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CORPORATE PROFILE
THE SOUTH AFRICAN FORESTRY COMPANY LIMITED The South African Forestry Company Limited ("SAFCOL") and its subsidiaries, incorporated in terms
of the Companies Act of South Africa, read in conjunction with the provisions of the Management of
State Forests Act, 1992, operate mainly in the forestry and forest products industry.
The main aim and object of the Company, as defined in its Memorandum and Articles of Association,
is the development, in the long-term, of the South African Forestry industry and the optimising of its
assets according to accepted commercial management practices and conservation principles.
SAFCOL annually agree on objectives through the Shareholders Compact, which defines specific
mandate of SAFCOL for a particular period.
ShareholdingAll the issued shares of the Company are held by the Government of the Republic of South Africa.
CORE OPERATIONS Being a leader in the forestry industry and managing State-owned commercial plantations, the Group
oversees a world-class asset with a competent personnel corps and excellent research capabilities.
The Group consists of the following operating subsidiaries: Komatiland Forests (Pty) Ltd ("KLF"),
Industrias Florestais de Manica SA ("IFLOMA"), Mountains to Oceans Forestry (Pty) Ltd, Kamhlabane
Timber (Pty) Ltd and Temba Timber (Pty) Ltd.
Komatiland Forests (Pty) LtdKLF owns and manages the prime softwood saw log forestry assets in the Mpumalanga, Limpopo
and KwaZulu-Natal Provinces of South Africa and consists of 18 plantations covering a total area of
187 320 27 ha. Its main business is the conduct of forestry, timber-harvesting, timber-processing and
related activities. The plantation stock consists of approximately 91% pine, 7% eucalyptus and 2%
acacia and other species. KLF is one of the largest producers of high quality saw logs in South Africa.
Its customer base includes the Timbadola Sawmill, a sawmill run by KLF, and other large as well as
small processors located in and around its plantations.
CORPORATE PROFILE CONTINUED
ii
Its main sources of revenue are round wood timber and sawn lumber sales. Cash generating assets
comprise timber on the plantations and lumber from the processing operations.
Secondary sources of income are derived from the nursery, ecotourism, harvesting and transport
operations, as well as property related transactions and other investments.
KLF has a research centre and nursery that is currently managing various trial plots in several
plantations across the Limpopo, Mpumalanga and Kwazulu-Natal Provinces. The nursery produces
plants for all of the plantations operated by KLF.
Industrias Florestias de Manica SAIFLOMA is a public limited liability Company, registered in Mozambique and originally established in
the 1980's 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, the remaining 20% shares
is held by the government of Mozambique through the Institute for the Management of Government
Shares ("IGEPE"). IFLOMA is 100% consolidated due to an irrevocable option to acquire the remaining
20% interest.
The total landholding area is 23 600 ha of which 16 618 ha is plantable for commercial forestry. The
operations are located in the Manica Province, an ideal location from which to serve markets in
Mozambique, Zimbabwe and South Africa. IFLOMA consists of processing facilities at Messica, three
plantations at Penhalonga, Bandula and Rotanda as well as a warehouse in Maputo.
1. VISION, MISSION AND CORE VALUES 4
2. GROUP STRUCTURE 5
3. BOARD OF DIRECTORS 6
4. EXECUTIVE COMMITTEE 10
5. CHAIRPERSON'S STATEMENT 14
6. CHIEF EXECUTIVE'S REPORT 17
7. OPERATIONAL PERFORMANCE REVIEW
Forestry Operations 24
Processing Operations 25
Marketing Performance 25
Human Capital Management 26
Safety, Health and Environmental Management Performance 32
Transformation Imperatives 32
Socio-Economic Development and Enterprise Development Initiatives 33
Risk Management 35
Land and Leases 35
Land Claims Management 35
IFLOMA 36
8. HIGHLIGHTS ON FINANCIAL PERFORMANCE 37
3
TABLE OF CONTENTS
Part 1
4
VISION, MISSION AND CORE VALUES
VISIONA world class, global business engaged in multi-functional forestry, revolutionising theintegration of forests and communities.
MISSIONOur mission is driven by an unwavering commitment to facilitate sustainable economicempowerment of communities and alleviation of poverty through:
❈ Implementing needs-driven interventions
❈ Becoming a partner of choice for land claimants.
We are dedicated to growing our business in the forestry value chain and maximisingstakeholder value, through:
❈ Ensuring technical and business excellence by attracting and retaining the best people
❈ Enhancing the asset value by continuously pursuing innovative solutions
❈ Embracing and leading an all inclusive equitable transformation of the South Africanforestry sector
❈ Commitment to meaningful partnerships with stakeholders
❈ Practising transparent and fair marketing
❈ Develop the downstream value chain
❈ Environmentally responsible.
Therefore providing a green heritage, growth and socio-economic justice.
CORE VALUES❈ Passionate about our forests, communities, customers and people
❈ A social and environmental conscience
❈ Trust founded on integrity and loyalty
❈ Equality, fairness and empowerment
❈ Respect for diversity
❈ Focus on innovation and excellence.
5
Minister of Public Enterprises
Operating Subsidiaries Dormant Subsidiaries Special Projects Investments Held-For-Sale
Lakenvlei ForestLodge (Pty) Ltd
Abacus Forestries(Pty) Ltd
KamhlabaneTimber (Pty) Ltd
Seed Orchard
By-products
SiyaqhubekaForests (Pty) Ltd
Amatole ForestryCompany (Pty)
Ltd
MTO Forestry(Pty) Ltd
Singisi ForestProducts (Pty) Ltd
Temba Timber(Pty) Ltd
Mistlands Timber(Pty) Ltd
ShannonProperties
Mountains toOceans Forestry
(Pty) Ltd
100%
100%
80% 100% 100%
25% 16% 16% 16%
100% 100% 100%
100%
GROUP STRUCTURE
6
BOARD OF DIRECTORS
Ms G Moloi
Date of bir th 12 September 1967
Service with SAFCOL Appointed as Chairperson on 15 September 2006
Academic qualifications BA (Law)
Masters degree ( Town and Regional Planning)
Diploma (General Business Management)
Other boards on which FirstRand Group Ltd
the individual serves Iman Africa (Pty) Ltd
Lopier (Pty) Ltd
Last organisation of employment Drake and Scull
Mr MJ Breed
Date of bir th 30 July 1959
Service with SAFCOL Appointed at SAFCOL as General Manager: Finance and
CFO in April 1993
Appointed to the SAFCOL Board as Executive Director and
CEO on 6 September 2002
Academic qualifications BCom (Hons)
Chartered Accountant (SA)
Other boards on which Subsidiary Companies in SAFCOL Group
the individual serves Kindling Holdings (Dormant)
RTP Trading (Dormant)
7
Mr M Bhabha
Date of bir th 29 April 1960
Service with SAFCOL Appointed to the SAFCOL Board on 1 April 2005
Academic qualifications BProc
Other boards on which Non Executive Director Highveld Steel
the individual serve Economic Advisory Board to the Premier of North West
Province
Advisor to Deputy Minister of Co-operative Governance
Last organisation of employment Development Bank of Southern Africa ("DBSA")
Mr DJ Bills
Date of bir th 9 February 1948
Service with SAFCOL Appointed to the SAFCOL Board on 1 January 2007
Academic qualifications BSc (Forestry)
Research Fellow, Norwegian Forest Research Institute
Diploma (Pulp and Paper Technology)
Graduate - Senior Executive Programme (Sloan School of
Management)
Member of Institute of Foresters of Australia
Fellow Institute of Chartered Foresters UK
Other boards on which President of Commonwealth Forestry Association
the individual serves (non-profit)
Chairman of Goldenbil Investments (Private Investment
Trust)
Last organisation of employment Chief Executive of ConFor (Part Time)
Technical Advisor and Spokesperson for the Wood for Good
campaign
Director General and Deputy Chairman, Forestry
Commission of Great Britain
Leader of a review of Scottish Natural Heritage for the
Scottish Executive
Dr M Diaho
Date of bir th 9 March 1960
Service with SAFCOL Appointed to the SAFCOL Board on 1 April 2005
Academic qualifications MB BS (Australia)
Diploma in Child Health (DCH)
Diploma in Tropical Medicine and Hygiene (DTM & H)
Diploma in Public Health (DPH)
MBA
Programme for Management Development (PMD)
Professional affi l iations South African Medical Association
Health Professions Council of South Africa
Fellow of the African Leadership Initiative
Last organisation of employment Nelson Mandela Foundation
8
Mr PJ Derman
Date of bir th 10 February 1947
Service with SAFCOL Appointed to the SAFCOL Board on 15 September 2006
Academic qualifications BA
BA (Hons)
Other boards on which None
the individual serves
Last organisation of employment Director and managing member of CORD Consulting CC
Prof R Hassan
Date of bir th 22 February 1953
Service with SAFCOL Appointed to the SAFCOL Board on 15 September 2006
Academic qualifications MSc
PhD (Economics)
BSc
MSc (Agric Econ)
Other boards on which None
the individual serves
Last organisation of employment Professor and Director, Centre for Environmental Economics
and Policy in Africa ("CEEPA"), University of Pretoria
Maj Gen (Ret) RPF Sedibe
Date of bir th 14 November 1944
Service with SAFCOL Appointed to the SAFCOL Board on 15 September 2006
Academic qualifications Practical Project Management Certificate, UNISA 2002
Studying towards an Advanced Project Management
qualification, UNISA
Other boards on which Director of Bayethe Holdings (Pty) Ltd
the individual serves Managing Director of Vihuru Truck Centre
Director of Pitsa Ya Sechaba (Pty) Ltd
Director of Tshwaranang Promotions
Director and Representative of Austral-Africa (South Africa)
Trustee of Letaba Trust
Chairperson of Aearosud
Trustee of Kayile Trust
Chairperson of Centurion Aerospace Village (CAV )
Director of United Manganese of Kgalagadi (UMK)
Director of Ditswammong (Pty) Ltd
Director of Bullet Proofing Technology
Last organisation of employment South African National Defence Force, Retired Major
General
BOARD OF DIRECTORS CONTINUED
9
Mr SM Radebe
Date of bir th 17 March 1974
Service with SAFCOL Appointed to the SAFCOL Board on 1 June 2008
Academic qualifications Chartered Accountant (SA)
Post Graduate Diploma in Accountancy
BCom
Other boards on which Chairperson of Mogale City Municipality Audit Committee
the individual serves Member of City of JHB Metro Advisory Panel to Mayor on
Performance
Non-Executive Chairman of Arthur Els Actuarial Consulting
Chairperson of Municipal Demarcation Board
Last organisation of employment Rebahale Consulting (Pty) Ltd
Mrs E Alexander
Date of bir th 30 September 1957
Service with SAFCOL Appointed to the SAFCOL Board on 1 June 2008
Academic qualifications BSc Chemistry and Management
BA Laws
PD Management
International Agri Biotech Course
Other boards on which Executive Director of South African Table Grape Industry
the individual serves Director of Perishable Products Export Control Board
(PPECB)
Director of Strategic Agricultural Intervention (SAI)
Last organisation of employment South African Table Grape Industry
10
EXECUTIVE COMMITTEE
Mr MJ Breed
Designation Group Chief Executive
Date of bir th 30 July 1959
Service with SAFCOL Appointed at SAFCOL as General Manager: Finance and CFO in
April 1993
Appointed to the SAFCOL Board as Executive Director and CEO
on 6 September 2002
Academic qualifications BCom (Hons)
Chartered Accountant (SA)
Other boards on which Subsidiary Companies in SAFCOL Group
the individual serve Kindling Holdings (Dormant)
RTP Trading (Dormant)
Mr F de Villiers
Designation Senior Executive: Marketing
Date of bir th 8 December 1960
Service with KLF 1 May 1994 to date
Academic qualifications BEng (Electronics)
Other boards on which Subsidiary Companies in SAFCOL Group
the individual serves RTP Trading (Dormant)
Kindling Holdings (Dormant)
Mrs I Gricius
Designation Senior Executive: Legal Services
Date of bir th 3 May 1968
Service with SAFCOL 12 December 1988 to date
Academic qualifications BIuris
LLB
Other boards on which None
the individual serves
11
Mrs MM Manyama-Matome
Designation Group Chief Financial Officer
Date of bir th 18 April 1977
Service with SAFCOL 11 January 2010 to date
Academic qualifications BCom (Hons) ( Taxation)
BCompt (Hons)
Chartered Accountant (SA)
MBA
Other boards on which Subsidiary Companies in SAFCOL Group
the individual serves Johannesburg Metropolitan Bus Services
Mrs LC Mossop-Rousseau
Designation Senior Executive: Corporate Services
Date of bir th 7 January 1963
Service with SAFCOL 01 August 2006 to date
Academic qualifications BA
BA (Hons) (Geography)
Higher Diploma in Education
BIuris
Other boards on which Minority Shareholding Companies in SAFCOL
the individual serve African Forestry Forum (International NGO)
External Advisory Group on Forests to the World Bank
Food and Trees for Africa
Subsidiary Companies in SAFCOL Group
Dr S P Makhesha
Designation Senior Executive: Transformation
Date of bir th 19 October 1974
Service with SAFCOL 01 June 2009 to date
Academic qualifications PRM
PDM
EDP
Strategy
MBA
DBA (Doctorate in Business Administration)
Other boards on which Trans Caledon Tunnel Authority
the individual serves Rand Water Board
12
Mr LN Mudimeli
Designation Senior Executive: Corporate Communication and Liaison
Date of bir th 5 October 1974
Service with KLF 1 April 2003 to date
Academic qualifications BSc Natural Sciences
BSc (Hons) Zoology
MDP
Other boards on which Forestry South Africa
the individual serves Minority Shareholding Companies in SAFCOL Group
Mr AA Mutshinya
Designation Senior Executive: Human Capital Management
Date of bir th 31 March 1964
Service with SAFCOL 1 September 2006 to date
Academic qualifications B Admin
B Admin (Hons) Industrial Psychology
Certificate Programme: Organisational Development Consulting
Other boards on which None
the individual serves
Mr JHR van der Sijde
Designation Senior Executive: Forests
Date of bir th 15 June 1958
Service with KLF 3 January 1976 to date
Academic qualifications BSc (Hons) Forestry
MSc Forestry
MBA
Other boards on which Subsidiary Companies of SAFCOL Group
the individual serves
Dr GJ Wessels
Designation Senior Executive: Strategy, Planning and ICT
Date of bir th 6 September 1957
Service with SAFCOL 1 June 2006 to date
Academic qualifications PhD (Mineral Economics)
MSc (Applied Mathematics)
BSc (Hons) Operations Research
BSc Mathematics and Applied Mathematics
BCom (Hons) Financial Accounting
Certificate in the Theory of Accountancy
Chartered Accountant (SA)
Other boards on which None
the individual serves
Mr P Chetty
Designation Senior Executive: Enterprise Development
Date of bir th 5 December 1969
Service with SAFCOL 19 January 2009 to date
Academic qualifications BCom
CIA
Other boards on which Subsidiary Companies in SAFCOL Group
the individual serves Minority Shareholding Companies in SAFCOL Group
EXECUTIVE COMMITTEE CONTINUED
13
The trading conditions in the year under review continued
to weaken significantly which had a huge negative impact
on the forestry industry as a whole. Domestic demand for
all manner of goods and services deteriorated as a result
of decline in disposable incomes. As expected the result
was that the demand for newly built housing came down
at an alarming rate in the year under review. The
restrictions imposed by the National Credit Act also meant
that demand was curtailed as access to credit became
increasingly difficult for individual consumers and
business alike. The extent and duration of the global
recession was never anticipated to be this deep or last as
long. It is no wonder that the full impact of the global
economic downturn and recession experienced by the
Group since March 2009 had a major impact on the
implementation of SAFCOL's strategic goals. It
necessitated that the original Corporate and Business Plan
be revised with the view to assist the company to move
from a loss making position to a profitability position in
the next five years.
The Group incurred a loss before taxation of
R246,4 million (excluding the effect of the adjustment of
plantation valuation) compared to a profit of
R211,5 million in the previous year. The loss to date has
been influenced by the decline in external sales revenue
of R425,2 million. The cost saving initiatives which were
implemented, contributed positively to the Group's
financial position. At the same time SAFCOL has done all it
can in the year under review in these very extreme trading
conditions to minimise job losses internally. To this end no
retrenchments took place within the Group. In addition,
SAFCOL also tried to put in place more favourable credit
conditions for its suppliers, thereby minimising job loss
where possible with clients.
The focus for SAFCOL in the 2010 financial year was on the
core business while positioning itself as a preferred
partner to land claimants. Being a leader of the Forestry
Charter and driving transformation within the industry,
having a socio-economic impact in communities around
its operation. Striking this balance has been a major
challenge for the Board and the Management team. Some
of the key strategic initiatives that SAFCOL has driven
include the managing to formalise relationships with
community clusters whereby six social compacts were
signed and various socio-economic and enterprise
development projects were implemented within those
community clusters. This was further enhanced by the
various transformation initiatives which were held during
the year under review namely: Day of Action,
Transformation Bus and Vendor Days. The Corporate and
Business Plan continue to reflect SAFCOL's strategic vision
to play a major role in the development, integration and
upliftment of rural communities where its operations are
based.
It can be said that since SAFCOL is not vertically
integrated, this seems to have some limitations on its
ability to extract the full value of its forest products. The
Board has asked Management to review the potential of
vertical integration with the view to maximise
opportunities for communities along the full value chain
of the forestry business. This matter is under discussion
with the shareholder. Other pressures that necessitated
the review stems from the fact that the long term
contracts are either being cancelled through mutual
agreement or coming to an end contractually during
2011. A new sales approach and process will be
implemented during the 2011 financial year and
consultation with stakeholders has already started.
With the release of King III, the Board conducted a full
Governance Review and is engaged in the process of
bringing all activities in line with best practice.
We welcome the Presidential State-Owned Entity Review
Committee tasked with the mandate of reviewing the
State Owned Entities ("SOE") as part of the economic
14
CHAIRPERSON'S STATEMENT
G MOLOI
transformation agenda. We believe that SAFCOL is suitably
positioned to advance government's mandate of socio-
economic development and poverty alleviation in the
rural communities.
There were no significant changes in the Group structure
and investments held-for-sale. SAFCOL still holds minority
shares on Siyaqhubeka Forests (25%), Amathole Forestry
Company (16%), MTO Forestry (16%) and Singisi Forests
Products (16%). SAFCOL has subsequent to the year-end
paid R10,3 million for the rights offer by Singisi Forests
Products. The action for retaining the 16% shareholding
was supported and approved by the Board and the
Minister of Public Enterprise respectively.
SAFCOL had various interactions with the Chief Land
Claims Commissioner and the Department of Rural
Development and Land Reform, in an attempt to resolve
the land claims. The current process and approach to the
resolution of land claims poses a challenge, and SAFCOL
will continue to provide the necessary assistance to
ensure that the process is accelerated.
OUTLOOKThe Board together with Management is reviewing the
SAFCOL business model to ensure that the Company is
optimally structured and resourced to take it into the
15
CHAIRPERSON'S STATEMENT CONTINUED
future, achieving its vision and mission statements in line
with the shareholder expectations.
ACKNOWLEDGEMENTThe Board extends its heartfelt thanks to the Minister of
Public Enterprises (Barbara Hogan), Deputy Minister of
Public Enterprises (Enoch Godongwana), the Director
General and the DPE team for their support during the
year under review.
I express my gratitude to all the Directors, especially for
their tireless efforts in steering the Group through these
difficult trading conditions. The Board showed resilience
during these very difficult conditions and they heeded the
Minister's call and continued to provide the oversight and
direction to the management of the business.
I would also like to convey my appreciation and thanks to
all the staff at SAFCOL for applying their skills and their
dedication in these challenging times. Special
appreciation goes to the Management team for keeping
the shoulder to the wheel and getting the job done.
G Moloi
16
Day of Action in Mpulizi area, December 2009
17
CHIEF EXECUTIVE'S REPORT
MJ BREED
STRATEGY REVIEWThe five-year year Corporate and Business Plan was approved by the Board during the 2009 financial year and is in its
second year of implementation. The adverse market conditions had a major influence on the non-achievement of some
objectives. Notwithstanding the challenges that the Group has experienced, we were able to achieve the following
milestones:
❈ Securing employment in difficult trading conditions with no retrenchments made while the agricultural sector has
shown a 20% job loss for October 2009 as compared to the same period in 2008
❈ We continued to offer bursaries to both employees and external students with specific focus on women empowerment
❈ We managed to reduce the Temporary Unplanted Compartments ("TUP") after the devastating fires in 2007 and 2008
❈ We retained our Forestry Stewardship Council ("FSC") certification.
PERFORMANCE AGAINST TARGET SET PER SHAREHOLDER'SCOMPACTThe following table reports performance against targets as set in the Shareholder's Compact entered into between the
SAFCOL Board and DPE (signed 02/10/2009).
18
Short and long term financial
and commercial sustainability
Sustainable forest management
Enhanced developmental
contribution
Financial returns
Creditworthiness
Area of forest under management
Area of forest under management
which is fully certified to Forest
Stewardship Council or Programme
for the Endorsement of Forests
Certification standard
Achievement of Forestry Charter
Transformation objectives
Enterprise development
Return on equity excluding fair value
movements and translation gains (losses)
(Net Profit after tax / equity)
Return on equity including fair value
movements and translation gains (losses)
(Net Profit after tax / equity)
Credit rating as verified by appropriate
rating agency
Gearing ratio (Interest bearing liabilities
divided by primary (issued) capital)
Cash ratio (Cash and cash equivalents
divided by current liabilities)
Total gross stocked area, in hectares,
including TUP (temporarily Unplanted
Areas) including all subsidiaries in which
SAFCOL has a controlling equity stake,
but not Associated Companies
Area, in hectares, of the above under saw
log management objectives
Percentage of total forest area in South
Africa
Percentage of total forest area under
management in Mozambique, including
all subsidiaries in which SAFCOL has a
controlling equity stake, but not
Associated Companies
B-BBEE Contributor Level as defined in
DTI Code of Practice
Corporate Social Investments spend per
annum
Number of medium sized businesses (as
classified by the DTI) created by
31 March 2014
Element strategic intent Key performance area Proposed KPI
CHIEF EXECUTIVE'S REPORT CONTINUED
19
10%
10%
Investment Grade rating as defined
by Fitch and standards and poor
<50%
>1
124 000 ha
>100 000 ha
100%
100% by 31 March 2012
Level 2 contributor by
31 March 2011
>1% of Net Profit After Tax
excluding Plantation Valuation per
annum (R7 million per annum)
Three medium sized businesses
10%
10%
Investment Grade rating as defined
by Fitch and standards and poor
<50%
>1
124 000 ha
>100 000 ha
100%
0%
Level 3 contributor
>1% of Net Profit After Tax
excluding Plantation Valuation per
annum (R7 million per annum)
Three enterprise development
opportunities identified
-18,5%
NOTE 1
-14,9%
NOTE 1
NOTE 2
0,46%
1,7
140 000 ha
131 787 ha
100%
0%
NOTE 3
R6,6 million and 10% of average Net
Profit After Tax excluding Plantation
Valuation for 2008 to 2010 financial
years
One Small Enterprise created, 5 SME
contractors created from previously
disadvantaged individuals and two
existing contractors from previously
disadvantaged individuals sustained
Long term targets
(Until 2014)
Targets 2009 / 10 Actual 2009 / 10
20
Market access to Small to Medium
Enterprises as defined per Forestry
Charter and new entrants
Social compact implementation
Percentage volume of round wood sales
sold by a price competitive sales process
under fixed duration contracts and in
accordance with revised marketing policy.
This is defined as cubic meters sold by
competitive auction / tender / bidding
process open to all eligible bidders,
under contract which are of a fixed
duration, as a percentage of total
roundwood sales, including all
subsidiaries in which SAFCOL has a
controlling equity stake, but not
Associated Companies
Percentage of community groupings (i.e.
communities, local and traditional
authorities and land claimants) with
signed social compacts. The baseline
number of community groupings as of
1 September 2009 is 18
NOTE 1
Please refer to page 40 – Shareholder's Compact.
NOTE 2
An investigation was requested on the cost of a credit rating by FINCO. It was noted that the cost of doing a credit rating
would depend on the rating service and it would be an annual expense. FINCO deemed this unnecessary at this stage for
SAFCOL.
NOTE 3
An Audit by the Empowerdex Rating Agency was still in process and the certificate was pending at year-end.
Proposed KPI Key performance area Element strategic intent
21
CHIEF EXECUTIVE'S REPORT CONTINUED
58%
33,3%
42,5% until 31 March 2012
33%
100%
100%
Actual 2009 / 10Targets 2009 / 10 Long term targets
(Until 2014)
GROUP FINANCIAL HIGHLIGHTSThe slowdown of the economy in timber activities
resulted in the Group reporting a loss before tax and fair
value adjustment to plantations of R246,4 million during
the financial year, as compared to a profit of
R211,5 million in 2009. In the interpretation of the results,
the R342,6 million decrease in the fair value of the
plantations (2009: R757,9 million increase) must be taken
into account.
The total negative impact of the fire salvage operation is
estimated to be R125,2 million (2009: R203,3 million),
excluding capital expenditure amounting to R0 million
(2009: R3,5 million) for the establishment of wet decks and
huts.
The estimate per category is as follows:
FORESTRY OPERATIONS
The focus within the forestry operations in the current
financial year was on the re-establishment of the burned
areas, thereby minimising the Temporary Unplanted Area
(2009 / 2010: 2 871 ha compared to 2008 / 2009: 6 378 ha).
The other focal area was on the reduction of the thinning
backlog that was behind mainly due to the focus on fires
and balancing market demands. The successful
implementation of our comprehensive fire management
and fire awareness plans had a major impact in the
reduction of fire incidences with no substantial fire losses
during the 2009 fire season.
PROCESSING OPERATIONS The structural timber market continues to experience
difficulties as a result of the current economic recession.
The demand for lumber product continues to decline,
more volumes of lower-value products were sold
compared to structural timber products. Several initiatives
aimed at increasing the production efficiency, improving
timber recovery and decreasing downtime at our
Timbadola Sawmill were successfully implemented during
the year under review.
Custom cut operation was also exposed to current market
conditions resulting into a lower sales volume and a build-
up of stock of 5 343m3 (2008 / 2009: 4 056m3). As most of
the products sold in the custom cut operations are wet of
saw, the operations managed to make a small profit from
the sale of lower value products such as packaging
material and to keep its staff employed in the activity.
In the year under review SAFCOL Group entered in to a
custom cut agreement with PG Bison to continue
operation at the eMpuluzi sawmill. The Group's
involvement with a custom-cut agreement with PG Bison
emanated from the announcement by Steinhoff that they
will be closing the mill. This could have had a devastating
effect on the surrounding community as the mill was the
main source of formal employment in the area.
22
❈ A total of 138 625 m³ (2009: 228 458 m³) salvaged logs are stored on wet decks with a fair value of R58,2 million (2009:
R118,4 million)
❈ There has been a decrease of R14,5 million in the net realisable adjustment to the carrying value of the salvaged logs
stored on wet decks. Included in the prior year results is an increase of R14,9 million being the fair value adjustment
to the carrying value of the salvaged logs stored on wet decks
❈ Total fire claims outstanding at year-end amount to R146,5 million. We have recovered R5,3 million (2009: R0 million)
during the year under review.
DESCRIPTION 2010 Rm 2009 Rm
Impairment of carrying value of standing timber 119,3 107,3
Fire extinguishing costs and other protection costs - 0,3
Estimated site clearing and re-establishing costs (silviculture) - 10,8
Estimated additional harvesting and transport cost - 72,6
Estimated establishment and operating costs of wet decks 5,9 1,7
Other fire related costs (conservation, overheads) - 10,6
Total 125,2 203,3
TIMBER MARKETINGThe decreased demand for timber impacted on the
Group's overall performance. Alternative marketing
ventures, the guaranteed off-take Penalty Package, the
Rebate Package as well as the ad-hoc Price List Option
gave customers more options and delivered positive
results.
HUMAN CAPITAL Change management programmes conducted at our
offices and throughout the operations provided an
opportunity to communicate with employees the new
vision, mission and strategic direction of our business.
Constant communication with employees encouraged a
culture of managing costs and improving productivity,
ensuring that we all contribute to the sustainability of the
business.
In our drive to promote women participation in forestry,
19 young women completed the bridging programme
offered at our training centre and further received
bursaries for studying towards a diploma or degree in
forestry.
A new five-year Employment Equity ("EE") plan was
developed during the year under review and the
consultation processes were duly conducted whereby
consensus was reached with the relevant parties. The EE
report showed an improved representation of employees
from the designated group in middle management and
gender biased toward employment of women.
ENVIRONMENTALWe retained the Forestry Stewardship Council (FSC) - ©
1996 A.C. certification for all operations which includes
our 18 plantations and the Timbadola Sawmill.
In keeping with global trends and concerns regarding
climate change, we are currently considering possible
interventions for the reduction of our CO² footprint
through a range of measures such as the green energy
project, the integrated waste management and utilisation
of our energy sources more effectively.
TRANSFORMATIONOur aspiration is to become a leader in transformation in
the forestry sector and in the year under review we
undertook various transformation initiatives. As a SOE we
strive to contribute and assist in achieving government's
mandate of positive and proactive responses to
implement the Transformation Charter to address
inequalities in the sector, and unlock the potential and
enhance growth.
Our baseline assessment of the Broad-Based Black
Economic Empowerment ("B-BBEE") level status in terms
of the codes of good practice was evaluated by an
independent verification agency in the previous year, and
the result reflected a B-BBEE level contribution of three
for the Group. Aggressive targets have been set in the
Corporate and Business Plan, which are monitored
continuously. At the time of going to the print the B-BBEE
verification for 2010 was not completed.
