary for the effective execution of his/her fiduciary duties to the Com

pany.

The Comm

ittee has an independent role, operating as an overseer and a maker of recom

mendations to the

Board for its consideration and final approval. The Comm

ittee does not assume the functions of m

anagement,

which remain the responsibility of the executive directors, officers and other m

embers of senior m

anagement.


ents 2015

REPO

RT O

F THE D

IRECTO

RS


Transnet SOC Ltd (the Company) is a com

pany domiciled in South Africa.

The consolidated financial statements for the year ended 31 M

arch 2015 comprise the Com

pany and its subsidiaries (together referred to as the “Group”) and the Group’s interest in associates and joint ventures.

The consolidated financial statements were authorised for issue by the Board of Directors on 1 June 2015.

Statement of com

plianceThe consolidated financial statem

ents have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB), interpretations of those standards issued by the International Financial Reporting Interpretations Com

mittee (IFRIC) and applicable

legislation.

Critical judgem

ents and estimates

The preparation of financial statements in accordance with IFRS requires m

anagement to m

ake judgements,

estimates and assum

ptions that affect the application of policies and reported amounts of equity, assets and

liabilities, revenue and expenses.

The estimates and underlying assum

ptions are based on historical experience, independent experts’ advice and inputs and various other factors that are considered to be reasonable under the circum

stances. Actual results m

ay differ from these estim

ates.

The estimates and underlying assum

ptions are reviewed on an ongoing basis. Revisions to accounting estimates

are recognised in the period in which the estimate is revised if the revision affects only that period or in the

period of the revision and future periods if the revision affects both current and future periods.

Judgements and estim

ates made by m

anagement in the application of IFRS that have a significant effect on the

financial statements are discussed in the relevant accounting policies below and the accom

panying notes to the annual financial statem

ents:

Summ

ary of significant accounting policiesB

asis of preparationThe consolidated financial statem

ents of the Group (financial statements) are presented in South African Rand,

rounded to the nearest million. The financial statem

ents are prepared on the historical cost basis, except for the following assets and liabilities that are stated at fair value: unlisted investm

ents, derivative financial instrum

ents, financial instruments held at fair value through profit or loss, financial instrum

ents classified as available-for-sale and investm

ent properties. Certain classes of property, plant and equipment are carried at

revalued amounts.

The financial statements are prepared on the going concern basis.

Except as otherwise disclosed, these accounting policies are consistent with those applied in previous years and are consistently applied throughout the Group.

Basis of consolidation

SubsidiariesSubsidiaries (including consolidated structured entities) are investee entities controlled by the Group. Control exists when the Group (a) has power over the investee, (b) is exposed, or has rights, to variable returns from

its involvem

ent with the investee, and (c) has the ability to use its power to affect its returns. The Group has power over an investee when it has existing substantive rights that give it the current ability to direct the relevant activities that significantly affect the returns of the investee. The consolidated financial statem

ents include the results of the Com

pany and its subsidiaries, from the effective dates of acquisition to the effective dates

of disposal.

Business com

binationsThe acquisition m

ethod of accounting in accordance with IFRS 3 Business Combinations is applied in accounting

for the acquisition of subsidiaries. The cost of an acquisition is measured as the sum

of:• the fair value of the assets given up,• the fair value of equity instrum

ents issued and liabilities incurred or assumed at the acquisition date,

• for business combinations achieved in stages, the acquisition date fair value of the previously held interest in

the acquiree, and• the am

ount of any non-controlling interest in the acquiree.

Acquisition related costs such as advisory, legal and accounting fees are recognised in profit or loss in the period in which they are incurred and the services received.

Identifiable assets acquired, liabilities and contingent liabilities assumed in a business com

bination are measured

initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. Non-current assets acquired in a business com

bination that are classified as held-for-sale are measured in accordance with

IFRS 5 Non-current Assets Held-for-Sale and Discontinued Operations at fair value less costs to sell. The excess of the cost of acquisition over the fair value of the Group’s share in the net identifiable assets acquired and liabilities assum

ed is recognised as Goodwill and accounted for in terms of the accounting policy on Intangible Assets and

Goodwill. If the cost of acquisition is less than the fair value of the net assets acquired, the difference is recognised directly in profit or loss as a gain from

a bargain purchase. The interest of the non-controlling shareholders is stated at their proportion of the fair value of the assets, liabilities and contingent liabilities recognised.

When the Group acquires a business, it assesses the identifiable assets and liabilities assum

ed for appropriate classification and designation in accordance with the contractual term

s, economic circum

stances and pertinent conditions as at the acquisition date.

If the business combination is achieved in stages, the acquisition date fair value of the Group’s previously held

equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss.

Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deem

ed to be an asset or liability will be recognised in accordance with IAS 39 Financial Instrum

ents: Recognition and Measurem

ent either in profit or loss or as a change to other com

prehensive income. If the contingent consideration is classified as

equity, it is not remeasured until it is finally settled within equity.

Losses incurred by a subsidiary are attributed to the non-controlling interest even if that results in a deficit balance.

Where there is a change in the interest in a subsidiary that does not result in a loss of control, the difference

between the fair value of the consideration transferred or received and the amount by which the non-controlling

interest is adjusted is recognised as an equity transaction directly in the statement of changes in equity.

Where there is a change in the interest in a subsidiary that results in loss of control, the Group:

• derecognises the assets (including goodwill) and liabilities of the subsidiary,• derecognises the carrying am

ount of any non-controlling interest,• reclassifies any cum

ulative exchange differences previously recognised in equity to profit or loss,• recognises the fair value of the consideration received,• recognises the fair value of any investm

ent interest retained,• recognises any surplus or deficit in profit or loss, and• reclassifies the Group’s share of com

ponents previously recognised in other comprehensive incom

e to profit or loss or retained earnings, as appropriate.

Inter-company transactions, balances and unrealised gains on transactions between Group entities are elim

inated. Unrealised losses are also elim

inated unless the transaction provides evidence that the asset transferred is im

paired. All intra-group transactions, balances, income and expenses are elim

inated in full on consolidation.


ents 2015

ACCO

UN

TING

POLICIES


Accounting policies of subsidiaries are changed where necessary to ensure consistency with the policies of the Group.

Investments in subsidiaries are carried at cost less any accum

ulated impairm

ent losses in the Company financial

statements.

Equity accounted investments

Equity accounted investments com

prise of the Group’s interest in associates and joint ventures. The Group applies the equity m

ethod to these investments and carries them

at cost, including goodwill, plus the Group’s share of post-acquisition reserves less any accum

ulated impairm

ent losses.

Equity accounted income represents the Group’s proportionate share of the post-acquisition profits of the

investee and the taxation thereon, net of the Group’s proportionate share of inter-group profits. Losses incurred by associates or joint ventures (including im

pairment losses) are recognised in the consolidated financial

statements until the investm

ent is written down to a nominal value. Thereafter, losses are accounted for only to

the extent that the Group is comm

itted to providing financial support to the investee. The carrying amount the

investments is reduced to recognise any decline in value.

Any excess of the cost of acquisition over the fair value of the Group’s interest in the joint venture or associate’s net assets is recognised as Goodwill and is included in the carrying value of the investm

ent. If the cost of acquisition is less than the fair value of the net assets acquired, the difference is recognised im

mediately in

profit or loss.

Where the Group transacts with a joint venture or associate of the Group, any unrealised profits and losses are

eliminated to the extent of the Group’s interest in the joint venture or associate, except to the extent that the

unrealised losses provide evidence that the asset transferred is impaired.

Investments in associates

Associates are entities over which the Group exercises significant influence, but not control or joint control of the financial and operating policies of the entity. Significant influence is presum

ed in instances where the Group has an equity stake greater than 20%

but less than 50% in an entity.

Investments in associates are equity accounted in the consolidated financial statem

ents for the period in which the Group exercises significant influence, except when the investm

ent is classified as held-for-sale, in which case it is accounted for in accordance with IFRS 5 Non-current Assets Held-for-Sale and Discontinued Operations.

Long-term loans to associates, which are part of the long-term

investment, are treated as a part of the

investment in the associates.

Investments in joint ventures

A joint venture is a contractual arrangement whereby the Group and another party(s) undertake an econom

ic activity that is subject to joint control (i.e. where decisions about the relevant activities require the unanim

ous consent of the parties sharing control) and the parties to the joint venture have rights to the net assets of the arrangem

ent.

The Group reports its interest in a joint venture using the equity method except when the investm

ent is classified as held-for-sale, in which case it is accounted for in accordance with IFRS 5 Non-current Assets Held-for-Sale and Discontinued Operations.

Separate financial statements

In the Company’s separate financial statem

ents, investments in subsidiaries, joint ventures and associates are

carried at cost less any accumulated im

pairment losses.

Revenue

Revenue is recognised at the fair value of the consideration received or receivable from the sale of goods and

services in the ordinary course of the Group’s activities. Revenue is shown net of value-added-tax, returns, rebates and discounts and after elim

inating inter-group transactions.

The Group recognises revenue when the amount of revenue can be reliably m

easured, it is probable that future econom

ic benefits will flow to the Group and when specific criteria have been met for each of the Group’s

activities as described below. The Group bases its estimates on historical results, taking into consideration the

type of customer, the type of transaction and the specific circum

stances of each arrangement.

Where extended paym

ent terms are granted by the Group, whether explicitly or im

plicitly, the effect of the time

value of money is taken into account in the m

easurement of revenue irrespective of other factors such as the

cash selling prices of the goods or services.

Rail transportation services

Revenue from rail freight and related services is recognised in profit or loss when the service is rendered by

reference to the stage of completion of transactions as freight m

oves from the point of origin to destination.

Engineering contracts revenueRevenue arising from

engineering contracts, including maintenance services is recognised when the outcom

e of the contract can be m

easured reliably by reference to the stage of completion of the contractual activity.

Contract revenue includes the initial amount agreed in the contract plus any variations in contract work, claim

s and incentive paym

ents receivable less penalties incurred to the extent that it is probable that they will result in revenue and can be m

easured reliably.

The stage of completion is assessed by reference to surveys of work perform

ed. When the outcom

e of a construction contract cannot be estim

ated reliably, contract revenue is recognised only to the extent of contract costs incurred in the period that are likely to be recoverable. An expected loss on a contract is recognised im

mediately in profit or loss.

Ports revenuePort infrastructure and related servicesPorts revenue com

prise port dues, light dues, vessel traffic services, berthing services, towage and pilotage and sim

ilar services related to the provision of port infrastructure and facilities to clients. The revenue is recognised in the period in which the service is rendered in accordance with the tariff schedule.

Port operationsPort operating revenue com

prises freight handling, storage and other services related to the handling and processing of cargo through port term

inals. The revenue is recognised when the service is rendered.

Pipeline revenue

Revenue from the transportation of petroleum

and gas products is recognised at the point of delivery in the period the service is rendered based on the contractual term

s and the related volumes transported. Revenue

from the storage and handling of petroleum

products is recognised when services are rendered.

Revenue claw

back adjustment

Two of the Group’s operating divisions, namely Transnet National Ports Authority and Transnet Pipelines are

regulated entities subject to the authority of the Ports Regulator of South Africa and National Energy Regulator of South Africa respectively. Both regulators apply the required revenue approach and the claw back m

echanism


ents 2015

ACCO

UN

TING

POLICIES


in setting future revenues and tariffs. The timing of recognition of certain revenues in these rate-regulated

operations reflects the economic im

pact of the regulators’ decisions regarding future revenues and tariffs arising from

the application of the claw back mechanism

.

The Group adjusts its revenue from ports infrastructure and related services and pipelines to reflect the under

or over-recovery of revenue in the current period that is expected to be recovered or clawed back by the regulators in setting tariffs for future periods. The Group recognises an asset or a liability for the difference between the revenue accrued and the allowed revenue set by the regulator in the current and prior periods, less allowable expenses incurred in generating revenue. The asset or liability is subsequently released as an adjustm

ent to revenue in the periods in which the regulator claws back the amounts through tariff adjustm

ents. The adjustm

ent to revenue is not discounted.

The net effect of over and under-recovery is disclosed as other liabilities in the statement of financial position.

Rental incom

eRevenue arising from

the rental of property is recognised in profit or loss on a straight-line basis over the term

of the lease in accordance with the substance of the relevant agreements. Lease incentives granted are

recognised as an integral part of the total rental income.

Dividend incom

eDividend incom

e is recognised in profit or loss on the date the Group’s right to receive payments is established,

which in the case of quoted securities is usually the ex-dividend date.

Governm

ent grantsGovernm

ent grants are recognised at fair value when there is reasonable assurance that the grant will be received and all relevant conditions will be com

plied with.

Where the grant relates to an expense item

, it is recognised as income over the periods necessary to m

atch the grant on a system

atic basis to the costs that it is intended to compensate.

Where the grant relates to an asset, the fair value is credited to a deferred incom

e account and is released to profit or loss over the expected useful life of the relevant asset on a straight-line basis.

Transactions giving rise to adjustments to revenue/purchases

The Group accounts for cash discounts and rebates received (given) as follows:• In the case of the Group as a seller, cash discounts and rebates given are estim

ated upfront and deducted from

the amount of revenue recognised; and

• In the case of the Group as a purchaser, cash discounts and rebates received are estimated upfront and

deducted from the cost of inventories purchased.

Finance income

Finance income is accrued on a tim

e basis, by reference to the principal outstanding and the effective interest rate applicable, which is the rate that exactly discounts estim

ated future cash receipts through the expected life of the financial asset to the asset’s net carrying am

ount.

Finance costsFinance costs com

prise interest payable on borrowings calculated using the effective interest rate method,

dividends on redeemable preference shares, am

ortisation of discounts on bonds and foreign exchange gains or losses, less am

ounts capitalised to qualifying assets.

Capitalised borrow

ing costsThe Group capitalises borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset, as part of the cost of that asset, until such tim

e that the asset is substantially ready for its intended use. The Group identifies a qualifying asset as one that necessarily takes six m

onths or m

ore to get ready for its intended use.

To the extent that funds are borrowed specifically for the purpose of obtaining a qualifying asset, the Group capitalises the actual borrowing costs incurred on that borrowing during the period less any investm

ent income

on the temporary investm

ent of the borrowed funds.

To the extent that a qualifying asset is funded via general borrowings, the Group determines borrowing costs

eligible for capitalisation by applying the weighted average cost of borrowings for the period, other than borrowings m

ade specifically for the purpose of obtaining qualifying assets, to the expenditures on that asset.

All other borrowing costs are recognised in profit or loss under finance costs in the period in which they are incurred.

Foreign currencyFunctional and presentation currenciesItem

s included in the financial statements of each of the Group entities are m

easured using the currency of the prim

ary economic environm

ent in which the entity operates (“the functional currency”). The consolidated financial statem

ents are prepared in South African Rand, which is the Company and Group’s functional and

presentation currency.

Foreign currency transactionsTransactions in currencies other than the Group’s functional currency are defined as foreign currency transactions. Transactions in foreign currencies are translated into the functional currency at exchange rates ruling on transaction dates. M

onetary assets and liabilities denominated in foreign currencies are translated into the

functional currency at the rate of exchange ruling at the reporting date.

Non-monetary assets and liabilities that are m

easured in terms of historical cost in a foreign currency are

translated at the exchange rates ruling at the original transaction date. Non-monetary assets and liabilities that

are carried at fair value denominated in the foreign currency are translated into the functional currency at the

exchange rate ruling when the fair value was determined.

Exchange differences are recognised in profit or loss in the period in which they arise except for:• exchange differences which relate to assets under construction for future productive use, which are included

in the cost of those assets when they are regarded as an adjustment to interest costs on foreign currency

borrowings,• exchange differences on transactions entered into in order to hedge certain foreign currency risks (see below

under “Derivative instruments and hedge accounting”), and

• exchange differences on monetary item

s receivable from or payable to a foreign operating entity for which

settlement is neither planned nor likely to occur, which form

part of the net investment in the foreign

operation and are initially recognised in the foreign currency translation reserve and subsequently recognised in profit or loss on disposal of the net investm

ent.

Financial statements of foreign entities

The financial statements of foreign entities are translated into South African Rand as follows:

• Assets and liabilities, at rates of foreign exchange ruling at the reporting date.• Incom

e and expenses at rates approximating the foreign exchange rates ruling at the dates of the

transactions or appropriate average rates.• Equity at historical rates.


ents 2015

ACCO

UN

TING

POLICIES


Goodwill and fair value adjustments arising on acquisition of a foreign entity are treated as assets and liabilities

of the foreign entity and translated at the rates of foreign exchange ruling at the reporting date.

On consolidation, exchange differences arising from the translation of the net investm

ent in foreign operations and of related hedges where hedge accounting is applied are recognised in other com

prehensive income and

presented as a separate component of equity.

On disposal, such translation differences are recognised in profit or loss as part of the gain or loss on disposal.

TaxationIncom

e taxation on profit or loss for the period comprises current and deferred taxation. Incom

e taxation is recognised in the profit or loss except to the extent that it relates to item

s recognised in other comprehensive

income or directly in equity.

The taxation effect of transactions with shareholders in their capacity as shareholders, including transactions with non-controlling interests, are recognised directly in equity and presented in the statem

ent of com

prehensive income.

Current taxation

The charge for current taxation is the amount of incom

e taxes payable in respect of the taxable profit for the current period and any adjustm

ent to taxation payable in respect of previous years. It is calculated using taxation rates that have been enacted or substantively enacted at the reporting date.

Deferred taxation

A deferred taxation liability is recognised for all taxable temporary differences and a deferred taxation asset is

recognized for all deductible temporary differences. The following tem

porary differences are not provided for:• the initial recognition of goodwill;• the initial recognition of assets and liabilities (other than in a business com

bination), which affect neither accounting nor taxable profit or loss; and

• differences relating to investments in subsidiaries, associates and joint ventures to the extent that it is

probable they will not reverse in the foreseeable future.

The amount of deferred taxation provided is based on the expected m

anner of realisation or settlement of the

carrying amount of assets and liabilities and is calculated using the taxation rates that have been enacted or

substantively enacted at the reporting date. Deferred taxation is charged or credited in the profit or loss, except where it relates to item

s charged or credited to other comprehensive incom

e or recognised directly in equity.

A deferred taxation asset is recognised to the extent that it is probable that future taxable profits will be available to be utilised against the associated unused taxation losses and deductible tem

porary differences. Deferred taxation assets are reduced to the extent that it is no longer probable that the related taxation benefit will be realised.

Deferred taxation liabilities are recognised for taxable temporary differences associated with investm

ents in subsidiaries, associates and joint ventures, except where the Group is able to control the tim

ing of the reversal of the tem

porary differences and it is probable that it will not reverse in the foreseeable future.

Deferred taxation assets and liabilities are offset when they relate to income taxes levied by the sam

e taxation authority and the Group has the legal right to and intends to settle its current taxation assets and liabilities on a net basis.

In terms of the m

easurement criteria set out in IAS 12 Incom

e Taxes, the Group has assessed its intention at the reporting date on recovering an asset or liability to the extent that this intention influences the rate of taxation to be applied in calculating deferred taxation. In this regard, the Group has recognised deferred taxation as follows:

LandAs land is deem

ed to be realised through sale, there is no deferred tax effect on the difference between the tax base and the original cost of the land. Deferred taxation is calculated on the difference between the carrying am

ount and the capital gains taxation (CGT) base cost at the CGT rate.

Asset in respect of w

hich no taxation allowances are granted

No deferred taxation is raised in the case where neither the accounting nor the taxation profit is affected. W

here the asset is revalued, deferred taxation is calculated based on the Group’s intention. Where the intention

is to sell the asset, deferred taxation is raised at the CGT rate on the difference between the CGT base cost and the revalued carrying am

ount. Where the intention is to use the asset, deferred taxation is raised at the usage

rate on the difference between the taxation base and the revalued carrying amount.

Asset (other than land) carried at cost

Where an asset is carried under the cost m

odel and a taxation allowance is available to be claimed against the

asset, deferred taxation is calculated on the difference between the carrying amount and the taxation base at

the usage rate.

Asset (other than land) carried at the revalued am

ount with the intention to use

As the future benefits are expected to flow from the use of the assets, deferred taxation is calculated at the

usage rate on the difference between the taxation base and the revalued carrying amount.


ount with the intention to sell

Where the intention is to recover the benefits of the asset through sale, deferred taxation is calculated at usage

rate on the difference between the taxation base and the original cost, and at the CGT rate on the difference between the CGT base cost and the revalued carrying am

ount.


ount with the intention to use and sell

Where the intention is to recover the benefits of the asset through both use and sale, deferred taxation is

calculated to reflect this intention. Deferred taxation is calculated at the usage rate on the difference between the taxation base and the original cost, at the CGT rate on the difference between the CGT base cost and the future selling price (residual value), and at the usage rate on the difference between the future selling price and revalued carrying am

ount.

Investment property (other than land) carried at fair value

Deferred taxation on depreciable investment property (i.e. buildings) carried at fair value is calculated at the

usage rate on the difference between the taxation base, where taxation allowances are available, and the original cost, and at the CGT rate on the difference between the CGT base cost and the fair value. W

here the depreciable investm

ent property is held within a business model whose objective is to consum

e substantially all of the asset’s econom

ic benefits over the life of the asset, deferred taxation is calculated at the usage rate on the difference between the taxation base and fair value.

Dividends tax

Dividend tax is levied at a rate of 15% on dividends paid to a shareholder. The tax is levied on the date of a

dividend payment, which is deem

ed to be the date on which the dividend accrues to the shareholder. Dividend Tax is withheld by the com

pany paying the dividend. An exemption from

dividend tax is provided for, inter alia, where the beneficial owner is the Governm

ent.


ents 2015

ACCO

UN

TING

POLICIES


Property, plant and equipm

entProperty, plant and equipm

ent are stated at cost, or revalued amount, less accum

ulated depreciation where appropriate and any accum

ulated impairm

ent losses.

Recognition and m

easurement

Cost includes expenditure that is directly attributable to the acquisition of the asset, borrowing costs capitalised to qualifying assets and adjustm

ents in respect of hedge accounting where applicable.

Assets under construction are stated at cost less any accumulated im

pairment losses. The cost of self-constructed

assets includes the cost of materials, direct labour, the initial estim

ate, where relevant, of the costs of dismantling

and removing the item

s and restoring the site on which they are located, qualifying borrowing costs, any adjustm

ents in respect of hedge accounting and an appropriate proportion of production overheads.

Where com

ponents of an item of property, plant and equipm

ent have a cost that is significant in relation to the total cost of the item

and have different useful lives, they are accounted for as separate components of

property, plant and equipment and depreciated separately over their respective useful lives.

Spare parts, stand-by and servicing equipment held by the Group are classified as property, plant and equipm

ent if they m

eet the definition in IAS 16 Property, Plant and Equipment. Otherwise, they are classified as inventory.

Assets carried under the revaluation m

odelRail infrastructure, pipeline networks, port infrastructure and port operating assets are carried at revalued am

ounts. Formal revaluations are perform

ed every three years by independent experts applying internationally acceptable and appropriately benchm

arked valuation techniques such as the depreciated optimised

replacement cost and m

odern equivalent asset methods. Appropriate indices are applied in the intervening

periods to ensure that the assets are carried at fair value at the reporting date. The revaluation is limited to the

lower of the fair value determined per the revaluation m

ethod and discounted future cash flows.

Revaluation surpluses that arise are recognised in other comprehensive incom

e and are accumulated in the

revaluation reserve in equity, except to the extent that they reverse a revaluation decrease for the same asset

previously recognised in profit or loss, in which case the surplus is credited to the profit or loss to the extent of the decrease previously recognised. A decrease in the carrying am

ount arising on the revaluation of an asset is recognised as an im

pairment loss in profit or loss to the extent that it exceeds the balance, if any, held in the

revaluation reserve relating to a previous revaluation of that asset. On the subsequent sale or retirement of a

revalued asset, the attributable revaluation surplus included in the revaluation reserve is transferred to retained earnings.

Subsequent costsThe Group recognises in the carrying am

ount of an item of property, plant and equipm

ent the cost of replacing part of such an item

when that cost is incurred and it is probable that the future economic benefits em

bodied within the item

will flow to the Group and the cost of the item can be m

easured reliably. The carrying amount of

the replaced part is derecognised. All other costs are recognised in the profit or loss as expenses when incurred.

Costs of major repairs and overhauls of those units are capitalised as separate com

ponents of the asset if the recognition criteria are m

et.

Depreciation

Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives (or the term

of the lease, if shorter) of each com

ponent of an item of property, plant and equipm

ent, including major spare parts

and servicing equipment. Land and assets under construction are not depreciated. M

ajor repairs and overhauls are depreciated over the rem

aining useful life of the related asset or to the date of the next major repair or overhaul,

whichever is shorter. Depreciation comm

ences when the asset is available for use. Assets are depreciated over the following periods:

Asset class

Years

Buildings and structures10 – 50

Buildings and structures components

5 – 25Perm

anent way and works3 – 95

Rail infrastructure3 – 95

Aircraft including components

8 – 15Pipelines including network com

ponents6 – 75

Port infrastructure12 – 100

Floating craft including components

5 – 40Port operating equipm

ent including components

3 – 40Rolling stock

30 – 60Rolling stock com

ponents25 – 60

Containers10 – 20

Vehicles3 – 15

Machinery, equipm

ent and furniture3 – 50

The useful lives, depreciation methods and the residual values of assets are reviewed and adjusted annually, if

appropriate. Changes resulting from this review are accounted for prospectively as a change in accounting

estimate.

Items of property, plant and equipm

ent are derecognised when they are either disposed of or when no further econom

ic benefits are expected to flow from their use or disposal. Any gain or loss arising on the disposal or

retirement of an item

of property, plant and equipment is calculated as the difference between the sales

proceeds (if any) and the carrying amount of the asset and is recognised in profit or loss.

Investment properties

Investment properties are properties held to either earn rentals and/or for capital appreciation (including properties

under construction for such purposes) and are initially measured at cost, including transaction costs. Subsequent

to initial recognition, investment properties are carried at fair value. Gains and losses arising from

changes in the fair value of investm

ent properties are recognised in profit or loss in the period in which they arise. Rental income

from investm

ent properties is accounted for as described under the accounting policy on Revenue.

Where an item

of property, plant and equipment is transferred to investm

ent property following a change in its use, any difference arising at the date of transfer between the carrying am

ount of the item im

mediately prior to

transfer and its fair value is treated as a revaluation and the accounting policy on revaluation of property, plant and equipm

ent is applied.

If an investment property becom

es owner-occupied, it is reclassified as property, plant and equipment and its

fair value at the date of the reclassification becomes its deem

ed cost for subsequent accounting purposes.

Some properties com

prise a portion that is held to earn rentals or for capital appreciation and another portion that is held for use in the production or supply of goods or services or for adm

inistrative purposes (owner occupied). If these portions could be sold separately or leased out separately under a finance lease, the Group accounts for the different portions separately as investm

ent property or property, plant and equipment. If the

portions are not separable, the entire property is only classified as investment property if an insignificant

portion is owner occupied; otherwise the entire property is classified as property, plant and equipment.

The Group has areas where multiple buildings are on a single erf or m

ultiple erfs defined as one area called a precinct. Certain buildings m

ay be owner occupied and others rented to third parties or vacant. For classification purposes, a precinct, station or interm

odal hub is assessed in its entirety and is classified as investment

property if the relevant criteria are met.


ents 2015

ACCO

UN

TING

POLICIES


Properties which were acquired for administrative purposes but are currently vacant or occupied by a third

party tenant with a long term lease in excess of five years are classified as investm

ent property even though there m

ay be no plans to dispose of the assets. If the lease term is less than five years, the asset is not classified

as investment property. If the criteria in IFRS 5 Non-current Assets Held-for-Sale and Discontinued Operations

are met, the asset is classified as Non-current Assets Held-for-Sale.

The Group’s intention in respect of back of port properties is for the Group to hold these properties strategically for future developm

ent. Until the future strategic purpose of these properties is formalised through the relevant

governance structures, they shall be held for capital appreciation.

For valuation purposes the external rentals within the precinct, station or intermodal hub as well as for back of

port properties are used as the basis to determine the fair value of these properties using the norm

alised income

method of valuation which entails the capitalisation of the norm

alised net annual income from

the property.

Intangible assets and goodwill

Software and licences

Software and licences are recognised and measured at cost less accum

ulated amortisation and any accum

ulated im

pairment losses.

Costs associated with researching or maintaining com

puter software programm

es are recognised as an expense as incurred. Costs that are directly associated with the developm

ent of identifiable software products controlled by the Group that will probably generate econom

ic benefits beyond one year and for which the costs can be m

easured reliably, are recognised as intangible assets. Direct costs include the software development

employee costs and an appropriate portion of relevant overheads. Costs relating to the acquisition of licences

are capitalised and amortised on a straight-line basis over the licence period when available for use.

