annua l

SOUTH AFRICAN

CORPORATION LTD

RAIL COMMUTER

R E P O R T

2 0 0 2RP: 151/2002 ISBN: 0-621-33204-6

2 0 0 2

M O V I N G P E O P L E

SOUTH AFRICAN

CORPORATION LTD

RAIL COMMUTER

annua lR E P O R T

contents

The new 10M4

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c on ten ts

VISION AND MISSION STATEMENTS

COMPANY PROFILE

MANAGEMENT BOARD

CHAIRMAN’S REPORT

CHIEF EXECUTIVE OFFICER’S REPORT

CONTENTS: THE ANNUAL FINANCIAL STATEMENTS

REPORT OF THE AUDITOR-GENERAL

DIRECTORS’ REPORT

BALANCE SHEET

INCOME STATEMENT

STATEMENTS OF CHANGES IN EQUITY

CASH FLOW STATEMENT

NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS

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vision & missionS T A T E M E N T S

VISION

To establish rail as the preferred mode of public transport and to be the

recognised champion in ensuring the provision of quality commuter rail serv-

ices for all Transport Authorities in South Africa.

MISSION

To manage the assets and funding of the rail commuter business on behalf

of government, and to ensure the efficient and effective local delivery of rail

commuter services, within National Land Transport Policy directives and

appropriate regulatory regimes.

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Railway signal

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P R O F I L E

company

FOUNDING THE COMPANY

O N 1 A P R I L 1 9 9 0 , T H E S O U T H A F R I C A N T R A N S P O R T

SERVICES (NATIONAL RAILWAYS) BECAME A PUBLIC

COMPANY CALLED TRANSNET LIMITED, AS A CONSEQUENCE

OF THE DEREGULATION OF THE TRANSPORT INDUSTRY.

THE NATIONAL RAILWAYS ALSO SHED ITS RESPONSIBILITY

FOR RAIL OCMMUTER SERVICES TO THE NEWLY FORMED

ENTITY.

The South African Rail Commuter Corporation Limited (the

Corporation) was established at the same time to assume the

responsibility for the rail commuter services throughout South

Africa.

The Corporation inherited all assets (land and properties) in

and around commuter stations and corridors for the purpose

of commercialising these assets to financially contribute to a

reduction in the subsidisation of the social commuter rail

service. During 1992, a wholly-owned subsidiary company of

the Corporation, Intersite Property Management Services

(IPMS), was formed to perform this function for the

Corporation.

The main objective and business of the Corporation is to

ensure that, at the request of the National Department of

Transport or any local government body designated as a

transport authority, rail commuter services are provided in

the public interest. Services are currently provided by

Metrorail Services, an independent division of Transnet, in

terms of a negotiated concessioning agreement.

Train exiting a tunnel

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managementB O A R D

BACK LEFT: Brian Jacobs EXECUTIVE MANAGER: ASSET MANAGEMENT & DEVELOPMENT

BACK MIDDLE: Enos Ngutshane EXECUTIVE MANAGER: CONTRACT MANAGEMENT & BUSINESS DEVELOPMENT

BACK RIGHT: Jakkie van Niekerk EXECUTIVE MANAGER: FINANCIAL SERVICES

FRONT LEFT: Jack Prentice MANAGING DIRECTOR: INTERSITE PROPERTY MANAGEMENT SERVICES (IPMS)

FRONT CENTRE: Ben van der Ross ACTING CHIEF EXECUTIVE OFFICER

FRONT RIGHT: Selomane Maitisa EXECUTIVE MANAGER: CORPORATE SUPPORT SERVICES

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c h a i r m a n ’ sR E P O R T

The Government 's quest to make commuter ra i l" the preferred mass mode of publ ic transport inSouth Afr ica" has been c i ted in most publ icf o r u m s . I t w a s f r o m t h i s s t a t e m e n t t h a tthe SARCC Board of Control had to review theCorpora t ion ' s mandate to i ncorpora te theGovernment's posit ion on this mode of transport.

During the 2001/2002 financial year, the realities of the appropriatecommuter ra i l serv ice for the new mi l lennium, came to surface.These real i t ies require a total change of ra i l service providers'mindset to meet this challenge. The consequence thereof be ing thesort of issues we are grappling with to transform the rail industryto meet this challenge. These issues are: what should be thevis ion for passenger ra i l in South Afr ica, and therefore whatshould be the vision and focus of the SARCC? How do we effectivelytransform the organisation and industry to optimise effectiveness?What i s the ro le of ra i l in terms of he lp ing to al leviate roadcongestion and improving general public transport? What roleshould be played by commuter rail in the African context, towardsthe a l lev iat ion of poverty, creat ion of employment, increasedm o b i l i t y o f p e o p l e , p r o m o t i o n o f t o u r i s m , r e l i a b l e a n d cost-effective transport system, and lastly, sustainable transport towardssustainable development of the South African, and the Africaneconomy. These issues would take t ime to ef f ect .

Among the chal lenges, the most important one is f orging a newrail policy and plan for the country. On the other hand, governmenthas ind ica ted that i t may in i t ia l l y merge the key two players inpassenger rail operations into a single entity and simultaneouslyreview the role of the SARCC. Whilst the SARCC Board has tomake i ts contr ibut ion to the reso lu t ion of issues out l inedabove, commuter ra i l remains the essential means of transportserving the lowest i n c o m e g r o u p s o f t h e e c o n o m y w h o d e p e n do n i t t o commute to and from work.

ReviewIn the 2001/2002 financial year, Government provided SARCC witha subsidy of R1, 861 million, R495 million of which was for capitalprojects. There was, however, a net budget shortfall of R79 million.The capital funds were spent on refurbishing rolling stock, signallingand commuter rail stations.

The Corporation stepped up its monitoring aspect of the negotiatedconcessioning contract with Metrorail (a business unit of Transnet). TheContract Management and Development Division's Inspectors were

adequately trained and embarked on a closer monitoring of thecontract. The Division also undertook station census to get anindependent view on the level and quality of service provided by Metrorail.

The Corporation introduced the new 10M4 coaches in the Witsregion, Gauteng, at a launch funct ion he ld at Park Stat ion on23 October 2001. Notwithstanding these new coaches, the ageingrolling stock remains a concern in the provision of a reliable serviceto commuters. The deteriorating condition of rolling stock, amongother factors, has been linked to an increased number of trainscancelled versus train scheduled during the financial year. Thecondition of our ro l l ing stock , i f not addressed urgent l y, wi l la lso compromise safety in future.

SARCC, through its wholly owned company, Intersite PropertyManagement Services (Intersite), upgraded 14 stations at a total costof R121 million. Nine (9) inter-modal facilities were developedthroughout the country during the 2001/2002 financial year thuscontributing to a seamless public transport system in South Africa.Intersite, once again, contributed substantially to the total incomeof the Corporation. It earned income of R150, 9 million compared toR135, 2 million in 2000/2001.

Safety and security remains key to the Corporation in ensuring theprovis ion of serv ices to commuters. Regrettably, f ive tra inaccidents occurred during the 2001/2002 in which 24 people wereki l led and 353 were injured. Al l fatal i t ies occurred in theCharlottedale accident in KwaZulu-Natal in February 2002. TheCorporation, together with Metrorail and Spoornet, instituted aninternal inquiry into the accident and Cabinet established a Boardo f Inqu i ry to i nves t iga te the acc iden t . Repor ts on theseinves t iga t ions will be completed during 2002/2003.

The Corporation continued to put more effort and resources into themanagement of safety of commuters and the security of assets byinvesting funds in improving the safety of operational facil it ies.Vandalism of assets and cable theft continue to plague the commuter railsystem. To curb cable theft, the Asset Management and DevelopmentDivision introduced a new signalling technology that uses materials,which have little or no value to the second hand market.

During the financial year under review, Government continued to puton hold, indefinitely, the planned full-scale concessioning of thecommuter rail services. The negotiated concessioning agreementbetween SARCC and Metrorai l , which expires on 31 March 2003,would be extended in the interim whilst the institutional restructuringprocess is being finalised. The two parties would discuss and

The FutureThe commuter rail institutional arrangement was under a spotlightin 2001/2002 f inancia l year. Government and key ro le p layersbegan discussions on the framework. These discussions wouldcont inue into the fo l lowing year. Dur ing the year, MinisterO m a r i n i t i a t e d t h e e s t a b l i s h m e n t o f a R a i l P o l i c y. T h eCorporat ion is involved in the development of the Pol icy, whichwould be completed in 2002/2003

ThanksI thank the Minister of Transport, Dr. Dullah Omar, for his encouragementand guidance and also for the support of his Director-General, MrSipho Msikinya, Advisor, Prof essor Rwelamira, and DeputyDirector-General, Mr Jerry Makokoane, during 2001/2002. It hasbeen a pleasure to work with the Minister of Transport and his team.

During the year, I reconstituted Board Committees. The PersonnelBoard Committee was renamed the Human Resources BoardCommittee and the new Tender Board Committee established. Iwould like to thank fellow Board members for their participation in,and contribution to these Board Committees over and above their inputand advice in addressing the challenges facing the Corporation.

