Annual Report 2006 Presentation to Portfolio Committee on

Annual Report 2006 Presentation to Portfolio Committee on Public Enterprises October 10 2006

Contents of presentation • • Strategy confirmation and structure Strategy implementation Financial results 2005/2006 Discontinued operations Pension fund update Post-balance sheet events Conclusion and questions 2

3 Strategy confirmation and structure

Strategy confirmation and structure Strategy Focused freight transport company Structure 4 TRANSNET COMPANY Delivering effective and competitive services Non-core portfolio Operational divisions (continued businesses) RAIL Spoornet Transwerk PORTS National Port Authority SA Port operations Discontinued businesses PIPELINE Petronet • • SAA Viamax V & A (26%) Autopax Metrorail freight dynamics Equity Aviation VAE Perway Other to be sold • Propnet – non-core portfolio • Housing assets • SA Express • “C” class preference share Enabling economic growth

Strategy: Four-point turnaround plan 5 Lower cost of doing business Corporate governance and risk management • Shareholders compact • Memo and articles of association • IFRS • Legal review • EWRMF Redirect & re-engineer the business • Re-engineer core business • Corporate HO restructure • Operational synergies • Customer focus • Infrastructure 4 -Point development turnaround plan Human capital development • Skills audit and matching • Recruitment and retention • Skills and training • Performance management • Career management • Succession Balance sheet restructuring • Pension fund deficit • Transfer SAA to government • Disposal of non-core businesses planning Economic development Targeted sectors

Strategy implementation: Progress made 6 Human capital development Corporate governance and risk management Balance sheet restructuring Redirect and re-engineer the business Progress summary – Major re-engineering program – “Vulindlela” underway – Commenced with roll out of R 64, 5 billion investment plan – Disposal of non-core assets – Established governance structures and risk programmes implemented – Comprehensive HR strategy

Strategy implementation (continued) 7 • Restructuring the balance sheet • Exit of non-core assets – PFMA approval obtained for the disposal of non-core assets – Businesses sold Business Buyer Effective date Sale price SAA Government (DPE) 31 March 2006 subject to fulfillment of suspensive conditions R 2 billion (no cash flow) SARCC (Dept of Transport) 1 May 2006: Effective date 20 December 2005: Risk and reward Metrorail Transtel: Full service network (Metro fibre and electronic assets) V&A Waterfront SNO (Neotel) L&R Consortium 3 May 2006 18 September 2006 Sale process started • Viamax, freightdynamics, TPFA, Equity Aviation, VAE Perway, Non-core Property Future Plan • Sale of Housing Assets, SA Express, Autopax, “C” class preference share R 1, 00 (cash) R 256 million (equity) R 7. 04 billion (cash)

SAA (suspensive conditions) • PFMA approval • International air services council approval • Air services licensing council approval • Third party contractor approval • Listing of SAA as schedule 2 public entity in terms of the PFMA • Passing of special resolution by Transnet – Amendment of Articles of Association – Share buy back 8

V&A Waterfront sale • • Sold to L&R Consortium for R 7. 04 billion (cash) Black & Cape-based investors hold 23. 1% 2% set aside for V&A black staff Winner selected from 9 short-listed bidders Selection based on: - Price 85 points - BEE 10 points - Employee retention 5 points 9

V&A sale (what it means) • L&R committed to: further development; more investment & jobs in the Waterfront • L&R pledged to guarantee existing jobs for at least two years • Process regarded as “fair and reasonable” by KPMG, independent process advisers • Process outcome welcomed by unsuccessful bidders as being good for SA • Sale subject to Reserve Bank and Competition authority approval 10

Viamax, freightdynamics & TPFA • Following businesses are on the market – RFPs are underway – Viamax - to be completed end-October 2006 – freightdynamics - list of recommended bidders approved – TPFA – data rooms are being created 11

Strategy implementation (HR) • The successful implementation of Transnet’s turnaround strategy lies fundamentally in creating a work environment where our people can excel • Human capital strategy • • • 12 Completed redesign and staffing of corporate centre Introduced a talent management programme Begun capacity building exercise for operational requirements and skills demand study for medium term Introduced a new reward and performance management system and the roll out has begun Introduced a leadership development programme Redefined partnership with labour for the transformation of Transnet

