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TRANSCRIPT
SAFCOL Presentation to NCOP
Parliament of South Africa 25 February 2015
GROWTH THROUGH PARTNERSHIP
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PRELUDE – SAFCOL AND SOUTH AFRICA DEVELOPMENTAL CONTEXT
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SAFCOL’s growth supported by:
• SA Part Of BRICS
• SA National Development Plan – Year 2030
• Africa Rising Narrative
• Economic Growth
• Promotion of beneficiation of raw materials and manufacturing
• Massive infrastructure development worth over R1 trillion
SA FORESTRY Sector • R45.5 billion (1.6% of Total GDP) • Manufacturing GDP 7.7% • Roundwood and primary 25.5% of Agric • Employment 146 300 (170 000) or 22.5% • Pulp and Paper exports R14bn in 2013
Fuel – wood and charcoal, Lumber for
building, Furniture, Planks
Packaging, Wood panel veneers,
Particle board, Plywood, Bark
Products, Cork, Tannin (used for curing
leather), Dye, Drugs and oils,
Cinnamon, Cellulose Products,
Carpeting, Cellophane, Rayon and
other fabrics, Thickening agent (in
shampoo), Suntan lotion,
Shatterproof glass, Cosmetics, Paper
products, Fiber board, Imitation
leather, Sap Products, (Gums and
Resins), Cosmetics, Paint thinner,
Perfumes, Soap, Rubber products,
Sugar and syrup, Varnishes, Waxes,
Chewing gum
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SAFCOL BOARD of DIRECTORS
SAFCOL GROUP EXCO
SAFCOL Group CEO
NP Mona
1 September 2012
SAFCOL Group COO
F de Villiers
6 May 2013
SAFCOL Group CFO
ZM Mashinini
1 October 2013
Senior Executive:
HCM and Transformation
J Mphafudi
4 June 2012
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MANDATE To conduct forestry business which includes timber harvesting, timber processing and
related activities, both domestically and internationally
VISION Being a world-class, global business engaged in multi-functional forestry,
revolutionising the integration of forests and communities.
MISSION Our mission is driven by an unwavering commitment to facilitate the sustainable economic empowerment of communities and the alleviation of poverty through:
• Implementing needs-driven interventions; and
• Becoming a partner of choice for land claimants.
CORE VALUES Passionate about our forests, communities, customers and people * Have a social
and environmental conscience * Trust founded on integrity and loyalty * Equality,
fairness and empowerment
* Respect for diversity * Focus on innovation and excellence 6
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South Africa • Spread over
187 320 ha – with 121 000 ha planted
• 18 plantations
Mozambique • Initial IFLOMA plantations
cover 31 754 ha • In partnership with
Mozambican government (20% ownership)
• 4 plantations
OPERATIONS
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SAFCOL’S MAIN SUBSIDIARY, KOMATILAND FORESTS (KLF) MANAGES 180,000HA ACROSS 18 PLANTATIONS IN MPUMALANGA, LIMPOPO AND KZN
KLF is one of the largest producers of high quality sawlogs in Southern Africa
KLF owns and operates the Timbadola mill in Limpopo and rents two sawmills on the Highveld
Currently, 22% of SAFCOL sawlogs are processed internally
64% of available land is commercially planted with the remaining 36% comprising conservation areas, wetlands, grasslands, thickets and indigenous forests
Planted area predominantly pine (93%) with 7% Eucalyptus and Wattle
KLF’s focus is on producing high quality sawlogs and, to a lesser extent, wattle for fibre and bark markets
Growing stock managed over a 30 year rotation for sawlogs and 6-12 years for other products
KLF is able to sustainably harvest 1.447 million m3 annually
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The fact that KLF’s revenue from processing operations grew from 26% in 2008 to 33% in 2014 (36% of sales revenue), shows the significance of processing own sawlogs
SAFCOL HOLDS 80% OF THE MOZAMBICAN IFLOMA INITIATIVE WITH A LANDHOLDING OF 31,754HA IN PARTNERSHIP WITH THE GOVERNMENT OF MOZAMBIQUE
Mozambique-based public limited liability company which was established in the 1980s as a government initiative
As part of the privatisation of State-Owned Enterprises in Mozambique, 80% of the share capital of IFLOMA was sold to KLF in 2004 – with the remaining 20% of shares held by IGEPE, Mozambique’s State Shareholding Management Institute
Total landholding area is 31,754 ha in extent, of which 16,178 ha is plantable for commercial forestry
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Forestry
CORE OPERATIONS
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Processing
CORE OPERATIONS
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FINANCIAL HIGHLIGHTS
• Utilisation of own resources, not burden to fiscus
• The Group achieved the highest revenue (R894m) in 5 years
• Cash-flow increased by R69m year-on-year
• Our biological assets which were previously undervalued at R3
billion, were revalued to R3.67 billion
• The Group received an unqualified audit opinion
• HOWEVER: Operating costs remain a concern hence the
strategic shift towards greater efficiency and profitability
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SAFCOL’S STRONG POINTS
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FSC CERTIFIED (ensures that all forestry
environment activities are done in accordance with all environmental
laws and best practise locally and internationally).