To the Chief Executive Officer of Metrorail, Mr Honey Mateya, hisexecutive management and staff, my thanks for continuing to providethe service as per our agreement.

I thank the Corporation's Acting ChiefExecutive Officer, Mr Ben van der Ross,for his contribution to the achievementof the Corporation's objectives. I alsorecord my appreciation to the Intersite'sManaging Director, Mr Jack Prentice,for his continued effort and success inmanaging the Corporation's propertyportfolio. Lastly, but not least, thanks tothe Corporation's Executive Managersand the staff for their hard workin striving to achieve the missionof the Corporation.

agree on the terms of the extension of the contract during thefollowing year.

This year marked the heightening of the Board's efforts to transformthe SARCC and its business. The strict adherence to corporategovernance and business ethics were top on the Board's agenda.Other activities included the revision of the mandate of the Board,the extensive review of the SARCC employees' demographic andgender profiles, which resulted in a ratio of 62% to 38% for Blacksto Whites, respectively. The actual implementation will take placeearly during the 2002/2003 financial year to allow for the executionof the necessary human resources processes. The strategies toeffectively deal with the balancing of employee demographics atsenior to board levels of management, and the aggressive changeof the total SARCC business approach have also been concluded forimplementation during the next financial year.

T h e f o c u s o n e m p o w e r m e n t o f p e o p l e f r o m p r e v i o u s l ydisadvantaged background has resulted in the revision of theSARCC tender policy by stipulating a pre-qualification 25% minimumof b lacks in a l l suppl ier tenders, and the h igher weight ings forsatisfaction of HDI requirements in the tender evaluation processes.The SARCC has developed strategies to pro-actively introduce andencourage BEE potential suppliers to commuter rail by informing themof the business opportunities within SARCC and the necessaryrequirements to participate, inclusive of the manner in which SARCCwould provide them with the necessary support.

The approach of Intersite in the upgrading of stations has shifted toa more consultative one to accommodate the needs of commuters,and to provide improved facilities for informal traders (hawkers) inan effort to develop this sector of business from an employmentcreat ion v iewpoint . The SARCC is act ively part ic ipat ing in the bi-national commissions arranged by the NDOT to contribute to theNepad initiatives and to attract the necessary rail expertise for itsbusiness.

Chal lengeDespite the challenges outlined above, the deteriorating conditionof rolling stock and funding thereof continue to be a major challenge tothe Corporation and the industry. During the financial year, NDOTprovided the Corporation with R135 million towards the refurbishmentof rolling stock, which was used for the 10M4 project. However, tosufficiently maintain the current system, a total capital investmentof between R1, 3 bill ion and R1, 6 bill ion per annum would berequired. To expand and grow the rail commuter system, an additionalR800 million per annum would be required over a 20-year period.

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EDDIE LEKOTACHAIRMAN

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The 2001/2002 financial year has been a difficult

and challenging year for the rail commuter industry

and the general commuting public. It is becoming

increasingly difficult to balance pressing challenges,

risks and priorities against available resources

and current uncertainty in relation to organisational

arrangements in the industry.

Despite these difficulties, service provision has continued andthere have been many positive highlights.

During the year the newly appointed Chairman, Mr E.L. Lekota andBoard of Control played an active and positive role in defining thevision and strategic direction for the business. These effortsculminated in an approach which addresses the challenges andthe future of the rail commuter business at the highest possiblelevel. They have created the required channels for intervention atnational policy level.

The Management and Board of Control believe that should thefuture role of rail, as an environmentally friendly developmentcatalyst, not be determined at national policy level, it wil l bedifficult, if not impossible, to transform the rail commuter businessinto a sustainable and user friendly public transport mode.

SERVICES PROVISIONSARCC received a subsidy of R1 856 million in the 2001/2002 financialyear. This subsidy comprised of an operational subsidy of R1 366 millionand a capital grant of R490 mill ion. Metrorail, a division of Transnet,operates the rail commuter services on behalf of the SARCC under afour year concession type agreement, which expires on 31 March 2003.

A total of 467 million passenger journeys were undertaken during2001/2002 in the six metropolitan areas where commuter rail servicesare provided. A total of R970 mi l l ion was expended on maintenanceactivities associated with the provision of roll ing stock and railinfrastructure. The SARCC concluded its financial position for theyear with a shortfall of R80 million on the operational subsidy providedfor the ent ire rai l commuter business.

INFRASTRUCTURE AND ROLLING STOCKThe Asset Management division of the SARCC, and Intersite

Property Management Services, a wholly owned subsidiary of

the SARCC, manage commuter rai l assets with book value of

R5, 6 bil l ion. Life Cycle asset management of rail infrastructure

and ro l l ing s tock is the r e s p o n s i b i l i t y o f t h e A s s e t

Management d i v i s ion , whereas ra i l s ta t i ons , i n tegra ted

pub l i c t ranspor t fac i l i t i es and proper ty developments are

managed by Intersite.

The annua l base cap i ta l grant a l locat ion to the SARCC f or

maintaining, upgrading and expanding rail commuter services

and infrastructure amounts to R300 mill ion - R400 mill ion per

annum. However in the financial year under review, an additional

R135 mil l ion was provided to the SARCC for the 10M4 roll ing

stock re fu rb i shment p rogramme. Fund ing f o r re i nves tmen t ,

re-capital isation and growth o f the ra i l commuter bus iness

remains a threat to sustaining the current rail commuter busi-

ness. To sufficiently ma in ta in the cur ren t sys tem, a to ta l

cap i ta l i nves tment o f R1, 3 bi l l ion - R1, 6 bi l l ion per annum

would be required. To expand and grow the rail commuter system,

an add i t iona l R800 million per annum would be requ ired over

a 20-year period.

The current annual limited capital allocation compels the SARCC to

manage priorities for capital expenditure in terms of short-term

crisis/emergency requirements. The situation has created a serious

d i l emma in te rms o f the per f ormance o f the sys tem and

consequently an unacceptable commuter and public experience of

the rail commuter system. This has unfortunately, but inevitably,

resulted in commuter frustrations, leading to instances of service

boycotts, rioting and damage to rail commuter assets.

During 2001/2002 the Corporation launched a new generation

train set and train configuration in the Wits region, Gauteng. The

new 10M4 is a result of continuous research and development to

establish an appropriate and cost effective technology application

as base for a future rolling stock refurbishment programme. The

10M4 design won an SABS Design Institute award for its potential

for future development in October 2001.

Approval was granted by the NDOT dur ing 2001/2002 for

commencing the technical feasibility study on the Khayalitsha rail

extension in the Western Cape Province. This represents the first

rail development project beyond the conceptional design phase, in

the past 15 years.

chief executive officer’sR E P O R T

Corporation. The condition and availabil ity of roll ing stock andinfrastructure have a serious effect on service delivery, punctualityand operat iona l saf ety. Poor serv ice re l iab i l i t y current l ycontr ibutes s igni f icant ly to passenger d issat isfact ion andfrustrations. The image of the rail system as the preferred publictransport mode is threatened, should a turn around of thebusiness not be achieved during the next financial year.

Regulatory and Institutional regimeThe current regulatory and institut ional regime which governsthe ra i l commuter bus iness i s based on a nego t i a ted railconcessioning arrangement. Following intensive investigationsinto long term concess ion ing, Government took a dec is ionnot to proceed therewi th , but rather to e f f ect the prov is ionof passenger ra i l serv ices under a publ ic ownership modelf or the f oreseeable future. When the market va lue and assetcondition o f t he ra i l commuter bus iness has been e n h a n c e da n d stabi l ised, the issue of concess ion ing can be rev is i ted.

As a consequence, the current contract wi th the operatorwi l l be extended on an agreed bas is , f rom March 2003.

THANKSI thank my management team and staff fortheir co-operation and effort in achievingthe objectives of the Corporation duringthis challenging year. I also thank theManaging Director of Intersite, MrJack Prentice, and his team for theircontribution to the business. To theBoard of Control and our Chairman, MrEddie Lekota, I thank you for yoursupport and direction throughout.

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Intersite completed 14 station refurbishment and nine intermodalfacilities development projects during the 2001/2002 financial year, thuscontributing significantly to the improvement of the rail commutingexperience.

SAFETY AND SECURITYManagement efforts were focused on all elements of safety andsecurity in the rail commuter business.

The full spectrum of safety risks in the rail commuter environmentresearched and analysed by the SARCC, included the following:

•Safety in relation to accidents and Safety Management systems,•Safety of passengers during operational activities,•Safety in the public and operational areas, and•Protection of assets

Various projects and proposals followed the investigations in orderto identify the risk areas and to implement appropriate sustainablesolutions to deal with and unfortunate, and in many instancesuncontrollable, wave of abnormal operational circumstances forwhich the business has not been structured or resourced.

During 2001/2002, five accidents occurred on the rail commuternetwork in which 24 passengers lost their lives, while 353 passengerswere injured. The 24 passengers were killed in the regrettableCharlottedale accident in KwaZulu-Natal in February 2002. Variousboards of inquiry were established to investigate this accident, includinga Cabinet appointed Board of Inquiry. Findings of the Boards of Inquirywill be released during the course of the following financial year.