Six social compacts were signed with community clusters
within or adjacent to our operations. Signing of the social
compacts is an initiative by the Group to grow the
partnerships with its communities. Socio-Economic and
Enterprise Development projects are entered into in
collaboration with the community cluster.
We are currently investigating timber frame housing as a
possible alternative to assist in addressing the current
housing backlog in South Africa. To this effect we have
already established a timber framed structure in
partnership with the Development Bank of South Africa
("DBSA") in Grabouw. This structure will be utilised as a
multi-purpose day care centre for the Rooidakke
community.
LAND CLAIMSA project plan is being developed which will help us in the
identification of the resources needed to assist in the
speedy resolution of land claims within SAFCOL. We are
not delegated to negotiate with the land claimants, and
our intervention is focussed on assisting the Department
of Rural Development and Land Reform ("DRLR") and the
Commissioner's office in fast tracking the process.
ACKNOWLEDGEMENTSWelcome to Ms Maureen Manyama-Matome who is our
new Chief Financial Officer for the Group, and I wish her
well in her new position. I would especially like to
recognise the dedication and commitment of our
workforce, which I believe are the people who made the
company what it is today through their dedication and
hard work.
MJ Breed
23
CHIEF EXECUTIVE'S REPORT CONTINUED
FORESTRY OPERATIONS During the year under review, three new district offices
(Highveld, Sabie and Central) within KLF operations were
established as part of the strategy to decentralise forest
activities closer to communities and operations. As part of
the new forests structure, a Technical Services section was
established to supply specialised services such as roads,
infrastructure, silviculture management, fire risk
management, transport and logistics and forests
engineering support to KLF plantations and processing
functions.
After the devastating fires of 2007, a total of 17 707 ha of
plantations were affected, and: 4 911 ha plantations were
damaged in 2008. The 2009 fire season only resulted in a
minor loss of 346 ha plantations.
A lot of effort went into the replanting of the burnt areas
and at year-end the temporary unplanted area ("TUP")
comprised to 2 871,4 ha (2008 / 2009: 6 377,5 ha).
Fire Management and Fire DamageUnder-canopy burning to reduce fuel load within the pine
plantations in KLF continued and 4 381 ha of
compartments was control burned during the year under
review.
The Mlilo fire awareness campaign road show visited 47
schools in 2009 (2008: 38 schools) in communities
surrounding KLF plantations. The "0860 No fire" telephone
number together with the "bokkie" mascot ensures high
fire awareness, especially during the fire season.
Management remains positive that actions such as fuel
management within compartments, the Mlilo fire
awareness campaign and closer interaction with
communities through formal social compacts, will reduce
the risk of hectares being lost due to fires.
Pests and DiseasesBaboon damage in pine plantations in the South African
Operations remains a serious concern and participation in
working groups such as the Baboon Damage Working
Group are addressing this issue to find suitable solutions.
Results from two surveys, indicated that baboons
damaged 23% of trees at Wilgeboom and 19,6% at
Morgenzon respectively.
Pitch cancer caused by the fungus Fusarium Circinatum
also resulted in high mortalities in newly planted
compartments, especially where Pinus patula was planted.
Membership and participation through International Tree
Conservation and Domestication ("CAMCORE"), Forestry
and Agriculture Biotechnology Institute ("FABI ") as well as
the Institute for Commercial Forestry Research ("ICFR")
assisted in testing disease resistance as well as the
development of more tolerant hybrids.
Sirex damage to pine trees by the woodwasp Sirex noctilio
was found in some of the KLF Highveld plantations.
Monitoring and deployment of biological control agents
are done through the South African Sirex Control
Programme.
Wet DecksDue to large volumes being available after the devastating
fires of 2007 and 2008, salvaged round logs were put into
wet decks. Wet storage of timber is an effective method to
protect large volumes of salvaged timber during a crisis.
Wet deck stock volumes as at 31 March 2010 were
138 624,8 m3.
The total area clearfelled was 2 351,2 ha (2009: 8 028 ha)
owning to more emphasis on completing critical thinning
operations. Hectares thinned during the current financial
year were 9 766 ha (2009: 6 766 ha).
24
OPERATIONAL PERFORMANCE REVIEW
Operational performance review relates to the review of performance of the
SAFCOL Group with reference to performance of the operations under
Komatiland Forests and IFLOMA as main operating subsidiaries of SAFCOL.
Sabie Research CentreThe Sabie Research Centre is capacitated with a diverse
group of competent and dedicated scientists and
technicians in forestry, genetics, wood and growth and
yield modelling.
The Centre manages a seed centre which serves to supply
the KLF nursery with seed of improved genetic quality.
Excess seed is of 2 565 kg was sold to local nurseries
during 2009 (2008: Null).
KLF focuses mainly on applied research, while basic
research is contracted out or done in collaboration with
other institutes and organisations such as ICFR, FABI and
CAMCORE.
Palm Ridge - Research FarmPalm Ridge farm in the Mtubatuba district was purchased
in May 2008 for establishment of seed orchards and
conservation of genetic material. The 127 ha farm will
accommodate pine seed orchards and a portion has been
set aside for a community development project. To date
9 ha of seed orchards have been established (2009: 4 ha)
and a detailed seed orchard plan compiled. The research
nursery is operational and upgrading of the infrastructure
is in progress.
PROCESSING OPERATIONS
Custom CutKLF's current outsourced processing operations consist of
custom-cut agreements with three sawmills located in the
Highveld-area, namely John Wright Veneers, Ringkink
sawmill and lastly the eMpuluzi sawmill, which was added
in the current financial year. KLF's current involvement
with PG Bison's eMpuluzi sawmill came in effect in
January 2010 due to a probable mill closure prospect
announced by Steinhoff at the time. The custom cut
operations entails the processing of KLF's raw material
(logs) by contracted sawmillers at a pre-determined
conversion fee. KLF retains ownership of all products
throughout the process and sells the lumber through its
marketing division in Pretoria. Their combined capacities
equal an annual intake of around 145 000 m3 at about
48,0% product recovery.
With the finalisation of KLF's recent social compact
commitments in the Redhill / Mayflower communities, all
efforts are now being concentrated on sustaining
employment opportunities and to the improvement of
economical circumstances in this very poor rural area by
means of the custom-cut arrangement.
Timbadola SawmillThe mill suffered losses as a result of the market
conditions. The sales volumes for the year were 70,8% of
the budgeted volumes. The Average Selling Price ("ASP")
was lower due to the sales mix sold. As a result of the
severe recession in the structural timber market, the mix
sold was poor due to strong competition. More volumes
of other lower-value products were sold compared to
structural timber products. Despite the loss making
situation, all efforts were made to preserve jobs.
The new kiln and steam-line projects were successfully
completed during the year which helped to increase the
throughput and quality of drying and increasing the
efficiency of steam produced in the boilers. A fourth band
saw knee to improve recovery and intake scanners to
measure the production through the wet mill was
installed. Further improvements include a new wet mill
chipper and out feed pipe to reduce downtime, a second
dry mill crane to assist with production and loading, a new
finished product store and a surveillance camera system
with a new internal network.
MARKETING PERFORMANCE
Round Wood LogsDuring the year under review market conditions were
extremely challenging, but despite this the Group
managed to sell 945 040 m3 (2008 / 2009: 1 465 715 m3)
round wood.
As a result of the market conditions prevailing at the time,
Long Term Contract ("LTC") prices dropped an average of
23% on 1 April 2009 due to price arbitration. In line with
the LTC's, Open Market prices were reviewed and dropped
to the same level. To address the challenge to sell the
budgeted log volumes, a price list with prices at the same
level as set by the Arbitrator was drafted. The sales process
was opened based on the price list. At the time supply
exceeded demand.
The Board approved the 15 month penalty guarantee deal.
The guarantees required for the guaranteed off-take
(penalty) package deals were, however, found not to be
affordable for all customers. The sales method was revised
and a rebate package deal was suggested. In terms of the
deal, customers would take their full order volume and by
the end of the financial year receive a rebate equal to the
difference between the Penalty Package Deal and the
Price List Prices. The above change had to be rolled out to
all stakeholders and was finalised by 31 March 2010.
Giving the customer three options namely, the guaranteed
off-take Penalty Package, the Rebate Package as well as
the ad-hoc Price List Option, has resulted in improved
timber sales.
At the end of March 2010 KLF only had two long term
contracts remaining which will also terminate during the
first half of 2011.
25
LumberThe slowdown in the market led to a decrease of 9 598 m3
in sales for the year under review, compared to the
previous financial year. Direct lumber sales to customers
were at 82% of total sales. Revenue decreased by
R39,76 million. KLF's total lumber sales volume was
reduced by 11,8% compared to the estimated 9,1%
volume drop in the market as reported by Crickmay.
Credit ManagementThe collapse of several markets has put more strain and
accountability on the credit section and the sales team.
New clients had to be thoroughly credit vetted and the
credit insurance company raised the bar on credit
requirements to ensure minimum risk and avoid reckless
credit lending per the National Credit Advisor.
HUMAN CAPITAL MANAGEMENTThe SAFCOL Group continues to uphold the principle that
the success in execution of its business plans relies on the
calibre of the employees in its employment and the value
adding contribution they bring to business operations.
During the year under review, the Human Capital Division
was entrusted with the responsibility of putting into place
people-centred plans and strategies aimed to capacitate
the business and position the Group as the employer of
choice.
The implementation of the Corporate and Business Plan
provided an opportunity to increase employment of
people from designated groups. In the overall recruitment
made during the period under review, 84% of the new
appointments were EE candidates. This measure has
brought about an increase in demographic and gender
representativeness across occupational levels.
Employment Equity ("EE")Employment Equity forms part of the broad
transformation imperatives SAFCOL is committed to
achieve. During the period under review, the annual
progress report against the EE plan was compiled and the
consultation process was duly conducted and consensus
was reached with parties within the provisions of the EE
legislation. The EE targets set were informed and aligned
to those required by the generic Department of Trade and
Industry ("DTI") and B-BBEE codes as contained in the
Forestry Transformation Charter.
26
A summary of the workforce profile (permanent employees) was as follows:
ELEMENT March 2010 % March 2009 %
Race Black staff at managerial level 57,40 51,20
Black staff at all levels 93,30 93,40
Gender Women at managerial level 32,70 25,10
Women all levels 19,30 17,60
People with disabilities All groups 0,69 0,45
Appointments Black staff at managerial level 82,50 85,30
Women at managerial level 55,00 38,20
Black women at managerial level 50,00 35,30
Promotions Black staff at managerial level 79,00 54,20
Women at management level 47,40 25,00
Black women at management level 42,10 20,00
27
OPERATIONAL PERFORMANCE REVIEW CONTINUED
Afr
ican
Wh
ite
Sub
tot
al
Ind
ian
Col
oure
d
Wh
ite
Sub
tot
al
Tota
l
Num
ber
s
Tota
l
Num
ber
s
Ind
ian
Afr
ican
Summary of the composition of the Group's permanent staff per occupational levels:
Summary of Headcount - Permanent Employees - As at March 2010Race and gender distribution
OCCUPATIONAL Male Female Grand Disa- Grand Disa-
total bilities total bilities
Mar 09 Mar 09 2010 2010
Levels
Top management 1 3 0 5 9 0 2 0 2 4 11 0 13 0
(Grade E - F)
Senior management 0 2 1 14 17 1 4 1 2 8 16 0 25 0
(Grade D4 - D5)
Middle management 0 15 1 32 48 0 7 0 7 14 53 0 62 0
(Grade D1 - D3)
Technical and admin officers 0 64 2 29 95 1 33 6 16 56 123 1 151 1
(Grade C1 - C5)
Semi-skilled and discretionary 1 662 1 5 669 2 54 6 23 85 723 6 754 8
decision making
(Grade B1 - B5)
Unskilled and defined 0 794 0 0 794 0 221 1 0 222 1 071 2 1 016 5
decision making
(Grade A1 - A3)
Total permanent 2 1 540 5 85 1632 4 321 14 50 389 1 997 9 2 021 14
Col
oure
d
28
Summary of the composition of the Group's fixed-term contract employees per occupational levels:
Summary of headcount - Fixed Term Employees - as at March 2010Race and gender distribution
OCCUPATIONAL Male Female Grand Disa- Grand Disa-
total bilities total bilities
Mar 09 Mar 09 2010 2010
LEVELS
Top management 0 0 0 1 1 0 0 0 0 0 2 0 1 0
(Grade E - F)
Senior management 0 1 0 1 2 0 0 0 0 0 3 0 2 0
(Grade D4 - D5)
Middle management 0 0 0 1 1 0 0 0 0 0 11 0 1 0
(Grade D1 - D3)
Technical and admin officers 0 0 0 3 3 0 0 0 2 2 15 0 5 0
(Grade C1 - C5)
Semi-skilled and discretionary 0 30 0 1 31 0 4 0 2 6 112 0 37 0
decision making
(Grade B1 - B5)
Unskilled and defined 0 27 0 0 27 0 26 0 0 26 115 0 53 0
decision making
(Grade A1 - A3)
Total f ixed term 0 58 0 7 65 0 30 0 4 34 258 0 99 0
Staff ComplimentAt year-end, the combined SAFCOL Group South African's Operations staff compliment was as follows:
NATURE OF EMPLOYMENT 2009 / 2010 2008 / 2009
Permanent* 2 021 1 997
Fixed-term 99 258
Total 2 120 2 255
* The above figure includes 4 expatriates seconded to IFLOMA as noted in the next table
Ind
ian
Afr
ican
Col
oure
d
Wh
ite
Afr
ican
Col
oure
d
Wh
ite
Sub
tot
al
Tota
l
Num
ber
s
Tota
l
Num
ber
s
Ind
ian
Sub
tot
al
OPERATIONAL PERFORMANCE REVIEW CONTINUED
29
The Mozambican subsidiary, IFLOMA, had the following staff complement:
NATURE OF EMPLOYMENT 2009 / 2010 2008 / 2009
Local employees** 699 674
Expatriates 4 4
Total 703 678
** Actual number of IFLOMA employees excludes 4 expatriates
Training, Bursary and Study AssistanceStudy bursary and assistance offered in the current year:
BURSARIES STUDY ASSISTANCE
Group Gender Total % Amount in Total % Amount in
2009 / 2010 Rand 2009 / 2010 Rand
African Black Male 29 45,0 1 239 257,00 30 40,5 425 094,00
Female 32 49,0 746 562,00 22 29,8 194 744,00
Indian Male 0 0 - 0 0 -
Female 0 0 - 0 0 -
Coloured Male 1 1,5 100,80 2 2,7 16 334,00
Female 0 0 - 2 2,7 22 693,00
White Male 2 3,0 90 656,00 16 21,6 230 297,00
Female 1 1,5 44 404,00 2 2,7
Total 65 100,0 2 120 979,80 74 100,00 889 162,00
30
Field of study for bursary and study assistance:
FIELD OF STUDY Non-employees Employees Total %
Forestry and related research 55 33 88 63,30
Processing 1 2 3 2,17
Engineering and artisans 3 4 7 5,04
Corporate services 0 6 6 4,31
Environmental management 1 0 1 0,72
Planning 1 1 2 1,44
Human resources 0 18 18 12,95
Finance and administration 4 7 11 7,91
Marketing 0 3 3 2,16
Total 65 74 139 100,00
Bursary allocation to non-employees in relation to communities:
Financial year
COMMUNITIES 2009 / 10 2008 / 09
Adjacent communities 37% 94%
Other black communities (rural) 59% 6%
Urban communities 4% 0%
Training The following is a summary of an analysis of trainees who attended internal and external training courses at the
Training Centre:
Black Black White White Indian Indian Coloured Coloured Disabled Disabled Total Total
(M) (F) (M) (F) (M) (F) (M) (F) (M) (F) (M) (F)
09/10 2 450 531 150 66 1 4 8 16 7 3 2 616 620
08/09 1 310 251 103 66 0 3 11 14 0 0 1 424 334
Some employees attended internal and external training courses, the total number of employees trained is more than
the company's total headcount.
Total training man days (excluding Adult Basic Education and Training ("ABET") is summarised as follows:
2009 / 10 2008 / 09
Total man days 10 725 12 735
Total trainees 3 236 1 758
benefited from the mutual partnership focused on
enhancing skills development of our employees as well as
members of the adjacent communities.
SAFCOL acknowledge the dearth of skills in technical and
management disciplines and forestry in particular. As a
result, the Human Capital strategy made provision for
talent management and succession planning. Three focus
areas were identified as measures to accelerate and create
a talent pipe line to ensure future supply of skills and
replacement of those employees close to retirement. The
measures include continuation with the bursary scheme,
enrolment of own employees on learnerships registered
with FIETA and the enrolment of managers on the
Management Development Programme offered by the
University of Pretoria.
In its quest to promote women participation in the
Forestry sector, 19 young women successfully completed
the one year bridging programme in General Education
and Training Certificate ("GETC") (NQF level 1) in
December 2009. They were all offered bursaries and had
since registered for the 2010 academic year to study
towards diploma (14) and degree (5) in forestry at the
Nelson Mandela Metropolitan and Stellenbosch
Universities respectively.
OPERATIONAL PERFORMANCE REVIEW CONTINUED
31
The Company has continually reaffirmed its commitment
to ensure that sound employee relations are maintained
within business operations in relation to both organised
labour and the employees in general. There was
continuous interaction and engagement with organised
labour at Partnership Forum meetings which ensured that
relationships were preserved. In addition, further
employee structures, in the form of joint committees were
established at regional and corporate offices. The
objective of these committees is to promote stakeholder
engagement on issues of mutual interest, as well as
ensuring that communication and information flow is
strengthened and maintained. This approach proved to be
of benefit at the time when the Company underwent the
restructuring process during the period under review, and
where these structures were used as consultative and
information sharing centres.
Skills DevelopmentThe Group's training centre Platorand, located in the Sabie
area in Mpumalanga province, serves as the centre of
learning excellence and continues to offer learning
programmes from technical and soft skills to management
and leadership development. Platorand maintained its
accreditation by the Forest Industries Education and
Training Association ("FIETA") as a training provider and
Summary of forestry related learnerships:
LEARNERSHIPS NQF Current New Total
General education and training certificate Level 1 15 19 34
Harvesting certificates Level 3 22 + 23* - 45
Silviculture certificates Level 3 22 - 22
Processing certificates Level 3 43 - 43
Total 125 19 144
* 23 completed in August 2009
ABET attendance is summarised as follows:
ABET: Number of trainees
Level Male Male Female Female Total Total
2009 / 10 2008 / 09 2009 /10 2008 / 09 2009 / 10 2008 / 09
1 1 9 0 7 1 16
2 3 15 5 2 8 17
3 8 16 13 11 21 27
4 17 58 15 24 32 82
Total 29 98 33 44 62 142
Employee Relations
SAFETY, HEALTH ANDENVIRONMENTALMANAGEMENT PERFORMANCEThe SAFCOL Group has committed itself to comply with
the Occupational Health and Safety Act and Regulations
in all our operations as a minimum requirement.
The Occupational Health and Safety performance of the
Group is audited annually, through a recognised
Certification Authority. A healthy and safe working
environment is ensured by applying Best Operating
Practices for the various operational actions. All
operational sites were audited by the South African
Qualification Authority ("SAQA"), the accredited auditing
body. The audit, which was risk based and addressed legal
and operational compliance, indicated that our SHE was
satisfactory.
Employee Health and WellnessThe roll out of the Employee Wellness Programme was
successful during the period under review. The services of
the wellness programme are provided through an external
service provider and includes primary healthcare for
production workers, employee assistance programmes,
sick leave and incapacity management and medical
consulting. An internal Employee Wellness Consultant
continuously monitored and evaluated the programme.
The Group continued to participate in the national
campaign on matters related to HIV/AIDS. The Health and
Wellness programme makes a provision for voluntary
counselling and testing to ensure better management of
the virus and business sustainability. World Aids day was
successfully commemorated in the different operations
and was part of the awareness campaign. During this
period SAFCOL entered into an agreement with the
Department of Health for the provision of Chronic
Medicine to employees who qualify. Amongst others it
includes Anti Retro-Viral's for those employees who need
treatment.
Environmental ManagementThe Group is fully committed to the improvement of
environmental performance across all business activities
and recognises the key environmental impacts of its
business on soil, water, air and biodiversity.
Compliance, environmental impact assessment and
mitigation, protection of rare and endangered species,
habitats and cultural heritage sites, relevant training and
environmental risk management are addressed by our
environmental team on an ongoing basis. An
Environmental Report is publically available and is
published on a regular basis. In addition, internal
environmental audits were conducted at each plantation,
and good progress was made improving their
environmental performance.
The management of all 18 plantations is certified by the
Forest Stewardship Council (FSC) - © 1996 A.C., and the
Timbadola Sawmill is certified in terms of the FSC Chain
of Custody standards.
The design and implementation of environmental
awareness programmes for our own labour force and
adjacent communities has been identified as a priority for
the foreseeable future. The development of the integrated
management system ("IMS") is progressing well.
TRANSFORMATIONIMPERATIVESThe SAFCOL Group embarked on the transformation
journey with the aim to improve the lives of the
communities within the forestry sector despite the global
financial pressure. The Transformation Charter within the
Forestry Charter informs how the Group must influence
the sustainability of the sector, both economically and
socially.
Based on the above guideline, the main focus of the
Transformation Division within the Group is twofold:
B-BBEE Scorecard Audits and Internal Transformation
Forums as well as Transformation projects and Charter
Council Initiatives.
B-BBEE AuditsInternal Transformation Forums were established in
October 2009 and meetings took place on a quarterly
basis to review the Group's progress with regards to the
seven pillars of the B-BBEE codes. Two main B-BBEE Audits
were conducted internally at Timbadola Sawmill and Sabie
District plantations. Both reviewed their performance
pertaining to all the codes within the B-BBEE Scorecard.
Interventions were implemented to address the areas that
can support the aspired target of achieving a level 2
contributor by 2011. The current level contribution for
both SAFCOL and KLF, as verified in the previous year were
three and four contributors respectively. At the time of
publishing this report, the Group was still engaged in
assessment of its score card by an independent
verification agency.
Transformation ProjectsDuring the year under review, SAFCOL's Transformation
Division initiated three projects to drive the overall goals
of transformation within the Group.
❈ "Vendor Days" - This event was organised by the
Group to interact with local businesses, new
32
entrepreneurs, SMME's and the members of the
community to convey critical business information.
The partners such as government institutions, banks,
certification authorities, SARS and the Charter Council
were invited to address the attendees and in this way
help to empower communities.
❈ The "Transformation Bus" – This event was a unique
opportunity to interact with the Group's key
stakeholders. During this event the important role
that the Group played within the forestry
communities was demonstrated by field visits to
completed socio-economic and enterprise
development projects as per signed social compacts.
❈ Day of Action – This initiative was aimed at making a
difference in the lives of children and communities in
rural areas. During the year under review a "Day of
Action" was held within our forestry community in the
Highveld. SAFOL's management team and its
personnel joined forces with the members of the
community on World Aids Day (1 December) to
engage in a project which had an impact on the lives
of people in the community.
It was on this day that management put on the work
suits and put their hands on deck whilst revamping
the building of a local primary school, replacing the
gutters and replacing broken window panes. On the
same day management also established a vegetable
garden for the pre-primary school.
SOCIO-ECONOMICDEVELOPMENT AND ENTERPRISEDEVELOPMENT INITIATIVES The finalisation and signing of social compacts with
communities in and adjacent to our plantations was a key
focus area in the year under review. The social compacts
are inclusive of most of the affected stakeholders
(communities, land claimants, traditional leaders,
municipalities and employees). Social compacts are
entered into to assist with a better working relationship
with affected stakeholders and should contribute in
positioning SAFCOL and KLF as a preferred partner of
choice to the successful land claimants.
At the end of the year under review, six social compacts
were signed. In the future, two social compacts will be
signed per year. This target has been introduced in order
to ensure that deliverables as defined in the social
compacts are met prior to addressing the next area or
community. The focus is on quality of the compact rather
than the quantity signed. Projects have been identified,
assessed and approved using a process that includes all
the stakeholders such as KLF and the community.
Socio-Economic Development PerformanceThe Group subscribes to the Forest Sector Charter and
aims to become the leader in transformation within the
industry. During the last verification by an independent
analyst, SAFCOL was rated at a level 3 and KLF at a level 4.
As a State-Owned Entity ("SOE"), we are rated in terms of
the adjusted scorecard which measure achievements
against six of the seven pillars as contained in the generic
scorecard. Management control is dealt with through our
Board of Directors.
Socio-Economic Development ("SED") together with the
Enterprise Development ("ED") section sees itself as a key
component in ensuring that targeted ratings are achieved
in future years.
A total amount of R10,3 million was approved in 2009 for
SED projects. This included an amount of R3,3 million
which related to roll-over projects and completion of
projects started in the previous financial year. In addition,
the identification and prioritisation of new projects took
place, and projects were aligned with the requirements of
the signed social compacts within the different clusters.
In terms of these accords, projects were prioritised by the
Joint Community Forums and approved by the SED Forum.
The focus was on the establishment of social compacts
with at least six clusters before identification of SED
Projects. This resulted in the approval of the projects
budget in October 2009. A total expense of R6,6 million
was nonetheless achieved. This will result in a rollover of
approximate R3,0 million for projects already in progress.
Project plans, building plans, site plans, specifications and
bill of quantities were drawn up for the infrastructure
projects.
The implementation of social compacts improved and
formalised the relationship between KLF and the
communities. This also assists to ensure that real, critical
needs are being addressed to reduce poverty and improve
the living conditions and skills within the rural
communities adjacent to or within the Group's operations.
Main focus areas have been identified in terms of the
Vision, Mission and Development Charter of each cluster.
All projects are evaluated in terms of various dimensions
and monitored to ensure that real and meaningful
impacts are achieved.
Since 2005 / 2006 we have exceeded the 1% of NPAT
OPERATIONAL PERFORMANCE REVIEW CONTINUED
33
guideline as per the scorecard. To date eight
infrastructural projects have been completed and handed
over to communities.
Compacts were signed with the following community
clusters:
❈ Redhill Cluster in the Albert Luthuli Municipal District
surrounding Jessievale Plantation
❈ Blairmore Cluster in the Albert Luthuli District
surrounding Blairmore Plantation
❈ Roburnia Cluster in the Mkhondo District surrounding
Roburnia Plantation
❈ Mphephu Entabeni cluster in Makhado and Thulamela
districts surrounding Entabeni, Hangklip and
Roodewal Plantations
❈ Tshivhase Cluster in Thulamela district includes all
communities surrounding Thathe Vondo
❈ Mantjolo Cluster in the Albert Luthuli District near
Nelshoogte Plantation.
Preparations to enter into social compacts at Ngome,
Berlin and Tweefontein are receiving attention. The
commitment of the Group is to retain the target score (15)
as per the B-BBEE balanced scorecard which was achieved
during the verification process.
Enterprise Development Performance During the year under review significant progress, as
detailed below, has been made with some of the
initiatives indentified with the ED department. In addition
the partnership between SAFCOL's strategic partner, the
Development Bank of South Africa ("DBSA"), has been
enhanced through the development of a Value
Proposition Model.
Bee Keeping ProjectIn April 2009, a review of the proposed Bee Keeping
Project was undertaken by SAFCOL's ED section and the
DBSA Sustainable Communities section. A project plan
was developed and approval of funding was obtained
from the DBSA. At the same time approval was sought via
the Department of Public Enterprises ("DPE") as it was felt
that this project was a non-core activity and would require
the approval of the Minister in terms of the Significance
and Materiality Framework.
The DBSA undertook to contribute R750 thousand and
SAFCOL would contribute the remaining R750 thousand
to fund phase 1 of the project. SAFCOL's contribution
would be utilised for operating purposes and this would
include but not be limited to the purchase of hives,
operating expenses and salaries for bee keepers until
production commences.
Timber Frame HousingDuring a work session with the DBSA in August 2009, it
was identified that alternative housing methods should
be investigated to assist with reducing the current
housing shortage in South Africa, especially with regard
to low cost housing development.
Plans were drawn up and discussions were held with the
municipalities in the Eastern Cape and Grabouw. Whilst we
still await feedback from the Eastern Cape, the Grabouw
municipality allowed SAFCOL to construct a show unit
which also serves as a multi-purpose day care centre for
the Rooidakke community. The formal opening ceremony
will take place on 20 May 2010 and SAFCOL is confident
that once this concept for alternative housing is accepted,
it will gain momentum.
Bio Mass (Green Energy Project)In 2009, a pre-feasibility study was concluded into the use
of forestry waste (biomass) for the production of energy.
The study concluded that sufficient waste was available to
successfully convert biomass into an energy source and
recommended a full feasibility be conducted in order to
obtain a greater degree of confidence on the resources
available, technology to be used, project return and
financial model and logistical aspects around undertaking
such a venture.
SAFCOL's strategic partner, DBSA agreed to partly fund
the feasibility study and therefore a Request for Proposal
was prepared and a tender process initiated which is
being managed through SAFCOL. The feasibility study
should commence in July 2010 and could take up to six
months to complete and thereafter a decision will be
made for the way forward.
Enterprise Development ContractorsOne of the objectives of ED is to develop forestry
contractors from previously disadvantaged communities.
Seven contractors who have been actively involved in the
forestry sector and exhibited suitable levels of
entrepreneurial skills were identified as business owners
during the year under review.
DBSA and SAFCOL PartnershipA Value Proposition Model was developed between the
DBSA and SAFCOL during the year under review. DBSA and
SAFCOL have been in a partnership for the past two years,
with a memorandum of understanding ("MOU")
documenting their current relationship. This MOU is
currently being revised in order to ensure that the
following are emphasized:
❈ Highlight the attractive attributes that make the
partnership between these two organisations worthy
34
of formalising, with the intention of getting the
relevant stakeholders, DPE, National Treasury ("NT"),
DBSA Board and SAFCOL Board, approval and buy-in
to the partnership in all aspects
❈ Formalise the current partnership by setting out the
combined value targeted and detailing agreed
processes to expedite the approval and subsequent
implementation of projects.
