Transcript port and rail - Amazon Web Services

An introduction to
Transnet
13 October 2004
Agenda
• Strategy
• Overview of key businesses
–Spoornet
–SAPO
–NPA
–Petronet
–SAA
Strategy
Delivering on our commitments
“The public sector discharges its responsibilities to our
people as a critical player in the process of the growth,
reconstruction and development of our country by
reducing the cost of doing business in our country.”
President Mbeki : State of the Nation Address
21 May 2004
Why Port and Rail
Total throughput for 2003 in the South African economy that required logistics
intervention = 745mt (1998 = 590mt)
2003
Manufacturing =
20% of GDP @
constant 1995
prices
2003
Mining = 6% of GDP @
constant 1995 prices
Manufacturing
45%
330mt
Mining
49%
370mt
Key Sector
Sub-Groups
Agriculture
Grain, Vegetables, Fruit, etc
Mining
Coal, Ferrous Metal,
Nonferrous Metal, Nonmetallic Minerals, Crude
Petroleum
45mt
Agriculture
6%
2003
Agriculture = 4%
of GDP @
constant 1995
prices
Manufacturing
•Heavy
•Light
Chemicals, Fuel & Petroleum
Products, Fertilizer, Iron,
Steel & Metal, Machinery &
Equipment, Motor Vehicles,
Parts & Accessories, Scrap
FMCG; Beverages, Textiles &
Clothing, Wood & -Products,
Furniture, Paper & -Products,
Rubber, Plastic, Ceramics &
Glass,
The 745mt results in a total transport cost of R135bn to the South African economy.
The biggest portion of this cost is attributable to long haul road transport.
Air
9%
Pipeline &
Water
0%
R0.3bn
R11bn
Rail
9%
R11bn
Road - Rural
20%
Road Corridor
38%
R25bn
R50bn
Road - Metro
24%
R30bn
The challenge:
Rail corridor = R135/ton
Road corridor = R360/ton
The R135bn transport cost has an associated logistics cost of R45bn, amounting to a
total logistics cost of R178bn (14.7% of GDP).
Inventory
opportunity
cost
1%
Storage
8%
Mngt &
admin
16%
Transport
75%
Understanding the Road / Rail trend over the past decade
The last decade has seen growth in road traffic, while rail traffic (excl. the export lines)
has declined
Data depicted on an index basis
160
150
140
120
110
100
90
80
70
Total GDP
Road ton
Rail ton excl export coal & ore
Transportable GDP
Rail ton
2003
1997
1993
60
1991
Index 1991=100
130
The structure of the surface freight transport market (2003 million tons):
The “normal” macro economic model is to transport corridor freight on rail and rural freight
on road. Structural myopia caused an unhealthy situation in South Africa.
Tonnage
1105mt (270)
Road
920mt (200)
Metropolitan
570mt (70)
52%
Rural
210mt (190)
19%
Rail
185mt (600)
Corridor
140mt (750)
13%
Corridor
45mt (670)
4%
Rural
30mt (500)
3%
Figure in brackets
denotes average
transport distance
Metropolitan
10mt (100)
1%
Export lines
100mt (650)
9%
Tonkm
296bn
Road
185bn
Metropolitan
40bn
14%
Rural
40bn
14%
Rail
111bn
Corridor
105bn
35%
Corridor
30bn
10%
Rural
15bn
5%
Metropolitan
1bn
0%
Export lines
65bn
22%
Income
R123bn
Road
R111bn
Metropolitan
R29bn
24%
Rural
R27bn
22%
Rail
R12bn
Corridor
R55bn
45%
Corridor
R5.6bn
5%
Rural
R1.5bn
1%
Metropolitan
R0.5bn
<1%
Export lines
R4.5bn
4%
There are significant shifts in the SA economy that warrant a closer examination of the
supply chains necessary to support the economy.
SA needs to reduce logistics costs by one third to sustain our
competitiveness.
Beitbridge
Maputo
Gauteng
Richards Bay
Sishen
Durban
Saldanha
East London
Cape Town
Port Elizabeth
Aligning Strategic Focus with the Economy
Micro-economic strategy:
• Support SA’s export-led growth strategy
• Reduce the cost of doing business
Production location of key sectors
Maputo
SA’s economy:
1. Mining (6%)
49%
2. Manuf. (20%)
45%
3. Agriculture (4%) 6%
Richards
Why Strategic corridors?