Incidents of vandalism, specifically the theft of signalling andoverhead power cabling, as well as train window and doortheft, have increased exponen t i a l l y. These ac t i v i t i es renderthe sa f e and punc tua l performance of the rail system virtuallyimpossible. Various initiatives and projects are currently beingplanned and/or implemented to counter such criminal activities.The proposed dedicated transit policing unit will be incorporatedwith successful safety and security initiatives already beingimplemented by the rail commuter business.

STRATEGIC AND BUSINESS CHALLENGES FOR THE COR-PORATIONFundingThe capita l underfunding of the Rai l Commuter Businessremains the single biggest challenge and dilemma for the

BEN VAN DER ROSSACTING CEO

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1 APRIL 2001- 31 MARCH 2002

financialS T A T E M E N T S

a n n u a l

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CONTENTS

REPORT OF THE AUDITOR-GENERAL

DIRECTORS’ REPORT

BALANCE SHEET

INCOME STATEMENT

STATEMENTS OF CHANGES IN EQUITY

CASH FLOW STATEMENT

NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS

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26

27

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30

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1. AUDIT ASSIGNMENT

The financial statements and group financial statements as set out on

pages 26 to 39, for the year ended 31 March 2002, have been audited in

terms of section 188 of the Constitution of the Republic of South Africa,

1996 (Ac t No . 108 o f 1996 ) , r ead w i th sec t i ons 3 and 5 o f t he

Auditor-General Act, 1995 (Act No. 12 of 1995) and section 28(3) of the

Legal Succession to the South African Transport Services Act, 1989 (Act

No. 9 of 1989). These financial statements, the maintenance of effective

control measures and compliance with relevant laws and regulations

are the responsibil ity of the accounting officer. My responsibil ity

is to express an opinion on these financial statements, based on

the audit.

2. NATURE AND SCOPE

The audit was conducted in accordance with Statements of South

African Auditing Standards. Those standards require that I plan and per-

form the audit to obtain reasonable assurance that the financial state-

ments are free of material misstatement.An audit includes:

• examining, on a test basis, evidence supporting the amounts and

disclosures in the financial statement,

• assessing the accounting principles used and significant estimates

made by management, and

• evaluating the overall financial statement presentation.

Futhermore, an audit includes an examination, on a test basis, of evidence

supporting compliance in all material respects with the relevant laws and

regulations which came to my attention and are applicable to financial matters.

I believe that the audit provides a reasonable basis for my opinion.

3. AUDIT OPINION

In my opinion, the financial statements and group financial statements

fairly present, in all material respects, the financial position of the

South African Rail Commuter Corporation at 31 March 2002 and the

results of its operations and cash flows for the year then ended in

accordance with generally accepted accounting practice.

4. EMPHASIS OF MATTER

Without qualifying the audit opinion expressed above, attention is

drawn to the following matters:

4.1 Matters affecting the group financial statements

4.1.1 State compensation

The State compensation, which is received annually to

finance the operat ional def ic i t of the Corporat ion, is not

guaranteed. State compensat ion received in respect of

the opera t i ng subs id y f o r 2001-2002 f inanc ia l year

amounted to R1 366,250 mil l ion, which represented 71,9 per

cent of total operational expenditure of the Corporation. Under

these circumstances uncertainty exists about the Corporation`s

ability to continue operations without the curtailment of services.

Furthermore, the borrowing powers of the Corporation

have been withdrawn in terms of the South African Rail

Commuter Corporation Limited Financial Arrangements Act,

2000 (Act No. 64 of 2000). Adequate subsidisation is therefore

regarded as fundamental to ensure that the mandate of the

Corporation, as required by Government, is executed.

4.1.2 Property, plant and equipment

a) Capitalisation of design and study costs

I n c l u d e d u n d e r n e t p r o p e r t y, p l a n t a n d e q u i p m e n t

o f R 5 534,436 million at 31 March 2002 were study and design

costs, amounting to R14,847 million which were commissioned by

the State. The criteria required for capitalisation prescribed by

generally accepted accounting practice were however not met, as

the implementation of the plans was dependent on approval by the

State. Furthermore, forecasts of the future economic benefits to be

derived from these plans have not been prepared as at 31 March

2002. This deviation from generally accepted accounting practice

was disclosed in the accounting policy of the Corporation.

b) Classification of property, plant and equipment

Various completed projects, amounting to R12,130 million which

showed no movement f rom the 2000-2001 f inanc ia l year to

the 2001-2002 financial year were recorded in the work-in-progress

register of the Corporation. The finalisation of these projects were

dependent on the receipt of completion certificates.

c) Depreciation on buildings

In contravention with generally accepted accounting practice and

T H E A U D I T O R - G E N E R A Lf o r t h e y e a r e n d e d 3 1 M a r c h 2 0 0 2

R E P O R T O F T H E A U D I T O R - G E N E R A L T O P A R L I A M E N T O N T H E G R O U PF I N A N C I A L S T A T E M E N T S O F T H E S O U T H A F R I C A N R A I L C O M M U T E RC O R P O R A T I O N F O R T H E Y E A R E N D E D 3 1 M A R C H 2 0 0 2

r epor t o f

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the accounting policy of the Corporation, a building to the value

of R50 million was not depreciated. Accumulated depreciation and

the retained deficit have been understated with R5 million. This

dev ia t ion f rom generally accepted accounting practice was

disclosed in the accounting policy of the Corporation.

4.1.3 Non-distributable reserves

Government grants, amounting to R2 389 million as at 31 March

2002, received in respect of property, plant and equipment were

recorded as non-distributable reserves. Contradictory to generally

accepted accounting practice these reserves were not amortised

as income received over the useful economic life of the related

assets. This deviation from generally accepted acounting practice

was disclosed in the accounting policy of the Corporation.

4.1.4 Accounts payable

Included in accounts payable of R475,752 million was an

unknown deposit of R5,3 million of which the obligation could not

be verified.

4.2 Matters not affecting the group financial statements

4.2.1 Non-comp l i ance w i th l aws and regu l a t i ons :Approva l o f the annual budget

Contrary to section 52(a) of the Public Finance Management Act,

1999 (Act No.1 of 1999) (PFMA), the budget for the 2002-2003

financial year of the Corporation was not submitted to National

Treasury for approval. The non-submission of the budget was due

to inadequate funding received from the National Department of

Transport to the amount of R245 million. In terms of the South

African Rail Commuter Corporation Limited Financial

Arrangements Act, 2000 ( Act No. 64 of 2000) the borrowing powers

of the Corporation were withdrawn and consequently a negative

budget will result in the non-payment of liabilities. The

Corporation brought this matter to the attention of the Ministers

of Transport and Finance prior to the due date for submission

of the budget as required by section 52(a) of the PFMA.

4.2.2 Fire at Germiston Station

A fire on 22 April 2002 at the Germiston Station resulted in

damages to 29 coaches with an insured value of R41,6 million.

DORIS L. T. DONDURfor Auditor-GeneralJohannesburg30 July 2002

4.2.3 Weaknesses in internal control: Information system

A follow up computer audit of the general control environment

surrounding the computerised information systems of the

Corporation was finalised on 13 June 2002. This review revealed

the following control weaknesses:

•The disaster recovery plan was not available for review.

•An information technology policy was drafted but the policy was

not formally approved and made available to all users.

•User account management procedures were not approved and

communicated to all users.

•Backups for the Oracle Financial System and the VIP system

were not regularly tested and were stored at the premises of

the Corporation. In light of the fact that numerous hard copy

printouts were also not made, the risk of losing irreplaceable

data if the computer is damaged or destroyed was significant.

•Only one person was responsible for the VIP system and

the reconciliation with electronic fund transfers, which was

regarded as weak segregation of duties.

•Phys i ca l secur i t y a round the computer sys tem was

inadequate.

4.3 Financial Statements

In terms of section 55 (1) (c) (ii) of the PFMA, 1999 (Act No.1 of

1999) the accounting officer must submit the financial statements

wi th in two m o n t h s a f t e r t h e f i n a n c i a l y e a r - e n d t o t h e

Auditor-General . The financial statements were submitted in

time, but due to amendments to the statements emanating from the

a u d i t , t h e f i n a l f i n a n c i a l s t a t e m e n t s we r e o n l y s i g n e d o n

26 July 2002.

5. APPRECIATION

The assistance rendered by the staff of the Corporation during the

audit is sincerely appreciated.

The Corporation ensures the provision of commuter rail

services through Metrorail, (a business unit of Transnet)

under a negotiated concessioning agreement. Metrorail's

act iv i t ies inc lude the operat ion of the tra ins, the dai l y

maintenance of rolling stock and infrastructure, the collection

of and account ing f or the fare revenue co l lec ted f rom

passengers, and the provision of security relating to the service.