In response to the above, this document provides an
analysis and agreed recommendation to the following:
❈ Commonalities and complimentary areas of the two
SOE's
❈ Effective working structure, decision making process
and funding protocol
❈ Parameters for the selection of projects that will be
pursued within this partnership and a defined
approach for project progression
❈ The total value of work to be engaged in between
SAFCOL and DBSA
❈ A process to elevate the relationship between DBSA
and SAFCOL into an organisation-wide approach.
RISK MANAGEMENTThe SAFCOL Board is accountable for risk management in
the Group, and is responsible for the management of
strategic risks. Risk management is applied in the SAFCOL
Group at strategic, management and operational levels,
per identified function or department as well as per
activity or project. The Risk Management Section monitors
the process and communicates with the responsible
manager on the responsibilities and actions to be taken.
The Risk Management Framework, including the Risk
Management Policy, directs the activities of this function.
The Group applied a common and integrated approach to
the management of risk. Action plans ensure that
knowledge and experience is shared and risk
management becomes embedded in all our activities and
the way we do business.
The Australian / New Zealand standard AS / NZ 4360:2004
and accompanying HB 436:2004 guideline are the
standards applied for risk management in the Group.
LAND AND LEASESThe land and lease section is a new section resulting from
the restructuring process. The unit's objectives are to
ensure the efficient management and utilisation of the
land over which Komatiland Forests operates. The unit is
also designed to manage and oversee the acquisition of
land by the organisation.
A land review exercise was undertaken to identify all the
properties and occupants of the land and to gather
information to be captured in a land register which will
contain information including all the leases under the
management of KLF.
LAND CLAIMS MANAGEMENTStatistics reflect that about 61% of the state land leased
is affected by land claims and are in different stages of the
land claims process. There are at least 29 different claims
lodged against KLF in the following areas:
❈ 14 in Limpopo Province
❈ 14 in Mpumalanga Province
❈ 1 in KwaZulu-Natal Province at the Ngome Plantation.
At this point it is difficult to estimate the number of
people involved in each claimant grouping.
During the year under review, effort was focused on
building a working relationship between SAFCOL and the
offices of the Land Claims Commissioners ("LCC's").
Resources to assist the Regional Land Claims
Commissioners ("RLCC's") in various areas such as
community facilitation, re-mapping and subdivision of
land with multiple claims were offered to these offices.
However movement was slow on the settlement process.
Current Challenges in Resolving ClaimsThe process of the disposal of State forest land (vesting of
land rights) is complicated and slow resulting in claims
been settled with no title deeds given to the claimant
grouping. There are lists of projects that are reported to
have been registered a few years ago with the State Land
Disposal Committee ("SLDC"), requesting for the claimed
land to be transferred. This process has not yielded any
results.
Unavailability of funds for research, mapping, validation
OPERATIONAL PERFORMANCE REVIEW CONTINUED
35
and valuation, amongst others, does present a challenge
in the process of settling land claims. The finalisation of
KLF's disposal model process is critical in the design of a
land claims settlement agreement. This is linked to the
disposal or the privatisation of KLF and is to be decided
by the Shareholder.
Claimants who are unhappy with the protracted process
are starting to threaten land owners as experienced at the
Witklip plantation. One of the critical reasons for the delay
in finalising the claims can be attributed to the
community disputes resulting from various issues such as
boundaries, legitimacy of members of the claimant
communities, etc.
IFLOMA
Messica ComplexThe complex serves as the administrative hub for the
forestry operations and also includes the Messica Sawmill
and a pole treatment plant. During 2009 / 2010 work was
done to re-commission the sawmill and pole treatment
plant. The treatment of poles and lumber with CCA
("Copper Chrome Arsenate") is expected to commence
during 2010 / 2011.
36
OPERATIONAL PERFORMANCE REVIEW CONTINUED
Plantations IFLOMA manages three plantations: Penhalonga, Bandula
and Rotanda, as well as a conservation area at Mavonde.
The total planted area for each plantation for the year
under review is as follow:
❈ Penhalonga: 3 785 ha
❈ Bandula: 1 882,18 ha
❈ Rotanda: 4 935,63 ha.
The nursery is completed, together with hedges for clonal
propagation and all seedlings are supplied from the
central nursery.
Fibre ProjectAs reported in the previous year, we still await final
approval from the Council of Ministers (Mozambique) and
also from our Department of Public Enterprises.
37
HIGHLIGHTS ON FINANCIAL PERFORMANCE
FIVE YEAR FINANCIAL REVIEW
FINANCIAL RESULTS 2010 2009 2008 2007 2006
R'000 R'000 R'000 R'000 R'000
Turnover 431 914 857 118 832 188 653 436 326 654
Operating (loss) / profit (PBIT) before IAS
41 fair value adjustments to biological
assets (277 678) 113 745 264 453 154 360 22 938
IAS 41 fair value adjustments to
biological assets (342 560) 757 916 528 715 861 354 170 972
(Loss) / profit before interest and
taxation (PBIT) (620 238) 872 008 796 204 1 044 273 211
091
(Loss) / profit before taxation (PBT) (588 987) 969 804 871 790 1 132 430 258
016
Income tax credit / (expense) 120 122 (267 579) (230 222) (303 284) (72 092)
Retained (loss) / income for the year (468 865) 701 877 638 532 800 587 138 743
38
FINANCIAL POSITION 2010 2009 2008 2007 2006
R'000 R'000 R'000 R'000 R'000
Assets
Non - current assets 3 197 874 3 763 914 2 911 825 2 274 174 1 396 717
Current assets 615 113 691 082 716 837 495 248 278 542
Equity and liabilities
Capital and reserves 2 895 066 3 385 342 2 694 987 2 047 372 1 249 633
Non - current liabilities 843 759 966 178 751 364 591 990 319 378
Current liabilities 74 162 103 478 182 311 130 061 106 248
Returns (cents)
Basic earnings per share
(Net (loss) / profit / number of shares) (147.30) 220.80 201.70 260.70 58.50
Ratios (%)
Return on capital employed
(PBT / (average capital and reserves
+ non-current liabilities) (18.80) 31.80 36.50 67.80 24.40
Net margin
(PBT / turnover) (136.40) 113.10 102.80 161.10 66.90
HIGHLIGHTS ON FINANCIAL PERFORMANCE
39
GROUP VALUE ADDED STATEMENTThe statement below details how the value added is applied to meet certain obligations, reward those responsible for its
creation and the portion that is re-invested in the business for the continued operation and expansion of the Group.
2010 2009
R'000 % R'000 %
Turnover 431 914 857 148
Less: Direct cost (excluding labour cost) 430 069 466 488
Value added by operations 1 845 390 660
Add: Fair value adjustment to biological assets (342 560) 757 916
(340 715) 1 148 576
Add: Investment income and share of profit of associates 31 578 98 754
Total value (reduced) / added (309 137) 1 247 330
Distributed as follows
Employees (remuneration, benefits, social 231 330 (67,9) 228 049 19,9
welfare and training)
Providers of finance 327 (0,1) 9 59 0,1
Socio economic development 6 569 (1,9) 8 040 0,7
Government for taxation (120 122) 35,2 267 579 23,3
Current tax (1 517) 0,4 41 031 3,6
Deferred tax (118 605) 34,8 226 548 19,7
Sub total 118 104 (34,7) 504 627 44,0
Value re-invested (427 241) 125,4 742 703 64,7
Depreciation and amortisation 41 624 (12,2) 40 826 3,6
Retained (loss) / income for the year (468 865) 137,6 701 877 61,1
Total value distributed (309 137) 90,7 1 247 330 108,7
% ALLOCATION OF GROUP VALUE ADDED
Employees
Providers of finance
Socio economic development
Government taxation
Employees
Providers of finance
Socio economic development
Government taxation
2010 Value added 2009 Value added
40
IntroductionThe operating environment for the 2010 financial year has been challenging with the margins being under pressure. The
economic climate remained volatile during the year under review, with risks to assumptions underpinning targets and
forecasts ever changing. Our priority has been to implement cost efficiency strategies, maintain strong liquidity levels
and push for optimum sales volumes.
Shareholder's CompactThe SAFCOL Group was not able to meet some of its financial targets set out on the Shareholder's compact. The Group did
not meet its target on the Return on Equity ("ROE") before or after fair value adjustments, due to the losses experienced
during the period under review. The loss has been as a result of lower revenue than anticipated and a decline in the fair
value adjustment to biological assets which resulted in a reduction in equity.
Performance against TargetsActual ROE after the fair value adjustments is negative 14,9% (2009: 23,1% positive) compared to a target of 10,0%, mainly
due to the decrease in profits and decline in fair value adjustment to biological assets. Actual ROE before the fair value
adjustment is negative 18,5% (2009: 10,4% positive) compared to a target of 10,0%, mainly due to the net loss after
taxation, excluding fair value adjustments.
Earnings before Interest, Tax, Depreciation and Amortisation ("EBITDA")EBITDA, excluding fair value adjustment to the biological assets amounts to a negative R225 million against prior year
positive R195 million.
EBITDA 2010 2009 Variance
Rm Rm %
Net loss / (profit) before tax 589,0 -969,5 -161%
Adjustments: -363,8 775,0 -147%
Depreciation -40,9 -39,6 3%
Amortisation -0,7 -1,2 -38%
Fair value adjustment of biological asset -342,6 757,9 -145%
Interest paid -0,3 -1,0 -66%
Interest received 20,7 45,9 -55%
Foreign exchange gain -0,0 13,0 -100%
EBITDA 225,2 -194,5 -216%
Adjusted Loss / (Profit)The following special items are highlighted to enable an understandable analysis of (loss / profit). Special items are
defined as those items which management believes are material by nature or amount in relation to the operating results,
and therefore require separate disclosure. Such items would generally include profit and loss on the disposal of property,
plant and equipment, privatisation costs, restructuring charges and the fair value adjustment to the biological assets.
HIGHLIGHTS ON FINANCIAL PERFORMANCE
41
Financial ReviewIncome Statement Review against Prior Year
Turnover
Turnover decreased by R425,2 million (50%) as compared to the R857,1 million achieved during the 2009 financial year.
The adverse performance has been influenced by the decline of 639 848 m³ (44%) in sales volume during the 2010
financial year. The sales volumes were also influenced by the external factors such as the slowdown in the economy mainly
in the housing market and lower than expected selling prices.
Actual Actual Variance
2010 2009 %
SALES VOLUME m³ m³
Lumber - Local 74 601 85 015 -12%
Lumber - Export 123 - 100%
Log 742 542 1 372 099 -46%
Total 817 266 1 457 114 -44%
SALES PRICE R/m³ R/m³ -
Lumber - Local 1 877 2 149 -13%
Lumber - Export 1 667 - 100%
Log 349 469 -26%
The Company reported an operating loss before tax and fair value adjustments to the biological assets of
R277,7 million, which is a 344% decline as compared to the R113,7 million operating profit for 2009.
Fair Value Adjustment to the Biological AssetsThe 2010 financial results include a R342,6 million decrease in the fair value of the biological assets (2009: R757,9 million
increase). The decrease is driven mainly by price assumptions utilised in the fair value model and the increase in the
discount rate. The weighted average prices used during the year under review were lower than the prior year, due to
adverse changes in the market.
ADJUSTED LOSS / (PROFIT ) 2010 2009 Variance
Rm Rm %
Net loss / (profit) before tax 589,0 -969,5 -161%
Special Items -343,1 753,2 -146%
Fair value adjustment of biological asset -342,6 757,9 -145%
(Loss) / profit on disposal of property. Plant and equipment -0,5 2,0 -124%
Privatisation costs - -2,3 -100%
Restructuring charges - -4,4 -100%
Adjusted loss / (profit) 245,9 -216,3 -214%
Capital Expenditure
Capital expenditure incurred during the 2010 financial year amounts to R68,9 million (2009: R98,6 million). The
year-on-year decrease is due to management's efforts in focusing on critical additions and replacements.
Net Asset Value
42
Capital expenditure (R'000)
120 000
100 000
80 000
60 000
40 000
20 000
-
Additions
Replacements
2006
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
-10.0%
-20.0%2005
ROA (%)
2006 2007 2008 2009 2010
2007 2008 2009 2010
Return on Assets ("ROA") before tax and after the fair value adjustment to the biological assets, decreased from 21,8% in
2009 to -15,4% in 2010. The Net Asset Value ("NAV") per share decreased from 1065 cents per share in 2009 to 910 cents
per share in 2010. The graph above highlights that ROA is declining owing to a combination of the decreased operating
results and a decreasing asset base. The underlying NAV of the Group is decreasing, due to a decrease in the fair value of
the biological assets, decrease in reserves and decrease in the cash reserves.
Cash Flow Statement Review against Prior YearThe Group's cash flow position is under pressure and decreased significantly compared to 2009. Cash will continue to
remain under pressure in the months ahead due to decreasing sales, build up of lumber and log inventories, and increase
in receivables as a result of the adverse economic conditions.
23,0%
350 393
644
847
1065
910
14,4%
39,9%
23,9%21,8%
-15,4%
Nett asset value per share and return on asset ("ROA")
1 200
1 000
800
600
400
200
0-
Nett asset value per share (Cents)
HIGHLIGHTS ON FINANCIAL PERFORMANCE
43
Liquidity
LIQUIDIT Y RATIOS Actual Actual
2010 2009
Current ratio 8,3:1 6,7:1
(Current assets: current liabilities)
Acid test ratio 6,4:1 4,9:1
([Current assets - inventory]: current liabilities)
Cash ratio 1,7:1 2,9:1
(Cash and cash equivalents: current liabilities)
In respect of the current, acid test and cash ratios, our results have generally shown an ability in maintaining liquidity.
Although the above indicates a slight decline compared to the 2009 financial year, we are still able to meet our short-term
obligations.
Future Outlook and ProspectsFuture Targets
Looking ahead and due to the unpredictable economic climate we are operating in, the Group is considering various
2011 target scenarios based on the latest financial and economic data available to it. The 2011 financial year is expected
to be one of the most challenging years the Group has ever faced. The Group is however optimistic that Management's
strategies will steer the ship through the troubled waters.
Bridging finance from local financial institutions may be utilised where necessary to fund temporary short falls that could
occur from time to time, and some capital expenditure. Funding for Enterprise and Socio-economic development projects
will be sourced from the Development Finance Institutions.
Financial RisksThe Group is exposed to the following major financial risks, which is explained under note 30 in detail:
❈ Forward exchange risk
❈ Credit risk
❈ Cash flow interest rate risk
❈ Market risk
❈ Liquidity risk
❈ Compliance risk
❈ Operational risk
❈ Price risk.
44
Mlilo Fire Awareness in Limpopo: 2010
45
CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
1. DIRECTOR'S APPROVAL 46
2. COMPANY SECRETARY'S CERTIFICATE – 31 MARCH 2010 47
3. AUDIT AND RISK MANAGEMENT COMMITTEE REPORT 48
4. INDEPENDENT AUDITOR'S REPORT 49
5. DIRECTOR'S REPORT
Corporate Governance and PMFA 52
Board Functions 53
General Review 58
Directors and Executive Committee Remuneration 61
Privatisation, Corporatisation and Restructuring 63
Legal Proceedings 63
6. GROUP INCOME STATEMENT 65
7. GROUP STATEMENT OF COMPREHENSIVE INCOME 66
8. GROUP BALANCE SHEET 67
9. GROUP CASH FLOW STATEMENT 68
10. GROUP STATEMENT OF CHANGES IN EQUITY 69
11. NOTES TO THE ANNUAL FINANCIAL STATEMENTS 70
TABLE OF CONTENTS
Part 2
The Directors are required in terms of the Companies Act of South Africa and the Public Finance
Management Act, 1999 ("PFMA"), to maintain adequate accounting records and are responsible for
the content and integrity of the financial statements and related financial information included in
this report. It is their responsibility to ensure that the financial statements fairly present the state of
affairs of the Group as at the end of the financial year and the results of its operations and cash flows
for the period then ended, in conformity with International Financial Reporting Standards ("IFRS").
The external auditors are engaged to express an independent opinion on the financial statements.
The financial statements are prepared in accordance with IFRS and are based on appropriate
accounting policies consistently applied and supported by reasonable and prudent judgements and
estimates.
The Directors acknowledge that they are ultimately responsible for the system of internal financial
control established by the Group and place considerable importance on maintaining a strong control
environment. To enable the Directors to meet their responsibilities, the Board sets standards for
internal control aimed at reducing the risk of error or loss in a cost effective manner. The standards
include the proper delegation of responsibilities within a clearly defined framework, effective
accounting procedures and adequate segregation of duties to ensure an acceptable level of risk.
These controls are monitored throughout the Group and all employees are required to maintain the
highest ethical standards in ensuring that the Group's business is conducted in a manner that in all
reasonable circumstances is above reproach. The focus of risk management in the Group is on
identifying, assessing, managing and monitoring all known forms of risk across the Group. While
operating risk cannot be eliminated fully, the Group endeavours to minimise it by ensuring that
appropriate infrastructure, controls, systems and ethical behaviour are applied and managed within
predetermined procedures and constraints.
The Directors are of the opinion, based on the information and explanations given by management
and reports by the internal auditors on the results of their audits, that the system of internal control
provides reasonable assurance that the financial records may be relied on for preparation of the
financial statements. However, any system of internal financial control can only provide reasonable,
and not absolute, assurance against material misstatement or loss.
The Directors believe that assets are adequately protected on a cost-effective basis and used as
intended with appropriate authorisation, and that the Group has access to adequate resources to
continue in operational existence in the foreseeable future.
The annual financial statements for the year ended 31 March 2010, set out on pages 65 to 119, and
the reports by the Chairperson and the Chief Executive Officer set out on pages 14 to 23 were
approved by the Board of Directors on 8 July and are signed on its behalf by:
G Moloi MJ Breed
Chairperson Chief Executive Officer
46
DIRECTORS' APPROVAL
Declaration by the Company Secretary in terms of Section 268G (d) of theCompanies Act: In my capacity as Company Secretary, I hereby confirm, in terms of the Companies Act of South Africa,
that for the year-ended 31 March 2010, the Company has lodged with the Registrar of Companies
all such returns as are required of a public company in terms of this Act and that all such returns are
true, correct and up to date.
R Shirinda
Group Company Secretary
47
COMPANY SECRETARY'S CERTIFICATE - 31 MARCH 2010
We are pleased to present our report for the financial year ended 31 March 2010.
The Audit and Risk Management Committee ("Audit Committee") reports that it has complied with
its responsibilities arising from the Public Finance Management Act, 1999 ("PFMA"). This report has
been prepared according to the Treasury Regulations for Public Entities issued in terms of the PFMA
and published by National Treasury during March 2005. SAFCOL is listed as a major public entity in
Schedule 2 of the PFMA and the responsibilities of the Audit Committee also cover all the subsidiary
Companies within the SAFCOL Group.
As at 31 March 2010, the Audit Committee consisted of Mr SM Radebe, Mr M Bhabha, Mr DJ Bills,
Ms E Alexander and Dr M Diaho. In addition to the above members, other persons attending Audit
Committee meetings by standing invitation include the internal auditors, the Group Internal Auditor,
the Chief Executive Officer, the Group Chief Financial Officer and representatives of the external
auditors. Where necessary, meetings were held separately with the external and internal auditors.
The Audit Committee is satisfied that the external auditors were independent of the Group.
A total of four meetings were held during the year under review and in all meetings the requirements
of a quorum was fulfilled and the committee has satisfied its responsibilities in terms of the PFMA.
The Audit Committee has reviewed the Group annual financial statements, the report of the external
auditors and periodic reports submitted to it by the internal auditors. In the context of our
understanding, the Audit Committee is satisfied that the major financial risks of the Group are
appropriately managed and that the financial statements fairly represents the state of affairs of the
Group as at the end of the financial year, and the results of its operations and cash flows for the
period then ended. The management letter of the external auditors does not contain any significant
or material non-compliance with prescribed policies and procedures.
SM Radebe
Chairperson of the Audit and Risk Management Committee
48
AUDIT AND RISK MANAGEMENT COMMITTEEREPORT
INDEPENDENT AUDITOR'S REPORT TO THE MINISTER OF
PUBLIC ENTERPRISES ON THE FINANCIAL STATEMENTS OF
SOUTH AFRICAN FORESTRY COMPANY LIMITED FOR THE
YEAR ENDED 31 MARCH 2010
REPORT ON THE CONSOLIDATED FINANCIALSTATEMENTS
IntroductionWe have audited the accompanying consolidated financial statements and financial statements of
the South African Forestry Company Limited, which comprise the consolidated and separate
statement of financial position as at 31 March 2010, and the consolidated and separate income
statement, statement of comprehensive income, statement of changes in equity and statement of
cash flows for the year then ended, and a summary of significant accounting policies and other
explanatory information, and the director's report, as set out on pages 52 to 119.
Directors' Responsibility for the Consolidated Financial StatementsThe directors are responsible for the preparation and fair presentation of these financial statements
in accordance with International Financial Reporting Standards and in the manner required by the
Public Finance Management Act of South Africa and Companies Act of South Africa. This
responsibility includes: designing, implementing and maintaining internal control relevant to the
preparation and fair presentation of financial statements that are free from material misstatement,
whether due to fraud or error; selecting and applying appropriate accounting policies; and making
accounting estimates that are reasonable in the circumstances.
Auditor's ResponsibilityOur responsibility is to express an opinion on these financial statements based on our audit. We
conducted our audit in accordance with International Standards on Auditing. Those standards require
that we comply with ethical requirements and plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements. The procedures selected depend on the auditor's judgement,
including the assessment of the risks of material misstatement of the financial statements, whether
due to fraud or error. In making those risk assessments, the auditor considers internal control relevant
to the entity's preparation and fair presentation of the financial statements in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates made
49
INDEPENDENT AUDITOR'S REPORT
by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis
for our audit opinion.
OpinionIn our opinion, these financial statements present fairly, in all material respects, the consolidated
and separate financial position of the South African Forestry Company Limited as at 31 March 2010,
and its consolidated and separate financial performance and its consolidated and separate cash flows
for the year then ended in accordance with International Financial Reporting Standards and in the
manner required by the Public Finance Management Act of South Africa and Companies Act of South
Africa.
Other MattersWe draw attention to the matter below. Our opinion is not modified in respect of this matter:
Unaudited Supplementary Schedules
The supplementary information set out on pages 1 to 48 and 120 do not form part of the financial
statements and is presented as additional information. We have not audited these schedules and
accordingly we do not express an opinion thereon.
REPORT ON OTHER LEGAL AND REGULATORYREQUIREMENTSIn terms of the Public Audit Act of South Africa and General notice 1570 of 2009, issued in
Government Gazette No. 32758 of 27 November 2009 we include below our findings on the report
on predetermined objectives, compliance with the Public Finance Management Act of South Africa,
Companies Act of South Africa and financial management (internal control).
Findings
Predetermined ObjectivesNon-compliance with Regulatory and Reporting Requirements
There are no significant findings.
Usefulness of Information
There are no significant findings
Reliability of Information
There are no significant findings
Compliance with Laws and RegulationsProhibited Actions
There are no significant findings
Non-adherence
There are no significant findings
50
INTERNAL CONTROL We considered internal control relevant to our audit of the financial statements and the report on
predetermined objectives and compliance with the Public Finance Management Act of South Africa
and Companies Act of South Africa, but not for the purposes of expressing an opinion on the
effectiveness of internal control.
LeadershipThere are no significant findings.
Financial and Performance ManagementThere are no significant findings.
GovernanceThere are no significant findings.
PricewaterhouseCoopers Inc
Director: M Saboor
Registered Auditor
Johannesburg
28 July 2010
INDEPENDENT AUDITOR'S REPORT CONTINUED
51
The Directors hereby present their report for the year ended 31March 2010.
CORPORATE GOVERNANCE AND PFMA
ShareholdingThe Government of the Republic of South Africa, through the Minister of Public Enterprises, is the sole Shareholder.
IncorporationThe Company is incorporated in terms of the Companies Act of South Africa and the Management of State Forests Act No.
128 of 1992.
Business of SAFCOL and its operating Companies ("the Group")The main objective of the Group is the development in the long-term of the South African Forestry industry, and the
optimising of its assets according to accepted commercial management practices and conservation principles. The Group
operates mainly in the forestry and forest products industry.
The Group conducts its business through its subsidiaries namely:
❈ Komatiland Forests (Pty) Ltd ("KLF")
❈ Industrias Florestais de Manica, SA ("IFLOMA")
❈ Mountains to Oceans Forestry (Pty) Ltd
❈ Kamhlabane Timber (Pty) Ltd
❈ Themba Timber (Pty) Ltd.
The Group employs approximately 2 120 (2009: 2 255) people in South Africa and 703 (2009: 678) people in Mozambique.
Code of Corporate Practices and Conduct ("the Code") The Directors endorse the Code as set out in the King III Report. By supporting the Code, the Directors confirm the need
to conduct the business with integrity and in accordance with generally accepted corporate practice. This ethos is further
supported by the Group's Code of Ethics setting out the obligations of Directors and employees relating to ethical
standards applicable within the SAFCOL Group.
Public Finance Management Act, 1999 ("PFMA") The PFMA became effective on 1 April 2000 and SAFCOL and its subsidiaries are listed as public entities in terms of
Schedule 2 of the Act. As part of the implementation of the PFMA, there is an ongoing process of awareness, education,
instruction and advice to the Board and employees.
SAFCOL complies with the PFMA and Treasury Regulations in all material respects with regard to the provisions applicable
to public entities.
Company Secretariat and Corporate Governance During the year, the Company has conducted an independent corporate governance review. This was done in order to
52
DIRECTORS' REPORT
ascertain the status and areas of improvement to align its affairs in ensuring that the company continues with best
corporate practices. No major weaknesses were identified.
BOARD FUNCTIONSThe Board provides strategic direction and leadership and formally delegates duties to management through various
structures, including responsibility and accountability for operations to the Executive Committee, as well as other
structures such as the Combined Audit and Risk Management Committee, the Remuneration Committee, the
Transformation Committee and the Finance, Investment and Transaction Committee. The members of Board
committees are selected according to the skills sets required so that they are able to fulfil their functions and
obligations.
The Board acts as the Accounting Authority of the Company in terms of the PFMA. With the guidance of the Company
Secretary, the Board also has the duty of ensuring that the Group complies with all the relevant laws, regulations and
codes of good business practice. The Board approves the mission, strategy, goals, operating policies and priorities
of the Group and monitors compliance with policies and achievement against objectives.
The Directors comply with their fiduciary duties, which include amongst others:
❈ Exercising the duty of utmost care and skill to ensure reasonable protection of the assets and records of SAFCOL
and its subsidiaries
❈ Managing the financial affairs of SAFCOL with fidelity, honesty, integrity and in the best interests of SAFCOL and
its stakeholders.
It must be noted that since its inception in 1993, SAFCOL has followed a policy of good corporate governance, sound
accounting principles and internal control. As a result, comprehensive accounting policies, accounting procedures,
internal control procedures, conditions of employment and disciplinary procedures, including a code of conduct,
have been prepared and documented and are well entrenched in the operations of the Group.
Board Committee'sThe following directors were in office at 31 March 2010:
COMMIT TEES
G Moloi (Chairperson) F
MJ Breed (Chief Executive Officer) T
E Alexander C, R, T, F
M Bhabha C,R,T
DJ Bills* C,F (Chairperson)
PJ Derman R,T (Chairperson)
M Diaho C,T,R (Chairperson)
R Hassan F
SM Radebe R, T, F,C (Chairperson)
RPF Sedibe R,T
* Australian citizen
F = Finance, Investment and Transaction Committee
R = Remuneration Committee
T = Transformation Committee
C = Combined Audit and Risk Management Committee
DIRECTORS' REPORT CONTINUED
53
With the exception of the Chief Executive Officer, all Board members are Independent Non-Executive Directors. The
principle of appointing a majority of Non-Executive Directors is also applied in the composition of the boards of active
subsidiary Companies so as to ensure good corporate governance at all levels within the Group.
Changes to the Board of Directors during the year under review were as follows:Appointments:
None
Resignations:
None
Board CommitteesBoard committees assist the Board in discharging its responsibilities. This assistance is rendered in the form of
recommendations and reports submitted to Board meetings, ensuring transparency and full disclosure of Board
committees' activities. Each committee operates within the ambit of its defined terms of reference that sets out the
composition, roles, responsibilities, delegated authority and requirements for convening meetings.
Remuneration Committee
The purpose of the Remuneration Committee is to establish a formal and transparent procedure for developing a policy
on executive remuneration and for fixing the remuneration packages of the executive and senior management within
agreed terms of reference.
The role of the Committee is to work on behalf of the Board and be responsible for its recommendations and will, within
these terms of reference:
❈ Determine, agree and develop the Group's general policy on executive and senior management remuneration
❈ Determine specific remuneration packages for Executive Directors of the Group, including but not limited to basic
salary, benefits in kind, any annual bonuses, performance based incentives, share incentives, pensions and other
benefits
❈ Determine any criteria necessary to measure the performance of Executive Directors in discharging their functions and
responsibilities.
The Committee aims to give the Executive Directors every encouragement to enhance the Group's performance and to
ensure that they are fairly, but responsibly rewarded for their individual contributions and performance.
Transformation Committee
The primary objective of the Transformation Programme ("Programme") is to ensure that the Group aligns its operations
with the objectives and goals set out by Government with regard to transformation.
Transformation in SAFCOL is defined as the process of change to what all South Africans aspire to and embracing the
human rights and values as enshrined in the Constitution of the Republic of South Africa. Transformation in SAFCOL
addresses the following areas:
❈ Diversity of all stakeholders
❈ The value system of the organisation
❈ Structures
❈ Policies and procedures.