Bay
•
Durban
•
East
London
Cape
Town
•
Coega
PE
•
Heavy Manufacturing zones
Mining zones
Freight Typology:
Up to 70% of
economy is bulk,
heavy-haul, long
distance and low
to medium value
traffic
Majority of export/ import traffic (excl.
containers) is typically bulk and heavy
manufacturing on rail
Majority of road haulage is for domestic
distribution
To support the export strategy and
economic growth for current key sectors,
connectivity between inland transportation
systems and ports are critical
Create efficient export systems Transnet
Focus
for growing sectors
Transnet Strategic Direction
• Focus on Rail and Ports (Operations & Infrastructure)
• Focus on improving key corridors/ clusters
Strategic direction
The Role of Transnet
Contribute to the sustainable economic development of
South Africa by providing the best connected and
efficient transport network run by world-class rail,
pipeline and port operators
An Integrated Transport Strategy
Transnet provides efficient, integrated transport services to the
bulk and manufacturing sectors
• Ensure that Transnet provides an efficient transport platform that
facilitates trade growth in SA
• Transnet is the custodian of Port, Rail and Pipeline Infrastructure
• Transnet serves specific industries to leverage its strength in assets
• Transnet collaborates with Customers to jointly design services and
invest in areas that improves the performance of all parties
Transnet Business Portfolio
Holding
Co
Rail
Operations
Port
Operations
Pipeline
Operations
Aviation
Rail
Infrastructure
Port
Infrastructure
Pipeline
Network
Other
Transport Portfolio
Independent Regulators
Investment
Portfolio
Transnet into the future
Holding
Co
Transnet
Infrastructure
Pipeline
Infrastructure
Rail
Infrastructure
NPA
Transnet
Operations
Transport
Portfolio
Pipeline
Operations
Rail
Operations
SAPO
Implementation plan
Migration Path for Transnet Integrated, Inter-modal Transport
Solution
Implement
New Business Model
• Operational integration
Building a Solid
Foundation
• Operational synergy
• Operational efficiency
between SAPO, NPA
• Vertical separation
& Spoornet
• Corporate office
Restructuring
Deliver the
Mandate
with private sector (port
and rail)
• Partnerships (local and
global) established for
• Restructured portfolio
growth
• Divestment
2004/05
2005/06
2006/07
Transnet Strategy
Effective & Efficient
National Logistics System
• Vertical Separation
• Infrastructure Planning
• Head Office Restructuring
• Divestment
• Operational
Synergies
Ports
Change Management
Economic Growth
Strategic
Clusters
Strategic
Corridors
Financial Strategy
Critical element of implementation
At the heart of the turn around plan is
the operational efficiency of the core
businesses. Without efficiency in the
core operations, reducing supply chain
costs and changing the road rail mix in
transport will not occur.
Operational Themes
Operational
Efficiency
Infra-structure
Development
Integration
& Interface
Customer & Third
Party Collaboration
• Nodal efficiency
• Increasing key Productivity indicators within the nodal points
• Safety and Risk compliance
• Efficient and streamlined operational processes
• Create capacity before demand arises
• Implementation of CAPEX plans – rolling 5 / 15 year plans
• Integration and optimisation of rail and port interfaces
• Reduction of total logistics costs
• Enhancing predictability and reliability
• Strategic operational forums
• Supply chain competitiveness (time and cost)
• De-bottlenecking
Business Definition and Focus
• Portfolio Restructuring to establish Transport Co.
• Core business restructuring within Transport Co.