The property portfolio of the Corporation is managed by

Intersite Property Management Services (Pty) Ltd (a wholly

owned subsidiary of the Corporation hereafter referred to as

‘Intersite’). Intersite performs property management services,

both in respect of property owned by the Corporation and

property owned by Transnet which are u s e d f o r t h e com-

muter serv i ce. I t s ac t i v i t i es i nc lude ma in tenance o f

the p roper t i es , improvements t o t he properties, prop-

erty developments, lett ing of the properties and collec-

tion of rentals.

d i rec tors ’The Board of Control presents the group financialstatements of the South African Rail CommuterC o r p o r a t i o n ( h e r e a f t e r r e f e r r e d t o a s t h eCorporation ) for the year ended 31 March 2002.

1. Incorporation

The Corporation has been registered in terms of Section

22(1) of the Legal Succession to the South African

Transport Services Act No. 9 of 1989. As per Section 31(2)

of the same Act the provisions of the Companies Act,

1973 do not apply to the Corporation.

2. Nature of the Business

The core functions of the Corporation are:

1) To ensure that, at the request of the National Department

o f Tr a n s p o r t o r a ny s p h e r e o f g o v e r n m e n t , r a i l

c o m m u t e r s e r v i c e s a r e p r o v i d e d i n t h e p u b l i c

interest and to promote rail as the primary mode of

mass commuter transportation and,

2) To m a n a g e a n d d e v e l o p c o m m u t e r r a i l a s s e t s ,

which includes property, land (in and around stations),

rolling stock and infrastructure.

R E P O R T

16

The restored Pretoria Station

F O R T H E Y E A R E N D E D 3 1 M A R C H 2 0 0 2

17

3. Vision, Mission and Objectives

Vision

To establish rail as the preferred mode of public transport

a n d t o b e t h e r e c o g n i s e d c ha m p i o n i n e n s u r i n g t h e

provision of quality commuter rail services for all Transport

Authorities in South Africa.

Mission

To manage the assets and funding of the rail commuter

bus iness on beha l f o f government , and to ensure the

e f f i c ient and e f f ect ive loca l de l i very o f ra i l commuter

services, within National Land Transport Policy directives

and appropriate regulatory regimes.

Objectives

3.1 To manage the negotiated concessioning and other

contracts re lat ing to ra i l commuter serv ices and

infrastructure.

3.2 To be an ef f ect ive and ef f ic ient concessionor by

ensuring the provision of safe, reliable, af f ordable,

clean and punctual rail commuter services.

3.3 To ensure value for money in the utilisation of the

rail commuter subsidy.

3.4 To plan, facilitate and ensure optimal rail commuter

infrastructure expansion.

3.5 To ensure op t ima l u t i l i sa t ion o f funds and ra i l

commuter assets.

3.6 T o e n h a n c e t h e C o r p o r a t i o n ' s a s s e t s b y

facilitating investment from external sources.

3.7 To ensure the prov is ion of adequate funds, both

cap i ta l and operat iona l , i n order to sus ta in the

long-term viability of the business.

Official opening of Tembisa Station by Minister Omar

18

Overview of the achievement of the Corporation's

business objectives

3.1 To manage the negotiated concessioning agreement

with Metrorail and other contracts relating to rail

commuter services and infrastructure.

Management of the Contract

The Contract Management and Development Division has

s t e p p e d u p i t s m o n i t o r i n g a s p e c t o f t h e n e g o t i a t e d

a g r e e m e n t w i t h M e t r o r a i l . Th e C o r p o r a t i o n n o w

m o n i t o r s t h e agreement closely and gets independent

reports, over and above Metrorail regular reports on the

provision of service.

Mutual asset rental contracts

The con t rac t be tween the Corpora t ion and Transnet ,

t r a d i n g a s S p o o r n e t , i n c l u d e s a p e n a l t y s t r u c t u r e

f o r n o n - d e l i v e r y o f a c c e s s t o t h e a s s e t s a n d a

safety case for all operators on the same infrastructure.

3.2 To be an effective and efficient concessionor by

ensuring the provision of safe, reliable, affordable,

clean and punctual rail commuter services.

Safety

The Corporation continued to put more effort and resources

into the management of safety of commuters and the security

of assets by investing funds in improving the safety of all

operational facilities, namely rolling stock, signals, perway and

stations.

The Corporation records al l incidents in and around the

commuting areas distinguishing between crime related and

operational incidents. The total number of criminal incidents

decreased by 18,05% during 2001/2002 and operational

(non-criminal) incidents decreased by 0,96% during the

same period.

Commuter rail safety remains a priority of the Corporation

and the results achieved during the financial year under

review testify to efforts by both the Corporation and

Metrorail to provide a safer means of transport for commuters.

Reliability and punctuality

Train punctuality has deteriorated slightly from 89,65% in

the year 2000/2001 to 89,14% in 2001/2002 and passen-

ger t r i ps dec reased f rom 489 m i l l i on i n 2000/2001 to

467 million in 2001/2002.

Trains cancelled versus trains scheduled increased from

0,77% in 2000/2001 to 3,48% in 2001/2002, against the

acceptable norm of between 0,30% and 1,00% . The

increased number of trains cancelled were due to a number

of factors of which the more important were:

- Vandalism and cable theft.

- The deteriorating condition of rolling stock due to

increasing intervals between major services, brought

about by a shortage of funds.

- The unavai labi l i ty of tra in sets due to shortages

resulting from arson, vandalism and accidents.

- A directive from Metrorail Head Office for all regions to

comply with the Basic Conditions of Employment Act,

especially in relation to hours worked by train drivers.

Affordability

Commuter rail provides an affordable public transport to

essentailly the lower income groups of our society. The

Corpora t ion s t r i ves to keep the serv i ce a f f o rdab le to

commuters. Annual fare increases proposed by Metrorail

are discussed with and sanctioned by the Corporation and

approved by the Minister of Transport.

d i rec tors ’R E P O R T

19

3.3 To ensure value for money in the utilisation of the

rail commuter subsidy.

Despite major increases in maintenance and security costs it

was possible to contain the subsidy increase to 7,5%

(2000/2001: 8,4% ).

3.4 To plan, facilitate and ensure optimal rail commuter

infrastructure expansion.

Signalling upgrade

In the financial year, three major signalling projects have

b e e n c o m m e n c e d b y t h e C o r p o r a t i o n a t a c o s t o f

R180 million, broken down as follows:

• Bellville - R 60 million

• Johannesburg Park Station - R 60 million

• Midway, Lenz, Lawley & Grasmere - R 60 million

- R 180 million

Rolling Stock Refurbishment

The Corporation owns a f leet of 4 638 coaches of which

4 207 a re opera t i ona l and 431 a re sc rap, su rp lus o r

defective. Rolling stock, which is old, has been, in some

cases, directly linked to train delays.

The Corporation has begun with the implementation of its

rolling stock refurbishment programme. The first upgraded

10M4 coaches were delivered in Gauteng, Wits Region, in

October 2001 at a launch honoured by the presence of the

Minister of Transport, Dr. A.M. Omar. R400 million has been

budgeted for the upgrade of 176 coaches (88 coaches each

in Cape Town and Johannesburg). The balance of the

upgraded coaches will be delivered in 2003.

New coaches have a modern new interior and exterior

appearance. The driver's cab has been modernised and has

better protection in case of a collision.

The achievement of the upgrade programme which is

required over a continuous period of 25 years would

improve the service rendered to commuters by reducing

train delays caused by breakdowns. However, the inability

o f G o v e r n m e n t t o c o m m i t t o a n e f f e c t i v e f u n d i n g

programme to upgrade the entire fleet over time renders

this unlikely at present. This is a matter of considerable

ongoing concern for the Corporation.

The replacement of 4 500 coaches over 40 years will cost in

the order of R54 billion, (at present value).

The new 10M4

20

Stations Upgrade

The Corporation through its subsidiary, Intersite, has

upgraded fourteen stations at a cost of R121 million in the

year under review.

Major projects undertaken during this financial year

include the following station upgrades:

• Stock Road - R 27 million

• Woodstock - R 12 million

• Station B - R 14 million

• Denneboom - R 10 million

• Wintersnest - R ..9 million

3.5 To ensure opt ima l u t i l i sa t ion o f funds and ra i l

commuter assets.

3.6 To enhance the Corporation's assets by facilitating

investment from external sources.

Funds

Although the Corporation strived to ensure the provision of

commuter rail within its set budget, a shortfall in subsidy

has lead to the inability to pay the management fee due to

Metrora i l , to the amount o f R79 mi l l ion . E f f i c iency

programmes which the Corporation initiated in the previous

financial years assisted in containing the cost of operations.

Commuter rail assets

The Corporation rented portions of its infrastructure to

Spoornet during the year and earned R60 mill ion

(2000/2001 R60 million) in rental income.

Property development

Income earned f rom In ters i te ac t i v i t i es amounted to

R150,9 million (2000/2001: R138,2 million). This included

income from third parties for the management of property portfolios

and other related services, amounting to R24,1 million

(2000/2001 R22,7 million). Once again, Intersite contributed

substantially to the total income of the Corporation to help to

reduce the subsidy required for rail commuter services.

3.7 To ensure the provis ion of adequate funds, both

capi ta l and operat ional , in order to susta in the

long-term viability of the business.

