VISION, MISSION AND CORE Reports/SAFCOL... · ISION, MISSION AND CORE VALUES Our mission is driven…
SOUTH AFRICAN FORESTRY COMPANY LIMITED1 VISION, MISSION AND CORE VALUES Our mission is driven by an unwavering commitment to facilitate sustainable economic empowerment of communities and eradication 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 maximising stakeholder 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 African forestry 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 justiceA world class, global business engaged in multi-functional forestry, revolutionising the integration of forests and communities.Vision 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 excellenceMissionCoreValues2SOUTH AFRICAN FORESTRY COMPANY LIMITED3 CONTENTS 6 Group Structure 8 Chairpersons Statement 12 Chief Executive Officers Report 36 Board of Directors 40 Executive Committee 44 Group Financial Review 46 Group Value Added Statement 48 Financial Highlights ANNUAL FINANCIAL STATEMENTS 50 Responsibility of Directors 52 Report of the Combined Audit and Risk Management Committee 54 Company Secretarys Certificate 56 Independent Auditors Report 60 Report of the Directors 80 Group Income Statement 82 Group Balance Sheet 84 Group Statement of Changes in Equity 86 Group Cash Flow Statement 88 Notes to the Annual Financial StatementsGROUP STRUCTURESOUTH AFRICAN FORESTRY COMPANY LIMITED6OPERATING SUBSIDIARIESDORMANT SUBSIDIARIESSPECIALPROJECTSASSOCIATESKumhlabaneTimber(Pty)Ltd GROUP STRUCTURE7CHAIRPERSONS STATEMENTSOUTH AFRICAN FORESTRY COMPANY LIMITED8 CHAIRPERSONS STATEMENTOur business, like many businesses in South Africa, has not been insulated from the global economic meltdown. We have lived through a very challenging year. There have been real challenges in our sector. These include the increase in land claims, limited timber stock availability, and the reduction of land available for forestry, as other sectors increase their claim on other land uses. These changes have brought with them tough trading conditions which for some of our peers, has meant closure and major reduction in staff numbers. The historic and devastating forest fires of 2007 and more recently 2008, have also had a negative impact on our bottom-line, despite Managements best efforts to limit these risks. However, against the backdrop of these challenges, we are pleased that our commitment to work closer with our people, though slow, is bearing fruit. We have signed social compacts with some of our community clusters, building the impetus for more vigorous community liaison and empowerment initiatives in the next financial year. We are also invigorated by the passion and renewed enthusiasm in government, who see that forestry as a sector can have a profound impact in terms of the countrys rural development strategy. As we anticipated this, we put on the table certain initiatives that will ensure that our business is positioned perfectly to support the vision of empowering rural communities through forestry. To this end, during the year under review, the activities within the Group were dominated by issues related to the re-design of its future and transformation imperative. Although we have a long way to go in terms of fundamentally transforming SAFCOL to be more responsive to the rural development challenges at hand, and to work closer with our communities in terms of developing better models for real empowerment, we are certain that the restructuring process that we began during the year and objectives as set out in our Corporate and Business Plan will bear fruit in coming years. Operationally, much effort went into replanting burnt areas after devastating forest fires occupied activities. Our dedicated staff worked weekends and late hours with some of our suppliers and subcontractors in the salvage operations. A lot of money was saved in the process. This year we had to shift gear a few times which, at some level, had a negative impact on the direction of the organisation. But once a clear message was provided that privatisation was on hold until land claims could be finalised or consensus reached about their management, Management put their shoulder to the wheel and worked hard to meet Shareholder expectations.We believe that SAFCOL has a major role to play in terms of the successful resolution of land claims over forestry land. Government and the SAFCOL Board of Directors (the Board) needed to reconsider the conditions of the long-term lease for state land under plantation forests, and the format of guarantees to be provided to potential buyers. Approximately 61% of the land under Komatiland Forests management is under claim. It remains critical that we work together with relevant departments in fast-tracking the resolution of these claims. I am pleased to report that an inter-ministerial committee has been established in order