– SAPO / NPA (port operations and infrastructure) already separated
– Spoornet initiatives
» Spoornet accounting separation of infrastructure and operations to make
costs visible and enable separate focus and reporting in progress
» Separation of high density and low and light density rail operations
(within Spoornet) to enable different operating models
Investment for Efficiency Improvements
Implementing Operational Improvement
• Systemic coordination and
consolidation of investments
Support Required
•
Supporting legislation and policy
•
Partnerships for funding and efficiency
improvement
• Coordinate Divisional strategies
along corridors
– Private Sector Participation
– Customer / supplier / vendor initiatives
– Strategic focus
– Integrated investment models and
plans
– Value analysis and value engineering
• Drive value improvement
– Structure organisation and set targets
for new focus
– Inter-organisational measurement and
accountability systems and processes
– Strategic operational forums (multi
organisational)
•
Governance framework
R 37.2 bn TIM focussed on SAPO
NPA, Spoornet & Petronet
• Backlog investments
• Expansions
• New developments (Coega)
• Efficiency improvements
Capex Committee to monitor these
processes
Collaboration, Partnering and Integration
• Collaboration initiatives and projects
– Interim Advisory Board to improve container supply chain efficiencies
– Analysis and prioritisation of key industries and customers to determine areas of
biggest impact taking place in Spoornet (will result in similar projects to Thuth’ihlathi –
timber, and Masibambane - domestic coal)
– Petronet managing depots and terminals for customers
• Inter-divisional integration
– City Deep / corridor container performance improvement (SAPO / Spoornet)
– Various NPA / SAPO / Spoornet commodity / corridor based initiatives (e.g granite and
ferros – Richards Bay)
• Private sector participation
– SAPO business model incorporates PPP’s to attract investments and
improve efficiencies
– Selective introduction of PPP’s in “branch lines”
– Commercial cold storage (SAPO)
Process Efficiencies, Systems and Technology
• New cranes in SAPO (twin lift capability) – improved container handling
efficiencies and throughput
• New locomotives with increased traction efficiency will
– Increase utilisation and reduce costs (e.g. fuel efficiency) and
– Enable implementation of additional technologies that will futher enhance efficiencies
• On-board signalling on new locomotives has major benefits in terms of
– Traffic density (number of trains on a line)
– Safety
• Changing of signal spacing on Sishen-Saldanha corridor will allow increased
traffic density
• NPA modelling and simulation of ports and terminals (ITE / G2)
improves investment decisions
• NPA strategic sourcing initiative
• Operational systems integration
Key businesses
Financials
Spoornet
Positioning Statement
Spoornet is "mission critical" to the
economy of the country.
Its service places it at the heart of
it all.
Spoornet’s Position within the World
Country
Description
United States
194,731 km mainline routes
Russia
87,157 km
China
71,600 km
India
63,518 km (15,009 km electrified)
Canada
49,422 km
Germany
45,514 km (21,000 km electrified)
Australia
41,588 km (4,612 km electrified)
Argentina
34,463 km (168 km electrified)
France
32,682 km
Brazil
31,543 km (1,981 km electrified)
Poland
23,420 km
Japan
23,168 km (15,995 km electrified)
Ukraine
22,473 km
South Africa
22,298 km (9,570 km electrified)
Mexico
19,510 km
Italy
19,493 km
United Kingdom 16,893 km
Activity
In world terms, Spoornet
is a smaller freight based
railway, seeking to
leverage heavy haul
technology
Source: www.nationmaster.com
Spoornet’s Position within Africa
Country
Description
South Africa
22,298 km
Sudan
5,978 km
Egypt
5,105 km
Congo, Democratic Republic
4,772 km
Algeria
3,973 km
Tanzania
3,690 km
Nigeria
3,557 km
Mozambique
3,123 km
Zimbabwe
3,077 km
Kenya
2,778 km
Angola
2,761 km
Namibia
2,382 km
Zambia
2,173 km
Tunisia
2,152 km
Morocco
1,907 km
Uganda
1,241 km
Guinea
1,115 km
Activity
However, Spoornet is a
large railway business
and is the most
significant player in
Africa
Source: www.nationmaster.com
Historical Background
Freight