Capital Funds

T h e t o t a l i n v e s t m e n t o f c a p i t a l t o t h e v a l u e o f

R454 ,5 million (2000/2001: R291,8 million) was made

during the year under review. These funds were expended

mainly towards the rolling stock refurbishment programme,

infrastructure and station upgrades.

Operational Funds

Th e C o r p o r a t i o n r e c e i v e d a n o p e r a t i o n a l s u b s i d y o f

R1 366,3 million (2000/2001: R1 372,0 million) for the

2001/2002 financial year.

4. Financial Position and Results

Operational Results

Total Group income amounted to R214,8 million compared

t o R 2 0 0 , 8 m i l l i o n i n 2 0 0 0 / 2 0 0 1 . G r o u p o p e r a t i n g

expenditure increased by 8% (2000/2001: 0,88%

increase).

State Compensation

An amount of R1 366,3 million was received as a subsidy

for operational expenditure (2000/2001: R1 372,0 million).

This represents a decrease of 0,44% (2000/2001: 8,4%

increase), despite the inflationary nature of expenditure

incurred by the Corporation. The subsidy for capital

expenditure was R490,2 million (2000/2001: R355 million),

d i rec tors ’R E P O R T

5. Post Balance Sheet Events

On 22 April 2002 a fire destroyed 29 coaches at the

Germiston station. The insured value of the damage

caused, amounted to R41,6 million, while the replacement

value is estimated at more than R300 million. The cause of

the fire is still being investigated.

6. Performance Information

Services provided

The Corporat ion, through i ts concessionaire Metrorai l ,

provides rail services in the four major centres, namely

Wits (Johannesburg), Northern Gauteng (Pretoria),

Western Cape (Cape Town) and KwaZulu-Natal (Durban) as

well as Port Elizabeth and East London.

The length of each network, together with the number of

stations utilised on each region, is as follows:

Regions Network (km) Stations

Wits 360 167

Northern Gauteng 120 78

Western Cape 370 102

KwaZulu-Natal 208 102

Port Elizabeth 43 11

East London 49 18

Total 1 150 478

Passenger Journeys

The table below shows the number of passenger journeys

travelled during the year under review compared to the

previous year.

Passenger journeys (millions)

2001/2002 2000/2001 Increase/

decrease(% )

Wits 172,481 174,899 (1,38)

Northern Gauteng 80,151 81,262 (1,37)

Western Cape 152,297 164,407 (7,37)

Kwa-Zulu Natal 53,744 60,950 (11,82)

Port Elizabeth 2,054 2,041 0,64)

East London 6,239 5,928 5,25)

Total 466,966 489,487 (4,60)

Passenger journeys decreased by 4,74% (2000/2001:

0,32% decrease).

21The new Tembisa Station

7. Subsidiary:

The Corporation's interest in its subsidiary is summarised as follows:

Name % Share-holding Issued Capital Amounts owing Attributable by subsidiary to share of net the Corporation profit /(loss)

R'000 R'000 R'000Intersite PropertyManagement Services (Pty) Ltd

Ordinary shares

2000/2001 100% 2 22 908 (1 500)

22

The interior of the new 10M4 coach

d i rec tors ’R E P O R T

23

8. Corporate Governance

The King Report

The Board of Control endorses the Code of Corporate

Practices and Conduct as set out in the King Report and

ensures that the Corporation complies with the Code. The

need to operate the group's activities in an open and

accountable manner with the highest level of integrity is

recognised.

Board of Directors

The Minister of Transport, Dr Dullah Omar appointed two

Board of Control members during the year, bringing the total

number of directors to eight non-executive members. The

names of the directors are set out under note 9 below. The

Board, in order to keep effective control over the group meets

on a regular basis, and it recognises its responsibility to

report material matters to the Minister of Transport which it

does through regular meetings of the Chairman and Acting

Chief Executive Officer with the Minister, as well as through

the National Department of Transport representative on the

Board of Control and ad hoc reports as and when necessary.

Annual Financial Statements

The directors are responsible for the preparation of annual

financial statements in such a way that it fairly presents the

state of affairs and results of the operations of the group.

Th e a n n u a l f i n a n c i a l s t a t e m e n t s ha v e b e e n p r e pa r e d i n

accordance with the Statements of Generally Accepted

Accounting Practice. They are based on appropriate account-

ing policies, which have been consistently applied.

Going Concern

The operational subsidy for 2001/2002 was R79 million lower

than the requirement to operate the service as requested by

the National Department of Transport (2000/2001: R22 million).

For 2002/2003 the allocation of operational subsidy is again

inadequate, to the extent of R245 million. If the inadequate

capital subsidy provided by Government to maintain the level

of assets required for the current service levels is also taken

into account, it is clear that the continuation of the

Corporation as a going concern is under threat. The Minister

of Transport is currently addressing the future financial needs of

the Corporation at the highest level and the directors have a

reasonable expectation that the matter will be resolved to the

satisfaction of the Corporation. Provided that sufficient and

ongoing financial support is provided by Government, the

Corporat ion w i l l be ab le to cont inue i t s operat ions in

the foreseeable future. The annual financial statements are

therefore presented on the going concern basis.

Affirmative Action

The group has implemented a policy of affirmative action as

part of its employment strategy. The principles of the poli-

cy, and the support for Black Economic Empowerment, are

also applied to external consultants and suppliers of goods

and services.

Employment Equity Forum

The Employment Equity Forum has prepared an Employment

Equity Plan, which it monitors on a continuous basis.

Code of Ethics

A formal Code of Conduct and Ethics has been compiled to

which the directors and employees fully subscribe. This

Code provides reasonable assurance that all people are

treated with dignity and respect, that business practices

are beyond reproach, and that the group's reputation for

its integrity and credibility is protected.

24

Environment

The Group is aware of the necessity of maintaining the

highest standard of environmental care, and complies with

all regulations in this regard.

9. Board of Control

The affairs of the Corporation are managed by the Board of

Control members who include members of the Departments

of Finance and Transport. The Minister of Transport appoints

board members, including the Chairman. In addition, the

Minister appoints to the Board as Participant Observers,

representatives of the four provinces in which the

Corporation operates a commuter rail service.

The following Board members served as directors during

the year:

Messrs: EL Lekota (Chairman)

MP Malungani (Deputy Chairman)

WF Burger

V Daniels

J Makokoane

JM Ngobeni

O Shelembe (Resigned 28/02/2002)

RM Kgosana (Appointed 01/11/2001)

L Magagula (Appointed 01/03/2002)

The following participant observers served during the year:

Mr E van der Merwe (Gauteng)

Mr RF Petersen (Western Cape)

Dr J Mtila (Eastern Cape)

Mr G Mahlalela (KwaZulu-Natal) (Appointed 30/12/2001)

The Acting Chief Executive Officer is Mr BJ van der Ross,

who served as such throughout the year.

10. Internal Audit

PricewaterhouseCoopers (PwC) continued to perform the

du t i es o f i n te rna l aud i to rs o f t he Corpora t i on . They

perform internal audit functions based on the level of risk

associated with the various activities of the Corporation,

as agreed with the Audit Committee.

11. Internal Controls

A Fraud Prevention Policy was developed and approved

during the year under review. Subsequently, a Fraud

Prevention Plan was finalised and launched to all staff

members at an Employee Communication Forum meeting.

Internal controls and systems are now designed to provide

adequate assurance of the integrity and reliability of the

f i n a n c i a l s t a t e m e n t s , t o s a f e g u a r d a n d m a i n t a i n

accountability of assets, and to minimise the risk of fraud.

Railway signal

d i rec tors ’R E P O R T

12. Board Committees

12.1 Audit Committee

The Audit Committee consists of three members of

whom two, including the Chairman, are non-executive

members. One of the non-executive members is a

financial expert. The Acting Chief Executive Officer of

the Corporation serves as the third member.

The Chief Financial Officer, internal auditors and

external auditors attend meetings by invitation.

Members: Mr RM Kgosana (Chairman and non-executive

member) (Appointed 01/11/2001)

Mr EL Lekota (Non-executive member)

Mr O Shelembe (Resigned 28/02/2002)

Mr BJ van der Ross (Acting Chief Executive

Officer)

12.2 Human Resources Committee

Members: Mr EL Lekota (Chairman)

Mr J Makokoane

Mr O Shelembe (Resigned 28/02/2002)

Mr BJ van der Ross (Acting Chief Executive

Officer)

12.3 Tender Board Committee

Members: Mr JM Ngobeni (Chairman)

Mr EL Lekota

Mr BJ van der Ross (Acting Chief Executive

Officer)

Mr JP van Niekerk (Chief Financial Officer)

Mr BN Jacobs (Executive Manager: Asset

Management and Development)

12.4 Infrastructure, Property and Rolling Stock Committee

Members: Mr WF Burger (Chairman)

Mr EL Lekota

Mr BJ van der Ross (Acting Chief Executive

Officer)

Mr V Daniels

Dr J Mtila

Mr J van der Merwe

Mr RF Petersen

Mr G Mahlalela

12.5 Group Capital Investment Board Committee

Members: Mr BJ van der Ross

Mr EL Lekota

Mr JM Ngobeni

13. Corporate Details

13.1 Corporate Secretary

M r M I F a k i e r e s i g n e d o n 3 1 O c t o b e r 2 0 0 1 a n dMs N Siyothula was appointed (on a contractual basis) on1 November 2001.

