South African Forestry Company Ltd: 2006/07 Annual Report briefing

PUBLIC ENTERPRISES PORTFOLIO COMMITTEE
07 November 2007
SOUTH AFRICAN FORESTRY COMPANY LTD: 2006/07 ANNUAL REPORT BRIEFING

Acting Chairperson:  Ms N Kondlo (ANC)

Documents handed out:
South African Forestry Company Limited Presentation
South African Forestry Company Limited Annual Report [available shortly at www.safcol.co.za]

Audio recording of meeting

SUMMARY
Members met with representatives from South African Forestry Company Limited (SAFCOL) in order to discuss their Annual Report. SAFCOL’s presentation provided an overview of its financial performance, corporate governance, challenges, achievement, social development and transformation.  The presentation also focused on the recent fires in Mpumalanga that destroyed forestry plantations. It was noted that SAFCOL would be wound up as the reason for its existence would fall away once there had been privatisation and hand over of Komatiland Forests. The support for small enterprises, the social upliftment of its own employees and the corporate social investment programmes were described.

Members raised questions with regard to the bonuses paid out to the board of directors, and sought clarity into how many villages existed on SAFCOL’s property, and who was responsible for providing services. Members also asked SAFCOL to comment on what would happen to the Komatiland Forests Limited (KLF) employees after completion of their exit strategy. Members also sought clarity on whether the impact of the fires had been taken into consideration with regards to the profits, whether it would be possible still to run SAFCOL as a viable entity were the decision to close it down to be reversed, and its relationships with the Mozambique government. The corporate social investment programmes and the work done on HIV and Aids were also questioned.

MINUTES
South African Forestry Company Limited (SAFCOL) Annual Report presentation
Mr Kobus Breed, Chief Executive Officer, SAFCOL, briefed the Committee on the Annual Report of SAFCOL, covering an overview of its financial performance, corporate governance, challenges, achievement, social development and transformation.  He stated that SAFCOL was a profitable enterprise that maintained a healthy balance sheet. During the financial year, SAFCOL spent R2.4 million on different projects and supported more than 37 Small Medium and Micro Enterprises (SMMEs). SAFCOL also invested in the social upliftment of employees and surrounding communities, and specifically focused on the needs of children. SAFCOL experienced many challenges during the financial year, most notably the recent fires in Mpumalanga.  The fires caused extensive damage to a number of plantations, and SAFCOL was implementing a new fire recovery plan.

Discussion
Dr M Van Dyk (DA) stated that SAFCOL should have elaborated on the issues listed on slide 11 of the presentation, and that the issues regarding the recent fires should be dealt with in the next financial year. The Annual Report showed that there had been poor attendance by the board of directors, and the Committee found the situation unacceptable. Clarity should be provided on why bonuses were paid out, as some members only attended few board meetings.

Mr Leslie Mudimeli, Spokesperson, Komatiland Forestry (KLF), replied that SAFCOL had supplied a document to the Committee that contained detailed information, and much of this information in document was also in the Annual Report. SAFCOL had deliberately kept the presentation to the Committee short.
Mr Joe Coetzer, Information Officer, SAFCOL Board of Directors, replied that the Annual Report provided a table provided a table listing the various committees on which the Board members served. It should be noted that not all board members were required to serve on all the committees, and some of the board members were appointed to particular committees. There was, however, one member of the board who was not attending meetings, and who had been requested to step down.

Dr Van Dyk asked whether this was the member who received R45 000

Mr Coetzer replied that this amount was paid to a member who was in office for only six months. He unfortunately fell ill and sadly had passed away.

Dr Van Dyk then sought clarity on the bonuses.

Ms Gugu Moloi, Chairperson, SAFCOL Board, replied that the remuneration committee had discussed the Key Performance Indicators (KPI) of the CEO. It should be noted that most of the KPIs were difficult to achieve, and if these were achieved then bonuses would be awarded. It should also be noted that remuneration was agreed beforehand.  The KPIs were in line with the board’s mandate, and the mandate had been to shut down the business operations of SAFCOL.

Mr E Kholwane (ANC) sought clarity on what would remain after KLF was sold, and what would be the role of SAFCOL.

Mr P Hendrikse (ANC) also sought clarity on the future of SAFCOL. He referred to the part of the presentation dealing with corporate governance and enquired why there was a mandate for this when SAFCOL was winding up.

Ms Moloi replied that the board was mandated to privatise KLF and shut down SAFCOL. However, given the deadlines, it might not be feasible to shut down SAFCOL in this year. It should also be noted that there were still some areas where maintenance of infrastructure was needed, and that was one of the reasons why time was taken to review the corporate strategy.

