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SAFCOL Group Annual Report – 31 March 2006

SAFCOL. SAFCOL Group Annual Report – 31 March 2006. Portfolio Committee - 20 September 2006. Overview of activities Privatisation Status The Future. Kobus Breed Azwindini Mutshinya Linda Mossop-Rousseau Joe Coetzer Leslie Mudimeli. SAFCOL. SAFCOL Group 31 March 2006. Introduction.

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SAFCOL Group Annual Report – 31 March 2006

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  1. SAFCOL SAFCOL Group Annual Report – 31 March 2006 Portfolio Committee - 20 September 2006 • Overview of activities • Privatisation Status • The Future Kobus Breed Azwindini Mutshinya Linda Mossop-Rousseau Joe Coetzer Leslie Mudimeli

  2. SAFCOL SAFCOL Group 31 March 2006 Introduction • 9 Months financial year • Privatisation process terminated • Acceptable financial results • Sound Corporate Governance • Future of Komatiland / SAFCOL • Ifloma opportunity

  3. SAFCOL SAFCOL Group 31 March 2006 Corporate Governance • Board of Directors • - Members • - Remuneration • Board Committees • - Risk and Audit • - Remuneration Committee • Audit Reports • Management Teams • Code of Ethics • Shareholders Compact

  4. Code of Ethics • The SAFCOL group has a Code of Ethics that form part of its conditions of employment. • As of 23 June 2006 SAFCOL is an organisational member of the Ethics Institute of South Africa. The membership is renewable annually and as a member, SAFCOL receives frequent newsletters about topics pertinent to ethics in the organisation. • SAFCOL is in the process of updating its Code of Ethics, a process that has been undertaken in an effort to align our policies with local and international best practices.

  5. Overview of Operations Komatiland Forests (Pty) Ltd • Continue to focus on maintaining the asset in the condition as presented for sale. Exceptions were :- - Closure of Blyde Sawmill - Mothball of Veneer Plant • Replanting of fire damaged areas • Ifloma- Rehabilitation of exiting plantation - Study to determine feasibility of wood fibre project

  6. SAFCOL Overview of Operations SAFCOL • Management of areas under delegation • St Lucia • Shannon Plantations • Second Economy Focus • Investigating establishment of a Research Centre and Seed Orchard at Nyalazi • 25% Interest in privatised entities

  7. Privatisation Status • 25% Shareholdings :- - SiyaQhubeka Forestry (Pty) Ltd - Singisi Forests (Pty) Ltd - MTO Forestry (Pty) Ltd - Amathole Forestry Company (Pty) Ltd • All four companies have five years to achieve the undertakings made in the BPU • 9% to be utilised in the creation of ESOP’s • 10% to NEF • 6% presently retained by SAFCOL, minority share to be disposed of as non-core assets

  8. Lessons learnt from privatisation • Tradability of shares needs to be considered:- • ESOP’s in a non-listed company are difficult to achieve • It is essential to match Black Empowerment partners with local communities (NEF) • Business Plan Undertakings (BPU’s) need to be tightly drawn up, with severe penalties if the provisions thereof are not achieved • There needs to be clearer verification of representations to ensure that fronting does not occur • Monitoring of all agreements should reside with the entity from which the disposal took place • The appropriate roles and responsibilities for the different entities should be identified – Process preferably to be driven by SOE with clear guidelines from Government

  9. SAFCOL SAFCOL Quo Vadis • Uncertainty of privatisation • Limited growth – constraining transformation initiatives • - Strategic Process • - Internal • - Close cooperation with DPE • SAFCOL Board and management are committed to give our Shareholder full information in establishing the strategy • going forward

  10. Transformation The SAFCOL Group is committed to support the policies and initiatives of Government in all respects. Due to the focus on privatisation expansions, affirmative action and rural development (CSI) was limited. Black economic empowerment and the development of second economy were key focuses.

  11. Transformation (cont.) Initiatives • The disposal of SAFCOL’s subsidiaries and other businesses to third parties consisting of a share of BEE interests in line with Government policy. • BEE is one of the criteria taken into account in the procurement policy of SAFCOL for services and products, and the sale of raw timber to processors. • Funding earmarked for corporate social investment is spent on rural development and the upliftment of individuals and communities. • The involvement of SAFCOL in the development of the BBBEE Forestry Charter. • The increased impetus to implement employee share option plans in disposed subsidiaries.

