SAFCOL Presentation to the Portfolio Committee on Public Enterprises on the Annual Report and Financial Statements for 2015/16

About SAFCOL Our Mandate Our Vision Our Mission Our Core Values The mandate for SAFCOL is determined by the Management of State Forests Act, the Founding Documents, other prevailing legislation and the Shareholder’s Compact, which indicates that SAFCOL’s mandate is: ‘To conduct forestry business, which includes timber harvesting, timber processing and related activities, both domestically and internationally’. Our Vision A world leader in the integrated forestry products business, powering sustainable growth and creating wealth through partnerships with communities. Our Mission Dedicated to growing our business in the forestry value chain and maximising stakeholder value. Driven by an unwavering commitment to facilitate sustainable economic empowerment of communities and wealth creation. Our Core Values We respect and value our stakeholders We are passionate about our business and communities We conduct ourselves with honesty and integrity We strive for excellence and innovation

Company Structure

Overview of SAFCOL Business SAFCOL conducts its primary business within the plantation forestry industry through the management of 18 prime softwood saw-log plantation assets in Mpumalanga, Limpopo and KwaZulu-Natal, covering a land area of 187 320 hectares. Revenue is generated from the sale of forest products, sawn timber and value added products. KLF owns and operates the Timbadola Sawmill, a softwood processing sawmill located in Limpopo, and manages a custom-cut arrangement. IFLOMA is a Mozambique-based public limited liability Company, which was established in the 1980s as a government initiative, of which 80 percent of the share capital was sold to KLF in 2004, with the remaining 20 percent of shares being held by IGEPE, Mozambique’s State Shareholding Management Institute. The total landholding is 31 754ha, of which 16 178ha is plantable. SAFCOL operates mainly in rural areas and provides opportunities for economic development and participation for local communities. Approximately 61% of the land area is under land claim, in which SAFCOL is actively involved, while also supporting land claimants and other community members in other initiatives.

Land Claims distribution in SAFCOL

PERFORMANCE AGAINST SHAREHOLDER’S COMPACT

PERFORMANCE AGAINST SHAREHOLDER’S COMPACT

Financial Highlights Audit: FINANCIAL HIGHLIGHTS Group equity value R 3.2 billion Biological asset value up 0,6% to R 3.8 billion Revenue up 0,6% to R 903 million Average log selling price up 8% to R 561 (per m³) Average lumber selling price up 5,6% to R 2 643 (per m³) Sawmill record intake volumes of 131 179 (per m³) Group asset value of R 4.6 billion Audit: Achieved an unqualified audit opinion

Financial Performance Summary Revenue R 903.3m Cost of Sales (R 718.6m) Gross profit R 184.7m Other income R 6.5m Operating expenses (R 316.6m) Operating loss (R 125.4m) Investment revenue R 12.6m Fair value adjustments R 21.8m Finance costs (R 6.4m) Loss before tax R 97.4m Tax R 47.8m Loss for the year (R 49.7m)

Achievements for the Year Update on recruitment process Successfully filled the CFO position. Currently in process of targeting other executive positions. Expect to have all the executive positions filled by end of December 2016. Rebranding A new SAFCOL brand has been approved by the Board bringing together all SAFCOL businesses under one brand. Timber Frame Structures A business case has been approved by the Board in terms of the rolling out of timber frame structures, initially mainly in the public sector.

Achievements for the Year Redefining cost centres for more transparent reporting Taking control of expenditure & contract management Processes & controls have been put in place to curb fruitless & wasteful expenditure. A contract management system is currently being implemented to efficiently manage all expenditure related contracts. Assessment of Enterprise Resource Planning System Assessment of business processes and requirements for an ERP (through Oracle) was completed and proposal presented to Board Investigation Reports A detailed audit plan was done to address and rectify all audit findings. Information related to implicated individuals was handed over to law enforcement for prosecution where criminal activities were identified.

Our future focus: Strategic Drivers Financial sustainability Revenue growth Cost control Profitability World class operations & processes Modernisation and optimisation Efficiency Broadened R&D capability Quality, standards, health and safety Effective contract management Risk management Human capital & transformation High performance culture Appropriately skilled and diversified work force Skills retention and reward Skills development-pipeline Succession planning Employer of choice Satisfied customers and stakeholders Stakeholders engagement Supplier and service provider of choice Preferred partner

Financial sustainability Strategic Objectives Growth and new markets Business development and growth Grow current market share Diversified products and services Diversification into new markets Horizontal integration Vertical integration Financial sustainability Revenue growth Financial management Increase operating profit by at least 5% per annum Operations Establish cutting-edge processing facilities Continuous improvement of silviculture and harvesting practices Support all business processes with R&D Develop forestry management services Rural development Be a catalyst in rural economic development

Key Strategic Direction Revenue Diversification Eco-Tourism Forestry Management Services Vertical Integration Timbadola Upgrade Timbadola Co-Generation Sabie Complex Timber-Frame Structures Pole treatment Horizontal Integration DAFF Plantations IFLOMA Expansion

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