SA Forestry Company (Safcol) on its 2011/12 Annual Report

Meeting report

The Chairperson extended a warm welcome to Safcol’s chief executive officer, Ms Nomkhita Mona, who was making her first presentation to the Committee.

Ms Nomfanelo Magwentshu, chairperson of the Safcol board, gave a brief overview of the company’s performance during the past year, which she described as successful. The turnaround strategy had produced positive results, which included a return to profitability, a clean audit, an improvement in internal controls, and the maintenance of a Level Two status as a Broad-Based Black Economic Empowerment contributor, as defined in the forestry sector charter. Management had done well to increase revenue while containing costs, and staff numbers had been reduced. Safcol was working hard to improve its relations with all stakeholders, and was appreciative of the support it had received from the Portfolio Committee.

Ms Mona listed the organisation’s performance against the shareholders’ compact, summarising the achievements against key performance area targets. Earnings before tax and depreciation represented 8,7% of revenue, return on equity was also 8,7%, and creditworthiness and working capital management were within targeted levels. In South Africa, the area of forest under management was 121 698 ha, while in Mozambique it was 16 515 ha. Social compacts had been signed with 11 community groupings, which included local and traditional authorities and land claimants. A total of 218 learners had been trained in scarce and critical skills.

Ms Caroline Munsami, Acting Chief Financial Officer, presented the financial and commercial sustainability report. Revenue had increased by 22%, to R862m, while the cost of sales had fallen 1%, to R635m. Operating profit had amounted to R177m, compared to a R114m loss the previous year. With an added R23m in income from investment, total profit before tax was just under R200m. The increase in revenue had been achieved on the back of higher timber and lumber sales, while the 45% rise in operating expenses had been influenced by directors’ emoluments, material management, forestry contractors, administration costs and socio-economic development. By the end of the year, Safcol’s cash and cash equivalents had increased by R18m, to R119m.

Ms Mona said the focus of forestry operations had been on replanting burnt and temporary unplanted areas. R11m had been spent on repairing flood-damaged roads and bridges. The number of schools visited as part of the Mlilo fire awareness campaign had increased by 69%. A big issue was the damage inflicted by baboons on pine plantations, with 90% of 18 156 hectares being affected by these animals. A further 1 207 ha had been lost in 558 reported fires. The disabling injury frequency rate (DFIR) had been reduced from 2 in 2011, to 1,8.

Processing operations had seen an 11% improvement in the annual intake volume, to 310 129 cubic meters, and a 17% increase in sales volumes, to 157 462 cubic meters. With a higher average selling price, the processing business unit’s bottom line had improved by 32%. The introduction of Halco optimisation software had improved the production of high-value products required in the market, to the extent that the equipment’s cost had been covered in its first year of operation. The number of customers served had increased slightly, from 109 to 120.

Safcol had maintained its level 2 B-BBEE rating, and in the process improved its score from 85.77, to 89.21 out of 100. A proud achievement was the appointment of the first female plantation manager, who was already receiving full support from her team and head office management. R8.1m had been spent on socio-economic and enterprise development (SED), of which 73% had been spent on infrastructural projects. The Mail & Guardian publication had conducted a survey on SED involvement, and had placed Safcol third behind Transnet and SA Express. This was pleasing, if one compared the size of their budgets. Timber-frame school classrooms and accommodation dormitories had been launched, and ED initiatives had resulted in 325 jobs being created. Safcol was collaborating with Eskom on a feasibility study into the use of forestry waste, and significant progress had been made.

The staff complement had declined by 10%, from 1 933 to 1 787. Staff development had seen 22 new internal bursaries being awarded, and the Safcol Forestry chair had been launched at the University of Pretoria, where 18 students (four from Safcol) had enrolled for a masters’ programme in forestry. At Platorand, 1 325 learners were trained, 759 learners had attended external training, and 240 employees had enrolled for adult basic education and training (ABET). Business restructuring had been completed, although a recruitment process was now under way to appoint a new chief operating officer and replace two executives who had resigned recently.

Ms Mona provided feedback on Safcol’s follow-up actions resulting from the Portfolio Committee’s oversight visit to the company’s operations and subsequent recommendations. The Committee had recommended that the company should provide sanitary facilities for women working in the plantations, and two mobile toilet units would be sited at Jessievale and Tweefontein plantations as a pilot scheme. The intention was to use Safcol’s own timber products in rolling out the project to other plantations, and this would be done in accordance with the availability of funds. Facilities for women working in the nursery had been upgraded to ensure their physiological health was not affected due to the nature of their work. Benches had been provided for them to sit on, and they were encouraged to stand up regularly when harvesting cuttings to reduce excessive bending. A weekly rotational programme had been implemented so that workers would not be harvesting cuttings constantly, and periodical medical examinations on all nursery employees would include back strain checks. Vlakfontein village in Jessievale plantation had been renovated and all plumbing in the ablution facilities and showers had been fixed. New recreational facilities had been constructed for children staying in Safcol villages, including jungle gyms, a soccer field and – in some villages – even tennis courts. Development facilities, such as libraries, were also being considered.

