He states, based on the inaccuracies in the article, it is clear that there is a well-orchestrated campaign being mounted by anonymous employee(s) to bring the company into disrepute. This appears to be part of a campaign to discredit company processes, including its internal audit function, and divert the public's attention from the conduct of some individuals.
The board will continue to uphold the highest standards of corporate governance in line with leading practice. To this effect, we will investigate and take action against any Transnet employees who do not uphold these standards.
Transnet has now had sight of the schedules on which these allegations are based. It is quite clear that the allegations are based on a fundamental, yet elementary, misconception: that the schedules published by the newspaper reflect amounts actually spent. This is incorrect. Instead, it shows forecasts to completion on a number of our major contracts. The contracts are incomplete. The expenditure has yet to occur. It is concerning that through ignorance, malice, or both, the person(s) furnishing the schedule set up the media to misrepresent the true situation.
Even more disturbing, Transnet has noted that some of the emails, carried in the so-called “dossier,” were doctored and had passages inserted and, in certain instances, deleted entirely apparently to build a case of an internal “cover-up.” This shows the character and lack of integrity by the perpetrators of this anti-Transnet agenda.
By the very nature of large capital and infrastructure projects developed over a multi-year period, there will be fluctuations resulting from a range of factors including additional facility requirements, unforeseen circumstances such as delayed regulatory and other approvals, scope variations, increased escalation, foreign exchange fluctuations, etc.
Transnet has in place a detailed approvals framework and a policy to ensure that due process is followed at all times. These processes are subject to regular reviews by both internal and external auditors. Improvements to achieve greater efficiencies are continuously sought and introduced.
Transnet is satisfied that where there were budget revisions to reflect the expected cost to project completion, due process was followed and necessary approval obtained through the relevant governance structures. Management retains the evidence of these approvals. The allegations in the article are therefore factually incorrect.
That said, it is significant to reiterate that the only capital projects that have suffered from a range of problems, including serious governance breaches which have caused the company unnecessary and avoidable costs, relate to the acquisition of rolling stock. These problems, which have resulted in delivery delays of as much as 18 months, irregular expenditure and cancellation of one flawed tender, have since been overcome and the locomotive acquisition programme is back on track under a new and improved governance framework.
The board wishes to express its full confidence and support to the company's executive management team whose commitment has seen Transnet weathering the unprecedented economic downturn. The company's performance to November 2009 is especially robust: revenues are up by 5.3% on last year's comparable numbers; costs are well under control; profits, as measured through earnings before interest, depreciation, tax and amortisation, are 12% ahead; and cash generated by operations is strong.
Investors who have shown confidence by backing Transnet's funding strategy have recognized this strength. The company has over R8 billion cash on hand, and has raised all its required funding for the year to 31 March 2010.
This strong performance comes in the wake of R62 billion that has been invested by Transnet in upgrading and modernizing existing facilities and expanding infrastructure capacity in the South African economy over the last four-and-half years. The company is on course to investing the planned R20 billion this year. It is pleasing that Transnet's R80 billion capital investment programme, which is proceeding as planned, has installed significant increased capacity to enable economic growth.
The reference to the “improper” appointment of Ernst & Young (E&Y) as the internal auditors of Transnet is totally incorrect. E&Y was selected as Transnet's internal auditors after a rigorous tender process in which all the major qualifying auditing firms were invited to participate. The contract required a decision relating to the renewal of this contract to be made 18 months prior to the termination date, based on the achievement of specific key performance criteria which were set out at the commencement of the contract. The board approved the contract's renewal on 13 February 2009 after a thorough motivation and on the recommendation of Transnet's Audit Committee, which is chaired and made up of non-executive and independent members of the board. The terms and conditions of the original contract remain the same, including the requirement to sub-contract a portion of the work to two black accounting firms.
In addition, the value of the contract amount with E&Y is deliberately and grossly exaggerated. The board is satisfied that E&Y has, in its conduct of internal audit functions, always acted within the highest standards and, consequently, expresses its support for the continued role in driving a world-class internal control environment at Transnet.
Transnet will not be distracted from implementing its key strategies and rolling out a world-class infrastructure network to increase capacity so that the productivity and competitiveness of our customers and the South African economy are improved.