The Committee's secondary objective is to develop strategies that will create an organisational culture, structures and
processes that seek to support Government's transformation drive, including the development of people and the
optimisation of their potential. The Programme will form part of the business plans of the divisions. The Group Executive:
Human Capital will be responsible for enforcing, monitoring and auditing development and progress. The exclusion of
any person capable of contributing to the Group's affairs is not sound business practice and accordingly, a secondary but
equal objective is the need to address all existing inequalities in staff profiles and organisational practice. Members of staff
who have been previously disadvantaged are given the appropriate support and access to opportunities so that they,
too, will be equipped for successful careers in the Group.
54
Finance, Investment and Transaction Committee
The Finance, Investment and Transaction Committee executes its mandate without derogating from the provisions of the
PFMA. The Committee has no decision-making powers, other than the approval of the Quarterly Report to the Department
of Public Enterprises ("DPE"), since its authority is being limited to a considering and monitoring function. All decisions
required are recommended to the Board for approval.
The Sub-Committee is authorised by the Board to mandate the Chief Executive to obtain professional advice and to secure
the attendance of outsiders with relevant experience and expertise with regard to any issues requiring such expertise.
The objectives of the Finance, Investment and Transaction Committee are to:
❈ Consider and recommend to the Board an appropriate Delegation of Authority Framework enabling the Group to
operate efficiently
❈ Procure and review the long-term and short-term funding plans, for consideration by the Board
❈ Monitor the current funding plan of the Group
❈ Monitor the financial performance of the Group on a quarterly basis
❈ Consider and recommend the annual capital and operating budget to the Board
❈ Consider and recommend the Treasury Mandate to the Board
❈ Review the capital investment process and monitor total group capital expenditure
❈ Review and recommend to the Board any capital project or the procurement of any capital item, or the
commencement of any capital project, the cost of which exceeds the limit of approval delegated to the Chief Executive
from time to time
❈ Review and recommend to the Board any sale or disposal of assets not provided for under the CEO delegation
❈ Review and recommend to the Board new projects which are not included in the approved annual budget, as well as
the funding thereof
❈ Review and recommend to the Board, increase in estimated total costs of projects included in the approved budget
❈ Consider and recommend to the Board the write-off of bad debt(s) or settlement or abandonment of legal actions not
accommodated within the CEO delegation
❈ Consider and recommend to the Board any write-off resulting from the impairment of assets not within the CEO
delegation
❈ Consider and recommend the disposal or closure of any business to the Board
❈ Consider and approve the Quarterly Report to DPE
❈ Consider and recommend any matter to be dealt with in terms of section 54 of the PFMA to the Board
❈ Investigate and make recommendations to the Board on any subject that could have a financial impact on the
business of the Group and requested to do so by the Board or a Board Sub-Committee
❈ Consider all contractual matters relating to the Group's relationship with the Shareholder and recommend to the
Board for actions
❈ Where necessary, investigate alternatives regarding the privatisation of KLF and winding up of SAFCOL. Recommend
preferred options and actions to be taken and report back on progress.
Combined Audit and Risk Management Committee
The Combined Audit and Risk Management Committee is an important element of the Board's system of monitoring and
control.
The responsibilities of the Committee are:
❈ To provide the Chief Financial Officer, the external auditor and the head of the internal audit function access to the
Chairman of the Committee or any other member of the Committee as is required in relation to any matter falling
within the remit of the Committee
DIRECTORS' REPORT CONTINUED
55
56
❈ To ensure co-ordination of internal and external audit activities
❈ To oversee any investigation of activities which are within its terms of reference and act as a court of last resort
❈ To consider other relevant matters referred to it by the Board.
This Committee considers the Group's risk management policy and strategy and reviews the integrity of the risk
management process and significant risks facing the Group. It monitors the integrity of the annual and interim statutory
accounting reports, including operating and financial reviews, and corporate governance statements relating to audit
and risk management, before submission to the Board. Once the Committee has reviewed an item it reports its views to
the Board if not satisfied with any aspect of the proposed financial reporting by the Group.
The Committee monitors compliance with relevant legislation and ensures that an appropriate system of internal control
is maintained to protect the Group's interests and assets. It reviews the activities and effectiveness of the internal audit
function. It is also responsible for evaluating the independence, objectivity, and effectiveness of the external auditors
and for reviewing accounting and auditing concerns identified by internal and external audit. The head of the internal
audit department and external auditors have unrestricted access to the Chairperson of this Committee and Chairperson
of the Board.
Board PerformanceThe following meetings were held and attended by the Board of Directors and its sub-committees for the period under
review:
SAFCOL BOARD Non-Executives Executive
12 May 09 Work session Y Y N Y Y N Y Y Y Y
14 May 09 Scheduled Y Y Y Y Y Y Y Y Y Y
11 June 09 Scheduled N Y Y Y N N N Y Y Y
16 July 09 Scheduled Y N Y N Y N Y Y Y Y
6 August 09 Scheduled N Y Y Y Y Y Y Y Y Y
14 Sept 09 Scheduled Y Y N Y Y N Y Y Y Y
14 Sept 09 AGM Y Y N Y Y N Y Y Y Y
15 Oct 09 Scheduled Y Y Y Y N N Y Y Y Y
12 Nov 09 Scheduled Y N Y N Y Y Y Y Y Y
17 Feb 10 Scheduled Y Y Y Y N Y Y Y Y Y
Attendance Scheduled 80% 80% 70% 80% 70% 40% 90% 100% 100% 100%
Minister Mabandla addressed the Safcol Board on 31 March 2009, Board Members attended, G Molio, R Hassan, SM Radebe and MJ Breed.
G M
olo
i
Ch
air
PJ
Der
man
RP
F Se
dib
e
R H
assa
n
M B
hab
ha
M D
iah
o
DJ
Bil
ls
E A
lexa
nd
er
SM R
adeb
e
MJ
Bre
ed
REMUNERATION COMMIT TEE
13 May 09 Scheduled Y Y Y Y Y Y
5 Aug 09 Scheduled Y Y Y Y N Y
8 Oct 09 Scheduled Y Y Y Y Y Y
15 Feb 10 Scheduled Y Y Y Y Y Y
Attendance 100% 100% 100% 100% 75% 100%
TRANSFORMATION COMMIT TEE
13 May 09 Scheduled Y Y Y Y Y Y
11 June 09 Scheduled Y N Y N Y Y
5 Aug 09 Scheduled Y Y Y Y Y Y
15 Oct 09 Scheduled Y Y Y Y N Y
15 Feb 10 Scheduled Y Y Y Y Y Y
Attendance 100% 80% 100% 80% 80% 100%
FINANCE, INVESTMENT AND TRANSACTION COMMIT TEE
13 May 09 Scheduled Y Y Y Y Y
5 Aug 09 Scheduled Y Y N Y N
16 Feb 10 Scheduled Y Y Y Y Y
Attendance 100% 100% 66,6% 100% 66,6%
DIRECTORS' REPORT CONTINUED
57
M D
iah
o
Ch
air
RP
F Se
dib
e
M B
hab
ha
PJ
Der
man
E A
lexa
nd
er
SM R
adeb
e
PJ
Der
man
Ch
air
M B
hab
ha
RP
F Se
dib
e
M D
iah
o
E A
lexa
nd
er
SM R
adeb
e
DJ
Bil
ls
Ch
air
R H
assa
n
G M
olo
i
E A
lexa
nd
er
SM R
adeb
e
AUDIT AND RISK MANAGEMENT COMMIT TEE
11 June 09 Scheduled N N N Y Y
15 July 09 Scheduled Y Y Y N Y
11 Nov 09 Scheduled Y N Y Y Y
16 Feb 10 Scheduled Y Y Y Y Y
Attendance 75% 50% 75% 75% 100%
Y – Attended / N – Did not attend
GENERAL REVIEWThe annual financial statements set out on pages 65 to 119 reflect the financial performance, position and cash flow
results of the Group's operations for the year-ended 31 March 2010.
The Group has realised a loss before taxation of R589,0 million during the year under review and R969,5 million profit for
2009. The results includes a fair value adjustment of the plantation valuation of R342,6 million decrease (2009:
R757,9 million increase) and the full explanation is included on Note 11 to the annual financial statements.
There were no restructuring during the period under review and as thus no termination benefits were paid. The 2009
termination benefits of R4,4 million were paid in line with the all Labour Relations Act requirements.
The total capital expenditure ("CAPEX") for the year under review was R68,9 million (2009: R98,6 million). The Group
managed to save R74,4 million (2009: R24,1 million) on the budgeted CAPEX, due to the cost savings initiatives that were
introduced during the period under review. The capital commitments at year-end amount to R32,2 million
(2009: R6,7 million).
SubsidiariesThe Company's interest in the (losses) / profits before taxation can be summarised as follows:
2010 2009
Komatiland Forests (Pty) Ltd Group -606 900
Mountains to Oceans Forestry (Pty) Ltd 0 0
Material Losses Recovered or Written Off The following material losses were recovered or written off in the period under review:
❈ The Group received an amount of R5,3 million (2009: R0 million) as settlement for fire claims relating to the Jessievale
and Brooklands plantations
❈ The estimated impairment of the carrying value of standing timber is R119,3 million (2009: R107,3 million).
Expenditure relating to 2010 Soccer World CupThe Directors are not aware of any expenditure incurred in regards to apparel, travel or ticket purchases for the Soccer
58
M B
hab
ha
M D
iah
o
D B
ills
Ch
air
01/0
5/08
-
30/0
6/08
E A
lexa
nd
er
SM R
adeb
e
Ap
po
inte
d C
hai
r
01/0
7/09
DIRECTORS' REPORT CONTINUED
59
World Cup during the current financial year.
Re-classification of Investments in Associates to Assets Classified as Held-for-saleThe investments in associates have been presented as held-for-sale following the approval of the Group's Directors and
Shareholder to dispose of the investments. Included in the Shareholder's Strategic plan, is the intention to dispose of the
investments in associates within the next 12 months. The Shareholder and SAFCOL Board are committed to the sale, as per
resolution dated 7 December 2006.
Expansion into Mozambique Acquisition of ± 70 000 ha of land has been approved at Provincial level and approval by Central Government is in the final
phases of submission to the Council of Ministers in Maputo. As soon as approval has been granted, operations at ground
level may commence. The total area to be planted amounts to ± 30 000 ha, the balance being villages, indigenous forests,
rivers and swamp land. Two adjacent areas of ± 20 000 ha plantable land has been earmarked for further expansion.
Land Lease KLF currently leases the land on which its plantations are situated in terms of an arrangement entered into with the then
Minster of Water Affairs and Forestry as part of the establishment of SAFCOL as a State-Owned Entity ("SOE").
Land Claims Our statistics reflects that about 61% of the state land that SAFCOL/KLF is managing is affected by land claims. These
claims are at different stages of the land claims process. The claims were lodged by different communities against the
state in terms of the Restitution of Land Rights Act, 1994 (Act 22 of 1994), as amended. The plantations on which KLF
operates are situated in Limpopo, Mpumalanga and KwaZulu-Natal, with the total number of claims amounting to 29.
Some of the plantations have more than one claimant group who lodged a claim on the same portion of land.
During the year under review we have made some progress in our quest to clarify the status of the various land claims
and to offer assistance to the Regional Land Claims Commissioner ("RLCC") in resolving the claims. A co-operative
relationship between the office of the Commissioner on Land Reform and SAFCOL has been maintained throughout the
year. The information received from the Regional Land Claims Commissioner regarding the restitution process reflects
that 13 claims are under research, 14 gazetted and 5 under negotiations; only 3 reflects as settled. The 3 claims that are
settled have not been settled in full as communities have not received the title deeds or any form of compensation.
Risk Management The Board bears the following responsibilities concerning risk management:
❈ Identification of significant risks that face SAFCOL
❈ Maintenance and review of an effective system of internal control to manage these risks
❈ Formulating and communicating risk control policies within SAFCOL
❈ Communicating risk control policies to subsidiaries and associates and assisting them in the implementation of an
effective risk management strategy.
The Board is aided in its task by the Combined Audit and Risk Management Committee. Executive Board members or a
designated Senior Manager also serve on the Boards of Companies in which SAFCOL owns a controlling or significant
interest. In this capacity, they assist these companies in formulating and maintaining an effective risk management
strategy.
Risk Management in the SAFCOL Group is managed according to the Group's Risk Management Framework based on the
Australian / New Zealand Risk Management Standard AS / NZS4360: 2004 and the guidelines HB 436: 2004, indicating the
overall process and responsibilities applied in the organisation.
Government's initiative to privatise its shareholding in KLF and the related decision to discontinue with SAFCOL by March
2009 created new risks and challenges that had to be discounted in the risk management process.
The Board is responsible for the total process of risk management in the Group. Operational functionaries manage
identified risks, including risk treatment plans and the mitigation of risks. The Risk Management Section coordinates,
guides, monitors, advises and assists line management with risk related issues. The new approach to risk management in
the Group necessitated that risk mitigation actions had to be developed by operational staff to reduce the impact,
probability or frequency of any event posing a risk. These mitigation actions will be monitored and revisited on a regular
basis to ensure that the risk is addressed acceptably.
Audit The function of internal audit within the framework of SAFCOL is to evaluate the functioning of the risk management
process and internal control system and to report to the Board via the Combined Audit and Risk Management Committee
on any control inadequacies and suggest actions to remedy the control deficiencies.
Due to limited internal resources, the internal audit department is assisted by outside firms of internal auditors in the
execution of its duties. The internal audit department functions independently and enjoys the full support of the Board
as well as unlimited access to all records and other sources of information.
The function of the external auditors is to perform an audit according to the principles of International Auditing Standards
and to provide reasonable assurance of the fair presentation of the financial statements.
Remuneration Philosophy The SAFCOL Group recognises that remuneration is a business issue as it has a direct impact on operational expenditure,
company culture, employee behaviour and ultimately the sustainability of the organisation. As such, the reward strategies
are consistent with the organisations business objectives and strategic value drivers. The philosophy will fit in with the
Employee Value Model as part of a holistic and integrated approach.
The objective of the remuneration strategy is to assist the Group to achieve the following:
❈ Compete for talent in an increasingly competitive labour market
❈ Attract and retain competent employees who enhance business performance
❈ Motivate and reward individual and team performance that drives stakeholder value for the business
❈ Manage the total cost of employment
❈ Achieve most effective returns (employee productivity) for total employee cost
❈ Be sensitive to diverse employee needs
❈ Promote Employment Equity
❈ Ensure both internal and external equity and fairness.
To achieve this, employees are rewarded in a way that reflects the dynamics of the relevant target markets and the context
in which they operate. All five components of an integrated remuneration strategy (guaranteed pay portion, variable pay,
performance management, learning and personal growth, as well as the work environment), is at all times aligned to the
strategic direction, business objectives, and specific value drivers of the Group. The remuneration strategy is therefore
not a stand-alone process, but integrated into other management processes. In this context, the Group is committed to
maintaining the following:
❈ A remuneration policy that is aligned to the Group's business strategy, performance objectives and results
❈ Pay practices that encourage individuals to consistently and effectively apply their skills to enhance business
performance
❈ Pay levels, preferably on a Total Guaranteed Package basis linked to incentive payments (referred to as Total Potential
Remuneration), that reflects an individual's worth to the Group
❈ A performance management system that serves both to differentiate individual and / or team performance, as well as
60
providing a link to training and development of employees
❈ Incentive (variable pay) systems which consider both the diverse needs of different categories of employees (e.g.
management vs. production employees), as well as ensuring alignment with strategic goals and value drivers as part
of a fully integrated approach
❈ Internal equity that eliminates all forms of unfair discrimination. Differentiation is based on fair and defendable criteria
such as: (a) performance ratings derived from a proper performance management process, (b) critical segment
analyses
❈ External equity through periodic salary surveys, revision of grading's, and updating of structures for approval by the
Board
❈ A structured and open communication approach regarding the Group's reward practices and operational performance
that enables any employee to have an informed opinion, and which equips line-management to adequately deal with
the vast majority of remuneration questions and issues arising in the workplace.
Post Balance Sheet EventsDividends
No dividends have been proposed, declared or paid during the period under review (2009: None).
Rights Offer - Singisi Forestry Products (Pty) Ltd ("SFP")
SAFCOL has subsequent to year-end paid R10,3 million for the rights, in order to retain the 16% shareholding in SFP. The
decision was supported by the Board and approved by the Minister of Public Enterprise during February 2010 and April
2010 respectively.
Going ConcernThe Directors have reviewed the Group's financial position and approved the use of the borrowing facility and thus believe
that the Group is a going concern and have adequate resources to continue in operation existence for the foreseeable
future. The R160 million credit facility in place consist of a combination of an asset-based finance and multi-option facility.
The consolidated financial statements have been prepared on the going concern basis.
DIRECTORS AND EXECUTIVE COMMITTEE REMUNERATION
Increase in Non-Executive RemunerationIt was noted that the no Director, Executive and Non-Executive, received a remuneration increase with effect from 1 April
DIRECTORS' REPORT CONTINUED
61
62
Directors' and Executive Committee's Remuneration
MANAGERIAL SERVICES 2010 2009
FEES FOR SALARY PERFORMANCE FUND & SETTLEMENT TOTAL TOTAL
SERVICES AS RELATED MEDICAL AID PACKAGE
DIRECTORS BONUSES CONTRIBUTIONS
R'000 R'000 R'000 R'000 R'000 R'000 R'000
Executive Directors of SAFCOL - 2 287 - 631 - 2 918 5 820MJ Breed A - 2 287 - 631 - 2 918 4 750Chief Executive Officer
JP Coetzer D - - - - - - 1 070Financial Director
Non-executive Directors of SAFCOL 3 181 - - - - 3 181 3 003
G Moloi 668 - - - - 668 662Chairperson of the Board of Directors
E Alexander 356 - - - - 356 276Member of the Board of Directors
M Bhabha 310 - - - - 310 304Member of the Board of Directors
DJ Bills E 425 - - - - 425 424Member of the Board of Directors
PJ Derman 264 - - - - 264 261Member of the Board of Directors
M Diaho 331 - - - - 331 328Member of the Board of Directors
R Hassan 191 - - - - 191 190Member of the Board of Directors
RPF Sedibe 239 - - - - 239 237Member of the Board of Directors
S Radebe 397 - - - - 397 305Member of the Board of Directors
T Zulu D - - - - - - 16Member of the Board of Directors
Executive Committee - 11 494 - 1 783 506 13 783 15 401LC Mossop Roussouw - 853 - 166 - 1 019 1 119Senior Executive: Corporate Services
HM Manyatsa B, C - 631 - 135 506 1 272 1 751Chief Financial Officer
P Chetty A - 1 089 - 138 - 1 226 271Senior Executive: Enterprise Development
GJ Wessels - 1 495 - 348 - 1 843 2 560Senior Executive: Strategy, Planning and ICT
AA Mutshinya - 1 238 - 252 - 1 490 1 798Senior Executive: Human Capital Management
I Gricius - 577 - 13 - 590 875Senior Executive: Legal Services
F de Villiers - 1 170 - 211 - 1 381 1 931Senior Executive: Marketing
JS van der Walt D - - - - - - 1 240Senior Executive: Enterprise Development
LN Mudimeli - 1 055 - 73 - 1 128 1 525Senior Executive: Corporate Communication and Liaison
JHR van der Sijde A - 1 409 - 270 - 1 679 1 862Senior Executive: Forests
TCZ Molelle - 667 - 90 - 757 470Group Internal Auditor
SP Makhesha B - 1 020 - 63 - 1 082 -Senior Executive: Transformation
M Manyama-Matome A,B - 291 - 24 - 315 -Chief Financial Officer
Total 3 181 13 781 - 2 414 506 19 882 24 225
Notes:A Member of the Board of Directors of one or more SAFCOL subsidiariesB Remuneration for part of the yearC Resigned / Retired during the yearD Resigned / Retired in the prior yearE Foreign Director and receives an additional international allowance
PRIVATISATION, CORPORATISATION AND RESTRUCTURINGIn order to facilitate the restructuring of the State's commercial forestry assets, SAFCOL corporatised its core forestry
assets into five wholly owned subsidiaries established solely for privatisation purposes. As at 31 March 2010, the disposal
of the majority shareholding of four of these packages was completed.
Due to the complexity of the land claims against KLF and the competition concerns that were likely to have a material
bearing on the timeframe set for the privatisation of KLF, the Minister of Public Enterprise and the Board resolved that the
privatisation process will be postponed for the foreseeable future. This will allow both parties to address the issues and
concerns raised regarding the privatisation process. The Board was further requested to develop a five year corporate
strategy with a strong focus on land claimants and communities.
Status of Previous Privatisation TransactionsThe status of privatisation transactions can be summarised as follows:
PACKAGE CURRENT STATUS
Eastern Cape North Implemented the transaction with Singisi Forest Products (Pty) Ltd ("SFP") on
1 August 2001 and to date have sold 84% of the shares in SFP. The remaining 16% is
earmarked for disposal in the future.
KwaZulu-Natal Implemented the transaction with the SiyaQhubeka Consortium on 1 October 2001.
To date have sold 75% of the shares in SiyaQhubeka Forests (Pty) Ltd ("SQF"). The
remaining 25% is earmarked for disposal in the future.
Eastern Cape South To date have sold 84% of the shares in Amathole Forestry Company (Pty) Ltd ("AFC").
The remaining 16% is earmarked for disposal in the future.
Southern and Western Cape To date have sold 84% of the shares in MTO Forestry (Pty) Ltd ("MTO"). The remaining
16% is earmarked for disposal in the future.
Government’s policy decision in respect of the disposal of the remaining shareholding is still being finalised.
LEGAL PROCEEDINGS Due to the nature of the group's business, it will become involved in litigation from time to time. The bulk of all court
cases relate to commercial recovery actions as a result of fires or breach of contract. All of these matters are being actively
managed with the support of the firms of attorneys on the panel.
The only matter not falling into this category is the damages claim instituted by Londoloza / Paharpur against SAFCOL and
the Minister of Public Enterprises for approximately R3.2 billion for damages is based on four alternative claims. SAFCOL
and DPE are defending the matter.
DIRECTORS' REPORT CONTINUED
63
SECRETARYR. Shirinda
PO Box 1771
Silverton
0127
BANKERSABSA Bank Limited
FirstRand Bank Limited
The Standard Bank of South Africa Limited
Nedbank Limited
Investec Limited
AUDITORSExternal Auditors
PricewaterhouseCoopers Incorporated
Internal Audit Service Providers
Tereo Krino Business Assurance Consultants (Pty) Ltd
KPMG
Environmental Auditors
SGS South Africa (Pty) Ltd
ATTORNEYSGildenhuys Lessing Malatji Attorneys
Hofmeyr Herbstein and Gihwala Incorporated
Jarvis Pudney Attorneys
Jasper van der Westhuizen Bodenstein Incorporated
Mervyn Taback Incorporated
Morajane du Plessis Attorneys
Roestoff and Kruse Attorneys
Werksmans Incorporated Jan S De Villiers
REGISTERED OFFICE AND POSTAL ADDRESSSouth African Forestry Company Limited
Registration number: 1992/005427/06
HB Forum Building
13 Stamvrug Street
Val de Grace
Pretoria
Tel: +27 12 481-3500
Fax: +27 12 804-3716
DIRECTORS' REPORT CONTINUED
64
65
GROUP INCOME STATEMENT
GROUP AND COMPANY INCOME STATEMENT
FOR THE YEAR ENDED 31 MARCH 2010NOTES GROUP COMPANY
31 MARCH 2010 31 MARCH 2009 31 MARCH 2010 31 MARCH 2009R'000 R'000 R'000 R'000
Turnover 3 431 914 857 118 19 482 27 712
Cost of sales (511 187) (552 928) (372) -
Gross (loss) / profit (79 273) 304 190 19 110 27 712
Other operating income 8 832 (607) - -
Fair value adjustments to biological assets 11 (342 560) 757 916 - -
Administrative expenses (63 694) (68 653) (27 944) (25 075)
Other operating expenses (143 543) (121 186) (20 524) (31 034)
Operating (loss) / profit 4 (620 238) 871 660 (29 358) (28 397)
Investment income 5 20 677 45 916 35 763 47 622
Finance costs 6 (327) (958) (28) (2 102)
Share of profit of associates 13 10 901 52 838 - -
(Loss) / profit before tax (588 987) 969 456 6 377 17 123
Income tax expense 7 120 122 (267 579) (1 212) (5 422)
(Loss) / profit for the year (468 865) 701 877 5 165 11 701
66
GROUP STATEMENT OF COMPREHENSIVEINCOME
GROUP AND COMPANY STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 MARCH 2010NOTES GROUP COMPANY
31 MARCH 2010 31 MARCH 2009 31 MARCH 2010 31 MARCH 2009R'000 R'000 R'000 R'000
(Loss) / profit for the year (468 865) 701 877 5 165 11 701
Other comprehensive loss
Foreign currency translation differences for foreign operations (21 400) (11 523) - -
Share of other comprehensive income of associates 13 (10) - - -
Income tax on other comprehensive income 7 - - - -
Other comprehensive loss for the year, net of tax (21 410) (11 523) - -
Total comprehensive (loss) / income for the year (490 275) 690 354 5 165 11 701
67
GROUP BALANCE SHEET
GROUP AND COMPANY STATEMENT OF FINANCIAL POSITION
AS AT 31 MARCH 2010NOTES GROUP COMPANY
31 MARCH 2010 31 MARCH 2009 31 MARCH 2010 31 MARCH 2009R'000 R'000 R'000 R'000
ASSETS
Non-current assets 3 197 874 3 763 915 18 162 27 738
Property, plant and equipment 9 277 733 260 878 6 474 410
Investment property 8 4 798 4 802 4 798 4 802
Intangible assets 10 1 782 1 290 6 -
Biological assets - Plantations 11 2 875 715 3 218 275 - -
Investments in subsidiaries 12 - - 0 0
Investments in associates 13 - 227 622 - 15 496
Loans and receivables 15 - - 330 -
Available-for-sale financial assets 16 5 745 4 857 5 494 4 606
Pension and provident fund assets 31 32 000 45 216 1 060 1 536
Deferred taxation asset 23 101 975 - 888
Current assets 615 113 691 083 692 751 678 659
Inventories 17 140 462 187 278 246 65
Trade and other receivables 18 89 889 185 827 9 509 7 671
Current income tax assets 7 19 089 16 016 8 570 7 843
Cash and cash equivalents 19 126 394 295 941 113 227 288 455
Loans and receivables 15 - 6 021 - 6 021
Investments in subsidiaries 12 - - 545 704 368 604
Assets classified as held-for-sale 20 239 279 - 15 496 -
Total assets 3 812 987 4 454 998 710 914 706 397
EQUIT Y AND LIABILITIES
Capital and reserves 2 895 066 3 385 341 697 252 692 266
Share capital 21 318 013 318 013 318 013 318 013
Non-distributable reserves 22 98 479 119 879 126 821 126 821
Retained earnings 2 478 574 2 947 448 252 418 247 432
Non-current l iabilities 843 759 966 177 137 -
Deferred taxation liability 23 843 646 964 718 137 -
Borrowings 24 113 1 459 - -
Current l iabilities 74 162 103 480 13 525 14 131
Trade and other payables 25 69 835 75 106 12 401 8 679
Provisions 26 2 973 26 821 1 124 5 452
Borrowings 24 1 354 1 553 - -
Total equity and liabilities 3 812 987 4 454 998 710 914 706 397
68
GROUP CASH FLOW STATEMENT
GROUP AND COMPANY STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 MARCH 2010NOTES GROUP COMPANY
31 MARCH 2010 31 MARCH 2009 31 MARCH 2010 31 MARCH 2009R'000 R'000 R'000 R'000
OPERATING ACTIVITIES
(Loss) / profit for the year before tax (588 987) 969 456 6 377 17 123
Adjusted for:Depreciation of property, plant and equipment 4,9 40 886 39 633 454 160Depreciation of investment property 4,8 4 4 4 4Amortisation of intangible assets 4,10 734 1 189 3 -Unrealised foreign exchange gain 4 (14 089) (11 273) - -Increase in fair value adjustment - Agricultural produce 4,32 - (14 925) - -Write-down to net realisable value - Agricultural produce 4 14 468 - - -Share in profit of associates 13 (10 901) (52 838) - -Investment income - interest income 5 (18 051) (45 873) (33 137) (47 622)Investment income - dividends received 5 (2 626) (43) (2 626) -Finance costs 6 327 958 28 2 102Loss / (profit) on disposal of property, plant and equipment 4,9 468 (1 978) - -Surplus on disposal of non-current assets held-for-sale 20 - (254) - -Movement in fair value of biological assets 11 342 560 (757 916) - -(Decrease) / increase in provisions 26 (23 848) 7 774 (4 328) (274)Transfers between Companies - - (179) -Reversal of impairment of associate 13 - (809) - (809)
Operating cash flows before movements in working capital (259 055) 133 105 (32 853) (29 316)
Working capital changes 123 015 (110 732) 1 702 374
Decrease / (increase) in inventories 32 32 348 (45 748) (181) (10)Decrease / (increase) in trade and other receivables 32 95 938 (34 590) (1 838) 3 020(Decrease) / increase in trade and other payables 32 (5 271) (30 394) 3 722 (2 636)
Cash (utilised in) / generated from operations (136 040) 22 373 (31 151) (28 942)
Investment income - interest received 5 18 051 45 873 33 137 47 622Finance costs 6 (327) (958) (28) (2 102)Investment income - dividends received 5 2 626 43 2 626 -Taxation paid 7 (1 556) (110 307) (1 463) (11 975)
Net cash (outflow) / inflow from operating activities (117 245) (42 976) 3 121 4 603
INVESTING ACTIVITIES
Purchases of property, plant and equipment 9 (67 614) (97 754) (1 166) (97)Proceeds from disposal of property, plant and equipment 9 106 3 052 - -Proceeds on disposal of non-current assets held-for-sale 20 - 529 - -Purchases of intangible assets 10 (1 236) (815) - -Increase in available-for-sale financial assets 16 (888) (472) (888) (472)Decrease in loans and receivables 15 6 021 5 923 5 690 5 923Associate loans repaid 32 - 5 000 - 5 000Increase in investments in subsidiaries 12 - - (177 100) (144 616)Decrease / (increase) in net pension and provident fund assets 31 13 216 4 026 476 (1 531)Net transfer between Companies - - (5 361) -
Net cash outflow from investing activities (50 395) (80 511) (178 349) (135 793)
FINANCING ACTIVITIES
Decrease in borrowings 24 (1 545) (14 055) - -
Net cash outflow from financing activities (1 545) (14 055) - -
Net decrease in cash and cash equivalents (169 185) (137 542) (175 228) (131 190)
Cash and cash equivalents at the beginning of the year 19 295 941 432 979 288 455 419 645
Effect of foreign exchange rate changes (361) 504 - -
Cash and cash equivalents at the end of the year 19 126 394 295 941 113 227 288 455
69
GROUP STATEMENT OF CHANGES IN EQUITY
GROUP AND COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 MARCH 2010NON-DISTRIBUTABLE RESERVES
NOTES SHARE CAPITAL RETIREMENT REVALUA- FOREIGN RETAINED TOTALCAPITAL PROFIT FUND TION CURRENCY EARNINGS
RESERVE RESERVE RESERVE RESERVE TRANSLATION
R'000 R'000 R'000 R'000 R'000 R'000 R'000
GROUP
2010Balance at 1 April 2009 21,22 318 013 64 374 64 000 (604) (7 891) 2 947 448 3 385 341Comprehensive income
Loss for the year - - - - - (468 865) (468 865)Other comprehensive income
Foreign currency translation reserve - - - - (21 400) - (21 400)Share of other comprehensive loss of associates (note 13) - - - - - (10) (10)
Total comprehensive income 318 013 64 374 64 000 (604) (29 291) 2 478 574 2 895 066
Balance at 31 March 2010 21,22 318 013 64 374 64 000 (604) (29 291) 2 478 574 2 895 066
2009
Balance at 1 April 2008 21,22 318 013 64 374 64 000 (604) 3 632 2 245 572 2 694 987Comprehensive income
Profit for the year - - - - - 701 877 701 877Other comprehensive income
Foreign currency translation reserve - - - - (11 523) - (11 523)Total comprehensive income 318 013 64 374 64 000 (604) (7 891) 2 947 448 3 385 341
Balance at 31 March 2009 21,22 318 013 64 374 64 000 (604) (7 891) 2 947 448 3 385 341
COMPANY
2010Balance at 1 April 2009 21,22 318 013 64 374 64 000 (1 552) - 247 432 692 267Comprehensive income
Profit for the year - - - - - 5 165 5 165Transfers between Companies - - - - - (179) (179)
Total comprehensive income 318 013 64 374 64 000 (1 552) - 252 418 697 252
Balance at 31 March 2010 21,22 318 013 64 374 64 000 (1 552) - 252 418 697 252
2009
Balance at 1 April 2008 21,22 318 013 64 374 64 000 (1 552) - 235 731 680 565Comprehensive income
Profit for the year - - - - - 11 701 11 701Total comprehensive income 318 013 64 374 64 000 (1 552) - 247 432 692 266
Balance at 31 March 2009 21,22 318 013 64 374 64 000 (1 552) - 247 432 692 266
1. GENERAL INFORMATIONSouth African Forestry Company Limited
("SAFCOL"), a public company and holding
company of the Group, is incorporated and
domiciled in the Republic of South Africa. The
Group is a horizontally integrated operation
whose main business is the conduct of forestry,
timber harvesting, timber processing and related
activities in Southern Africa.
