SA Express Airways, SAFCOL and Deputy Minister briefings: Annual Reports 2010/11

Meeting report

South African Express Airways: Annual Report 2010/11
The Acting Chairperson welcomed the Deputy Minister to the meeting.

Mr Inati Ntshanga, Chief Executive Officer, South African Express Airways, presented the Annual Report 2010/11 of the Airways (SAX). He noted that SAX’s vision was customer –centred and it aimed  “to be the most successful regional airline providing the best service to our customers while optimising profits”.

SAX had 1 019 employees as at 31 March 2011, 57% of whom were black and 36% of whom were female. Employment equity in scarce skills and technicians, and pilots in particular, remained a challenge for SAX, as most pilots coming into the industry were white males. One highlight of the year was the approval of SAX’s fleet renewal.

Mr Ntshanga reported that one negative aspect had been the increased number of flight cancellations as a result of the ageing fleet, but said that fleet reliability would be less of a problem after the renewal of the fleet. SAX’s on-time performance was affected by two incidents which rendered two aircraft unavailable for some time. One of these incidents occurred in Windhoek in Namibia, when the front wheel of one of the aircraft did not retract. Three months later, one of the aircraft hit an aardvark on the runway in Kimberley. Both airplanes were grounded for six months as a result. Another negative had been the failed Congo Express venture into the Democratic Republic of Congo (DRC). SAX had been excited about the launch of Congo Express in the DRC but the expansion was short-lived.

Only six key performance indicators were met while nine were not. Key performance indicators not met included turnover, earnings before tax and interest, return on total assets and the “on-time” performance of flights.

Ms Este Welman, General Manager: Business Development and Revenue Management,
and Acting Chief Financial Officer, SAX presented SAX’s financial performance for the 2010/11 financial year. Revenue growth for 2010/11 was 2.1%, with an increase of 1.01% in passengers carried. The total turnover of R1.748 billion had increased by 5% compared to 2010, but was 16% below the budgeted turnover amount. A total operating cost of R1.696 billion increased by 14% compared to the prior period, but was 3% below the budgeted amount. Net profit after tax was R51 million, down 80% on the previous period and 78% below the budgeted net profit after tax for 2011. Deviations from the budget arose as a result of aircraft incidents with direct and consequential costs (including ad-hoc leases to replace grounded aircraft and the increased fuel expense) amounting to R15.46 million, unavoidable costs in service and support to Congo Express amounting to more than R35 million, additional modifications needed to the ageing fleet totaling R3.27 million and World Cup preparations amounting to R6.8 million. In total, costs incurred by SAX were R60.53 million more than budgeted.

Mr Matsotso Vuso, Non Executive Director, SAX, presented some of the challenges faced by SAX and began with an explanation of errors relating to the 2009 Annual Financial Results which had totaled R43.3 million. As a result accumulated profit reported for the 2009/10 financial year was adjusted from R84.6 million down to R41.2 million. SAX received a qualified audit opinion for the financial year 2010/11 on the basis that auditors were unable to obtain sufficient and appropriate audit evidence as to the valuation of the company’s share of unrecognised losses in the Congo Express venture.

Subsequent to the approval of the audited financial statements, SA Express’ Ethics Hotline had received an anonymous call with allegations of irregularities in its annual financial statements. The allegations were material and, if substantiated, could negatively impact SAX’s Audited Financial Statements. The allegations included R42 million of VAT shown as a debtor by SAX but which may not be fully recoverable from the South African Revenue Services (SARS). SAX undertook to keep the Committee informed of the Forensic Audit findings. In addition, an amount of R16 million had been reported in trade receivables despite indications that the amount may not be recoverable. The findings of the forensic audit investigation would be reported to the Board and SAX would keep the Committee informed of developments.

Mr Ntshanga explained the challenges that SAX had faced in its Congo Express venture which was closed down in May 2011. SAX had learnt that in the future it needed to work with key stakeholders and solicit necessary support, and that it needed to learn from companies such as Shoprite, Standard Bank and SA Breweries, all of whom had successfully expanded their operations into the Congo and Southern Africa region. SAX was working closely with its sister company, South African Airways (SAA) to identify ways of expanding operations into the rest of Africa.