13.2 Registered Address:

Block BLincoln Wood Office ParkWoodlands DriveWoodmead

13.3 Postal Address:

Private Bag X2Sunninghill2157

25

26

COMPANY GROUP

Notes 2002 2001 2002 2001R’000 R’000 R’000 R’000

ASSETS

Non-current Assets 5,531,944 5,318,742 5,534,436 5,320,940

Property, plant and equipment 2.1 5,531,709 5,311,378 5,534,436 5,313,811

Investment in subsidiary 3 235 235 - -

Loan 4 - 7,129 - 7,129

Current Assets 480,558 1,984,128 477,861 1,984,345

Accounts receivable 70,398 122,309 76,355 126,545

Amount owing by subsidiary 3 51,493 22,908 - -

Loan 4 7,129 7,128 7,129 7,128

Bank and cash 351,538 1,831,783 394,377 1,850,672

Total Assets 6,012,502 7,302,870 6,012,297 7,305,285

EQUITY AND LIABILITIES

Capital and Reserves 5,464,755 5,255,813 5,460,421 5,252,237

Ordinary share capital 5 4,248,258 4,248,258 4,248,258 4,248,258

Non-distributable reserves 6 2,389,019 2,352,243 2,389,019 2,352,243

Funds 7 100,000 80,000 100,000 80,000

Accumulated deficit (1.272,522) (1,424,688) (1,276,856) (1,428,264)

Non-current Liabilities 63,957 70,801 63,957 70,801

Long-term liability 8 34,927 37,967 34,927 37,967

Deferred income 9 29,030 32,834 29,030 32,834

Current Liabilities 483.790 1,976,256 487,919 1,982,247

Accounts payable 10 475,752 345,852 479,881 351,843

Short-term loans 11 - 1,624,000 - 1,624,000

Short-term portion of long-term liability 3,040 2,739 3,040 2,739

Short-term portion of deferred income 4,998 3,665 4,998 3,665

Total Equity and Liabilities 6,012,502 7,302,870 6,012,297 7,305,285

b a l a n c e s h e e tA S AT 3 1 M A R C H 2 0 0 2

27

COMPANY GROUP

Notes 2002 2001 2002 2001R’000 R’000 R’000 R’000

Revenue 12 190,562 177,912 214,792 200,806

Income from property management 2.2 126,770 115,543 150,852 138,242

Infrastructure assets rental 13 60,000 60,000 60,000 60,000

Sundry income 3,792 2,369 3,940 2,564

Expenditure 1,900,474 1,758,219 1,927,462 1,784,031

Defined contribution plan expense 2,855 2,742 5,331 4,914

Depreciation 14 237,525 175,113 238,648 176,441

Insurance claims 82,847 64,640 82,847 64,640

Insurance premiums 37,712 31,371 37,712 31,371

Management and agency fee 1,364,402 1,342,006 1,364,402 1,342,006

Other operating expenditure 25,150 12,888 36,474 23,117

Property portfolio expenses 125,106 106,218 113,703 97,600

Salaries 24,877 23,241 48,345 43,942

Operating deficit before interest (1,709,912) (1,580,307) (1,712,670) (1,583,225)

Interest received 15 37,642 3,661 39,642 5,100

(1,672,270) (1,576,646) (1,673,028) (1,578,125)

Interest paid 16 (11,979) (9,803) (11,979) (9,824)

Operating deficit before state compensation (1,684,249) (1,586,449) (1,685,007) (1,587,949)

State compensation 1,893,191 1,744,406 1,893,191 1,744,406

Operational subsidy 1,366,250 1,372,000 1,366,250 1,372,000

Capital subsidy 490,165 355,000 490,165 355,000

Special grant 36,776 17,406 36,776 17,406

Surplus for the year 208,942 157,957 208,184 156,457

i n c o m e s t a t e m e n tF O R T H E Y E A R E N D E D 3 1 M A R C H 2 0 0 2

28

c h a n g e s i n e q u i t y

s t a t e m e n t o f

COMPANY

Share Distributable Non- Accumulated CompanyCapital Reserve distributable Loss Total

Reserve CompanyR’000 R’000 R’000 R’000 R’000

Balance at 1 April 2000 4,248,258 68,000 33,780 (1,553,239) 2,796,799

Transfer from distributable reserve - (64,640) -.. 64,640 -

Transfer to distributable reserve - 76,640 -... (76,640) -

Transfer to non-distributable reserve - - 3,406 (3,406) -

Transfer to non-distributable reserve - - 14,000 (14,000) -

Increase in non-distributable reserve - - 20,000 - 20,000

Increase in non-distributable reserve - - 57 - 57

Increase in non-distributable reserve - - 2,281,000 - 2,281,000

Surplus for the year - - -... 157,957 157,957

Balance at 1 April 2001 4,248,258 80,000 2,352,243 (1,424,688) 5,255,813

Transfer to non-distributable reserve - - 6 (6) -

Transfer from distributable reserve - (82,847) -... 82,847 -

Transfer to distributable reserve - 102,847 -... (102,847) -

Transfer to non-distributable reserve - - 36,770 (36,770) -

Surplus for the year - - -... 208,942 208,942

Balance at 31 March 2002 4,248,258 100,000 2,389,019 (1,272,522) 5,464,755

F O R T H E Y E A R E N D E D 3 1 M A R C H 2 0 0 2

29

GROUP

Share Distributable Non- Accumulated Groupcapital Reserve distributable Loss Total

Reserve GroupR’000 R’000 R’000 R’000 R’000

Balance at 1 April 2000 4,248,258 68,000 33,780 (1,555,315) 2,794,723

Transfer from distributable reserve - (64,640) - 64,640 -

Transfer to distributable reserve - 76,640 - (76,640) -

Transfer to non-distributable reserve - - 3,406 (3,406) -

Transfer to non-distributable reserve - - 14,000 (14,000) -

Increase in non-distributable reserve - - 20,000 - 20,000

Increase in non-distributable reserve - - 57 - 57

Increase in non-distributable reserve - - 2,281,000 - 2,281,000

Surplus for the year - - - 156,457 156,457

Balance at 1 April 2001 4,248,258 80,000 2,352,243 (1,428,264) 5,252,237

Transfer to non-distributable reserve - - 6 (6) -

Transfer from distributable reserve - (82,847) - 82,847 -

Transfer to distributable reserve - 102,847 - (102,847) -

Transfer to non-distributable reserve - - 36,770 (36,770) -

Surplus for the year - - - 208,184. 208,184

Balance at 31 March 2002 4,248,258 100,000 2,389,019 (1,276,856) 5,460,421

30

COMPANY GROUP

Notes 2002 2001 2002 2001R’000 R’000 R’000 R’000

Cash flows from operating activities (1,268,717) (1,391,725) (1,271,935) (1,395,129)

Cash receipts from clients 242,473 209,002 264,982 229,547

Cash paid to suppliers & employees (1,536,853) (1,594,585) (1,564,580) (1,619,952)

Cash applied to operating activities 23 (1,294,380) (1,385,583) (1,299,598) (1,390,405)

Interest received 37,642 3,661 39,642 5,100

Interest paid (11,979) (9,803) (11,979) (9,824)

Cash flows from investing activities (450,728) (280,541) (452,145) (280,990)

Investment to maintain operations (457,856) (287,670) (459,273) (288,119)

Replacement/addition of fixed assets (454,479) (291,843) (457,510) (292,307)

Provision written back - (2,500) - (2,500)

Depreciation on Moveable Assets (6,053) (7,357) (6,053) (7,357)

Proceeds on sale/scrapping of assets 2,676 14,030 4,290 14,045

Loan to Metrorail according to agreement 7,128 7,129 7,128 7,129

Depreciation/transfer: moveable assets Metrorail 7,128 7,129 7,128 7,129

Cash flows from financing activities 239,200 3,496,899 267,785 3,515,424

(Decrease) in short-term loans (1,624,000) (527,000) (1,624,000) (527,000)

Increase in short-term portion of long-term

liability 301 272 301 272

Increase/(decrease) in short-term portion of

deferred income 1,333.. (572) 1,333 (572)

(Increase) in amounts owing by subsidiary (28,585) (18,525) - -

(Decrease) in long-term liability (3,040) (2,739) (3,040) (2.739)

State compensation - operational 1,366,250 1,372,000 1,366,250 1,372,000

State compensation - capital 490,165 355,000 490,165 355,000

Loans taken over by government - 2,281,000 - 2,281,000

Capital reserve - 57 - 57

Special grant loan debt - 20,000 - 20,000

Special grants for improvements to assets 36,776 17,406 36,776 17,406

Net (decrease)/increase in cash & cash equivalents (1,480,245) 1,824,633 (1,456,295) 1,839,305

Cash & cash equivalents at the beginning of the year 1,831,783 7,150 1,850,672 11,367

Cash & cash equivalents at the end of the year 351,538 1,831,783 394,377 1,850,672

c a s h f l o w s t a t e m e n t notesF O R T H E Y E A R E N D E D 3 1 M A R C H 2 0 0 2

31

1. Accounting policy

Th e f i n a n c i a l s t a t e m e n t s ha v e b e e n p r e pa r e d o n

t h e historical cost basis in accordance with Statements

of Generally Accepted Accounting Practice. The following

are the principal accounting policies used by the group

which are in agreement with the policies used in the

previous year:

1.1. Basis of consolidation

The consolidated financial statements include those of the

holding company and its subsidiary. All inter-company

transactions are eliminated upon consolidation.