2. SIGNIFICANT ACCOUNTINGPOLICIES
2.1 Basis of PreparationThe principal accounting policies applied in the
preparation of these consolidated financial
statements are set out below. These policies have
been applied to all years presented which are
consistent with those of the previous year, except
for new and revised standards and interpretations
adopted per notes to the financial statements.
The financial statements have been prepared
under the historical cost basis as modified by the
revaluation of land and buildings, available-for-
sale financial assets, and financial assets and
liabilities at fair value through profit or loss, and
incorporate the following principal accounting
policies.
The preparation of the annual financial
statements in conformity with IFRS requires the
Directors to make judgements, estimates and
assumptions that affect the application of policies
and reported amounts of assets, liabilities, income
and expenses. The estimates and the underlying
assumptions are reviewed on an ongoing basis.
The actual results may differ from these estimates.
Revisions to accounting estimates are recognised
in the year in which the estimate is revised and
future years, if it affects both the current and
future years.
2.2 Statement of Compliance The Group Annual Financial Statements of
SAFCOL is prepared in accordance with
International Financial Reporting Standards
("IFRS"), the South African Companies Act, and the
Public Finance Management Act, 1999.
The Directors are required to exercise their
judgement in the process of applying the Group's
accounting policies.
The Group has adopted all of the new and revised
Standards and Interpretations issued by the
International Accounting Standards Board ("IASB")
and the International Financial Reporting
Interpretations Committee ("IFRIC") of the IASB
that are relevant to its operations and effective for
annual reporting periods commencing on 1 April
2009.
Standards, amendments and interpre -tations effective in 2010
❈ IAS 1, 'Presentation of Financial Statements -
Revised' (effective from 1 January 2009)
❈ Amendments to IFRS 7, 'Amendments to IFRS
7 – Financial Instruments disclosures:
Improving Disclosures about Financial
Instruments' (effective from 1 January 2009)
❈ Improvements to IFRS's issued May 2008
(effective from 1 January 2009).
Standards, amendments and interpre -tations effective in 2010, but not relevantto the Group's Operations
❈ IFRS 8,'Operating Segments' (effective from
1 January 2009)
❈ Amendments to IFRS 1 and IAS 27,
'Amendments to IFRS 1 First-Time Adoption of
International Financial Reporting Standards
and IAS 27 Consolidated and Separate
Financial Statements: Cost of Investment in a
70
NOTES TO THE ANNUAL FINANCIALSTATEMENTS
Subsidiary, Jointly Controlled Entity or
Associate' (effective from 1 January 2009)
❈ IAS 23,'Borrowing Costs - Revised' (effective
from 1 January 2009)
❈ Amendment to IFRS 2,'Amendment to IFRS 2
Share-Based Payment: Vesting Conditions and
Cancellations' (effective from 1 January 2009)
❈ Amendment to IAS 32 and IAS 1,'Amendment
to IAS 32 Financial Instruments: Presentation
and IAS 1 Presentation of financial statements
– Puttable Financial Instruments and
Obligations Arising on Liquidation' (effective
from 1 January 2009)
❈ IFRIC 13,'Customer Loyalty Programmes'
(effective from 1 July 2008)
❈ IFRIC 15,'Agreements for the Construction of
Real Estate' (effective from 1 January 2009)
❈ IFRIC 16,'Hedges of a Net Investment in a
Foreign Operation' (effective from 1 October
2008)
❈ Amendment to IFRIC 9 and IAS
39,'Amendments to IFRIC 9 – Reassessment
for Embedded Derivatives and IAS 39 –
Financial Instruments: Recognition and
Measurement' (effective from 1 July 2008)
❈ Revised AC 503, 'Accounting for Black
Economic Empowerment Transactions –
Revised' (effective from 1 January 2009).
Standards, amendments and interpre -tations issued, but not yet effective andhave not been early adopted by the Group
❈ IFRS 3, 'Business Combinations - Revised'
(effective from 1 July 2009)
❈ IAS 27, 'Consolidated and Separate Financial
Statements - Revised' (effective from 1 July
2009)
❈ Improvements to IFRS's issued April 2009
(effective from 1 January 2010)
❈ IFRIC 17, 'Distributions of Non-cash Assets to
Owners' (effective from 1 July 2009)
❈ AC 504, 'IAS 19 (AC 116) – The Limit on a
Defined Benefit Asset, Minimum Funding
Requirements and their Interaction in the
South African Pension Fund Environment
(effective from 1 April 2009).
Standards, Amendments and Interpre -tations issued, but not yet effective andnot relevant to the Group's Operations
❈ Amendments to IAS 39, 'Amendments to IAS
39 Financial Instruments: Recognition and
Measurement Eligible Hedged Items'
(effective from 1 July 2009)
❈ IFRS 1, 'First time Adoption of International
Financial Reporting Standards - Revised'
(effective from 1 July 2009)
❈ Amendments to IFRS 2, 'Amendments to IFRS
2: Group cash-settled share-based payment
transactions' (effective from 1 January 2010)
❈ IFRIC 18, 'Transfers of assets from customers
(effective from 1 July 2009)
❈ Amendments to IAS 32, 'Amendments to IAS
32 - Classification of rights issues' (effective
from 1 February 2010)
❈ Amendments IAS 24, 'Amendment to IAS 24 -
Related party disclosures' (effective from
1 January 2011)
❈ IFRS 9, 'IFRS 9 - Financial Instruments'
(effective from 1 January 2013)
❈ Amendments to IFRS 1 and IFRS 7,
'Amendment to IFRS 1 - Limited exemption
from comparative IFRS 7 disclosures for first-
time adopters' (effective from 1 July 2010)
❈ IFRIC 19, 'IFRIC 19 Extinguishing Financial
Liabilities with Equity Instruments' (effective
from 1 July 2010)
❈ Amendments to IFRIC 14, 'Pre-payments of a
Minimum Funding Requirement' (effective
from 1 January 2011).
The Directors anticipate that the adoption of
these Standards and Interpretations in future
periods will have no material impact on the
financial statements of the Group and Company.
2.3 Basis of ConsolidationSubsidiaries
The consolidated annual financial statements
incorporate the financial statements of the
Company and its subsidiaries. Subsidiaries are
those entities in which the Group, directly or
indirectly, has an interest of more than one half of
the voting rights or has the power to govern the
financial and operating policies so as to obtain
benefits from its activities.
The purchase method of accounting is used to
account for the acquisition of subsidiaries by the
Group. The cost of an acquisition is measured as
the fair value of the assets given, equity
instruments issued and liabilities incurred, or
assumed at the date of exchange, plus costs
71
directly attributable to the acquisition.
Identifiable assets acquired and liabilities and
contingent liabilities assumed in a business
combination are measured initially at their fair
values at the acquisition date, irrespective of the
extent of any minority interest. The excess of the
cost of acquisition over the fair value of the
Group's share of the identifiable net assets
acquired is recorded as goodwill. If the cost of
acquisition is less than the fair value of the net
assets of the subsidiary acquired, the difference is
recognised directly in the income statement.
The existence and effect of potential voting rights
that are currently exercisable or convertible are
considered in assessing whether the Group
controls another entity.
Subsidiaries are consolidated from the date on
which effective control is transferred to the Group
and consolidation ceases from the date of
disposal or the date on which control ceases. All
intercompany transactions, balances and
unrealised surpluses and deficits on transactions
between Group entities are eliminated.
The accounting policies of subsidiaries have been
changed where necessary to ensure alignment
with the policies adopted by the Group.
Investments in subsidiaries are shown at cost in
the Company's separate financial statements,
except when the investment is classified as held-
for-sale, in which case it is accounted for in
accordance with IFRS 5 'Non-current Assets Held-
for-Sale and Discontinued Operations'.
Investments in Associates
An associate is an entity, including an
unincorporated entity such as a partnership, over
which the Group has significant influence and
that is neither a subsidiary nor an interest in a
joint venture. The significant influence is
considered to be shareholding of between 20%
and 50% of the voting rights and / or through
participation in the financial and operating
policies. For investments with a shareholding of
less than 20%, SAFCOL considers significant
influence to be established if it is represented on
the associates Board of Directors and thereby
participates in policy-making decisions.
The investment in associates are accounted for
using the equity method whereby the investment
is initially recognised at cost and adjusted
thereafter for the post-acquisition change in the
investor's share of net assets of the investee. The
profit or loss of the investor includes the
investor's share of the profit or loss of the
investee. When the Group's share of losses in an
associate equals or exceeds its interest in that
associate, including any other unsecured
receivables, the Group does not recognise further
losses unless it has incurred obligations or made
payments on behalf of the associate. Losses may
provide evidence of an impairment of the asset
transferred, in which case appropriate provision is
made for impairment. Investments classified as
held-for-sale are accounted for in accordance with
IFRS 5 'non-current assets held-for-sale and
discontinued operations'.
Unrealised gains on transactions between the
Group and its associates are eliminated to the
extent of the Group's interest in the associates.
Unrealised losses are also eliminated, unless the
transaction provides evidence of an impairment
of the asset transferred. The accounting policies
of the associates are in line with IFRS.
Investments in associates are measured at cost
less accumulated impairment losses in the
company's separate financial statements.
2.4 Property, Plant and Equipment Owned Assets
Items of property, plant and equipment are stated
at historical cost less related accumulated
depreciation and accumulated impairment losses.
The cost of an item of property, plant and
equipment includes all costs that are incurred in
bringing the asset into a location and condition
necessary to enable it to operate as intended by
management and includes the cost of materials,
direct labour, and the initial estimate, where
applicable, of the costs of dismantling and
removing the item and restoring the site on which
it is located.
Where parts of an item of property, plant and
equipment have different useful lives, they are
accounted for as separate items of property, plant
and equipment and are depreciated separately.
Subsequent Expenditure
Subsequent expenditure relating to an item or
part of property, plant and equipment is
capitalised when it is probable that future
economic benefits associated to an item will flow
to the Group and the cost can be measured
reliably. The carrying amount of the part that is
replaced is derecognised in accordance with the
principles set out below. Costs of repairs and
maintenance are recognised as an expense in the
year in which it was incurred.
72
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
73
Derecognition
The carrying amount of an item of property, plant
and equipment is derecognised at the earlier of
the date of disposal or the date when no future
economic benefits are expected from its use or
disposal. Gains or losses on derecognition of
items of property, plant and equipment are
included in the income statement. The gain or loss
is the difference between the net disposal
proceeds and the carrying amount of the asset.
Depreciation
Depreciation is charged to the Income Statement
on a straight-line basis over the estimated useful
lives of each part of an item of property, plant and
equipment. Land and capital work-in-progress are
not depreciated. The methods of depreciation,
useful lives and residual values are reviewed
annually and changes in estimates, if appropriate,
are accounted for on a prospective basis.
An asset's carrying amount is written down
immediately to its recoverable amount if the
asset's carrying amount is greater than its
estimated recoverable amount.
The estimated useful lives are as follows:
I tem Useful l ife
Building and utilities 20 - 50 years
Motor vehicles 4 - 7 years
Plant and equipment 4 - 15 years
Computer equipment 3 years
Furniture and fittings 5 - 10 years
Leasehold improvements -
buildings and utilities 25 years
Leasehold improvements -
telephone lines and fences 10 years
Leasehold improvements - roads 25 years
2.5 Investment PropertiesInvestment properties are properties held for the
purpose of earning rental income or for capital
appreciation or both; and are initially recognised
at cost or deemed cost.
Investment property is recognised as an asset
when, and only when, it is probable that the
future economic benefits that are associated with
the investment property will flow to the Group,
and the cost can be measured reliably.
Subsequent to the initial recognition, investment
properties are stated at cost less accumulated
depreciation.
Depreciation is charged to the Income Statement
on a straight-line basis over the estimated useful
lives of each item of investment property from
when it is available to operate as intended by
management. Land is not depreciated.
2.6 Intangible AssetsAcquired computer software licenses are
capitalised based on the costs incurred to acquire
and bring the specific software into use. Costs
associated with maintaining computer software
programs are recognised as an expense as
incurred.
Intangible assets are initially measured at cost
and subsequently carried at cost less accumulated
amortisation and accumulated impairment loss.
Subsequent expenditure on intangible assets is
capitalised only when it increases the future
economic benefits embodied in the specific asset
to which it relates, and all other subsequent
expenditure is expensed as incurred.
The useful lives of intangible assets are assessed
as either definite or indefinite. Amortisation is
charged to the Income statement on a straight-
line basis over the estimated useful life of the
asset.
The methods of depreciation, useful lives and
residual values are reviewed annually and
changes in estimates, if appropriate, are
accounted for on a prospective basis.
The estimated useful lives are as follows:
I tem Useful l ife
Computer software licences 5 years
The carrying amount of an item or part of an
intangible asset is derecognised at the earlier of
the date of disposal or the date when no future
economic benefits are expected from its use or
disposal. Gains or losses on derecognition of an
item of an intangible asset are included in the
income statement. The gain or loss is the
difference between the net disposal proceeds and
the carrying amount of the asset.
2.7 Dividend DistributionDividends are recognised as a deduction in equity
and a liability in the period in which they are
approved.
2.8 Impairment of Non-Financial Assets The carrying amounts of the Group's tangible and
intangible assets are assessed at each reporting
date to determine whether there is any indication
that those assets may have suffered an
impairment loss. If such an indication exists, the
recoverable amount of the asset is estimated as
the higher of the fair value less costs to sell and
value in use of the asset. Value in use is estimated
based on the expected future cash flows,
discounted to their present values using a
discount rate that reflects forecast market
assessments over the estimated useful life of the
asset. Where it is not possible to estimate the
recoverable amount of an individual asset, the
recoverable amount of the cash-generating unit
to which the asset belongs is calculated. Where an
asset or a cash-generating unit's recoverable
amount has declined below the carrying amount,
the decline is recognised as an expense.
Where an impairment loss subsequently reverses,
the carrying amount of the asset (cash-generating
unit) is increased to the revised estimate of its
recoverable amount, but so that the increased
carrying amount does not exceed the carrying
amount that would have been determined had no
impairment loss been recognised for the asset
(cash-generating unit) in prior years. A reversal of
an impairment loss is recognised immediately in
profit or loss.
2.9 Biological Assets Biological assets are measured at fair value less
costs to sell. Fair value of plantations is estimated
based on the present value of the net future cash
flows from the asset, discounted at a current
market-based rate. Increases or decreases in value
are recognised in the income statement. All
expenses incurred in maintaining and protecting
the assets is recognised in the income statement.
All costs incurred in acquiring additional planted
areas are capitalised.
2.10 Financial Assets
2.10.1 ClassificationThe Group classifies its financial assets in the
following categories: loans and receivables and
available-for-sale. The classification depends on
the purpose for which the financial assets were
acquired. The Directors determine the
classification of its financial assets at initial
recognition.
Loans and Receivables
Loans and receivables are non-derivative financial
assets with fixed or determinable payments that
are not quoted in an active market. Loans and
receivables are initially recognised at fair value
plus transaction costs and subsequently carried at
amortised cost using the effective interest
method.
Available-for-sale Financial Assets
Available-for-sale financial assets are non-
derivatives that either are designated in this
category, or are not classified in any of the other
categories. They are included in non-current
assets unless the directors intend to dispose of
the investment within 12 months of the balance
sheet date. Available-for-sale financial assets are
recognised initially at fair value plus transaction
costs, and carried subsequently at fair value.
2.10.2 Recognition and MeasurementRegular purchases and sales of financial assets are
recognised on the trade date - the date on which
the company commits to purchase or sell the
asset. Investments are recognised initially at fair
value plus transaction costs. Financial assets are
de-recognised when the right to receive cash
flows from the investments has expired, or has
been transferred and the company has transferred
substantially all risks and rewards of ownership.
After initial recognition, investments that are
classified as available-for-sale are measured at fair
value. Fair value is the market value (listed
investments) or the market price of a substantially
similar investment. If the market for a financial
asset is not active (and for unlisted securities), the
company establishes fair value by using valuation
techniques. These include the use of recent arm's
length transactions, reference to other
instruments that are substantially the same,
discounted cash flow analysis and option pricing
models, making use of market inputs and relying
as little as possible on entity-specific inputs.
Investments in equity instruments that do not
have a quoted price in an active market and
whose fair value cannot be measured reliably are
measured at cost. Gains or losses on available-for-
sale investments are recognised in other
comprehensive income, as a separate component
of the Group's equity until the investments are
sold, collected or otherwise disposed of, or until
the investments are determined to be impaired, at
which time the cumulative gain or loss previously
reported in equity is recognised in the income
statement. Impairment losses on available-for-sale
equity instruments that are recognised in the
income statement are not reversed subsequently.
The Group assesses at each balance sheet date
whether there is objective evidence that a
financial asset or a group of financial assets is
74
impaired. In the case of equity securities classified
as available-for-sale, a significant or prolonged
decline in the fair value of the security below its
cost is considered as an indicator that the
securities are impaired. If any such evidence exists
for available-for-sale financial assets, the
cumulative loss – measured as the difference
between the acquisition cost and the current fair
value, less any impairment loss on that financial
asset previously recognised in profit or loss – is
removed from equity and recognised in the
income statement. Impairment losses recognised
in the income statement on equity instruments
are not reversed through the income statement.
In the case of assets carried at amortised cost, the
amount of the loss is measured as the difference
between the asset's carrying amount and the
present value of estimated future cash flows
(excluding future credit losses that have not been
incurred) discounted at the financial asset's
original effective interest rate. The asset's carrying
amount is reduced and the amount of the loss is
recognised in the consolidated income statement.
If a loan has a variable interest rate, the discount
rate for measuring any impairment loss is the
current effective interest rate determined under
the contract. As a practical expedient, the Group
may measure impairment on the basis of an
instrument's fair value using an observable
market price.
If, in a subsequent period, the amount of the
impairment loss decreases and the decrease can
be related objectively to an event occurring after
the impairment was recognised (such as an
improvement in the debtor's credit rating), the
reversal of the previously recognised impairment
loss is recognised in the consolidated income
statement.
Interest on available-for-sale securities calculated
using the effective interest method is recognised
in the income statement as part of investment
income. Dividends on available-for-sale equity
instruments are recognised in the income
statement as part of investment income when the
Group's right to receive payment is established.
2.11 Non-Distributable ReservesRetirement Fund Reserve
Accelerated lump sum payments to reduce the
retirement fund deficit are transferred to a non-
distributable reserve being a retirement fund
reserve, as far as cash generated through profits
from trading activities is available for this
purpose.
Capital Profit Reserve
As per the memorandum and articles of
association of SAFCOL, material capital profits are
not distributed, but allocated to non-distributable
reserves as and when applicable. Therefore, where
profits made on the disposal of assets and the
proceeds from insurance claims are deemed
exceptional, these profits are transferred to a non-
distributable reserve, being a capital profit
reserve. Adjustments to the opening statement of
financial position of the Group of a material
nature or extent, resulting in an increase in the
net asset value of assets taken over on 1 April
1993, are credited to a non-distributable reserve.
A decrease in net asset value is charged to
available non-distributable reserves and if any
balance remains thereafter, it is charged to
distributable reserves.
Foreign Currency Translation Reserve
If the functional currency of a subsidiary is
different to the presentation currency of the
Group, the net effect of translating to the
presentation currency is allocated to the foreign
currency translation reserve. Items are translated
at the Group's financial year-end in accordance
with section 2.23 Foreign Currency Transactions.
Revaluation Reserve
The revaluation of non-current assets and equity
instruments are charged to the non-distributable
reserve and therefore reflected as a gain or loss in
the income statement.
2.12 Cash and Cash Equivalents Cash and cash equivalents comprise cash on hand
and demand deposits, as well as other short-term
highly liquid investments that are readily
convertible to a known amount of cash and are
subject to an insignificant risk of changes in value.
Bank overdrafts are shown within borrowings in
current liabilities on the statement of financial
position.
2.13 BorrowingsBorrowings are recognised initially at fair value,
net of transaction costs incurred. Borrowings are
stated subsequently at amortised cost. Any
difference between the proceeds (net of
transaction costs), and the redemption value is
recognised in the income statement over the
period of the borrowings using the effective
interest method.
Borrowings are classified as current liabilities
unless the company has an unconditional right to
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
75
defer settlement of the liability for at least 12
months after the balance sheet date.
2.14 Trade and other Receivables Trade and other receivables are recognised
initially at fair value and subsequently measured
at amortised cost using the effective interest
method, less provision for impairment. Other
receivables constitute sundry debtors. A provision
for impairment of trade receivables is established
when there is objective evidence that the
company will not be able to collect all amounts
due according to the original terms of the
receivables. Significant financial difficulties of the
debtor, probability that the debtor will enter
bankruptcy, financial re-organisation, and default,
or delinquency in payments, are considered
indicators that the trade receivable is impaired.
The amount of the provision is the difference
between the asset's carrying amount and the
present value of estimated future cash flows,
discounted at the original effective interest rate.
The carrying amount of the asset is reduced
through the use of an allowance account, and the
amount of the loss is recognised in income. When
a trade receivable is uncollectible, it is written off
against the allowance account for trade
receivables. Subsequent recoveries of amounts
previously written off are credited in the income
statement.
2.15 Trade and other PayablesTrade payables are obligations to pay for goods
and services that have been acquired in the
ordinary course of business from suppliers.
Accounts payable are classified as current
liabilities if payment is due within one year or less.
If not, they are presented as non-current
liabilities.
Trade payables are recognised initially at fair
value and measured subsequently at amortised
cost using the effective interest method.
2.16 Inventories Cost is determined on the following bases:
❈ Finished goods and work-in-progress
comprises raw material, direct labour, other
direct costs and related production overheads
incurred in bringing the inventories to their
present location and condition, calculated on
the weighted average basis, based on the
normal capacity for the period to eliminate
the effect of changes in log distribution.
Included in finished goods and work-in-
progress inventories are sawn timber or
lumber and seedlings
❈ Raw materials are valued at landed cost on
the weighted average basis
❈ Consumable stores are valued at cost on the
weighted average basis.
Net realisable value is the estimated selling price
in the ordinary course of business less the
estimated costs of completion and the estimated
costs necessary to make the sale.
Raw materials, work-in-progress and finished
goods of timber and timber related products and
consumable stores are measured at the lower of
cost and net realisable value.
Harvested timber is stated at the lower of cost
(being the fair value less costs to sell at the date
of harvest) and net realisable value.
2.17 Assets classified as Held-for-saleAssets and disposal groups are classified as held-
for-sale if their carrying amount will be recovered
principally through a sale transaction rather than
through continuing use. This condition is
regarded as met only when the sale is highly
probable and the asset (or disposal group) is
available for immediate sale in its present
condition. The Directors must be committed to
the sale, which should be expected to qualify for
recognition as a completed sale within one year
from date of classification. Assets classified as
held-for-sale are measured using the applicable
IFRS immediately before classification. Once
reclassified, the asset or disposal group is
recognised at the lower of the carrying amount
and the fair value, less cost to sell at the date
when it is initially classified as held-for-sale.
Depreciation seizes on the asset on this date.
2.18 LeasesOperating Leases
Leases where the lessor retains substantially all
the risks and rewards of ownership of the
underlying assets are classified as operating
leases. Payments made under operating leases are
recognised in the income statement on a straight-
line basis over the period of the lease.
Finance Leases
Leases that transfers substantially all the risks and
rewards of ownership of the underlying asset to
the Group are classified as finance lease. Leased
assets are measured at the lower of its fair value
and the present value of the minimum lease
76
payments at inception of the lease, and
depreciated over the shorter of the useful life of
the asset and the lease term. The capital element
of future obligations under the leases is included
as a liability in the statement of financial position.
Finance charges are charged to the income
statement over the lease period so as to produce
a constant periodic rate of interest on the
remaining balance of the liability for each period.
2.19 Provisions A provision is recognised when the Group has a
present legal or constructive obligation as a result
of past events, for which it is probable that an
outflow of economic benefits will be required to
settle the obligation and a reliable estimate can
be made of the amount of the obligation.
Where the effect of the time value of money is
material, provisions are measured by discounting
the expected future cash flows at a pre-tax rate
that reflects the current market assessment of the
time value of money and the risks specific to the
liability.
A provision for restructuring is recognised when
the Group has approved a detailed and formal
restructuring plan, and the restructuring has
either commenced or announced publicly. Costs
relating to ongoing activities are not provided for.
2.20 Employee Benefits Pension Plans
The group operates various pension schemes,
which include both defined benefit and defined
contribution plans.
Defined Benefit Plans
The defined benefit schemes are funded generally
through payments to insurance companies or
trustee-administered funds, determined by
periodic actuarial calculations. The SAFCOL
Pension Fund and the SAFCOL Pension-Linked
Provident Fund are defined benefit schemes.
Typically, defined benefit plans define an amount
of pension benefit that an employee will receive
on retirement, usually dependent on one or more
factors such as age, years of service, and
compensation.
The asset or liability recognised in the statement
of financial position in respect of defined benefit
pension plans is the present value of the defined
benefit obligation at the balance sheet date, less
the fair value of plan assets, together with
adjustments for unrecognised past-service costs.
The defined benefit obligation is calculated
annually by independent actuaries using the
projected unit credit method. The present value of
the defined benefit obligation is determined by
discounting the estimated future cash outflows
using interest rates of government bonds that are
denominated in the currency in which the
benefits will be paid, and that have terms to
maturity approximating the terms of the related
pension liability.
Actuarial gains and losses arising from experience
adjustments and changes in actuarial
assumptions are charged or credited to the
income statement in the period in which they
arise.
Past-service costs are recognised immediately in
income, unless the changes to the pension plan
are conditional on the employees remaining in
service for a specified period of time (the vesting
period). In this case, the past-service costs are
amortised on a straight-line basis over the vesting
period.
Defined Contribution Plans
A defined contribution plan is a pension plan
under which the Group pays fixed contributions
into a separate entity. The SAFCOL Provident Fund,
Investment Solutions Executive Provident Fund
and Forestry Workers Pension Fund are defined
contribution plans. The Group has no legal or
constructive obligations to pay further
contributions if the fund does not hold sufficient
assets to pay all employees the benefits relating
to employee services in the current and prior
periods.