Expected challenges for 2011/12 included pressure on profitability as a result of increased fuel prices, as well as a legislated increase in fees charged by the Airports Company South Africa (ACSA) and the Civil Aviation Authority (CAA). As a result of the delay in the fleet renewal and changes in the exchange rate, the acquisition cost of aircraft would be higher.

Discussion
The Acting Chairperson congratulated SAX on its contribution to making the FIFA World Cup a success. SAX had, however, faced tremendous challenges since the previous year’s financial report. Nine of the company’s Key Performance Indicators had not been met. Profit in the financial year was substantially down from the previous financial year, despite the fact that South Africa had hosted the FIFA World Cup during the financial year being discussed. For the first time since 2007, SAX had received a qualified audit opinion, which was quite serious because it reflected on the SAX’s internal control systems. The Acting Chairperson thanked SAX for bringing to the Committee’s attention the potential irregularities in the financial statements.

Mr A Mokoena (ANC) said he appreciated SAX’s transparency in its presentation as the Committee could only assist and guide State-Owned entities (SOEs) if management was transparent. If SAX had been more transparent a little earlier then the Committee could have intervened to help SAX sooner.

Mr P van Dalen (DA) asked how the alleged irregularities reported through the hotline could affect SAX’s bottom line, and whether they would result in SAX making a loss instead of a profit for the financial year.

Ms C September (ANC) asked for more specific information about the investigation into the irregularities. She enquired when the investigation had started, and why it was not picked up when the books were audited. She also noted that the Committee had not been told of any employees having been suspended nor of any other processes as required by the Public Finance Management Act (PFMA) being instituted. She noted that the PFMA required SOE to have an audit committee and a number of other committees in place as part of their internal control system, and wanted to know if SAX had the audit committee in place, and, if not, the reasons. If they were in place, then she asked about their responses to the alleged irregularities. She suggested that this Committee may need to discuss the matter with the Standing Committee on Public Accounts (SCOPA) and perhaps place SAX on the list of entities that were required to report quarterly to Parliament.

Ms Vuso replied that SAX used a “combined assurance model”, in which it outsourced its internal auditing to KPMG. The SAX Audit Committee was in place and met regularly with KPMG to review their performance. Ms Vuso wished to clarify that the qualification received on SAX’s audit report was not because of weaknesses in SAX’s internal control system, but rather because the auditors could not determine the amount of unrecognised losses in the Congo Express venture. Neither the internal nor the external auditors had picked up any weaknesses in SAX’s internal control system. SAX’s fraud hotline was classified as part of its internal control system.

Ms G Borman (ANC) said that irregularities in the financial reporting systems were of concern, especially as The Acting Chairperson of SAX had said that irregularities possibly stretched back as long as three to four years.

The Acting Chairperson congratulated SAX for taking immediate steps to do a forensic audit and investigate irregularities reported after the 2010/11 financial year. He asked if the Committee could be given a time-frame for these investigations.

Ms Lilian Boyle, Chairperson, SA Express, offered a generic answer to all the questions on the alleged irregularities. The investigation into the irregularities started in mid-September, after the forensic auditors were instructed to begin the investigation, and it was only at that time that the matter was brought to SAX’s attention. Despite the alleged irregularities in its books, SAX had received a number of clean audit reports over the past few years. If this had not been reported to the Hotline, SAX would not have known about it. The professional external auditors had advised, for the Annual General Meeting in July 2011, that there were no irregularities found, and that the controls seemed good. The whistle-blower report came in August. The forensic audit began in mid-September. SAX would find out exactly what took place, what the quantum of the irregularities was, who was responsible, would take action if required and put in place the necessary controls to make sure that this would never recur. SAX already had a draft report but it still needed to be finalised. This would probably take about three weeks.

The Acting Chairperson replied it was totally unacceptable to reply on whistle-blowers to uncover irregularities. SAX’s internal control procedures and systems should have picked this up. It was a serious indictment on the internal control and policy practices of SAX, and went to the essence of good and solid financial management embodied in the PFMA and legislation. He expressed his and the Committee’s extreme concern.