Strategy implementation (HR) • Transnet supports all transformation instruments of Government • Transformation is a business imperative • We are committed to implementing the initiatives of EE & BBBEE Acts • Transnet submitted their EE Reports to the Department of Labour for the 2005 Reporting Period as required • Do. L acknowledged receipt of the 2005 reports, and provided feedback to the business units by indicating their overall scorecard rating as well as progress made to date on EE targets • Transnet has copies of the reports submitted, and the acknowledgment of receipts 13

Strategy implementation (EE) • Transnet complied with the EE Act and its regulations when it submitted its reports • (in the 2005 reporting year there was no requirement for a consolidated EE report for the group – this has only been introduced for the 2006 reporting year) • Transnet has made significant progress in achieving equitable representation across its divisions • EE is a strategic initiative driven by the Transnet EXCO and is intimately aligned with the organisational transformation process 14

HR (EE) 15 EEA 2 Reports as @ Jun 06 Male Female Total African Coloured Indian White Total Top & Sen Management (101 -106) 104 26 46 124 54 4 14 32 404 Professionals (108 -109) 147 42 70 310 91 25 22 38 745 Skilled Technical (610) 626 208 182 1507 337 89 56 131 3136 Semi Skilled 15778 7356 992 6342 3444 620 236 1230 35998 Unskilled 6518 645 30 116 307 70 13 134 7833 48116 Transnet

What does Transnet look like? 16 Current EE representation – June 06 Profile of Transnet Employees June 2006 (n=48116) White 20. 71% Indian 3. 45% Coloured 18. 88% African 56. 96% 0. 22% of Employees at Transnet are living with a disability 22. 5% of females are White Female 14. 44% Male 85. 56% Note: Data is for Transnet’s Core Business Units, NPA, Spoornet, Petronet, Protekon, Transwerk, Corporate Centre, Transnet Foundation, Esselenpark and ranstel SS rans Note: Data is for Transnet’s Core Business Units, NPA, Spoornet, Petronet, Protekon, Transwerk, Corporate Centre, Transnet Foundation, Esselenpark and T T

How do our Core BU’s look like? 17 Transnet Representation for Black and Female Employees 61. 39% 38. 61% of Top & Senior Mngt (101 -106) 53. 29% 46. 71% of Professionals (108 -109) 52. 23% pl 96. 81% Fe m al e E m of Unskilled employees Black Employees at Transnet ee s 3. 19% at T 21. 03% oy 78. 97% of Semi skilled employees ra ns ne t 47. 77 % of Skilled Technical Employees (610) Note: Data is for Transnet’s Core Business Units: NPA, Spoornet, Petronet, Sapo, Protekon, Transwerk, Corporate Centre, Transnet Foundation, Esselenpark Note: Black is the collective term for African, Coloured and Indian employees Note: Data is for Transnet’s Core Business Units, NPA, Spoornet, Petronet, Protekon, Transwerk, Corporate Centre, Transnet Foundation, Esselenpark and rans T Note: Black is the collective term for African, Coloured and Indian employees