Logistics
Solutions
Vision
Deregulation
of Road
Transport
1986
Loss of
Market
Share
MUP
retrenchment
1990
1992
Predictable
Service
1994
Loss of critical skills
Incremental
improvements in
operations
1996
Declining
Customer
Service
Closing of
regions
Spoornet
Integrated
Freight
Railway
Management
Interventions
• Labour
• GFB sustainability
• COALlink & Orex
privatisation
1998
Financial
difficulties
surface
Declining Operational
Efficiency & Safety
2003
Poor
morale
and work
ethic
Key Statistics
Key Statistics
1990/91
2002/03
2003/04
173.6
94.3
179.5
105.7
180.6
106.8
3.52
3.06
3.08
8 306
5 740
3 897
155 831
3 253
114 135
3 256
113 584
1 929
32
2 052
36
2 061
36
20 604
32 155
± 82 000
20 041
30 400
34 662
20 041
30 400
34 771
R 6.60
R11 165
R262
R62
R12 401
R288
R32
Traffic:
Total freight tons (millions)
Total net tonkm (billions)
Shosholoza Meyl passengers
(millions)
Blue Train passengers
Resources:
Locomotives
Freight wagons
Passenger coaches
Shosholoza Meyl
Blue Train
Rail network:
Route km
Track km
Employees (March)
Finance:
Turnover (R million)
Shosholoza Meyl
Luxrail
Spoornet Strategic Direction
Phase
Phase 3: 3
Value Add
Phase
2:
Phase
Growth
Phase 1 1
Phase
•
•
•
•
•
Fixing the
Basics
• Logistics and Supply Value Chain
Management
•Business Development Overborder
2
New Service Offerings
Yield Management Capability
Increasing Capacity
Customer Service
Operational Efficiency
Safety
Profitability
Attracting and Retaining a skilled
Workforce
04/05
Immediate
Mobilisation
05/06
06/07
Medium Term
Development
07/08
08/09
Long Term
Value Extraction
1
2
3
4
5
Customer Service
Operational Efficiency
Safety
Profitability
Skills
Organisational Redesign
Strategic Programme of Action
Customer
Orientation
Overview of South African Port
Operations
• SAPO operates 13 terminals in 6 ports of SA
• Revenue - R3.2 billion in 2004/05 financial year
and expected to grow by 9% p.a
• Staff complement 5570
• Total Assets Employed R3.3 billion
Services Offered
•
Cargo handling
•
Storage
•
Logistics Management Solutions
• Warehousing and Distribution Management
• Steverdoring
• Rail/Port Interface
• Value Added Services
Market Profile
•
Operates in 4 Sectors viz. Containers, Bulk, B/bulk and Cars
•
Volumes handled for 2003/04 were
Sector Performance
a) 3 Container terminals handled 2.5 million Teu’s
Market share
100% market share
b) 6 Break bulk terminals handled 13.3 million tons 82 % market share
c) 2 Dry bulk terminals handled 44 million tons
32 % market share
d) 2 Car terminals handled 220,000 units
100% market share
Major Bulk Commodities Exported Through SA Ports
Port
Richards Bay
Durban
Port Elizabeth
Cape Town
Saldanha
Major Bulk Commodities
Volume
million tons
Source
Approx.
distance from
source
Coal and coke
Wood Chips
Rock Phosphate
Chrome ore
67
4.1
0.3
0.8
KZN/Mpumulanga
Nelspruit
Phalaborwa
Rustenburg
Steel
Timber
2.2
0.4
Middelburg
Pinetown
856km
30km
Chemicals
Manganese Ore
1.8
1.7
Secunda
Meyerton
546km
569km
Prepared Fruit
0.4
Ceres
110km
24.9
Sishen
993km
Iron ore
400 - 600km
585km
806km
721km
Vision
To be a leading provider of terminal services
in port operations
Mission
To provide efficient terminal services to our
customers, the standard of which exceeds
expectations of all stakeholders. We will
seek appropriate partnerships to ensure we
grow our service offering and generate
improved returns for our shareholder.
Strategic Objectives
1. Diversify revenue streams by entering into strategic partnerships to
exploit new business opportunities that grow our revenue base by
2007 in real terms
2. Understand customer requirements and translate these into
consistent and personalised service offerings that exceed their
expectations
3. Anticipate market demand in order to timeously plan and create
capacity in line with UNCTAD standards
4. Maintain our market dominance, by ensuring we are benchmarked
as an efficient and cost competitive operator, prior to the introduction
of competition
5. Reduce operating costs by 10% per unit of volume in the 2005/06
financial year
6. Create a performance management culture that unleashes the
potential of our employees through a multi-dimensional human
capital recruitment and development programme
What has been the focus?