Ms Boyle replied that the Board took cognisance of and applied its mind to professional advice provided by external resources. This was also of major concern to the Board, who was also extremely disappointed.

Ms September said she respected the answers given by SAX but that they had unfortunately not helped. This was one of the reasons why the Public Audit Act needed to be changed.

Ms September asked for more clarity on the Board’s fiduciary responsibilities, noting that in terms of section 50 of the PFMA, both the Board and the Department of Public Enterprises (DPE) had to answer questions. She also pointed out that if this investigation had begun in mid-September, she would have expected SAX already to have brought its preliminary findings to Parliament.

Ms September said she was now convinced that the Committee needed to take a number of steps itself. She was not satisfied with the answers given on the internal auditing, and she asked if anyone from Internal Audit was present, pointing out that it would have been desirable.

Ms Borman reiterated that it was very difficult for the Committee to understand how, despite the necessary controls being in place, SAX did not pick up irregularities over a number of years. She asked when the forensic investigation report would be brought to the Committee.

Ms Boyle reiterated that the Board took the matter very seriously. However, it would have been premature for SAX to have brought any forensic reports to the Committee today. The Board had received interim reports from the forensic auditors, but these had created more questions than answers, and so the forensic auditors had been sent back to do more investigations. Only once the Board was satisfied with the investigations could it determine the extent of the damage caused to the business and the actions that needed to be taken. Once the Board had deliberated on this, it would communicate its views to the shareholder first. Ms Boyle was optimistic that she would be able to communicate back to the Committee by the end of November 2011.

Ms Borman acknowledged that this presentation was a very difficult one for SAX. The Congo Express ordeal and the two aircraft accidents contributed to the decline in profits, and reflected negatively in the Annual Report. SAX said it had thought that the DRC venture would be viable, but she enquired whether adequate research was not done prior to the launch of the venture.

Ms Vuso assured members that a full due-diligence study for the Congo Express venture was conducted by an independent consultant.

Mr Mokoena asked how SAX planned to recover the money it had lost in the Congo Express matter.

Mr Ntshanga replied that SAX would follow legal proceedings against its partner in order to recover the money that had been lost. In order to protect itself, SAX had a shareholders’ agreement, governed under South African law, which prescribed certain matters. SAX would also try to use lawyers from the DRC to recover the money.

Mr C Gololo (ANC) asked how much money SAX had lost in the discontinued Congo Express venture.

Mr M Sonto (ANC) asked how SAX was going to prevent the reoccurrence of “unrecognised losses” in the future as this was an extremely worrying factor, especially considering SAX’s decline in profit.

Dr S van Dyk (DA) quoted the comments of the Auditor-General on page 55 of the Annual Report, which said “we have been unable to obtain sufficient and appropriate audit evidence as to the valuation of the company’s share of unrecognised losses in its associate as stated in Note 6 to the annual financial statements”. He asked what SAX would do to avoid such a comment in its next annual report.

The Acting Chairperson said that the qualified audit opinion and the potential irregularities reported were the two most important issues raised in the presentation. He noted that page 74 of the Annual Report, under note 6, stated that “SA Express share of unrecognised losses since the inception of Congo Express ..amount to R19 091 307”. On page 56 of the Annual Report, the Auditor-General stated that “In-principle approval for the sale of the shares was received from the Minister during May 2011; SA Express is still awaiting final approval for disposal of the shares”. He suggested that SAC had received the qualified audit because it had not had final approval for disposal of the shares. He asked for the current status on this, and the reasons.

Ms Vuso replied that the approval for the exit from Congo Express had been approved since the publication of the Annual Report.

The Acting Chairperson said that the Director’s Report on page 59 of the Annual Report set out the possibility of SAX following legal procedures to recover the unrecognised debt from the Congo Express venture. He asked if SAX had taken any legal measures to recover the debt since the publication of the Annual Report.

Mr Mokoena asked if SAX had any issues with the Civil Aviation Authority (CAA).