Transnet Preferential Procurement 18 DIVISION PROCUREMENT AVAILABLE TOTAL SMME TOTAL TOT AL SPEND "DISCRETIONAR Y" PROCURED WBE % DPBE % (all races) % BEE SPEND VALUE WBE VALUE DPBE VALUE SMME VALUE % 1 SPOORNE T R 1, 533, 280, 000. 00 4, 095, 640, 000. 0 0 54, 220. 00 0% 13, 390. 00 0% 728, 370. 00 0% R 805, 000. 00 53% 2 NPA R 2, 455, 200, 000. 00 2, 755, 000 2, 455, 200, 000. 0 0 N/A **unava ilable **unavailab le **unava ilable R 1, 178, 496, 000. 0 0 48% 3 SAPO 1, 086, 001 0% **unavailab le **unava ilable R 309, 294, 675. 00 51% 4 PETRONE T R 153, 168, 854. 29 1, 077, 406, 157. 0 0 **unavailable **unavailab le **unava ilable R 51, 905, 942. 83 34% 5 TRANSWE RK R 2, 316, 000. 00 N/A 2, 316, 000. 0 0 59, 000 N/A 415, 000 **unavailab le **unava ilable R 714, 000. 00 31% 6 PROTEKO N R 590, 814, 000. 00 R 590, 814, 000. 0 976, 243, 000. 00 R 184, 350, 000. 00 31% R 83, 741, 264. 0 3. 00% R 1, 514, 391. 0 0. 05% 48. 00% R 3, 243, 046, 617. 83 42% TOTALS 61 1, 224, 004 R 7, 659, 686, 858. 3 611, 2 24, 004 901, 993, 000. 00 5 643 486 858. 29 11, 822, 482, 157. 0 24, 687, 044 8. 00% R 728, 370. 0 (1, 3, 5, only) (1, 3, 6 only) (1 only) (All) 83741264 / 2760474872. 8= 3% 1514391/2760474872. 8 = 0. 05% Based on 1 only = 48%, otherwise 3243046617. 83/ 7659686858. 3=42% Not all Units were able to report on WBE, DPBE and SMME due to different Financial Systems being used. Efforts will be made to enable split reporting in future “Discretionary Spend" fluctuates due to budgetary considerations / available spend and types of "BEE-able" commodities / services procured, etc.

Strategy implementation • Corporate governance and risk management • Shareholder compact completed and approved by Board awaiting approval from Shareholder • Revised articles of association approved by Board awaiting Shareholder approval • Litigation and material contracts due diligence completed • Enterprise Wide Risk Management Framework completed – Key risks identified and monitored for each operating division – Internal audit (outsourced) now fully functional focusing on • Control environment /compliance reviews • Transaction audit (a comprehensive payroll audit completed) • Assessment of major projects and special investigations – Developed and completed a fraud prevention plan, core values, ethics statements and contracts for all employees 19

Capex spending five-year plan 20 Planned spending over next five years (core businesses): R 64, 5 billion Petronet R 4, 9 billion • Multi-product pipeline DJP (R 4, 2 billion) • Gas line upgrading (R 0, 4 billion Transwerk R 2, 6 billion • Equipment Sapo R 6, 3 billion Mainly capacity increases • Durban (R 1, 5 billion) • Richards Bay (R 1, 0 billion) • Ngqura (R 1, 2 million) • Cape Town (R 0, 9 billion) • Saldanha (R 0, 6 billion) NPA R 18, 6 billion Upgrade and expansion • Durban (R 8, 7 billion) • Cape Town (R 3, 9 billion) • Ngqura (R 2, 5 billion) • Richards Bay (R 1, 4 billion) Spoornet R 31, 5 billion • Coal line (R 8 billion) • Ore line (R 2, 7 billion) • General freight (R 10, 8 billion) • Maintenance capitalisation (R 8, 1 billion)

Transnet core businesses five years gross capital investment budget Financial years 21

Salient features: 2006 22 2006 R million % change 26 346 +7 8 478 +57 32, 2 +51 Capital and reserves 27 706 +31 Cash generated from operations 11 233 28 47, 1 -24 Results 2006: Continuing operations Turnover Operating profit Operating margin % (before impairments) Gearing % ACHIEVING PERFORMANCE OBJECTIVES

23 Financial Results 2006

Financial results 2006 Consolidated income statement for the year ended 31 March 2006 Turnover Notional revenue on embedded derivatives Net operating expenses excluding impairments Profit from operations before net finance costs and impairments 24 % change 2006 R million 2005 R million 7 26 346 24 706 (10) 14 (17 882) 554 (19 846) 57 8 478 5 414 318 4 023 8 796 (2 395) (1 978) 33 4 456 9 437 (2 107) (1 582) 62 5 810 115 754 4 571 32, 2 6 564 21, 4 Impairment of assets and fair value adjustments Profit from operations before net finance costs Net finance cost Taxation Income from associates Profit for the year from continuing operations Profit from discontinued operations Net profit for the year Operating margin % 14 25