Research and developm

entResearch costs, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, are recognised in the profit or loss in the period in which they are incurred. Developm

ent costs, arising from the

application of the research findings to a plan or design for the production of new or substantially improved products

and processes are recognised as an intangible asset if, and only if the Group can demonstrate all of the following:

• The technical feasibility of completing the intangible asset so that it will be available for use or sale;

• Its intention to complete the intangible asset and use it or sell it;

• Its ability to use or sell the intangible asset;• How the intangible asset will generate probable future econom

ic benefits;• The availability of adequate technical, financial and other resources to com

plete the development and to use

or sell the intangible asset; and• Its ability to m

easure reliably the expenditure attributable to the intangible asset during its development.

The expenditure capitalised includes the cost of materials, direct labour and an appropriate portion of

overheads.

Pre-feasibility and feasibility study expenses are classified and accounted for as either research or developm

ent costs in accordance with the above criteria.

Development costs previously recognised as an expense are not recognised as an asset in a subsequent period.

Subsequent expenditureSubsequent expenditure on capitalised intangible assets is capitalised only when it increases the future econom

ic benefits embodied in the specific asset to which it relates. All other expenditure is recognised in

profit or loss as incurred.

Am

ortisationIntangible assets with an indefinite useful life and intangible assets not yet available for use are carried at cost less any accum

ulated impairm

ent losses. These assets are not amortised but are tested for im

pairment at each

reporting date.

Intangible assets with a finite useful life are carried at cost less accumulated am

ortisation and any accumulated

impairm

ent losses. Amortisation is recognised on a straight-line basis over their estim

ated useful lives. The estim

ated useful life and amortisation m

ethod are reviewed at the end of each annual reporting period, with the effect of any changes in the estim

ate being accounted for on a prospective basis. The estimated useful lives for

the current and comparative periods are as follows:

Asset class

Years

Software5

Licencesterm

of the licence

Goodw

illGoodwill that arises on the acquisition of interests in subsidiaries, joint ventures and associates is initially m

easured at cost, being the excess of the cost of the acquisition over the net fair value of the Group’s share in the identifiable assets acquired and liabilities assum

ed.

After initial recognition, goodwill is measured at cost less any accum

ulated impairm

ent losses. Goodwill in respect of subsidiaries is tested for im

pairment annually as well as when there is an indication of im

pairment.

For the purpose of impairm

ent testing goodwill is, from the acquisition date, allocated to each of the Group’s

cash-generating units that are expected to benefit from the business com

bination, irrespective of whether other assets or liabilities of the acquiree are allocated to those units (refer Im

pairment of non-financial assets).

Any impairm

ent losses recognised are not subsequently reversed.

Goodwill arising on acquisition of interests in joint ventures and associates is included within the carrying amount

of the investment and is not tested separately for im

pairment on an annual basis (i.e. it is assessed for im

pairment

as part of the investment in associate or joint venture when indicators of im

pairment exist). Goodwill arising on the

acquisition of subsidiaries is presented separately in the statement of financial position.

Where goodwill form

s part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying am

ount of the operation when determ

ining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is m

easured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained.

Gain from

a bargain purchaseA gain from

a bargain purchase represents the excess of the net fair value of the Group’s share in the identifiable assets acquired and liabilities assum

ed over the cost of the acquisition.

The gain is recognised imm

ediately in profit or loss, but only after a reassessment of whether all assets and

liabilities of the acquiree have been identified and the fair values of all the assets acquired, liabilities assumed

and the consideration given up.

ServitudesServitudes arising from

a binding agreement that m

eet the definition of an intangible asset are recognised either as a separate intangible asset or as part of the related item

of property, plant and equipment. Servitudes

are recognised as part of property, plant and equipment where the tangible asset is considered to be the m

ore significant elem

ent of the combined asset.


ents 2015

ACCO

UN

TING

POLICIES


Impairm

ent of non-financial assetsThe carrying am

ounts of the Group’s tangible and intangible assets, other than investment property, non-current

assets held-for-sale, inventories and deferred taxation assets are reviewed at each reporting date to determine

whether there is any indication of impairm

ent. If such an indication exists, the recoverable amount of the individual

asset is estimated to determ

ine the extent of the impairm

ent loss (if any). Where an asset does not generate cash

flows that are independent from other assets, the Group estim

ates the recoverable amount of the cash generating

unit to which the asset belongs. The Group considers its five operating divisions or segments per the segm

ental report as separate cash generating units for the purposes of im

pairment testing.

Goodwill, intangible assets with an indefinite useful life and intangible assets not yet available for use are tested for im

pairment annually and whenever there is an indication that the asset m

ay be impaired.

If the recoverable amount of an asset (or cash-generating unit) is estim

ated to be less than its carrying amount,

the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable am

ount. An impairm

ent loss is recognised im

mediately in profit or loss, unless the relevant asset is carried at a revalued am

ount, in which case the im

pairment loss is treated as a revaluation decrease to the extent of the balance in the

revaluation reserve relating to that asset. Impairm

ent losses recognised in respect of cash-generating units are allocated first to reduce the carrying am

ount of any goodwill allocated to the cash-generating unit (group of units) and then to reduce the carrying am

ount of the other assets in the cash-generating unit (group of units) on a pro-rata basis.

Calculation of recoverable am

ountThe recoverable am

ount of an asset is the higher of the asset’s fair value less costs to sell and its value-in-use. Fair value less costs to sell is determ

ined by ascertaining the current market value of the asset and deducting

any costs relating to the realisation of the asset. In assessing the value-in-use, the expected future cash flows from

the asset are discounted to their net present values using a pre-tax discount rate that reflects current m

arket assessments of the tim

e value of money and the risks specific to the asset (and the operating division to

which that asset belongs) for which the future cash flows have not been adjusted. For an asset that does not generate independent cash flows, the recoverable am

ount is determined for the cash-generating unit to which

the asset belongs.

Reversal of im

pairment

An impairm

ent loss in respect of goodwill, whether recognised at an interim reporting date or at year end, is not

reversed in subsequent periods.

In respect of other assets, a previously recognised impairm

ent loss is reversed if the recoverable amount

increases as a result of a change in the estimates previously used to determ

ine the recoverable amount, to an

amount not higher than the carrying am

ount that would have resulted, net of depreciation or amortisation had no

impairm

ent loss been recognised. A reversal of an impairm

ent loss is recognised imm

ediately in profit or loss, unless the relevant asset is carried at a revalued am

ount, in which case the reversal of the impairm

ent loss is treated as a revaluation increase.

Financial instruments

Recognition

Financial assets and financial liabilities are recognised in the statement of financial position when the Group

becomes party to the contractual provisions of the instrum

ents. The Group applies trade date accounting for “regular way” purchases and sales of financial assets.

Classification

The Group classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables, available-for-sale and held-to-m

aturity. The classification depends on the purpose for which the financial assets were acquired. M

anagement determ

ines the classification of its financial assets at initial recognition.

Financial assets at fair value through profit or lossFinancial assets at fair value through profit or loss are financial assets held for trading and financial assets specifically designated into this category on initial recognition.

A financial asset is classified as held for trading if it is acquired principally for the purpose of selling in the short-term

, is part of a portfolio of identified financial instruments that are m

anaged together and for which there is evidence of a recent actual pattern of short-term

profit-taking or is a derivative (unless it is designated as a hedging instrum

ent in an effective hedge or is a financial guarantee contract).

Financial assets or liabilities may be designated as at fair value through profit or loss on initial recognition when:

• the designation eliminates or significantly reduces a m

easurement or recognition inconsistency that would

otherwise arise from m

easuring financial assets or liabilities, or recognising gains and losses on them on

different bases, or• a group of financial assets, financial liabilities or both are m

anaged, and their performance evaluated, on a fair

value basis in accordance with a documented risk m

anagement or investm

ent strategy, and information about

groups of financial instruments is reported to the Group’s key m

anagement personnel on that basis, or

• financial instruments contain one or m

ore embedded derivatives that significantly m

odify the cash flows resulting from

those financial instruments.

The fair value designation, once made, is irrevocable.

Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determ

inable payments that are not

quoted in an active market, other than those designated on initial recognition as “at fair value through profit or

loss” or as “available for sale”. Loans and receivables are included in current assets, except for maturities greater

than twelve months after the end of the reporting period which are classified as non-current assets. The Group’s

loans and receivables comprise ‘trade and other receivables’ and cash and cash equivalents in the statem

ent of financial position.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets that are either designated into this category at initial recognition or not classified in any of the other categories. They are included in non-current assets unless the investm

ent matures or m

anagement intends to dispose of it within twelve m

onths of the end of the reporting period, in which case they are included in current assets.

Held-to-m

aturity financial assetsHeld-to m

aturity financial assets are non-derivative financial assets with fixed or determinable paym

ents and a fixed m

aturity that the Group has the positive intention and ability to hold to maturity, other than assets that

are included in the other categories above.


ents 2015

ACCO

UN

TING

POLICIES


Measurem

entFinancial instrum

ents are initially recognised at their fair value plus, in the case of a financial asset or a financial liability not carried at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability.

The best evidence of the fair value of a financial instrument at initial recognition is the transaction price, i.e. the

fair value of the consideration given or received, unless the fair value of that instrument is evidenced by

comparison with other observable current m

arket transactions in the same instrum

ent (i.e. without modification

or repackaging) or based on a valuation technique whose variables include only data from observable m

arkets. W

here the transaction price does not provide the best evidence of fair value at initial recognition and a valuation technique which includes som

e inputs that are not market observable is applied, the financial instrum

ent is initially m

easured at fair value and any difference between the fair value and the transaction price is subsequently recognised in profit or loss on the basis of the individual facts and circum

stances of the transaction but not later than when the valuation is supported wholly by observable m

arket data or when the financial instrum

ent is derecognised.

Subsequent to initial recognition these instruments are m

easured as set out below:

Investments

After initial recognition, investments in the Group’s m

arket-making portfolios in both bonds and m

oney market

instruments, which are classified as held-for-trading, as well as those classified as available-for-sale, are

measured at fair value. Fair value is the m

arket value for listed investments or either the m

arket value of a substantially sim

ilar investment or the present value of expected future cash flows of the net asset base for

unlisted investments. Gains or losses on investm

ents held-for-trading are recognised in profit or loss.

Other long-term investm

ents that the Group is able to and intends to hold to maturity are subsequently m

easured at am

ortised cost using the effective interest rate method, less any im

pairment losses. Am

ortised cost is calculated taking into account any transaction costs and discount or prem

ium on acquisition or settlem

ent.

Derivative instrum

ents and hedge accountingThe Group uses derivative financial instrum

ents, which include futures, forward exchange and currency option contracts, cross currency and interest rate swaps and com

modity and interest rate options to hedge its

exposures arising from operational, financing and investm

ent activities.

In accordance with the Group’s Financial Risk Managem

ent Framework, the Group does not trade in derivative

financial instruments for speculative purposes.

Derivatives embedded in other financial instrum

ents or non-derivative host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of host contracts and the host contracts are not carried at fair value through profit or loss. The Group assesses whether an em

bedded derivative is required to be separated from

the host contract and accounted for as a stand-alone derivative when the Group first becom

es a party to the contract. Subsequent reassessment is only perform

ed by the Group if there is a change in the term

s of the contract that significantly modifies the cash flows that otherwise would

be required under the contract.

Subsequent to initial recognition, derivative financial instruments are m

easured at fair value. The fair value adjustm

ents are recognised directly in the profit or loss (unless the derivative is designated as a hedging instrum

ent in a cash flow hedge, refer below). The fair value of interest rate swaps is the estimated am

ount that the Group would receive or pay to term

inate the swap at the reporting date, taking into account current interest rates and the current creditworthiness of the swap counterparties. The fair value of the forward exchange contracts is their quoted m

arket price at the reporting date, being the present value of the quoted forward price.

The Group applies fair value and cash flow hedge accounting to qualifying hedge relationships in accordance with IAS 39 Financial Instrum

ents: Recognition and Measurem

ent by designating certain derivatives as hedges of the variability in the fair value of recognised assets, liabilities or unrecognised firm

comm

itments (fair value

hedges) or hedges of the variability in cash flows attributable to particular risks associated with recognised assets, liabilities or highly probable forecast transactions (cash flow hedges). At the inception of the hedge relationship, the relationship between the hedging instrum

ent and the hedged item is docum

ented, along with the risk m

anagement objectives and strategy for undertaking the various hedge transactions. Also at the

inception of the hedge relationship and on an ongoing basis, the Group assesses whether the hedging instrument

is highly effective in offsetting changes in fair value or cash flows of the hedged item.

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognised in profit or loss im

mediately, together with any changes in the fair value of the hedged asset, liability or

unrecognised firm com

mitm

ent that are attributable to the hedged risk.

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is initially recognised in other com

prehensive income and accum

ulated in the cash flow hedge accounting reserve in equity. The gain or loss relating to the ineffective portion is recognised im

mediately in profit or loss.

The amounts initially recognised in other com

prehensive income and included in equity are reclassified from

equity to profit or loss in the period(s) in which the hedged item

affects profit or loss and are included in the sam

e line as the hedged item. However, where the forecast transaction that is hedged results in the recognition

of a non-financial asset or a non-financial liability, the gains and losses previously accumulated in equity are

transferred from equity and included in the initial cost or other carrying am

ount of the non-financial asset or non-financial liability.

Hedge accounting is discontinued when the Group revokes the hedging relationship, the hedging instrument

expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting.

Long-term loans and advances

Long-term loans and advances are m

easured at amortised cost, using the effective interest rate m

ethod, less any im

pairment recognised.

Trade and other receivablesTrade and other receivables, which generally have 30 to 90-day term

s, are carried at amortised cost. An

allowance for impairm

ent is recognised in profit or loss when there is objective evidence that the asset is im

paired. The allowance is measured as the difference between the carrying am

ount and the present value of estim

ated future cash flows discounted at the effective interest rate computed at initial recognition.

An allowance account is used to record impairm

ent losses. If subsequently the Group is satisfied that no recovery is possible, the am

ount is written off against the financial asset directly with a corresponding reduction in the allowance account.

The Group may renegotiate term

s for financial assets that would otherwise be past due or impaired in instances

where the debtor provides evidence of the ability to meet the obligations in term

s of the renegotiated terms.

The impact of the renegotiated term

s is recognised by an adjustment to the allowance for im

pairment for these

financial assets.

Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and on hand, and instrum

ents which are readily convertible, within 90 days, to known am

ounts of cash and are subject to an insignificant risk of change in value. Cash and cash equivalents are m

easured at amortised cost.

For the purposes of the consolidated cash flow statements, cash and cash equivalents include bank overdrafts.


ents 2015

ACCO

UN

TING

POLICIES


Financial liabilitiesAfter initial recognition, financial liabilities other than financial liabilities at fair value through profit or loss are subsequently m

easured at amortised cost using the effective interest m

ethod.

Market-m

aking bond portfolioFinancial liabilities at fair value through profit or loss are m

easured at fair value and the resultant gains and losses are recognised in profit or loss.

Financial liabilities designated at fair value through profit or loss represent a portion of the Group’s bonds that are part of the Group’s m

arket making portfolio. The Group m

akes a market in its bonds to ensure that the bonds

remain attractive to investors. Positions in the Group’s bonds are hedged with opposite positions in Governm

ent or Corporate bonds. These bonds are m

anaged and their performance is evaluated on a fair value basis in

accordance with the Group’s risk managem

ent strategy. Buybacks on bonds are performed on a first-in-first-out

(FIFO) basis.

Interest-bearing borrowings

Interest-bearing borrowings are recognised initially at fair value less related transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at am

ortised cost. Any difference between cost and redem

ption value is recognised in the profit or loss over the period of the borrowings on an effective interest basis.

Trade payables and accrualsLiabilities for trade and other am

ounts payable which are settled within normal term

s are stated at amortised

cost.

Impairm

ent of financial assetsAn assessm

ent is made at each reporting date to determ

ine whether there is objective evidence that a financial asset or group of financial assets m

ay be impaired. Objective evidence of im

pairment includes such factors as

significant financial difficulty experienced by the debtor, breach of contract by the debtor, concessions granted to the debtor by the Group to restructure paym

ent terms, probability of bankruptcy or financial reorganisation

of the debtor, and observable data indicating a measurable decrease in estim

ated future cash flows from a

group of debtors even though the decrease cannot yet be identified with individual debtors in the portfolio.

If evidence of impairm

ent exists, the estimated recoverable am

ount of the asset (or group of assets) is determ

ined and an impairm

ent loss is recognised for the difference between the recoverable amount and the

carrying amount as follows:

• For financial assets held at either cost or amortised cost – the carrying am

ount of the asset is reduced to its discounted estim

ated recoverable amount (present value of estim

ated future cash flows, discounted at the original effective interest rate), and the resulting loss is recognised in profit or loss for the period. Receivables with a short duration are not discounted. Assets that are assessed not to be im

paired individually are subsequently assessed for im

pairment on a collective basis. Objective evidence of im

pairment for a

portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the

number of delayed paym

ents in the portfolio past the average credit period of 30 days, as well as observable changes in national or local econom

ic conditions that correlate with default on receivables.• For available-for-sale financial assets – where a decline in the fair value of an available-for-sale financial asset

has been recognised in other comprehensive incom

e and there is objective evidence that the asset is impaired,

the cumulative loss that was previously recognised in other com

prehensive income is rem

oved from equity and

recognised in profit or loss for the period even though the financial asset has not been derecognised.

An impairm

ent loss in respect of a held-to-maturity security or a receivable carried at am

ortised cost is reversed through profit or loss if the subsequent increase in recoverable am

ount can be related objectively to an event occurring after the im

pairment loss was recognised. The im

pairment loss is reversed only to the extent

that the asset’s carrying amount does not exceed the carrying am

ount that would have been determined if no

impairm

ent loss has been recognised.

An impairm

ent loss in respect of an investment in an equity instrum

ent classified as available-for-sale is not reversed through profit or loss. An im

pairment loss in respect of a debt instrum

ent classified as available-for-sale is reversed through profit and loss if its fair value increases and the increase can be objectively related to an event occurring after the im

pairment loss was originally recognised in profit or loss.

An impairm

ent loss in respect of an unquoted equity instrument that is not carried at fair value because its fair

value cannot be measured reliably, whether recognised at an interim

reporting date or at year end, is not reversed in subsequent periods.

Offset

Where a legally enforceable right of offset exists for recognised financial assets and financial liabilities, and

there is an intention to settle the liability and realise the asset simultaneously, or settle on a net basis, all

related financial effects are offset.

Financial liabilities and equityFinancial instrum

ents issued by the Group are classified as either financial liabilities or equity according to their substance and the definitions of financial liabilities and equity.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of the Group after

deducting all of its liabilities. Equity instruments are recognised at the fair value of the proceeds received, net

of direct issue costs.

Gains and losses on financial instrum

entsNet gains or net losses on:

Available for sale financial assets are determined with reference to quoted share prices on the stock exchange

and represent fair value adjustments that are recognised in other com

prehensive income. Dividends are

recognised in profit and loss when the right to receive payment is established. Im

pairment losses are recognised

in profit or loss.

Loans and receivables and financial assets held-to-maturity represent im

pairment losses or reversal of

impairm

ent losses, interest earned on outstanding balances and gains or losses on derecognition. These gains or losses are recognised in profit or loss under finance costs.

Financial assets and liabilities held-for-trading represent fair value adjustments as a result of the m

ark-to-m

arket of the instruments using m

arket inputs, and gains or losses on derecognition. Interest is included in the fair value adjustm

ents. These gains or losses are recognised in profit or loss on the fair value line.

Financial liabilities designated as at fair value through profit and loss represent fair value adjustments as a

result of the mark-to-m

arket of the instruments using m

arket inputs, and gains or losses on derecognition. Interest is included in the fair value adjustm

ents. These gains or losses are recognised in profit and loss on the fair value line.

Financial liabilities at amortised cost represent the am

ortisation of discounts on or premium

s given/received, interest costs as well as any gains or losses on derecognition. These gains or losses are recognised in profit or loss under finance costs.


ents 2015

ACCO

UN

TING

POLICIES


Valuation of financial instrum

entsD

erivativesThe fair values of derivative financial assets and liabilities are determ

ined based on the net present values of all future cash flows, discounted at the prevailing m

arket interest rates at the reporting date. Fair value includes non-perform

ance (i.e. credit) risk. Only observable market data is used (no estim

ates) when constructing the curves and basis swap adjustm

ents are added to provide for liquidity in the market. Black-Scholes principles are

used to value options.

Bonds

The fair value of bonds designated at fair value through profit or loss is determined by applying the

Johannesburg Securities Exchange (JSE) and Bond Exchange South Africa (BESA) closing rates with the SA Bond form

ula.

Other non-derivative financial assets and liabilities

The fair values of other non-derivative financial assets and liabilities are determined based on the net present

values of all future cash flows, discounted at the prevailing market interest rates at the reporting date. Fair

value includes non-performance (i.e. credit) risk.

Short term financial assets and liabilities

The carrying amounts of financial assets and liabilities with a m

aturity of six months or less are assum

ed to approxim

ate fair value.

Derecognition

Financial assets (or a portion thereof) are derecognised when the Group’s rights to the cash flows expire, or when the Group transfers substantially all the risks and rewards related to the financial asset or when the Group loses control of the financial asset. On derecognition, the difference between the carrying am

ount of the financial asset and proceeds receivable and any prior adjustm

ent to reflect fair value that had been reported in equity are included in profit or loss.

Financial liabilities (or a portion thereof) are derecognised when the obligations specified in the contract are discharged, cancelled or expire. On derecognition, the difference between the carrying value of the financial liability, including related unam

ortised costs, and settlement am

ounts paid is included in profit or loss.

InventoriesInventories are stated at the lower of cost and estim

ated net realisable value. Net realisable value represents the estim

ated selling price in the ordinary course of business, less all estimated costs of com

pletion and selling.

Cost is determined as follows:

• Raw materials and consum

able stores are stated at weighted average cost.• M

anufactured goods and work in progress are stated at weighted average cost valued at raw material cost

plus direct labour cost and an appropriate portion of related manufacturing overhead cost, based on norm

al capacity.

A provision for inventory obsolescence is raised to write down inventory to net realisable value based on a physical count and inspection of inventory item

s which is performed at least annually and takes into account the

age, condition and usage rates of the inventory.

Write-downs to net realisable value and other inventory expenses are recognised in profit or loss in the period in

which they arise.

Construction contracts

Construction contract balances represent the gross unbilled amount expected to be collected from

customers

for contract work performed to date. They are m

easured at cost plus profit recognised to date less progress billings and recognised losses. Cost includes all expenditure related directly to specific projects and an allocation of fixed and variable overheads incurred in the Group’s contract activities based on norm

al operating capacity.

Construction work in progress is presented as part of trade and other receivables in the statement of financial

position. Where paym

ents received from custom

ers exceed the income recognised, the difference is presented

as deferred income in the statem

ent of financial position.

Non-current assets classified as held-for-sale and discontinued operations

Non-current assets and disposal groups are classified as held-for-sale if their carrying amount will be recovered

principally through a sale transaction rather than continuing use. This condition is regarded as met only when the

sale is highly probable and the asset or disposal group is available for imm

ediate sale in its present condition. M

anagement m

ust be comm

itted to the sale, which should be expected to qualify for recognition as a completed

sale within one year from the date of classification.

Imm

ediately before classification as held-for-sale, the measurem

ent of the assets (and all assets and liabilities in a disposal group) is brought up-to-date in accordance with applicable IFRS. Then, on initial classification as held-for-sale, non-current assets and disposal groups are recognised at the lower of carrying am

ount and the fair value less costs to sell.

Impairm

ent losses on initial classification as held-for-sale are recognised in profit or loss, even where the assets were carried at revalued am

ounts. The same applies to gains and losses on subsequent m

easurement. A

gain or subsequent increase in fair value less costs to sell may not exceed the cum

ulative impairm

ent losses previously recognised in term

s of IFRS 5 Non-current Assets Held-for-Sale and Discontinued Operations or IAS 36 Im

pairment of Assets.

Non-current assets classified as held-for-sale are not depreciated or amortised whilst classified as such.

A discontinued operation is a component of the Group’s business that represents a separate m

ajor line of business or geographical area of operations or is a subsidiary acquired exclusively with a view to resell.

Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be

classified as held-for-sale, if earlier. A disposal group that is to be abandoned may also qualify as a discontinued

operation.

Where assets or disposal groups classified as held-for-sale are not disposed of within the one-year requirem

ent of the standard, and m

anagement believes that the delay was caused by events or circum

stances beyond the Group’s control and there is sufficient evidence that the Group rem

ains comm

itted to its plan to sell the assets or disposal groups, such asset or disposal groups will continue to be classified as held-for-sale.

Share capitalIncrem

ental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of taxation, from

the proceeds. Incremental costs directly attributable to the issue of new shares for the acquisition

of a business are recognised in profit or loss in the period in which they are incurred.

When share capital is repurchased, the am

ount of the consideration paid, including directly attributable costs, is deducted from

equity. Repurchased shares are classified as treasury shares and presented as a deduction from

the total equity until they are cancelled, reissued or disposed of.

Dividends are recognised as a liability in the period in which they are declared.


ents 2015

ACCO

UN

TING

POLICIES


Employee benefits

The Group operates several defined benefit funds and a defined contribution fund. The assets of each scheme

are held separately from those of the Group and are adm

inistered by the schemes’ trustees. The defined benefit

funds are actuarially valued for accounting purposes by professional independent consulting actuaries on an annual basis.

Defined contribution fund

The Group’s contributions to the defined contribution fund are recognised in profit or loss in the period to which they relate.

Defined benefit funds

The benefit costs and obligations under the defined benefit funds are determined separately for each fund using

the projected unit credit method.

The service cost and net interest on the net defined benefit liability or asset are recognised in profit or loss. Where

the benefits of a plan are amended or curtailed, the change in the present value of the net defined benefit

obligation relating to past service by the employees is recognised in profit or loss in the period of the am

endment.

Re-measurem

ents of the net defined benefit liability or asset, comprising actuarial gains and losses, the effect

of changes in the asset ceiling (where applicable) and the return on the plan assets (excluding interest) are recognised in other com

prehensive income in the period in which they arise.

The post-retirement benefit obligation recognised in the statem

ent of financial position represents the present value of the defined benefit obligation less the fair value of any plan assets. Any asset resulting from

this calculation is lim

ited to any economic benefits available in the form

of refunds from the plans or reductions in

the future contributions.

Post-retirement m

edical benefitsPost-retirem

ent medical benefits are provided by the Group to qualifying em

ployees and pensioners. The medical

benefit costs are determined through annual actuarial valuations by independent consulting actuaries using the

projected unit credit method. Actuarial gains or losses are recognised in line with the policy described above.

Short- and long-term benefits

The cost of all short-term em

ployee benefits, such as salaries, bonuses, housing allowances, medical and other

contributions is recognised in profit or loss in the period in which the employee renders the related service.

The Group’s net obligation in respect of long-term service benefits, other than pension plans and post-retirem

ent m

edical benefits is the amount of future benefit that em

ployees have earned in return for their service in the current and prior periods.

Termination benefits

Termination benefits are payable whenever an em

ployee’s employm

ent is terminated before the norm

al retirement

date or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises

termination benefits when it has dem

onstrated its comm

itment to either term

inate the employm

ent of current em

ployees according to a detailed formal plan without possibility of withdrawal or to provide term

ination benefits as a result of an offer m

ade to encourage voluntary redundancy.

LeasesG

roup as a lesseeLeases of property, plant and equipm

ent where the Group assumes substantially all the risks and rewards of

ownership are classified as finance leases. Finance leased assets and the related liabilities recognised at the com

mencem

ent of the lease term at the lower of the fair value of the leased property and the present value of

the minim

um lease paym

ents. Each lease payment is allocated between the liability and finance charges so as to

achieve a constant periodic rate of interest on the remaining balance of the liability. The corresponding rental

obligations, net of finance charges, are recognised in other long term payables.

The interest element of the finance lease paym

ent is recognised in the profit or loss or capitalised to qualifying assets over the lease period if the relevant criteria are m

et. Any contingent rentals are charged as expenses in the period in which they are incurred. Property, plant and equipm

ent acquired under a finance lease is depreciated over the shorter of the asset’s useful life and the lease term

.

Leases where the lessor retains a significant portion of the risks and rewards of ownership are classified as operating leases. Paym

ents made under operating leases, net of any incentives received from

the lessor, (including contracts with fixed escalation clauses), are charged to the profit or loss on a straight line basis over the period of the lease.

The Group capitalises all leasehold improvem

ents and depreciates them over their useful life or the rem

aining period of the lease (if shorter).

Group as a lessor

When assets are leased out under a finance lease, the Group de-recognises the leased asset and recognises the

net investment in the lease as a receivable. The difference between the gross receivable and the present value

of the receivable is recognised as unearned finance income. Lease incom

e is recognised over the term of the

lease using the net investment m

ethod, which reflects a constant periodic rate of return.

Assets leased to third parties under operating leases are included under property, plant and equipment (or

investment property where applicable) in the statem

ent of financial position. They are depreciated over their expected useful lives on a basis consistent with sim

ilar owned property, plant and equipment. Rental incom

e (net of any incentives given to the lessee) is recognised on a straight-line basis over the lease term

.

Sale and leasebackW

here a sale and leaseback agreement is classified as a finance lease, any excess of the sale proceeds over the

carrying value is deferred and recognised in the profit or loss over the period of the lease.

