SAFCOL Annual report 2010 Layout 1 - PMG

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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

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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.

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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

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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)

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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

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Mr PJ Derman


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



Academic qualifications MSc

PhD (Economics)

BSc

MSc (Agric Econ)



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


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

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Mr SM Radebe


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


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

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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)



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)


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



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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)


MBA


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

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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


Service with SAFCOL 1 September 2006 to date

Academic qualifications B Admin

B Admin (Hons) Industrial Psychology

Certificate Programme: Organisational Development Consulting



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


Dr GJ Wessels

Designation Senior Executive: Strategy, Planning and ICT


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




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


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

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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).

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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


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


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

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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

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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

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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.


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


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


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


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


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.


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)


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


Compliance with Laws and RegulationsProhibited Actions


Non-adherence


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


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%


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

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Ap

po

inte

d C

hai

r

01/0

7/09


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


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 privation of KLF, the Minister of Public Enterprise and the Board resolved that the

privatisation process will be postponed to 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.


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


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



(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


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



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'


❈ 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'


❈ IFRS 1, 'First time Adoption of International

Financial Reporting Standards - Revised'


❈ 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


❈ 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


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


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.


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


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) - -


83

GROUP COMPANY


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


GROUP COMPANY


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) - -


85

GROUP COMPANY


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


GROUP COMPANY


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) - - -


After tax (10) - - -

Total other comprehensive income

Before tax (21 410) (11 523) - -


After tax (21 410) (11 523) - -

Current tax - - - -

Deferred tax (note 23) - - - -

Total tax (charge) / credit relating to components of other comprehensive

income - - - -


87

GROUP COMPANY


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


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)


Group 2009


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


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


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


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


GROUP COMPANY


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


GROUP COMPANY


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


GROUP COMPANY


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


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


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



R'000 R'000 R'000

31 March 2009


Loans and receivables (note 15) 6 021 - 6 021




Total 487 789 4 857 492 646




AND LOSS

R'000 R'000 R'000


Borrowings (note 24) - 3 012 3 012


Total 75 106 3 012 78 118

96


14. FINANCIAL INSTRUMENTS BY CATEGORY (continued)

COMPANY



R'000 R'000 R'000

31 March 2010


Loans and receivables (note 15) 330 - 330


Investments in subsidiaries (note 12) - 545 704 545 704



Total 123 066 551 198 674 265




AND LOSS

R'000 R'000 R'000



Total 12 401 - 12 401



R'000 R'000 R'000

31 March 2009


Loans and receivables (note 15) 6 021 - 6 021


Investments in subsidiaries (note 12) - 368 605 368 605



Total 302 146 373 211 675 358




AND LOSS

R'000 R'000 R'000



Total 8 679 - 8 679

97


GROUP COMPANY


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


GROUP COMPANY


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


GROUP COMPANY


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


GROUP COMPANY


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


GROUP COMPANY


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


GROUP COMPANY


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


GROUP COMPANY


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


GROUP COMPANY


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


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


GROUP COMPANY


R'000 R'000 R'000 R'000

28. RELATED PARTIES (continued)

(c) Loans from related parties - Interest bearing


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


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


GROUP COMPANY


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


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


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


Classes of Financial Instruments

NOTES GROUP COMPANY


R'000 R'000 R'000 R'000

Financial assets

Loans and receivables 15 - 6 021 330 6 021


Subsidiary companies - Non-interest bearing loans 12 - - 294 042 294 042

Subsidiary companies - Interest bearing loans 12 - - 251 663 74 563



Total f inancial assets 222 028 492 646 674 265 675 358

Financial l iabilities

Borrowings 24 1 467 3 012 - -


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


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


110


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


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


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


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


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


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


78 118 78 118 76 659 1 459 78 118

Company


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


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






Borrowings 24 1 467 1 467 3 012 3 012



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


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







Unrecognised gain / ( loss) - -

113


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 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


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


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


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


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

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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


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

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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.

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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

Documents

SAFCOL Annual report 2010 Layout 1 - PMG