to give priority to claims for land under SAFCOL. In May 2008, the then Minister of the Department of Public Enterprises (DPE), Minister Alec Erwin, requested the Board and Management to chart the way forward through the development of a five-year Corporate and Business Plan. This presented us with an opportunity to revisit SAFCOLs medium to long-term strategy, and its mission and vision. The new strategic direction will be focused on ensuring that a significant role is played in the development, integration and upliftment of local communities where our operations are based. The following are SAFCOLs main strategic goals in terms of the new direction as captured in the Corporate and Business Plan, in no particular order:1. Position SAFCOLs operations as an attractive business partner for successful land claimants, investors, and Broad Based Black Economic Empowerment (B-BBEE) business partners. This goal includes the desire to increase equitable ownership in the forestry sector. 2. Create economically vibrant forest communities where people desire to live and return to.Chairperson: Gugu MoloiSOUTH AFRICAN FORESTRY COMPANY LIMITED9CHAIRPERSONS STATEMENT3. Fully embrace in all aspects, and rise above, the sectors transformation charter.4. Build, attract and retain skills. 5. Increase financial value to current and future shareholders. 6. Practice world-class sustainable forest management.7. Increase forestry area under management in South Africa and internationally by partnering with successful land claimants, landowners, other forestry companies and government departments with forest holdings.8. Increase value added services to customers and B-BBEE participation in the industry practices and revolutionising forest community integration.9. Develop solid company brands (SAFCOL, Komatiland Forests and IFLOMA) that are known in local and international stakeholder circles for leading sustainable multi- functional forestry10. Development of and investment in the down-stream processing industry.Significant milestones have been reached regarding the above goals in the current year, although more still needs to be done to ensure that these goals are achieved.The Board and Management continue to build relationships with all our stakeholders, especially the communities adjacent to our operations. In the year under review, SAFCOL adopted an approach of establishing relationships with these communities by implementing institutional frameworks that will govern the relationship in the form of social compacts. We also aim to grow mutual-beneficial partnerships with the communities through formal communication. The focus is on driving real B-BBEE. While we support the Companys drive to build other non-core businesses which will lead to sustainable socio-economic developments and poverty alleviation, as a Board, we are adamant that the Groups transformation objectives should not be compromised. We are of the view that even the operations should be subject to stringent B-BBEE targets which we agreed to in terms of the five-year Corporate and Business Plan. The forestry sector in South Africa is undergoing transformation. The signing of the Forestry Charter heralded a new dawn in the transformation of the industry. As a Board, through our Transformation Committee ably led by Mr Peter Derman, we are very excited about the role that the Group can play in this regard. SAFCOL, as a State Owned Entity, will be at the centre of the transformation agenda. Tangible transformation imperatives have been achieved in the year under review. These include the assessment of the current status of compliance to transformation guidelines, and the setting of aggressive targets which will be monitored by the Boards Transformation Committee. In the year under review, two Non-Executive Directors were appointed to the Board. This was done in an effort to ensure that adequate representation of expertise to the Board is achieved. Ms. Elaine Alexander, a natural scientist and Mr. Seth Radebe, a Chartered Accountant, were appointed with effect from 1 June 2008. Both of them have brought skills and experience that has enhanced the Board. During the year under review, the Board held ten meetings to consider all the matters requiring its attention. All Board sub-committees met prior to the SAFCOL Board meetings. I am pleased that the members of this Board have honoured their commitment to serve the interests of the Shareholder in the year under review. For this I wish to thank my fellow Board members, especially the Chairpersons of the various sub-committees for their commitment, leadership and sheer passion to position SAFCOL as a company that is delivering on both the profit and socio-economic imperatives of the Shareholder.SAFCOL has the vision to expand its operations outside South Africa. The investment proposal for the proposed fibre project