• Fully FSC certified in SA
• Pre-certification completed in Mozambique
BUSINESS
• Sustainable and looking at new
growth opportunities
• Grow large diameter logs over a 30
year rotation
SOCIO ECONOMIC DEVELOPMENT
• Model of community development and social partnerships which can be emulated by other SOCs
SHEQ
• Group obtained 82.76%
compliance score
representing four stars
(NOSA)
• Annual internal environment
and safety audits were
conducted at operational
units
Inability to sell the log volumes because of the changes in the
market conditions
Under appreciation and poor
understanding of the role of SAFCOL and of
Forestry in the SA national economy
Skills development, attraction and
retention
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Unresolved protracted land
claims which cause uncertainty
Incorrect business model that
emphasises on raw material sales with little beneficiation
RISKS AND CHALLENGES
Competition Commission issues
High operational costs
Fires
ENTERPRISE DEVELOPMENT, TRANSFORMATION AND
EMPOWERMENT
SAFCOL has a constructive role to play in the growth, transformation and
empowerment of communities in rural areas where it operate.
To date, SAFCOL has;
assisted 2 Enterprises to purchase 8 trucks, this allow them to participate in the
multi-million transportation of logs business. Targeting 2 additional for
2015/16
established more than 15 Cooperatives which provide 500 sustainable jobs
built a Desk Manufacturing Factory with 20 youth producing school desks,
creating employment and encouraging entrepreneurship
Key goals include the promotion;
-and facilitation of Black Economic Empowerment,
-of capacity building,
-of entrepreneurship
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SOCIO-ECONOMIC DEVELOPMENT
• R6.6 million invested for Rural economic development in
2013/2014.