Where a sale and leaseback agreem

ent is classified as an operating lease and the transaction took place at fair value, any excess or deficit of the sale proceeds over the carrying values of the assets sold is recognised in the profit or loss in the year in which it arises. If the deficit is com

pensated for by future lease payments at below

market price, the deficit is deferred and am

ortised in proportion to the lease payments over the period for which

the asset is expected to be used. If the sale price is above fair value, the excess over fair value shall be deferred and am

ortised over the period for which the asset is expected to be used.

Determ

ining whether an arrangem

ent contains a leaseThe Group ensures that the following two requirem

ents are met, in order for an arrangem

ent transacted by the Group to be classified as a lease in term

s of IAS 17 Leases:• The fulfilm

ent of the arrangement is dependent on the use of a specific asset or assets (whether explicitly or

implicitly stated in the contract), and


ents 2015

ACCO

UN

TING

POLICIES


• The arrangement conveys the right to use the asset(s); i.e. the arrangem

ent conveys to the purchaser (lessee) the right to control the use of the underlying asset. This will be the case if any one of the following conditions are m

et: –The purchaser has the ability or right to operate the asset or direct others to operate the asset in a m

anner it determ

ines while obtaining or controlling more than an insignificant am

ount of the output or other utility of the asset.

–The purchaser has the ability or right to control physical access to the asset while obtaining or controlling m

ore than an insignificant amount of the output or other utility of the asset.

–There is only a remote possibility that parties other than the purchaser will take m

ore than an insignificant am

ount of the output or other utility of the asset and the price that the purchaser will pay for the output is neither contractually fixed per unit of output nor equal to the current m

arket price per unit at the time

of delivery.

The Group’s assessment of whether an arrangem

ent contains a lease is made at the inception of the

arrangement, with reassessm

ent occurring in the event of limited changes in circum

stances as specified by IFRIC 4 Determ

ining whether an arrangement contains a lease.

Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estim

ate can be made

of the amount of the obligation.

The amount recognised as a provision is the best estim

ate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. W

here the effect of time value of m

oney is material, provisions are determ

ined by discounting the expected future cash flows at a pre-taxation rate that reflects current m

arket assessments of the tim

e value of m

oney and the risks specific to the liability. The unwinding of the discount in subsequent financial periods is recognised as an expense in profit or loss under finance costs.

When som

e or all of the economic benefits required to settle a provision are expected to be recovered from

a third party, a receivable is recognised as an asset if it is virtually certain that the reim

bursement will be received

and the amount of the receivable can be m

easured reliably.

Warranties

A provision for warranties is recognised when the underlying products or services are sold. The provision is based on historical warranty data and a weighting of all possible outcom

es against their associated probabilities.

Restructuring

A provision for restructuring costs is recognised when the Group has a detailed formal plan for the restructuring

and the Group has raised a valid expectation in those affected that it will carry out the restructuring by starting to im

plement that plan or announcing its m

ain features to those affected by it. Restructuring provisions only include those direct expenditures which are necessarily entailed by the restructuring and not associated with the ongoing activities of the Group. Future operating costs are not provided for.

Decom

missioning and environm

ental liabilitiesD

ecomm

issioning liabilitiesA provision for the dism

antling and removal of an item

of property, plant and equipment and restoring the site is

recognised when the Group has a present obligation (legal or constructive) to decomm

ission the asset and restore the site on which the asset is located and a reliable estim

ate can be made of the am

ount of the obligation.

The amount recognised as a provision is the best estim

ate of the cost to dismantle and rem

ove the item and

rehabilitate the site and may change from

year to year taking into account the changes in intended use of the asset, new techniques and know-how in rehabilitating affected sites, estim

ated risks and uncertainties surrounding the obligation and the tim

e value of money. These estim

ates are reviewed at least annually.

The initial estimate of costs to decom

mission an asset, the obligation for which arises as a result of either

having acquired or constructed the asset or as a consequence of having used the asset in the current and/ or prior periods for purposes other than to produce inventories is capitalised as part of the cost of the asset. W

here the obligation arises as a result of having used the asset to produce inventories, the decomm

issioning costs are recognised as part of the cost of the inventory.

The effect of subsequent changes to assumptions in estim

ating an obligation for which the provision was recognised as part of the cost of the asset is adjusted against the cost of the asset unless the asset is carried under the revaluation m

odel.

Where the asset is carried under the revaluation m

odel, changes in the provision are accounted for as follows:• A decrease in the decom

missioning liability is recognised in other com

prehensive income and increases the

revaluation surplus within equity, except that is recognised in profit or loss to the extent that it reverses a revaluation deficit on the asset that was previously is recognised in profit or loss,

• An increase in the decomm

issioning liability is recognised in profit or loss, except that it is recognised in other com

prehensive income and reduces the revaluation surplus within equity to the extent of any credit balance

existing in the revaluation surplus in respect of that asset.

Environmental liabilities

In accordance with the Group’s environmental policy and applicable legal requirem

ents, a provision for environm

ental rehabilitation in respect of clean-up costs is recognised in profit or loss when the Group has a present obligation (legal or constructive) as a result of a past event and a reliable estim

ate can be made of the

amount of the obligation.

The Group’s environmental obligations arise from

legislation which requires the Group to remove waste m

aterial and rem

ediate land contaminated by asbestos, ferrom

anganese, manganese, m

ixed soil (including chrome,

sulphur and manganese), fuel and rubble.

A number of factors are considered in determ

ining the amount of the obligation, including:

• The extent of the contamination,

• The cost per ton/square metre/kilom

etre of removal and disposal of the contam

ination, including transportation costs where applicable,

• The cost of rehabilitation of the identified areas of contamination, and

• The costs for the removal and replacem

ent of asbestos roof sheeting and cladding on buildings.

The above estimates are reviewed at least annually and the effect of subsequent changes thereto is recognised

prospectively in profit or loss as a change in accounting estimate.


ents 2015

ACCO

UN

TING

POLICIES


Onerous contracts

A provision for onerous contracts is recognised when the unavoidable costs of meeting the Group’s obligations

under a contract exceed the economic benefits expected to be received under the contract.

Other provisions

Other provisions such as third-party claims, freight insurance, custom

er claims and leave pay provisions are

recognised when they meet the recognition requirem

ents as per IAS 37 Provisions, Contingent Liabilities and Contingent Assets.

Contingent liabilities

Contingent liabilities are (a) possible obligations of the Group that arise from past events whose existence will

be confirmed only by the occurrence or non-occurrence of one or m

ore uncertain future events not wholly within the control of the Group, or (b) present obligations that arise from

past events and it is either not probable that an outflow of resources em

bodying economic benefits will be required to settle the obligation or the am

ount of the obligation cannot be m

easured with sufficient reliability. Contingent liabilities are not recognised in the financial statem

ents but are disclosed in the notes to the financial statements unless the probability of

occurrence is remote.

Contingent assets

Contingent assets are possible assets of the Group that arise from past events and whose existence will be

confirmed only by the occurrence or non-occurrence of one or m

ore uncertain future events not wholly within the control of the Group. Contingent assets are not recognised in the financial statem

ents and are only disclosed in the notes to the financial statem

ents where an inflow of economic benefits is probable.

Financial guaranteesA financial guarantee contract is a contract that requires the issuer to m

ake specified payments to reim

burse the holder for a loss it incurs because a specified debtor fails to m

ake payment when due in accordance with the

original or modified term

s of the debt instrument. The Group recognises financial guarantee contracts initially

at fair value. Subsequently these are recognised at the higher of:• The am

ount determined in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets,

and• The am

ount initially recognised less, when appropriate, cumulative am

ortisation recognised in accordance with IAS 18 Revenue.

Legal claims

A provision for legal claims is recognised when all the recognition criteria for provisions above are m

et and is based on legal opinion, taking into account the risk and uncertainties surrounding the obligation.

Com

pensation receivableCom

pensation receivable from third parties such as insurance com

panies in respect of assets that are impaired,

lost or given up or for any other loss incurred is recognised in the profit or loss when, and only when, it is virtually certain that the paym

ent will be received and the amount can be m

easured reliably.

Segment disclosure

For managem

ent purposes, the Group is organised into five operating divisions based on their products and/ or services, which form

the basis of reporting segment inform

ation in accordance with IFRS 8 Operating Segments.

Further information on the operations of the operating divisions is available in the Operational Review report.

The operating segments are identified on the basis of internal reports that the Group’s chief operating decision-

maker reviews regularly in allocating resources to segm

ents and in assessing their performance. Reportable

segments are identified based on quantitative thresholds of revenue, profit or loss and assets.

Transfer prices between operating segments are on an arm

’s length basis, similar to transactions with third

parties. Inter-segment revenues are elim

inated upon consolidation and reflected in the “elimination of inter-

segment transactions” colum

n of the segment report.

Related party transactions

Transactions with related parties are conducted on an arm’s length basis sim

ilar to transactions with third parties.

Change in accounting policy: revaluation of rail infrastructure assets

During the financial year, the Group changed its accounting policy for rail infrastructure assets from the

historical cost basis to the revaluation model in accordance with IAS 16 Property, Plant and Equipm

ent in order to better reflect the value of these assets to the Group, the value being consum

ed through use and the future capital required to m

aintain or replace these assets going forward.

The fair value of the assets was assessed using the depreciated optimised replacem

ent cost and the discounted cash flow m

ethods. Consistent with Group policy on revaluation, the fair value recognised in the financial statem

ents was limited to the lower of the two valuation m

ethods in order to ensure that the assets are not carried at am

ounts in excess of their recoverable amounts.

Accordingly, the carrying value of rail infrastructure assets was revalued by R49,8 billion to R75,2 billion (refer note 9). The new policy was applied prospectively.


ents 2015

ACCO

UN

TING

POLICIES


Com

pany G

roup

20142015

20152014

R million

R million

Notes

R m

illion R

million

56 570 61 114

Revenue1

61 152 56 606

(32 952)(35 546)

Net operating expenses excluding depreciation, derecognition and am

ortisation2

(35 564) (32 967)

23 618 25 568

Profit from operations before depreciation,

derecognition, amortisation and item

s listed below25 588

23 639 (10 736)

(10 951)Depreciation, derecognition and am

ortisation3

(10 951) (10 736)

12 882 14 617

Profit from operations before the item

s listed below4.1

14 637 12 903

(110)(964)

Impairm

ent of assets4.2

(964) (107)

37 1

Dividends received4.3

––

(388)(162)

Post-retirement benefit obligation expense

4.4(162)

(388) 264

136Fair value adjustm

ents5

136 264

Income from

associates and joint ventures13

9 14

12 685 13 628

Profit from operations before net finance costs

13 656 12 686

(5 911)(6 287)

Finance costs6

(6 287) (5 917)

346 212

Finance income

7221

366

7 120 7 553

Profit before taxation7 590

7 135 (1 953)

(2 279)Taxation

8(2 288)

(1 964)

5 167 5 274

Profit for the year5 302

5 171

Com

pany G

roup

20142015

20152014

R m

illion R

million

NotesR

million

R m

illion

5 167 5 274

Profit for the year5 302

5 171 Other com

prehensive income

6 118 39 745

Net items that will not be reclassified subsequently

to profit or loss39 745

6 118

8 507 55 205

Items that will not be reclassified subsequently

to profit or loss55 205

8 507

8 269 55 175

– Gains on revaluations55 175

8 269 238

30– Actuarial gains on post-retirem

ent benefit obligations30

238

(2 389)(15 460)

Taxation relating to components that will not

be reclassified subsequently to profit or loss8.1

(15 460) (2 389)

865 170

Net items that m

ay be reclassified subsequently to profit or loss

168 870

1 195 236

Items that m


234 1 200

– –

– Exchange differences on translation of foreign operations

(2) 5

1 195 236

– Gains on cash flow hedges236

1 195

(330)(66)

Taxation relating to components that m


8.1(66)

(330)

6 983 39 915

Other comprehensive incom

e for the year, net of taxation

39 913 6 988

12 150 45 189

Total comprehensive incom

e for the year45 215

12 159 | 7170 | Transnet Annual Financial Statem

ents 2015

INCO

ME STA

TEMEN

TSfor the year ended 31 M

arch 2015STA

TEMEN

TS OF CO

MPR

EHEN

SIVE IN

COM

Efor the year ended 31 M

arch 2015

Com

pany G

roup

20142015

20152014

R m

illion R

million

NotesR

million

R m

illion

Items that will not be reclassified subsequently

to profit or loss 5 951

39 723Net gains on revaluation reserve

39 723 5 951

8 269 55 175

Gains on revaluations55 175

8 269

467 843

– Gain on revaluation of pipeline networks22

843 467

7 783 4 619

– Gain on revaluation of port facilities22

4 619 7 783

– 49 805

– Gain on revaluation of rail infrastructure22

49 805 –

26 (60)

– Decomm

issioning restoration liability adjustm

ent22

(60) 26

27 9

– Gain on revaluation of land, buildings and structures

229

27 (34)

(41)– Loss on revaluation of other investm

ents22

(41) (34)

(2 318)(15 452)

Taxation effect of revalued items

8.1(15 452)

(2 318)

167 22

Net actuarial gains on post-retirement benefit

obligations22

167

238 30

Actuarial gains on post-retirement benefit

obligations22

30 238

20 14

– Actuarial gain on the Transport Pension Fund: Transnet Sub-fund

32.1.214

20

10 (1)

– Actuarial (loss)/gain on the Transnet Top M

anagement Pension

32.1.4(1)

10

21 (82)

– Actuarial (loss)/gain on the Transnet Workm

en’s Com

pensation Act Pensioners32.1.4

(82) 21

65 (11)

– Actuarial (loss)/gain on the Transnet SATS Pensioners m

edical benefits32.2.1

(11) 65

122 110

– Actuarial gain on the Transnet employees

medical benefits

32.2.2110

122

(71)(8)

Taxation effect of net actuarial gains8.1

(8) (71)

Items that m


865 170

Net gain on cash flow hedging reserve170

865

1 195 236

– Gains on cash flow hedges22

236 1 195

(330)(66)

– Taxation effect of cash flow hedge gains8.1

(66) (330)

– –

Net movem

ent on foreign currency translation reserve

22(2)

5

6 983 39 915

Other comprehensive incom

e for the year39 913

6 988

Com

pany G

roup

20142015

20152014

R m

illion R

million

Notes

R m

illion R

million

Assets

Non-current assets 207 322

287 166Property, plant and equipm

ent9

287 166 207 322

8 572 9 074


109 074

8 572 972

1 273Intangible assets

111 273

972 3

3Investm

ents in subsidiaries12

9 9

Investments in associates and joint ventures

13113

105 7 346

7 622Derivative financial assets

147 622

7 346 29

24Long-term

loans and advances15

24 29

716 669

Other investments and long-term

financial assets16

669 716

224 969 305 840

305 941 225 062

Current assets 3 241

3 343Inventories

173 343

3 241 7 769

8 328Trade and other receivables

188 332

7 774 58

3 770Derivative financial assets

143 770

58 67

708Other short-term

investments

16708

67 3 508

6 121Cash and cash equivalents

196 264

3 633

14 643 22 270

22 417 14 773

238 81

Assets classified as held-for-sale20

81 238

14 881 22 351

22 498 15 011

239 850 328 191

Total assets328 439

240 073

Equity and liabilitiesCapital and reserves

12 661 12 661

Issued capital21

12 661 12 661

84 264 129 453

Reserves22

129 667 84 452

96 925 142 114

Attributable to the equity holder142 328

97 113

Non-current liabilities 2 968

2 771Em

ployee benefits23

2 771 2 968

82 993 93 076

Long-term borrowings

2493 078

82 995 46

25Derivative financial liabilities

1425

46 1 890

1 937Long-term

provisions25

1 937 1 890

25 209 43 087

Deferred taxation liabilities26

43 087 25 209

4 615 4 955

Other non-current liabilities16

4 9554 615

117 721 145 851

145 853 117 723

Current liabilities 14 329

18 780Trade payables and accruals

2818 808

14 357 7 449

17 299Short-term

borrowings29

17 299 7 449

1234

Current taxation liability38

17 37

45Derivative financial liabilities

1445

37 816

848Short-term

provisions25

848 816

2 561 3 220

Other current liabilities16

3 220 2 561

25 204 40 226

40 258 25 237

239 850 328 191

Total equity and liabilities328 439

240 073


ents 2015

DISCLO

SUR

E OF CO

MPO

NEN

TS OF O

THER

CO

MPR

EHEN

SIVE IN

COM

Efor the year ended 31 M

arch 2015STA

TEMEN

TS OF FIN

AN

CIAL PO

SITION

as at 31 March 2015

Issued capital

R m

illion

Revalua-

tion reserve

R m

illion

Foreign currency

translation reserve

R m

illion

Actuarial

gains and losses

R m

illion

Cash flow

hedging reserve

R m

illion O

ther R

million

Retained

earnings R

million

Total R

million

Com

panyOpening balances at 1 April 2013

12 661 31 760

– 1 965

161 250

37 978 84 775

Total comprehensive

income for the year

– 5 951

– 167

865 –

5 167 12 150

Balances at 31 M

arch 2014 12 661

37 711 –

2 132 1 026

250 43 145

96 925

Profit for the year–

––

––

–5 274

5 274Other com

prehensive incom

e for the year–

39 723–

22170

––

39 915Transfer to retained earnings

–(8)

––

––

8–

Balances at 31 M

arch 201512 661

77 426–

2 1541 196

25048 427

142 114

Group

Opening balances at 1 April 2013

12 661 31 760

(5) 1 965

161 249

38 163 84 954

Total comprehensive

income for the year

– 5 951

5 167

865 –

5 171 12 159

Balances at 31 M

arch 2014 12 661

37 711 –

2 132 1 026

249 43 334

97 113

Profit for the year–

––

––

–5 302

5 302Other com

prehensive incom

e/(loss) for the year

–39 723

(2)22

170–

–39 913

Transfer to retained earnings

–(8)

––

––

8–

Balances at 31 M

arch 201512 661

77 426(2)

2 1541 196

24948 644

142 328

Com

pany G

roup

20142015

20152014

R m

illion R

million

Notes

R m

illion R

million

18 695 23 647

Cash flows from operating activities

23 666 18 709

24 032 27 261

Cash generated from operations

34.127 280

24 043 1 235

3 326Changes in working capital

34.23 327

1 228

25 267 30 587

Cash generated from operations after working

capital changes30 607

25 271 (5 870)

(6 128)Finance costs

34.3(6 128)

(5 870) 301

196Finance incom

e34.4

205 321

26 101

Taxation refunded34.5

91 16

(238)(220)

Settlement of post-retirem

ent benefit obligations (220)

(238) (791)

(889)Derivatives settled and raised

(889) (791)

(31 838)(36 714)

Cash flows utilised in investing activities(36 715)

(32 067) (17 364)

(19 867)Investm

ent to maintain operations

(19 868) (17 593)

(18 480)(19 049)

Replacements to property, plant and equipm

ent(19 049)

(18 480) (500)

(392)Additions to intangible assets

(392) (500)

(100)(154)

Borrowing costs capitalised(154)

(100)

189 298

Proceeds on the disposal of property, plant and equipm

ent298

189 1

–Proceeds on the disposal of investm

ent properties–

1 192

–Net proceeds on the return of capital from

subsidiary–

– 37

1Dividend incom

e–

– 5

7Net receipts of long-term

loans and advances7

5 1 292

(578)Net (increase)/decrease in other investm

ents (578)

1 292

(14 474)(16 847)

Investment to expand operations

(16 847) (14 474)

(13 286)(14 516)

Expansions – property, plant and equipment

(14 516) (13 286)

(1 188)(2 331)

Borrowing costs capitalised(2 331)

(1 188)

14 393 15 680

Cash flows from financing activities

15 680 14 393

22 380 34 113

Borrowings raised34 113

22 380 (7 987)

(18 433)Borrowings repaid

(18 433) (7 987)

1 250 2 613

Net increase in cash and cash equivalents2 631

1 035 2 258

3 508Cash and cash equivalents at the beginning of the year

3 633 2 598

3 508 6 121

Total cash and cash equivalents at the end of the year34.6

6 264 3 633


ents 2015

STATEM

ENTS O

F CHA

NG

ES IN EQ

UITY


STATEM

ENTS O

F CASH

FLOW

Sfor the year ended 31 M

arch 2015

All other

National

Total for

segments

Elimination of

Ports

Port

reportable and other

intersegment

Total Freight R

ailEngineering

Authority

Terminals

Pipelines

segments

adjustments**

transactionsR

million

R m

illionR

million

R m

illionR

million

R m

illionR

million

R m

illionR

million

For the year ended 31 March 2015

External revenue*37 410

1 7188 489

9 7063 241

60 564588

–61 152

Internal revenue 348

10 6521 229

65

12 2403 245

(15 485)–

Total revenue 37 758

12 3709 718

9 7123 246

72 8043 833

(15 485)61 152

Energy costs(4 813)

(216)(440)

(526)(217)

(6 212)(162)

–(6 374)

Maintenance costs

(1 173)(227)

(260)(301)

(83)(2 044)

(61)1 991

(114)M

aterial costs(963)

(5 744)(76)

(407)(11)

(7 201)(24)

5 210(2 015)

Personnel costs(11 567)

(4 613)(1 909)

(3 523)(351)

(21 963)(1 847)

5 513(18 297)

Other costs(3 001)

(825)(719)

(1 989)(280)

(6 814)(4 242)

2 292(8 764)

Earnings before interest, taxation, depreciation, derecognition and am

ortisation (EBITDA)16 241

7456 314

2 9662 304

28 570(2 503)

(479)25 588

Depreciation, derecognition and amortisation

(6 951)(268)

(1 447)(1 615)

(642)(10 923)

(240)212

(10 951)Im

pairment of assets

(460)–

(45)(58)

(94)(657)

(307)–

(964)Dividends received and incom

e from associates and joint ventures

––

––

––

9–

9Fair value adjustm

ents and post-retirement benefit obligation expense

(76)(33)

233(43)

(12)69

(95)–

(26)Finance costs

(2 826)(338)

(1 781)(522)

138(5 329)

(9 080)8 122

(6 287)Finance incom

e15

(5)(4)

810

248 319

(8 122)221


1013 270

7361 704

11 754(3 897)

(267)7 590

Total assets##

168 23811 861

78 32518 993

36 346313 763

28 093(13 498)

328 358Total liabilities

89 3547 111

42 81110 358

21 071170 705

23 075(7 669)

186 111Capital expenditure***

25 1731 026

2 8741 237

2 79333 103

941(479)

33 565Cash generated from

operations after working capital changes13 583

1 8455 981

2 2362 645

26 2904 317

n/a30 607

EBITDA margin (%

)43,0

6,065,0

30,571,0

39,2n/a

n/a41,8

Number of em

ployees29 445

11 7194 189

7 061630

53 0442 462

n/a55 506

For the year ended 31 March 2014

External revenue*34 111

1 6168 727

8 5313 099

56 084522

–56 606

Internal revenue 300

11 7371 190

415

13 2462 763

(16 009)–

Total revenue 34 411

13 3539 917

8 5353 114

69 3303 285

(16 009)56 606

Energy costs(4 543)

(221)(399)

(520)(206)

(5 889)(142)

–(6 031)

Maintenance costs

(1 370)(261)

(296)(306)

(73)(2 306)

(74)2 171

(209)M

aterial costs(949)

(6 521)(85)

(358)(11)

(7 924)60

5 052(2 812)

Personnel costs(10 732)

(4 708)(1 767)

(3 124)(318)

(20 649)(1 625)

5 645(16 629)

Other costs(2 393)

(756)(690)

(1 768)(178)

(5 785)(3 847)

2 346(7 286)

Earnings before interest, taxation, depreciation, derecognition and am

ortisation (EBITDA)14 424

8866 680

2 4592 328

26 777(2 343)

(795)23 639

Depreciation, derecognition and amortisation

(6 999)(246)

(1 354)(1 566)

(639)(10 804)

(124)192

(10 736)Im

pairment of assets

(11)–

(22)(236)

(7)(276)

169–

(107)Dividends received and incom

e from associates and joint ventures

––

––

––

14–


ents and post-retirement benefit obligation expense

1143

46820

5610

(734)–

(124)Finance costs

(2 412)(393)

(1 525)(449)

(44)(4 823)

(8 306)7 212

(5 917)Finance incom

e53

–4

66

697 509

(7 212)366


2504 251

2341 649

11 553(3 815)

(603)7 135

Total assets##

99 73311 206

72 45419 042

32 324234 759

16 736(11 660)


61 7526 774

38 04810 055

19 373136 002

13 152(6 194)

142 960Capital expenditure***

25 115975

1 1881 651

3 37732 306

254(794)

31 766Cash generated from

operations after working capital changes22 131

1 1797 716

1 2911 974

34 291(9 020)

n/a25 271

Net cash surplus/(shortfall)10

(85)2 338

(74)26

2 215(1 180)

n/a1 035

EBITDA margin (%

)41,9

6,667,4

28,874,8

38,6n/a

n/a41,8

Number of em

ployees29 225

12 4283 823

6 624621

52 7211 950

n/a54 671

* Revenues from

segments below the quantitative thresholds are attributable to two operating segm

ents of Transnet. Those segments include

Transnet Property that manages internal and external leases of com

mercial and residential property and Transnet Capital Projects.

** Other adjustments include the Corporate Centre functions.

*** Excludes capitalised borrowing costs and intangible assets, includes capitalised finance leases and capitalised decomm

issioning liabilities.## Excludes assets classified as held-for-sale.


ents 2015

SEGM

ENTA

L REPO

RT


Com

pany G

roup

20142015

20152014

R m

illion R

million

R m

illion R

million

1.R

evenue53 961

59 682Rendering of services

59 72053 997

1 4461 555

Rental income

1 5551 446

106

Finance income from

lending activities6

101 077

836Construction contracts (refer note 27)

8361 077

56 49462 079

62 11756 530

76(965)

Revenue claw back adjustment

(965)76

56 57061 114

61 15256 606

Refer to the Segmental Report for the split

of revenue streams.

