SAFCOL Group Annual Report – 31 March 2006

SAFCOL GroupSAFCOL GroupAnnual Report – 31 March 2006Annual Report – 31 March 2006

Portfolio Committee - 20 September 2006 Portfolio Committee - 20 September 2006

1.1. Overview of activitiesOverview of activities

2.2. Privatisation Status Privatisation Status

3.3. The Future The Future

Kobus BreedKobus BreedAzwindini MutshinyaAzwindini Mutshinya

Linda Mossop-RousseauLinda Mossop-RousseauJoe Coetzer Joe Coetzer

Leslie Mudimeli Leslie Mudimeli SAFCOL

SAFCOL Group SAFCOL Group 31 March 2006 31 March 2006

9 Months financial year Privatisation process terminated Acceptable financial results Sound Corporate Governance Future of Komatiland / SAFCOL Ifloma opportunity

SAFCOL

IntroductionIntroduction

SAFCOL Group SAFCOL Group 31 March 2006 31 March 2006

Board of Directors - Members - Remuneration

Board Committees - Risk and Audit - Remuneration Committee

Audit Reports Management Teams Code of EthicsShareholders Compact

Corporate GovernanceCorporate Governance

SAFCOL

• The SAFCOL group has a Code of Ethics that form part of its conditions of employment.

• As of 23 June 2006 SAFCOL is an organisational member of the Ethics Institute of South Africa. The membership is renewable annually and as a member, SAFCOL receives frequent newsletters about topics pertinent to ethics in the organisation.

• SAFCOL is in the process of updating its Code of Ethics, a process that has been undertaken in an effort to align our policies with local and international best practices.

Code of Ethics Code of Ethics

Overview of Operations Overview of Operations

Komatiland Forests (Pty) LtdKomatiland Forests (Pty) Ltd

Continue to focus on maintaining the asset in Continue to focus on maintaining the asset in the condition as presented for sale. the condition as presented for sale. Exceptions were :-Exceptions were :--- Closure of Blyde Sawmill Closure of Blyde Sawmill -- Mothball of Veneer Plant Mothball of Veneer Plant

Replanting of fire damaged areas Replanting of fire damaged areas IflomaIfloma - Rehabilitation of exiting - Rehabilitation of exiting

plantationplantation- Study to determine feasibility of - Study to determine feasibility of wood fibre projectwood fibre project

Overview of Operations Overview of Operations

SAFCOLSAFCOL

Management of areas under delegation Management of areas under delegation St Lucia St Lucia Shannon Plantations Shannon Plantations Second Economy Focus Second Economy Focus Investigating establishment of a Research Investigating establishment of a Research

Centre and Seed Orchard at NyalaziCentre and Seed Orchard at Nyalazi 25% Interest in privatised entities 25% Interest in privatised entities

SAFCOL

Privatisation Status Privatisation Status 25% Shareholdings :-25% Shareholdings :-

-- SiyaQhubeka Forestry (Pty) Ltd SiyaQhubeka Forestry (Pty) Ltd -- Singisi Forests (Pty) LtdSingisi Forests (Pty) Ltd-- MTO Forestry (Pty) Ltd MTO Forestry (Pty) Ltd -- Amathole Forestry Company (PtyAmathole Forestry Company (Pty) Ltd) Ltd

All four companies have five years to All four companies have five years to achieve the undertakings made in the BPUachieve the undertakings made in the BPU

9% to be utilised in the creation of ESOP’s 9% to be utilised in the creation of ESOP’s 10% to NEF 10% to NEF 6% presently retained by SAFCOL, minority 6% presently retained by SAFCOL, minority

share to be disposed of as non-core assets share to be disposed of as non-core assets

Lessons learnt from Lessons learnt from privatisationprivatisation

• Tradability of shares needs to be considered:- • ESOP’s in a non-listed company are difficult to achieve• It is essential to match Black Empowerment partners

with local communities (NEF)• Business Plan Undertakings (BPU’s) need to be tightly

drawn up, with severe penalties if the provisions thereof are not achieved

• There needs to be clearer verification of representations to ensure that fronting does not occur

