South African Forestry Company (SAFCOL) on its 2010/11 Annual Report

NCOP Public Enterprises and Communication

07 August 2012
Chairperson: Ms M Themba (Mpumalanga, ANC)
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Meeting Summary

SAFCOL presented its 2010/11 Annual Report highlighting that losses still continued in the entity however cost-cutting measures had been instituted. Forest fires, both natural and man-made, were cited – together with baboon damage – as another threat to the business’ operations and affected the entity’s financials. The outlook for the immediate future was the revenue generated was not enough to cover operating costs.

Committee members were amazed at the extent of the alleged baboon damage and sought further explanation for this and the reasons for the strike action-related forest fires. A combination of frustration due to the lengthy nature of land claims and a deadlock in wage negotiations was blamed for the man-made forest fires. The baboon pest problem was being addressed by numerous stakeholders including the Society for the Prevention of Cruelty to Animals, World Wildlife Fund, Forest Stewardship Council, and Baboon Matters because it had proved to be serious. The low employment creation numbers together with the lack of gender equity in the current staff complement also featured in the discussion.

Meeting report

SAFCOL’s CEO and Chairperson were invited to the meeting but the CEO could not travel due to her pregnancy and the Chairperson was on an overseas trip.

Mr Mohamed Kharva, SAFCOL Board Member since September 2010, read out key points from the Annual Financial Statements and Report for Year ended 31 March 2011 (see document). He emphasised the need for environmental sustainability of operations that generated returns for the shareholder whilst addressing economic empowerment through transformation, development of SMMEs and new entrants into the market.

Core operations were concentrated in Komatiland Forests (Pty) Ltd and IFLOMA plantations (largely responsible for SAFCOL’s Mozambique operations). Mountain Ocean, Kamhlabane Timber and Temba Timber would soon be deregistered from the companies’ registrar.

The decision to privatise SAFCOL has been put on hold for two years now and there had been no significant improvements in timber trading conditions; something which has led SAFCOL to increase credit terms to customers in an effort to increase sales. This had had an impact on the balance sheet through an increase in Trade Receivables.

There were no job losses as at 31 March 2012. All employees (excluding executive management) received salary increases. Regardless, cost-saving initiatives and losses still continued with Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)/Revenue and Return on Equity Ratios well below the targets (see page 12) set for the year. The entity however remained credit-worthy with a R100 million Nedbank credit facility it could still make use of – in addition to R100.6 million cash reserves. SAFCOL received an unqualified credit opinion and – together with Komatiland Forests (Pty) Ltd – was a Level 2 BBBEE contributor.

There was a decrease in biological assets through fair-value adjustments caused by increased fires and baboon damage. There was an increase in intangible assets because of Enterprise Resource Project (ERP) licencing for the organisation’s software requirements.

Mr Leslie Mudimeli, Senior Executive: SAFCOL, spoke on sustainable forest management highlighting that the main risks facing the business were forest fires, pest (largely baboon damage) and disease and the slow progress in resolving land claims. In Mpumalanga, baboons strip the bark of the tree for no apparent reason leading to damage in some instances of up to 70% per compartment. A UCT professor has been hired to conduct research as to why this occurs. Regarding fires, there were numerous awareness campaigns currently addressing this danger. Some fires were alleged to have been started by disgruntled unionised striking workers.

Employment numbers had decreased from the 2010 financial year in both the South African and Mozambique operations, with 20% of the workforce being female. As part of SAFCOL’s developmental contribution, through the Development Bank of Southern Africa, a bee keeping cooperative was initiated; a pre-feasibility study on green energy (biomass fuel) was concluded together with Eskom and feedback was now expected to see if electricity generation was viable. Four new forestry enterprise development contractors were formed and 302 jobs were created. Two timber-frame housing units were built in Grabouw and Rustenburg.

Discussion
Mr M Sibande (Mpumalanga, ANC) did not believe that baboons could be responsible for up to 70% of the damage and suggested a site visit might be necessary. He also did not understand how SAFCOL could make losses of R103 million while they had cash reserves of R100.6 million.

Mr Mudimeli said the baboon problem was so severe that even a Cape Town-based group called Baboon Matters flew regularly to meetings held in Mpumalanga to assist with the scourge.

Mr Kharva clarified that losses according to the Income Statement should not be confused with the cash flow situation as the income statement contained numerous non-cash items such as the negative R34 million fair value adjustment.

Mr O De Beer (Western Cape, COPE) congratulated SAFCOL on progress made thus far. SAFCOL’s statement that 60% of the land it currently operated on was under land claims, led him to wonder why it did not make use of inter-governmental clusters to help fast-track the resolution of such claims. If SAFCOL had incurred a R100 million worth of fire damage caused by unionised striking workers, then why did it not sue the unions concerned? Given that forestry was a labour-intensive business, he wondered why merely 302 jobs were created. He further questioned the 20% overall component of females. He also asked what was being done to address skills development to retain and attract staff.

The Chairperson asked about the disputes which led striking workers to burn valuable forests.

Mr Mudimeli emphasised that because of the slow nature of the land claims process, given the stringent and at times conflicting requirements of the Extension of Security of Tenure [Act 62 of 1997] and the Restitution of Land Rights Act [22 of 1994], this made even inter-governmental cluster intervention difficult. The R100 million figure for damage was reported by the media after a deadlock in wage negotiations at the bargaining council. This led to fires in most forests and arrests of some personnel by police after they were found to be carrying incinerators. SAFCOL was waiting on the police to complete their investigation. SAFCOL was funding five or six Masters students at the University of Pretoria and was intent on attracting and retaining them at SAFCOL. SAFCOL had also employed the country’s first plantation manager.

Mr H Groenewald (North West, DA) asked how many hectares of land belonged to SAFCOL in each province. Also what would happen to the forests if the land claims were successful?

The response to these questions was there were initially 29 land claims in SAFCOL’s territory, however there were now 31 land claims. Most of these were “under research” meaning historians and researchers working with archives were busy with the claims. The majority of land claims were in Mpumalanga and Limpopo, and at this early stage the amount of hectares could not be speculated upon.

Mr Sibande asked in which provinces were the cooperatives mentioned in the report.

This question was not addressed.

The Chairperson stressed the need for SAFCOL and the Department of Public Enterprises to communicate with the Committee regularly.

He excused the SAFCOL delegation and the Committee adopted some minutes.

The meeting was adjourned.

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