DPE PRESENTATION TO PORTFOLIO
COMMITTEE ON SOE PERFOMANCE
AGAINST AGREED KPI’S FOR 2006/07
SEPTEMBER 2007
1
Flow of Presentation
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•
•
•
Evolution (Phases 1 & 2)
Process
Components
SOE Performance Against Agreed KPI’s for 2006/07
2
Evolution
• Phase 1:
– Initially voluminous and difficult to interpret
– Resultant lengthy conclusion process
– KPIs primarily balance sheet focused due to SOE financial
difficulties
– Lack of performance and output target focus
– Limited review
3
Evolution
• Phase 2:
– Slim compact format adopted with emphasis on
performance and output targets
– Obligation to mirror mandate and strategic intent
statement
– KPIs to cascade down to SOE subsidiaries
– Compact reviewed annually – limited tweaking of strategic
objectives with amendments focused on KPIs
– Compact a live document
4
Flow of Presentation
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•
•
•
Evolution
Process
Components
SOE Performance Against Agreed KPI’s for 2006/07
5
Process
• Annual agreement between Executive Authority (Minister)
and Accounting Authority (SOE Board)
• Key Performance Measures & Indicators determined from
Corporate Plan
• Shareholder Compact negotiated
• Quarterly Performance Reporting and Monitoring against
agreed indicators
• Annual Performance Reporting and Monitoring against
agreed indicators
• Annual Review and renegotiation
6
Process
Policy
Proposed KPIs
AGM +
Strategic Meeting
Corporate Plan
Annual report on
Performance
Shareholder Compact
Annual Report and AFS
Negotiated
KPIs
Quarterly Reports
Reporting on Performance
7
Flow of Presentation
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•
•
Evolution
Process
Components
SOE Performance Against Agreed KPI’s for 2006/07
8
Components - Clauses
•
•
•
•
•
•
•
Interpretation;
Functions of shareholder compact;
Mandate;
Strategic objectives;
Key performance indicators and evaluation;
Period of compact;
Appendice:
Key performance indicators
Generic
Review
annually
9
Components - Generic KPIs
•
•
•
•
•
Capital Efficiency
Financial Efficiency
Operating Efficiency and Effectiveness
Gearing Ratios
Developmental objectives
– ASGI-SA
– Skills development
– Broad Based Black Economic Empowerment
– Strategic Supplier Development
• SOE Strategy / Maturity Specific:
– Investment (Capacity Delivery)
– Infrastructure Investment
– Sales
– Revenue Increases
10
SOE Compacts 2006/2007
• Signed SC
• Transnet
• Eskom
• Denel
• Safcol (Process KPIs)
• Not signed
• SAA (then not within DPE portfolio)
• Alexkor (Land claim process)
11
SOE Compacts 2007/2008
(Phase 3)
Compacts
2006/2007
Compacts
2007/2008
Compacts
2008/2009
Eskom
Eskom
Eskom
Transnet
Transnet
Denel
Denel
Safcol
Safcol
Alexkor
Alexkor
PBMR [PIM]
PBMR
SAA
SAA
• Compacts extended in width
(All SOE) and depth (Extended Transnet
Performance Indicators and
Denel
Targets).
Safcol
• Ability to measure quarterly
performance greatly increased
Infraco
12
Flow of Presentation
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•
•
•
Evolution
Process
Components
SOE Performance Against Agreed KPI’s for 2006/07
(Safcol)
13
Safcol
Mandate
Core business is the conduct of forestry, timber harvesting,
timber processing and related activities, both domestically and
internationally.
14
Safcol
•
•
At the time the Shareholder Compact and KPIs for SAFCOL were being
developed, an in-depth review of the future of the company was in progress.
The review was instructed by the Minister in April 2006.
As a result, at the time of KPI development, no decision had been taken on
the future role and strategy for the company and thus it was not clear at that
time which KPIs would be needed in future Compacts. For this reason, an
“Interim Shareholder Compact” was agreed, which contained “Interim KPIs”,
and which it was expected would be significantly revised after the decision
on the future role of the company. These Interim KPIs were intended to:
– ensure that performance data was prepared and reported, using an
appropriate and consistent definition
– obtain base-line data for certain KPIs which were likely to be needed in
the following year
– establish performance targets for certain fundamental measures, such as
the presence or absence of “good forest management”
15
Safcol
• In order for the KPIs and performance data to be meaningful,
they must be defined very precisely and that definition must
be applied consistently over time. Failure to do this will render
the KPIs at least less helpful, potentially meaningless and
potentially open to manipulation.
