SAFCOL: briefing

LABOUR & PUBLIC ENTEPRISES SELECT COMMITTEE
9 November 1999
SAFCOL: BRIEFING

Documents handed out:
SAFCOL Briefing

SAFCOL, represented by Mr Andile Nkuhlu and Mr Teen van Vuuren, briefed the committee on the present status of SAFCOL, its restructuring and transformation process, its strengths and limitations during the past five-year period. Minutes have not been taken but the document is provided:

Briefing to Select Committee on Labour and Public Enterprises

1. SAFCOL STATUS
· Commercial Forestry Interests of previous "South African Forestry Department" transferred to SAFCOL in 1993
· SAFCOL is a company registered in terms of the Company's Act -State sole shareholder
· Main Objective in Articles of Association: Optimisation of profit over long term
Fully taxable
· No State funding or any subsidies
· Pays dividend to the State
· Competes on a direct commercial basis with rest of timber industry -Sappi, Mondi, etc.
· Turnover - approximately R570 million/annum
· Loss as Government Department - (R30 - R40 million per annum) changed to profit in first year
Employs approximately 4 800 people directly - indirectly and as forestry
contracts another 3 000
· Wages are 30% ahead of private sector and salaries 25% below private sector
· Employee numbers on private sector standard - no large excesses
· SAFCOL Board appointed in 1995

SAFCOL PROGRESS ON RESTRUCTURING
· Government offered for sale a combination of SAFCOL and DWAF commercial forestry assets in seven packages or as a whole or in combinations.

· Planted area
- SAFCOL: 261 000 ha
- DWAF: 71 000 ha
- Total: 332 000 ha
Total land area: 485 000ha

Included in above
-5 SAFCOL sawmills
-Multiple land use projects
-Ecotourism projects

· Sale of land excluded - separate land lease for 70 years
· Bids presently being evaluated by the Government
· Announcement expected by end October

2. COMPARISON WITH WORLD FORESTRY INDUSTRY
Country: RSA
Forestry Area (ha): 1 518 138
% of Total Area: 1.3

Country: European Union
Forestry Area (ha): 90 799 000
% of Total Area: 29.0

Country: USA
Forestry Area (ha): 287190 000
% of Total Area: 30.0

Country: Russian Federation
Forestry Area (ha): 785 450 000
% of Total Area: 46.0

Country: World
Forestry Area (ha): 3 934 890 000
% of Total Area: 30.0

3. COMPARISON WITH SOUTH AFRICAN FORESTRY INDUSTRY
-State:
SAFCOL 20% and
Department of Water Affairs and Forestry 8%
-Mondi 30%
-Other Growers 21%
-Sappi 21%

4. SAFCOL STRUCTURE
SAFCOL HEAD OFFICE
-Sawmills
Timbadola
Blyde
Weza
George
Wemmershoek

-Forestry Dept
Processing Dept
Finance Dept
Human Resources Dept
Admin/Secretarial Dept
Research & Development
Communication Dept

-Forestry regions
Mpumalanga North
Forestry
Avocado project
Ecotourism

Mpumalanga South
Forestry
Ecotourism

KwaZulu-Natal
Forestry
Ecotourism
Export yard

Eastern Cape
Forestry
Ecotourism
Flower Project

Western Cape
Forestry
Fruit Project
Ecotourism

5. PERIOD 1 APRIL 1993-30 JUNE1998 ACHIEVEMENTS
a) Financial
· Turnover increased from R257 million to R569 million per annum (122%)
· Profit before tax of R136 million was generated during the 5 years
· Dividends of R26 million and Secondary Tax on Companies of R6 million was paid to government during the 5 years
· R274 million was spent on fixed assets on renewals, expansion and new projects

b) Improvement of asset base
Two sawmills rebuilt, utilising up to date technology
Replacement of vehicle and equipment fleet
New technology merchandising yards I Tree-length transport
Improvement of standing timber stock quality
Product enhancement through R & D
Export projects
Multiple land use:
Ecotourism
Flowers
Avo's

c) Internationalisation
Marketing of SA pine & hardwoods in:
Japan
Turkey
Korea
India \ Pakistan
Ghana
Strategic alliances - Weyerhaeuser & Zimbabwe Forestry Commission
Manica project - Mozambique

d) Other achievements
· Forestry Stewardship Certification
· Renewal of sawlog supply contracts
· Good Corporate Governance
· Social Investment program:
Lebanon Fruit project
Queens River Education Centre
Schools
Bursaries
Etc.

FAILURES AND PROBLEMS
George mechanised timber yard
Profitability of sawmills
Profitability of Western Cape Forestry
Affirmative action targets not met:
New plan to be recommended to new owners
Accelerated development plan for individuals
Sawlog contracts of 3 small clients not renewed - court cases
Shortfall in retirements funds ex Government
Discontinued Pole operations
SA security situation

6. FUTURE CHALLENGES
Difficult because we do not know outcome of Restructuring
Assume somehow SAFCOL to continue
Increase profitability - especially sawmills
Industry restructure & rationalisation
Rationalisation of SAFCOL
Affirmative action
Increase value added exports
Achieve full benefit of the investment in Forestry Stewardship Certification
Depressed log prices