Mr Z Kotwal (ANC) asked SAFCOL to comment on how many villages existed on SAFCOL’s property, which provided services to the villages.

Mr Mudimeli replied that SAFCOL had inherited plantations with forest villages from the Department of Water Affairs and Forestry (DWAF). Some of those villagers would have a land claim. The services were provided by SAFCOL. The villagers did not have title deeds, and consequently this limited property development. The issues regarding the villages should be taken up with the Department of Public Enterprises and DWAF.

Mr C Gololo (ANC) sought clarity on the fate of the employees, and asked SAFCOL to comment on what was to be done in respect of those employees as part of the exiting strategy.

Mr Breed replied that KLF would still continue to operate as a private company, and there would be no major retrenchments taking place.

Mr R Nogumla (ANC) stated that the Committee needed a report on the issues regarding privatisation.

Ms Kondlo referred to the presentation, and stated that she was concerned that SAFCOL seemed to be attempting to downplay the fraud incidents.

Mr Coetzer replied that SAFCOL was trying its best to prevent fraud. There were three incidents that had been reported, and people had been dismissed after investigations had taken place. The major disciplinary issues had revolved around the theft of fuel and SAFCOL was constantly maintaining and improving its fraud preventative systems.

Mr Hendrikse commended SAFCOL for the wonderful work that was being done in the villages. He asked whether the work would be included as part of KLF’s conditions of sale. Clarity should also be provided on the firefighting activities, and whether there was a budget for firefighting activities. He asked the Board to comment on whether it could run profitably, if there were to be a change of heart to keep SAFCOL in place.
 
Mr Breed replied that SAFCOL had placed a moratorium on improving firefighting equipment. The new board had bought new equipment before the recent fires and the recent fires were unexpected phenomenon which could not be contained.
 
Ms Moloi replied that the Board could not go back on the decision to privatize KLF. There needed to be examination as to whether the empowerment transactions had touched the people. The forestry sector was a sector that could improve the quality of life of people. There was also a need for a fundamental rethink on the use of rural communities and how to empower them efficiently using the land they had. One of the key matters of concern to the Board was how to put together initiatives that would be beneficial to the communities in the long run.

Mr Peter Derman, Board member, SAFCOL, added that forestry was a very powerful sector in the rural economy. There was a massive potential in the industry, and SAFCOL was trying to tap into the rural economy as much as possible before the sale of KLF was complete.

Mr R Nogumla (ANC) sought clarity on the bursaries, and whether these were targeted.

Mr Breed responded that bursary requirements were determined annually, after a needs analysis was performed, and budget was allocated to those needs.

Mr Gololo stated that Cabinet needed to revise its decision on the future role of SAFCOL, as it was a profitable entity, and should not be shut down. Clarity should be provided on the role of people with disability. Clarity should also be provided on whether HIV / Aids adversely affected the workforce of SAFCOL.
 
Mr Mudimeli replied that there were very low targets in the recruitment of the physically challenged. SAFCOL was changing its facilities in order to suit the physically challenged people. With regard to HIV/ AIDS,  SAFCOL provided support and energy food to infected employees.

Mr Kholwane sought clarity with regard to the tight timelines and asked whether there were any indications or timeframes for winding up SAFCOL.

Mr Breed replied that if SAFCOL missed the privatisation deadline the company would still be maintained in order to continue operations. The winding up of SAFCOL would take place simultaneously with the KLF privatisation process.

Dr Van Dyk sought clarity on whether the impact of the fires had been taken into consideration with regards to the profits.

Mr Coetzer replied that the R302 million would be reduced significantly with the selling price increasing. SAFCOL was trying to maintain its bottom line profitability and was in the process of re looking at the budget and would come out with a plan before the end of the financial year.
Mr Gololo sought clarity as to whether there were any Aids awareness programmes.

Mr Breed responded that the details of the programmes were contained in the Annual Report.

Ms Kondlo asked for comment on SAFCOL’s future relationship with the Mozambican government with regard to the Ifloma plantation.
 
Mr Breed responded that SAFCOL planned to isolate this business from the privatisation process and was taking the matter up with the Department of Public Enterprises.

Ms Kondlo sought clarity on the social development programmes and asked where the schools built by SAFCOL were situated. SAFCOL was also asked to comment on its broad based economic empowerment programme.

Mr Mudimeli replied that then Annual Report outlined all the Corporate Social Investment programmes

Mr Gololo commended SAFCOL on their Corporate Social Investment projects.
 
Dr van Dyk stated that in the SAFCOL winding up there needed to be a proper negotiation process which would not damage the interests of the employees. There also needed to be ways in which the good work that was being done could carry on.

The meeting was adjourned