• SAFCOL has sign social compacts with the communities
surrounding its forests. These are agreements to
implemented Socio-Economic and Enterprise Development
programmes
• The community infrastructure development projects include
o Building market stalls
o School desks
o Farming equipment
o Dignity Packs
o Community
o Halls/centres
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EMPLOYMENT EQUITY STATUS
Programme
Male Female Total
A C I W A C I W
Top Management 0 0 0 0 2 0 0 0 2
Senior
Management 3 0 0 1 1 0 0 1 6
Professionally
qualified 25 2 1 32 14 1 3 5 83
Skilled 59 1 0 15 45 5 0 16 141
Semi-skilled 683 1 1 4 118 7 2 11 827
Unskilled 494 0 0 0 182 1 0 0 677
TOTAL 1264 4 2 52 362 14 5 33 1736
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HUMAN CAPITAL MANAGEMENT
HCM programmes completed in 2013/14:
• 250 Job profiling, grading finalised
• Succession planning for Females and core positions
implemented
• Accelerate development of Black Managers and
Professionals in core posts
• New Performance Management system
implemented
• Health and Wellness Programme for all employees
Implemented
• 15 HCM Policies Developed
• Achieved 100% Learning and development delivery
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SKILLS DEVELOPMENT PROGRAMMES
100% training delivery target achieved for 2013/14:
• Leanership programme: 78 leaners participated
• Internship programme: 34 interns and 13 artisans
participated
• Adult Education Training: 366 community
members participated
• Variety of training interventions (Computer,
Sewing, School Desk Manufacturing and
Upholstery): 500 Community members trained
• 15 Career Exhibitions conducted with 3500
participants
• R2 million spent on bursaries for employees and
school leaving youth
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LAND CLAIMS
Approximately 61% of the state forest land with SAFCOL/KLF forest
plantation is under claim i.e. Limpopo, MP and KZN
SAFCOL is on record through its annual reports highlighting the risk
faced by its operation due to unresolved land claims
SAFCOL is simply an affected party in the whole process of
management of the land claim process
SAFCOL leases the state forest land on the basis of letters of delegation
and interim agreements with DAFF
Therefore, it is the DRD&LR that plays a pivotal and leading role in the
management and resolution of land claims and SAFCOL/KLF is only an
affected party
It is SAFCOL/KLF ‘s stated intent to be the preferred partner of choice to
successful land claimants
SAFCOL together with DRD&LR are currently holding workshops with
all relevant stakeholders, including claimants on the proposed
settlement model through which the land will be transferred in title to its
rightful owners
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KLF: Komatieland Forests
DRD&LR: Department of Rural Development and Land Reform
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Limpopo Mpumalanga KwaZulu Natal
Total
Total no. of claims 14 17 1 32
Research 1 13 0 14
Gazetted/ negotiations
13 4 1 18
Settled* 3 0 0 3
Transferred 0 0 0 0
*these are pilot projects that are awaiting sign off of the final settlement model
LAND CLAIMS STATISTICAL INFORMATION
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Inter- ministerial task team meetings, are facilitated by DPE and are attended by DAFF, DRD&LR, DPE and SAFCOL
Issues discussed include the following:
• Warehousing of shares (SAFCOL privatised entities)
• Finalisation of SAFCOL lease with DAFF on state forest land
• Payment of rentals to the land claimants
• Stakeholder engagement plan
• Changes regarding land claim processes, gazetting and legislation
• Establishment and implementation of suitable settlement model
• Initiated operational specific meetings with Regional Land Claim offices (RLCC’s)
Achievements of such meetings are as follows:
o Established close working relationship
o Established focus teams for individual claims
o Facilitated operational meeting with all relevant stakeholders, e.g. DAFF, DRDLR, PW, etc.
o Offered mapping support, and other information to the Commission
o SAFCOL/KLF, through its initiatives such as Socio Economic Development Unit (SED) programme and Enterprise Development (ED) continues to position itself as the preferred partner of choice
• SAFCOL has developed a draft settlement model deemed suitable for settling land claims that affects the state forest land on which it operates
SAFCOL/KLF INVOLVEMENT
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POSSIBLE SETTLEMENT MODELS
Option 1: Lease Back Option 2: Strategic Partnership
Government to transfer the title and rights to the land to successful claimant communities for ownership
Community owns the land; and leases it back to SAFCOL/KLF for a maximum of two rotations (70 years)
KLF retains ownership of the trees, and pays a market rental for the use of the land.
Incentives by SAFCOL/KLF to claimants so as to help guarantee supply of raw material
At the end of the second rotation, parties may re-negotiate new terms that could result in the increased ownership of business by claimants
Application of additional benefits described below
Government to transfer the rights to the land or land in title to claimant’s communities
Government to acquire a share in the trees (to be informed by a Plantation Management / Business Plan for the Plantation
Claimants and SAFCOL/KLF to form a partnership in the ownership and management of the trees (the land is not to be included in the partnership)
Partnership to rent the land for two rotations
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OPTION 1 BENEFITS & ACTIVITIES
• Formation of community owned business enterprises, communities could
provide services to SAFCOL/KLF. This shall enable preferential
procurement, i.e. contracting opportunities
• Assistance of land claimants with the development of forestry related of
Enterprises
• SAFCOL/KLF to continue its social compacts and socio economic
development initiatives within adjacent rural communities inclusive of
claimants
• Provision of skills and knowledge transfers to land claimants on forestry.