• Monitoring of all agreements should reside with the entity from which the disposal took place

• The appropriate roles and responsibilities for the different entities should be identified – Process preferably to be driven by SOE with clear guidelines from Government

SAFCOL Quo VadisSAFCOL Quo Vadis

o Uncertainty of privatisation Uncertainty of privatisation o Limited growth – constraining transformation Limited growth – constraining transformation

initiatives initiatives -- Strategic Process Strategic Process -- Internal Internal -- Close cooperation with DPE Close cooperation with DPE

o SAFCOL Board and management are SAFCOL Board and management are committed to give our Shareholder full committed to give our Shareholder full information in establishing the strategy information in establishing the strategy going forwardgoing forward

SAFCOL

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

TransformationTransformation

• The disposal of SAFCOL’s subsidiaries and other businesses to third parties consisting of a share of BEE interests in line with Government policy.

• BEE is one of the criteria taken into account in the procurement policy of SAFCOL for services and products, and the sale of raw timber to processors.

• Funding earmarked for corporate social investment is spent on rural development and the upliftment of individuals and communities.

• The involvement of SAFCOL in the development of the BBBEE Forestry Charter.

• The increased impetus to implement employee share option plans in disposed subsidiaries.

Transformation Transformation (cont.)(cont.)

InitiativesInitiatives


Disabled *

T A T A T A T AMale 6 9 5 2 11 11 0Female 2 1 2 0 4 1 0Male 6 7 5 2 11 9 0

Female 2 1 3 0 5 1 0Male 30 39 18 9 48 48 0

Female 6 4 6 1 12 5 0Male 32 34 36 31 68 65 0

Female 12 11 6 2 18 13 0Male 3 1 35 33 38 34 5 *

Female 32 32 16 14 48 46 0Male 10 3 1700 1334 1710 1337 0

Female 0 0 500 236 500 236 0TOTAL 141 142 2332 1664 2473 1806 2473 1806 5 *

* Already included in total

86

86

2210

16

15

60

12

10

53

PERMANENT EMPLOYEES AS AT 31 JULY 2006

Sub-totalTotal

T = TargetA = Actual

Production Workers

80

1573

Senior Management (Upper D)

Middle Management (Lower D)

Techinical and Administrative Officers (C-Band)

Administrative (B-Band)

78

HDI Subtotal

Group

Note: Target indicate levels that should have been reached at this stage to be able to comply with numerical goals by 2008

Top Management (F & E-Band)

WhiteLevelsMale / Female


An in-house training centre provide skills training to own employees as well as externally. The training is to the benefit of historical disadvantaged individuals and contractors. Annual training includes in excess of 4 600 people involving more than 12 000 man days.

Auditing, mentoring and assistance are provided for emerging contractors (SMME’s).

Bursaries are granted to employees, dependants and historically disadvantaged individuals to obtain academical qualifications. Current budget amounts to R1,3 million. A total of 35 current bursaries are being sponsored of which 24 are for historically disadvantaged individuals and females.

Capacity BuildingCapacity Building

Bridging classes and experiential training provided for candidates in respect of a variety of disciplines (scarce skills) e.g. :-

Forestry 21 Candidates Artisans 8 Candidates Administrative 9 Candidates Marketing 3 Candidates Wood Technology 2 Candidates

ABET classes in progress at is centres to improve literacy levels. Current attendance is 376 learners. IEB exams (2005/6) Level 4 180 passed

Level 1 – 3 205 passed

Capacity BuildingCapacity Building

Preferential ProcurementPreferential ProcurementThe percentage spent on procurement of forestry and related service contracts in respect of BEE and SMME’s are as follows :-

Table 1 : Black Owned contracts with Equity ownership in excess of 50% Percentage Rand value

Target Actual

Capital intensive Contracts 40% 32%

Labour intensive Contracts 80% 48%

Table 2: Contracts with Equity ownership of between 20% and 50%

Percentage Rand value

Target Actual

Capital intensive Contracts 40% 45%

Labour intensive Contracts 80% 95%

In addition to the above the Group’s main providers of goods and services are Eskom, Telkom and the major fuel companies. They all are BEE Compliant.