1.2. Property, plant and equipment

1.2.1. Property, plant, equipment and depreciation

Property, plant and equipment are included at cost less

accumulated depreciation. Land is not depreciated as it is

deemed to have an indefinite life span.

All property, plant and equipment other than land and the

Africon building are depreciated on a straight-line basis

over the following estimated useful life spans:

Buildings : 50 years

Permanent Way & Works : 50 years

Rolling Stock : 33 years

Computer Equipment : 3 years

Other Moveable Assets : 10 years

The Afr icon bui ld ing is not depreciated. A bui ld ing

main tenance s ink ing fund f or ma in tenance o f the

building is in operation which will ensure that the net

realisable value of the building will exceed the cost price

thereof. We have obtained an expert opinion that due to

the specific nature o f p r o p e r t y, p l a n t a n d e q u i p m e n t ,

r e v a l u a t i o n i s n o t considered appropriate. These

assets are mainly utilised for the provision of a commuter

rail service, and as such have no specific ascertainable

market value.

1.2.2. Work-in-progress

Work-in-progress represents assets under construction

and is transf erred to property, p lant and equipment on

receipt of completion certificates.

1.3. Insurance

Partial self-insurance is achieved through the utilisation of

a n i n s u r a n c e r e s e r v e f u n d f o r c l a i m s i n r e s p e c t o f

malicious damage and for the payment of the excesses of

c l a i m s l o d g e d w i t h i n s u r e r s . Th e r e m a i n d e r o f t h e

insurance risk is managed through an insurance policy. The

fund is credited through the income statement by a transfer

to reserves up to the level needed to cover anticipated

losses for the following year. It is then debited by a transfer

to the income statement for the amount of losses incurred

during the current financial period.

1.4. Bank and cash equivalents

Cash cons is ts o f cash on hand and bank re f lec ts the

balance on the bank statement.

1.5. Post employment benefits

Th e g r o u p ' s c o n t r i b u t i o n t o t h e d e f i n e d c o n t r i b u t i o n

provident fund is charged to the income statement in the

year to which it relates.

1.6. Financial instruments

Financial instruments carried on the balance sheet include

cash and bank, receivables and trade creditors. These

instruments are carried at their estimated fair value.

notes to the group annual financial statementsF O R T H E Y E A R E N D E D 3 1 M A R C H 2 0 0 2

32

1.7. Deferred income

Deferred income representing rental received in advance is

recognised as income over the period of each lease.

1.8. Deviations from GAAP

The financial statements of the Corporation are a reasonable

representation of the financial position, financial performance

and cash flows for the year ended. Statements of Generally

Accepted Accounting Practice were complied with in all

material respects, except for AC129 paragraph 46, AC134

and AC410.

1.8.1. AC129 - Capitalisation of study and design costs

Study and design costs are capitalised at cost when

incurred, and are not depreciated.

These projects are executed in accordance with requests

received from Central Government or Regional Transport

Authorities and are only commissioned once the funds have

been approved by Government. In the event that it becomes

apparent that a project will not be commissioned, the

expenditure relating to such a project is written off.

As it is the opinion of management that government

intends to provide the necessary funding for the execution

of these projects, the criteria as set out in the statement

f o r t h e r e c o g n i t i o n o f t h e s e a s s e t s w i l l b e m e t a n d

therefore these costs have been recognised as assets.

Furthermore, the nature of these assets are such that it is

not related to future economic benefits but rather to future

social benefits, and therefore the risk of overstating

assets is excluded.

Had the cost been written off in accordance with the

statement, the impact on the financial statements for the

2001/2002 financial year would be as follows:

- Net loss for the year and accumulated loss would

increase by R14.8 million

- Fixed Assets (work-in-progress) would decrease by

R14.8 million

1.8.2. AC134 and AC410 - Government grants

All capital grants received from government are recognised

as a reserve instead of being credited to income or against

the re levan t asse ts .

I t i s management ' s op in ion tha t government grants as

r e f e r r e d t o i n AC 1 3 4 a n d AC 4 1 0 r e l a t e s t o g r a n t s ,

(hand-outs) given by government to business enterprises

over and above their normal income.

With government effectively being the owner of the

Corporation we do not believe that the situation prevalent

in our case was envisaged in the drafting of the statement.

The contributions represent capital contributions by the

state.

Had government grants been recognised in accordance

with the statement, the impact on the financial statements

for the 2001/2002 financial year would be as follows:

- Accumulated deficit would decrease by R1 273 mil l ion

- There will then be a retained surplus of R1 035 million

- Deferred income would increase by R81 million

- N o n d i s t r i b u t a b l e r e s e r v e s w o u l d d e c r e a s e b y R2

389 million.

n o t e s c o n t i n u e d

33

n o t e s c o n t i n u e d

2. Property, plant and equipment

2.1 .

Land & Permanent Rolling Work-in- Other TotalBuildings Way & Works Stock Progress Assets

R’000 R’000 R’000 R’000 R’000 R’000Company

Carrying value at 1 April 2000 2,256,718. 770,414. 1,324,652 670,893 176,144. 5,198,821.

Expenditure - - - 291,843 -. 291,843.

Capitalisations 99,826 53,016 .. 44,508 (350,709) 153,359.. -.

Adjustments - - - -. (471) (471)

Disposals (3,747) - (8,066) - (2) (11,815)

Depreciation (25,462) (36,993) (53,401) - (51,144) (167,000)

Closing Balance 2,327,335. 786,437. 1,307,693. 612,027 277,886. 5,311,378.

Cost 2,527,405. 1,140,399. 1,847,364. 612,027 583,895. 6,711,090.

Accumulated Depreciation (200,070) (353,962) (539,671) - (306,009) (1,399,712)

Carrying Value at 31 March 2001 2,327,335. 786,437 . 1,307,693. 612,027 277,886. 5,311,378..

Carrying value at 1 April 2001 2,327,335. 786,437. 1,307,693. 612,027. 277,886. 5,311,378.

Expenditure - - - 454,479 - 454,479.

Capitalisations 69,758. 43,125. 249,010 (410,862) 48,969. -.

Adjustments -. - (2,046) - (2,246) (4,292)

Disposals (677) - - - 1,950. 1,273.

Depreciation (24,629). (38,151) (61,018) - (107,331) (231,129)

Closing Balance 2,371,787 . 791,411. 1,493,639. 655,644 219,228.. 5,531,709..

Cost 2,596,364.. 1,183,525. 2,093,530. 655,644. 657,990. 7,187,053.

Accumulated Depreciation (224,577). (392,114). (599,891) - (438,762) (1,655,344)

Carrying Value at 31 March 2002 2,371,787. 791,411. 1,493,639. 655,644 219,228.. 5,531,709.

34

Land & Permanent Rolling Work-in- Other Intersite TotalBuildings Way & Works Stock Progress Assets Assets

R’000 R’000 R’000 R’000 R’000 R’000 R’000

Group

Carrying value at 1 April 2000 2,256,718 770,414. 1,324,652 670,893 176,144 3,312 5,202,133

Expenditure - - - 291,843 - 464 292,307

Capitalisations 99,826 53,016. 44,508 (350,709) 153,359. - -.

Adjustments - - - -. (471) - (471)

Disposals (3,747) - (8,066) - (2) (15) (11,830)

Depreciation (25,462) (36,993) (53,401) - (51,144) (1,328) (168,328)

Closing Balance 2,327,335 786,437. 1,307,693. 612,027 277,886. 2,433 5,313,811.

Cost 2,527,405. 1,140,399. 1,847,364. 612,027 583,895. 8,969. 6,720,059.

Accumulated Depreciation (200,070) (353,962) (539,671) - (306,009) (6,536) (1,406,248)

Carrying Value at 31 March 2001 2,327,335 786,437. 1,307,693. 612,027 277,886. 2,433 5,313,811 .

Carrying value at 1 April 2001 2,327,335. 786,437. 1,307,693. 612,027 277,886. 2,433. 5,313,811.

Expenditure - - - 454,479 -. 3,031. 457,510

Capitalisations 69,758 43,125 249,010.. (410,862) 48,969. - -.

Adjustments - - (2,046) -.. (2,246) - (4,292)

Disposals (677) - - - 1,950. (1,533) (260)

Depreciation (24,629) (38,151) (61,018) - (107,331) (1,204) (232,333)

Closing Balance 2,371,787. 791,411 1,493,639. 655,644 219,228. 2,727. 5,534,436

Cost 2,596,364. 1,183,525. 2,093,530. 655,644 657,990. 10,282. 7,197,335.