• Focus to rural infrastructure development for community benefit
• Employment opportunities
• Capacitate communities in the forestry business as a whole to achieve
competent levels where after a transition to option 2 can explored
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IMPLICATIONS
Financial
• SAFCOL is obliged to pay lease rentals on the state forest land that it
uses for its plantations
• The current lease rental payments of R48million per annum are paid to
DAFF and ultimately the latter will pay such rental to claimants once
their land claims are upheld
• Post the settlement on a land claim and transfer, both SAFCOL and
DRD&LR including claimants would have to negotiate a lease rental of
the land payable to successful claimants
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WAY FORWARD
DRD&LR and DAFF with the assistance of the DPE and SAFCOL/KLF need to fast
track and finalise the restitution process affecting the state forest land operated
by SAFCOL/KLF and for that to occur the following support is required:
• The improvement on the turnaround times for the research, verification and
gazetting of valid land claims by the DRD&LR.
• An inter-ministerial engagement by DPE with counterpart in DAFF and
DRD&LR to solicit a political will and possibly agreement on the prioritisation
of the land claims that affects SAFCOL/KLF’s business operations.
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The following risks and challenges have been identified and are managed:
• Land claims are not timeously resolved thus leading to communities not being patient anymore and resorting to riots
• Supply of softwood saw log could be under threat due to communities not opting for SAFCOL as the preferred partner post transfer of the claimed land
• SAFCOL/KLF operations have received threats from communities due to unresolved land claim.
• Increased in temporary unplanted (UP) areas as a result of community conflicts
• Illegal occupation of KLF operated land
• Land that KLF operates being leased from the state, SAFCOL does not have the delegated mandate on the resolution of the land claims
LAND CLAIMS RISKS AND CHALLENGES
THE SOUTH AFRICAN LOG INDUSTRY IS DOMESTICALLY FOCUSED WITH AN EMPHASIS ON PRODUCTION OF PULP LOGS
The size of the South African timber market is
18.5million m3
There is an oversupply of logs in South African market
South Africa imports 90,000m³ of softwood lumber and 74,000m³ of plywood per year
SAFCOL currently does not export any logs or by-products
Owns about 8% of South African timber market
Owns more than 25% of pine saw log market
Major producer of larger diameter pruned logs in South Africa
Local demand for larger diameter logs has declined - SAFCOL is therefore unable to realize the value invested for 30 years into these types of trees.
Current state of South African log industry
South Africa SAFCOL
0
20
40
60
80%
Pro
po
rtio
n o
f SA
log
pro
duc
tio
n
Pulp logs
68%
Saw logs
22%
Other
10%
0
20
40
60
80
100%
Prop
ort
ion
of S
AFC
OL
plan
tatio
n st
ock
Pulp logs
10%
Saw logs
88%
Other
2%
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FINANCIAL PERFORMANCE FINANCIAL PERFORMANCE
-
100 000 000
200 000 000
300 000 000
400 000 000
500 000 000
600 000 000
700 000 000
800 000 000
900 000 000
1 000 000 000
Revenue Cost of Sales OperatingExpenses
2013 / 2014
2012 /2013
R’m
Revenue • Upward trend with 5%
increase on prior year
Cost of Sales • Increase mainly driven by
increase in land lease rentals
Operating expenses • Decrease mainly as a
result of lower spending
FINANCIAL PERFORMANCE
30
-10%
0%
10%
20%
30%
40%
50%
60%
70%
Gross Profit Margin Net Profit Margin Operating Profit Ratio
2013 / 2014
2012 /2013
Gross Profit Margin • As a result of the increase in Cost
of Sales driven by increase in land lease costs, gross profit margins decreased by 4%
Net Profit Margin • Significant increase in Net Profit
Margin driven by fair value on biological assets (9% for 2013 to 57% for 2014)
Operating Profit Ratio • In the prior year profit included