• Note that, as a result of the decision confirmed by Cabinet in
March 2007 that KLF should be transferred to the private
sector and that SAFCOL should be wound-up, the new
Compact for 2007-08 includes KPIs relating to those
transactions. Such KPIs were deliberately not included in the
2006-07 Compact.
16
Safcol
• Specific mandate for 2007/2008:
- Complete the transfer to the private sector of Komatiland
Forests (Pty) Ltd in accordance with the Transaction
Guidelines;
- Maintain sustainable management and value of forests
and other assets until transfer is completed;
- Reform the system used for sale of sawlogs;
- Assist the Shareholder Representative with the sale of
IFLOMA;
- Prepare for an orderly winding up.
17
Flow of Presentation
•
•
•
•
Evolution
Process
Components
SOE Performance Against Agreed KPI’s for 2006/07
(Denel)
18
Denel
Mandate
•
Denel’s mandate is to supply strategic defence capabilities to the SANDF (and
the SAAF) and to act as a catalyst for advanced manufacturing in the broader
economy.
Strategic Objectives
•
•
•
•
•
•
Strategic Role
Capital and financial efficiency
Investment
Consolidation
Capability Improvements and Operational Efficiency
Developmental Objectives
Key Performance Indicators
See next slide
19
Denel
KEY PERFORMANCE INDICATORS
TARGET
ACTUAL
Financial Indicators
Capital/financial efficiency
o EBIT Margin
o RONA% (before tax)
-13.7%
-55%
-12.2%
-63.1%
Investment
(Capacity delivery)
o CAPEX / Revenue%
o Product Development
12.4%
3%
3.6%
2.5%
Disposal of non-core businesses and assets
5 remaining
disposals
realising
R394.2m in
income
3 non-core businesses were disposed of
realising income of R247m. Total
accumulative income to date = R413m.
New processes for SPP and Cosource
transactions underway.
Sale of land at ORTIA to ACSA at an
advanced stage and will realise income
of R606m.
Sales
Order
coverage
ratio of 69%
49.4% as at 31 March 2007.
Increased to 75% as at 30 April 2007
R1 869m in
exports 27.8%
growth
R1 720m in exports - 10.8% growth
R0.5m
R0.4m
Measurable Indicators
Cost reductions
Revenue per Head – Revenue/Headcount (R m)
20
Denel
KEY PERFORMANCE INDICATORS
TARGET
ACTUAL
Improvement of governance and risk management policies and
systems
Compliance with the
Protocol on
Corporate
Governance and the
PFMA
Substantial improvement in
policies and systems. However,
some areas still require
improvement.
Denel needs to avoid future
reportable irregularities
Compliance with legislation
Compliance with the
PFMA, BBBEE Act,
Employment Equity
Act and the LRA
Substantial improvement in
compliance with legislative
frameworks.
New equity appointments.
Some areas still require
improvement.
Progress towards consolidation of the business and the
establishment of manufacturing clusters
Substantive progress made
Progress to be
reported only
Philippi and Somchem plants
were merged. The Corporate
Office was relocated to the
Irene Campus. Where the cost
of consolidation was found to be
prohibitive, it was decided not to
pursue this.
Other cost reduction initiatives
Initiatives
undertaken and the
results thereof
OPEX ratio decreased from
42% to 38%.
Cost of sales as a percentage of
sales decreased from 105% to
77%.
Best Endeavour Indicators
21
Denel
KEY PERFORMANCE INDICATORS
TARGET
ACTUAL
Partnerships with foreign and local companies
Progress on
partnership
negotiations
Partnerships were concluded with Saab
in Aerostructures and Carl Zeiss in
Optronics. PFMA application for merger
with ATE in UAV’s received in 2007/08.
Negotiations with a third strategic
partner at an advanced stage.
Other measures taken to improve capabilities
Management
interventions
Initiatives to improve programme
management and supply chain
practices undertaken eg. internal
auditors concluded a review on contract
management.
Closure of non-viable businesses
Substantive
progress made
See above
Sales
1. Percentage of
revenue from sales
(including SANDF
sales)
2. Significant new
contracts signed
with clients abroad
1. Domestic sales as percentage of total
sales was 48%.
Major local contracts include Oryx,
Acrobat, Hoefyster and A-Darter.
2. Export contracts included Umkhonto
(Finland), A-Darter (Brazil) and
contracts with the UAE
Contract management and delivery – alignment of scope, specifications
and costs
Substantive
progress made in
reducing slippages
on contracts
Information on the
reduction of
backlogs where
possible (e.g. DSA)
Internal audit and international equity
partners (where relevant) reviewed
processes and controls. Upgrading of
applicable programme management
and ERP software completed.
