SAFCOL Presentation to NCOP Parliament of South Africa 25 February 2015 GROWTH THROUGH PARTNERSHIP

Transcription

1 SAFCOL Presentation to NCOP Parliament of South Africa 25 February 2015 GROWTH THROUGH PARTNERSHIP 1

2 PRELUDE SAFCOL AND SOUTH AFRICA DEVELOPMENTAL CONTEXT SA FORESTRY Sector R45.5 billion (1.6% of Total GDP) Manufacturing GDP 7.7% Roundwood and primary 25.5% of Agric Employment ( ) or 22.5% Pulp and Paper exports R14bn in 2013 SAFCOL s growth supported by: SA Part Of BRICS SA National Development Plan Year 2030 Africa Rising Narrative Economic Growth Promotion of beneficiation of raw materials and manufacturing Massive infrastructure development worth over R1 trillion Fuel wood and charcoal, Lumber for building, Furniture, Planks Packaging, Wood panel veneers, Particle board, Plywood, Bark Products, Cork, Tannin (used for curing leather), Dye, Drugs and oils, Cinnamon, Cellulose Products, Carpeting, Cellophane, Rayon and other fabrics, Thickening agent (in shampoo), Suntan lotion, Shatterproof glass, Cosmetics, Paper products, Fiber board, Imitation leather, Sap Products, (Gums and Resins), Cosmetics, Paint thinner, Perfumes, Soap, Rubber products, Sugar and syrup, Varnishes, Waxes, Chewing gum 2

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4 SAFCOL BOARD of DIRECTORS

5 SAFCOL GROUP EXCO SAFCOL Group CEO NP Mona 1 September 2012 SAFCOL Group COO F de Villiers 6 May 2013 SAFCOL Group CFO ZM Mashinini 1 October 2013 Senior Executive: HCM and Transformation J Mphafudi 4 June

6 MANDATE To conduct forestry business which includes timber harvesting, timber processing and related activities, both domestically and internationally VISION Being a world-class, global business engaged in multi-functional forestry, revolutionising the integration of forests and communities. MISSION Our mission is driven by an unwavering commitment to facilitate the sustainable economic empowerment of communities and the alleviation of poverty through: Implementing needs-driven interventions; and Becoming a partner of choice for land claimants. CORE VALUES Passionate about our forests, communities, customers and people * Have a social and environmental conscience * Trust founded on integrity and loyalty * Equality, fairness and empowerment * Respect for diversity * Focus on innovation and excellence 6

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8 South Africa Spread over ha with ha planted 18 plantations OPERATIONS Mozambique Initial IFLOMA plantations cover ha In partnership with Mozambican government (20% ownership) 4 plantations 8

9 SAFCOL S MAIN SUBSIDIARY, KOMATILAND FORESTS (KLF) MANAGES 180,000HA ACROSS 18 PLANTATIONS IN MPUMALANGA, LIMPOPO AND KZN KLF is one of the largest producers of high quality sawlogs in Southern Africa KLF owns and operates the Timbadola mill in Limpopo and rents two sawmills on the Highveld Currently, 22% of SAFCOL sawlogs are processed internally 64% of available land is commercially planted with the remaining 36% comprising conservation areas, wetlands, grasslands, thickets and indigenous forests Planted area predominantly pine (93%) with 7% Eucalyptus and Wattle KLF s focus is on producing high quality sawlogs and, to a lesser extent, wattle for fibre and bark markets Growing stock managed over a 30 year rotation for sawlogs and 6-12 years for other products KLF is able to sustainably harvest million m 3 annually The fact that KLF s revenue from processing operations grew from 26% in 2008 to 33% in 2014 (36% of sales revenue), shows the significance of processing own sawlogs 9

10 SAFCOL HOLDS 80% OF THE MOZAMBICAN IFLOMA INITIATIVE WITH A LANDHOLDING OF 31,754HA IN PARTNERSHIP WITH THE GOVERNMENT OF MOZAMBIQUE Mozambique-based public limited liability company which was established in the 1980s as a government initiative As part of the privatisation of State-Owned Enterprises in Mozambique, 80% of the share capital of IFLOMA was sold to KLF in 2004 with the remaining 20% of shares held by IGEPE, Mozambique s State Shareholding Management Institute Total landholding area is 31,754 ha in extent, of which 16,178 ha is plantable for commercial forestry 10