•Splitting the company into two, namely, NPASA and SAPO
•Setting up systems, corporate office (infrastructure)
•Creating an independent & sustainable SAPO culture
Focus Areas
• Upgrading terminal superstructure
• Business Ring Fencing
• Creating an e-business forum with clients
• Continuous Improvement
• SAPO Capacity Building Initiatives
• Shop Floor Development Program
• Women in Operations
• Freight Handling Learnership
• Tariff Reform
Way Forward through Strategic Alliances
• Lowering the cost and improving the service
• Reducing the burden on overstretched infrastructure
• Increasing total efficiencies by shifting to modes that have higher
capacity
• Reduce cost and time and inconvenience
• Increased productivity and efficiency
• Improved energy consumption, air, and environmental quality
National Ports Authority
NPA Vision & Mission
• Vision:
– To be a transformed, collaborative port authority that leads economic
growth in a world class port system.
• Mission:
– To create and sustain world class freight and logistics solutions.
Strategic Objectives
• Value and wealth creation
• Optimising infrastructure and business processes to
enhance logistics chains timeously
• Create winning customers and stakeholders through service
excellence
• Inculcate behaviour embracing NPA core values; and
• Develop people’s business skills and embed innovation as a
core competence
NPA Business Overview
• Custodian of SA’s 7 commercial ports.
• The NPA provides the following functions:
– Landlord (infrastructure provider, management of port industrial
complex)
– Maritime (marine, dredging, lighthouse )
– Control function (environment, IMO, ISPS, harbour master)
• Focus on functional efficiencies, systems & structures
• Trade facilitation & competitiveness.
Future Position Of SA Ports
Playing a leading role in the SA economy
• Occupy a central role in integrated logistics chains;
• Set, monitor & sustain efficiency standards to meet/exceed
customer expectations
• Play a key developmental role in furtherance of national &
regional objectives:
– economic growth & sustainability
– country competitiveness
– Broadening the economic base
Centrality of NPA in the Logistics Chain
Rail operators
Road operators
NPA
Cargo owners
Ship owners
Cargo owners
Freight forwarders
Inbound
Logistics
Terminal operators
Shipping agents
Concessionaires
Stevedores
Consumers
Outbound
Logistics
Challenges
• Reduced tariff income vs. Increased Capital Investment
– R16.3b for the next 5 years
• Lowering Cost of doing business
– Whether the reduced cost trickles down to SA Inc.
Key Enablers
• Ring fencing of assets
• Corporatisation
• Funding plans
• Private sector participation
• Port Regulator
Petronet
Petronet
PETRONET
OUR CORE BUSINESS
Bulk transportation of energy (energy carrier) : Range of
petroleum products and gas
HOW ?
Through 3000km of high-pressure underground steel
pipelines which we own, operate and maintain
•Of the 3000km –
•2500km for conveying petroleum products and
•500km for transmission of gas to KwaZulu Natal
PPT-0998
3
Pipeline network
PPT-1001
6
Activities
PETRONET
Total products transported (2003/04):
All liquid fuel products : ± 17,2 billion liters
•Petrols and diesel: 10,5 billion liters
•Avtur (jet fuel): 0,9 billion liters
•Crude oil: 5,8 billion liters
• For perspective : This equates to 285 000 road tankers per annum
(refined products only) = 5500 road tanker per week @ 40m per tanker
= 210km long “train” of tankers weekly or ± 30km long “train” daily
PPT-1005
10
Petronet in perspective
PETRONET

Petronet transports approximately 40% of the SA refined product
fuel requirements and 100 % of the Natref refinery’s crude oil
requirements (which is 21% of the total SA crude requirement)

Approximately 80% of Johannesburg international airport’s
requirements are supplied by Petronet’s Avtur pipeline from the
Natref refinery and Durban
PPT-1006
11
Clients
PETRONET
Major international and local oil companies and government:

PPT-1009
BP, CALTEX, SASOL OIL, SASOL GAS, SHELL, TOTAL and CEF
14
What costs do we add to price of fuel
PETRONET
COMPONENTS OF THE PUMP PRICE OF PETROL
BASED ON PETROL PRICE : 93 - OCTANE (ULP)
GAUTENG : 454.00c/l (SEPTEMBER 2004)
12.30
c/l 3.17%
2 Basic
TRANSPORT
Price 214.732 c/l
COST47.298%
Retail Margin 39.800 c/l 8.767%
Wholesale Margin
37.268 c/l 8.209%
Transport Cost
13.000 c/l 2.863%
(Based on Petronet’s
Tariffs)
Service Cost recoveries
6.700 c/l 1.476%
Fuel tax 111.000 c/l
24.449%
PPT-1012
Road Accident Fund 26.5 c/l
5.837%
Slate Levy
1.000 c/l 0.220% Customs & Excise 4.0 c/l 0.881%
17
Financials
South African Airways
• Financial overview
Revenue by Route (FY2005F)
Intercontinental routes accounted for ~60% of passenger revenue.