2.N

et operating expenses excluding depreciation, derecognition and am

ortisation334

308Accom

modation and refreshm

ents308

334923

1 099Electronic data costs

1 099923

6 0316 374

Energy costs6 374

6 031406

439Health and sanitation

439406

232240

Insurance240

232209

114M

aintenance costs114

209

1 6811 970

Managerial and technical consulting fees

(refer note 4.1)1 970

1 6812 812

2 015M

aterial costs2 015

2 8121 854

2 482Operating leases (refer note 4.1)

2 4821 854

16 62918 297

Personnel costs18 297

16 629106

117Printing and stationery

117106

(54)(156)

Profit on disposal of property, plant and equipment

(refer note 4.1)(156)

(54)186

193Prom

otions and advertising193

186100

83Research and developm

ent costs (refer note 4.1)83

100843

926Security

926843

313301

Telecomm

unications301

31399

82Transport

8299

248662

Other costs680

263

32 95235 546

35 56432 967

Com

pany G

roup

20142015

20152014

R m

illion R

million

R m

illion R

million

3.D

epreciation, derecognition and am

ortisationDepreciation and derecognition (refer annexure B)

7 7757 802

Depreciation and derecognition – Owned assets at historic cost

7 8027 775

1111

Aircraft11

11110

111Floating craft

111110

754859

Land, buildings and structures859

754652

736M

achinery, equipment and furniture

736652

892944

Permanent way and works

944892

5 2955 067

Rolling stock and containers5 067

5 29561

74Vehicles

7461

2 5932 760

Depreciation and derecognition – Owned assets revalued portion

2 7602 593

––

Rail infrastructure*–

–607

612Pipeline networks

612607

1 9862 148

Port facilities2 148

1 986

197198

Depreciation and derecognition – Leased assets at historic cost

198197

2428

Machinery, equipm

ent and furniture28

2422

3Perm

anent way and works3

22151

167Rolling stock and containers

167151

10 56510 760

10 76010 565

Amortisation of intangible assets (refer note 11)

171191

Software and licenses191

171

10 73610 951

Total depreciation, derecognition and amortisation

10 95110 736

*Revalued as at 31 March 2015.


ents 2015

NO

TES TO TH

E AN

NU

AL FIN

AN

CIAL STA

TEMEN


arch 2015

Com

pany G

roup

20142015

20152014

R m

illion R

million

R m

illion R

million

4.1P

rofit from operations before im

pairment of

assets, dividends received, post-retirement

benefit obligation expense, fair value adjustm

ents and income from

associates and joint venturesis stated after taking into account the following am

ounts:

Auditors’ remuneration

Group auditors50

59Audit fees – current year

5950

3533

Audit fees – prior year33

3512

14Fees for audit related and other services

1412

52

Expenses2

5

102108

108102

1 6811 970

Managerial and technical consulting fees

1 9701 681

Operating lease charges1 025

1 162Land, buildings and structures

1 1621 025

717889

Vehicles889

71770

66Rolling stock

6670

42365

Other365

42

1 8542 482

2 4821 854

(54)(156)


(156)(54)

10083

Research and development costs

83100

Directors’ and executives’ emolum

ents (full details are disclosed in the Report of the Directors)

1925

Executive directors25

197

7Non–executive directors

77

7994

Senior executives94

79

105126

126105

4.2Im

pairment of assets

177442

Property, plant and equipment (refer annexure B)

442177

3–

Associates and subsidiaries(30)

(2)Long–term

loans and advances (refer note 15)(2)

(30)(40)

524Trade and other receivables

524(40)

110964

964107

Com

pany G

roup

20142015

20152014

R m

illion R

million

R m

illion R

million

4.3D

ividends received

36–

Dividends from subsidiary

11

Dividends from associate

371

4.4Post–retirem

ent benefit obligation expense33

25Transport Pension Fund: Transnet Sub–fund

2533

––

Transnet Second Defined Benefit Fund–

–6

6Transnet Top M

anagement Pension

66

3236

Transnet Workm

en’s Compensation Act pensioners

3632

5647

Transnet SATS Pensioners’ post–retirement

medical benefits

4756

5851

Transnet employees’ post–retirem

ent medical benefits

5158

203(3)

Other post–retirement and m

edical benefits (refer note 23)

(3)203

388162

162388

5.Fair value adjustm

ents(372)

(137)Derivative fair value adjustm

ents (refer note 14)(137)

(372)

647315

Fair value adjustment of investm

ent property (refer note 10)

315647

(11)(42)

Fair value adjustments on firm

comm

itments

(42)(11)

264136

136264

6.Finance costs

49(2)

Net foreign exchange (gain)/loss on translation(2)

55(39)

126Interest factor on clawback (refer note 16)

126(39)

3135

Discounts on bonds amortised (refer note 24)

3531

1516

Finance lease obligation16

157 143

8 597Interest cost – Financial liabilities at am

ortised cost8 597

7 143

7 1998 772

Gross finance costs8 772

7 205(1 288)

(2 485)Borrowing costs capitalised*

(2 485)(1 288)

5 9116 287

6 2875 917

* The weighted average capitalisation rate on funds borrowed generally is 9,2%

per annum (2014: 9,74%

per annum).


ents 2015

NO

TES TO TH

E AN

NU

AL FIN

AN

CIAL STA

TEMEN


arch 2015

Com

pany G

roup

20142015

20152014

R m

illion R

million

R m

illion R

million

7.Finance incom

e244

169Interest received – Bank deposits

178264

5727

Interest received – Loans and receivables27

5745

16Interest received – Held-to-m

aturity16

45

346212

221366

8.TaxationSouth African norm

al taxation(66)

(73)– Current year

(64)(59)

Deferred taxation (refer note 26)2 019

2 352– Current year

2 3522 019

Foreign taxation–

–– Current year

–4

1 9532 279

2 2881 964

%%

Reconciliation of taxation rate%

%28,00

28,00Standard rate – South African norm

al taxation28,00

28,00(0,57)

2,17Adjustm

ent for differences2,14

(0,47)

1,731,45

Expenses not included for taxation purposes1,45

1,92(0,53)

(0,01)Exem

pt local dividends–

–(0,84)

1,69Adjustm

ent to current year deferred taxation charge1,65

(1,46)(0,93)

(0,96)Release on prescription of taxation return

(0,96)(0,93)

27,4330,17

Effective rate of taxation30,14

27,53

8.1Taxation recognised in other com

prehensive incom

eArising on the taxation effects of item

s recognised in other com

prehensive income:

(135)(225)

Gain on revaluation of pipeline networks and decom

missioning restoration liability

(225)(135)

(2 181)(1 294)

Gain on revaluation of port facilities adjustment

(1 294)(2 181)

–(13 945)

Gain on revaluation of rail infrastructure(13 945)

–(8)

(1)Gain on revaluation of land, buildings and structures

(1)(8)

613

Loss on revaluation of investments to m

arket value (ALL Group Ltd)

136

(330)(66)

Gains on cash flow hedges(66)

(330)(71)

(8)Actuarial gain on post–retirem

ent benefit obligations(8)

(71)

(2 719)(15 526)

Total taxation recognised in other comprehensive incom

e(15 526)

(2 719)

Com

pany G

roup

20142015

20152014

R m

illion R

million

R m

illion R

million

9.P

roperty, plant and equipment

(refer annexure B)

Property, plant and equipment is stated at historical cost

except for pipeline networks, port facilities and rail infrastructure, which are stated at revalued am

ounts.

207 322287 166

Net book value287 166

207 322

295 979398 250

Gross carrying value398 250

295 979(88 657)

(111 084)Accum

ulated depreciation and impairm

ent(111 084)

(88 657)

Comprising:

Historical cost164 176

163 058Gross carrying value

163 058164 176

157171

– Aircraft171

1572 270

2 462– Floating craft

2 4622 270

24 05725 919

– Land, buildings and structures25 919

24 0578 109

9 253– M


9 2538 109

28 897766

– Permanent way and works*

76628 897

69 27876 378

– Rolling stock and containers76 378

69 2781 049

1 057– Vehicles

1 0571 049

30 35947 052

– Capital work in progress47 052

30 359

(37 883)(36 457)

Accumulated depreciation

(36 457)(37 883)

(120)(131)

– Aircraft(131)

(120)(594)

(690)– Floating craft

(690)(594)

(5 105)(5 910)

– Land, buildings and structures(5 910)

(5 105)(4 374)

(5 013)– M


(5 013)(4 374)

(5 853)(101)

– Permanent way and works*

(101)(5 853)

(21 266)(23 974)

– Rolling stock and containers(23 974)

(21 266)(571)

(638)– Vehicles

(638)(571)

(1 129)(1 276)

Accumulated im

pairment

(1 276)(1 129)

(1)(1)

– Floating craft(1)

(1)(164)

(168)– Land, buildings and structures

(168)(164)

(155)(205)

– Machinery, equipm

ent and furniture(205)

(155)(43)

(1)– Perm

anent way and works*(1)

(43)(544)

(648)– Rolling stock and containers

(648)(544)

(5)(39)

– Vehicles(39)

(5)(217)

(214)– Capital work in progress

(214)(217)

125 164125 325

Net book value of property, plant and equipment

stated at historic cost125 325

125 164

* Rail infrastructure was part of permanent way and works in

the prior year. Rail infrastructure was revalued for the first time

as at 31 March 2015.


ents 2015

NO

TES TO TH

E AN

NU

AL FIN

AN

CIAL STA

TEMEN


arch 2015

Com

pany G

roup

20142015

20152014

R m

illion R

million

R m

illion R

million

9.P


(refer annexure B) continued

Revaluation131 803

235 192Gross carrying value

235 192131 803

30 71432 063

– Pipeline networks32 063

30 714101 089

108 808– Port facilities

108 808101 089

–94 321

– Rail infrastructure**94 321

–(48 616)

(72 268)Accum

ulated depreciation(72 268)

(48 616)(11 927)

(12 884)– Pipeline networks

(12 884)(11 927)

(36 689)(40 348)

– Port facilities(40 348)

(36 689)–

(19 036)– Rail infrastructure**

(19 036)–

(1 029)(1 083)

Accumulated im

pairment

(1 083)(1 029)

(252)(290)

– Pipeline networks(290)

(252)(777)

(750)– Port facilities

(750)(777)

–(43)

– Rail infrastructure**(43)

–

82 158161 841

Net book value of property, plant and equipment

stated at revalued amounts

161 84182 158

207 322287 166

Total net book value287 166

207 322Land, buildings and structuresA register of land, buildings and structures is available for inspection at the Com

pany’s registered offices.During the year, the Group transferred R194 m

illion (2014: R5 m

illion) from/to investm

ent properties to/from

property, plant and equipment. The fair values of these

properties are deemed cost for subsequent accounting

in accordance with IAS 40 Investment Property.

Rolling stock

667639

Included in rolling stock assets are capitalised leased assets with a carrying value of

639667

These assets were part of a sale and lease back arrangem

ent giving rise to a finance lease entered into in 1997. The present value of the lease com

mitm

ents has been settled in full.Pipeline networksAn external revaluation was perform

ed during the year by Arthur D. Little Inc., an independent firm

of professional valuers on the basis of the m

odern equivalent net asset value. In the current year a full revaluation resulted in a net increase of R843 m

illion (2014: R467 million) to the

carrying value of the Group’s pipeline networks, which has been adjusted accordingly.Fair value hierarchy

––

Level 1 – quoted prices in active markets

––

––

Level 2 – significant observable inputs–

–18 535

18 889Level 3 – significant unobservable inputs*

18 88918 535

18 53518 889

18 88918 535

15 61015 418

The historic cost carrying values of these assets am

ount to15 418

15 610* Refer to annexure F for m

ore detail regarding the measurem

ent of level 3 fair values.

** Rail infrastructure was part of permanent way and works in

the prior year. Rail infrastructure was revalued for the first time

as at 31 March 2015.

Com

pany G

roup

20142015

20152014

R m

illion R

million

R m

illion R

million

9.P



Port facilitiesIn the current year, index valuations lim

ited to the discounted cash flow (DCF) were applied to port infrastructure and resulted in an increase of R4 442 m

illion (2014: R6 838 million). An index valuation

applied to port operating assets resulted in an increase of R177 m


The estimated replacem

ent cost of port infrastructure assets that are subject to revaluation am

ounted to R60,1 billion (2014: R57,9 billion), however the revaluation was lim

ited to the present value of future discounted cash flows, am

ounting to R58,7 billion (2014: R54,5 billion).

The fair value of port infrastructure assets based on the discounted cash flow m

ethod is sensitive to changes in the discount rate and term

inal growth rates. The rates applied in the valuation at 31 M

arch 2015 were 11,95%

and 2,29% respectively (see Annexure F). For exam

ple, a 1%

increase/ (decrease) in the discount rate would result in the fair value decreasing/(increasing) by R6,2 billion/ (R7,6 billion). Sim

ilarly, a 1% increase/(decrease) in the

terminal growth rate would result in the fair value

increasing/(decreasing) by R4,5 billion/(R3,7 billion).

Fair value hierarchy–

–Level 1 – quoted prices in active m

arkets–

––

–Level 2 – significant observable inputs

––

63 62367 710

Level 3 – significant unobservable inputs*67 710

63 623

63 62367 710

67 71063 623

21 11021 659

The historic carrying values of these assets amount to

21 65921 110

* Refer to annexure F for more detail regarding the m

easurement

of level 3 fair values.


ents 2015

NO

TES TO TH

E AN

NU

AL FIN

AN

CIAL STA

TEMEN


arch 2015

Com

pany G

roup

20142015

20152014

R m

illion R

million

R m

illion R

million

9.P



Rail infrastructureDuring the year the Group adopted a policy to revalue its rail infrastructure assets in accordance with IAS 16 Property, Plant and Equipm

ent. The assets were revalued based on the depreciated optim

ised replacement cost

method, lim

ited to the discounted cash flows generated by the assets in order to ensure they are not carried at am

ounts in excess of their recoverable amount.

The revaluation resulted in an increase in the carrying am

ount of the assets of R49,8 billion. The new policy was applied prospectively.

The estimated replacem

ent cost of rail infrastructure assets based on the depreciated optim

ised replacement

cost method is in the range of R271 billion to R343 billion.

However, in accordance with Group accounting policy, the revaluation was lim

ited to the present value of discounted future cash flows am

ounting to R75,2 billion.

The discounted cash flows valuation is sensitive to changes in key inputs such as the discount rate and operating cash flows. For exam

ple, a 0,1% change in the

discount rate would change the asset value by R2,4 billion, while a 1%

change in EBITDA results in a R2,7 billion change in the asset value.



arkets–

––


––

–75 242


63 623

–75 242

75 24263 623

22 33525 437

The historic carrying values of these assets amount to

25 43721 110


easurement


9.P

roperty, plant and equipment (refer annexure B

) continuedUseful lives and residual valuesIn term

s of IAS 16 Property, Plant and Equipment, the useful lives and residual values of property, plant and equipm

ent m

ust be reviewed at each reporting date. The useful lives are estimated by m

anagement based on historic analysis,

benchmarking and other available inform

ation. The residual values are based on the estimated recoverable am

ount from

disposal of the asset at the end of its economic life.

Residual valuesDuring the year, m

anagement conducted their annual assessm

ent of residual values on existing assets. The exercise resulted in a change in the residual values of the rolling stock and railway com

ponent of the permanent way assets.

The residual values are based on scrap steel prices obtained during the financial year. This resulted in a reduction in annual depreciation expense of R36,4 m

illion (2014: R17,4 million).

Useful livesRolling Stock – Locom

otivesThe locom

otive useful lives were re-assessed in relation to the locomotive phase out plan over the next 20 years based

on expected deliveries of the new locomotives. The exercise resulted in a decrease in the useful lives of old locom

otives and an increase in the useful lives of refurbished locom

otives. The result was a net decrease in annual depreciation expense of R142,4 m

illion (2014: R432,0 million).

Rolling Stock – Wagons

The wagons useful lives were re-assessed in relation to demand planning and conditions assessm

ent performed by the

fleet owners on the whole population of the wagons. These detailed reviews were not performed in the prior financial

year and the changes of useful lives with the majority of wagons decreasing resulted in net increase of annual depreciation

of R48,0 million (2014: Rnil).

Rolling Stock – Wagons m

aintenanceConsistent with the prior year, all wagons sub com

ponents that had capitalised expenditure incurred on them in the

current year had their useful lives re-assessed and increased accordingly in accordance with the maintenance plans

per wagon type. The exercise resulted in a reduction in annual depreciation expense of approximately R809,0 m

illion (2014: R115,0 m

illion).

Assets with less than two years remaining useful life

Managem

ent identified assets that had a remaining useful life of eighteen m

onths or less that were still in use and which the Group intend to continue utilising beyond the estim

ated useful life. The exercise resulted in an extension in useful lives to 24 m

onths and a reduction in annual depreciation expense of R20,4 million (2014: R8,5 m

illion).

The above adjustments were accounted for prospectively.


ents 2015

NO

TES TO TH

E AN

NU

AL FIN

AN

CIAL STA

TEMEN


arch 2015

Com

pany G

roup

20142015

20152014

R m

illion R

million

R m

illion R

million

10.Investm

ent properties7 938

8 572Fair value at the beginning of the year

8 5727 938

(5)194

Transferred from/(to) property, plant and equipm

ent (refer annexure B)

194(5)

647315

Recognised in income statem

ent (refer note 5)315

647(1)

–Disposals

–(1)

(7)(7)

Transferred to assets classified as held–for–sale(7)

(7)

8 5729 074

Fair value at the end of the year9 074

8 572



arkets–

––


––

8 5729 074


8 572

8 5729 074

9 0748 572


easurement


The fair value of the Group’s investment properties at

31 March 2015 was arrived at on the basis of valuations

carried out at that date by Transnet Property valuers.

The valuations, which conform to the Property Valuers

Profession Act, No.47 of 2000, were arrived at by capitalising the first year’s norm

alised net operating incom

e at a market derived capitalisation rate.

Various assumptions were m

ade in order to derive the net present value of the future cash flows. These assum

ptions were arrived at after wide consultation with subject m

atter experts.

The more critical assum

ptions made were:

• Future cash flows were based on the after taxation m

arket related rentals per investment property.

• The capitalisation rate used to discount cash flows for the purposes of determ

ining present value was the m

arket related return rate adjusted to reflect the appropriate risk profile of each individual property.

• Capitalisation rates ranged between 9,5%

and 20,0%

for the various properties.

The gross property rental income earned by the Group

from its investm

ent properties, which are leased out under gross operating leases, am

ounted to R1 555 million

(2014: R1 446 million).

Direct operating expenses arising on investment

properties during the year amounted to R452 m

illion (2014: R377 m

illion).

No material direct expenses (including repairs and

maintenance) arising on investm

ent property, that did not generate rental incom

e during the period were incurred.

Com

pany G

roup

20142015

20152014

R m

illion R

million

R m

illion R

million

11.Intangible assets

9721 273

Intangible assets1 273

972

2 1842 512

Cost2 512

2 184(1 212)

(1 239)Accum

ulated amortisation

(1 239)(1 212)

Comprising:

Finite life intangible assets972

1 273Software and licenses: carrying value

1 273972

2 1842 512

Cost2 512

2 184

1 5882 184

Balance at the beginning of the year2 184

1 588500

392Additions

392500

13

Borrowing costs capitalised3

1(13)

(164)Disposals

(164)(13)

10897

Transfers from property, plant and equipm

ent (refer annexure B)

97108

(1 212)(1 239)

Accumulated am

ortisation and impairm

ent(1 239)

(1 212)

(1 054)(1 212)

Balance at the beginning of the year(1 212)

(1 054)13

164Disposals

16413

(171)(191)

Amortisation (refer note 3)

(191)(171)

9721 273

1 273972

Software and licenses are assessed as having a finite life and are am

ortised on a straight–line basis over a period of three to five years.

12.Investm

ents in subsidiaries (refer annexure D

)3

3Shares at carrying value

392391

Amounts owing by subsidiaries

395394

(392)(391)

Provision for impairm

ent and losses

33


ents 2015

NO

TES TO TH

E AN

NU

AL FIN

AN

CIAL STA

TEMEN


arch 2015

Com

pany G

roup

20142015

20152014

R m

illion R

million

R m

illion R

million

13.Investm

ents in associates and joint ventures (refer annexure D

)9

9113

105

109

Balance at the beginning of the year105

93Equity accounted earnings

914

––

Dividends received(1)

(1)(1)

–Repaym

ents of loans–

(1)

99

Directors’ valuation of unlisted investments in associates

and joint ventures113

105

Income from

associates and joint ventures9

14

14.D

erivative financial assets and liabilitiesBoth the Com

pany and the Group use approved financial instrum

ents, in particular forward exchange contracts, cross–currency swaps and interest rate swaps to hedge the financial risks associated with underlying business activities. All derivative financial instrum

ents have been m

easured at fair value with the resulting gain or loss taken to the statem

ent of comprehensive incom

e.

7 40411 392

Derivative financial assets11 392

7 404

3 8557 404

Opening balance7 404

3 8552 850

3 160Fair value adjustm

ents3 160

2 850699

828Derivatives raised and settled

828699

8370

Derivative financial liabilities70

83

8583

Opening balance83

8590


ents48

90(92)

(61)Derivatives raised and settled

(61)(92)

2 7603 112

Net fair value adjustments

3 1122 760

(372)(137)

Derivative fair value adjustments (refer note 5)

(137)(372)

(1 067)(2 321)

Finance costs(2 321)

(1 067)

4 1995 570

Recognised in other comprehensive incom

e (refer note 22)

5 570 4 199

Com

pany G

roup

20142015

20152014

R m

illion R

million

R m

illion R

million

14.D

erivative financial assets and liabilities continuedCom

prise the following financial instruments:

7 3467 622

Non–current assets7 622

7 346

6–

Forward exchange contracts–

67 340

7 622Cross–currency swaps and options

7 6227 340

583 770

Current assets3 770

58

1813

Forward exchange contracts13

1840

3 757Cross–currency swaps and options

3 75740

4625

Non–current liabilities25

46

4625


46

3745

Current liabilities45

37

3745


37

Fair value hedges of firm com

mitm

entsThe Group entered into fair value hedges of the foreign exchange risk on firm

comm

itments of the Group to im

port item

s of property, plant and equipment. The Group settles

the contract price of these items by m

aking pre-determined

progress payments (in foreign currency) to the relevant

suppliers as specified milestones are achieved.

At 31 March 2015, the Group held a series of forward

exchange contracts as hedging instruments for this

purpose. These hedges were assessed to be effective. The ineffective portion of the hedge has been recorded in profit and loss.

The fair values of these forward exchange contracts held as hedging instrum

ents at 31 March 2015 are as follows:

(2)8

Currency bought forward – United States Dollar profit/(loss)

8(2)

(57)(65)

Currency bought forward – Euro loss(65)

(57)

The net fair value gain/(loss) recognised in profit and loss on these fair value hedges during the year was Rnil (2014: Rnil). This net fair value adjustm

ent comprised of

a loss of R42 million (2014: R11 m

illion) with respect to foreign exchange risk on the firm

comm

itments, and a gain

of R42 million (2014: R11 m

illion) on the forward exchange contracts.

The nominal values of these forward exchange contracts

at 31 March 2015 are as follows:

Currency bought forward – Rand equivalent16

–Australian Dollar

–16

367478

United States Dollar478

367286

308Euro

308286


ents 2015

NO

TES TO TH

E AN

NU

AL FIN

AN

CIAL STA

TEMEN


arch 2015

Com

pany G

roup

20142015

20152014

R m

illion R

million

R m

illion R

million

14.D

erivative financial assets and liabilities continuedCurrency bought forward – foreign currency

2–

Australian Dollar–

234

41United States Dollar

4134

1519

Euro19

15

Cash flow hedgesCross-currency interest rate swapsOn 31 M

arch 2015, the Group was party to cross-currency interest rate swap contracts which are designated as cash flow hedges of the foreign exchange rate and interest rate risks associated with foreign currency-denom

inated borrowings listed below.

The borrowings being hedged are; two loans from the Japan Bank for International Cooperation (JBIC) for JPY14,1 billion and

JPY3,5 billion respectively, the American Fam

ily Life Assurance Company of Colum

bus (AFLAC) Japan Branch for JPY15 billion, African Developm

ent Bank (AfDB) for USD287 million, Export Developm

ent Canada (EDC) for USD80 million, a US Dollar bond

for USD750 million (TNUS16), a USD Dollar bond for USD1 000 m

illion (TNUS22) under the GMTN program

me, a loan from

KFW

Ipex Bank for EUR49 million, and two loans from

Bank of Tokyo Mitsubishi (BTM

U) for USD300 million and USD200 m

illion respectively.

Under the hedge for the first tranche of the JBIC loan, the Group pays 11,46% fixed (ZAR) and receives LIBOR +1,48%

(JPY). Under the hedge for the second tranche of the JBIC loan, the Group pays 9,91%

fixed (ZAR) and receives LIBOR +1,48% (JPY).

Under the hedge for the AFLAC loan, the Group pays 12,22% fixed (ZAR) and receives 2,70%

fixed (JPY). Under the hedge for the AfDB loan the Group pays 8,69%

fixed (ZAR) and receives LIBOR + 1,75% USD). Under the hedge for the EDC loan the Group

pays 7,47% fixed (ZAR) and receives LIBOR + 1,75%

(USD). Under the hedge for the TNUS16 bond, the Group pays 10,4% fixed

(ZAR) and receives 4,5% fixed (USD). The TNUS22 bond was hedged in two equal parts of USD500m

each. Under the hedge for the first tranche of the TNUS22 bond, the Group pays 8,98%

fixed (ZAR) and receives 4% fixed (USD). Under the hedge for the

second tranche of the TNUS22 bond, the Group pays 8,935% fixed (ZAR) and receives 4%

fixed (US dollar). Under the hedge for the KFW

-Ipex loan the Group pays 9,635% fixed (ZAR) and receives 6 m

onth Euribor plus 1,3% (EUR). Under the hedge for the

first tranche of the BTMU loan, the Group pays 8,942%

fixed (ZAR) and receives LIBOR plus 1,25% (USD). Under the hedge for

the second tranche of the BTMU loan, the Group pays 8,97%

fixed (ZAR) and receives LIBOR plus 1,25% (USD).

The terms of the cross-currency interest rate swaps closely m

atch those of the foreign currency-denominated borrowings they

hedge and were assessed as highly effective hedges. The amount of ineffectiveness recognised in profit and loss for the year

with respect to these hedges was a R54 million loss (2014: R439 m

illion loss, the 2014 amount was largely due to the inclusion

of credit risk in the measurem

ent of the swaps for the first time). The am

ount recycled to profit and loss to offset the hedged risks was R5 334 m

illion credit (2014: R3 004 million credit), included in finance costs.

The cash flows are projected to occur semi-annually in February and August until February 2021 on the JBIC hedge, sem

i-annually in M

ay and November until Novem

ber 2019 on the AFLAC hedge, semi-annually in February and August until February

2016 on the TNUS16 bond hedge, semi-annually in February and August until August 2018 on the AfDB hedge, sem

i-annually in M

ay and November until Novem

ber 2018 on the EDC hedge, semi-annually in July and January until July 2022 on the both

tranches of the TNUS22 bond hedge, semi- annually in M

arch and September until M

arch 2019 on the KFW-Ipex Bank swap.

Com

pany G

roup

20142015

20152014

R m

illion R

million

R m

illion R

million

14.D

erivative financial assets and liabilities continuedThe fair values of the cross-currency interest rate swaps at 31 M

arch 2015 are as follows:369

291JBIC

291340

259230

AFLAC230

2491 142

1 337AfDB

1 3371 129

162252

EDC252

1552 690

3 766TNUS16

3 7662 597

3 1685 295

TNUS225 295

2 86550

(87)Euro

(87)50

–770

BTMU

770–

The nominal am

ounts of the cross-currency interest rate swaps at 31 M

arch 2015 are as follows:20 346

25 261South African Rand

25 26120 346

35 48232 556

Japanese Yen32 556

35 4822 219

2 617United States Dollar

2 6172 219

5050

Euro50

50

Option contractsThe cash flows have occurred in the period between 18 April 2011 and 18 June 2012.The Group’s operating activities expose it to volatility in the cost of fuel, in particular diesel. To m

itigate this risk, the Group enters into com

modity (gas oil) option

contracts to hedge the exposure. Hedge accounting is not applied to these hedges.

45–

The fair values of these option contracts at 31 M

arch 2015 amounts to

–45

15.Long-term

loans and advances29

2424

29

429


4(5)

(7)Repaym

ents(7)

(5)30

2Reversal of im

pairment (refer note 4.2)

230

Comprising:

2722

Employee housing and other loans

2227

227


2(5)

(7)Repaym

ents(7)

(5)30

2Reversal of im

pairment (refer note 4.2)

230

22

Other loans and advances2

2

22


2

2924

2429


ents 2015

NO

TES TO TH

E AN

NU

AL FIN

AN

CIAL STA

TEMEN


arch 2015

Com

pany G

roup

20142015

20152014

R m

illion R

million

R m

illion R

million

16.O

ther investments, long-term

financial assets and other liabilities

716669

Other financial assets669

716

716669

Total long-term investm

ents and long-term

financial assets669

716

67708

Short-term portion of other investm

ents including investm

ents under resale agreement

70867

67708

Total short-term investm

ents708

67

3 7943 741

Security of supply petroleum levy

3 7413 794

428

Other28

4

3 7983 769

3 7693 798

707807

Deferred income Transnet National Ports Authority

807707

3 0382 934


3 038(2 007)

102Unwinding of prior year claw back

102(2 007)

1 942649

Additional claw back raised649

1 942(39)

126Interest factor on claw back (refer note 6)

126(39)

2 9343 811

3 8112 934

(2 227)(3 004)

Less: Short-term portion classified as current liabilities

(3 004)(2 227)

110379

Deferred income Transnet Pipelines

379110

403377


403(176)

(334)Unwinding of prior year claw back

(334)(176)

150548

Additional claw back raised548

150

377591

591377

(334)(216)

Less: Short-term portion classified as current liabilities

(216)(334)

674

Add: Long-term portion classified as non-current asset

467

4 6154 955

Total other non-current liabilities4 955

4 615

2 5613 220

Total other current liabilities3 220

2 561

Com

pany G

roup

20142015

20152014

R m

illion R

million

R m

illion R

million

17.InventoriesAt weighted average cost

1 9312 081

Maintenance m

aterial2 081

1 931469

171Consum

ables171

469183

285Finished goods

285183

116111

Work–in–progress*

111116

(237)(179)

Provision for stock obsolescence**(179)

(237)

2 4622 469

2 4692 462

At net realisable value786

883M

aintenance material

883786

4339

Consumables

3943

(50)(48)

Provision for stock obsolescence(48)

(50)

779874

874779

3 2413 343

Total inventories3 343

3 241

* Included in work in progress are costs for construction contacts in progress (refer note 27).

** The increase in the provision for stock obsolescence is due to slow m

oving items assessed at the end of the current financial

year. No items of inventory have been pledged as security as at

31 March 2015 (2014: R nil).

18.Trade and other receivables

6 0806 299

Trade receivables – net of allowances for credit losses6 300

6 081

590427

Amounts due from

customers under construction

contracts (refer note 27)427

59032

57Retention debtors (refer note 27)

5732

1 0651 543

Prepayments and other am

ounts receivable1 546

1 0692

2Short–term

portion of loans and advances2

2

7 7698 328

8 3327 774


ents 2015

NO

TES TO TH

E AN

NU

AL FIN

AN

CIAL STA

TEMEN


arch 2015

Com

pany G

roup

20142015

20152014

R m

illion R

million

R m

illion R

million

18.Trade and other receivables continuedRisk profile of allowances for credit losses (Refer annexure A)Low risk

(644)(965)

Opening balance(965)

(644)(322)

(153)Raised

(153)(322)

1419

Utilised419

1

(965)(699)

Closing balance(699)

(965)

Medium

risk(43)

(29)Opening balance

(29)(43)

(23)(135)

Raised(135)

(23)–

3Utilised

3–

37–

Disposal–

37

(29)(161)


(29)

High risk(348)

(385)Opening balance

(403)(364)

(72)(19)

Raised(19)

(72)35

27Utilised

2733

(385)(377)


(403)

Total allowances for credit losses(1 035)

(1 379)Opening balance

(1 397)(1 051)

(417)(307)

Raised(307)

(417)36

449Utilised

44934

37–

Disposal–

37

(1 379)(1 237)

Closing balance(1 255)

(1 397)

19.C

ash and cash equivalents3 508

6 121Cash and cash equivalents*

6 2643 633

3 5086 121

6 2643 633

* Included in cash and cash equivalents are restricted benevolent accounts am

ounting to R146 million (2014: R138 m

illion).