Mr Ntshanga replied that SAX did not have any issues with the CAA and that it worked very well with this Authority. However, SAX was not happy CAA increasing its fees by 50%.

Mr Mokoena asked if SAX could develop any synergies with Mango for the Durban-Cape Town routes in order to avoid “mutual hemorrhaging”.

Mr Ntshanga replied that SAX was working closely with SAA on this route. It was a tricky market. SAX had lost a lot of its potential passengers as it did not offer a business class service.

Mr Gololo asked if creating a business class section was not just a matter of hanging a curtain at the front of the aeroplane.

Mr Ntshanga replied that while a curtain could be used to create a business class section in the airplane, the seats also had to be made bigger and the safety masks relocated.

Mr Gololo asked how many foreign employees were employed by SAX in the region.

Mr Ntshanga replied that SAX employed 24 foreigners in Botswana and nine or ten foreigners in Namibia. These employees lived in the countries in which they worked. SAX did not have more than ten foreigners operating in South Africa.

Mr Gololo said that there was no mention of skills development for physically challenged people, and asked if SAX had recruited people with disabilities.

Mr Ntshanga replied that SAX had faced difficulties in recruiting physically challenged people. It was an area in which SAX was trying to improve.

Mr Gololo asked how many jobs SAX had created, in line with the New Growth Path (NGP) objectives, in the last six months.

Mr Ntshanga replied that SAX had increased its number of employees by approximately 5% or 6%, the bulk of which qualified under the NGP.

Mr van Dalen said the Committee had heard from SAA that it ran into problems with the severe shortage of fuel supply at OR Tambo International Airport. He asked how this had affected SAX’s bottom line. It seemed as if ACSA was not doing its job in ensuring adequate fuel supply.

Mr Ntshanga replied that SAX had contingency plans in place to deal with possible fuel shortages at the airports. One of these was “tankering”, whereby SAX would fill up on extra fuel at airports where there were no shortages.

Mr van Dalen said there also seemed to be a problem with the management of baggage. Again, it seemed as if ACSA was not doing another one of its jobs, and questioned whether this indicated a management problem.

Mr Ntshanga replied that the problem of missing baggage was still a problem, although there was little difference in the performance on this in South Africa and the rest of the world. SAX was working with ACSA to try to improve on this matter.

Mr Sonto said that on his most recent international trip two Members’ baggage was lost, but then located. He asked if SAX used a barcode system that made it easy to locate travelers’ baggage.

Mr Ntshanga replied that SAX did use the barcode system. It was possible that when some bags were not ever found, baggage thieves could have removed the barcodes.

Mr van Dalen asked for SAX to explain what “political factors” it was referring to on slide 5, which said that forecasted profits were very low due to natural and political factors.

Mr Ntshanga replied that the “political factors” did not refer to problems experienced in South Africa, as SAX worked very well with its shareholder, but to problems experienced when working with countries such as the DRC and Angola.
 
Mr Sonto asked why SAX was having difficulty retaining employees with scarce skills.

Mr Ntshanga replied that the airline industry was a small industry and that there was “poaching” of scarce skills by other airlines. SAX had lost some of its employees to other airlines, including five to SAA. SAX had developed programmes to try to retain its scarce skills staff.

Ms Borman said that SAX seemed to be regressing in terms of its employment equity figures.

Ms Borman commented that SAX’s performance against indicators had been poor.

Mr M Nhanha (COPE) said it had come to his attention that one of the criteria used in recruiting staff at both SAA and SAX was that a person should be able to swim, and he asked if this was still the case, as this seemed to be discriminatory against those who had never learned to swim.

Mr Ntshanga replied that only cabin crew needed to be able to swim, because they were primarily safety officers, then service officers. If a plane had to land in water in an emergency, it was essential that cabin crew be able to swim.

Mr Nhanha asked if the CEO and other executive employees expected to receive performance bonuses considering the 80% decline in profit from the previous year. Employees should only be given a performance bonus if they had performed beyond expectations.

Mr Ntshanga replied that bonuses were not paid to anybody in SAX for 2010/11 as it had not met its targets or its indicators.