SAA Passenger & Cargo Revenue (FY2005F)
R15,000M
R14,818M
Domestic 23%
10,000
5,000
0
Regional (Africa) 16%
Intercontinental 61%
Revenue by Route
Note: Revenue is a forecast for FY2005, and includes passenger and cargo revenue only
Source: SAA Finance
Revenue by Sales Region
Roughly 50% of SAA’s sales are generated outside of South Africa.
SAA Passenger Revenue
100%
80
60
Asia
6.9%
100%
Africa
10.8%
Americas
13.4%
Europe
16.8%
40
20
0
South Africa
52.1%
Passenger Revenue
Note: Data is for FY2005YTD; 48% of sales (i.e. originating from outside RSA) are denominated in foreign currency
Source: SAA Finance
Cost Overview
Fuel, labour and aircraft capital costs are the three largest cost
components, accounting for 51% of operating expenses.
SAA Expenditure (FY2005F)
R20,000M
R16,660M
15,000
2,950
675
794
928
10,000
1,205
1,666
2,409
5,000
2,931
3,102
0
Operating Expenditure
Note: Data is for FY2005F; Roughly 50% of SAA’s costs are incurred in foreign currencies
Source: SAA Finance
Other
Accom &
refresh.
Purchase
of capacity
Nav, Landing
Maintenance
Distribution
Aircraft
Labour
Fuel
• Route structure
SAA Network Reach
• Serves 600 intercontinental destinations
• Serves 30 African destinations
• Serves 21 domestic destinations
• Offers 358 daily frequencies
• SAA has 9 route specific alliances
SAA network structure
Utilising alliances and code shares, SAA
serves over 600 destinations.
New
York
Frankfurt
London
Atlanta
Dubai
Hong Kong
São Paulo
Johannesburg/Cape town
Perth
Sydney
SAA Route Network - Intercontinental (1Q2006)
Europe
Americas
Asia/Australia
• Paris - 7
• Sao Paulo – 7
• Mumbai – 7
• Frankfurt (JNB) - 7
• Atlanta – 7
• Hong Kong – 7
• Frankfurt (CPT) - 3
• New York - 7
• Perth – 4
• Milan* - 3
• Zurich - 7
• London (JNB) - 14
• London (CPT) - 9
Note: Figures represent flights per week and excludes code shares; *To be cancelled after Southern summer due to poor profitability
SAA Route Network - Africa (1Q2006)
Southern/Central
Eastern/Islands
Western
• Luanda – 3
• Nairobi - 9
• Dakar – 7N/3S
• Kinshasa – 3
• Dar-es-Salaam – 7
• Cape Verde – 7N/3S
• Blantyre – 2
• Mauritius – 9
• Lagos – 4
• Lilongwe – 5
• Entebbe - 3
• Accra/Abidjan – 4
• Maputo – 9
• Kigali - 1
• Windhoek – 17
• Lusaka – 12
• Harare – 13
• Victoria Falls - 11
Note: Figures represent flights per week and excludes code shares
SAA Route Network - Domestic (1Q2006)
Route
Daily flights
• JNB – CPT
• 22
• JNB – DBN
• 16
• E. Cape**
• 11
• Coastals*
• 12
• JNB – George
•3
Note: *Coastals = CPT-DBN, PLZ-CPT and PLZ-DBN; E. Cape = JNB-PLZ and JNB-ELS
• Fleet structure
SAA Fleet Composition (by 2005)
A/C Type
Number
 A340-600
 A340-300e
9
 A340-200
6
 747-400
8
 A319-100
11
 737-800
21
6
61
Note: All but 7 of SAA’s aircraft are leased; Owned aircraft include A340-600 (6) and B747-400 (1)
Deliveries to date
A/C Type
Number
Delivery
 A340-600
7
Done
 A340-600
2
2005
 A340-300e
3
Done
 A340-300e
3
1Q2005
 A319-100
11
From 1 Sep 2004
26
SAA’s ‘new fleet’ benefits
• When fleet renewal is completed average fleet
age will be 4 years
• The products and services will be world-class
– Lie-flat seats
– Premium service
• Cost efficiencies enormous
– Lower fuel consumption
– Fewer pilots (no flight engineer for long haul)
– Lower maintenance
• Personnel
SAA Employee Headcount
Technical staff, airport staff and cabin crew account for ~72% of
SAA’s employee headcount.