Accumulated Depreciation (224,577) (392,114) (599,891) - (438,762) (7,555) (1,662,899)

Carrying Value at 31 March 2002 2,371,787. 791,411 1,493,639. 655,644 219,228. 2,727. 5,534,436

n o t e s c o n t i n u e d

2.2. Included in property, plant and equipment are land and buildings that are subjected to finance leasing agreements with third parties where ownership of theproperty is vested in the hands of the Corporation. The lease terms and escalations are variable based on the nature of the respective lease agreements.

Furthermore, also included in property, plant and equipment are improvements to the extent of R 1 023 million which have been erected on land owned bythe Corporation. This land is leased and the right of use has been given solely to the lessee. The buildings erected thereon have not been capitalised as allrisks and rewards are borne by the lesee and ownership will only be transferred upon termination or cancellation of the relevant lease agreements.

The terms of these lease agreements are of such a nature that it would be impractical for the Corporation to disclose the expected rental to be earned forthe period as stipulated in terms of AC105.

COMPANY GROUP

2002 2001 2002 2001R’000 R’000 R’000 R’000

3 Investment in consolidated subsidiary

Unlisted shares at cost 235 235 - -

Directors’ valuation R235 000 (2001: R235 000)

Amount owing by the subsidiary 51,493 22,908 - -

This loan is subordinated in favour of the subsidiary’s other creditors to the extent of R 5 million.

4 Loan

Carrying value of moveable assets taken over by Metrorail 7,129 14,257 7,129 14,257

Short-term portion (7,129) (7,128) (7,129) (7,128)

- 7,129 - 7,129

The loan is interest free and is repayable at 31 March 2003.

5 Share capital

Authorised and Issued4 248 258 440 ordinary shares of R1,00 each issued to the State 4,248,258 4,248,258 4,248,258 4,248,258

6 Non Distributable Reserves

Capital reserve as a result of property, plant and

equipment obtained at no consideration 2,729 2,729 2,729 2,729

Asset enhancement reserve 85,290 48,514 85,290 48,514

Balance at the beginning of the year 48,514 31,108 48,514 31,108

Transfer from income statement

- Grants from local and regional governments 36,776 17,406 36,776 17,406

Special grant for taking over of loans 2,281,000 2,281,000 2,281,000 2,281,000

Funding of net liabilities 20,000 20,000 20,000 20,000

2,389,019 2,352,243 2,389,019 2,352,243

The asset enhancement reserves represent funds received from government institutions for asset development projects. The special grant for taking over of loans and

the funding of net liabilities represents monies received in accordance with the South African Rail Commuter Corporation Financial Arrangements Act No. 64 of 2000.

35

n o t e s c o n t i n u e d

36

COMPANY GROUP

2002 2001 2002 2001R’000 R’000 R’000 R’000

7 Funds

Insurance Funds

Balance at the beginning of the year 80,000 68,000 80,000 68,000

Movements during the year:

Transfer to income statement (82,847) (64,640) (82,847) (64,640)

Transfer from income statement 102,847 76,640 102,847 76,640

Balance at the end of the year 100,000 80,000 100,000 80,000

8 Long term liability

Interest due on property development financing arangement 188,856 203,162 188,856 203,162

Less: Discount on pre-payment of above interest (150,889) (162,456) (150,889) (162,456)

37,967 40,706 37,967 40,706

Less: Short-term portion (3,040) (2,739) (3,040) (2,739)

Net interest liability 34,927 37,967 34,927 37,967

The Corporation entered into a property development financing arrangement for the head office of Africon Engineering International (Pty) Ltd, in 1997,

covering a period of fifteen years. The liability in respect of the interest payments due by the Corporation over the remaining ten years are funded by

a combination of rental receipts from the development and a rebate received from the financing institution. This liability bears interest at 17,8% and is

secured by a building with a carrying value of R50 million.

9 Deferred income

Total income 34,028 36,499 34,028 36,499

Less: Short-term portion (4,998) (3,665) (4,998) (3,665)

29,030 32,834 29,030 32,834

Deferred income represents amounts received on the discounting of promissory notes relating to future rental income of fixed property. The promissory notes

have been received from lessees in terms of contractual agreements for the provision of commercial accommodation.

n o t e s c o n t i n u e d

37

COMPANY GROUP

2002 2001 2002 2001R’000 R’000 R’000 R’000

10 Accounts payable

Trade payables 42,368 34,831 42,837 35,474

Accruals 29,678 27,461 32,674 30,892

South African Revenue Services- VAT - - 339 -

Payroll payables 1,667 29 1,667 29

Other payables 402,039 283,531 402,364 285,448

475,752 345,852 479,881 351,843

No payables are interest bearing. Other payables include an amount of R 134 million owing to Metrorail which will only be paid upon receipt of additional

subsidies from the National Department of Transport.

11 Short term loans

Call Bonds - 1,624,000 - 1,624,000

- 1,624,000 - 1,624,000

All the Corporation’s loan debt was funded by Government on 31 March 2001.

12 Revenue

Revenue, which excludes Value Added Tax, represents infrastructure asset rentals and revenue derived from property development and letting of property.

13 Infrastructure

This income represents rental charges received from Spoornet for the use of SARCC infrastructure.

14 Depreciation

Depreciation includes a net loss on sale/scrapping of assets for the year amounting to R0,343 million (2000/2001: R0,756 million) for the Company,

R0,262 mill ion (2000/2001: R0,756 mil l ion) for the Group and R6,053 mil l ion for the Company and Group in respect of depreciation on Moveable

Assets transferred to Metrorail (2000/2001: R7,357 million).

n o t e s c o n t i n u e d

38

n o t e s c o n t i n u e d

COMPANY GROUP

2002 2001 2002 2001R’000 R’000 R’000 R’000

15 Interest received

Interest received includes that received from banking 37,642 3,661 39,642 5,100

institutions.

16 Interest paid

Interest paid on long-term liability 11,979 9,803 11,979 9,824

17 Taxation

No provision has been made for taxation as the Corporation is exempt from taxation in terms of legislation (with the exception of Value Added Tax, Regional

Services Council levies and other indirect taxes). The subsidiary, which is not exempt from taxation, has no tax liability due to an estimated tax loss amounting

to R2,257 million.

18 Post balance sheet events

On 22 April 2002 a fire destroyed 29 coaches at Germiston Station. The insured value of the damaged coaches amounted to R41,6 million, while the replacement

value is estimated at more than R300 million.

19 Capital commitments

Commitments for future years in respect of contracts entered into 1,339,000 547,146 1,438,772 612,528

Short-term commitments (698,003) (526,883) (786,775) (526,883)

Long-term commitments 640,997 20,263 651,997 85,645

The capital expenditure will be funded from capital subsidies from the National Department of Transport.

39

COMPANY GROUP

2002 2001 2002 2001R’000 R’000 R’000 R’000

20 Contractual commitments

The Corporation is contractually committed to provide commercial accommodation in respect of promissory notes received from lessees which have been

discounted with financial institutions. (See note 9)

21 Post employment benefits

Employees of the South African Rail Commuter Corporation and its subsidiary are members of a defined contribution provident fund governed by

the Pension Funds Act . The Corporat ion however, has no ob l igat ions to prov ide pens ion or medica l a id benef i ts to ret i red employees . A l l per -

manent employees are members of the fund managed by a Board of Trustees consisting of an equal number of employer and employee nominated trustees.

22 Medical aid prefunding

The Corporation has implemented a medical aid prefunding scheme whereby the Corporation contributes to a separate provident fund , 50% of the calculat-

ed actuarial liability for post-retirement medical aid requirements, over the balance of an employee’s term of service to retirement. This scheme has been

instituted on humanitarian grounds and the Corporation has no contractual liability for such contributions or for any post-retirement medical aid funding.

23 NOTES TO THE CASH FLOW STATEMENT

Cash applied to operations

Operating deficit before interest (1,709,912) (1,580,307) (1,712,670) (1,583,225)

Adjusted for: Depreciation 237,525 175,113 238,648 176,441

(1,472,387) (1,405,194) (1,474,022) (1,406,784)

178,007 19,611 174,424 16,379

Decrease in accounts receivable 51,911 21,869 50,190 19,520

Increase in deferred expenditure -. 9,221. -. 9,221.

Increase/(decrease) in accounts payable 129,900. (18,931) 128,038. (19,814)

(Decrease)/increase in deferred income (3,804) 7,452. (3,804) 7,452.

(1,294,380) (1,385,583) (1,299,598) (1,390,405)

n o t e s c o n t i n u e d

SOUTH AFRICAN

CORPORATION LTD

RAIL COMMUTER

2 0 0 2

M O V I N G P E O P L E

annua l

SOUTH AFRICAN

CORPORATION LTD

RAIL COMMUTER

LINCOLN WOOD OFFICE PARK WOODLANDS DRIVE

WOODMEAD 2157

TEL (011) 804 2900 FAX (011) 804 3853

WEBSITE: www.sarcc.co.za

M O V I N G P E O P L E