Backlogs on the Top Shells contracts
reduced at DSA.
Substantial improvement required in
contracting and contract management.
22
Denel
Improvements in the 2007/08 Proposed Shareholder Compact
•
The Strategic objectives have been consolidated and streamlined for the
2007/08 Compact:
– Strategic and economic role in South Africa
– Financial and operational efficiency
– Consolidation and equity partnerships
– Developmental objectives
•
The financial KPI’s have been expanded to enable improved monitoring of
Denel’s performance (particular attention has been paid to monitoring Denel’s
debt position as it is entering the market to raise its remaining funding
requirements):
– Profitability ratios
– Management effectiveness
– Liquidity ratios
– Cash Cycle Days
– Order Coverage
– Investment
– Debt and Gearing
23
Denel
Improvements in the 2007/08 Proposed Shareholder Compact (contd.)
•
Business performance indicators include:
– Measurable indicators: Export sales, cost reductions, exit of non-viable and noncore businesses, improvements in governance and risk management policies
and systems and compliance with legislation.
– Best endeavour indicators: Consolidation of the business and the establishment
of manufacturing clusters, equity partnerships and local collaborative
partnerships, alignment of product lines to strategy, the management of major
programmes, contract management and contracting improvements and
reductions in the overall liability under the A400M programme.
24
Flow of Presentation
•
•
•
•
Evolution
Process
Components
SOE Performance Against Agreed KPI’s for 2006/07
(Eskom)
25
Transnet
Mandate
• Key role – assist in lowering the cost of doing business in S.A
and enabling economic growth through providing appropriate
infrastructure and ensuring system reliability in a cost
effective, efficient manner & within acceptable benchmark
standards
26
Performance Area
Key Performance Indicator
Measure
Target
2006/7
Actual 31
March
2007
Capital / Financial
Efficiency
Economic Operating Profit
Budget (R’m)
7 173
8 431
Infrastructure
Investments
(Capacity
delivery)
Managed by Capital
Expansion
Division
Generation Capital expenditure
Budget (R’m)
6 058
7 034
Transmission Capital expenditure
Target (R’m)
1 000
1 166
Generation capacity installed & commissioned
Target (MW)
1 041
1 065
Transmission lines installed
Target (Km)
410
430
Transmission MVA installed
Target (MVA)
500
1 000
Distribution Capital expenditure
Budget (R’m)
2 888
3 430
Major Incidents
Plan
1 Deg 1
1 Deg 1 & 1
Deg 2
System Minutes Lost (≤ 1 min)
Plan (SML)
3.9
3.67
Unplanned Capability Loss Factor (UCLF)
Plan (%)
4.5
4.4
System Average Interruption Duration Index (SAIDI)
Plan
52.8
49.7
Rand/Megawatt Hour (R/MWh) (before embedded
derivative)
Budget
167.26
162.5
Eskom Trainees / Bursars
Target
4 000
4 236
Operating Efficiency
& Effectiveness
Skills Development
27
•
•
Economic Operating Profit (EOP)
Measures the economic operating profit created by the business after
paying for the use of capital (including working capital) to the providers
thereof. Minimum return required from the business should result in
EOP being zero. This minimum required return (opportunity cost)
includes a charge for the capital employed to produce the outputs. EOP
is derived from the following calculation:
Operating Profit
Add Depreciation
EBITDA
Less Economic Tax
EBITDA After Tax
Less Total Capital Charge on Assets
Economic Profit
Add EBITDA After Tax
XXX
Less Capital Charge for Working Capital
Economic Operating Profit (EOP)
XXX
XXX
XXX
(XXX)
XXX
(XXX)
XXXX
(XXX)
XXXX
28
•
Generation Capital Expenditure
This is the capital expenditure that will be spent by Capital Expansion
Department (CED) on behalf of Generation Division on new generation
capacity projects and other generation projects in accordance with the
enabling agreement between CED and line divisions.
•
Transmission Capital Expenditure
This is the capital expenditure that will be spent by Capital Expansion
Department (CED) on behalf of Transmission Division including the
design and construction of new transmission networks and major
extensions and strengthening of the existing grid major transmission
projects in accordance with the existing enabling agreement.
•
Distribution Capital Expenditure
This is capital expenditure spent on distribution infrastructure managed
within the Distribution Division. This captures capital expenditure on
new customer connection, refurbishment, strengthening and continuous
business improvement (electrification is excluded)
29
• Generation capacity installed & commissioned
This is the nominal number of megawatts installed and
commissioned within the financial year. This does not track
the number of megawatt sent out or the maximum capacity
demand which is always less than the nominal amount
installed.