The Group pay contributions to publicly or
privately administered pension insurance plans
on a mandatory, contractual or voluntary basis.
The contributions are recognised as employee
benefit expense when they are due. Prepaid
contributions are recognised as an asset to the
extent that a cash refund or a reduction in the
future payments is available.
Other Post-Employment Obligations
The entitlement to post – retirement healthcare
benefits was usually conditional on the employee
remaining in service up to retirement age and the
completion of a minimum service period. The
expected costs of these benefits were accrued
over the period of employment using the same
accounting methodology as used for defined
benefit pension plans. Actuarial gains and losses
arising from experience adjustments and changes
in actuarial assumptions was charged or credited
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
77
to the income statement in the period in which
they arise. These obligations were re-valued
annually by independent qualified actuaries and
amounted to Rnil at end of 2009.
Termination Benefits
Termination benefits are payable when
employment is terminated by the Group before
the normal retirement date, or whenever an
employee accepts voluntary redundancy in
exchange for these benefits. The Group and
Company recognise termination benefits when it
is demonstrably committed to either:
❈ Terminating the employment of current
employees according to a detailed formal
plan without possibility of withdrawal
❈ Providing termination benefits as a result of
an offer made to encourage voluntary
redundancy. Benefits falling due more than 12
months after the balance sheet date are
discounted to their present value.
Bonus Plans
The Group recognise a liability and an expense for
bonuses based on a formula that takes into
consideration the profit attributable to the Group
and Company's shareholders after certain
adjustments. The Group and Company recognise
a provision where obliged contractually, or where
there is a past practice that has created a
constructive obligation.
2.21 TaxationThe income tax expense for the year comprises
current and deferred tax.
Current Tax
Current taxation comprises tax payable calculated
on the basis of the taxable income for the year,
using tax rates enacted or substantively enacted
at the reporting date, and any adjustments of the
tax payable for the previous year. The Directors
periodically evaluate positions taken in tax
returns with respect to situations in which
applicable tax regulation is subject to
interpretation. It establishes provisions where
appropriate on the basis of amounts expected to
be paid to the tax authorities.
Taxable profit differs from net profit as reported
in the income statement because it excludes
items of income or expense that are taxable or
deductible in other years and it further excludes
items that are never taxable or deductible. Tax is
recognised in the income statement, except to the
extent that it relates to items recognised in other
comprehensive income or directly in equity. In
this case, the tax is also recognised in other
comprehensive income or directly in equity,
respectively.
Deferred Tax
Deferred tax is recognised, using the liability
method, on temporary differences between the
carrying amounts of assets and liabilities in the
financial statements and the corresponding tax
bases used in the computation of taxable profit.
Deferred tax liabilities are generally recognised
for all taxable temporary differences and deferred
tax assets are recognised to the extent that it is
probable that taxable profits will be available
against which those deductible temporary
differences can be utilised. Such assets and
liabilities are not recognised if the temporary
differences arise from goodwill or from the initial
recognition (other than in a business
combination) of other assets and liabilities in a
transaction that affects neither the taxable profit
nor the accounting profit.
Deferred tax liabilities are recognised for taxable
temporary differences associated with
investments in subsidiaries and associates, except
where the Group is able to control the reversal of
the temporary difference and it is probable that
the temporary difference will not reverse in the
foreseeable future. Deferred tax assets arising
from deductible temporary differences associated
with such investments and interests are only
recognised to the extent that it is probable that
there will be sufficient taxable profits against
which to utilise the benefits of the temporary
differences and they are expected to reverse in
the foreseeable future.
Deferred tax assets and liabilities are measured at
the tax rates that are expected to apply in the
period in which the liability is settled or asset
realised, that have been enacted or substantially
enacted by the balance sheet date.
Deferred tax assets and liabilities are offset when
there is a legally enforceable right to offset
current tax assets against current tax liabilities
78
and when they relates to income taxes levied by
the same taxation authority and the Group
intends to settle its current tax assets and
liabilities on a net basis.
2.22 Share CapitalOrdinary shares are classified as equity.
2.23 Foreign Currency TransactionsFunctional and Presentation Currency
Items included in the financial statements of each
of the Group's entities are measured using the
currency of the primary economic environment in
which the entity operates ("the functional
currency"). The consolidated financial statements
are presented in South African Rand (R), which is
the functional and presentation currency of the
parent company.
Transactions and Balances
Foreign currency transactions are translated into
the functional currency using the exchange rates
prevailing at the transaction or valuation date
where items are re-measured. At each balance
sheet date, monetary assets and liabilities that are
denominated in foreign currencies are translated
at the exchange rates prevailing at that date. Non-
monetary assets and liabilities carried at fair value
that are denominated in foreign currencies are
translated at the exchange rates prevailing at the
date when the fair value was determined. Foreign
exchange gains and losses are recognised in the
income statement.
Group Entities
The results and financial position of all the group
entities that have a functional currency different
from the presentation currency of the Group are
translated into the presentation currency as
follows:
❈ assets and liabilities are translated at the
closing rate at the date of that balance sheet
❈ income and expenses are translated at
average exchange rates (unless this average is
not a reasonable approximation of the
cumulative effect of the rates prevailing on
the transaction date, in which case income
and expenses are translated at the rate on the
dates of the transactions)
❈ All resulting exchange differences are
recognised in other comprehensive income.
On consolidation, exchange differences arising
from the translation of the net investment in
foreign operations and of borrowings, are taken
to other comprehensive income and accumulated
in the separate component of equity. When a
foreign operation is partially disposed of or sold,
exchange differences that were recorded in other
comprehensive income are recognised in the
income statement as part of the gain or loss on
sale.
2.24 Revenue Recognition Revenue comprises the fair value of the
consideration received or receivable for the sale
of goods and services in the ordinary course of
the Group's activities.
Revenue is shown net of value-added tax, returns,
rebates and discounts and after eliminating sales
within the Group.
Revenue from the sale of goods is recognised in
the income statement when the significant risks
and rewards of ownership have been transferred
to the buyer, it is probable that future economic
benefits will flow to the entities and amount of
revenue can be measured reliably and there is no
continuing management involvement with the
goods.
Sales of Goods
The Group harvests, processes, and sells a range
of timber and logs. Sales of goods are recognised
when a group entity has delivered products to the
customer and there is no unfulfilled obligation
that could affect the customer's acceptance of the
products. Sales of logs are recognised when logs
are delivered at roadside and title has passed. All
other sales of goods are recognised when goods
are delivered and title has passed.
Sales are recorded based on the price specified in
the sales contracts. The provision for claims is
based on actual returns by customers and
includes volume, quality and price disputes.
Sales of Services
The Company sells management services to its
subsidiaries, which are eliminated on
consolidation level. These services are provided as
a fixed-price contract, with annual contract terms.
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
79
Interest Income
Interest is recognised on a time-proportion basis
using the effective interest method. When a
receivable is impaired, the Group reduce the
carrying amount to its recoverable amount, being
the estimated future cash flow discounted at the
original effective interest rate of the instrument,
and continues unwinding the discount as interest
income.
Dividend Income
Dividend income is recognised when the right to
receive payment is established.
2.25 Research and Development Expenditure on research and development is
charged against operating income when incurred.
2.26 Key Sources of Estimation andUncertaintyThe following key sources of estimation and
uncertainty at balance sheet date which have a
significant risk of causing a material adjustment
to the carrying amounts of assets and liabilities
within the next financial year are discussed
below:
Fair Value of Standing Timber
The methods and assumptions used in
determining the fair value of the standing timber
in the plantations are reviewed every five years. In
the prior year, the methodology and assumptions
utilised in the fair value model have been revised
to obtain a more accurate valuation in terms of
species, volumes, income, expenses and prices and
can be described as follows:
❈ Current market prices: The market prices per
cubic metre are based on market
expectations per log class
❈ Expected yield per log class: The expected
yield per log class is calculated with reference
to growth models relevant to the nominal
planted area
❈ The growth models are derived from
actual trial data that is measured
regularly. A merchandising model, using
the modelled tree shape at various ages,
is used to split the tree-lengths into pre-
defined products or log classes
❈ The nominal planted area is derived from
the core forestry management systems.
❈ Volume adjustment factor : Due to the
nature of plantation forestry and more
specifically its susceptibility to the
environment, an adjustment factor is
determined to reduce the modelled volumes
to approximate marketable volumes. The
percentage volume adjustment is based on
factors such as baboon damage, as well as
damage due to natural elements such as
wind / rain / hail / drought / fires
❈ Rotation: The Group manages its plantation
crop mainly on a 30-year rotation for saw log
production
❈ Operating costs: Operating costs are
calculated with reference to the maintenance
and harvesting activities and the average
annual unit costs per activity
❈ The activities are based on the prescribed
silvicultural regimes and volume of
timber to be harvested and extracted
❈ The operating costs per activity are based
on the annual average unit costs as per
the plantation operating statements and
include relevant overheads.
❈ Discount rate: The current market-
determined discount rate is based on the
Weighted Average Cost of Capital model as
calculated by an independent professional
service provider, using the following:
❈ Risk free rate which is updated with the
market rates applicable at the valuation
dates
❈ Market premium which has been adjusted
to compensate for increased risk factors
such as the insurance that has fallen away
since 2001
❈ Inflation assumptions which have been
adjusted to incorporate the market view
at the valuation date.
Provision for Impairment of TradeReceivables
At each balance sheet date, the Group assess
whether there is any objective evidence that
debtors are impaired. If evidence of impairment
exists, the provision is calculated as the fair value
of the debtor less the present value of the
estimated recoverable amount.
80
Allowance for Inventory Losses
Allowance for 15% of nursery stock due to non-
germination, based on historical information.
Provisions
Provisions are raised in accordance with
determinations of the Directors, based on
available information.
Income Taxes
The Group is subject to income taxes in South
Africa and Mozambique jurisdictions. Significant
judgement is required in determining the
provision for income taxes. There are many
transactions and calculations for which the
ultimate tax determination is uncertain during the
ordinary course of business. The Group and
Company recognise liabilities for anticipated tax
audit issues based on estimates of whether
additional taxes will be due. Where the final tax
outcome of these matters is different from the
amounts that were initially recorded, such
differences will affect the income tax and deferred
tax provisions in the period in which such
determination is made.
Fair Value of Financial Instruments
The fair value of financial instruments that are not
traded in an active market is determined by using
valuation techniques. The Group uses its
judgement to select a variety of methods and
makes assumptions that are mainly based on
market conditions existing at each balance sheet
date.
2.27 Comparative FiguresComparative figures are re-stated in the event of
a change in accounting policy or prior period
error. Two comparative statements of financial
position are presented in the event of a
retrospective change in accounting policy, a
retrospective restatement or reclassification of
items in the financial statements.
2.28 Post Balance Sheet EventsRecognised amounts in the financial statements
are adjusted to reflect events arising after the
balance sheet date that provide evidence of
conditions that existed at the balance sheet date.
Depending on materiality, events after the
balance sheet date that are indicative of
conditions that arose after the balance sheet date
are dealt with by way of a note
NOTES TO THE ANNUAL FINANCIAL STATEMENTS CONTINUED
81
82
NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2010 CONTINUED
GROUP COMPANY
31 MARCH 2010 31 MARCH 2009 31 MARCH 2010 31 MARCH 2009
R'000 R'000 R'000 R'000
3. TURNOVER
Timber sales 258 951 644 157 - -
Sawn timber sales 140 208 182 718 - -
Other 32 755 30 243 19 482 27 712
Total 431 914 857 118 19 482 27 712
4. OPERATING (LOSS) / PROFIT
Operating (loss) / profit is arrived at after taking the following items into account:
Non-recurring items
Settlement received in respect of forest fires (5 280) - - -
Termination of lease contract 500 - - -
Termination benefits - 4 415 - 2 195
Settlement received pursuant to litigation - (2 500) - (2 500)
Siyaqhubeka Forests (Pty) Ltd -payment in lieu of Employee Share Ownership Plan 5 460 5 460
Total (4 775) 2 375 5 155
Biological assets valuation
Decrease / (increase) in fair value adjustment - Biological assets (refer note 11) 342 560 (757 916) - -
Loss / (profit) due to fair value adjustment of biological assets 342 560 (757 916) - -
Auditors' remuneration
Audit fees 1 905 1 829 886 840
Other services 31 140 - -
Expenses 1 19 - 18
(Over) / under provision - prior year (396) 429 67 23
Total 1 541 2 417 953 881
Loss / (profit) on disposal of property, plant and equipment (refer note 9)
Buildings and utilities 260 16 - -
Motor vehicles (35) (1 818) - -
Plant and equipment 209 (192) - -
Computer equipment 30 12 - -
Furniture and fittings 4 4 - -
Total 468 (1 978) - -
NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2010 CONTINUED
83
GROUP COMPANY
31 MARCH 2010 31 MARCH 2009 31 MARCH 2010 31 MARCH 2009
R'000 R'000 R'000 R'000
4. OPERATING (LOSS) / PROFIT (continued)
Depreciation of property, plant and equipment (refer note 9)
Buildings and utilities 4 521 4 934 12 -
Motor vehicles 9 876 8 793 66 39
Plant and equipment 17 776 18 206 37 -
Computer equipment 4 208 3 025 69 62
Furniture and fittings 418 492 43 40
Leasehold improvements - buildings and utilities 3 492 3 662 154 19
Leasehold improvements - telephone lines and fences 81 66 - -
Leasehold improvements - roads 514 454 72 -
Total 40 886 39 633 454 160
Depreciation of investment property (refer note 8)
Investment property 4 4 4 4
Amortisation of intangible assets (refer note 10)
Computer software 734 1 189 3 -
Movement in inventory
Increase in fair value adjustment - Agricultural produce - (14 925) - -
Write-down of inventories to net realisable value 14 468 - - -
Provision for obsolescence 12 179 815 - -
Total 26 647 (14 110) - -
Fees for services
Administrative and legal 11 634 11 719 7 405 11 605
Managerial 120 636 13 129 580
Technical 14 224 19 585 1 193 6 638
Total 25 978 31 940 21 727 18 823
Staff costs
Salaries and wages 184 269 168 267 7 449 15 408
Bonuses (3 707) 29 201 (1 559) 5 434
Benefits and other costs 38 082 30 582 2 026 1 219
Employer contributions - Defined contribution plans 12 686 10 994 3 322 (155)
Total 231 330 239 044 11 238 21 906
84
NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2010 CONTINUED
GROUP COMPANY
31 MARCH 2010 31 MARCH 2009 31 MARCH 2010 31 MARCH 2009
R'000 R'000 R'000 R'000
4. OPERATING (LOSS) / PROFIT (continued)
Operating lease charges
Land 32 64 - -
Buildings and utilities 4 859 3 544 1 935 1 003
Plant and equipment 17 301 - -
Computer equipment - 142 - 141
Furniture and fittings 709 767 35 -
Leasehold improvements - telephone lines and fences 13 - - -
Loose tools 3 55 - -
Total 5 633 4 873 1 970 1 144
Foreign exchange gain
Realised 14 111 (1 737) - -
Unrealised (14 089) (11 273) - -
Total 23 (13 010) - -
Research costs expensed
Research expenditure is incurred on applied research performed mainly on tree improvement and growth and yield research 9 989 8 698 - -
Directors' emoluments
For services as Directors 3 181 3 003 3 181 3 003
Managerial services 2 918 5 820 2 918 5 820
Total 6 099 8 823 6 099 8 823
The Executive Director has an employment contract with SAFCOL with a notice period of three months. The Non-Executive Directors areappointed for a fixed-term of three years, this will be reassessed at the next Annual General Meeting.
Discontinued operations
Income statement
Turnover - 30 - -
Cost of sales - - - -
Net profit - 30 - -
Other operating income - 90 - -
Administrative expenses 13 (41) - -
Other operating expenses (356) (426) - -
Operating loss (343) (347) - -
Finance costs (refer note 6) - (1) - -
Loss before tax (343) (348) - -
Attributable income tax expense - - - -
Loss for the year from discontinued operations (343) (348) - -
NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2010 CONTINUED
85
GROUP COMPANY
31 MARCH 2010 31 MARCH 2009 31 MARCH 2010 31 MARCH 2009
R'000 R'000 R'000 R'000
5. INVESTMENT INCOME
Interest on call deposits and surplus cash 16 196 41 699 16 196 41 706
Other interest received 1 855 4 174 16 941 5 916
Dividends received 2 626 43 2 626 -
20 677 45 916 35 763 47 622
6. FINANCE COSTS
Interest on:
Bank overdrafts 24 3 24 3
Finance leases 207 834 - -
Short-term loans 96 121 4 2 099
Total 327 958 28 2 102
86
NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2010 CONTINUED
GROUP COMPANY
31 MARCH 2010 31 MARCH 2009 31 MARCH 2010 31 MARCH 2009
R'000 R'000 R'000 R'000
7. INCOME TAX EXPENSE
Tax expense comprises
South African normal tax- current period 2 000 43 969 1 918 5 320
- prior period adjustment (3 516) (2 938) (1 181) (516)
Deferred taxation (refer note 23)- current period (121 641) 223 679 (801) 89
- prior period adjustment 3 036 2 869 1 276 529
Taxation per income statement (120 122) 267 579 1 212 5 422
The total charge for the year can be reconciled to accounting profit as follows:
Profit from operations (588 987) 969 456 6 377 17 123
Income tax expense calculated at 28% (164 916) 271 448 1 786 4 794
Effect of share of profit of associates (3 052) (14 795) - -
Effect of expenses that are not deductible in determining taxable profit 747 10 907 (118) 526
Effect of deferred tax due to intergroup transfer of assets - - (551) -
Effect of different tax rates of subsidiariesoperating in different jurisdictions (5 861) - - -
Effect of assessed loss 53 440 - - -
Adjustments recognised in the current period in relation to the current tax of prior periods (480) 19 95 102
(120 122) 267 579 1 212 5 422
Receivable / (payable) at the beginning of the period: 19 533 (50 321) 9 024 1 188
South African normal tax 16 016 (53 260) 7 843 672
Adjustment prior period 3 516 2 938 1 181 516
Paid during the period 1 556 110 307 1 463 11 975
Taxation for the period per income statement: (2 000) (43 969) (1 918) (5 320)
Receivable at the end of the period:
South African normal taxation 19 089 16 016 8 570 7 843
Total 19 089 16 016 8 570 7 843
Current income tax assets 19 089 16 016 8 570 7 843
The tax (charge) / credit relating to components of other comprehensive income is as follows:
Foreign currency translation differences for foreign operations
Before tax (21 400) (11 523) - -
Tax (charge) / credit - - - -
After tax (21 400) (11 523) - -
Share of other comprehensive income of associate
Before tax (10) - - -
Tax (charge) / credit - - - -
After tax (10) - - -
Total other comprehensive income
Before tax (21 410) (11 523) - -
Tax (charge) / credit - - - -
After tax (21 410) (11 523) - -
Current tax - - - -
Deferred tax (note 23) - - - -
Total tax (charge) / credit relating to components of other comprehensive
income - - - -
NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2010 CONTINUED
87
GROUP COMPANY
31 MARCH 2010 31 MARCH 2009 31 MARCH 2010 31 MARCH 2009
R'000 R'000 R'000 R'000
8. INVESTMENT PROPERTY
Carrying amount at the beginning of the period 4 802 4 806 4 802 4 806
Cost 4 856 4 856 4 856 4 856
Accumulated depreciation (54) (50) (54) (50)
Depreciation (4) (4) (4) (4)
Carrying amount at the end of the period 4 798 4 802 4 798 4 802
Cost 4 856 4 856 4 856 4 856
Accumulated depreciation (58) (54) (58) (54)
The fair value of the investment properties as at 31 March 2010 was R84,4 million (2009: R84,4 million). The valuation wasperformed by an independent professional valuer in December 2004.
SAFCOL received an offer of R84,4 million from the Regional Land Claims Commissioner for the plantation situated close toBarberton and has received approval from the Board to proceed with the transaction subject to Public Finance ManagementAct approval. The matter now rests with the Land Restitution Commission. It is uncertain when the transaction would occur.
The gross rental income earned by the Group from its investment properties, all of which are leased out under operatingleases, amounted to R2,6 million (2009: R 2,2 million).
88
MOVEMENT RECONCILIATION TOTAL LAND BUILDINGS MOTOR AND UTILITIES VEHICLES
R'000 R'000 R'000 R'000
9. PROPERTY, PLANT AND EQUIPMENT
Group 2010
Carrying amount at the beginning of the period 260 878 4 029 39 301 67 099
Additions 67 614 - 1 927 9 162
Depreciation (refer note 4) (40 886) - (4 521) (9 876)
Disposals (575) - (320) (12)
Proceeds (106) - (60) (46)
(Loss) / profit on disposal (refer note 4) (469) - (260) 35
Transfer from / (to) assets classified as held-for-sale (refer note 20) (766) - - (118)
Translation of foreign entity (8 532) - (4 039) (2 002)
Carrying amount at the end of the period 277 733 4 029 32 348 64 253
Group 2009
Carrying amount at the beginning of the period 204 337 4 029 38 278 37 039
Additions 97 754 - 5 214 38 343
Depreciation (refer note 4) (39 633) - (4 934) (8 793)
Disposals (1 074) - (16) (226)
Proceeds (3 052) - - (2 044)
Profit / (loss) on disposal (refer note 4) 1 978 - (16) 1 818
Transfer from / (to) assets classified as held-for-sale (refer note 20) 7 - - 194
Translation of foreign entity (512) - 758 542
Carrying amount at the end of the period 260 878 4 029 39 301 67 099
Company 2010
Carrying amount at the beginning of the period 410 - - 200
Additions 1 166 - 1 022 -
Depreciation (refer note 4) (454) - (12) (66)
Transfer to Investment Property (refer note 8) - - - -
Transfers between Companies 5 352 - 133 128
Carrying amount at the end of the period 6 474 - 1 143 262
Company 2009
Carrying amount at the beginning of the period 474 - - 239
Additions 97 - - -
Depreciation (refer note 4) (160) - - (39)
Carrying amount at the end of the period 410 - - 200
Capitalised leased assets with a net book value of R2,9 million (2009: R4,0 million) are encumbered in terms of finance lease obligations(refer note 24).
A register of land and buildings is available for inspection at the registered office of the Company.
89
NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2010 CONTINUED
PLANT AND COMPUTER FURNITURE LEASEHOLD LEASEHOLD LEASEHOLD CAPITAL WORKEQUIPMENT EQUIPMENT AND FIT TINGS IMPROVEMENTS IMPROVEMENTS IMPROVEMENTS - IN PROGRESS
BUILDINGS AND TELEPHONE LINES ROADSUTILITIES AND FENCES
R'000 R'000 R'000 R'000 R'000 R'000 R'000
102 911 6 148 1 822 20 390 559 9 314 9 305
9 010 5 796 216 4 718 52 2 454 34 280
(17 776) (4 208) (418) (3 492) (81) (514) -
(209) (30) (4) - - - -
- - - - - - -
(209) (30) (4) - - - -
(648) - - - - - -
(1 100) (110) (156) - - - (1 124)
92 187 7 596 1 459 21 616 530 11 254 42 461
84 260 4 741 2 046 18 673 380 9 019 5 871
37 613 4 426 256 5 379 245 749 5 528
(18 206) (3 025) (492) (3 662) (66) (454) -
(816) (12) (4) - - - -
(1 008) - - - - - -
192 (12) (4) - - - -
(187) - - - - - -
247 18 16 - - - (2 094)
102 911 6 148 1 822 20 390 559 9 314 9 305
- 43 162 5 - - -
- 25 3 115 - - -
(37) (69) (43) (154) - (72) -
- - - - - - -
322 53 70 2 998 - 1 647 -
285 52 192 2 964 - 1 575 -
- 97 137 - - - -
- 8 65 24 - - -
- (62) (40) (19) - - -
- 43 162 5 - - -
90
NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2010 CONTINUED
COST ACCUMULATED CARRYING
DEPRECIATION AND AMOUNT
IMPAIRMENT LOSSES
R'000 R'000 R'000
9. PROPERTY, PLANT AND EQUIPMENT (continued)
Group 2010
Land 4 029 - 4 029
Buildings and utilities 73 855 (41 507) 32 348
Motor vehicles 136 375 (72 122) 64 253
Plant and equipment 279 918 (187 731) 92 187
Computer equipment 25 029 (17 434) 7 596
Furniture and fittings 8 920 (7 461) 1 459
Leasehold improvements - buildings and utilities 31 944 (10 328) 21 616
Leasehold improvements - telephone lines and fences 845 (315) 530
Leasehold improvements - roads 13 941 (2 687) 11 254
Capital work in progress 42 461 - 42 461
Total 617 317 (339 585) 277 733
Group - 2009
Land 4 029 - 4 029
Buildings and utilities 77 227 (37 926) 39 301
Motor vehicles 131 193 (64 094) 67 099
Plant and equipment 274 946 (172 036) 102 911
Computer equipment 23 019 (16 871) 6 148
Furniture and fittings 8 944 (7 122) 1 822
Leasehold improvements - buildings and utilities 27 226 (6 836) 20 390
Leasehold improvements - telephone lines and fences 793 (234) 559
Leasehold improvements - roads 11 487 (2 173) 9 314
Capital work in progress 9 305 - 9 305
Total 568 170 (307 292) 260 878
Company - 2010
Buildings and utilities 1 161 (18) 1 143
Motor vehicles 727 (465) 262
Plant and equipment 507 (222) 285
Computer equipment 1 164 (1 112) 52
Furniture and fittings 1 050 (857) 192
Leasehold improvements - buildings and utilities 3 948 (984) 2 964
Leasehold improvements - roads 1 804 (229) 1 575
Total 10 361 (3 887) 6 474
Company - 2009
Motor vehicles 280 (80) 200
Computer equipment 1 006 (963) 43
Furniture and fittings 748 (586) 162
Leasehold improvements - buildings and utilities 24 (19) 5
Total 2 058 (1 648) 410
91
NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2010 CONTINUED
GROUP COMPANY
31 MARCH 2010 31 MARCH 2009 31 MARCH 2010 31 MARCH 2009
R'000 R'000 R'000 R'000
10. INTANGIBLE ASSETS
Movement reconciliation
Computer software l icences
Carrying amount at the beginning of the period 1 290 1 661 - -
Cost 5 739 4 921 - -
Accumulated amortisation (4 449) (3 260) - -
Additions 1 236 815 - -
Transfer between Companies - - 9 -
Amortisation (refer note 4) (734) (1 189) (3) -
Translation of foreign entity (10) 3 - -
Carrying amount at the end of the period 1 782 1 290 6 -
Cost 6 965 5 739 18 -
Accumulated amortisation (5 183) (4 449) (12) -
Amortisation is included in other operating expenses
11. BIOLOGICAL ASSETS - PLANTATIONS
Carrying amount at the beginning of the period 3 218 275 2 460 359 - -
(Loss) / gain arising from changes in fair value less point of sale costs due to:
Physical statistics 207 191 (232 842) - -
Prices (390 776) 1 829 782 - -
Discount rate (117 276) - - -
Costs (41 699) (839 024) - -
Net (decrease) / increase for the period (refer note 4) (342 560) 757 916 - -
Carrying amount at the end of the period 2 875 715 3 218 275 - -
In the prior year, the fair value model, methodology and assumptions utilised have been revised to obtain a more accurate valuationin terms of species, volumes, income, expenses and prices. The change has been applied prospectively (refer note 30).
The fair value of the biological assets are calculated by using the present value of projected future cash flows after taking inconsideration the following assumptions:
❈ The market prices per cubic metre based on market expectations per log class
❈ Activity costs from the operating statements of plantations for the past period
❈ Plantation areas of 140,046 ha (2009: 140, 877 ha) for the Group and 0 ha (2009: 0 ha) for the Company
❈ During the year the Group harvested approximately 862 190 m3 of wood (2009: 1 494 899m3), which had a fair value less coststo sell of R364 per cubic metre at the date of harvest (2009: R477 per cubic metre)
❈ Physical statistics in accordance with the plantation management system. These statistics are affected by the impact of fires,enumeration updates and product optimization
❈ Discount rate determined based on a current market-based rate, which is a pre-tax real discount rate. Rate used: KLF: 12,8% (2009: 12,3%), IFLOMA: 13,9% (2009: 12,3%).
The valuations were performed by an independent external forestry economist.
92
NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2010 CONTINUED
GROUP COMPANY
31 MARCH 2010 31 MARCH 2009 31 MARCH 2010 31 MARCH 2009
R'000 R'000 R'000 R'000
12. INVESTMENTS IN SUBSIDIARIES
Shares at cost less amounts written-off - - 0 0
Amounts owing by subsidiaries - - 545 704 368 604
Sub total - - 545 704 368 605
Amounts owing to subsidiaries - - (0) (0)
Net interest in subsidiary companies - - 545 704 368 604
CARRYING AMOUNT OFHOLDING COMPANY INTEREST
ISSUED EFFECTIVE SHARES AT NET INDEB-
SHARE PERCENTAGE COST TEDNESS
CAPITAL HELD R'000 R'000
Unlisted - 2010
Mountains to Oceans Forestry (Pty) Ltd 100 100 0 1 205
Komatiland Forests (Pty) Ltd 120 100 0 544 499
Total 0 545 704
Unlisted - 2009
Mountains to Oceans Forestry (Pty) Ltd 100 100 0 947
Komatiland Forests (Pty) Ltd 120 100 0 367 657
Total 0 368 604
All the above companies are wholly-owned by SAFCOL and are incorporated in the Republic of South Africa.
Komatiland Forests (Pty) Ltd ("KLF"): The loan consists of a non-interest bearing establishment loan granted to KLF to the amountof R294,0 million (2009: R294,0 million) and an interest bearing loan to the amount of R250,5 million to KLF (2009: R73,6 million). Both loans are unsecured and no terms of repayment have been set. Interest is charged at prime rate less 6,5%for both periods under review.