Com

pany G

roup

20142015

20152014

R m

illion R

million

R m

illion R

million

20.A

ssets classified as held–for–sale and liabilities directly associated w

ith assets classified as held–for–sale (refer annexure C

)Non–current assets classified as held–for–sale

14830

Property, plant and equipment

30148

68


86

8443

Other investments

4384

23881

81238

21.Issued capitalAuthorised

30 00030 000

30 000 000 000 ordinary par value shares of R1 each30 000

30 000

Issued

12 66112 661

12 660 986 310 ordinary par value shares of R1 each (2014: 12 660 986 310).

12 66112 661

The unissued share capital is under the control of the South African Governm

ent, the sole shareholder of the Com

pany.

Capital managem

entThe Board’s policy is to m

aintain a strong capital base to m

aintain investor, creditor and market confidence to

support future growth of the business. Capital efficiency is m

easured in terms of returns on equity and the asset

base, as well as the gearing ratio, which is monitored by

the Board. The capital structure of the Group consists of equity attributable to the equity holder, the South African Governm

ent, comprising issued capital, non–distributable

reserves and retained earnings as disclosed in notes 21 and 22. Other than loan covenants, Transnet SOC Ltd is not subject to any other externally im

posed capital requirem

ents.

Based on the significant capital investment plan of the

Company, as well as its revenue generating ability, the

target gearing ratio will remain below the 50%

limit that

forms part of the Shareholder’s Com

pact with the Shareholder Representative (2015: actual 40,0%

).

There were no changes to the capital managem

ent approach during the year.


ents 2015

NO

TES TO TH

E AN

NU

AL FIN

AN

CIAL STA

TEMEN


arch 2015

Com

pany G

roup

20142015

20152014

R m

illion R

million

R m

illion R

million

22.R

eserves37 711

77 426Revaluation reserve

77 42637 711

4 4355 218

Revaluation of pipeline networks5 218

4 435

3 9424 435


3 942467

843Revaluation during the year

843467

26(60)

Decomm

issioning restoration liability adjustment

(60)26

46 83151 448

Revaluation of port facilities51 448

46 831

39 04846 831


39 0487 783

4 619Revaluation during the year

4 6197 783

–(2)

Transfer to retained earnings(2)

–

–49 805

Revaluation of rail infrastructure49 805

–

––

Balance at the beginning of the year–

––

49 805Revaluation during the year

49 805–

917920

Revaluation of land, buildings and structures920

917

890917


89027

9Fair value m

ovement during the year

927

–(6)

Transfer to retained earnings(6)

–

7433

ALL Group Ltd (refer Annexure D) – revaluation of investm

ent to market value

3374

10874


108(34)

(41)Fair value m

ovement during the year

(41)(34)

(14 546)(29 998)

Deferred taxation impact of item

s relating to revaluation reserve

(29 998)(14 546)

Com

pany G

roup

20142015

20152014

R m

illion R

million

R m

illion R

million

22.R

eserves continued

2 1322 154

Actuarial gains on post–retirement benefit

obligations2 154

2 132

2 9713 001

Gross actuarial gains on post–retirement

benefit obligations3 001

2 971

2 7332 971


2 733238

30Gains arising during the year

30238

(839)(847)

Deferred taxation impact of net actuarial gains

(847)(839)

––

Foreign currency translation reserve(2)

–

––

Balance at the beginning of the year–

(5)–

–(Losses)/gains arising during the year

(2)5

1 0261 196

Cash flow hedging reserve1 196

1 026

1 4191 655

Gross cash flow hedging reserve1 655

1 419

2241 419


2244 199

5 570Gains arising during the year

5 5704 199

(3 004)(5 334)

Transfer to foreign exchange differences(5 334)

(3 004)

(393)(459)

Deferred taxation impact of item

s relating to cash flow hedging reserve

(459)(393)

250250

Other reserves249

249

250250

Share of pension fund surplus (retained for application against pensioners)

249249

43 14548 427

Retained earnings48 644

43 334

37 97843 145


38 163–

8Transfer to retained earnings

8–

5 1675 274

Profit for the year attributable to the equity holder5 302

5 171

84 264129 453

129 66784 452| 99

98 | Transnet Annual Financial Statements 2015

NO

TES TO TH

E AN

NU

AL FIN

AN

CIAL STA

TEMEN


arch 2015

Com

pany G

roup

20142015

20152014

R m

illion R

million

R m

illion R

million

23.Em

ployee benefits1 668

1 583Post–retirem

ent benefit obligations1 583

1 668

1 9591 668


1 959185

165Incom

e statement charge

165185

(238)(220)

Settlements during the year

(220)(238)

(238)(30)

Actuarial gains(30)

(238)

Comprising:

––

Transport Pension Fund: Transnet Sub–fund (refer note 32.1.2)

––

––

Transnet Second Defined Benefit Fund (refer note 32.1.3)–

–76

73Transnet Top M

anagement Pension (refer note 32.1.4)

7376

440508

Transnet Workm

en’s Compensation Act pensioners

(refer note 32.1.4)508

440

689623

Transnet SATS Pensioners’ post–retirement m

edical benefits (refer note 32.2.1)

623689

463379

Transnet employees post–retirem


(refer note 32.2.2)379

463

1 6681 583

1 5831 668

Various assumptions have been applied by m

anagement

and actuaries in the calculation of post–retirement

benefit obligations.

The assumptions and their sensitivities are disclosed

in note 32.

75–

Other post–retirement and m

edical benefits–

75

176173


176203

(3)Incom

e statement m

ovement (refer note 4.4)

(3)203

(206)(170)

Utilised during the year(170)

(206)

173–

–173

(98)–

Less: Short–term portion classified as current liabilities

–(98)

807861

Leave pay861

807

1 7431 950


1 743686

784Accruals m

ade during the year784

686(479)

(652)Utilised during the year

(652)(479)

1 9502 082

2 0821 950

(1 143)(1 221)


(1 221)(1 143)

Com

pany G

roup

20142015

20152014

R m

illion R

million

R m

illion R

million

23.Em

ployee benefits continued418

327Incentive bonuses

327418

1 0961 856


1 0961 555

1 049Accruals m

ade during the year1 049

1 555(795)

(1 393)Utilised during the year

(1 393)(795)

1 8561 512

1 5121 856

(1 438)(1 185)


(1 185)(1 438)

2 9682 771

Total employee benefits

2 7712 968

Other post-retirement and m

edical benefitsIncluded in total em

ployee benefits is an amount of Rnil

(2014: R128 million) for the restructuring of the SATS

pensioners’ medical subsidy and Rnil (2014: R75 m

illion) relating to an ex gratia paym

ent to disadvantaged Transnet Second Defined Benefit Fund and Transport Pension Fund: Transnet sub-fund pensioners.

Leave payRelates to accrual for unutilised leave at year-end. The leave is expected to be taken over the next two financial years and is calculated based on em

ployee total cost to Com

pany.

Incentive bonusesAccrual for incentive bonuses in term

s of the incentive bonus schem

e.


ents 2015

NO

TES TO TH

E AN

NU

AL FIN

AN

CIAL STA

TEMEN


arch 2015

Com

pany G

roup

20142015

20152014

R m

illion R

million

R m

illion R

million

24.Long-term

borrowings (refer annexure A

)82 993

93 07693 078

82 99566 768

82 993Total long–term

borrowings at the beginning of the year82 995

66 77015 724

19 423Raised

19 42315 724

2 8273 748

Foreign exchange movem

ent3 748

2 82731

35Am

ortisation of discount (refer note 6)35

31

(2 357)(13 123)

Current portion of long–term borrowings redeem

able within one year transferred to short–term

borrowings (refer note 29)

(13 123)(2 357)

Unsecured liabilities53 069

66 760Rand denom

inated66 760

53 06946 429

49 982Bonds at nom

inal value49 982

46 429(561)

(483)Unam

ortised discounts(483)

(561)45 868

49 499Bonds at carrying value#

49 49945 868

7 20117 261

Other unsecured liabilities*17 261

7 20127 554

35 183Foreign currency denom

inated35 183

27 55418 410

21 031Bonds at nom

inal value21 031

18 410(125)

(115)Unam

ortised discounts(115)

(125)18 285

20 916Bonds at carrying value†

20 91618 285

9 26914 267

Other unsecured liabilities14 267

9 2694 727

4 256Secured loans** and capitalised finance leases^

4 2584 729

4 7274 256

Rand denominated

4 2564 727

––

Foreign currency denominated

22

85 350106 199

Total long-term borrowings

106 20185 352

(2 357)(13 123)

Current portion of long–term borrowings redeem

able within one year transferred to short–term

borrowings (refer note 29)

(13 123)(2 357)

82 99393 076

93 07882 995

# Rand denominated secured Eurorand bonds bear interest

between 10,0% and 13,5%

and are repayable in 2028 and 2029 (refer annexure A).

The rand denom

inated unsecured and non-guaranteed GMTN

bond is redeemable on 13 M

ay 2021 and bears interest at 9,5%.

The rand denom

inated unsecured and non-guaranteed bonds are redeem

able between 10 June 2016 and 9 October 2040 and bear interest at a rate between 7,21%

and 10,8%.

† Foreign currency bonds are denominated in United States Dollar,

is redeemable between 10 February 2016 and 26 July 2022, and

bears interest at a rate between 4,0% and 4,5%

.

Foreign currency unsecured loans are denominated in Japanese

Yen and United States Dollar , bears interest at rates between 1,389%

and 2,7%, and is repayable between 1 August 2018 and

20 February 2021.* Rand denom

inated unsecured domestic loans bear interest at rates

ranging between 7,758% and 10,95%

. These liabilities are repayable over periods between 15 M

arch 2019 and 19 July 2032.** Rand denom

inated secured loans bear interest at rates ranging between 6,55%

and 8,85% with floating rates linked to JIBAR.

These liabilities are repayable over periods between 30 April 2020 and 15 Septem

ber 2023.^ Rand denom

inated capitalised finance lease liabilities bear interest at rates ranging between 11,25%

and 16,93% with all rates fixed.

These liabilities are repayable over periods between 2015 and 2028.

Com

pany G

roup

20142015

20152014

R m

illion R

million

R m

illion R

million

25.P

rovisions1 890

1 937Com

prising1 937

1 890

1 9021 890

Total provisions at the beginning of the year1 890

1 902

5521 289

Provisions raised during the year and unwinding of discounts

1 289552

(739)(1 210)

Provisions utilised(1 210)

(739)175

(32)Short–term

provisions classified as current liabilities(32)

175

340359

Third–party claims

359340

189340


189368

235Provisions m


368(217)


(216)(217)

3334

Customer claim

s34

33

4433


44–

1Provisions m


–(11)

–Utilised during the year

–(11)

2 0262 076

Decomm

issioning and environmental liabilities

2 0762 026

2 0372 026


2 037

33170

Provisions made during the year and unwinding

of discounts170

33(44)


(120)(44)

2424

Restructuring24

24

2924


29(5)

–Utilised during the year

–(5)

283292

Other292

283

594283


594151

883Provisions m


151(462)


(874)(462)

2 7062 785

Total provisions2 785

2 706

816848

Less: Short–term provisions classified as current

liabilities848

816

340359

Third party claims

359340

3334

Customer claim

s34

33160

163Decom

missioning and environm

ental liabilities163

160283

292Other

292283

1 8901 937

Long–term provisions

1 9371 890


ents 2015

NO

TES TO TH

E AN

NU

AL FIN

AN

CIAL STA

TEMEN


arch 2015

25.P

rovisions continuedVarious assum

ptions are applied in arriving at the carrying value of provisions that are recognised in terms of the

requirements of IAS 37 Provisions, Contingent Liabilities and Contingent Assets.

Managem

ent further relies on input from the Group’s lawyers in assessing the probability on m

atters of a contingent nature. Contingent liabilities are disclosed in note 31.

Third-party claims

This provision represents the best estimate of known third party claim

s together with an allowance for claims incurred

but not yet reported based on historical experience.

Customer claim

sThis provision represents claim

s made by custom

ers arising from non-perform

ance on contracts or damage to goods in

transit. Settlement of claim

s are expected in the following year.

Decomm

issioning and environmental liabilities

This is a provision for the dismantling and rem

oval of an asset as a result of the requirement to restore the site on which

the asset is located. The provision has been computed by discounting future cash flows.

In accordance with the Group’s environmental policy and applicable legal requirem

ents, a provision for environmental

rehabilitation in respect of clean-up costs is recognised when it meets the recognition requirem

ents for provisions. The provision includes the estim

ated rehabilitation costs for the historical contamination caused by asbestos as well as

costs for the rehabilitation caused by ferromanganese, m

anganese, mixed soil (including chrom

e, sulphur and m

anganese) fuel and rubble contamination.

Environmental provisions for the rem

ediation of soil contaminated areas have been raised. These include provisions for

the removal of asbestos, ferrom

anganese, manganese, m

ixed soil (including chrome, sulphur and m

anganese) fuel and rubble. These obligations arise from

environmental legislation requiring Transnet to rem

ove this waste material and

remediate the land. Transnet engaged external consultants to perform

risk assessments on identified areas of

contamination and the Group’s related rehabilitation obligation. A num

ber of factors were considered in determining the

obligation, which included:•

The extent of the contamination.

• The cost per ton/per running line kilom

etre of removal and disposal of the contam

ination.•

The costs of rehabilitation of the identified areas of contamination.

• The costs estim

ated for the removal and replacem

ent of asbestos roof sheeting and cladding on buildings.

RestructuringProvision for restructuring costs in term

s of strategic plans.

Com

pany G

roup

20142015

20152014

R m

illion R

million

R m

illion R

million

26.D

eferred taxation liabilities25 209

43 087Com

prising:43 087

25 209

20 47125 209

Opening balance25 209

20 4712 019

2 352Incom

e statement charge (refer note 8)

2 3522 019

2 71915 526

Raised in other comprehensive incom

e15 526

2 719

Analysis of major categories of tem

porary differences6 689

8 133Deferred taxation assets

8 1336 689

957892

Provisions892

9571 693

1 523Em

ployee benefit obligations1 523

1 6932 146

2 694Revenue received in advance and deferred incom

e2 694

2 146925

701Capitalised lease liability

701925

295266

Doubtful debts266

295673

2 002Estim

ated taxation loss2 002

673–

55Other

55–

31 89851 220

Deferred taxation liabilities51 220

31 898

164149

Deferred expenditure149

16431 390

50 403Property, plant and equipm

ent50 403

31 39025

207Future expenditure allowance

20725

265461

Cross–currency swaps461

26554

–Other

–54

25 20943 087

Net deferred taxation liability43 087

25 209

No deferred taxation asset has been raised in respect of secondary taxation on com

panies credits available as they are unlikely to be utilised given the capital requirem

ents of the com

pany and the change in regime from

secondary taxation on com

panies to a withholding taxation on dividends, from

which the Company is exem

pt.


ents 2015

NO

TES TO TH

E AN

NU

AL FIN

AN

CIAL STA

TEMEN


arch 2015

Com

pany G

roup

20142015

20152014

R m

illion R

million

R m

illion R

million

27.C

onstruction contractsContracts in progress at the statem

ent of financial position date:

1 6341 199

Construction costs incurred plus recognised profits less losses to date

1 1991 634

(1 045)(778)

Less: progress billings(778)

(1 045)

589421

421589

Recognised and included in the financial statements:

Income statem

ent1 077

836Contract revenue (refer note 1)

8361 077

Statements of financial position

590427

Amounts due from

customers under construction

contracts (refer note 18)427

590

3257

Retention debtors (note 18)57

32

Contract revenue is recognised when the completed stage

has been signed off as proof of quality satisfaction by the external custom

er.

28.Trade payables and accruals

3 4563 572

Trade payables3 576

3 46010 873

15 208Accruals

15 23210 897

5 1188 601

Accrued expenditure8 625

5 142111

82Deposits received

82111

1 5921 787

Accrued interest1 787

1 592675

967Personnel costs

967675

393991

Revenue received in advance991

39398

–Other post-retirem

ent and medical benefits (refer note 23)

–98

1 1431 221

Leave pay (refer note 23)1 221

1 1431 438

1 185Incentive bonus (refer note 23)

1 1851 438

305374

SARS - value added taxation374

305

14 32918 780

18 80814 357

Com

pany G

roup

20142015

20152014

R m

illion R

million

R m

illion R

million

29.Short-term

borrowings

2 35713 123

Current portion of long-term interest-bearing borrowings

(refer note 24)13 123

2 3575 092

4 176Other short-term

borrowings4 176

5 092

7 44917 299

17 2997 449

Other short-term borrowings relate to the m

arket making

portfolio and comprises the Group’s position on bonds and

other financial instruments.

The short-term borrowings bear interest at rates between

1,389% and 10,95%

, are repayable between April 2015 and M

arch 2016 and are not guaranteed.

30.C

omm

itments:

30.1C

apital comm

itments*

5426

Contracted for in US Dollars26

54107

21Contracted for in Euros

21107

140 88068 391

Contracted for in SA Rands68 391

140 88022

14Contracted for in various other currencies

1422

141 06368 452

Total capital comm

itments contracted for

68 452141 063

171 090268 149

Authorised by the Directors but not yet contracted for268 149

171 090312 153

336 601336 601

312 153Total capital com

mitm

ents are expected to be incurred as follows:

30 61333 592

Within one year

33 59230 613

182 158205 815

After one year, but not more than five years

205 815182 158

99 38297 194

After five years, but not more than seven years

97 19499 382

312 153336 601

336 601312 153

These capital comm

itments will be financed utilising net

cash flow from operations, debt capital m

arkets, project finance and the use of operating leases.* Excludes capitalised borrowing costs of R18 371 m

illion (2014: R18 894 m

illion).


ents 2015

NO

TES TO TH

E AN

NU

AL FIN

AN

CIAL STA

TEMEN


arch 2015

Com

pany G

roup

20142015

20152014

R m

illion R

million

R m

illion R

million

30.C

OM

MITM

ENTS continued

30.2O

perating lease comm

itments

Future minim

um rentals under non–cancellable leases

are as follows:Land, buildings and structures

138143

Within one year

143138

423489


489423

296244

More than five years

244296

857876

876857

Aircraft, machinery, equipm

ent, furniture and m

otor vehicles102

117W

ithin one year117

102246

180After one year, but not m

ore than five years180

2461

5M


1349

302302

349Security and m

aintenance contracts90

62W

ithin one year62

9022



22112

7979

112Other

3466

Within one year

6634

125


512

–21


21–

4692

9246

The operating leases relate mainly to leases of vehicles

from M

cCarthy, Bidvest and other companies. These

leases have varying terms. On certain leases, contingent

rent is payable for vehicles that exceed the fixed kilom

etres on a monthly basis.

30.3Finance lease com

mitm

entsThe finance leases relate to the Kim

berley De Aar transm

ission line and computer equipm

ent. These finance leases have a lease term

ranging between three to 15 years. The interest rates vary from

11.25% to 16.93%

.

Future minim

um lease paym

ents under finance leases together with the present value of the net m

inimum

lease paym

ents are as follows:

Machinery, equipm

ent and furniture35

40W

ithin one year40

3566



6698

86M


98

199195

Total minim

um lease paym

ents195

199(100)

(88)Am

ount representing finance charges(88)

(100)

99107

Present value of minim

um lease paym

ents107

99

Com

pany G

roup

20142015

20152014

R m

illion R

million

R m

illion R

million

30.C

OM

MITM

ENTS continued

30.3Finance lease com

mitm

entsIncluded in the financial statem

ents as:21

27– Current borrowings

2721

7880

– Non-current borrowings80

78

99107

10799

30.4Lease rentals receivableFuture m

inimum

rentals under operating leases are as follows:Property

1 5881 996

Within one year

1 9961 588

4 9615 973


5 9734 961

7 3977 855


7 8557 397

13 94615 824

15 82413 946

Other24

24W

ithin one year24

24–

–After one year, but not m

ore than five years–

––

–M

ore than five years–

–

2424

2424

The lease rentals relate mainly to land and buildings.

These are mainly short-term

rentals with an escalation varying from

8,0% to 10,0%

.

31.C

ontingent liabilities and guarantees

225369

Various contingent liabilities where no material losses are

expected to materialise

369225

4514

Various contingent assets where the inflow of economic

benefits is probable, but not virtually certain14

45


ents 2015

NO

TES TO TH

E AN

NU

AL FIN

AN

CIAL STA

TEMEN


arch 2015

32.Post-retirem

ent benefit obligationsThe Group offers pension benefits through two defined benefit pension funds and one defined contribution fund. The Group also offers post-retirem

ent medical benefits to its em

ployees. Specific retirement benefits are offered to top

managem

ent and under the Workm

en’s Compensation Act. The following sections sum

marise the relevant com

ponents of the pension benefits and post-retirem

ent medical benefits. (All am

ounts disclosed are equal for Company and

Group unless otherwise stated).

32.1P

ension benefitsTransnet has three pension funds, nam

ely the Transnet Retirement Fund; Transport Pension Fund and Transnet Second

Defined Benefit Fund. Except for the Transnet Retirement Fund, actuarial valuations are perform

ed annually in accordance with IAS 19 Em

ployee Benefits. The Transnet Pension Funds are governed by the Transnet Pension Fund Act, No. 62 of 1990, as am

ended.

32.1.1Transnet R

etirement Fund

The fund is structured as a defined contribution fund and all employees of the Group are eligible m

embers of the fund.

There were 55 496 mem

bers at 31 March 2015 (2014: 65 443). Actuarial valuations are perform

ed annually to determ

ine the financial position of the fund. The last actuarial valuation was performed as at 31 M

arch 2014 and the actuaries were satisfied with the status of the m

ember’s credit account as at that date. The total contributions to this

fund constitute mem

ber contributions of R997 million (2014: R896 m

illion) and employer contributions of R983 m


illion).

32.1.2Transport P

ension Fund: Transnet Sub-fundThe fund is a defined benefit pension fund. The fund has been closed to new m

embers since 1 Decem

ber 2000. M

embers are current em

ployees of Transnet who elected to remain as m

embers of the fund at 1 Novem

ber 2000 and pensioner m

embers who retired subsequent to that date.

Mem

bers of the Fund are entitled to minim

um benefits as per the Pensions Fund Second Am

endment Act, 2001, as set

out in Section 14A of the Act. This minim

um benefit is defined in Section 14B (2)(a) of the Act as the fair value

equivalent of the present value of the mem

ber’s accrued deferred pension calculated at a prescribed rate of discount.

The Transnet Pension Fund Amendm

ent Act, promulgated in the latter part of 2007, changed the nam

e of the fund with effect from

11 November 2005 to the Transport Pension Fund. This Act restructured the Transport Pension Fund

(formerly the Transnet Pension Fund) into a m

ulti - employer pension fund. From

the date this Act came into operation,

all existing mem

bers, pensioners, dependant pensioners, liabilities, assets, rights and obligations, of the Transport Pension Fund, were attributed to three Sub-funds, with Transnet as the principal em

ployer for one of the Sub-funds. In term

s of these Act amendm

ents a Sub-fund in the name of South African Airways (Pty) Ltd was also established as at

1 April 2006, with South African Airways (Pty) Limited as the principal Em

ployer of that Sub-fund, and a further Sub-fund in the nam

e of the South African Rail Comm

uter Corporation Ltd (now Passenger Rail Agency of South Africa) was established with effect from

1 May 2006, with the South African Rail Com

muter Corporation Ltd as the

principal employer of that Sub-fund.

All active mem

bers and pensioner mem

bers relating to South African Airways (Pty) Ltd and the South African Rail Com

muter Corporation Ltd were assigned to these new Sub-funds. The Transport Pension Fund therefore com

prises three independent and separate Sub-funds, each with their own principal em

ployer. An employer’s liability to the

Transport Pension Fund is limited to those attributable to its m

embers, pensioners and dependent pensioners

assigned to its Sub-fund.


bers and pensioners at 31 March 2015 (2014: 4 975). The fund gives m

embers the option to

transfer to the Transnet Retirement Fund twice a year. Altogether, 37 m

embers opted to transfer to the Transnet

Retirement Fund in the current year (2014: 13). The effect of this transfer is noted below.

Group

20152014

R m

illion R

million

32.Post-retirem

ent benefit obligations continued32.1.2

Transport Pension Fund continued

An actuarial valuation was performed as at 31 M

arch 2015 based on the projected unit credit m

ethod. The principal actuarial assumptions used are as follows:

Discount rate8,47%

8,65%Inflation rate

6,59%6,37%

Salary increase rate7,59%

7,37%Pension increase allowance

2,00%2,00%

The results of the actuarial valuation are as follows:Benefit liabilityPresent value of obligation

(3 051)(3 072)

Fair value of plan assets6 132

5 364

Surplus3 081

2 292Unrecognised asset

(3 081)(2 292)

Net asset/(liability) recognised in the statement of financial position

––

The liability recognised for this fund relating to the Company am

ounts to Rnil (2014: Rnil).

The surplus was not recognised as the rules of the fund do not provide for the surpluses to be distributed.

Net expense recognised in profit or lossService cost

(23)(31)

Net interest income

196124

17393

Less: interest on asset limit

(198)(126)

(25)(33)

Actual return on plan assets1 110

481Total rem

easurements recognised in other com

prehensive income for the year

1420

– net actuarial gain605

438– interest on asset lim

it198

126– asset not recognised

(789)(544)

Movem

ents in the net asset/(liability) recognised in the statem

ent of financial positionOpening net asset

2 2921 748

Loss as above(25)

(33)Rem

easurements – actuarial gain

605438

– interest on asset limit

198126

Contributions paid by employer

1113

Closing net asset3 081

2 292Asset not recognised

(3 081)(2 292)


––


ents 2015

NO

TES TO TH

E AN

NU

AL FIN

AN

CIAL STA

TEMEN


arch 2015

Group

20152014

R m

illion R

million

32.Post-retirem


Transport Pension Fund continued

Reconciliation of movem

ent in benefit liabilityOpening benefit liability

(3 072)(3 487)

Service cost(23)

(31)Contributions by m

embers

(7)(9)

Interest cost(255)

(240)Actuarial (loss)/gain

(54)321

– change in economic assum

ptions(39)

393– experience adjustm

ents23

(36)– bonus award to pensioners

(38)(36)

Benefits paid314

360Expenses

22

(3 095)(3 084)

Transfer to the retirement fund

4412

Closing benefit liability(3 051)

(3 072)


ent in fair value of plan assetsOpening fair value of plan assets

5 3645 235

Interest income

451364

Actuarial gain659

117Contributions by em

ployer and mem

bers18

22Benefits paid

(314)(360)

Expenses(2)

(2)

6 1765 376

Transfer to the retirement fund

(44)(12)

Closing fair value of plan assets6 132

5 364

The estimated contributions by both em

ployer and mem

bers for the year beginning 1 April 2015 am

ount to R18 million (2014: R22 m

illion).

Sensitivity analysisClosing benefit liability based on changes in the discount rate:7,47%

(2014: 7,65%)

3 3353 356

9,47% (2014: 9,65%

)2 807

2 828

Closing benefit liability based on changes in the inflation rate:5,59%

(2014: 5,37%)

2 9993 025

7,59% (2014: 7,37%

)3 106

3 124

The major categories of plan assets as a %

of total plan assets are:Equity – local and international

67%73%

Property–

–Bonds

33%27%

Cash–

–

Total100%

100%

Group

20152014

R m

illion R

million

32.Post-retirem


Transnet Second Defined B

enefit FundThe fund was established on 1 Novem

ber 2000 for the benefit of existing retired m

embers and qualifying beneficiaries. The fund includes the spouses of black pensioners

who retired from Transnet between 16 Decem

ber 1974 and 1 April 1986 (previously reported under the Black W

idows Pension Fund before 31 March 2010). There were

20 723 mem

bers at 31 March 2015 (2014: 22 592). This excludes widows and children

of pensioners, as well as the black widows. The all inclusive mem

bership is 59 320 at 31 M

arch 2015 (2014: 62 504). The entire obligation relates to Transnet SOC Ltd.

The actuarial valuation was based on the projected unit credit method. The principal

actuarial assumptions used are as follows:

Discount rate8,09%


2,00%2,00%

The results of the actuarial valuation are as follows:

Benefit liabilityPresent value of obligation

(13 611)(14 470)

Fair value of plan assets17 085

17 036

Surplus3 474

2 566Unrecognised asset

(3 474)(2 566)


––

The surplus was not recognised as the rules of the fund do not provide for the surpluses to be distributed.