• Transmission lines installed
This is the number of kilometres of transmission lines
installed within one financial year. This includes kilometres of
line that are installed and commissioned and those that are
not yet commissioned within the financial year.
• Transmission MVA installed
This is the total transform capacity measured in MVA installed
within one financial year.
30
•
Major Incidents
A major incident is an interruption incident that results in the loss of 1 system minute or
more. The measure is scored on the basis of the degree of severity of these events.
The degree of severity of a major interruption is defined internationally as follows:
[Severity Degree 1: System minutes lost ≥ 1 and smaller than 10] [Severity Degree 2:
System minutes lost >10 and < 100] [Severity Degree 3: System minutes lost ≥ 100]
This measure tracks the number of significant interruption incidents.
•
System Minutes Lost (≤ 1 min)
This measure is the sum of system minutes lost per incident over a 12 month moving
window. Only system minute events less than 1 system minute are counted in this
index. This measure describes the underlying performance (severity of the load
interrupted) over a 12-month period. Major events are excluded from this measure.
•
Unplanned Capability Loss Factor (UCLF)
This measure indicates the effectiveness of plant programmes and practices in
maintaining systems available for safe electrical generation. It is defined as the ratio of
the unplanned energy losses during a given period of time, to the reference energy
generation, expressed as a percentage. Unplanned energy loss is energy that was not
produced during the period because of unplanned shutdowns, outage extensions, or
unplanned load reductions due to causes under plant management control.
31
• System Average Interruption Duration Index (SAIDI)
This measure is the average interruption duration for all
customers served during the 12 month period.
SAIDI
=
Sum of customer interruption durations
(total hrs / customer / year)
Total number of connected customers
Rand/Megawatt Hour (R/MWh) (before embedded derivatives)
Measures the cost per unit of energy sold.
R/MWh = Interest (include fair value) + Operating costs
(includes abnormal) + Primary Energy X 100
External sales – GWh
• Eskom Trainees / Bursars
This indicator tracks the number of learnerships that have been
registered with the Eskom learnership programme in the current
financial year. This indicator includes both the 18.1 (employed
by Eskom) and 18.2 (unemployed) learners.
32
Transnet
CAPITAL & FINANCIAL EFFICIENCY KPI’S INTRODUCED IN
2007/08
• EIBT Margin
• Return on Average Capital Employed
33
Transnet
OPERATIONAL KPI’S INTRODUCED IN 2007/08
• Distribution
• System Average Interruption Frequency Index (SAIFI)
34
Flow of Presentation
•
•
•
•
Evolution
Process
Components
SOE Performance Against Agreed KPI’s for 2006/07
(Transnet)
35
Transnet
Mandate
• Key role – assist in lowering the cost of doing
business in S.A and enabling economic
growth through providing appropriate ports,
rail and pipeline infrastructure and operations
in a cost effective, efficient manner & within
acceptable benchmark standards
36
Transnet
Strategic Objectives
•
•
•
•
Capital & Financial efficiency
Operational Efficiency & Effectiveness
Infrastructure Investments
Development Objectives
37
Transnet
2006/07 SKPI’S
Capital / financial efficiency
Ebitda margin (%)
Cash interest cover (times)
Gearing ratio (%)
Cfroi (%)
Infrastructure investments
% of actual capital expenditure compared
to budgeted expenditure
% of total maintenance spent compared to
budget: spoornet
TARGET
ACTUAL
34.8
5.3
47.9
5.8
40.7
5.4
39
5.4
>90%
99
>90%
125
38
Transnet
OPERATING EFFICIENCY & EFFECTIVENESS
Tariff Tariff
(%)
(%)
Target Actual*
Volume
activity
(%)
Target
Volume
activity
(%)
Actual*
Total
(%)
Target
Total
(%)
Actual*
Total core
3.3
4.0
11.5
4.0
15.2
8
Spoornet
3.1
5
10.9
(2.5)
14.3
3.7
NPA
2.9
1.3
3.7
15.5
6.7
12.0
SAPO
3.9
6.4
8.8
8.6
13.0
14.0
Petronet
2.0
2.5
6.8
8-14
8.9
15.0
Transwerk
4.3
**
28.6
**
34.1
90.0
39
Transnet
2006/07 KPI’S
KPI
ACHIEVED

CAPITAL / FINANCIAL EFFICIENCY

INFRASTRUCTURE INVESTMENTS
REVENUE INCREASE – TARIFF AND VOLUMES (GROUP
& DIVISIONAL LEVEL)
x
 Transnet achieved the capital/financial efficiency and infrastructure investment targets