Dr van Dyk questioned SAX’s statement that the client was the most important person in its business. He thought that the shareholder seemed to be the most important in SAX’s business. He asked what would happen in the situation where a traveler might be issued with an air ticket by SAA, but found himself traveling on an SAX aircraft with problems, and which carrier would be responsible for the arrangements and taking care of the passenger if delays occurred. There were instances in which airlines blamed each other, with neither taking responsibility for the passenger.  

Mr Ntshanga replied that the airline that issued the ticket was responsible for problems, except for those occurring as a result of weather conditions.

The Acting Chairperson asked for SAX to explain the table on page 49 of the Annual Report which stipulated the “retainer fees” paid to non-executive directors. There seemed to be huge variances of the fees across the quarters of the financial year.

Ms Boyle replied that the fees listed in the table were non-executive directors’ fees, based on the SOE remuneration guidelines of 2007. The fees paid to each director depended on the number of board committees on which each director served. Different levels of fees applied to the Chair and an ordinary member of a committee, according to the DPE guidelines.

The Acting Chairperson asked if the DPE wished to make any concluding remarks before the meeting was adjourned.

Ms Raisible Lepule, Deputy Director-General: Transport, DPE, said that the DPE was aware of the forensic investigation into the irregularities at SAX, and was seriously concerned about the matter. Ms Lepule acknowledged that SAX had not reached most of its shareholder compact targets, largely due to SAX’s significantly low profit. The DPE was very concerned about these results as SAX was soon to embark on its fleet renewable programme. The DPE was instituting monthly meetings with SAX to monitor its performance. The DPE was also considering the ways in which it could improve its oversight of SOEs so as to improve on the current situation.

Ms Lepule said that there had, however, been a number of positive developments in the 2010/11 financial year. One of these was that SAX was at the forefront of skills development.  SAX could be commended for trying to develop the skills of black pilots as this was very challenging.

Ms Lepule concluded by saying that, just as there were many challenges for SAX to address, there were also many opportunities to be taken up. One of these was the opportunity for strengthening management’s capability around financial management and reviewing existent internal controls. The fact that the fraud hotline was part of the internal control system should not be discounted. The DPE would work with SAX management on the Africa expansion strategy to ensure that thorough risk assessments were done.

Mr Benedict Martins, Deputy Minister of Public Enterprises, said that a number of pertinent issues had been correctly raised by the Committee. Once the Committee had heard presentations from all of the public entities under the DPE’s management it would be necessary for the DPE to engage with the Committee and present an overall picture of public entities and the challenges they faced. The DPE had discussed the issue of internal and external controls with all public entities at length, to ensure that the same auditing and legal companies were not awarded continuing and long-term contracts, which tended to lead to a “blurring” of responsibilities, as well as of the audit and oversight. The concerns raised by the Committee were shared by the DPE and were currently being addressed with all SOEs falling under the Department.

Mr Martins said that members had correctly flagged the issue of SAX’s expansion into Africa. In hindsight, what had been needed with the Congo Express venture was greater support from government. In most countries where there were bilateral relations between countries, governments had a stake in ensuring that the best conditions prevailed for the countries with whom they would do business.

Mr Martins said that there were other issues that the Department also wished to raise with the Committee, but now was not the appropriate time to do so, and he requested that the DPE be given the opportunity to report back to the Committee at a later date.

The Acting Chairperson thanked SAX for its presentation and noted that the Committee would work with SAX to help it overcome its challenges. Members looked forward to receiving the report on the forensic investigations into the alleged irregularities.

South African Forestry Commission Limited (SAFCOL) Annual Report 2010/11
Ms Nomfanelo Magwentshu, Board Chairperson, SAFCOL and Ms Maureen Manyama-Matome, Acting Chief Executive Officer and Chief Financial Officer, SAFCOL, presented the Annual Report for 2010/11. SAFCOL had received an unqualified audit opinion. It reported an increase in sales levels but a loss before tax of R101 million, a reduction on the previous year’s loss of R588.9 million. Return on equity was -5% for the year, an improvement on the previous year’s -18.5% return on equity. Negative year-end cash flows were reported for the year.