11 CORE OPERATIONS Forestry 11

12 CORE OPERATIONS Processing 12

13 FINANCIAL HIGHLIGHTS Utilisation of own resources, not burden to fiscus The Group achieved the highest revenue (R894m) in 5 years Cash-flow increased by R69m year-on-year Our biological assets which were previously undervalued at R3 billion, were revalued to R3.67 billion The Group received an unqualified audit opinion HOWEVER: Operating costs remain a concern hence the strategic shift towards greater efficiency and profitability 13

14 SAFCOL S STRONG POINTS FSC CERTIFIED (ensures that all forestry environment activities are done in accordance with all environmental laws and best practise locally and internationally). Fully FSC certified in SA Pre-certification completed in Mozambique BUSINESS Sustainable and looking at new growth opportunities Grow large diameter logs over a 30 year rotation SOCIO ECONOMIC DEVELOPMENT Model of community development and social partnerships which can be emulated by other SOCs SHEQ Group obtained 82.76% compliance score representing four stars (NOSA) Annual internal environment and safety audits were conducted at operational units 14

15 RISKS AND CHALLENGES Inability to sell the log volumes because of the changes in the market conditions Unresolved protracted land claims which cause uncertainty Competition Commission issues Incorrect business model that emphasises on raw material sales with little beneficiation Skills development, attraction and retention Under appreciation and poor understanding of the role of SAFCOL and of Forestry in the SA national economy High operational costs Fires 15

16 ENTERPRISE DEVELOPMENT, TRANSFORMATION AND EMPOWERMENT SAFCOL has a constructive role to play in the growth, transformation and empowerment of communities in rural areas where it operate. To date, SAFCOL has; assisted 2 Enterprises to purchase 8 trucks, this allow them to participate in the multi-million transportation of logs business. Targeting 2 additional for 2015/16 established more than 15 Cooperatives which provide 500 sustainable jobs built a Desk Manufacturing Factory with 20 youth producing school desks, creating employment and encouraging entrepreneurship Key goals include the promotion; -and facilitation of Black Economic Empowerment, -of capacity building, -of entrepreneurship 16

17 SOCIO-ECONOMIC DEVELOPMENT R6.6 million invested for Rural economic development in 2013/2014. SAFCOL has sign social compacts with the communities surrounding its forests. These are agreements to implemented Socio-Economic and Enterprise Development programmes The community infrastructure development projects include o Building market stalls o School desks o Farming equipment o Dignity Packs o Community o Halls/centres 17

18 EMPLOYMENT EQUITY STATUS Male Female Total Programme A C I W A C I W Top Management Senior Management Professionally qualified Skilled Semi-skilled Unskilled TOTAL

19 HUMAN CAPITAL MANAGEMENT HCM programmes completed in 2013/14: 250 Job profiling, grading finalised Succession planning for Females and core positions implemented Accelerate development of Black Managers and Professionals in core posts New Performance Management system implemented Health and Wellness Programme for all employees Implemented 15 HCM Policies Developed Achieved 100% Learning and development delivery 19

20 SKILLS DEVELOPMENT PROGRAMMES 100% training delivery target achieved for 2013/14: Leanership programme: 78 leaners participated Internship programme: 34 interns and 13 artisans participated Adult Education Training: 366 community members participated Variety of training interventions (Computer, Sewing, School Desk Manufacturing and Upholstery): 500 Community members trained 15 Career Exhibitions conducted with 3500 participants R2 million spent on bursaries for employees and school leaving youth 20

21 LAND CLAIMS Approximately 61% of the state forest land with SAFCOL/KLF forest plantation is under claim i.e. Limpopo, MP and KZN SAFCOL is on record through its annual reports highlighting the risk faced by its operation due to unresolved land claims SAFCOL is simply an affected party in the whole process of management of the land claim process SAFCOL leases the state forest land on the basis of letters of delegation and interim agreements with DAFF Therefore, it is the DRD&LR that plays a pivotal and leading role in the management and resolution of land claims and SAFCOL/KLF is only an affected party It is SAFCOL/KLF s stated intent to be the preferred partner of choice to successful land claimants SAFCOL together with DRD&LR are currently holding workshops with all relevant stakeholders, including claimants on the proposed settlement model through which the land will be transferred in title to its rightful owners KLF: Komatieland Forests DRD&LR: Department of Rural Development and Land Reform 21