––

Net interest income

195149

195149

Less: interest on asset limit

(195)(149)

––

Actual return on plan assets1 962

809Total rem

easurements recognised in other com

prehensive income for the year

––

– net actuarial gain713


it195

149– net asset not recognised

(908)(309)

Movem

ents in the net asset/(liability) recognised in the statement of financial position

Opening net asset2 566

2 257Profit or loss as above

––

Remeasurem

ents – actuarial gain713


it195

149

Closing net asset3 474

2 566Asset not recognised

(3 474)(2 566)


––


ents 2015

NO

TES TO TH

E AN

NU

AL FIN

AN

CIAL STA

TEMEN


arch 2015

Group

20152014

R m

illion R

million

32.Post-retirem


Transnet Second Defined B

enefit FundReconciliation of m

ovement in benefit liability

Opening benefit liability(14 470)

(16 168)Interest cost

(1 025)(995)

Actuarial (loss)/gain(29)

495


ptions222


ents50

(180)– bonus award to pensioners

(301)(312)

Benefits paid1 913

2 198

Closing benefit liability(13 611)

(14 470)


ent in fair value of plan assetsOpening fair value of plan assets

17 03618 425

Interest income

1 2201 144

Actuarial gain/(loss)742

(335)Benefits paid

(1 913)(2 198)

Closing fair value of plan assets17 085

17 036

The estimated contributions by both em

ployer and mem

bers for the year beginning 1 April 2015 am

ount to R Nil (2014: R Nil).

Sensitivity analysisClosing benefit liability based on changes in discount rate:7,09%

(2014: 7,46%)

14 42714 608

9,09% (2014: 9,46%

)12 876

12 941

Equity27%

26%Property

1%1%

Bonds67%

69%Cash and net current assets

5%4%

Total assets at market value

100%100%

32.Post-retirem


Top Managem

ent Pension and W

orkmen’s C

ompensation A

ct pensionersThe Top M

anagement Pensions are additional benefits to top up pensions received to elim

inate the effects of any early retirem

ent and resignation penalties applied under the Group’s existing pension fund schemes to m

anagement appointed

prior to 1 April 1999. There were 383 mem

bers at 31 March 2015 (2014: 391). The entire obligation relates to Transnet

SOC Ltd.

The Workm

en’s Compensation Pension Fund Act benefit relates to the pension benefits that the Com

pany pays to current and form

er employees who were disabled whilst in service prior to the corporatisation of Transnet in 1990.


bers at 31 March 2015 (2014: 1 241).

Actuarial valuations for both benefits were performed to determ

ine the present value of the obligations based on the projected unit credit m

ethod. There are no plan assets held to fund these obligations.

The following summ

arises the components of expense and liability recognised in the financial statem

ents together with the assum

ptions adopted.

Group

20152014

R m

illion R

million

Top Managem

ent PensionThe principal assum

ptions in determining the benefits are as follows:

Discount rate7,72%

8,36%Inflation rate

5,91%6,38%

Salary increase rate6,91%


2,00%2,00%

Benefit liabilityPresent value of obligations

(73)(76)

Liability recognised in the statement of financial position

(73)(76)

Net expense recognised in profit or lossInterest cost

(6)(6)

(6)(6)

Actuarial (loss)/gain recognised in other comprehensive incom

e for the year(1)

10



(76)(89)

Expense as above(6)


(1)10


ptions(4)


ents3

–

Benefits paid10

9

Benefit liability at year-end(73)

(76)

The estimated contributions (based on current year contribution) for the year

beginning 1 April 2015 amount to R9 m



(2014: 7,36%)

7781

8,72% (2014: 9,36%

)68

71


(2014: 5,38%)

7376

6,91% (2014: 7,38%

)73

76


ents 2015

NO

TES TO TH

E AN

NU

AL FIN

AN

CIAL STA

TEMEN


arch 2015

Group

20152014

R m

illion R

million

32.Post-retirem


Top Managem

ent Pensions and W

orkmen’s C

ompensation A

ct pensioners continuedW

orkmen’s Com

pensation Act pensioners fundThe principal assum

ptions in determining the benefits are as follows:

Discount rate8,33%

8,62%Pension increase

6,47%6,36%

Inflation rate6,47%

6,36%


(508)(440)


(508)(440)


(36)(32)

(36)(32)

Remeasurem

ents recognised in other comprehensive incom

e for the year(82)

21



(440)(481)

Interest cost(36)


(82)21


ptions(17)


ent(65)

–

Benefits paid50

52

Benefit liability at year-end(508)

(440)


(2014: 7,62%)

560484

9,33% (2014: 9,62%

)463

402


(2014: 5,36%)

462392

7,47% (2014: 7,36%

)561

489

32.1.5H

IV/A

ids benefitsTransnet Group offers certain assistance to em

ployees diagnosed with Aids. The related data is not sufficient to actuarially value any liability the Group m

ay have in this regard.

32.Post-retirem

ent benefit obligations continued32.2

Post-retirement m

edical benefitsSATS Pensioners’ post-retirem


The SATS pensioners are the retired employees of the form

er South African Transport Services (SATS) and their dependants. The liability is in respect of pensioners and their dependants who have elected to belong to the Transnet in-house m

edical scheme, Transm

ed, whose mem

bership is voluntary. Transnet subsidises the medical contribution

costs at a flat contribution of R800 per principal mem

ber per month.

Transnet employees post-retirem


This includes the current and past employees of Transnet who are m

embers of Transnet accredited m

edical schemes,

namely Transnet’s in-house m

edical aid, Transmed M

edical Fund, Bestmed, Bonitas, Discovery Health and Sizwe.

Mem

bership is voluntary.

Transnet subsidises mem

bers at a flat contribution of R213 per month per m

ember fam

ily.

To enable the Company to fully provide for such post-retirem

ent medical liabilities, since April 2000, actuarial

valuations are obtained annually. There are no assets held to fund the obligation.

Analysis of benefit expenseThe following sum

marises the com

ponents of the net benefit expense recognised in both the statement of com

prehensive incom

e and statement of financial position as at 31 M

arch 2015 for both SATS pensioners and Transnet Employees. The

projected unit credit method has been used for the purposes of determ

ining the actuarial valuation for both the funds.

Group

20152014

R m

illion R

million

32.2.1SA

TS pensionersDiscount rate

7,92%8,46%


(623)(689)


(623)(689)


(47)(56)

(47)(56)

Actuarial (loss)/gain recognised in other comprehensive incom

e for the year(11)

65



(689)(832)

Interest cost(47)

(56)Com

pany contributions124

134Actuarial (loss)/gain

(11)65


ptions(15)


ent4

–

Closing benefit liability(623)

(689)

The medical inflation has no im

pact on the aggregate current service cost and interest cost and the benefit liability. However, the assum

ed discount rate has an impact.

The sensitivity of the obligation to a change in the assumed discount rate of 7,92%

(2014: 8,46%

) on the present value of the obligation is as follows:


(2014: 7,46%)

653722

8,92% (2014: 9,46%

)594

659

The estimated contribution (based on current year contribution) for the year beginning

1 April 2015 is R124 million (2014: R134 m

illion).


ents 2015

NO

TES TO TH

E AN

NU

AL FIN

AN

CIAL STA

TEMEN


arch 2015

Group

20152014

R m

illion R

million

32.Post-retirem


Transnet employees

Discount rate7,92%

8,46%


(379)(463)


(379)(463)


(14)(20)

Interest cost(37)

(38)

(51)(58)

Actuarial gain recognised in other comprehensive incom

e for the year110

122



(463)(557)

Expense as above(51)

(58)M

ember and Com

pany contributions25

30Actuarial gain

110122


ptions(28)


ents138

–

Closing benefit liability(379)

(463)

Transnet subsidises mem

bers at a flat contribution of R213 per month per m

ember

family. The m

edical inflation has no impact on the aggregate current service cost and

interest cost and the benefit liability. However, the assumed discount rate has an

impact. The sensitivity of the obligation to a change in the assum

ed discount rate of 8,46%

(2014: 8,46%) on the present value of the obligation is as follows:


(2014: 7,46%)

(409)(504)

8,92% (2014: 9,46%

)(351)

(427)

The estimated contribution (based on current year contribution) for the year beginning

1 April 2015 is R25 million (2014: R30 m

illion).

Exposure to risksThe risks faced by Transnet as a result of the post-em

ployment pension obligations can be sum

marised as follows:

• Inflation: The risk that future CPI inflation is higher than expected and uncontrolled;

• Longevity: The risk that pensioners live longer than expected and thus their pension benefit is payable for longer than expected;

• Open-ended, long-term

liability: The risk that the liability may be volatile in the future and uncertain;

• Future changes in legislation: The risk that changes to legislation with respect to the post-em

ployment liability m

ay increase the liability for the com

pany; and•

Future changes in the taxation environment: The risk that changes in the tax legislation governing em

ployee benefits m

ay increase the liability for the company.

The plan assets held by the Transnet Pension Fund: Transnet Sub-fund and the Transnet Second Defined Benefit Fund are prim

arily invested in equities and bonds. This exposes the funds to a slight concentration of market risk. If the plan

assets are not adequate or suitable to fund the liabilities of the funds (and the nature thereof), Transnet will be required to fund the deficit, hence exposing it to risks on the investm

ent return.

33.R

elated party transactionsTransnet is a Schedule 2 Public Entity in term

s of the Public Finance Managem

ent Act (PFMA). It therefore has a significant

number of related parties including other State-owned entities, Governm

ent departments and all other entities within the

national sphere of Government. The Group has utilised the database m

aintained by the National Treasury to identify related parties. A list of all related parties is available at the National Treasury website: www.treasury.gov.za, or at the Com

pany’s registered office.In addition, the Com

pany has a related party relationship with its subsidiaries (see annexure D). The Group and Company

have related party relationships with its associates (see annexure D) and with its directors and senior executives (key m

anagement).

Unless otherwise disclosed, all transactions with the above related parties are concluded on an arm’s length basis.

Furthermore, neither the Group nor any of its related parties is obligated to procure from

or render services to their related parties.Transactions with related entitiesServices rendered to related parties com

prise of principally transportation services. Services purchased from related

parties comprised principally of energy, telecom

munications, inform

ation technology and property related services.The following is a sum

mary of transactions with related parties during the year and balances due at year-end according

to Transnet’s records:

C

ompany

Group

20142015

20152014

R m

illion R

million

R m

illion R

million

Services rendered390

1 650M

ajor public enterprises1 650

3901 203

404Other public enterprises

4041 203

969978

National Government business enterprises

978969

2827

Associates27

286

7Subsidiaries

2 5963 066

3 0592 590

Services received2 171

2 411M

ajor public enterprises2 411

2 171628


322628

440880


880440

3 2393 613

3 6133 239

Amount due from

/(to)298

391M

ajor public enterprises391

298132


95132

(1 374)(2 200)


(2 200)(1 374)

–1

Associates1

–(944)

(1 713)(1 713)

(944)During the year the Group reversed R319 m


illion) in relation to provisions and write-offs of bad debts on related parties and at year-end the Group had a provision of R485 m


illion) against debtors pertaining to related parties.Transactions with key m

anagement personnel

Loans to key managem

ent are included in “Long-term

loans and advances” (refer note 15).Details of key m

anagement com

pensation are set out in the Report of Directors of the annual financial statem

ents.

None of key managem

ent has or had significant influence in any entity with whom

the Group had significant transactions during the year.


ents 2015

NO

TES TO TH

E AN

NU

AL FIN

AN

CIAL STA

TEMEN


arch 2015

Com

pany G

roup

20142015

20152014

R m

illion R

million

R m

illion R

million

34.C

ash flow inform

ation34.1

Cash generated from

operations7 120

7 553Profit before taxation

7 5907 135

5 8706 128

Finance costs (refer note 34.3)6 128

5 870(346)

(212)Finance incom

e (refer note 34.4)(221)

(366)(37)

(1)Dividend incom

e–

–11 425

13 793Elim

ination of non–cash items

13 78311 404

10 73610 951

– Depreciation, amortisation and derecognition

(refer note 3)10 951

10 736328

53– Increase in provision for em

ployee benefits53

328

3–

– Impairm

ent of loss making subsidiaries and associates

(refer note 4.2)–

–

(70)522

– Impairm

ent of trade and other receivables and loans and advances (refer note 4.2)

522(70)

177442

– Impairm

ent of property, plant and equipment

(refer note 4.2)442

177(333)

1 018– M

ovement in provisions

1 018(333)

– Income from

associates and joint ventures (note 13)(9)

(14)(1 565)

(2 876)– Fair value adjustm

ents on derivatives(2 876)

(1 565)2 933

4 215– Unrealised foreign exchange losses

4 2152 933

(54)(156)

– Profit on sale of property, plant and equipment

(refer note 2)(156)

(54)31

35– Discount on bonds am

ortised (refer note 6)35

31(82)

(60)– Provision for inventory obsolescence

(60)(82)

(41)(38)

– Release of firm com

mitm

ents (refer annexure B)(38)

(41)

(647)(315)

– Fair value adjustment of investm

ent property (refer note 5)

(315)(647)

92

– Other non–cash items

15

24 03227 261

27 28024 043

34.2C

hanges in working capital

241(42)

(Decrease)/increase in inventories(42)

241(1 486)

(1 083)Increase in trade and other receivables

(1 082)(1 486)

2 4804 451

Increase in trade and other payables4 451

2 473

1 2353 326

3 3271 228

34.3Finance costs

5 9116 287

Finance costs6 287

5 917(49)

2Net foreign exchange gain/(loss) on translation

2(55)

39(126)

Interest factor on claw back(126)

39(31)

(35)Discounts on bonds am

ortised(35)

(31)

5 8706 128

6 1285 870

34.4Finance incom

e346

212Finance incom

e221

366(45)

(16)Interest received – Held-to-m

aturity(16)

(45)

301196

205321

Com

pany G

roup

20142015

20152014

R m

illion R

million

R m

illion R

million

34.C

ash flow inform

ation continued34.5

Taxation refunded(52)

(6)Balance at the beginning of the year

(11)(56)

7273

Taxation as per income statem

ents64

616

34Balance at the end of the year

3811

26101

9116

34.6C

ash and cash equivalents3 508

6 121Total cash and cash equivalents at the end of the year

6 2643 633

35.H

eadline earnings5 167

5 274Profit for the year attributable to equity holder

5 3025 171

(54)(156)


(refer note 4.1)(156)

(54)

(647)(315)

Fair value adjustments on investm

ent properties (refer note 5)

(315)(647)

177442

Impairm


(refer note 4.2)442

1773

–Im

pairment of associates and subsidiaries (refer note 4.2)

––

4 6465 245

Headline earnings before taxation effects5 273

4 647

Taxation effects15

44Profit on disposal of property, plant and equipm

ent44

15121


ents on investment properties

59121

(50)(124)

Impairm


(124)(50)

(1)–

Impairm

ent of associates and subsidiaries–

–

4 7315 224

Headline earnings5 252

4 733

36.R

eportable irregularityThe Com

pany’s external auditors reported an irregularity in term

s of Section 45(1) of the Auditing Profession Act, 2005 (No.26 of 2005) to the Independent Regulatory Board for Auditors. The irregularity relates to an alleged acceptance of R300 000 by a senior official of the Com

pany from

a service provider to influence a settlement agreem

ent between the Com

pany and the service provider.

The Company subsequently com

missioned an independent

forensic investigation on the matter and the investigation

is not yet finalised. The investigation thus far indicates that there is no evidence linking the paym

ent of the R300 000 to the senior official of the Com

pany to the settlem

ent agreement with the service provider, as was

alleged. Over and above comm

issioning a forensic investigation the m

atter was reported to the South African Police Services for further investigation, as the Board of Directors considers it continued success to be dependent on the consistent enforcem

ent of, and adherence to, principles of the highest standard of corporate governance and ethics.


ents 2015

NO

TES TO TH

E AN

NU

AL FIN

AN

CIAL STA

TEMEN


arch 2015

IntroductionThe Group has a centralised Treasury function which perform

s a supporting role to the Transnet Operating divisions and is tasked with the following three m

ain objectives, namely:

• Ensuring that the Group is cost-effectively and timeously funded in support of the Group’s M

arket Demand

Strategy (MDS), which are m

ainly executed by the Operating divisions;• M

anage both financial and operational risks; and • Lower the overall cost of doing business and add value to the overall business of Transnet.

All of these objectives should be performed in a professional and ethical m

anner in line with Transnet’s governance fram

ework.

PoliciesThe Financial Risk M

anagement policies are contained in a Board approved Financial Risk M

anagement

Framework (FRM

F). The objective of the FRMF is to provide clear guidelines to effective risk m

anagement by

ensuring that:• Risks are independently identified, assessed, quantified, m

itigated and monitored regularly;

• Mitigating hedging strategies are developed and im

plemented;

• The effectiveness of hedging strategies are monitored m

onthly; and • Risk exposures are perform

ance measured and form

ally reported to appropriate authorities.

The FRMF is approved by the Board on an annual basis and is aligned with the Group Enterprise W

ide Risk M

anagement Fram

ework (ERM), the Treasury Regulations in term

s of PFMA, Public Finance M

anagement Act

1 of 1999 (as amended) (PFM

A), King III Code and the Protocol on Corporate Governance, Charter of Best Practice of the Association of Corporate Treasurers of South Africa (ACTSA) and other applicable legislation and regulations.

Apart from the requirem

ents of the FRMF, Treasury m

ust operate within the limits as contained in the Transnet

Delegation of Authority Framework (DOA) as approved by the Board.

Risk philosophy

The overall risk managem

ent philosophy of Transnet SOC Ltd is to the extent possible, avoid undue risks and m

anage business risks effectively. However, given the nature of Transnet’s business and Market Dem

and Strategy (M

DS), it is not always possible to avoid risks all together. In pursuit of its business, the Group is exposed to a m

yriad of risks including but not limited to m

arket, credit, liquidity and operational risks. The long term viability,

continued success and reputation of Transnet are critically dependent on the credibility of risk managem

ent, and com

mitm

ent to applying leading practice in risk managem

ent.

Risk profile and risk m

anagement

Financial risk assessment and analysis are disclosed on a m

onthly basis to the Group Treasurer, the Group Chief Financial Officer, the Group Finance Com

mittee (FINCO) and the Group Executive Com

mittee (EXCO). Group

EXCO is responsible for reporting financial risk exposures to the Transnet Board of Directors at scheduled Board m

eetings.

The Group’s business operations expose it to liquidity, credit, and market risk (com

prising foreign currency, com

modity, interest rate and other price risk), which are discussed under the headings below. Given the level

of volatility in the markets, Treasury will continuously m

anage all risks very closely so as to implem

ent risk m

itigating initiatives timeously when required.

Liquidity risk

Liquidity risk exposures arise mainly as a result of the Group’s seven year M

arket Demand Strategy (M

DS) and operational expenditure program

me, the redem

ption of loans and daily operational cash requirements. The

Group has established a liquidity risk managem

ent policy with the following main objectives:

• To manage the contractual m

aturity gap between assets and liabilities;• To m

anage current and projected cash flows;• To m

aintain an adequate level of cash holdings;• To diversify funding sources and have funding program

mes available to reduce reliance on particular sources

to support effective liquidity risk managem

ent;• To spread the m

aturity of debt issues to reduce refinancing risk; • To do pre-funding of m

ajor capital redemptions to m

itigate liquidity risk; and• W

here needed, extend the debt portfolio to match the underlying assets.

During the past financial year, Transnet has used the following funding programm

es extensively to mitigate

liquidity risk exposures; the Domestic M

edium Term

Note programm

e (The total value of the DMTN program

me

is R55 billion. Total Bonds and Comm

ercial Paper issued under the DMTN program

me was R3,6 billion and R5,5

billion respectively); Export Development Agencies R7,0 billion. The total value of the Global M

edium Term

Note program

me is USD6 billion and has not been utilised during the 2015 financial year. The total funding raised

from Developm

ent Finance Institutions was R5,2 billion and R3,8 billion from syndicated and bank loans.

Certain thresholds, which are a combination of available cash, com

mitted and uncom

mitted bank facilities,

minim

um cash liquidity buffer and the pre-funding of m

ajor loan redemptions are m

inimum

requirements of the

approved policy to further ensure effective liquidity risk managem

ent. Capital market investm

ents are only allowed if there is a requirem

ent to ring fence cash for longer periods on a specific project, or as a result of a condition stipulated by a Regulator. The intention is always to keep the investm

ent until maturity to avoid any

capital losses.

Transnet also produces a “seven year cash flow projection” as part of the annual MDS strategy update. These

provide Treasury with a good estimate of the Group’s future funding requirem

ents per financial year.

Additional thresholds have been included in the past financial year to ensure comm

itted facilities are diversified across different m

arkets as well as inclusion of important liquidity risk ratios from

a rating agency perspective.

Counterparty risk

Counterparty risk exposures arises mainly as a result of the investm

ent of operational cash on hand, surplus cash due to pre-funding strategies, positive fair m

arket values of derivative hedging instruments and guarantees

issued by counter parties to mitigate financial risks in supply agreem

ents. The Group’s main objectives of its

counterparty risk policies are:• To m

itigate counterparty risk exposures;• To diversify counterparty risk exposures;• To set lim

its for the different types of counterparty risk exposures; and • To ensure that financial transactions are done with approved high credit quality counterparties.

The counterparty risk policy of the Group is fully aligned with the requirements of the Treasury Regulations as

referred to in the PFMA:

• Selection of counterparties through credit risk analysis;• Establishm

ent of investment lim

its per institution;


ents 2015

AN

NEX

UR

E Afor the year ended 31 M

arch 2015

• Establishment of investm

ent limits per investm

ent instrument;

• Monitoring of investm

ents against limits;

• Re-assessment of investm

ent policies on a regular basis;• Re-assessm

ent of counterparty credit risk based on credit ratings; and• Assessm

ent of investment instrum

ents based on liquidity requirements.

Financial assets that potentially subject the Group to concentrations of credit risk consist primarily of operational

cash balances, call investments, short-term

deposits, money m

arket fund investments and positive fair m

arket values of derivatives and trade receivables. The Group’s exposures to counterparty risks in respect of all Treasury related transactions are confined to credible counterparties and are m

anaged within Board approved credit lim

its. Limits are reviewed and approved by the Board Audit Com

mittee on an annual basis. Trade receivables are

presented net of impairm

ents. It is Treasury’s policy to perform ongoing credit evaluations of the financial position

of its counterparties. Guarantees are issued under specific powers granted in terms of section 66 of the PFM

A, and in accordance with a Board approved Delegation of Authority Fram

ework (DOA).

Investments and hedging transactions are only allowed with international counterparties that are local authorised

dealers with a minim

um international long-term

issuer default credit rating of A- (Fitch Ratings) or A- (Standard and Poor’s) or A3 M

oody’s and domestic counterparties with a m

inimum

national long-term credit rating of A-

(zaf) (Fitch Ratings) or A- (Standard and Poor’s) or A3 Moody’s and approved by the Board Audit Com

mittee as

an approved counterparty. In addition to this the counterparty must have a m

inimum

short-term credit rating of

F-1 (Fitch Ratings) or P-1 (Moody’s) or A-1 (Standard and Poor’s) to qualify for cash type of investm

ents. No more

than 40% of overall cash available m

ay be invested with counterparties in the A rating category and is limited to

33% per investm

ent type per counterparty. Money M

arket Funds are utilised as the major investm

ent vehicle for surplus cash due to its diversified risk profile and enhanced return.

Market risk

This will be discussed under the following headings: Foreign currency, Comm

odity, Interest rate and other price risk.

Foreign currency risk

Foreign currency risk arises mainly as a result of the Group’s M

DS and operational expenditure programm

es, where goods are im

ported from foreign countries and are exposed to currency fluctuations as well as the raising

of funding in a foreign currency. Transnet’s main objectives of its foreign currency risk policies are:

• To mitigate foreign currency risk exposures;

• To bring certainty about future Rand cash flows ; and• To insulate the Group’s statem

ent of comprehensive incom

e against exchange rate fluctuations.

Transnet’s policy only allows un-hedged foreign currency risk exposures limited to 0,5%

of annual operational budget and 1%

of annual capital expenditure budget. All foreign currency risk exposures are hedged within the guidelines of the Board approved FRM

F and DOA as soon as the supplier and funding agreements are signed.

It is the Group’s preference to enter into Rand based supplier and funding agreements, if this can be achieved

at an acceptable cost, with no FX risk recourse to Transnet. If this approach is not cost-effective, Transnet will then hedge on its own financial position. No pooling of hedging across different exposure types is allowed and hedging is done per project exposure. The foreign currency position is m

onitored on a monthly basis, by

obtaining the net foreign currency position in all the major currencies i.e. US Dollar (USD), EURO, Pound Sterling

(GBP) and Japanese Yen (JPY) and other foreign currencies. Foreign currency risk exposures are fully hedged until m

aturity with vanilla hedging instruments after careful consideration and analysis of the taxation, financial

risk, accounting, operational and system im

plications. Hedge accounting is applied to all major structures to

minim

ise volatility in the statement of com

prehensive income and the perform

ance is monitored m

onthly by the Hedge Accounting Com

mittee which is a sub-com

mittee of FINCO to ensure proper im

plementation and

adherence to guidelines.

Com

modity risk

Comm

odity risk refers to the potential variability in Transnet’s budget owing to the changes in comm

odity prices such as Brent crude oil, steel, iron ore and others. Only fuel risk exposures are actively m

onitored by Treasury on a regular basis and are hedged in term

s of the Board approved FRMF and DOA. M

ajor customer agreem

ents in respect of the General Freight Business (GFB) of the Group are structured in such a way that tariffs can be adjusted to com

pensate for changes in fuel prices (Brent and Exchange rates), steel prices and electricity and do provide som

e natural risk offset. Only the un-hedged portion on fuel will be considered for hedging purposes in term

s of approved policies. The Board approved FRMF requires the utilisation of vanilla type hedging

instruments that are highly liquid with a m

aximum

tenor of eighteen months and the underlying used in a hedging

strategy must have a very high correlation with the actual product consum

ed. The purpose of fuel hedging is to protect the Group’s annual approved fuel budget. W

here practically possible from a cost perspective, the

Operating divisions’ preference is to enter into fixed Rand contracts with suppliers as a risk mitigation against

fluctuation of comm

odity prices over the tenors of the contracts.

Interest rate risk

This refers to the potential variability in Transnet’s financial condition owing to changes in interest rate levels. The Group’s borrowing program

me, investm

ents in interest-bearing instruments and derivative financial instrum

ents create an exposure to this risk. The Group’s m

ain objectives in managing interest rate risk are as follows:

• Manage the ratio of floating rate exposures versus fixed rate exposures;

• Reduce the weighted average cost of debt (WACD) to ensure the gap to prevailing m

arket rates is reduced;• Take advantage of interest rate cycles;• Support the business strategy in so far as interest rates are concerned;• M

inimise the negative im

pact of adverse interest rate movem

ents on the Group’s net income, cash flows and

external finance cost budget within an acceptable risk profile; • M

inimise the m

arket making cost of the Group’s repo facilities granted to the external m

arket making panel

under the DMTN program

me;

• Manage the basis risk exposure where interest rate risk is netted between investm

ents and borrowings; and• M

anage the duration of the debt portfolio (including derivatives) to try and achieve alignment with the

duration of the average payback periods of assets.

The Group measures interest rate risk by calculating the im

pact of fair value movem

ents on derivatives and floating rate loans and running cash flow at risk scenarios and extrem

e sensitivities to determine the im

pact against the annually approved external finance cost budget in respect of existing liabilities and new funding requirem

ents per financial year. All foreign currency interest rate risk exposures are hedged to Rand as soon as agreem

ents are concluded. The Group’s Treasury is allowed to manage the fixed/floating interest rate risk

exposure within Board approved ranges.

Other price risk

The only other market risk the Com

pany and Group is exposed to, is equity price risk. Equity price risk is the risk of fair value changes in future cash flows of a financial instrum

ent as a result of changes in the underlying share price. Transnet do not trade in equities and the only exposure of this nature at report date was an equity investm

ent in Brazil which is listed on the Brazilian Stock Exchange.


ents 2015

AN

NEX

UR


arch 2015

Liquidity risk

Bonds at carrying and nom

inal values:

Transnet issues domestic bonds listed on the Johannesburg Securities Exchange (JSE), Luxem

bourg Stock Exchange and the London Stock Exchange (LSE). The following bonds were in issue at 31 M

arch 2015 for the Com

pany and the Group.