There had originally been a decision taken to privatise SAFCOL, but this decision was put on hold in 2009. Although there were no improvements on timber trading conditions, SAFCOL had managed to increase its revenue from the previous year. Some long-term timber sales contracts had ended on 31 March 2011 and so new ways of selling SAFCOL’s products had been found. One strategy had been to extend credit terms for sawn-timber customers.  SAFCOL had suffered no job losses to date and all employees except executive management had received salary increases. Cost savings initiatives were implemented during the financial year.

Both SAFCOL and Komatiland Forests (Pty) Ltd (KLF) were awarded Level 2 Broad Based Black Economic Empowerment (BBBEE) contributor status for the year. SAFCOL improved on its employer equity status, particularly with regard to disabled employees and the number of black managers at senior and middle management levels. The SAFCOL board was reconstituted and subcommittees were restructured during the financial year. SAFCOL’s terms of reference had also been reviewed and updated to fall in line with King III.

SAFCOL achieved most of the key performance indicators under its “Sustainable Forests Management” programme, except for one associated with the “total gross stock area” which was subject to excisions as required by legislation, environmental and other regulations. Fire was the main risk to sustainable forest management. Other challenges were damage caused by pests and baboons as well as the slow progress of land claims. SAFCOL also implemented a number of socio economic development projects during the year. Five new social compacts were signed in the 2010/11 financial year.

As at 20 September 2011, SAFCOL reported a continuing decline in cash levels. The revenue it generated was not sufficient to cover operating costs. Cash flow from operations showed a negative figure of R34.4 million. It was reported that SAFCOL had not met performance objectives related to SAFCOL’s financial returns, its creditworthiness, and its working capital management. SAFCOL’s financial losses were not sustainable and declining cash reserves were of concern, as they could impact on SAFCOL as a going-concern.

SAFCOL would focus on the implementation of the 2012 corporate plan as well as the implementation of the business turnaround plan and the filling of key positions in the coming financial year.

There were some major risks facing SAFCOL. The first related to the potential land claims on 61% of the land on which SAFCOL operated, which could have a significant effect on its operations after the land claims had been finalised. There was also a damages claim against SAFCOL and government of R3.2 billion, which had been lodged after the decision taken by government to put the privatisation process on hold in 2009. Key individuals who dealt with the case were no longer working at SAFCOL.

Discussion
Mr Nhanha asked to what extent the unresolved land claims impacted on SAFCOL’s relations with communities. He also asked to what extent the fires in its plantations could be linked to adverse relations between SAFCOL and communities.

Mr Mokoena asked what strategies SAFCOL had for entering into partnerships with communities in order to minimise the possible adverse effects of the land claims.

Ms Manyama-Matome replied that SAFCOL had signed 11 social compacts in total, five of which were signed in the 2010/11 financial year. The social compacts were similar to Memorandums of Understanding with the community, and would guide SAFCOL’s relations with neighbouring communities. SAFCOL established Joint Community Forums with communities, at which both SAFCOL and the community were represented, and these Forums identified projects that were needed in the community. The projects were funded by SAFCOL’s socio-economic development budget. SAFCOL was aiming to sign social compacts with all communities neighbouring its 18 plantations.

She further reported that for its enterprise development programme, SAFCOL created entities that generated cash for the communities. This was being done on a small scale at the moment and four entities were created during 2010/11. These entities provided a source of revenue for the community as well as employment. Ms Manyama-Matome said that SAFCOL had been proactive in creating the “Mlilo” fire awareness campaign which it pitched at communities and schools. This, together with the social compacts signed with communities, improved SAFCOL’s relationship with communities. She noted that there was no proof that people from neighbouring communities were responsible for fires in the plantations.

Ms Manyama-Matome added that SAFCOL was trying to position itself as a “preferred partner” of the communities, through the social compacts. Once land claims were settled, SAFCOL wanted to be able to lease the land from the communities.

Mr Mokoena said that the idea was not to create partnerships only after long, adversarial land claims, but to work with communities through the land claims to avoid protracted land claim cases.