22 LAND CLAIMS STATISTICAL INFORMATION Limpopo Mpumalanga KwaZulu Natal Total Total no. of claims Research Gazetted/ negotiations Settled* Transferred *these are pilot projects that are awaiting sign off of the final settlement model 22

23 Inter- ministerial task team meetings, are facilitated by DPE and are attended by DAFF, DRD&LR, DPE and SAFCOL Issues discussed include the following: Warehousing of shares (SAFCOL privatised entities) Finalisation of SAFCOL lease with DAFF on state forest land Payment of rentals to the land claimants Stakeholder engagement plan Changes regarding land claim processes, gazetting and legislation Establishment and implementation of suitable settlement model Initiated operational specific meetings with Regional Land Claim offices (RLCC s) Achievements of such meetings are as follows: o o o o o Established close working relationship SAFCOL/KLF INVOLVEMENT Established focus teams for individual claims Facilitated operational meeting with all relevant stakeholders, e.g. DAFF, DRDLR, PW, etc. Offered mapping support, and other information to the Commission SAFCOL/KLF, through its initiatives such as Socio Economic Development Unit (SED) programme and Enterprise Development (ED) continues to position itself as the preferred partner of choice SAFCOL has developed a draft settlement model deemed suitable for settling land claims that affects the state forest land on which it operates 23

24 POSSIBLE SETTLEMENT MODELS Option 1: Lease Back Option 2: Strategic Partnership Government to transfer the title and rights to the land to successful claimant communities for ownership Government to transfer the rights to the land or land in title to claimant s communities Community owns the land; and leases it back to SAFCOL/KLF for a maximum of two rotations (70 years) KLF retains ownership of the trees, and pays a market rental for the use of the land. Incentives by SAFCOL/KLF to claimants so as to help guarantee supply of raw material At the end of the second rotation, parties may re-negotiate new terms that could result in the increased ownership of business by claimants Government to acquire a share in the trees (to be informed by a Plantation Management / Business Plan for the Plantation Claimants and SAFCOL/KLF to form a partnership in the ownership and management of the trees (the land is not to be included in the partnership) Partnership to rent the land for two rotations Application of additional benefits described below 24 24

25 OPTION 1 BENEFITS & ACTIVITIES Formation of community owned business enterprises, communities could provide services to SAFCOL/KLF. This shall enable preferential procurement, i.e. contracting opportunities Assistance of land claimants with the development of forestry related of Enterprises SAFCOL/KLF to continue its social compacts and socio economic development initiatives within adjacent rural communities inclusive of claimants Provision of skills and knowledge transfers to land claimants on forestry. Focus to rural infrastructure development for community benefit Employment opportunities Capacitate communities in the forestry business as a whole to achieve competent levels where after a transition to option 2 can explored 25

26 IMPLICATIONS Financial SAFCOL is obliged to pay lease rentals on the state forest land that it uses for its plantations The current lease rental payments of R48million per annum are paid to DAFF and ultimately the latter will pay such rental to claimants once their land claims are upheld Post the settlement on a land claim and transfer, both SAFCOL and DRD&LR including claimants would have to negotiate a lease rental of the land payable to successful claimants 26

27 WAY FORWARD DRD&LR and DAFF with the assistance of the DPE and SAFCOL/KLF need to fast track and finalise the restitution process affecting the state forest land operated by SAFCOL/KLF and for that to occur the following support is required: The improvement on the turnaround times for the research, verification and gazetting of valid land claims by the DRD&LR. An inter-ministerial engagement by DPE with counterpart in DAFF and DRD&LR to solicit a political will and possibly agreement on the prioritisation of the land claims that affects SAFCOL/KLF s business operations. 27

28 LAND CLAIMS RISKS AND CHALLENGES The following risks and challenges have been identified and are managed: Land claims are not timeously resolved thus leading to communities not being patient anymore and resorting to riots Supply of softwood saw log could be under threat due to communities not opting for SAFCOL as the preferred partner post transfer of the claimed land SAFCOL/KLF operations have received threats from communities due to unresolved land claim. Increased in temporary unplanted (UP) areas as a result of community conflicts Illegal occupation of KLF operated land Land that KLF operates being leased from the state, SAFCOL does not have the delegated mandate on the resolution of the land claims 28