Since the end of the financial year, Safcol had been badly affected by industrial action initiated by the Food and Allied Workers’ Union (FAWU) between 2 and 23 July, and in the settlement agreement, the parties had agreed to an 8,5% wage increase. In July, 251 fires had been reported and 1 069 ha had been burnt.

Several key strategic risks had to be addressed. The main priorities were to improve organisational flexibility to react to changes in the external environment, to deal with unresolved land claims ( 61% of Safcol land was under claim), attract and retain experienced and knowledgeable skills, and handle labour unrest – which was often associated with fires. The organisation also had to face the challenge of not always being the preferred partner of choice for successful land claimants, and needed to expand the existing land area and curb plantation fires.

Ms Magwentshu concluded the presentation by saying that Safcol was working hard to improve its governance, as it wanted to build a reputation of being a well-governed organisation. There were three vacancies on the board, and the Department would have to make appointments to fill those vacancies.

Discussion
Mr C Gololo (ANC) asked for clarity on the increase in Safcol’s processing operations customers, which had risen from 109 to 120. Were these regular, repeat customers, or were they the type who would not come back?

Ms Munsami replied that of the 120 customers, 97 were “regulars.”

Dr G Koornhof (ANC) said the Committee was impressed by the fact that Safcol had provided feedback on its response to the Committee’s recommendations. However, he was concerned about the delays in settling outstanding land claims, particularly the Londolozi issue, which involved an amount of R3,2bn. The fact that Safcol was not always the preferred partner of choice when land claims were settled, was also worrying. Nearly 13 000 ha of land was under claim. Safcol had said it would pioneer the development of a settlement model, but the process seemed like a spider’s web, with so many departments involved. How far had the process gone? Who was the champion providing the impetus to a solution? Was the support of Parliament needed? Was Safcol confident it would find a solution?

Mr M Sonto (ANC) asked if Safcol had made any forecast of what it would cost the organisation if it lost the Londolozi land claims case.

Mr Rodney Shirinda, Safcol Company Secretary, provided the background to the Londolozi issue, and said that nothing had happened for the past six years, other than that they had received particulars of the claim. In terms of the law, after a certain period, prescription applied. In Safcol’s books, the claim had lapsed, or been prescribed.

Mr Sonto referred to the baboon community which was “plundering” Safcol property, and asked what strategy the company had devised to deal with the situation. Were any scientific studies being carried out to determine what it was that attracted baboons to damage the pine trees?

Mr Leslie Mudimeli, Senior Manager, Communication and Liaison, said a full study was being conducted into what attracted baboons to the trees. It was being carried out by the Institute for Commercial Forestry Research, in liaison with the University of Cape Town and Forestry South Africa, and when results became available, they would be provided to the Committee. Preliminary work carried out by Technikon South Africa suggested that the removal of predators from certain areas provided baboons with greater freedom to multiply. However, more research was needed to determine whether the bark of the trees had any nutritional value, or whether the removal of the bark was merely a behavioural problem.

Mr E Marais (DA) welcomed the financial improvement, and said it would be important to see this performance carried through into the following financial year.

Mr K Dikobo (AZAPO) commended Safcol on their appointment of a woman plantation manager, and asked if any programme had been introduced to ensure that more could be appointed.

Ms Mona said there was a programme to identify women suitable to take on the role of plantation managers. A structured approach was being adopted.

Mr Dikobo was concerned that as a state-owned concern, Safcol might encounter legal constraints when competing against companies in the private sector, and asked for clarification on this issue.

Ms Magwentshu said Safcol could be subjected to constraints if it were deemed by the Competition Commission to be the dominant supplier in the sector, and the company would be careful to ensure such a situation did not arise.

Mr Mudimeli said the process to finalise all the land claims lay with the Land Claims Commissioner and the Department of Rural Development and Land Reform (DRDLR). Safcol played a facilitating role. Progress was being slowed down by conflicting legislation and conflicts over the boundaries of land being claimed. This was causing frustrating delays.

Ms Magwentshu added that the involvement of the Department of Cooperative Governance and Traditional Affairs (CoGTA) and DRDLR was needed to move the land claims process forward.

Dr Koornhof advised the Committee that Ms Magwentshu had received a laureate award for outstanding leadership in her field of expertise from the University of Pretoria – one of only five awarded. This was a great honour and achievement.

Ms Vuyo Tlale, Acting Deputy Director General, Safcol, Department of Public Enterprises, told the Committee that the Department was still working on finalising the future of Safcol, and expected to make a submission to Cabinet in the first quarter of 2013.

The meeting was adjourned.