Ms Manyama-Matome replied that the task of sorting out land claims fell under the Department of Rural Development and Land Reform.

Mr Nhanha commented that something should be done about the low percentage of women employees in SAFCOL, which was only at 20%.

Ms Manyama-Matome noted this comment and said that when the new structure was created it would take the company’s employment equity targets into account.

Mr Nhanha asked to what extent the stalling of privatisation impacted on SAFCOL’s declining cash reserves.

Ms Manyama-Matome replied that when SAFCOL was told that the privatisation was being put on hold it had stopped investing in operational assets. The cost structure of SAFCOL was too high, given SAFCOL’s size. Most of SAFCOL’s costs were fixed, which meant that its total costs did not respond to the recession and the declining revenue trend. The business turnaround plan that had been finalised would address this issue.

Mr Gololo said that South Africa currently imported toothpicks from China. He asked whether, as part of the New Growth Path strategy, SAFCOL had any plans to facilitate setting up a company to manufacture toothpicks as a way of creating jobs.

Ms Manyama-Matome replied that in 2007 a Cabinet memo had been issued saying that SAFCOL should not vertically integrate. Although SAFCOL had not identified toothpick manufacturing in particular, it had identified other companies. However, until the Cabinet memo had been altered or suspended, SAFCOL could not participate in facilitating companies.

Mr Gololo asked what was done with the meat of baboons that were culled.

Ms Manyama-Matome replied that she did not know what was done with the baboon meat but would follow up on it.

Mr Mokoena asked if the former Chief Executive Officer of SAFCOL had received benefits when he had left.

Ms Magwentshu replied that the former Chief Executive Officer had left after a negotiated agreement between himself and the Board, following difficulties experienced with his performance and the performance of SAFCOL. He had not received a “golden handshake”, but the Board had agreed on an annual salary settlement, in line with what the Commission for Conciliation, Mediation and Arbitration (CCMA) would have required SAFCOL to pay. There had been a dispute as he was trying to claim bonuses from previous years. This information would be disclosed in the following year’s financial report.

Mr Mokoena asked what SAFCOL was doing to develop its Research and Development Unit.

Ms Manyama-Matome replied that the need to further development the research unit in SAFCOL had been identified in the business turnaround plan.

Mr van Dalen commented that SAFCOL’s trade receivables had increased from R24.6 million to R43.5 million. He asked why this debt was going up and what systems SAFCOL had in place to manage its debt. He also asked what effect this account had on SAFCOL’s financial figures.

Ms Manyama-Matome replied that trade receivables had increased because SAFCOL had extended the credit terms for its lumber customers from 60 to 90 days so to encourage customers to continue buying. SAFCOL could take comfort in the fact that its bad debts had not increased.

Mr van Dalen asked why there were major differences in the amounts contributed by executives to their retirement funds and medical aids, and enquired whether the listing was accurate.

Ms Nomfanelo Magwentshu replied that employees could chose how they contributed to medical aid, either through the payroll or through a debit order off their own accounts. The majority of executive employees contributed to a retirement fund, except for a few people from the executive committee who had moved from the previous fund.

Mr van Dalen noted that page 54 of the Annual Report stated that no director, executive and non-executive, received a remuneration increase with effect from 1 April 2010, but page 55 seemed o indicate that the Senior Executive: Transformation had received quite a handsome increase of R200 000.

Ms Manyama-Matome replied that the amounts on page 54 and 55 included the total amounts received by employees, including reimbursements for travel.

Mr van Dalen noted that 93% of SAFCOL’s employees were black. He asked if this was in line with national demographics and, if not, whether it could be corrected.

Ms Manyama-Matome replied that the majority of these black employees were blue-collar workers working in the plantations. SAFCOL did hire white blue-collar workers when they applied for work in the plantations.

Mr van Dalen asked what SAFCOL was doing to attract white males to these positions if there was a shortage.

Ms Borman asked if the dismissal of the former CEO was linked to the R3.2 billion damages claim against SAFCOL.

Ms Magwentshu replied that the CEO had not been fired because of the damages claim.