29 THE SOUTH AFRICAN LOG INDUSTRY IS DOMESTICALLY FOCUSED WITH AN EMPHASIS ON PRODUCTION OF PULP LOGS Current state of South African log industry South Africa SAFCOL Proportion of SA log production 80% % Pulp logs 22% Saw logs 10% Other Proportion of SAFCOL plantation stock 100% % Pulp logs 88% Saw logs 2% Other The size of the South African timber market is 18.5million m 3 There is an oversupply of logs in South African market South Africa imports 90,000m³ of softwood lumber and 74,000m³ of plywood per year SAFCOL currently does not export any logs or byproducts Owns about 8% of South African timber market Owns more than 25% of pine saw log market Major producer of larger diameter pruned logs in South Africa Local demand for larger diameter logs has declined - SAFCOL is therefore unable to realize the value invested for 30 years into these types of trees. 29

30 FINANCIAL PERFORMANCE FINANCIAL PERFORMANCE 2013 / /2013 Revenue Upward trend with 5% increase on prior year Cost of Sales Increase mainly driven by increase in land lease rentals Operating expenses Decrease mainly as a result of lower spending R m - Revenue Cost of Sales Operating Expenses 30

31 FINANCIAL PERFORMANCE 70% 60% 50% 40% 30% 20% 10% 0% -10% Gross Profit Margin Net Profit Margin Operating Profit Ratio 2013 / /2013 Gross Profit Margin As a result of the increase in Cost of Sales driven by increase in land lease costs, gross profit margins decreased by 4% Net Profit Margin Significant increase in Net Profit Margin driven by fair value on biological assets (9% for 2013 to 57% for 2014) Operating Profit Ratio In the prior year profit included sale of property asset, resulting in a 4% profit ratio against -4% in the current year 31

32 SAFCOL GROUP STATEMENT OF FINANCIAL PERFORMANCE Financial year Amounts in Rand Thousands Variance Variance % Revenue % Cost of Sales % Other income % Fair value adjustments % Operating Expenses % Operating profit % Net investment Revenue % Profit before taxation % (Loss) / Profit before taxation excl. fair value adjustments % 32

33 SAFCOL GROUP STATEMENT OF FINANCIAL POSITION Financial year Amounts in Rand Thousands Variance Variance % ASSETS % Non-current assets % Current Assets including current portion of biological ass % Non-current assets held for sale % EQUITY AND LIABILITIES % Equity % Liabilities % Non-current liabilities % Current liabilities % 33

34 SAFCOL GROUP STATEMENT OF CASH FLOWS GROWTH THROUGH PARTNERSHIP Financial year Amounts in Rand Thousands Variance Variance % Cash flow from operating activities % Cash flow from investing activities % Cash flow from financing activities % Total cash movement for the year % Cash and cash equivalents at end of the year % 34

35 FIVE-YEAR CASH FLOW TREND 250 Five-year trend of cash flows Cash flow from operations (R'mil) Cash and cash equivalents(r'mil) The Group generates cash from its operations: Improvement since FY2010 from negative R136 million to positive R83 million Cash and cash equivalents: Since FY2011, there has been increase in cash resources of more than 100%. 35

36 AUDIT REPORT 2013 Audit qualifications: The 3 qualifications have been resolved and are no longer applicable resulting in an Unqualified audit opinion for Restatement of 2013 figures: Corrections completed in the current year relating to prior year for non-current assets, current assets and retained income. Material losses: R 1 million incurred as result of fraudulent activities at IFLOMA o Remedial Action: R0.8 million recovered and criminal processes instituted Non-compliance to Treasury regulations: A. Liability management: in respect of existing credit cards that were not cancelled. o Remedial Action: engagement with National Treasury on card alternatives B. Strategic planning and performance management: The corporate plan did not include all the strategic objectives and outcomes agreed upon by the executive authority in the shareholder's compact or key performance measures and indicators for assessing the entity's performance in delivering the desired outcomes and objectives. o Remedial Action: alignment of corporate plan and shareholders compact for subsequent period 36

37 SAFCOL S OUTLOOK Financial/ commercial sustainability Sustainable forestry management Enhanced development contribution Timbadola upgrade and expansion Export logs IFLOMA expansion Under review Under review Under review Plywood mill and cogeneration facility Green Energy These initiatives meet the objectives of enhanced development, financial and commercial sustainability and sustainable forestry management to varying degrees 37

38 Thank you 38