SAA Headcount
12,500
10,800
10,000
Overhead 1,452
Cargo 684
Flight Deck Crew 894
7,500
Cabin crew 2,244
5,000
Airport staff 2,535
2,500
Technical 2,990
0
Employee Headcount
Note: Headcount is for March 2004; Airport staff includes international station staff; Overhead includes sales, marketing,
finance, IT, HR and executive management
Source: SAA HR
• Technical issues
Financial Lease
• Substantially all the risks and rewards associated with
ownership of the asset are transferred from the lessor to the
lessee
• Obligations under the finance lease agreement are
capitalised onto the balance sheet
• Asset is depreciated over the remaining useful life
• Periodic lease payments applied to reducing capital portion
of the lease liability and expensed as finance cost
• Finance lease is in substance a loan (with simultaneous
purchase of asset)
Operating Lease
• Substantially all the risks and rewards are not transferred to
the lessee (e.g. SAA)
• Lease payments are expensed as operating costs
• Asset is not on the balance sheet of the lessee
• An operating lease is in substance similar to a rental
agreement
Hedging
• Financial term used to describe the process of covering financial exposures
faced by a company
• Much the same as buying insurance to cover personal risk
• Financial exposures arise as a result of the ongoing activities of a company
• Nature of such risks: foreign currency, interest rate, inflation, commodities (e.g.
oil) – any financial instrument whose price fluctuates and therefore whose value
in the future cannot be known with certainty
• A market exists for “insurance” products to cover these risks – e.g. forward
exchange contracts (FECs), swaps, options, futures contracts, etc.
• An example would be where a South African company buys an asset whose price
is in Euro, for delivery at a future date. The South African company can either
carry the exposure, and at the future date sell Rand to buy enough Euro to pay for
the asset. Alternatively, the South African company can choose to fix or cap the
Rand price at which it needs to buy Euro in the future to pay for the asset.
SAA Hedges
•
Hedging should in most instances be used by companies to cover their exposures and to
create certainty. This is desirable as it makes robust and value creating decision making
possible. It also makes long term decision making possible. So called derivatives, which is
the term used to describe many of these hedging instruments used to achieve certainty in
financial risk, are actually powerful tools used appropriately and responsibly
•
Hedging should be in respect of all exposures in one particular financial risk area. For
example, one should first offset foreign currency outflows against foreign currency inflows,
with only the residual (net exposure) amount being considered for hedging unless there is
market failure
•
Deliberately hedging one side (inflow or outflow only) in the absence of market failure is not
really hedging, but speculation, or taking a bet
•
In the case of the hedging issue at SAA, the failure to assess the net exposures by looking
at both inflows and outflows was at the heart of the problems they then faced in the future.
Rather than hedging, they turned out to have taken a bet, which they subsequently lost
•
As is normally the case in situations where companies lose a lot of money because of
financial decisions, it is usually not the fault of the derivatives, but that of management
Investment Portfolio
Transnet
Metro rail
Autopax
SAA/SAX
Others
Financials
Thank you