Mountains to Oceans Forestry (Pty) Ltd ("Mountains"): The loan consists of a non-interest bearing establishment loan from Mountainsto the amount of R0,02 million (2009: R0,02 million) and an interest bearing loan to the amount of R1,2 million to Mountains (2009: R0,9 million). Both loans are unsecured and no terms of repayment have been set. Interest is charged at prime rate for bothperiods under review.
93
NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2010 CONTINUED
GROUP COMPANY
31 MARCH 2010 31 MARCH 2009 31 MARCH 2010 31 MARCH 2009
R'000 R'000 R'000 R'000
13. INVESTMENTS IN ASSOCIATES
Cost of investment 61 274 61 274 61 274 61 274
Repayment of shareholder loan (30 958) (30 958) (30 958) (30 958)
Impairment of investment (2 357) (2 357) (4 520) (4 520)
Share of profit since acquisition, net of dividends received 260 816 249 915 - -
Share of other comprehensive income (10) - - -
Movement in loans and impairment relating to disposal (4 202) (4 202) (2 039) (2 039)
Disposed (46 050) (46 050) (8 261) (8 261)
Proceeds (40 510) (40 510) (40 510) (40 510)
(Loss) / profit on disposal of associates (5 540) (5 540) 32 249 32 249
Transfer to assets classified as held-for-sale (refer note 20) (238 513) - (15 496) -
TOTAL - 227 622 - 15 496
SIYAQHUBEKA SINGISI FOREST MTO AMATHOLE TOTAL
FORESTS PRODUCTS FORESTRY FORESTRY
(PT Y ) LTD (PT Y ) LTD (PT Y ) LTD COMPANY
(PT Y ) LTD
2010
Shareholding and voting power 25% 16% 16% 16% -
Summarised financial
information of associates R'000 R'000 R'000 R'000 R'000
Total assets 618 110 835 498 541 519 42 874 2 038 001
Total liabilities 156 765 441 979 192 237 24 483 815 464
Net assets including other
comprehensive income 461 345 393 519 349 282 18 391 1 222 537
Other comprehensive income - (61) - - -
Net assets excluding other comprehensive income 461 345 393 580 349 282 18 391 1 222 537
Group's share of associates' net assets excluding other comprehensive income 115 336 62 973 55 885 2 943 237 137
Loans - - 2 040 1 703 3 743
Group's share of associates' other comprehensive income - (10) - - (10)
Impairment attributable to reserves - - - (2 357) (2 357)
115 336 62 963 57 925 2 289 238 513
Revenue 150 530 481 227 347 771 41 709 1 021 237
Profit / (loss) for the period 46 291 (22 344) 19 022 (431) 42 538
Group's share of associates' profit for the period 11 533 (3 575) 3 012 (69) 10 901
Group's share of associates' comprehensive income for the period - (10) - - (10)
94
NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2010 CONTINUED
13. INVESTMENTS IN ASSOCIATES (continued)
SIYAQHUBEKA SINGISI FOREST MTO AMATHOLE TOTAL
FORESTS PRODUCTS FORESTRY FORESTRY
(PT Y ) LTD (PT Y ) LTD (PT Y ) LTD COMPANY
(PT Y ) LTD
2009
Shareholding and voting power 25% 16% 16% 16% -
Summarised financial information of associates R'000 R'000 R'000 R'000 R'000
Total assets 566 505 870 962 579 546 43 285 2 060 297
Total liabilities 151 292 455 038 249 086 24 463 879 879
Net assets including other comprehensive income 415 213 415 924 330 460 18 822 1 180 418
Other comprehensive income - - - - -
Net assets excluding other comprehensive income 415 213 415 924 330 460 18 822 1 180 418
Group's share of associates' net assets excluding other comprehensive income 103 803 66 548 52 874 3 012 226 237
Loans - - 2 040 1 703 3 743
Impairment attributable to reserves - - - (2 357) (2 357)
103 803 66 548 54 914 2 358 227 623
Revenue 131 799 558 038 532 074 36 277 1 258 188
Profit for the period 139 684 46 064 80 163 9 684 275 595
Group's share of associates'profit for the period 35 252 3 124 12 912 1 549 52 838
Group's share of associates' comprehensive income for the period - - - - -
SAFCOL exercises significant influence over these companies which is evident in the following ways:
❈ Representation on the Board of Directors
❈ Participation in policy-making processes, including participation in decisions about dividends or other distributions
❈ Provision of essential technical information.
Associates were equity accounted based on the following:
❈ The draft financial statements as at 31 December 2009 were used in respect of Siyaqhubeka Forests (Pty) Ltd and Singisi ForestProducts (Pty) Ltd (Financial year-end: 31 December 2009)
❈ The management accounts as at 31 March 2010 were used for Amathole Forestry Company (Financial year-end: 30 September2010)
❈ The draft financial statements as at 28 February 2010 were used for MTO Forestry (Pty) Ltd (Financial year-end: 28 February2010).
A reversal of impairment amounting to R0 (2009: R809 thousand) was recognised as the recoverable amount of the investment inAmathole Forestry Company (Pty) Ltd exceeded its carrying value.
Subsequent to year-end, SAFCOL has paid R10,3 million for the rights in order to retain the 16% in Singisi Forest Products (Pty) Ltd.
No significant transactions occurred between the dates of the associates' respective financial reporting dates and SAFCOL's reportingdate.
The investment in associates have been equity accounted until 31 March 2010 and re-classified as Assets classified as held-for-salein accordance with IFRS 5 'Non-current assets held for sale and discontinued operations' on 31 March 2010. Refer to note 20.
95
NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2010 CONTINUED
14. FINANCIAL INSTRUMENTS BY CATEGORY
The accounting policies for financial instruments have been applied to the items below:
GROUP
LOANS AND AVAILABLE- TOTAL
RECEIVABLES FOR-SALE
R'000 R'000 R'000
31 March 2010
Assets as per balance sheet
Available-for-sale financial assets (note 16) - 5 745 5 745
Trade and other receivables (note 18) 89 889 - 89 889
Cash and cash equivalents (note 19) 126 394 - 126 394
Total 216 283 5 745 222 028
LIABILITIES OTHER TOTAL
AT FAIR VALUE FINANCIAL
THROUGH PROFIT LIABILITIES
AND LOSS
R'000 R'000 R'000
Liabilities as per balance sheet
Borrowings (note 24) - 1 467 1 467
Trade and other payables (note 25) 69 835 - 69 835
Total 69 835 1 467 71 302
LOANS AND AVAILABLE- TOTAL
RECEIVABLES FOR-SALE
R'000 R'000 R'000
31 March 2009
Assets as per balance sheet
Loans and receivables (note 15) 6 021 - 6 021
Available-for-sale financial assets (note 16) - 4 857 4 857
Trade and other receivables (note 18) 185 827 - 185 827
Cash and cash equivalents (note 19) 295 941 - 295 941
Total 487 789 4 857 492 646
LIABILITIES OTHER TOTAL
AT FAIR VALUE FINANCIAL
THROUGH PROFIT LIABILITIES
AND LOSS
R'000 R'000 R'000
Liabilities as per balance sheet
Borrowings (note 24) - 3 012 3 012
Trade and other payables (note 25) 75 106 - 75 106
Total 75 106 3 012 78 118
96
NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2010 CONTINUED
14. FINANCIAL INSTRUMENTS BY CATEGORY (continued)
COMPANY
LOANS AND AVAILABLE- TOTAL
RECEIVABLES FOR-SALE
R'000 R'000 R'000
31 March 2010
Assets as per balance sheet
Loans and receivables (note 15) 330 - 330
Available-for-sale financial assets (note 16) - 5 494 5 494
Investments in subsidiaries (note 12) - 545 704 545 704
Trade and other receivables (note 18) 9 509 - 9 509
Cash and cash equivalents (note 19) 113 227 - 113 227
Total 123 066 551 198 674 265
LIABILITIES OTHER TOTAL
AT FAIR VALUE FINANCIAL
THROUGH PROFIT LIABILITIES
AND LOSS
R'000 R'000 R'000
Liabilities as per balance sheet
Trade and other payables (note 25) 12 401 - 12 401
Total 12 401 - 12 401
LOANS AND AVAILABLE- TOTAL
RECEIVABLES FOR-SALE
R'000 R'000 R'000
31 March 2009
Assets as per balance sheet
Loans and receivables (note 15) 6 021 - 6 021
Available-for-sale financial assets (note 16) - 4 606 4 606
Investments in subsidiaries (note 12) - 368 605 368 605
Trade and other receivables (note 18) 7 671 - 7 671
Cash and cash equivalents (note 19) 288 455 - 288 455
Total 302 146 373 211 675 358
LIABILITIES OTHER TOTAL
AT FAIR VALUE FINANCIAL
THROUGH PROFIT LIABILITIES
AND LOSS
R'000 R'000 R'000
Liabilities as per balance sheet
Trade and other payables (note 25) 8 679 - 8 679
Total 8 679 - 8 679
97
NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2010 CONTINUED
GROUP COMPANY
31 MARCH 2010 31 MARCH 2009 31 MARCH 2010 31 MARCH 2009
R'000 R'000 R'000 R'000
15. LOANS AND RECEIVABLES
Payments - 6 150 330 6 150
- within one year - 6 150 - 6 150
- in the second to fifth years inclusive - - 330 -
Less unearned interest income - (129) - (129)
- within one year - (129) - (129)
Present value of payments - 6 021 - 6 021
- within one year - 6 021 - 6 021
- in the second to fifth years inclusive - - 330 -
Non-current loans and receivables - - 330 -
Current loans and receivables - 6 021 - 6 021
- 6 021 330 6 021
The final payment for the deferred claim settlement receivable from York Timbers Ltd was received on 01 July 2009.
Amounts receivable from IFLOMA, a subsidiary of Komatiland Forests (Pty) Ltd, pertaining to annual management fees. This is aninterest free loan with no fixed repayment terms.
16. AVAILABLE-FOR-SALE FINANCIAL ASSETS
Beginning of the year 4 857 4 385 4 606 4 134
Movement for the year 888 472 888 472
End of the year 5 745 4 857 5 494 4 606
Non-current portion 5 745 4 857 5 494 4 606
Available-for-sale financial assets include the following:
Unlisted
Timber Workers Co-operative Insurance Brokers 0 0 0 0
Transvaal Wattle Growers Co-op Agricultural Company Limited 1 1 1 1
NTE investment 251 251 - -
Risk finance policy - Guardian National 5 493 4 605 5 493 4 605
KAAP AGRI 1 - 1 -
5 745 4 857 5 494 4 606
The Directors value all unlisted investments at cost.
None of the financial assets is either past due or impaired.
17. INVENTORIES
At cost 78 852 58 264 246 65
Raw materials 4 577 5 287 - -
Work in progress 2 505 3 386 - -
Finished goods 54 177 35 118 47 -
Consumable stores 17 593 14 473 199 65
At net realisable value
Finished goods 3 421 10 654 - -
At fair value
Agricultural produce - saw logs 58 189 118 360 - -
Total 140 462 187 278 246 65
98
NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2010 CONTINUED
GROUP COMPANY
31 MARCH 2010 31 MARCH 2009 31 MARCH 2010 31 MARCH 2009
R'000 R'000 R'000 R'000
18. TRADE AND OTHER RECEIVABLES
Trade accounts receivable 82 727 179 071 1 469 2 934
Provision for impairment of trade receivables (7 354) (7 553) (2) -
Other receivables 14 516 14 309 8 042 4 737
Trade and other receivables 89 889 185 827 9 509 7 671
The fair values of trade and other receivables are as follows:
Trade and other receivables 89 889 185 827 9 509 7 671
89 889 185 827 9 509 7 671
As at 31 March 2010, trade receivables of the Group of R53,0 million (2009: R125,7 million) and of the Company of R1,5 million (2009:R2,9 million) were fully performing. Other receivables of the Group of R12,3 million (2009: R12,5 million) and of the Company of R6,9 million (2009: R4,7 million) were fully performing.
The average credit period for the Group is 109 (2009: 69) days. Interest is charged on trade receivables that default. The Group hasprovided for the majority of receivables over 150 days based on past experience, which indicates that receivables that are past duebeyond 150 days are generally not recoverable. Some past due receivables older than 150 days however have not been provided fordue to specific conditions in regards to the payment of the debt. Trade receivables between 60 days and 120 days are provided forbased on estimated irrecoverable amounts.
Included in the Group's trade receivables are trade receivables with a carrying amount of R24,7 million (2009: R47,6 million) andtrade receivables of R1,1 million (2009: R0,0 million) for the Company which are past due at the reporting date for which the Grouphas not provided as there has not been a significant change in the credit quality and the amounts are still considered recoverable.The ageing of the trade receivables past due but not impaired is as follows:
Ageing of past due but not impaired
Trade receivables 22 662 47 337 5 -
31 - 60 Days 16 110 32 913 - -
60 - 90 Days 2 964 12 207 - -
90 - 120 Days 355 462 - -
120 - 150 Days 865 (21) - -
150+ Days 2 368 1 776 5 -
Other receivables 2 007 297 1 104 -
31 - 60 Days 412 215 - -
60 - 90 Days 429 81 - -
90 - 120 Days (27) 2 - -
120 - 150 Days 5 8 - -
150+ Days 1 188 (9) 1 104 -
Total 24 669 47 634 1 109 -
Included in the Group and Company's trade and other receivables are receivables with a carrying amount of R7,4 million (2009: R ,6 million) and R 0,0 million (2009: R0,0 million) which are impaired and provided for. These relate to a number of independentcustomers which are in difficult economic situations. The ageing of the trade receivables and other receivables that are impairedare as follows:
Ageing of impaired receivables
Trade receivables 7 110 5 998 2 -
60 - 90 Days - 9 - -
90 - 120 Days - 86 - -
120 - 150 Days 1 243 1 956 - -
150+ Days 5 867 3 947 2 -
Other receivables 244 1 555 - -
90 - 120 Days - 6 - -
120 - 150 Days 237 17 - -
150+ Days 7 1 532 - -
Total 7 354 7 553 2 -
The credit quality of trade and other receivables that are neither past due nor impaired can be assessed by reference to historicalinformation about the counterparty default rates. Major trade receivables are insured based on the external credit ratings of thespecific counterparties. Internal credit checks are performed for other receivables.
99
NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2010 CONTINUED
GROUP COMPANY
31 MARCH 2010 31 MARCH 2009 31 MARCH 2010 31 MARCH 2009
R'000 R'000 R'000 R'000
18. TRADE AND OTHER RECEIVABLES (continued)
Counterparties without external credit rating
Fully per forming trade receivables
Customers with no default history 52 955 125 736 1 462 2 934
Total 52 955 125 736 1 462 2 934
Movement in the provision for impairment of trade receivables
Balance at beginning of the year 7 553 8 804 - 3 085
Impairment losses recognised on receivables 1 411 2 645 2 -
Amounts written off as uncollectible (688) (3 401) - (3 085)
Amounts recovered during the year (108) (495) - -
Movement due to exchange rate differences (814) - - -
Balance at the end of the year 7 354 7 553 2 -
In determining the recoverability of trade and other receivables, the Group considers any change in the credit quality of trade andother receivables from the date the credit was initially granted up to the reporting date. The concentration of the credit risk is limiteddue to the customer base being large. Accordingly, the Directors believe that there is no further credit provision required in excessof the provision for impairment of trade receivables.
All round wood and lumber receivables are secured by either bank guarantees, credit insurance (80%) or cash prepayments. Smallsundry receivables are either secured by credit insurance or deposits. The carrying value of receivables approximates the fair value.In circumstances where the carrying value is less than the fair value, receivables are accordingly impaired to reflect that status.
The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned above.
19. CASH AND CASH EQUIVALENTS
Current account 14 294 34 441 1 127 26 955
Short-term deposits 112 100 261 500 112 100 261 500
Total 126 394 295 941 113 227 288 455
100
NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2010 CONTINUED
GROUP COMPANY
31 MARCH 2010 31 MARCH 2009 31 MARCH 2010 31 MARCH 2009
R'000 R'000 R'000 R'000
20. ASSETS CLASSIFIED AS HELD-FOR-SALE
Movement reconciliation:
Assets classified as held-for-sale 239 279 - - -
Carrying amount at the beginning of the period - 281 - -
Transferred from investments in associates (refer note 13) 238 513 - 15 496 -
Transferred from / (to) property, plant and equipment (refer note 9) 766 (7) - -
Disposed during the period - (275) - -
Proceeds - (529) - -
Surplus on disposal - 254 - -
Carrying amount at the end of the year 239 279 - 15 496 -
Assets held-for-sale consist of the following:
Property, plant and equipment
Investment in associates 238 513 - 15 496 -
Motor vehicles 118 - - -
Plant and equipment 648 - - -
Total 239 279 - 15 496 -
Property, plant and equipment classified as held-for-sale relate to assets that were not in use in the current year and will be disposedwithin the next 12 months.
Investment in associates is classified as held-for-sale as Management is committed to a plan to sell the interest in the associateswithin the next 12 months. Refer to note 13 for detail.
The sale is highly probable within the next 12 months based on a directive received from the Shareholder to dispose these assets.The Shareholder have indicated in their Strategic Plan their intention to dispose the minority interests with set deadlines.
Management do not have significant influence although SAFCOL has representations on the various Board of Directors of theassociates.
21. SHARE CAPITAL
Authorised
1 500 000 000 Ordinary shares of R1 each 1 500 000 1 500 000 1 500 000 1 500 000
Issued
318 013 254 Ordinary shares of R1 each 318 013 318 013 318 013 318 013
22. NON-DISTRIBUTABLE RESERVES
Capital profit reserve 64 374 64 374 64 374 64 374
Capital surplus on sawmill insurance claims 37 061 37 061 37 061 37 061
Adjustment to fixed asset opening balances (669) (669) (669) (669)
Cancellation of provision for transfer cost on transfer of land 27 982 27 982 27 982 27 982
Retirement fund reserve 64 000 64 000 64 000 64 000
Lump-sum payment to retirement funds 20 000 20 000 20 000 20 000
Pension fund shortfall funded by Government 44 000 44 000 44 000 44 000
Revaluation reserve (604) (604) (1 552) (1 553)
Adjustment to net asset valuation upon corporatisation (604) (604) (1 553) (1 553)
Foreign currency translation reserve (29 291) (7 891) - -
Total non-distributable reserves 98 479 119 879 126 821 126 821
101
NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2010 CONTINUED
GROUP COMPANY
31 MARCH 2010 31 MARCH 2009 31 MARCH 2010 31 MARCH 2009
R'000 R'000 R'000 R'000
23. DEFERRED TAXATION
Reconciliation of opening balance to closingbalance of deferred tax liability / (asset):
Opening balance 963 743 736 950 (888) (1 506)
Reversing differences for prior period adjustments 3 036 2 869 1 276 529
Reversing differences due to intergroup transfers of assets - - 154 -
Originating / (reversing) differences on assets 1 513 8 574 (222) 437
Reversing differences on provisions (3 523) (4 483) (62) (134)
(Originating) / reversing differences on allowances (9 220) 1 000 11 (214)
Reversing differences on finance leases 16 87 - -
(Reversing) / originating differences due to fair value adjustments to biological assets (108 322) 217 572 - -
(Reversing) / originating differences on pension and provident fund assets (3 699) 1 174 (132) -
Closing balance 843 545 963 743 137 (888)
Deferred tax l iability 843 646 964 718 137 -
Deferred tax asset (101) (975) - (888)
Deferred taxation consists of the following temporary differences:
Capital allowances 839 826 937 781 14 507
Biological assets 792 563 891 139 - -
Property, plant and equipment 47 268 46 644 14 507
Minor assets (6) (2) - -
Provisions (8 165) (11 293) (212) (1 440)
Finance lease liability (141) (157) - -
Other allowances (4 587) 5 139 38 45
Biological assets - agricultural produce: saw logs 7 652 17 311 - -
Pension and provident fund assets 8 960 14 962 297 -
Total 843 545 963 743 137 (888)
Deferred taxation charge / (credit) relating to Income Statement 843 545 963 743 137 (888)
Total 843 545 963 743 137 (888)
Deferred taxation assets are recognised for tax loss carry-forwards to the extent that the realisation of the related tax benefit throughfuture taxable profits is probable.
102
NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2010 CONTINUED
GROUP COMPANY
31 MARCH 2010 31 MARCH 2009 31 MARCH 2010 31 MARCH 2009
R'000 R'000 R'000 R'000
24. BORROWINGS
Obligations under finance leases
Minimum lease payments 1 467 3 012 - -
Within one year 1 354 1 553 - -
In the second to fifth years inclusive 113 1 459 - -
Finance charges 1 525 264 - -
Within one year 1 199 - -
In the second to fifth years inclusive 1 524 65 - -
Total repayments 2 992 3 276 - -
Within one year 1 355 1 752 - -
In the second to fifth years inclusive 1 637 1 524 - -
Non-current borrowings 113 1 459 - -
Current borrowings 1 354 1 553 - -
1 467 3 012 - -
Finance lease obligations are capitalised between 1,5% and 2,75% less than prime rate. The effective interest rates prevailing atyear-end ranged between 8,66% and 11,55% (2009: 8,66% - 11,55%). The lease terms are 5 years with between 1 and 2 yearsremaining. These liabilities are secured by installment lease agreements over assets with a carrying value of R2,9 million (2009: R4,0 million) - refer note 9. Monthly repayments are R146 thousand (2009: R146 thousand).
25. TRADE AND OTHER PAYABLES
Trade accounts payable 37 285 43 506 1 535 677
Accruals 15 320 19 351 2 603 6 895
Other payables 17 230 12 249 8 263 1 107
Total 69 835 75 106 12 401 8 679
103
NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2010 CONTINUED
GROUP COMPANY
31 MARCH 2010 31 MARCH 2009 31 MARCH 2010 31 MARCH 2009
R'000 R'000 R'000 R'000
26. PROVISIONS
Employee bonus - 24 066 - 4 609
Balance at the beginning of the period 24 066 11 865 4 609 4 197
Provisions made during the period - 24 066 - 4 609
Provisions utilised during the period (15 723) (10 304) (4 609) (4 197)
Provision transferred from / (to) (3 839) - - -
Provisions reversed during the period (4 503) (1 561) - -
Product claims 520 583 - -
Balance at the beginning of the period 583 1 168 - -
Provisions made during the period 7 069 2 310 - -
Provisions reversed during the period - (2 624) - -
Provisions utilised during the period (7 132) (271) - -
Land lease 2 453 2 172 1 124 843
Balance at the beginning of the period 2 172 2 174 843 845
Provisions made during the period 281 14 921 281 14 921
Provisions reversed during the period - (14 923) - (14 923)
Post retirement medical aid - - - -
Balance at the beginning of the period - 3 839 - 684
Provisions reversed during the period - (661) - (130)
Provisions utilised during the period - (3 178) - (554)
Balance at the end of the period 2 973 26 821 1 124 5 452
Employee bonusEmployee bonus calculations are prescribed in the relevant conditions of employment or performance bonus scheme as approvedby the Board of Directors.
Product claimsProvision for product returns based on terms and conditions of sale.
Land leaseProvision of land which SAFCOL leases from the Department of Agriculture, Forestry and Fisheries ("DAFF"). The payment dates ofthis provision is uncertain.
Post retirement medical aidActuarial valuation of future liability pertaining to a 50% company contribution to medical aid of employees retired within SAFCOL' s employment. Payment date for this provision occurred during 2009.
104
NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2010 CONTINUED
GROUP COMPANY
31 MARCH 2010 31 MARCH 2009 31 MARCH 2010 31 MARCH 2009
R'000 R'000 R'000 R'000
27. CAPITAL COMMITMENTS
Capital expenditure
Authorised and contracted 32 223 6 728 - -
This capital expenditure will be financed from cash flows generated from operations, or external financing if required.
28. RELATED PARTIES
Identity of related parties
SAFCOL is the holding company of the Group and is owned 100% (2009: 100%) by the Government of the Republic of South Africa.
All other State Owned Entities listed in Schedules 2 and 3 of the Public Finance Management Act are related parties of SAFCOL andits subsidiary companies.
The subsidiaries of the Group are identified in note 12 and the associate companies in note 13.
The Directors are listed in the Report of the Directors.
No material transactions were conducted between the Group and any of the Group's Directors or key personnel.
The Group does not provide any services to related parties for no consideration.
Material related party transactions
Details of the significant transactions with related parties are summarised below, all of which were transacted at arms length:
(a) Loans to related parties - Non-interest bearing
Subsidiaries (note 12)
Beginning of the year - - 294 042 294 042
End of the year - - 294 042 294 042
Associates (note 13)
Beginning of the year 3 210 3 210 3 210 3 210
End of the year 3 210 3 210 3 210 3 210
(b) Loans to related parties - Interest bearing
Subsidiaries (note 12)
Beginning of the year - - 74 563 745
Loans advanced during the year - - 160 904 70 809
Interest charged - - 16 196 3 009
End of the year - - 251 663 74 563
Associates (note 13)
Beginning of the year 533 5 533 533 5 533
Loans repaid during the year (16 295) (5 633) (16 295) (5 633)
Interest charged 16 295 633 16 295 633
End of the year 533 533 533 533
105
NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2010 CONTINUED
GROUP COMPANY
31 MARCH 2010 31 MARCH 2009 31 MARCH 2010 31 MARCH 2009
R'000 R'000 R'000 R'000
28. RELATED PARTIES (continued)
(c) Loans from related parties - Interest bearing
Subsidiaries (note 12)
Beginning of the year - - - (70 797)
Loans repaid during the year - - - 72 866
Interest charged - - - (2 069)
End of the year - - - -
(d) Loans from related parties - Non-interest bearing
Subsidiaries (note 12)
Beginning of the year - - (0) (18)
Loans repaid during the year - - - 18
End of the year - - (0) (0)
(e) Sales of goods and services
Services
Subsidiaries - - (13 455) (9 600)
Associates (100) (100) (100) (100)
(100) (100) (13 555) (9 700)
Sale of goods
Associates (305) (186) - -
Other State Owned Entities (2 870) (1 847) - -
(3 176) (2 033) - -
Operating lease rentals received
Subsidiaries - - - (15 428)
- - - (15 428)
Services are rendered and goods sold based on the price lists in force and terms that would be available to third parties.
(f ) Purchases of goods and services
Services
Associates 2 3 - -
Other State Owned Entities 8 628 7 649 154 -
8 630 7 652 154 -
Services are received from related parties on normal commercial terms and conditions.
(g) Year-end balances arising from sales / purchases of goods
Receivables from related parties:
Subsidiaries - - 1 469 2 449
Other State Owned Entities 184 49 - -
184 49 1 469 2 449
Payables to related parties:
Subsidiaries - - (1 247) (214)
Associates - (92) - -
Other State Owned Entities (1 333) (760) - -
(h) Key management compensation (1 333) (852) (1 247) (214)
Salaries and other short-term employee benefits 16 701 20 752 8 207 14 194
106
NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2010 CONTINUED
GROUP COMPANY
31 MARCH 2010 31 MARCH 2009 31 MARCH 2010 31 MARCH 2009
R'000 R'000 R'000 R'000
29. PRIOR PERIOD ERRORS AND CHANGES IN ESTIMATES
Prior period errors
An error was made in prior years in theclassification of Investment Property asProperty, plant and equipment.
The effect of the restatement on the financial statements is summarised below:
Income statement
None - - - -
Balance sheet - - - -
Decrease in property, plant and equipment cost - (189) - (189)
Decrease in property, plant and equipment accumulated depreciation - 46 - 46
Increase in Investment Property - 143 - 143
Changes in accounting estimates for the valuation of biological assetsDuring the prior year the fair value model, methodology and assumptions utilised was revised. This was performed to obtain a moreaccurate valuation in terms of species, volumes, income, expenses and prices.
The changes to the model are summarised as follows:
❈ Volume and prices were split per the group working circle (pine saw logs, pine fibre, gum saw logs, gum fibre, gum poles) whilein prior years all crops were treated as pine saw logs in regards to volumes and silviculture operations
❈ Overheads were split into fixed and variable (only road maintenance) which was not performed in the years before 2009
❈ Research cost were excluded while overheads costs were included
❈ The use of a mid-year discount which was not included in the years before 2009.
The amendments to the model represented a change in estimate as the change did not alter the valuation policy and a fair valuewas still calculated based on the discounted cash flow method using a pre-tax discount rate. The change related to new informationavailable in the prior year and better reflected the economic benefits that are expected to flow from the use of the asset. If theplantations were valued based on 2008's assumptions, this would have resulted in a total fair value of R3,3 million as at 31 March2009 compared to R3,2 million per the new methodology (refer note 11). The change was applied prospectively.
The income statement and balance sheet impact are reflected below:
Loss arising from changes in fair value of biological assets: - (70 938) - -
Decrease in income tax expense (movement in Deferred tax) - 19 863 - -
Decrease in profit - (51 075) - -
Decrease in biological assets - (70 938) - -
Decrease in Deferred Tax liability - 19 863 - -
Decrease in equity - (51 075) - -
107
NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2010 CONTINUED
30. RISK MANAGEMENT
The Group is exposed to various financial risks due to the nature of its activities and the use of various financial instruments. The
Board has the overall responsibility for the establishment and oversight of the Group's risk management framework.
Capital Risk Management
The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern. The Group's overall
strategy is to position itself as an attractive business partner by continuous management of the Group's balance sheet, preserve
cash and seek alternative funding alternatives.
The management of financial risks takes place within SAFCOL's centralised treasury and risk management functions. The objective
is to ensure that the Group is not unduly exposed to financial risks and is governed by a Treasury Mandate.
The capital structure of the Group consists of debt, which includes short and long-term borrowings included in note 24, and equity
attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in notes 21 and
22. The Group did not utilise any additional gearing to fund operational and capital requirements during the period under review.