Transnet operating profit margin 25 (after impairment before fair value adjustment) HIGHEST MARGIN IN LAST SEVEN YEARS Transnet Group (Including discontinued operations) Average previous 6 years = 5, 8%

Performance measures against budget Total Transnet Spoornet 26 NPA SAPO Petronet Operating margin – Actual (%) 28. 5 11. 8 68. 7 25. 4 56. 4 Operating margin – Budget (%) 26. 1 9. 7 65. 7 28. 1 53. 5 Tariff - Actual 3. 4 3. 8 1. 7 4. 2 3. 1 Volume - Actual 3. 0 0. 7 9. 3 5. 1 0. 7 Total Actual Revenue Growth* 6. 5 4. 5 11. 0 9. 3 3. 8 Tariff - Budget 2. 6 1. 8 1. 7 5. 7 4. 5 Volume - Budget 5. 5 4. 7 9. 0 5. 3 3. 2 Total Budget Revenue Growth * 8. 2 6. 6 10. 9 11. 3 7. 8 100. 7 147. 2** 45. 3 86. 7 65. 1 Revenue Growth* Infrastructure investment % of capital expenditure spent (%) Gearing* Gearing – Actual (%) 47 Gearing – Budget (%) 59 Cash flow return on investment* Actual (%) 5. 8 Revised budget (%) 4. 1 * Continuing operations **Includes an amount of R 681 m relating to capitalised maintenance

Spoornet performance 2006 versus 2005 • Financial • Turnover increased by 4% to R 14, 4 billion • Capex spending R 3 809 million in 2005/2006 and R 31, 5 billion over the next five years 27 Operating profit * 121% • Operational • Total volumes transported increased by 0, 5% to 182 mt • Iron-ore line volumes achieved: 29, 6 mt (increase of 5% over 2004/2005) • Coal line volumes transported was 68, 7 mt (increase of 2, 7% over 2004/2005) • General freight volumes decreased by 2, 7% to 83, 8 mt over the year *Includes a net amount of R 681 m for capitalisation of maintenance under IFRS

NPA performance 2006 versus 2005 28 • Financial • Turnover increased by 11% to R 5, 5 billion • Capex spending R 783 million in 2005/2006 and R 18, 6 billion over the next five years • Operational • Bulk volumes increase 6% due to increased demand for coal, iron-ore (China) and other commodities • Full container imports grew 9% while exports did not reflect growth due to currency strength, competition and quality issues • All ports were accredited as being ISPS code compliant 19%

SAPO performance 2006 versus 2005 29 • Financial • Turnover increased by 9% to R 3, 6 billion • Capex spending R 776 million in 2005/2006 and R 6, 3 billion over the next five years • Operational • Container volumes increased by 7% and is expected to further increase by 8% in 2005/2006 • Breakbulk volumes dropped 5% due to competition and the trend towards containerisation • Volumes in automotive sector reflected strong growth due to the rand’s stability and local manufactures securing export contracts • A record 28, 8 mt was exported through the Saldanha iron-ore terminal 4%

Petronet performance 2006 versus 2005 30 • Financial • Turnover increased by 4% to R 1, 1 billion • Capex spending R 224 million in 2005/2006 and R 4, 9 billion over the next five years • Operational • Petronet successfully complied with the “clean fuels” requirements in January 2006 • ‘De-bottlenecking’ project became operational in October 2005 resulting in an 18% improvement on the constraints • Existing refined products pipeline (DJP) is running at close to capacity while crude line feeding Natref is operating at 75% 31%

Transwerk performance 2006 versus 2005 31 • Financial • Turnover increased by 28% to R 3, 8 billion • Capex spending R 189 million in 2005/2006 and R 2, 6 billion over the next five years • Operational • Output achieved during the year which entails refurbishing, upgrading, building and modifying – – – 7 213 wagons 316 locomotives 550 coaches 2 113 traction motors 62 830 wheel pairs 46%

SAA: Financial performance 2006 versus previous two-years: three-year view Turnover 12, 6% Operating profit 32