X = Revenue objective not achieved due to Spoornet’s underperformance. Division experienced
capacity, constraints, derailments and customer-related problems
40
Transnet
2007/08 SKPI’s
•
•
•
•
•
Capital/financial efficiency
- Ebitda margin (%)
- Cash interest cover (times)
- Gearing ratio (%)
- Cfroi (%)
Infrastructure investments (capacity delivery)
- % of actual capital expenditure compared to
budgeted expenditure
- % of total maintenance spent compared to budget: Spoornet
Revenue targets – tariff (%) increase and volume (%) increase at group and
divisional level
Our focus now shifts from primarily financial to a mix of financial and operational
targets
Note: KPI’s remain the same as for 2006/07; 2006/07 targets form the base,
new targets to be agreed where required
41
Transnet
OPERATIONAL KPI’S INTRODUCED IN 2007/08
•
•
•
•
•
•
•
•
Transnet freight rail
Traffic volume in tonnes
Staff productivity (net ton kilometres / number of staff)
Net ton average / average # of locomotives
Net ton average / average # of wagons
Net operating cost / net ton kilometer
Wagon turnaround (days)
On-time arrival (%) at yard nearest the customer sidings
42
Transnet
OPERATIONAL KPI’S INTRODUCED IN 2007/08
•
•
•
•
•
NPA
Annual volumes of cargo and growth per cargo type
Cargo throughput per metre of quay
Berth occupancy (%)
Ship waiting time
43
Transnet
OPERATIONAL KPI’S INTRODUCED IN 2007/08
•
•
•
•
•
•
•
SAPO
Volume of cargo p.a
Crane productivity
Ship productivity (working time only)
Ship productivity (total time at berth)
Yard productivity
Labour productivity
44
Flow of Presentation
•
•
•
•
Evolution
Process
Components
SOE Performance Against Agreed KPI’s for 2006/07
(SAA)
45
Mandate
• African airline with global reach
• Serve wide range of routes – focus on limited number of
profitable routes into major continents
• Increase African routes
• Only serve heavily trade routes in South Africa
46
Due to the unbundling of SAA from Transnet, a Shareholders’ Compact between
DPE and SAA was not concluded for 2006/07. KPI’s for the current financial year
are cited in the following table .
The focus for the department is to monitor performance against the Turnaround
Plan devised with the assistance of the Seabury Consulting Group and to this
end a team comprising official from National Treasury and DPE has been setup.
Year ended - March 07
Actual
Budget
Variance
Capacity
Passenger Available Seats (ASK)
33,671
31,771
1900
25,381
21,751
3630
7,727
6.902
825
202
175
(27)
Passenger Load Factor %
75
68
7
Yield (R/RPK)-Passenger
0.56
0.54
0.02
Traffic
Revenue passenger kilo's (millions)
Revenue passenger (thousands)
Cargo- Tons flown (thousand)
Utilisation
PAX Revenue (R mil)
14,230
11,713
2517
Yield (R/ASK)-Total airline income
0.61
0.64
(0.03)
Unit cost (R/ASK’s)
0.64
0.63
0.01
47
Flow of Presentation
•
•
•
•
Evolution
Process
Components
SOE Performance Against Agreed KPI’s for 2006/07
(PBMR)
48
Mandate
• Successful commercialisation of pebble bed technology for
world energy market
• Preferred global provider of standardised nuclear energy
systems, fuel and life cycle support
• Performance oversight via PIM
• Project phase – development of demonstration plant
• Shareholder compact to be concluded 2008/2009
49
Flow of Presentation
•
•
•
•
Evolution
Process
Components
SOE Performance Against Agreed KPI’s for 2006/07
(Infraco)
50
Infraco
Mandate
• To expand the availability and affordability of access to electronic
communications, including to underdeveloped and underserviced
areas, in accordance with the Electronic Communications Act and
commensurate with international best practice and pricing, through
the provision of –
(a) electronic communications network services; an
(b) electronic communications services.
51
Infraco
SKPIs
• Currently subsidiary of Eskom Enterprises
• Department has the agreement of Eskom Enterprises to monitor
performance of Infraco on the following KPIs:
EBITDA Margin (%)
Cash Interest Cover (Times)
Gearing Ratio (%)
ROA (%)
ROE (%)
52
Conclusion
• 2007/2008 – compact process greatly improved
• Negotiation of compacts with majority of SOE
• Increased depth and width of compact content proving
invaluable performance tool
• Ongoing identification and negotiation of KPIs following
shareholder strategic objectives and market changes
• Majority of KPIs achieved by SOE for 2006/2007
53