in Mozambique is currently with the Shareholder for review. It is the Boards intention to strategically pursue footprints in Africa and beyond, specifically within the SADC region. We will do this with caution, given the prevailing economic climate. The existing IFLOMA operations in Mozambique present an exciting opportunity to expand our business, and this can be realised within the medium to long-term. Under the Ministers leadership, we await the outcome of bi-lateral talks between the two governments for the plan into the future in that country. SOUTH AFRICAN FORESTRY COMPANY LIMITED10CHAIRPERSONS STATEMENTAs already indicated above, SAFCOL has not escaped the current negative global economic conditions which are evident throughout the forestry industry. The slowed down markets in the building industry have had a negative impact on the sale of saw logs and the demand for sawn timber. The current downturn in demand for sawn timber, and also the lower prices achieved, had a major impact on the profitability of the Group. The Groups operations are not fully vertically integrated, and its activities are to a large degree limited to a customer base comprising of timber processors, and do not include other operations in the value chain. There is therefore an opportunity for innovation in this regard. Based on the commitment and dedication of the Groups employees, I am convinced that, with the assistance of my colleagues on the Board, we will overcome the prevailing economic and business conditions to the benefit of our Shareholder, the communities in the areas where we operate, and the industry at large.As a way of summary, our key financial achievement in the year under review is a realised profit before taxation and after discontinued operations of R969.5 million (2008: R868.8 million). Included in the results is an increase to the fair value of biological assets amounting to R 757.9 million (2008: R528.7 million). It is also pleasing to report that, despite the challenges and volatile economic climate that the Group is exposed to, our cash position is R295.9 million (2008: R433.0 million) and our balance sheet continues to remain strong, with a net asset value of R3,385.3 million (2008: R2,695.0 million). During the 2009 financial year, we also achieved a Return on Equity of 31.9% (2008: 36.6%).We are excited about SAFCOLs prospects going forward and believe that the five-year Corporate and Business Plan incorporate many initiatives that support the objectives of a developmental state. On behalf of the Board, I would like to thank the former Ministers of Public Enterprises who have led us in the year under review; Minister Alec Erwin, and Minister Brigette Mabandla. Thank you for your leadership and support. I also wish to extend our appreciation to the Director General of DPE, Mrs. Portia Molefe, for the passion that she has displayed in ensuring that we keep to the terms of the Shareholders brief. The DPE officials who are responsible for the SAFCOL portfolio have provided us with guidance during this year and facilitated many processes for us with other government departments thank you so much for that. I also wish to extend our gratitude to the Chairperson of the Portfolio Committee on Public Enterprise, Ms. Fatima Chohan and the members of the committee for their oversight role. You have kept us on our toes! How wonderful it is that we all have the same objective which is to make a real difference in the lives of our people. We appreciate the fact that some members of the committee took time out of their busy schedules to visit our operations in the year under review. I wish to thank my Board for their support. I know it has not been an easy year but I am convinced that the year ahead is going to be one of consolidating the work that we have started. Thank you. I thank the Management of SAFCOL. It has been a tough year. The Board has challenged you and you have risen to the challenges. I hope that we have all learnt enough to realise that we need each other to drive this ship going forward, in order to make the kind of impact we want to make. My special appreciation goes to all the staff of the SAFCOL Group. Thank you for your support and the great work that you have done in the course of this year. In conclusion, let me take this opportunity to welcome our new Minister, Minister Barbara Hogan. We are looking forward to a good working relationship with you. All our hands are on deck!!! G MoloiChairperson11CHIEF EXECUTIVE OFFICERS REPORTSOUTH AFRICAN FORESTRY COMPANY LIMITED12 CHIEF EXECUTIVE OFFICERS REPORT FOR THE YEAR ENDED 31 MARCH 2009Financial ReviewDespite the effects of the 2008 fires and the impact of the downturn in the economy, the Group achieved a profit after discontinued operations and before tax and fair value adjustment to plantations of R211.5 million during the financial year under