  12. Transformation (cont.)

  13. Transformation (cont.)

  14. Capacity Building An in-house training centre provide skills training to own employees as well as externally. The training is to the benefit of historical disadvantaged individuals and contractors. Annual training includes in excess of 4 600 people involving more than 12 000 man days. Auditing, mentoring and assistance are provided for emerging contractors (SMME’s). Bursaries are granted to employees, dependants and historically disadvantaged individuals to obtain academical qualifications. Current budget amounts to R1,3 million. A total of 35 current bursaries are being sponsored of which 24 are for historically disadvantaged individuals and females.

  15. Capacity Building • Bridging classes and experiential training provided for candidates in respect of a variety of disciplines (scarce skills) e.g. :- • Forestry 21 Candidates • Artisans 8 Candidates • Administrative 9 Candidates • Marketing 3 Candidates • Wood Technology 2 Candidates • ABET classes in progress at is centres to improve literacy levels. Current attendance is 376 learners. • IEB exams (2005/6) Level 4 180 passed • Level 1 – 3 205 passed

  16. Preferential Procurement The percentage spent on procurement of forestry and related service contracts in respect of BEE and SMME’s are as follows :- Table 1 : Black Owned contracts with Equity ownership in excess of 50% Table 2: Contracts with Equity ownership of between 20% and 50% In addition to the above the Group’s main providers of goods and services are Eskom, Telkom and the major fuel companies. They all are BEE Compliant.

  17. Profitability ♦ 13.8% WACC ♦ 15.4% ROCE Sustainability ♦ Yield of 1.7 million m³ ♦Sales of 1.6 million m³ Internationalisation ♦ Mozambique investment SAFCOL Performance Overview

  18. ■ Privatisation ■ KLF retained, new mandate being developed ■ Sawmilling ■ Planned investment: ◘ TSM: R60 million earmarked for upgrades ◘ BSM: ±R200 million earmarked for relocation and re-build technology Performance Overview (cont.)

  19. Forestry research 1.4% of Timber Sales invested in long-term fundamental research: Improvement of genetic material Growth & yield studies Seed orchard in St Lucia area Performance Overview (cont.)

  20. Human Resources and Transformation Corporate Social Investment Employment equity Liaison forums and joint committees Organised labour Bursaries In-house training centre Commitment Involvement Performance Overview (cont.)

  21. Corporate Social Investment Commitment • Education in neighbouring communities • Assistance to primary and secondary school learners • Adult Basic Education • Small business entrepreneurs and projects • Recreational facilities • Prevention of the abuse of women and children

  22. Corporate Social Investment Involvement (excluding bursaries) • Since inception: R17.5 million • R905 000 in the period under review: • 60.5% on Infrastructure and land (schools) • 24.0% on Healthcare • 7.3% on Education • 3.3 % on Donations • 3.2% on Environmental conservation • 1.7% on Recreation and sport

  23. Limpopo, KZN and Mpumalanga Job creation Preferential procurement R10 million plus R1 million Development agencies Projects: Broomstick and dowels By-products Ecotourism Wood preservation Lamination plant Compost manufacturing Second Economy Projects

  24. Health and Safety • NOSA ratings for all operations • DIFR less than 2% • Training: • 599 trainees or 33,2% of labour force • 1874 mandays • HIV/AIDS • Medical surveillance

  25. Financial Highlights

  26. Technology upgrade in TSM Replacement of BSM Fleet Renewal 2nd Economy IFLOMA Woodfibre Project R60m over 3 years R200 million R75 million over 3 years R10 million Capex plus R1 million Opex R10 million p.a. USD75 million Proposed Investment

  27. Government Support • Strong balance sheet and adequate cash reserves • No recapitalisation, guarantees, subsidies or transfer payments required • Policy guidance awaited in the following areas: • New mandate for the Group • Cross-border initiatives

  28. The Future Our base: • World-class asset • Competent staff • Excellent research capability Our focus: • Strategy review • Transformation and HR practices • 2nd Economy projects and ASGISA • Operational upgrades • Cross-border investments

  29. Thank you

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