Financial results 2006 33 Consolidated balance sheet 2006 2005 R million Non-current assets 49 131 59 442 PPE and other 47 112 56 725 2 019 2 717 28 202 17 609 Inventories, receivable assets and cash 7 588 13 700 Derivative financial assets 3 874 3 909 Assets classified as held for sale 16 740 – TOTAL ASSETS 77 333 77 051 at 31 March ASSETS Long-term loans and advances Current assets

Financial results 2006 (continued) Consolidated balance sheet (continued) 34 2006 R million 2005 R million Capital and reserves 27 706 21 106 Non-current liabilities 22 996 30 717 Borrowings and provisions 17 724 23 421 4 348 7 238 924 58 Non-current liabilities 26 631 25 228 Payables and other 13 699 25 288 Liabilities classified as held for sale 12 932 – TOTAL EQUITY AND LIABILITIES 77 333 77 051 47 62 11, 0 7, 0 at 31 March EQUITY AND LIABILITIES Post-retirement benefit obligations Deferred taxation RATIO’S Gearing (%) Return on total assets (%)

IFRS: Impact on 2004/2005 35 Financial statement prepared under IFRS with effect from 1 April 2004 for the year ended 31 March 2005 R million BALANCE SHEET PPE deemed cost (land buildings) Other 4 183 (65) INCOME STATEMENT Mainly depreciation (98)

Retirement benefit obligations Consolidated balance sheet Retirement fund obligations 36 Unfunded liabilities 2006 R billion 2005 R billion Transnet Pension Fund (fully funded) Transnet Second Defined Benefit Fund (a) 1, 6 4, 3 SATS pensioners 1, 6 Transnet employees 0, 8 Other 0, 3 0, 5 Total 4, 3 7, 2 Post-retirement Medical Benefits (b) (a) Restructuring and funding plan in progress (b) Funding monthly including Transnet subsidy

Financial results 2006 (continued) 37 Abridged consolidated cash flow statement for the year ended 31 March 2006 Cash generated from operations Deviation % (note 1) 11 Cash flows from investing activities Capex - expand Capex - maintain Aviation adjustments (74) Cash flow from financing activities Decrease in bank and cash 2006 R million 2005 R million 11 233 10 089 (1 745) (4 856) (6 601) – (6 601) (3 678) (1 963) (5 641) (1 849) (3 792) (4 001) (615) 2 437 (2 018) Note 1: Effective 28% increase after adjustment for the decrease in SAA operational cash flow of R 1, 7 billion

Funding requirements: Next five years 38 Projections: Adjusted Budget 2006/07 R billion 2007/08 R billion 2008/09 R billion 2009/10 R billion 2010/11 R billion (11. 5) (15. 3) (14. 7) (12. 0) (11. 1) 7. 8 0. 9 8. 8 (0. 8) 12. 3 0. 1 15. 7 0. 1 18. 2 0. 1 Cash (shortfall/surplus) (2. 9) (7. 3) (2. 3) 3. 8 7. 2 Loan redemptions (0. 9) (1. 1) *(8. 6) (0. 9) (4. 7) Gross funding requirement (3. 8) (8. 4) (10. 9) 2. 9 2. 5 Cash flow Gross capex spend Cash available from operations Other investment *Includes : Promissory Note R 2 bn and T 004 R 5. 5 bn Excluding non-core

Post-balance sheet events • • SAA – sale agreement signed Metrorail sale agreement signed Sale process launched for Viamax, TPFA and freightdynamics Second network operator (Neotel) – Telecommunications assets to be sold • SAX – overall PFMA approval (conditions being discussed) 39

Summary • Sound financial performance for the year • R 64, 5 billion investment program underway • Vulindlela project underway that will deliver significant improvement in efficiencies, profitability, productivity, cost reductions and customer service • Disposal of non-core entities has begun and will be complete by December 2006 40

Conclusion • Progress to date is pleasing but still significant challenges ahead • The sustainability of the turnaround achieved to date and future improvements can only be achieved through relentlessly driving the implementation of the strategies • Our optimism for the future is based on the commitment of management and staff to focus on priorities and work as a team to deliver WE THEREFORE MOVE INTO THE FUTURE WITH CONFIDENCE 41

Thank you