Ms Borman noted that SAFCOL’s legal advisors thought SAFCOL had a strong chance of winning the damages claim case, but asked how strong this chance really was.

Ms Borman noted that SAFCOL claimed that it was “actively driving the concept of timber frame buildings”, but said she had not seen anything to suggest this. 

Ms Manyama-Matome was not sure if SAFCOL had interacted with the Department of Human Settlements. Timber-frame structures were used in all of its socio-economic development projects, such as the building of schools and clinics. SAFCOL recently built a health centre using timber-frame for the Metropolitan Momentum Foundation in the Eastern Cape.

The Acting Chairperson commented that a number of difficulties raised in the previous year’s Annual Report presentation by SAFCOL were still present, and he wanted an assurance that SAFCOL had made progress in the last year.

The Acting Chairperson asked what plans SAFCOL had to meet its key performance indicators in the future.

Ms Manyama-Matome replied that the business turnaround plan focused on how SAFCOL could meet the targets that it had failed to meet in the 2010/11 financial year. It would focus on revenue enhancement to some extent but would prioritise resolving its high cost structure.

The Acting Chairperson commented that if “dormant subsidiaries” and “investments held for sale” were removed from the “Group Structure” organogram on page 5 of the Annual Report, then very little remained. He called for an explanation.

Ms Manyama-Matome replied that the financial contribution of the dormant companies to the SAFCOL group was minimal. SAFCOL had decided to review and de-register these dormant companies.

The Acting Chairperson asked the DPE about the four investments for sale, which had a total book value of R295 million. SAFCOL had minority shareholdings in each of these four subsidiary entities and awaited government’s policy decision for the disposal of the remaining shareholdings. This matter was reported in SAFCOL’s Annual Report also in the prior year, and he asked for a status report.

Mr Phahlani Mkhombo, Chief-Director: Legal and Governance, DPE, replied that the DPE had engaged with Department of Rural Development and Land Reform (DRDLR) on this matter, as the latter also had to monitor these shares, some of which should have been received by communities after land claims were lodged. However, the DRDLR indicated that communities did not have the capacity to manage these shares, and were considering appointing an outside asset management company to deal with them. No formal correspondence had been received as yet.

The Acting Chairperson said it seemed that clarity was still needed on the future role of SAFCOL, as noted also in the previous year, and this clarity must come from the DPE.

Mr Mkhombo was pleased to report that there was a renewed effort, and matters were at an advanced stage in DPE, together with other stakeholders, to finalise the future role of SAFCOL. There were a number of competition issues involved in vertical integration and DPE had also had to conduct an economic impact assessment. DPE was hoping to finalise plans by the end of the current financial year and approach Cabinet for a decision on the matter.

The Acting Chairperson asked why no progress been made on the land claims matter.

Mr Mkhombo replied that the DRDLR was the lead department on land claims but that the DPE had also taken an active role in the matter as it wanted finality on land claims. The DPE had created a Land Claims Task Team, which met on a quarterly basis. The task team was looking at alternative models for land settlements as the Minister of the Department of Rural Development and Land Reform was not in favour of the current model being used by Mondi, which apparently did not benefit the community.

Mr Ben Martins said that it was in the best interest of the DPE to have operational certainty for SAFCOL. The DPE was familiar with the issued raised by the Chairperson. He reminded Members that at one stage, Cabinet had decided to privatise SAFCOL, but then reviewed this decision, to consider the best interests of the adjacent communities. There were at that stage also a number of land claims that had a direct impact on the ability of SAFCOL to operate at maximum capacity. Members of the community had had opportunities to meet with their traditional leaders and interest groups within the communities, but there was some lack of understanding of the fact that certain functions were vested in other government departments. DPE had taken upon itself the responsibility of coordinating the functions of all the core government departments. It had reactivated an inter-departmental community that had become dormant over the past few years, so that when communities came to the DPE they could get all the answers. The DPE was well aware of the responsibility of bringing closure to the communities so that they could relate to and see the benefits of the SAFCOL activities. At the same time, DPE was aware of SAFCOL’s operational constraints, such as on vertical integration.

The meeting was adjourned.