As a contingency plan, in order to manage the liquidity of the group, a facility (combination of an asset-based finance and multi-
option facility) has been secured with a financial institution.
No dividends have been declared in the current financial year (2009: R 0).
Risk Management Policies
Risk management policies has been compiled and approved by the Board. The Group's risk management policies have been
established to identify and analyse the risks, to set appropriate risk limits and controls, and to monitor the progress made in
addressing those risks. The internal audit conducts adhoc reviews to assess compliance with risk management policies.
Gearing Ratio
The Finance, Investment and Transaction Committee reviews the Group's capital structure on a quarterly basis.
The Gearing Ratio at year-end was as follows:
NOTES GROUP COMPANY
31 MARCH 2010 31 MARCH 2009 31 MARCH 2010 31 MARCH 2009
R'000 R'000 R'000 R'000
Debt (i) 24 1 467 3 012 - -
Equity (ii) 21,22 2 895 066 3 385 341 697 252 692 266
Net debt to equity 0,05% 0,09% 0,00% 0,00%
(i) Debt is defined as long-term and short-term borrowings, as detailed in note 24.
(ii) Equity includes all capital and reserves of the Group.
Significant Accounting Policies
Details of significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement,
and the basis on which income and expenses are recognised in respect of each class of financial asset, financial liability and equity
instruments, are disclosed in note 2 to the annual financial statements.
108
NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2010 CONTINUED
Classes of Financial Instruments
NOTES GROUP COMPANY
31 MARCH 2010 31 MARCH 2009 31 MARCH 2010 31 MARCH 2009
R'000 R'000 R'000 R'000
Financial assets
Loans and receivables 15 - 6 021 330 6 021
Available-for-sale financial assets 16 5 745 4 857 5 494 4 606
Subsidiary companies - Non-interest bearing loans 12 - - 294 042 294 042
Subsidiary companies - Interest bearing loans 12 - - 251 663 74 563
Trade and other receivables 18 89 889 185 827 9 509 7 671
Cash and cash equivalents 19 126 394 295 941 113 227 288 455
Total f inancial assets 222 028 492 646 674 265 675 358
Financial l iabilities
Borrowings 24 1 467 3 012 - -
Trade and other payables 25 69 835 75 106 12 401 8 679
Total f inancial l iabilities 71 302 78 118 12 401 8 679
At the reporting date there are no significant concentrations of credit risk for loans and receivables. The carrying amount
reflected above represents the Group's maximum exposure to credit risk for such loans and receivables.
Major Financial Risks
The Group is exposed to the following major financial risks:
❈ Forward exchange risk
❈ Credit risk
❈ Cash flow interest rate risk
❈ Market risk
❈ Liquidity risk
❈ Compliance risk
❈ Operational risk
❈ Price risk.
Forward Exchange Risk
Forward exchange risk is the risk of loss arising from changes in the exchange rate from one currency to another through
higher payments or lower receipts in the local currency.
The Group enters into forward exchange contracts to buy and sell specified amounts of various foreign currencies in the future at
a predetermined exchange rate. The contracts are entered into in order to manage the Group's exposure to fluctuations in foreign
currency exchange rates on specific transactions. The contracts are matched with foreign currency commitments and anticipated
future cash flows in foreign currencies consisting primarily of exports. No significant export transactions were concluded during the
year.
Funding for the IFLOMA subsidiary in Mozambique is mainly paid in US Dollars, whilst expenses are mainly denominated in Metical.
This has the effect that the Group is exposed to fluctuations in the Rand, the Dollar, and the Metical. No forward exchange cover was
used during the year, as no hedging instruments are available in the Metical.
Credit Risk
Credit risk is the risk of default by counterparties
Financial assets, which potentially subject the Group to concentrations of credit risk, consist principally of cash, short-term deposits,
and trade and other receivables. The Group's cash equivalents and short-term deposits are placed with high credit quality financial
banking institutions. Surplus cash are held in external investments that are rated AA or A1, or fully secured. Trade receivables are
presented net of the provision for impairment of trade receivables. Credit risk with respect to trade receivables is moderate due to
the Group's customer base, which is dispersed across the forestry industry. Furthermore, a large number of customers have bank
guarantees or other securities in place. Credit insurance is taken out where regarded necessary. At balance sheet date all significant
credit risks were provided for (refer note 18).
With respect to the foreign exchange contracts, the Group's exposure is on the full amount of the foreign currency receivable on
109
NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2010 CONTINUED
settlement. The Group minimises such risk by limiting the counterparties to a group of major South African banks, and does not
expect to incur any losses because of non-performance by these counterparties. The carrying amounts of the financial assets
included in the consolidated balance sheet represent the Group's maximum exposure to credit risk in relation to these assets. The
credit exposure of forward exchange contracts is represented by the net market value of the contracts, as disclosed. At year-end,
there were no foreign exchange contracts in place.
The credit management has established a credit policy under which each new customer is analysed individually for creditworthiness
before the Group's standard payment terms and conditions are offered. The Group's review includes external ratings, where available,
and in some cases, bank guarantees. Credit limits (purchase limits) established for each customer represent the maximum open
amount without requiring approval from the Senior Executive Marketing. These credit limits are reviewed regularly. Customers that
fail to meet the Group's benchmark credit-worthiness may transact with the Group only on a pre-payment basis.
Cash Flow Interest Rate Risk
Cash flow interest rate risk is the risk of loss arising from changes in interest rates through higher interest payments or lower
interest receipts.
The Group is exposed to interest rate risk as the Group funds working capital short falls and assets, and invests surplus funds from
time to time. The Group utilises limited asset based finance leases to fund assets. These finance leases bear interest at fixed interest
rates. The Group also invests funds in the money market at both fixed and floating interest rates. The underlying interest rate risk
associated with this risk is managed by maintaining an appropriate mix between fixed and floating interest rates.
Shortfalls are funded by the holding company SAFCOL, as and when required. Surplus funds from operations are transferred to the
holding company on a daily basis. These surpluses or shortfalls bear interest on a floating interest inter-company account.
The Group's exposure to interest rate risk and the effective interest rate on financial instruments at balance sheet date are set out
in the following tables:
NOTES GROUP
WEIGHTED FLOATING NON- TOTAL
AVERAGE INTEREST INTEREST
EFFECTIVE RATE BEARING
INTEREST
RATE
% R'000 R'000 R'000
As at 31 March 2010
Assets
Available-for-sale financial assets 16 - 5 745 - 5 745
Trade and other receivables 18 - - 89 889 89 889
Cash and cash equivalents 19 6,68 126 394 - 126 394
Total f inancial assets 132 139 89 889 222 028
Liabilities
Borrowings 24 8,90 1 467 - 1 467
Trade and other payables 25 - - 69 835 69 835
Total f inancial l iabilities 1 467 69 835 71 302
Net financial assets 130 672 20 054 150 726
As at 31 March 2009
Total f inancial assets 9,52 306 566 186 078 492 645
Total f inancial l iabilities 8,99 3 012 75 105 78 117
Net financial assets 303 554 110 973 414 528
110
NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2010 CONTINUED
The Company's exposure to interest rate risk and the effective interest rate on financial instruments at balance sheet date are set
out in the following tables:
NOTES COMPANY
WEIGHTED FLOATING NON- TOTAL
AVERAGE INTEREST INTEREST
EFFECTIVE RATE BEARING
INTEREST
RATE
% R'000 R'000 R'000
As at 31 March 2010
Assets
Loans and receivables 15 - 330 330 -
Available-for-sale financial assets 16 4 606 888 5 494
Subsidiary companies - Non-interest bearing loans 12 - - 294 042 294 042
Subsidiary companies - Interest bearing loans 12 3,50 251 663 - 251 663
Trade and other receivables 18 - 9 509 9 509
Cash and cash equivalents 19 6,68 113 227 - 113 227
Total f inancial assets 369 496 304 769 674 265
Liabilities
Trade and other payables 25 - 12 401 12 401
Total f inancial l iabilities - 12 401 12 401
Net financial assets 369 496 292 368 661 864
As at 31 March 2009
Total f inancial assets 8,92 373 643 301 713 675 356
Total f inancial l iabilities - 8 679 8 679
Net financial assets 373 643 293 034 666 677
Sensitivity Analysis for Variable Rate Instruments
The sensitivity has been determined based on the exposure to movement of interest rates on non-derivative floating interest rate
instruments at the balance sheet date. If interest rates had been 200 basis points higher or lower, the increase / (decrease) in the
Group's profit / (loss) and equity for the year ending 31 March 2010 are set out in the table below. This increase / (decrease) is
attributable to variable interest rate borrowings, cash and cash equivalents, loans and receivables and available-for-sale investments.
This analysis assumes that all other variables, in particular foreign currency rates, remains constant.
NOTES GROUP COMPANY
31 MARCH 2010 31 MARCH 2009 31 MARCH 2010 31 MARCH 2009
R'000 R'000 R'000 R'000
Variable rate instrument sensitivity Analysis
Sensitivity if the interest rate increases by 200 basis points
Increase in profit or loss 2 613 6 071 7 390 7 473
Sensitivity if the interest rate decreases by 200 basis points
Decrease in profit or loss (2 613) (6 071) (7 390) (7 473)
Market Risk (Fair Value Estimation)
Market risk is the risk of a decrease in the market value of a portfolio of financial instruments caused by an adverse move
in market variables such as currency exchange rates and interest rates as well as implied volatil ities on all of the above.
At 31 March 2010 and 31 March 2009 the carrying amounts of cash and short-term deposits, accounts receivable, accounts payable,
accrued expenses and short-term borrowings, approximated their fair values due to the short-term maturities of these assets and
liabilities.
111
NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2010 CONTINUED
The fair value of long-term investments is not materially different from the carrying amounts.
The fair value of foreign exchange forward contracts represents the estimated amounts (using rates quoted by the Group's bankers),
that the Group would receive to terminate the contracts at the reporting date, thereby taking into account the unrealised gains or
losses of open contracts. At year-end, there were no foreign exchange forward contracts.
Liquidity Risk
Liquidity r isk is the r isk that the Group has insuff icient funds or marketable securit ies avai lable to fulf i l i ts cash f low
obligations on time.
Liquidity risk arises primarily from variation in revenue flows as well as the Group's ability to repay principle debt and interest.
The Group's approach to liquidity management includes:
❈ Regular monitoring of liquidity through periodic forecast cash flow management and maintaining an adequate level of
short-term marketable securities
❈ Implementation of long-term and short-term funding and investment strategies
❈ Diversification of funding and investing activities.
The table below analyses the Group's financial liabilities into relevant maturity groupings based on the remaining period at the
balance sheet to the contractual maturity date.
NOTES CARRYING CONTRACTUAL LESS THAN 1 - 5 TOTAL
AMOUNT CASH FLOWS 1 YEAR YEARS
R'000 R'000 R'000 R'000 R'000
Liquidity risk table as at 31 March 2010
Group
Borrowings 24 1 467 1 467 1 354 113 1 467
Trade and other payables 25 69 835 69 835 69 835 - 69 835
71 302 71 302 71 189 113 71 302
Company
Trade and other payables 25 12 401 12 401 12 401 - 12 401
12 401 12 401 12 401 - 12 401
NOTES CARRYING CONTRACTUAL LESS THAN 1 - 5 TOTAL
AMOUNT CASH FLOWS 1 YEAR YEARS
R'000 R'000 R'000 R'000 R'000
Liquidity risk table as at 31 March 2009
Group
Borrowings 24 3 012 3 012 1 553 1 459 3 012
Trade and other payables 25 75 106 75 106 75 106 - 75 106
78 118 78 118 76 659 1 459 78 118
Company
Trade and other payables 25 8 679 8 679 8 679 - 8 679
8 679 8 679 8 679 - 8 679
Compliance Risk
Compliance risk is the risk of non-compliance with any statutory requirement of central or local Government and includes
the South African Reserve Bank, Financial Services Board and various financial exchanges.
This is minimised through effective monitoring and reporting to ensure compliance with the Public Finance Management Act, the
Occupational Safety & Health Act, Companies Act, Income Tax Act, The Corporate Laws Amendment Act, applicable environmental
legislation and the requirements of statutory and other bodies; including the Competition Authorities, South African Reserve Bank,
Financial Services Board and the Forestry Stewardship Council.
Operational Risk
Operational r isk is the r isk resulting from inadequate or fai led internal processes, people, and systems, or from external
events.
The Group's approach to managing operational risk has led to the establishment of the following practices:
❈ Policies and procedures to sustain effective risk management
❈ The ongoing assessment of the effects of changes in the regulatory environment and adaptation of the processesaccordingly.
112
NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2010 CONTINUED
Price Risk
Price risk is the risk that changes in log price has on the financial per formance and cash flows of the Group.
The devastating fires experienced in 2007 and 2008 had a negative long-term impact on the supply of logs. The impact of the
slowdown in the economy has a negative impact on current and future demand and prices. As a result, prices have been adjusted
in accordance with market expectations.
Fair Values
Fair Values versus carrying Amounts
The fair values of financial assets and liabilities, together with the carrying amounts shown in the balance sheet, are as follows:
NOTES GROUP
31 MARCH 2010 31 MARCH 2009
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
R'000 R'000 R'000 R'000
Financial assets
Loans and receivables 15 - - 6 021 6 021
Available-for-sale financial assets 16 5 745 5 745 4 857 4 857
Trade and other receivables 18 89 889 89 889 185 827 185 827
Cash and cash equivalents 19 126 394 126 394 295 941 295 941
Total f inancial assets 222 028 222 028 492 646 492 646
Financial l iabilities
Borrowings 24 1 467 1 467 3 012 3 012
Trade and other payables 25 69 835 69 835 75 106 75 106
Total f inancial l iabilities 71 302 71 302 78 118 78 118
Unrecognised gain / ( loss) - -
NOTES COMPANY
31 MARCH 2010 31 MARCH 2009
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
R'000 R'000 R'000 R'000
Financial assets
Loans and receivables 15 330 330 6 021 6 021
Available-for-sale financial assets 16 5 494 5 494 4 606 4 606
Subsidiary companies - Non-interest bearing loans 12 294 042 294 042 294 042 294 042
Subsidiary companies - Interest bearing loans 12 251 663 251 663 74 563 74 563
Trade and other receivables 18 9 509 9 509 7 671 7 671
Cash and cash equivalents 19 113 227 113 227 288 455 288 455
Total f inancial assets 674 265 674 265 675 358 675 358
Financial l iabilities
Trade and other payables 25 12 401 12 401 8 679 8 679
Total f inancial l iabilities 12 401 12 401 8 679 8 679
Unrecognised gain / ( loss) - -
113
NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2010 CONTINUED
Fair Value Estimation
The group adopted the amendment to IFRS 7 for financial instruments that are measured in the statement of financial position at
fair value, this requires disclosure of fair value measurements by level of the following fair value measurement hierarchy:
❈ Quoted prices in active markets for identical assets or liabilities (level 1)
❈ Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. asprices) or indirectly (i.e. derived from prices) (level 2)
❈ Inputs for the asset or liability that are not based on observable market data (i.e. unobservable inputs) (level 3).
The following table presents the Group's assets that are measured at fair value as at 31 March 2010:
NOTES GROUP
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
R'000 R'000 R'000 R'000
Available-for-sale financial assets 16
Timber Workers Co-operative Insurance Brokers - - 0 0
Transvaal Wattle Growers Co-op Agricultural Company Limited - - 1 1
NTE investment - - 251 251
Risk finance policy - Guardian National 5 493 - - 5 493
Kaap Agri - - 1 1
5 493 - 252 5 745
NOTES COMPANY
LEVEL 1 LEVEL 2 LEVEL 3 TOTAL
R'000 R'000 R'000 R'000
Available-for-sale financial assets 16
Timber Workers Co-operative Insurance Brokers - - 0 0
Transvaal Wattle Growers Co-op - - 1 1Agricultural Company Limited
Risk finance policy - Guardian National 5 493 - - 5 493
Kaap Agri - - 1 1
5 493 - 2 5 494
The following table presents the changes in level 3 instruments for the year ended 31 March 2010:
NOTES GROUP
AVAILABLE-FOR-SALE
FINANCIAL ASSETS TOTAL
R'000 R'000
Opening balance 16 252 252
Movements for the year
Investment aquired 1 1
Closing balance 252 252
114
NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2010 CONTINUED
NOTES COMPANY
AVAILABLE-FOR-SALE
FINANCIAL ASSETS TOTAL
R'000 R'000
Opening balance 16 1 1
Movements for the year
Investment aquired 1 1
Closing balance 2 2
Basis for Determining Fair Values
The following summarises the significant methods and assumptions used in estimating the fair values of financial instruments
reflected in the table above.
Available-for-sale Financial Assets
The fair value of available-for-sale financial assets is determined by reference to the deemed cost price or quoted price at the
reporting date.
Non-derivative Financial Liabilities
Fair value is calculated based on the present value of future principal and interest cash flows discounted at the market rate on
interest at the reporting date. For finance leases, the market rate of interest is determined by reference to similar lease agreements.
Trade and other Receivables
The fair value of trade and other receivables is estimated as the present value of future cash flows, discounted at the market rate of
interest at the reporting date. Carrying amount approximates fair value due to the short-term nature of trade and other receivables.
Loans and Receivables
The fair value of loans and receivables are based on cash flows discounted using the effective interest rate at the reporting date.
Carrying amount approximates fair value due to the short-term nature of loans and receivables.
Cash and Cash Equivalents
The fair value of cash and cash equivalents are based on cash flows discounted using the effective interest rate at the reporting
date. Carrying amount approximates fair value due to the short-term nature of cash and cash equivalents.
Interest rates used for determining fair value
The interest rates used to discount estimated cash flows was as follows:
NOTES 31 MARCH 2010 31 MARCH 2009
% %
Borrowings 24 8,66 - 11,55 8,66 - 11,55
31. EMPLOYEE BENEFITS
Retirement Funds
The consolidation of membership of three retirement funds into the SAFCOL Provident Fund was finalised during the year under
review. The retirement funds transferred are the SAFCOL Pension Fund, the SAFCOL Pension-Linked Provident Fund and the
Investment Solutions Executive Provident Fund, an umbrella retirement dispensation. The Group employees were members of either
the SAFCOL Provident Fund or the Forestry Workers Pension Fund at year-end, the latter being an option for members from forestry
and related industries.
Old Mutual Employee Benefits is the administrator of the SAFCOL Retirement Funds.
The funding levels as per the statutory valuations performed on 30 June 2007 were as follows:
SAFCOL Pension Fund 121,9%
SAFCOL Pension-Linked Provident Fund 106,2%
SAFCOL Provident Fund 108,5%
115
NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2010 CONTINUED
The surplus in these funds apportioned to SAFCOL as the principal employer was utilised for contribution holidays, the enhancement
of benefits and settlement of the employer's post-retirement medical aid liability. The contribution holiday during the year under
review amounted to R10,25 million.
The SAFCOL Pension Fund and the SAFCOL Pension-Linked Provident Fund are currently dormant and will be liquidated as soon as
individual annuities have been purchased for the pensioners of both these funds. In terms of the Rules of the SAFCOL Provident Fund
and the Forestry Workers Pension Funds, both of which are defined contribution funds, state that the member and employer
contributions are based on pensionable salaries, as follows:
CONTRIBUTIONS SAFCOL PROVIDENT FUND FORESTRY WORKERS
PENSION FUND
Section A Section C Section D
Benefits Benefits Benefits*
Member 6,00% 7,50% - 6,00%
Employer 10,00% 10,00% 16,00% 10,00%
Total 16,00% 17,50% 16,00% 16,00%
* Non-contributory fund: deemed members' contributions of 6,0% included as employer contributions
GROUP COMPANY
31 MARCH 2010 31 MARCH 2009 31 MARCH 2010 31 MARCH 2009
R'000 R'000 R'000 R'000
Balance sheet disclosure
Non-current balance sheet assets
Pension and provident fund assets 32 000 45 216 1 060 1 536
Current balance sheet obligations
Employee incentive bonuses - 24 066 - 4 609
Leave pay 11 073 10 123 738 536
11 073 34 189 738 5 145
Income statement disclosure
Post retirement benefits - defined contribution* 19 346 16 421 4 026 1 314
Post retirement benefits - defined benefit (6 029) (4 263) (72) -
Post-employment medical benefits - (3 839) - -
Employee incentive bonuses (6 065) 12 201 (1 575) 412
Termination benefits - 4 415 - 2 195
Leave pay 3 236 (567) 249 536
10 488 24 368 2 628 4 457
* 2009 AFS did not include the income statement disclosure for post retirement benefits - contribution. It has now been adjustedto include 2009 disclosure
116
NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2010 CONTINUED
The following are the results of an actuarial valuation in terms of IAS 19 for the SAFCOL Pension Fund and the SAFCOL Pension-
Linked Provident fund.
The following information is disclosed for the Group only, as the transactions for the Company is immaterial in relation to the Group:
PENSION FUND PENSION-LINKED
PROVIDEND FUND
2010 2009 2010 2009
The actual return on plan assets was 5 122 21 376 62 8 371
The principal actuarial assumptions
used were as follows:
Discount rate 9,00% 9,00% 9,00% 9,00%
Expected return on plan assets 7,00% 6,00% 7,00% 6,00%
Future salary increases 6,25% n/a 6,25% n/a
Inflation rate 5,25% n/a 5,25% n/a
Mortality rates:
Pre-retirement - SA 85/90 ultimate
Post-retirement - PA (90) ultimate rated down 1 year with 0.75% improvementper annum
Plan assets are comprised as follows:
Cash 53,99% 97,56% 52,03% 97.78%
Bonds 46,01% 2,44% 47,97% 2,22%
100,00% 100,00% 100,00% 100,00%
117
NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2010 CONTINUED
PENSION FUND PENSION-LINKED
PROVIDEND FUND
2010 2009 2010 2009
R'000 R'000 R'000 R'000
The amounts recognised in the balance sheet are determined as follows:
Present value of funded obligations 2 177 84 360 802 1 032
Fair value of plan assets (30 355) (115 565) (3 560) (4 984)
Funded status of the plan surplus (28 178) (31 205) (2 758) (3 952)
Asset recognised in the balance sheet (28 178) (31 205) (2 758) (3 952)
Opening balance (31 205) (31 226) (3 952) 334
Contributions 10 250 5 106 - (5 106)
Income statement movement (7 223) (5 085) 1 194 820
Closing balance (28 178) (31 205) (2 758) (3 952)
Changes in the present value of the defined benefit obligation are as follows:
Opening defined benefit obligation 84 360 82 060 1 032 54 209
Interest cost 2 530 7 591 31 5 014
Actuarial (gain) / loss (4 631) 8 702 1 225 4 177
Pension surplus apportionment 82 259 98 353 2 288 63 400
Benefits paid (80 082) (13 993) (1 486) (62 368)
Closing defined benefit obligation 2 177 84 360 802 1 032
Changes in the fair value of plan assets are as follows:
Fair value of plan assets at the beginning of the year 115 565 113 286 4 984 53 875
Total contributions (10 250) (5 106) - 5 106
Benefit payments (80 082) (13 993) (1 486) (62 368)
Expected return of plan assets 4 403 12 181 268 5 657
Actuarial gain / (loss) 719 9 197 (206) 2 714
Fair value of plan assets at the end of the year 30 355 115 565 3 560 4 984
The amount recognised in the income statement are determined as follows:
Interest cost 2 530 7 591 31 5 014
Expected return on plan assets (4 403) (12 181) (268) (5 657)
Actuarial (gain)/ loss recognised (5 350) (495) 1 431 1 463
Income statement movement (7 223) (5 085) 1 194 820
2010 2009
R'000 R'000
SAFCOL Pension Fund Asset 28 178 31 205
SAFCOL Provident Fund Asset * 1 064 10 059
SAFCOL Pension-Linked Provident Fund Asset 2 758 3 952
Total asset per the balance sheet 32 000 45 216
* The SAFCOL Provident Fund Asset relates to the intial surplus apportionment exercise. This asset consists of funds held in amoney market and cash portfolio, and is managed separately from the plan assets of the fund. The plan assets of the fund are
118
NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2010 CONTINUED
held in a multi-managed portfolio in accordance with the approved investment strategy
Future Contributions, Income Statement Charges and Income Statement Debits
The expected contributions to post employment benefit and contribution plans for the year ending March 2011 approximate
R1,1 million. The expected income statement debit for the defined benefit and contribution schemes are estimated to be
approximately R13,6 million.
Experience Adjustments:
2010 2009
R'000 R'000
GROUP
Experience adjustments on plan liabilities (3 406) 12 879
Experience adjustments on plan assets (513) (11 911)
(3 919) 968
Summary of the employee benefits assets and obligations as determined actuarially each year:
2010 2009 2008
R'000 R'000 R'000
GROUP
Present value of the obligation 2 979 85 392 136 269
Fair value of plan assets (33 915) (120 549) (167 161)
Asset recognised in the statement of financial position (30 936) (35 157) (30 892)
GROUP COMPANY
31 MARCH 2010 31 MARCH 2009 31 MARCH 2010 31 MARCH 2009
R'000 R'000 R'000 R'000
32. CASH FLOW RECONCILIATION
Inventories
Movement per the Balance Sheet (note 17) 46 816 (45 748) (181) (10)
Write-down to net realisable value (note 4) (14 468) - - -
Movement per Cash Flow Statement 32 348 (45 748) (181) (10)
Trade and other receivables
Movement per the Balance Sheet (note 18) 95 938 (34 590) (1 838) 3 020
Movement per Cash Flow Statement 95 938 (34 590) (1 838) 3 020
Trade and other payables
Movement per the Balance Sheet (note 25) (5 271) (30 394) 3 722 (2 636)
Movement per Cash Flow Statement (5 271) (30 394) 3 722 (2 636)
Associate loans repaid
Balance at the beginning of the year (note 13) (30 958) (25 958) (30 958) (25 958)
Balance at the end of the year (note 13) (30 958) (30 958) (30 958) (30 958)
- 5 000 - 5 000
119
33. CONTINGENT LIABILITIES
Land Claims
Following the introduction of the Restitution of Land Rights Act, 1994, various communities, families and persons have lodged land
claims on approximately 61% of State forest land entrusted to SAFCOL and its subsidiaries in terms of SAFCOL's founding legislation.
Notices of these claims have been published in the Government Gazette, this includes claims on the land on which the Timbadola
Sawmill is situated.
All the claims are currently in different stages of the land restitution process.
To enable the payment of a market-related rental to claimants, communities, and other beneficiaries in respect of State Forests
managed by KLF, the draft lease agreement between SAFCOL and Department of Agriculture, Forestry and Fisheries (“DAFF”) is still
under discussion.
Land claims over both the Shannon plantation in the Barberton district, and the Abacus properties in the Ngome area of KwaZulu-
Natal, have been investigated by the applicable Regional Land Claims Commissioners. A settlement offer for both the land and the
standing timber has been received by SAFCOL. The value of the land as per the 2004 valuation is R18,2 million and the value of
standing timber amounted to R66,2 million. The Board has considered these settlement offers and agreed in principle thereto and
it is anticipated that the settlement will occur during the 2011 financial year.
Banking Facilities
There are contingent liabilities in respect of:
❈ Bank guarantees in respect of third party liabilities to the amount of R0,5 million (2009: R0,3 million)
❈ Cross suretyships between the Company and its wholly owned subsidiaries for any indebtedness, which any of them mayhave, to specific financial institutions in respect of cash management and financing facilities.
Litigation
The Londoloza / Paharpur consortium instituted a damages claim against SAFCOL and the Government. The claim is for payment of
approximately R3,2 billion damages based on Government's decision not to continue with the previous privatization process. The
matter is being defended by both the company and government.
The nature of the Group's business means that it will be involved in litigation from time to time. Management is however confident
that either all material lawsuits can be defended successfully, or such incidents are sufficiently covered under appropriate insurance
policies. In respect of lawsuits not being defended successfully, adequate provision will be made in the accounting records.
120
Adult Basic Education and Training ABET
Amathole Forestry Company (Pty) Ltd AFC
Average Selling Price ASP
Broad Based Black Economic Empowerment B-BBEE
Copper Chrome Arsenate CCA
Corrective Action Requests CAR
Department of Public Enterprises DPE
Department of Rural Development and DRLR
Land Reform
Department of Trade and Industry DTI
Development Bank of South Africa DBSA
Disabling Injury Frequency Rate DIFR
Employment Equity EE
Environmental Impact Assessment EIA
Employee Share Option Scheme ESOP
Enterprise Development ED
Finance, Investment and Transaction Committee FINCO
General Education and Training Certificate GETC
Forest Stewardship Council FSC
Forestry and Agriculture Biotechnology Institute FABI
Forests Industries Education and FIETA
Training Association
Industrias Florestais de Manica, SA IFLOMA
Institute for the Management of IGEPE
Government Shares
Institute for Commercial Forestry Research ICFR
International Financial Reporting Standards IFRS
Integrated Management System IMS
Komatiland Forests (Pty) Ltd KLF
Lost Time Injury LTI
Memorandum of Understanding MOU
MTO Forestry (Pty) Ltd MTO
Net Profit After Tax NPAT
National Treasury NT
Public Finance Management Act PFMA
Singisi Forests Products (Pty) Ltd SFP
Regional Land Claims Commissioner RLCC
South African Forestry Company Limited SAFCOL
Socio-Economic Development SED
South African Qualification Authority SAQA
Small Micro Medium Enterprises SMME's
SiyaQhubeka Forests (Pty) Ltd SQF
State Land Disposal Committee SLDC
State Owned Entity SOE
Temporary Unplanted Compartments TUP
ABBREVIATIONS
South African Forestry Company Limited
HB Forum Building
13 Stamvrug Street
Val de Grace
Pretoria
Tel: +27 12 481-3500
Fax: +27 12 804-3716