20152014

Bond

Redem

ption date

Coupon

rate%

Carrying

valueR

million

Nom

inal value

R m

illion

Carrying

valueR

million

Nom

inal value

R m

illion

Domestic Rand bonds

TN1714 Nov 17

9,256 858

7 0006 813

7 000TN20

17 Sept 2010,50

7 2437 000

7 2777 000

TN236 Nov 23

10,807 307

7 0007 327

7 000TN25

19 Aug 259,50

5 5735 437

5 2855 143

TN2714 Nov 27

8,906 392

7 0006 370

7 000TNF30

(1)9 Oct 30

6,821 051

1 021–

–TNF40

19 Oct 40

10,751 267

1 238–

–TNF16 FRN

10 Jun 167,21

3 2863 286

3 2863 286

TNF18 FRN22 Aug 18

7,401 500

1 5001 500

1 500TNF20U FRN

214 Apr 20

7,571 000

1 000–

–

Total domestic Rand bonds

41 47741 482

37 85837 929

Foreign Rand bondsTNZA21

13 May 21

9,505 000

5 0005 000

5 000Euro 13,5%

20283

18 Apr 2813,50

1 9572 000

1 9552 000

Euro 10% 2029

330 M

ar 2910,00

1 0651 500

1 0551 500

Total foreign Rand bonds8 022

8 5008 010

8 500

USD bondsTNUS16

10 Feb 164,50

9 0969 107

7 8717 890

USD bondsTNUS22

26 July 224,00

12 03712 142

10 41410 520

Total foreign currency bonds21 133

21 24918 285

18 410

Total bonds in issue at year-end70 632

71 23164 153

64 839(1) The TN30 and TN40 Rand bonds are new bonds issued under the DM

TN programm

e on 9 October 2014. (2) The TNF20U FRN is a floating rate note issued under the DM

TN programm

e on 14 April 2014.(3) These Bonds are guaranteed by the Governm

ent of the Republic of South Africa, and the company paid R1,2 m

illion in guarantee fees (2014: R1,2 m

illion). The amounts in the above table are all in respect of bonds held at am

ortised cost.

Concentration of liquidity risk

The sources of funding are tabled below. Altogether 67% of the borrowings are widely held (2014: 73%

):

Com

panyG

roup

20142015

20152014

R m

illionR

million

R m

illionR

million

1 641604

ABSA Bank Ltd604

1 6412 534

2 196African Developm

ent Bank2 196

2 5341 531

1 519Am

erican Family Life Assurance Co. (AFLAC)

1 5191 531

1 052971

Export Development Canada

9711 052

1 5851 441

French Development Bank

1 4411 585

1 0006 992

Investec Bank Ltd6 992

1 0002 117

644KFW

IPEX_Bank GmbH/RM

B/China Construction Bank644

2 117-

1 701Libfin

1 701–

2 4072 125

Nedbank Ltd2 125

2 4072 858

4 004RM

B/Division of FirstRand Bank Ltd4 004

2 8581 100

1 900Standard Bank Corporate Investm

ent Bank1 900

1 100507

441Standard Bank London

441507

3 8823 485

Sumitom

o Mitsui Banking Corporation

3 4853 882

2 0907 849

The Bank of Tokyo Mitsubishi Ltd.

7 8492 090

66 03674 397

Various holders of Transnet Bonds and Comm

ercial Paper, widely held, and traded*

74 39766 036

102106

Other 108

104

90 442110 375

110 377 90 444

* Includes bonds held at amortised cost R70 632 m

illion, comm

ercial paper R3 644 million and repo liabilities R121 m

illion (2014: Includes bonds held at am

ortised cost R64 153 million, com

mercial paper R1 783 m

illion and repo liabilities R100m).

Funding plan

Over the next seven years Transnet will raise R125,6 billion from the m

arket which is just above a third of Transnet’s R336,6 billion capital investm

ent plan.

TargetP

rojectionsTotal

20162017

20182019

20202021

2022R

million

R m

illionR

million

R m

illionR

million

R m

illionR

million

R m

illion

Loan redemptions

(11 212)(7 753)

(11 510)(6 010)

(3 502)( 9 767)

(6 303)(56 057)

Total funding requirem

ent(27 796)

(23 138)(33 713)

(21 330)(9 916)

(10 279)619

(125 553)

The following schedule depicts the probable sources of funding to be used by Transnet over the next four financial years, which will be driven by the Group’s business strategy, liquidity, investor/lender appetite as well as pricing.

20162017

20182019

R m

illionR

million

R m

illionR

million

Comm

ercial paper2 500

2 0002 700

2 000Dom

estic bonds5 000

5 0005 000

5 000DFIs/ECAs/GM

TN 15 000

12 000 22 000

10 300Bank loans/other

5 3004 100

4 0004 000

Total funding 27 800

23 10033 700

21 300


ents 2015

AN

NEX

UR


arch 2015

Contractual m

aturity analysis

The following are the contractual maturities of financial liabilities, including interest paym

ents and excluding the im

pact of netting arrangements as at 31 M

arch 2015 for the Company and the Group:

Carrying

value 2015

R m

illion

Contractual

cash flows

2015R

million

0 to 12 m

onthsR

million

1 to 2years

R m

illion

2 to 3 years

R m

illion

3 to 4 years

R m

illion

4 to 5 years

R m

illion

More

than 5 years

R m

illion

Non-derivative financial liabilities

Bonds (Com

pany and Group)(70 632)

(117 060)(14 850)

(8 448)(12 114)

(5 904)(4 342)

(71 402)Secured bank loans Com

pany (4 143)

(5 608)(796)

(793)(791)

(778)(767)

(1 683)Secured bank loans Group

(4 145)(5 610)

(796)(795)

(791)(778)

(767)(1 683)

Unsecured bank loans (Com


(42 569)(5 424)

(6 253)(6 166)

(6 432)(5 032)

(13262)Com

mercial paper

(Company and Group)

(3 644)(3 754)

(3 754)–

––

––

Other short-term borrowings

(Company and Group)

(227)(227)

(227)–

––

––

Total borrowings Company

(110 375)(169 218)

(25 051)(15 494)

(19 071)(13 114)

(10 141)(86 347)

Total borrowings Group(110 377)

(169 220)(25 051)

(15 496)(19 071)

(13 114)(10 141)

(86 347)

Trade payables and accruals Com

pany2

(15 033)(15 033)

(15 033)–

––

––

Trade payables and accruals Group

2(15 061)

(15 061)(15 061)

––

––

–

Derivative financial liabilities (Com

pany and Group)Cross-currency swaps

1–

––

––

––

–Forward exchange contracts used for hedging

(45)(64)

(40)(20)

(4)–

––

Outflow(614)

(633)(537)

(84)(12)

––

–Inflow

569569

49764

8–

––

Other forward exchange contracts

(12)(4)

(4)–

––

––

Outflow(220)

(220)(155)

(64)(1)

––

–Inflow

208216

15164

1–

––

Total derivative financial liabilities

(57)(68)

(44)(20)

(4)–

––

1 Cross-currency swaps are all in the money.

2 Trade payables and accruals exclude employee benefits and Vat related accruals.

Contractual m

aturity analysis continuedThe following are the contractual m

aturities of financial liabilities, including interest payments and excluding

the impact of netting arrangem

ents as at 31 March 2014 for the Com

pany and the Group:

Carrying

value 2014

R m

illion

Contractual

cash flows

2014R

million

0 to 12 m

onthsR

million

1 to 2years

R m

illion

2 to 3 years

R m

illion

3 to 4 years

R m

illion

4 to 5 years

R m

illion

More

than 5 years

R m

illion

Non-derivative financial liabilities

Bonds (Com


(109 627)(5 291)

(13 217)(8 071)

(11 715)(5 494)

(65 839)Secured bank loans Com

pany (4 592)

(6 672)(819)

(834)(855)

(840)(822)

(2 502)Secured bank loans Group

(4 594)(6 674)

(821)(834)

(855)(840)

(822)(2 502)

Unsecured bank loans (Com


(23 333)(5 914)

(3 058)(3 349)

(3 237)(2 943)

(4 832)Com

mercial paper

(Company and Group)

(1 783)(1 828)

(1 828)–

––

––

Other short-term borrowings

(Company and Group)

(203)(199)

(199)–

––

––

Total borrowings Company

(90 442)(141 659)

(14 051)(17 109)

(12 275)(15 792)

(9 259)(73 173)

Total borrowings Group(90 444)

(141 661)(14 053)

(17 109)(12 275)

(15 792)(9 259)

(73 173)

Trade payables and accruals Com

pany2

(10 670)(10 670)

(10 670)–

––

––

Trade payables and accruals Group

2(10 698)

(10 698)(10 698)

––

–

––

Derivative financial liabilities (Com

pany and Group)Cross-currency swaps

1–

––

––

––

–Forward exchange contracts used for hedging

(21)(52)

(28)(14)

(8)(2)

––

Outflow(732)

(764)(559)

(138)(55)

(12)–

–Inflow

711712

531124

4710

––

Other forward exchange contracts

(62)(41)

(19)(14)

(8) –

––

Outflow(322)

(323)(138)

(114)(71)

––

–Inflow

260282

119100

63–

––

Total derivative financial liabilities

(83)(93)

(47)(28)

(16)(2)

––

1 Cross-currency swaps are all in the money.

2 Trade payables and accruals exclude employee benefits and Vat related accruals.


ents 2015

AN

NEX

UR


arch 2015

Credit risk

Maxim

um exposure and analysis of exposures to credit risk

The following maxim

um exposures to credit risk existed at year end in respect of financial assets:

20152014

Carrying

valueR

million

Neither

past due nor

impaired

R m

illion

Past due but not

impaired

R m

illionIm

pairedR

million

Carrying

valueR

million

Neither

past due nor

impaired

R m

illion

Past due but not

impaired

R m

illionIm

pairedR

million

Com

panyTrade receivables– Low risk

4 3374 207

130(699)

5 5473 919

1 628(965)

– Medium

risk1 417

1 225192

(161)761

72536

(29)– High risk

1 029482

547(377)

394312

82(385)

6 7835 914

869(1 237)

6 7024 956

1 746(1 379)

Other amounts receivable**

1 109689

420(26)

802542

260(53)

Investments – current

708708

––

6767

––

Long and short-term loans

and advances*26

26–

–31

31–

–Loans to subsidiaries and associates

33

––

22

–(392)

Guarantees issued157

––

–81

––

–Investm

ent and price risk***19 841

––

–18 087

––

–

Group

Trade receivables– Low risk

4 3384 167

171(699)

5 5483 920

1 628(965)

– Medium

risk1 417

1 225192

(161)761

72536

(29)– High risk

1 029482

547(395)

394312

82(403)

6 7845 874

910(1 255)

6 7034 957

1 746(1 397)

Other amounts receivable**

1 112692

420(26)

806546

260(53)

Investments – current

708708

––

6767

––

Long and short-term loans

and advances*26

26–

–31

31–

–Guarantees issued

157–

––

81–

––

Investment and price risk***

19 841–

––

18 087–

––

* Long-term advances (Com

pany and Group)R24 m

illion (2014: R29 million)

Short-term

advances (Company and Group)

R2 million (2014: R2 m

illion)

** Reconciliation to note 18.Com

panyGroup

Other am

ounts receivableR1 109 m


R1 112 million (2014: R806 m

illion)

Prepayments

R434 million (2014: R263 m

illion)R434 m


Prepaym

ents and other amounts receivable

R1 543 million (2014: R1 065 m

illion)R1 546 m

illion (2014: R1 069 million)

*** Investment risk includes call and fixed deposits as well as m

oney market funds. The high investm

ent exposure for 2014 and 2015 is the result of pre-funding done to m

inimise liquidity risk to fund the capital expenditure program

me.

Low risk: No guarantee is required from the custom

er.M

edium risk: 50%

– 75% guarantee required from

the customer.

High risk: In such instances, customers are required either to provide

100% guarantee or transact on a cash basis only.

The balances for other receivables and loans and advances are not disaggregated for internal reporting purposes.Price risk: The risk that financial derivatives and bond transactions have to be closed-out at a m

arket value loss as a result of the unfavourable m

ovements in m

arket rates.Bond issuer risk: The risk that an issuer of bonds will not be able to fulfil its financial obligations on m

aturity date in accordance with the term

s and conditions of the bond issues.

IFRS 7 Financial Instruments: Disclosure, defines credit risk as the risk

that one party to a financial instrument will cause a financial loss for

the other party by failing to discharge an obligation. As such Transnet will suffer financial losses on guarantees issued as the Group would be required to m

ake good the failure by a third party to discharge an obligation. Credit enhancem

ents in the form of title deeds and pension fund cessions

for loans and advances and deposits and guarantees in respect of am

ounts included in trade and other receivables and loans and advances, are held by the Group. The Group took possession of som

e collateral during the current financial year am

ounting to R1,4 million (2013: Rnil).

The following represents the ageing of the carrying value of financial assets past due but not impaired at 31

March 2015 for the Group and Com

pany:

1 – 30 days31 – 60 days

Greater than 60 days

Past

due Low

risk

Medium

risk

High

riskP

ast due

Low

riskM

edium

riskH

igh risk

Past

due Low

risk

Medium

risk

High

risk

2015Trade receivables

24144

94103

12622

2579

543106

73364

Other receivables357

357–

–41

41–

–22

22–

–

2014Trade receivables

339292

2819

269265

4–

1 1381 071

463

Other receivables 198

198–

–16

16–

–46

46–

–

Guarantees and deposits to the value of R495 million were held as collateral (2014: R551 m

illion).

The following financial assets have been specifically impaired for the Com

pany and Group at year end:

20152014

R m

illionTrade

receivablesO

ther receivables

Trade receivables

Other

receivables

Com

panyLow risk

246–

1236

Medium

risk204

–30

–High risk

51–

297–

Group

Low risk247

–123

6M

edium risk

204–

30–

High risk51

-297

–

Financial assets have been impaired based on the age of the debt and the inability to recover these specified

assets. Guarantees and deposits amounting to R252 m

illion (2014: R143 million) were held with respect to these.

Payment term

s were renegotiated with certain counterparties in respect of trade receivables during the year.

Concentration of credit risk

The Company’s and Group’s 12 m

ost significant customers (South African industrial enterprises) com

prise 53%

of the trade receivables carrying amount at 31 M

arch 2015 (2014: 54%).

The following diagram reflects the distribution of credit risk, expressed in term

s of long-term credit ratings,

excluding guarantees and trade receivables. The exposures below include cash investments (call, fixed deposits

and money m

arket funds), price risk exposures and operational bank balances.


ents 2015

AN

NEX

UR


arch 2015

Market risk

Foreign currency risk

The Company’s and Group’s net long (short) foreign currency risk exposures as at 31 M

arch 2015 are reflected below (expressed in notional am

ounts).

20152014

USD

U

S $/mJP

Y¥/m

EUR

€mA

UD

A

U$/m

Other

currencies exposure in U

SD U

S $/mU

SD

US $/m

JPY

¥/mEU

R€m

AU

D

AU

$/m

Other

currencies exposure in U

SD U

S $/m

Foreign currency bonds

(1 750)–

––

–(1 750)

––

––

Unsecured bank loans(867)

(32 556)(50)

––

(469)(35 482)

(50)–

–Brazil equity investm

ent*4

––

––

8–

––

–

Gross financial position exposure

(2 613)(32 556)

(50)–

–(2 211)

(35 482)(50)

––

Exposures for future expenditure

(39)–

(15)–

–(34)

–(15)

(2)(2)

Gross foreign currency exposure

(2 652)(32 556)

(65)–

(1)(2 245)

(35 482)(65)

(2)(2)

Forward exchange contracts

39–

15–

134

–15

22

Cross-currency swaps2 617

32 55650

––

2 21935 482

50–

–

Net uncovered exposure

4–

––

–8

––

––

Sensitivity analysis

The table below shows the impact on profit and loss (non-hedge accounted transactions) of a stronger and weaker

Rand for the Company and Group, as a result of fair value m

ovements of cross-currency interest rate swaps and

forward exchange contracts.

20152014

Currency

Currency

exposure in m

illions of currency

Fair value R

million

Impact

of Rand

strength-ening

R m

illion

Impact

of Rand

weakeningR

million

Currency

exposure in m

illions of currency

Fair value R

million

Impact

of Rand

strength-ening

R m

illion

Impact

of Rand

weakeningR

million

AUD–

––

––

––

–EUR

(18)(11)

(15)15

(22)(70)

(19)19

JPY–

––

––

––

–USD

(2)–

(2)2

(2)(1)

(3)3

Totals(11)

(17)17

(71)(22)

22

Hedge accounting is applied to 99% of currency hedges where structures are designated either as fair value hedges or

cash flow hedges as detailed in note 14. The sensitivity analysis above includes the impact of fair value m

ovements on

derivatives that are part of effective hedge accounting, hence the analysis is on the net balance, after the offsetting effect of the hedged item

and hedging instruments. The sensitivity analysis was calculated using a 95%

confidence

■ AAA

2 417,19■

A+ 8 461,52

■ A

2 086,27■

AA 4 891,01

■ AA-

1 984,68 M

oney market funds

■ AAA

480,82■

A+ 6 198,18

■ A

137,66■

AA 11 209,60

■ AA-

51,50 M

oney market funds

9,67

March

2015

TRA

NSN

ET RISK

PER

LON

G-TER

M R

ATIN

G(R m

illion)

TRA

NSN

ET RISK

PER

LON

G-TER

M R

ATIN

G(R m

illion)

March

2014

■ A+

777.41■

A 2 086,27

■ AA

2 017,27■

AA- 1 984,68

■ AAA

2 224,63

TRA

NSN

ET RISK

(INV

ESTMEN

TS)P

ER LO

NG

-TERM

RA

TING

– 2015(R m

illion)

TRA

NSN

ET RISK

(DER

IVA

TIVES)

PER

LON

G-TER

M R

ATIN

G – 2015

(R million)

■ A

7 684,11■

AA 2 873,73

■ AAA

192,00■

JSE 0,00

■ A+

51,01■

A 137,66

■ AA

9 266,82■

AA- 51,50

■ AAA

128,18■

Money m

arket funds 9,67

TRA

NSN

ET RISK

(INV

ESTMEN

TS)P

ER LO

NG

-TERM

RA

TING

– 2014(R m

illion)

TRA

NSN

ET RISK

(DER

IVA

TIVES)

PER

LON

G-TER

M R

ATIN

G – 2014

(R million)

■ A+

6 147,17■

A 1 942,77

■ AA

352,64


ents 2015

AN

NEX

UR


arch 2015

interval over a 90 day horizon, and assumes all other variables rem

ain unchanged. Basis swap adjustments have

been added to the curves when doing the sensitivities to ensure that a more accurate m

arket value is reflected that also take m

arket liquidity into account.

Value at risk (fx)

The value at risk (VaR) for direct comm

itted capital and operational exposures and the Brazilian equity investment

is R4 million (2014: R8 m

illion). VaR calculates the maxim

um pre-taxation loss expected (or worst case scenario) on

a position held, over a 90 day horizon given a 95% confidence level and is used on a lim

ited basis at Transnet. The VaR m

ethodology is a statistically defined, probability-based approach that takes into account, inter alia, market

volatilities relative to a position held. The Group uses historical simulation and the m

odel assumes that historical

patterns will repeat into the future and does not take extreme m

arket conditions into account.

Foreign exchange rates

The mid rates of exchange against Rand used for conversion purposes were:

20152014

US Dollar12,1422

10,5192Japanese Yen

0,10120,1021

Euro13,0261

14,4876Australian Dollar

9,24999,7518

Interest rate risk

The Company’s and Group’s exposure to fixed and floating interest rates on financial liabilities is as follows:

Com

panyG

roup

2014R

million

2015R

million

2015R

million

2014R

million

(72 915)(81 583)

Fixed rate liabilities(81 585)

(72 917)(18 255)

(27 968)Floating rate liabilities

(27 968)(18 255)

(91 170)(109 551)

Total*(109 553)

(91 172)

* These values include the repo liability of R121 million (2014: R100 m

illion), which have a maturity term

of one week.

The exposure to floating interest rates on foreign financial liabilities before swaps is R12 662 million

(2014: R7 911 million) for the Com

pany and Group, but the full foreign currency loan portfolio has been swapped to a fixed rand interest rate risk exposure by m

eans of cross currency interest rate swaps and is included above under fixed rate liabilities. The Board approved a targeted range of fixed interest rates that m

ay be managed to

enable managem

ent to utilise interest rate yields.

Sensitivity analysis

The sensitivity analysis below reflects the interest rate impact on the finance cost budget for the 2016 financial

year in respect of existing liabilities and new funding requirements.

20162015

Impact

Shift+100bp

R m

illion

Shift-200bp

R m

illion

Shift+250bp

R m

illion

Shift-500bp

R m

illion

Shift+500bp

R m

illion

Shift+100bp

R m

illion

Shift-200bp

R m

illion

Shift+250bp

R m

illion

Shift-500bp

R m

illion

Shift+500bp

R m

illion

Finance cost im

pact (increase)decrease (Com

pany and Group)

(421)491

(877)1 403

(1 637)163

740(125)

1 316(605)

The impact on profit and loss of higher foreign interest rates on the Com

pany and Group is insignificant, as all foreign debt has been swapped to a fixed Rand interest rate risk.

Price risk

The Group has an exposure to equity price risk on the Brazilian Stock Exchange. At year end, the quoted value of the Group’s investm

ent in Brazil was R42 million (2014: R84 m

illion). Managem

ent believes that the foreign exchange exposure on this investm

ent is significantly greater than that of equity price risk and as such the sensitivity for this investm

ent has been included in the foreign currency risk net position and VaR calculations.

Com

modity price risk (fuel)

The table below shows the cash flow at risk scenarios against the approved fuel budget for the 2016 financial year at various levels of Brent crude and USD/ZAR ($/R) exchange rates as at 31 M

arch 2015 (excluding energy levies): Am

ounts are in R million.

Perform

ance to budget

31 March 2015

$/R10,54

$/R11,00

$/R11,85

$/R12,50

$/R13,16

Brent @ $43

804767

699647

594Brent @

$50676

633555

495434

Brent @ $55

574528

441375

308Brent @

$67345

288183

10321

Brent @ $75

191128

10(79)

(171)

The table below shows the cash flow at risk scenarios against the approved budget for the 2015 financial year at various levels of Brent crude and USD/ZAR ( $/R) exchange rates as at 31 M

arch 2014 (excluding energy levies). Am

ounts are in R million.

Perform

ance to budget

31 March 2014

$/R9,43

$/R10,74

$/R 10,80

$/R11,80

$/R12,06

Brent @ $91

358153

145(11)

(51)Brent @

$95299

8676

(85)(127)

Brent @ $107

106(134)

(145)(279)

(306)Brent @

$115(23)

(258)(265)

(380)(410)

Brent @ $123

(147)(348)

(355)(478)

(510)


ents 2015

AN

NEX

UR


arch 2015

Classification, fair values and analysis of financial instrum

ents

Categories of financial instruments

Com

panyG

roup

2014R

million

2015R

million

2015R

million

2014R

million

Financial assets

11 34415 157

Loans and receivables (including bank and cash, trade and other receivables)

15 30411 474

Fair value through profit and loss7 404

11 392– Derivatives held for hedging

11 3927 404

Financial liabilities

101 210125 408

Liabilities measured at am

ortised cost (including trade and other payables)

125 438101 240

Fair value through profit and loss83

70– Derivatives held for hedging

7083

99106

– Finance lease liabilities106

99

Except as detailed in the following table, the directors consider that the carrying amounts of financial assets

and financial liabilities recorded at amortised cost in the financial statem

ents approximate their fair values:

Com

panyG

roup

20142015

20152014

Fair value

R m

illion

Carrying

valueR

million

Fair value

R m

illion

Carrying

valueR

million

Fair value

R m

illion

Carrying

valueR

million

Fair value

R m

illion

Carrying

valueR

million

80 60290 343

99 316110 269

Borrowings 99 318

110 27180 604

90 34595

9969

106Finance lease obligations

69106

9599

Fair values of financial instruments

The table below provides an analysis of financial instruments that are m

easured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree of m

arket observability of the inputs of the fair value.• Level 1 fair value m

easurements are those derived from

quoted prices (unadjusted) in active markets for

identical assets or liabilities. • Level 2 fair value m

easurements are those derived from

inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from

prices). This category of instrum

ent consists mainly of derivatives concluded for risk m

anagement purposes.

• Level 3 fair value measurem

ents are those derived from valuation techniques that include inputs for the asset

or liability that are not based on observable market data (unobservable inputs).

Level 1R

million

Level 2R

million

Level 3R

million

TotalR

million

2015Financial assets at FVTPL* Derivative financial assets used for hedging (Com

pany and Group)–

11 392–

11 392

Financial liabilities at FVTPL*Derivative financial liabilities used for hedging (Com

pany and Group)–

70–

70

2014Financial assets at FVTPL* Derivative financial assets used for hedging (Com

pany and Group)–

7 404–

7 404

Financial liabilities at FVTPL*Derivative financial liabilities used for hedging (Com

pany and Group)–

83–

83

* FVTPL – Fair value through profit and loss.

Measurem

ent of fair values

The table below shows the valuation techniques used in measuring level 2 and level 3 fair values, as well as the

significant unobservable inputs used.

Financial instruments

measured at fair value

Valuation technique

Significant unobservable inputs

Inter-relationship betw

een significant unobservable inputs and fair value m

easurement

Cross-currency swaps used for hedging*Forward exchange contracts used for hedging*

Discounted cash flow method using m

arket yield curves to first project cash flows and then discount these cash flows using the M

onte Carlo simulation m

odel, incorporating m

arket inputs that were observable, probabilities of default, recovery rates and expected future exposures per counterparty.

Not applicable.Not applicable.

Fuel hedging options*Black-Scholes using m

arket inputs and adjusted for features specific to fuel options.


Issued bonds**Bonds were priced at fair values using quoted m

arket prices.


Other financial liabilities*** /**

Loans were valued using risk free yield curves adjusted for credit risk of counterparties.


* Fair values include m

arket observable credit valuation adjustments (CVA).

** Fair values include m

arket observable debit valuation adjustments (DVA).

*** Other financial liabilities include borrowings and finance lease obligations.

Transfers between level 1 and 2

There were no transfers in either direction between level 1 and 2 in both the current financial year and in 2014.

Level 3 fair values

Reconciliation and transfers out of level 3: There were neither level 3 inputs nor transfers in either direction in both the current financial year and in 2014.


ents 2015

AN

NEX

UR


arch 2015

The net gains and losses on financial instruments are detailed below:

Com

pany

Net gain/(loss)

R m

illion

2015Liabilities m

easured at amortised cost* (refer note 6)

(8 632)Loans and receivables and held to m

aturity investments (refer note 7)

212Liabilities held for trading** (refer note 5)

(137)

2014Liabilities m





(372)

Group

Net gain/(loss)

R m

illion

2015Liabilities m





(137)

2014Liabilities m





(372)

* The net loss on financial liabilities measured at am

ortised cost consist mainly of interest expense after offsetting against effective cash flow

hedges.** The net (loss)/gain on Com

pany and Group financial assets and financial liabilities held for trading is a R137 million loss (2014: R372m

illion). These are held for hedging purposes.

Transnet’s credit rating

Transnet is officially rated by Standard and Poor’s (S&P) and Moody’s Investors Service. The Com

pany m

aintained its investment grade rating for the year ended 31 M

arch 2014 as follows:

Rating category

Standard & Poor’s

Moody’s

Foreign currency BBB-

Baa1Local currency

BBB+Baa2

National rating zaAA+/zaA-1

A1.za/A2.zaRating outlook

StableNegative

On 7 November 2014, M

oody’s downgraded the issuer rating to Baa1/negative outlook from A3, following a

downgrade of the sovereign to Baa2. Deterioration in Transnet stand-alone credit profile (FFO/debt and FFO + interest/interest ratios) was also sighted, hence BCA (Baseline Credit Assessm

ent) also lowered to baa1 from

a3. The negative outlook reflects concerns of the rating agency on the ability of Transnet to execute MDS under a

sustained weaker macro-econom

ic environment.