sale of property asset, resulting in a 4% profit ratio against -4% in the current year
FINANCIAL PERFORMANCE
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SAFCOL GROUP STATEMENT OF FINANCIAL PERFORMANCE
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Amounts in Rand Thousands 2 014 2 013 Variance Variance %
Revenue 894 374 855 608 38 766 4.5%
Cost of Sales 699 491 635 006 64 485 10.2%
Other income 8 615 64 878 -56 263 -87%
Fair value adjustments 731 445 63 028 668 417 1061%
Operating Expenses 239 275 251 207 -11 932 -5%
Operating profit 695 668 97 301 598 367 615%
Net investment Revenue 11 286 11 988 -702 -6%
Profit before taxation 706 954 109 289 597 665 547%
(Loss) / Profit before taxation excl. fair value adjustments -24 491 46 261 -70 752 -153%
Financial year
SAFCOL GROUP STATEMENT OF FINANCIAL POSITION
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Amounts in Rand Thousands 2 014 2 013 Variance Variance %
ASSETS 4 857 663 4 090 818 766 845 19%
Non-current assets 3 760 297 3 042 325 717 972 24%
Current Assets including current portion of biological assets 724 611 710 680 13 931 2%
Non-current assets held for sale 372 755 337 813 34 942 10%
EQUITY AND LIABILITIES 4 857 663 4 090 818 766 845 19%
Equity 3 608 575 3 103 102 505 473 16%
Liabilities 1 249 088 987 716 261 372 26%
Non-current liabilities 1 080 239 861 220 219 019 25%
Current liabilities 168 849 126 496 42 353 33%
Financial year
GROWTH THROUGH PARTNERSHIP
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SAFCOL GROUP STATEMENT OF CASH FLOWS
Amounts in Rand Thousands 2 014 2 013 Variance Variance %
Cash flow from operating activities 93 745 15 191 78 554 517%
Cash flow from investing activities -34 652 6 724 -41 376 -615%
Cash flow from financing activities 10 339 12 270 -1 931 16%
Total cash movement for the year 69 432 34 185 35 247 103%
Cash and cash equivalents at end of the year 222 162 152 730 69 432 45%
Financial year
FIVE-YEAR CASH FLOW TREND
• The Group generates cash from its operations: Improvement since FY2010 from negative R136 million to positive R83 million
• Cash and cash equivalents: Since FY2011, there has been increase in cash resources of more than 100%.
-200
-150
-100
-50
0
50
100
150
200
250
2010 2011 2012 2013 2014
Cash flow from operations(R'mil)
Cash and cashequivalents(R'mil)
Five-year trend of cash flows
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• 2013 Audit qualifications: The 3 qualifications have been resolved and are no longer applicable resulting in an Unqualified audit opinion for 2014.
• Restatement of 2013 figures: Corrections completed in the current year relating to prior year for non-current assets, current assets and retained income.
• Material losses: R 1 million incurred as result of fraudulent activities at IFLOMA
o Remedial Action: R0.8 million recovered and criminal processes instituted
• Non-compliance to Treasury regulations:
A. Liability management: in respect of existing credit cards that were not cancelled.
o Remedial Action: engagement with National Treasury on card alternatives
B. Strategic planning and performance management: The corporate plan did not include all the strategic objectives and outcomes agreed upon by the executive authority in the shareholder's compact or key performance measures and indicators for assessing the entity's performance in delivering the desired outcomes and objectives.
o Remedial Action: alignment of corporate plan and shareholders compact for subsequent period
AUDIT REPORT
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SAFCOL’S OUTLOOK
Financial/ commercial
sustainability
Sustainable forestry management
Enhanced development contribution
Timbadola upgrade and expansion
Export logs
IFLOMA expansion Under review Under review Under review
Plywood mill and co-generation facility
Green Energy
These initiatives meet the objectives of enhanced development, financial and commercial sustainability and sustainable forestry management to varying degrees
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Thank you