Performance Overview Performance Overview SAFCOL

Profitability♦ 13.8% WACC ♦ 15.4% ROCE

Sustainability♦ Yield of 1.7 million m³ ♦ Sales of 1.6 million m³

Internationalisation ♦ Mozambique

investment

■ Privatisation ■ KLF retained, new

mandate being

developed

■ Sawmilling ■ Planned investment:◘ TSM: R60 million earmarked

for upgrades◘ BSM: ±R200 million

earmarked for relocation and re-build

technology

Performance Overview Performance Overview (cont.)(cont.)

Forestry research 1.4% of Timber Sales invested in long-term fundamental research: Improvement of

genetic material Growth & yield studies

Seed orchard in St Lucia area



Human Resources and Transformation

Corporate Social Investment

Employment equity Liaison forums and

joint committees Organised labour Bursaries In-house training

centre

Commitment Involvement

Education in neighbouring communitiesEducation in neighbouring communities• Assistance to primary and secondary school Assistance to primary and secondary school

learnerslearners• Adult Basic EducationAdult Basic Education

Small business entrepreneurs and projectsSmall business entrepreneurs and projects

Recreational facilitiesRecreational facilities

Prevention of the abuse of women and children Prevention of the abuse of women and children

Commitment

Corporate Social InvestmentCorporate Social Investment

Since inception: R17.5 million

R905 000 in the period under review:60.5% on Infrastructure and land (schools)24.0% on Healthcare7.3% on Education3.3 % on Donations3.2% on Environmental conservation1.7% on Recreation and sport

Involvement (excluding bursaries)

Corporate Social InvestmentCorporate Social Investment

Limpopo, KZN and Limpopo, KZN and MpumalangaMpumalanga

Job creationJob creation Preferential Preferential

procurementprocurement R10 million plus R10 million plus

R1 millionR1 million Development Development

agenciesagencies

ProjectsProjects:: Broomstick and Broomstick and

dowelsdowels By-productsBy-products EcotourismEcotourism Wood preservationWood preservation Lamination plantLamination plant Compost Compost

manufacturing manufacturing

Second Economy ProjectsSecond Economy Projects

NOSA ratings for all operationsNOSA ratings for all operations DIFR less than 2%DIFR less than 2% Training:Training:

599 trainees or 33,2% of labour force599 trainees or 33,2% of labour force 1874 mandays1874 mandays

HIV/AIDSHIV/AIDS Medical surveillanceMedical surveillance

Health and SafetyHealth and Safety

Restated

YEARS ENDED2006 2005 2004 2003 2002

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

Turnover 359,926 640,696 681,958 677,257 692,408

Operating profit before the effect of fair value adjustments to plantations 22,938 (16,720) (10,051) 83,790 44,428

Profit before interest and taxation - PBIT 193,910 312,116 64,787 97,542 44,428

Profit before taxation – PBT 240,935 344,001 79,569 125,680 62,112

Net profit 168,743 232,763 42,944 93,791 32,946

Basic earnings per share (cents) 53.1 73.2 13.5 29.5 10.4

Capital expenditure 11,295 28,234 32,891 25,009 31,562

Financial HighlightsFinancial Highlights

Technology upgrade in TSM

Replacement of BSM Fleet Renewal

2nd Economy

IFLOMA Woodfibre Project

R60m over 3 years

R200 million

R75 million over 3 years

R10 million Capex plus R1 million Opex

R10 million p.a. USD75 million

Proposed InvestmentProposed Investment

Strong balance sheet and adequate cash reserves

No recapitalisation, guarantees, subsidies or transfer payments required

Policy guidance awaited in the following areas: New mandate for the Group Cross-border initiatives

Government SupportGovernment Support

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

The FutureThe Future

Thank you Thank you

Documents

SAFCOL Group Annual Report – 31 March 2006