On 11 March 2015 an annual rating m

eeting with Standard and Poor’s was held and indications were that the ratings rem

ain unchanged. The review of the sovereign ratings is scheduled for 12 June 2015; hence, because of the application of the GRE criteria, a change in the sovereign ratings m

ight affect the rating of Transnet. The credit rating report on Transnet will be issued in July/August after the release of Transnet’s annual financial results and the sovereign rating review.


ents 2015

AN

NEX

UR


arch 2015

Land, M

achinery, buildings

equipment

Perm

anent R

ail R

olling C

apital 31 M

arch31 M

arch Floating

andand

way

Pipeline

Port infra-

stock and w

ork-in-2015

2014 A

ircraft craft

structures furniture

and works

networks

facilities structure*

containers V

ehicles progress

Total Total

R m

illion R

million

R m

illion R

million

R m

illion R

million

R m

illion R

million

R m

illion R

million

R m

illion R

million

R m

illion

Com

pany and Group

Balance at the beginning of the year Historical cost and revaluation

1572 270

24 0578 109

75230 714

101 08928 145

69 2781 049

30 359295 979

246 537 Accum

ulated depreciation (120)

(594)(5 105)

(4 374)(86)

(11 927)(36 689)

(5 767)(21 266)

(571)–

(86 499) (67 478)

Accumulated im

pairment

–(1)

(164)(155)

–(252)

(777)(43)

(544)(5)

(217)(2 158)

(2 138)

Opening net carrying value at 1 April 37

1 67518 788

3 580666

18 53563 623

22 33547 468

47330 142

207 322 176 921

Current year movem

ents Replacem

ents –

3230

79–

–19

–459

318427

19 049 22 244

Expansions 14

–28

16–

–13

––

214 443

14 516 9 486

Acquisition through lease –

––

––

––

––

––

– 36

Disposals –

–(5)

(1)–

–(1)

–(72)

–(57)

(136) (129)

Depreciation (11)

(111)(829)

(763)(15)

(612)(2 148)

(837)(4 940)

(74)–

(10 340) (10 099)

Derecognition –

–(30)

(1)–

––

(95)(294)

––

(420) (466)

Revaluation –

–9

––

8434 619

49 805–

––

55 276 8 277

Impairm

ent- historical cost and revaluation –

––

(63)–

(38)27

–(335)

(33)–

(442) (177)

Transferred to intangibles assets –

––

(49)–

––

––

–(48)

(97) (108)

Transfers from/(to) non-current assets

classified as held-for-sale –

–80

––

––

–32

––

112 4

Transfer (to)/from investm

ent property –

–(192)

––

––

––

–(2)

(194) 5

Foreign exchange adjustment

––

––

––

––

(12)–

–(12)

(117)Borrowing costs capitalised

–7

5–

––

––

––

2 4702 482

1 287 Release of firm

comm

itment

––

––

––

12–

––

3850

158 Transfer from

capital work-in-progress to assets

–168

1 9571 237

13161

1 5464 034

9 4509

(18 575)–

–

396

1 053455

(2)354

4 08752 907

4 288(93)

16 69679 844

30 401

Closing carrying value 40

1 77119 841

4 035664

18 88967 710

75 24251 756

38046 838

287 166 207 322

Made up as follows:

Historical cost and revaluation 171

2 46225 919

9 253766

32 063108 808

94 32176 378

1 05747 052

398 250 295 979

Accumulated depreciation

(131)(690)

(5 910)(5 013)

(101)(12 884)

(40 348)(19 036)

(23 974)(638)

–(108 725)

(86 499)Accum

ulated impairm

ent –

(1)(168)

(205)(1)

(290)(750)

(43)(648)

(39)(214)

(2 359) (2 158)

Closing carrying value at 31 March

401 771

19 8414 035

66418 889

67 71075 242

51 756380

46 838287 166

207 322

*Rail infrastructure was part of permanent way and works in the prior year.


ents 2015

AN

NEX

UR

E Bfor the year ended 31 M

arch 2015

Disposal groups classified as held-for-sale

Notes

2015R

million

2014R

million

Com

pany and Group

Assets classified as held-for-saleProperty, plant and equipm

ent a

30 148


b8

6 Other investm

entsc

43 84

Total81

238

Notes to disposal groups classified as held-for-sale

Com

panyG

roup

2014 2015

20152014

R m

illion R

million

R m

illion R

million

a. Property, plant and equipm

ent 158

148

Net carrying value at the beginning of the year148

158 ( 6)

(6)

Disposals(6)

( 6)

( 4)(112)

Transferred (to)/from

continuing operations (refer annexure B)

(112) ( 4)

148 30

30 148

b. Investm

ent properties 3

6

Fair value at the beginning of the year6

3 (4)

(5)

Disposals(5)

(4) 7

7

Transferred from continuing operations

77

6 8

8 6

c. Other investm

ents 114

84


114 ( 30)

(41)

Fair value movem

ent during the current year(41)

(30)

84 43

43 84


ents 2015

AN

NEX

UR

E Cfor the year ended 31 M

arch 2015

Subsidiaries

Effective holding V

oting pow

er heldShares at cost

Interest of holding com

pany net profit/(loss) Interest of holding

company indebtedness

Accum

ulated im

pairment and losses

2015 %

2014

%

2015 %

2015

R m

illion 2014

R m

illion 2015

R m

illion 2014

R m

illion 2015

R m

illion 2014

R m

illion 2015

R m

illion 2014

R m

illion

Local subsidiariesTransport logisticsKN Viam

ax Logistics (Pty) Ltd^

– 100

––

– –

– –

– –

– Viaren (Pty) Ltd

† 100

100 100

– –

– –

– –

– –

Property holdingsTranshold Properties (Pty) Ltd

# 100

100 100

– –

– –

– –

– –

Insurance captive cellsGuardrisk Insurance Com

pany Ltd*** 100

100 100

3 3

21 19

– –

– –

Social responsibilityTransnet Foundation Trust‡

100 100

100 –

– –

– –

– –

–

Foreign subsidiariesTransport logisticsAfrican Joint Air Services Ltd (Uganda) #

57 57

57 –

– –

( 6)391

392 391

392 Spoornet do Brasil Ltda (Brazil)

100 100

100 –

– (1)

8 –

-–

–

3 3

20 21

391 392

391 392

# Dorm

ant.†

In liquidation. ‡

In dissolution.*

Deregistered.^

Liquidated.*** Previously nam

ed Spoornet Guard Risk.


ents 2015

AN

NEX

UR

E Dfor the year ended 31 M

arch 2015

Associates and joint ventures^

Effective holding Shares at cost

Interest of holding company

indebtedness A

ccumulated im

pairment

and losses Share of post-acquisition

reserves Total

Principal activity

2015 %

2014 %

2015 R

million

2014 R

million

2015 R

million

2014 R

million

2015 R

million

2014 R

million

2015 R

million

2014 R

million

2015 R

million

2014 R

million

AssociatesCom

mercial Cold Storage (Ports)

(Pty) LtdStorage and bondage

30 30

– –

1 1

– –

16 13

17 14

Comazar (Pty) Ltd

#Transport logistics

32 32

13 13

8 8

21 21

– –

– –

Mossel Bay W

aterfront Development

(Pty) Ltd*

Property development

and managem

ent –

15 –

2 –

– –

2 –

– –

– Experience Delivery Com

pany (Pty) Ltd

Managing agent

11 11

– –

– –

– –

– –

– –

RainProp (Pty) LtdProperty developm

ent and m

anagement

20 20

– –

2 2

– –

72 68

74 70

Joint venturesGaborone Container Term

inalContainer term

inal 36

36 6

6 –

– –

– 16

15 22

21

19 21

11 11

21 23

104 96

113 105

^ Incorporated in the Republic of South Africa, unless stated otherwise.

# Dorm

ant.*

Deregistered.

Summ

arised financial information of significant associates

Com

mercial

Cold Storage

(Ports) (P

ty) Ltd2015

R m

illion

Gaborone

Container

Terminal

2015R

million

RainP

rop(P

ty) Ltd2015

R m

illion

Financial positionTotal assets

6762


122

678

Results of operationsRevenue

7215

183Profit for the year

112

61


ents 2015

AN

NEX

UR

E Dfor the year ended 31 M

arch 2015

Disclosure of irregular expenditure, fruitless and w

asteful expenditure, losses through crim

inal conduct and losses through non-collection of revenueThe following inform

ation relates to both Company and Group.

20152014

R m

illionR

million

Irregular expenditure*Opening balance

––

Add: Irregular expenditure – current year32,2

49,6Less: Am

ounts condoned–

(6,8)

32,242,8

Less: Amounts recoverable (not condoned)

––

Less: Amounts not recoverable (not condoned)

32,242,8

Irregular expenditure awaiting condonation –

–

Analysis of expenditure awaiting condonation per age classificationCurrent year

––

Prior year–

–

Total–

–

2015R

million

Details of irregular expenditure – current year

IncidentDisciplinary steps taken/(crim

inal proceedings)

Contract costs exceeded9/(0)

10,8Contracts expired

1/(1)14,5

Procurement and capital expenditure procedures not

adhered to4/(0)

3,7Delegation of authority contravened

1/(0)3,2

32,2

Details of irregular expenditure condonedIncident

Condoned by (condoning authority)Delegation of authority contravened

Group Chief Executive–

Details of irregular expenditure recoverable (not condoned)IncidentNone

–

Details of irregular expenditure not recoverable (not condoned)IncidentContract costs exceeded

10,8Contracts expired

14,5Procurem

ent procedures not adhered to3,7

Delegation of authority contravened3,2

32,2

20152014

R m

illionR

million

Fruitless and wasteful expenditure*Fruitless and wasteful expenditure

23,313,6

Less: Amounts recovered

(0,3)(0,6)

23,013,0

2015R

million

Details of fruitless and wasteful expenditure


inal proceedings)

Incentive overpayment on gainshare

0/(0)18,7

Interest0/(0)

2,4Other

24/(7)1,9

23,0

20152014

R m

illionR

million

Losses through criminal conduct*

Losses through criminal conduct

519,341,7

Less: Amounts recovered

–(1,8)

519,339,9

2015R

million

Details of losses through criminal conduct


inal proceedings)

Theft of cables and copper0/(306)

20,0Theft of signals, perway and equipm

ent3/(140)

8,0Alleged fraud and corruption**

2/(3)488,0

Other6/(151)

3,3519,3

20152014

R m

illionR

million

Losses through non collection of revenue–

0,8Less: Am

ounts recovered–

–

–0,8

* The Shareholder Representative has determined the m

ateriality limit for reporting in term

s of section 55(2)(b)(i), (ii), and (iii) of the PFMA at

R25 million per transaction. Refer to the Report of the Directors for reporting in term

s of the materiality fram

ework.** This item

relates to a alleged fraudulent activity by an employee which occurred in the prior years.


ents 2015

AN

NEX

UR

E Efor the year ended 31 M

arch 2015

Measurem

ent of level 3 fair valuesThe table below shows the valuation techniques and significant unobservable inputs applied in m

easuring level 3 fair values for assets at 31 M

arch 2015.

Asset G

roupV

aluation techniqueSignificant unobservable inputs

Range (w

eighted average)

Pipeline networksM

odern equivalent asset value•

Physical condition•

Remaining useful life

rr

Discounted cash flow•

Discount rate10,60%

Port facilitiesDepreciated replacem

ent cost•

Composite PPI*

–local input –im

ported equipment

114,2124,1

Depreciated optimised

replacement cost**

• Physical condition

• Rem

aining useful life •

Residual value•

Availability•

Design capacity

rrrrr


Discount rate•

Terminal growth rate

11,95%2,29%

Rail infrastructureDepreciated optim

ised replacem

ent cost**•

Physical condition•

Remaining useful life

• Residual value

• Availability

• Design capacity

rrrrr


Discount rate12,09%

Investment property

Yield methodology

• Capitalisation rate

12% – 20%

(16%)

* Base year = 2000. ** The depreciated optim

ised replacement cost m

ethod values assets at the amount it would cost to replace the asset with a technologically m

odern equivalent new asset with sim

ilar service potential (i.e. capacity, functionality and remaining useful life), taking into account the age and physical

condition of the asset and allowing for any differences in the quantity and quality of output and in operating costs.r The significant input was taken into consideration in the valuation process. However, a range or weighted average thereof is not applicable.

New

financial reporting standards and interpretations issued but not yet effectiveThe following new or revised international financial reporting standards, am

endments and interpretations of

those standards which are applicable to the Group are not yet effective for the year ended 31 March 2015 and

were not applied in preparing these financial statements:

Standard or interpretation

Detail

Effective date

IAS 1 (Amendm

ent)Presentation of financial statem

entsM

aterialityThe am

endment clarifies that the entity should not aggregate or disaggregate

information in a m

anner that obscures useful information, for exam

ple, by aggregating item

s that have different characteristics or disclosing a large am

ount of imm

aterial detail.

Disaggregation and subtotalsThe am

endment clarifies that it m

ay be necessary to disaggregate some of the

line items specified in IAS 1. Disaggregation is required where it is relevant to

an understanding of the entity’s financial position or performance.

The revised standard will be applied retrospectively and will not have a m

aterial impact on the Group’s financial statem

ents.

Annual periods beginning on or after 1 January 2016.

IAS 16 and IAS 38 (Am

endment)

Property, plant and equipment and intangible assets

Revaluation method – proportionate restatem

ent of accumulated

depreciation/amortisation

The amendm

ent clarifies that when an item of property, plant and equipm

ent is revalued, the gross carrying am

ount is adjusted in a manner that is

consistent with the revaluation of the carrying amount.

With the am

endment, the split between gross carrying am

ount and accum

ulated depreciation is treated in one of the following ways:•

Either the gross carrying amount is restated in a m

anner consistent with the revaluation of the carrying am

ount, and the accumulated depreciation is

adjusted to equal the difference between the gross carrying amount and the

carrying amount after taking into account accum

ulated impairm

ent losses,•

The accumulated depreciation is elim

inated against the gross carrying am

ount of the asset.

Annual periods beginning on or after 1 July 2014.

Acceptable method of depreciation and am

ortisationIAS 16 was am

ended to clarify that depreciation of an item of property, plant

and equipment based on revenue generated by using the asset is not

appropriate.The am

endment to IAS 38 establishes a rebuttable presum

ption that am

ortisation of an intangible asset based on revenue generated by using the asset is inappropriate. The presum

ption may only be rebutted in certain

limited circum

stances, namely;

• W

here the intangible asset is expressed as a measure of revenue, and

• W

here it can be demonstrated that revenue and the consum

ption of the econom

ic benefits of the intangible asset are highly correlated.The am

endments will be applied retrospectively and will not have a m

aterial im

pact on the Group’s financial statements.



ents 2015

AN

NEX

UR

E Ffor the year ended 31 M

arch 2015A

NN

EXU

RE G



Detail

Effective date

IAS 19(Am

endment)

Employee benefits

Contributions from em

ployees or third partiesIAS 19 was am

ended to clarify the accounting for contributions made to a

defined benefit plan by employees or third parties. The am

endment perm

its contributions that are independent of the num

bers of years of service to be recognised as a reduction in the service cost in the period in which the related service is rendered instead of allocating the contributions to periods of service using the projected unit credit m

ethod.


Discount rates for post-employm

ent benefit obligationsThe am

endment clarifies that when determ

ining discount rates for post-em

ployment benefit plans em

phasis is placed on the currency that the liabilities are denom

inated in and not the country where they arise.The am

endments will be applied retrospectively and will not have a m

aterial im



IAS 24 (Amendm

ent)Related party disclosuresThe definition of a ‘related party’ has been am

ended to include a managem

ent entity that provides key m

anagement personnel services to the reporting

entity, or to the parent of the reporting entity either directly or through a Group entity.The reporting entity is not required to disclose the com

pensation paid by the m

anagement entity to the m

anagement entity’s em

ployees or directors, but is required to disclose the am

ounts charged to the reporting entity by the m

anagement entity for services provided.

The revised standard will be applied retrospectively and will not have a m


ents.


IAS 27 (Amendm

ent)Separate financial statem

entsEquity M

ethod in Separate Financial Statements

The amendm

ent allows entities to account for investments in subsidiaries,

joint ventures and associates in their separate financial statements:

• at cost, or

• in accordance with IFRS 9, or

• using the equity m

ethod as described in IAS 28.The am

endment also clarified the definition of separate financial statem

ents.The revised standard will be applied retrospectively and will not have a m


ents.

Annual Periods beginning on or after 1 January 2016.

IAS 40 (Amendm

ent)Investm

ent propertyRecognition of Investm

ent Property upon acquisitionThe am

endment clarifies that judgm

ent is required to determine whether the

acquisition of investment property is the acquisition of an asset, a group of

assets or a business combination in the scope of IFRS 3, and that this

judgment is based on the guidance in IFRS 3 Business Com

binations.The revised standard will be applied retrospectively and will not have a m


ents.



Detail

Effective date

IFRS 3 (Amendm

ent)Business com

binationsM

easurement of contingent consideration

The amendm

ent requires that contingent consideration which is classified as an asset or a liability is to be m

easured at fair value at each reporting date.

Accounting for joint arrangements

The amendm

ent clarifies that IFRS 3 does not apply to the accounting for the form

ation of joint arrangements. It also clarifies that the scope exem

ption only applies to the separate financials of the joint arrangem

ent.The revised standard will be applied prospectively and will not have a m

aterial im


Annual Periods beginning on or after 1 July 2014.

IFRS 5 (Amendm

ent)Non-current assets held-for-saleChange to a plan of sale or distributionThe am

endment clarifies that, when an asset is reclassified from

‘held for sale’ to ‘held for distribution’ or vice versa this does not result in a change to a plan of sale and therefore shouldn’t be accounted for as such. The am

endment also

further expands on guidance paragraphs that a change to a plan of sale should be applied to an asset that ceases to be held for sale but is not reclassified as held for distribution.The revised standard will be applied prospectively and will not have a m

aterial im



IFRS 7 (Amendm

ent)Financial instrum

ents: disclosureServicing contractsThe am

endment requires that all types of continuing involvem

ent in transferred assets to be disclosed. It further provides guidance on what “continuing involvem

ent” means.

Interim financial statem

entsThe am

endment states that “disclosure-offsetting financial assets and

financial liabilities” is not required for all interim periods except where

required by IAS 34.The revised standard will be applied retrospectively and will not have a m


ents.


IFRS 8 (Amendm

ent)Operating segm

entsAggregation criteria for operating segm

ents disclosureThis am

endment requires entities to disclose the judgm

ents made by

managem

ent in applying the aggregation criteria. The disclosures include:•

a brief description of the segments which have been aggregated,

• the econom

ic indicators which have been assessed in determining that the

aggregated segments share sim

ilar economic characteristics, and

• reconciliation of segm

ent assets to the entity’s assets when segment assets

are reported.The revised standard will be applied prospectively and will not have a m

aterial im




ents 2015

AN

NEX

UR

E Gfor the year ended 31 M

arch 2015


Detail

Effective date

IFRS 9 (New)Financial instrum

entsIFRS 9 requires all recognised financial assets to be m

easured either at am

ortised cost or fair value, depending on the business model under which

they are held and the cash flow characteristics of the instrument. Debt

instruments held with the principal objective to collect contractual cash flows

(principal and interest) are generally measured at am

ortised cost, while all other debt instrum

ents and all equity instruments are m

easured at fair value.Derivatives em

bedded in host contracts that are financial assets are no longer required to be bifurcated if they are not closely related to the host contract. Instead, the entire contract is assessed for m

easurement either at am

ortised cost or at fair value depending on the business m

odel and cash flow characteristics as stated above. Derivatives em

bedded in contracts that are not financial assets, including financial liabilities still need to be assessed to determ

ine whether they should be accounted for separately.The new standard rem

oves the cost exemption for unquoted equity

instruments and contains additional disclosure requirem

ents for financial liabilities, as well as derecognition of financial instrum

ents.


Hedge Accounting New hedge accounting requirem

ents have been included in IFRS 9 aimed at

better aligning the accounting with how entities undertake risk managem

ent activities when hedging financial and non-financial risk exposures.The standard will be applied retrospectively, subject to the standard’s transitional provisions. The im

pact on the Group’s financial statements has not

yet been estimated.

Impairm

entThe new im

pairment provisions in IFRS 9 replace the incurred loss m

odel in IAS 39 with an expected loss m

odel. It will no longer be necessary for a credit event to have occurred before credit losses are recognised.The new im

pairment m

odel aims to provide users of financial statem

ents with m

ore useful information about an entity’s expected credit losses on financial

instruments by requiring entities to recognise expected credit losses at all

times, including at inception, and to update the am

ount of expected credit losses recognised at each reporting date to reflect changes in the credit risk of the financial instrum

ents.The new standard will be applied retrospectively and could have a m

aterial im

pact on the Group’s financial statements. The Group has not yet quantified

the potential impact of the new standard on the Group.


Detail

Effective date

IFRS 10 and IAS 28 (Am

endment)

Consolidated financial statements and investm

ents in associatesApplying the consolidation exceptionThe am

endments clarify the application of the consolidation exception for

investment entities and their subsidiaries by clarifying that the exception from

preparing consolidated financial statem

ents is available to intermediate

parent entities which are subsidiaries of investment entities.

Subsidiaries which act as an extension of an investment entity

The amendm

ents clarify that an investment entity should consolidate a

subsidiary which is not an investment entity and whose m

ain purpose and activity is to provide services in support of the investm

ent entity’s investment

activities.

Equity accounting for investments in associates and joint ventures

The amendm

ent allows entities which are not investment entities, but have an

interest in an associate or joint venture which are investment entities, a policy

choice when applying the equity method of accounting. The entities m

ay choose to retain the fair value m

easurement applied by the investm

ent entities associates or joint ventures, or to unwind the fair value m

easurement

and instead perform a consolidation at the level of the investm

ent entities associates or joint ventures.Sale or contribution of assets between an investor and its associate or joint ventureThe am

endments resolve a current inconsistency between IFRS 10 and IAS 28

where currently the accounting treatment depends on whether the non-

monetary assets sold or contributed to an associate or joint venture

constitute a ‘business’.The revised standard will be applied prospectively and will not have a m

aterial im


Annual Periods beginning on or after 1 January 2016.

IFRS 11 (Am

endments)

Joint arrangements

Accounting for acquisitions of interest in joint operationsThe am

endments require an investor to apply the principles of business

combination accounting when it acquires an initial or additional interest in a

joint operation that constitutes a ‘business’.The revised standard will be applied retrospectively and will not have a m


ents.


IFRS 13 (Am

endment)

Fair value measurem

entM

easurement of short-term

receivables and payablesThe am

endment allows entities to continue to m

easure their short-term

receivables and payables without a stated interest rate and without discounting, provided that the effect of not discounting is im

material.

The scope of the IFRS 13 portfolio exception states that entities are permitted

to measure the fair value of a group of financial assets and financial liabilities

with offsetting risk positions on a net basis if certain conditions are met.

Furthermore IFRS 13 was am

ended to clarify that the portfolio exception which allows an entity to m

easure the fair value of a group of financial assets and financial liabilities on a net basis, applies to all contracts (including non-financial contracts) within the scope of IAS 39 or IFRS 9.The revised standard will be applied prospectively and will not have a m

aterial im




ents 2015

AN

NEX

UR


arch 2015


Detail

Effective date

IFRS 15 (New)Revenue from

contracts with customers

The new IFRS will replace IAS 18 Revenue and related interpretations. The main

principle of the new standard is that an entity recognises revenue to reflect the transfer of goods and services to custom

ers and the amount expected from

that transfer. This is achieved through a five step process as follows:1. Identifying the contract(s) with a custom

er,2. Identifying the perform

ance obligation(s) in the contract,3. Determ

ining the transaction price,4. Allocating the transaction price to perform

ance obligation(s) in the contract(s), and

5. Recognising revenue when (or as) the entity satisfies the performance

obligation(s).The revised standard will be applied retrospectively and could have a m

aterial im

pact on the Group’s financial statements. Early adoption is perm

itted. The Group has not yet quantified the potential im

pact of the new standard on the Group.


The financial reporting standards, amendm

ents or interpretations listed below are currently not applicable to the Group and will have no im

pact on the Group’s financial statements:


TitleEffective date

IFRS 2 (Am

endment)

Share based payment

Definition of ‘vesting condition’The standard has been am

ended to clarify the definition of ‘vesting condition’ by separately defining ‘perform

ance condition’ and ‘service condition’.


IFRS 14 (New)Regulatory deferral accountsReporting requirem

ents for regulatory deferral account balancesThis standard specifies the financial reporting requirem

ents for ‘regulatory deferral account balances’ that arise when an entity provides goods or services to custom

ers at a price or rate that is subject to rate regulation.IFRS 14 is an interim

solution for rate-regulated entities that have not yet adopted IFRS.


$/RUSD/ZAR

AFD

Agence Française de Developpement – French

Development Bank

AfD

BAfrican Developm

ent Bank

B-B

BEE

Broad-based Black Economic Em

powerment

HIV

/Aids

Acquired imm

une deficiency syndrome

AU

SAustralian Dollar

bpbasis point

CG

Tcapital gains taxation

CSD

Pcom

petitive supplier development program

me

DC

TDurban Container Term

inal

DEA

Department of Environm

ental Affairs

DIFR

disabling injury frequency rate

DM

TNDom

estic Medium

-Term Note

DOT

Department of Transport

DP

EDepartm

ent of Public Enterprises

EBITD

A earnings before interest, taxation, depreciation and am

ortisation

ECAExport Credit Agency

EIMS

Enterprise Information M

anagement Services

FMP

PI

Framework for M

anaging Programm

e Perform

ance Information

FMC

GFast m

oving consumer goods

GB

PPound Sterling

GC

Hgross crane m

oves per hour

GD

Pgross dom

estic product

GM

TNGlobal M

edium-Term

Note

GR

CGovernance, Risk and Com

pliance

IAS

International Accounting Standards

IASB

International Accounting Standards Board

ICM

Act

Integrated Coastal Managem

ent Act, No 24 of 2008

IFRIC

International Financial Reporting Interpretations Com

mittee

IFRS

International Financial Reporting Standards

JBIC

Japan Bank for International Cooperation

JPY

Japanese Yen

King III

King III Report on Governance for South Africa – 2009

KP

Ikey perform

ance indicator

LTIlong-term

incentive scheme

MD

SM

arket Demand Strategy

mℓ/km

million litres per kilom

etre

mt

million tons

Nersa

National Energy Regulator of South Africa

NP

AT

net profit after taxation

OEM

original equipment m

anufacturer

Ports Act

National Ports Act, No 12 of 2005

PP

PFA

Preferential Procurement Policy Fram

ework Act

Prasa

Passenger Rail Agency of South Africa

PSP

Private Sector Participation

ROTA

return on total average assets

SDSupplier Developm

ent

SOC

State-owned Company

SMM

EsSm

all, Medium

and Micro Enterprises

STAT

ship turnaround time

STIshort-term

incentive scheme

STSship-to-shore

TEUtwenty-foot equivalent unit

TMP

Stotal m

easured procurement spend

TSDB

FTransnet Second Defined Benefit Fund

TTPF

Transport Pension Fund: Transnet Sub-Fund

TVC

CTransnet value chain co-ordinator

USA

United States of America

USD

US Dollar

WA

CC

weighted average cost of capital

WA

CD

weighted average cost of debt

ZAR

South African Rand


ents 2015

AN

NEX

UR


arch 2015A

BB

REV

IATIO

NS A

ND

ACR

ON

YM

S

Asset turnover (tim

es)

Revenue divided by total assets (total assets excluding capital work-in-progress).

Total average assets

Total assets, where ‘average’ is equal to the total assets at the beginning of the reporting year plus total assets at the end of the reporting year, divided by two.

Cash interest cover (tim

es)

Cash generated from operations after working capital

changes, divided by net finance costs (net finance costs includes finance costs, finance incom

e and capitalised borrowing costs from

the cash flow statement).

EBITD

A

Profit/(loss) from operations before depreciation,

amortisation, im

pairment of assets, dividend

received, post-retirement benefit obligation (costs)/

income, fair value adjustm

ents, income/(loss) from

associates and net finance costs.

EBITD

A m

argin

EBITDA expressed as a percentage of revenue.

Equity

Issued capital and reserves.

Debt (for gearing calculation)

Long-term borrowings, short-term

borrowings, em

ployee benefits, derivative financial liabilities plus overdraft less other short-term

investments, less

derivative financial assets and less cash and cash equivalents.

Gearing

Debt expressed as a percentage of the sum of debt

and Shareholder’s equity.

Headline earnings

As defined in Circular 2/2013, issued by the South African Institute of Chartered Accountants, separates from

earnings all items of a capital nature. It is not

necessarily a measure of sustainable earnings.

Operating profit

Profit/(loss) from operations after depreciation

and amortisation but before im

pairment of assets,

dividends received, post-retirement benefit

obligation (costs)/income, fair value adjustm

ents, incom

e/(loss) from associates and net finance costs.

Operating profit m

argin

Operating profit expressed as a percentage of revenue.

Return on total average assets

Operating profit expressed as a percentage of total average assets (total average assets exclude capital work-in-progress).

Total assets

Non-current and current assets.

Total debt

Non-current and current liabilities.

Transnet SOC

Ltd47th Floor, Carlton Centre150 Com

missioner Street

Johannesburg2001

Incorporated in the Republic of South Africa.Registration num

ber 1990/000900/30.

Executive directorsB M

olefe (Group Chief Executive). A Singh (Group Chief Financial Officer).

Independent non-executive directorsLC M

abaso* (Chairperson), Y Forbes, GJ Mahlalela*, PEB M

athekga*, N Moola,

ZA Nagdee*, VM Nkonyane*, M

R Seleke*, SD Shane*, BG Stagman*, PG W

illiams*

* Appointments effective 11 Decem

ber 2014.

Group C

ompany Secretary

Ms ANC Ceba

47th Floor, Carlton Centre, 150 Com

missioner Street, Johannesburg, 2001.

PO Box 72501, Parkview, 2122, South Africa.

Auditors

SizweNtsalubaGobodo Inc., 20 Morris Street East, W

oodmead, Johannesburg, 2191.

The internal audit function has been outsourced to SekelaXabiso (Pty) Ltd, Nkonki Inc and KPM

G Services (Pty) Ltd.

SekelaXabiso (Pty) Ltd1st Floor Building 22BThe W

oodlands Office Park20 W

oodlands DriveW

oodmead

Johannesburg

Nkonki Inc 3 Sim

ba RoadSunninghillJohannesburg

KPMG Services (Pty) Ltd

85 Empire Road

ParktownJohannesburg

COR

POR

ATE IN

FOR

MA

TION


ents 2015

GLO

SSAR

Y O

F TERM

S

160 | Transnet Annual Financial Statements 2015

NO

TES

olume 2 tements 2015 · olume 3 t ansnet.net ated report 2015, annual financial statements 2015 and...

Documents