review compared to R340.0 million in 2008. In the interpretation of the results, the R757.9 million increase in the fair value of the plantations (2008: R528.7 million) must be taken into account. The total negative impact of the fire salvage operation is estimated to be R203.3 million (2008: R367.6 million), excluding capital expenditure amounting to R3.5 million (2008: R8.9 million) for the establishment of wet decks and huts. The estimated financial impact per category is as follows:DESCRIPTIONYEAR 2009RMILYEAR 2008RMILImpairment of Carrying Value of Standing Timber 107,3 235,0Fire Extinguishing Costs And Other Protection Costs 0,3 4,0Estimated Site Clearing And Re-establishing Costs (Silviculture) 10,8 54,0Estimated Additional Harvesting And Transport Cost 72,6 70,0Estimated Establishment And Operating Costs Of Wet Decks 1,7 1,6Other Fire Related Costs (Conservation, Overhead) 10,6 3,0TOTAL 203,3 376,7Shareholders CompactIt is pleasing to report that in terms of the financial targets set by our Shareholder per the Shareholders Compact, SAFCOL Group remained profitable and exceeded its financial target with respect to Return on Equity (ROE) after fair value adjustments and is 0.4% above the 10% target for ROE before fair value adjustments. The main driver for the year in achieving this milestone was the 9% reduction in operational expenditure. SHAREHOLDERS COMPACT: FINANCIAL TARGETS UNITACTUAL YEAR 2009TARGET YEAR 2009Return On Equity before fair value adjustment (Profit after tax - FV adjustment / Average Capital and Reserves - FV adjustment)% 10.4 10.0Return On Equity after fair value adjustment (Profit after tax / Average Capital and Reserves)% 23.1 10.0CEO: Kobus BreedSOUTH AFRICAN FORESTRY COMPANY LIMITED13CHIEF EXECUTIVE OFFICERS REPORTFOR THE YEAR ENDED 31 MARCH 2009Performance Against TargetActual ROE after the fair value adjustments is 23.1% compared to a target of 10.0%, mainly due to the increase in the fair value adjustment to the biological assets. Actual ROE before the fair value adjustment is 10.4% compared to a target of 10.0%, mainly due to an increase in Net Profit after Taxation, excluding fair value adjustments, to R137.3 million against a target of R24.1 million. Although revenue decreased due to a 6.2% decline in volumes against target, the following had positive impacts on the operating results: Investment income increased against the back drop of a decrease in cash, due to higher than anticipated interest rates earned. Accounting for the equity profit in associates. The anticipated disposal of the associates did not materialise in the financial year. Operating expenditure decreased mainly due to the following: Lower costs in respect of professional fees incurred due to the postponement of the privatisation process. Material management declined due to reduced purchases, the build-up of lumber stock, and the build-up of wet deck stock as a result of reduced market demand, as well as further harvesting of burnt timber due to the 2008 fires. Risk management declined as a result of the specific insurance cover related to the privatisation process that was postponed. Selling expenses declined due to lower transport costs incurred as a result of lower sales volumes.Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA)EBITDA, excluding fair value adjustment to the biological assets, of R194.7 million was achieved against prior year of R330.2 million. EBITDA*YEAR 2009ACTUALRMILYEAR 2008ACTUALRMILACTUAL 2009VS ACTUAL 2008%Net (profit) before tax (970) (872) 11%Adjustments: 775 542 (43%)Depreciation (40) (29) 36%Amortisation (1) (1) 0%Fair value adjustment of biological assets 758 529 (43%)Interest paid (1) (2) (61%)Interest received 46 45 (1%)Foreign exchange gain 13 0 (100%)EBITDA (195) (330) (41%)*Excludes discontinued operations SOUTH AFRICAN FORESTRY COMPANY LIMITED14CHIEF EXECUTIVE OFFICERS REPORTFOR THE YEAR ENDED 31 MARCH 2009Adjusted ProfitIn analysing profit, we believe that it is useful to highlight special items. Special items are those 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, asset impairments, privatisation costs, termination benefits, retirement fund adjustment, foreign exchange gains or losses, and the price fair value adjustment to the biological assets and log stocks.ADJUSTED PROFIT*YEAR 2009ACTUALRMILYEAR 2008ACTUALRMILACTUAL 2009VS ACTUAL 2008%Net (profit) before tax (970) (872) 11%Special Items: 778 610 (27%)Fair value adjustment of biological asset 758 529 (43%)Fair value adjustment of log stock 15 46 68%Profit and loss on disposal of Property, plant and equipment 2 0 (100%)Privatisation costs (2) (10) (76%)Foreign exchange gain 13 0 (100%)Retirement Fund adjustment (4 ) 46 109%Termination Benefits (4) (1) 436%ADJUSTED PROFIT (192) (262) (27%)*Excludes discontinued operationsIncome Statement Review Against Prior YearSales volume declined by 171 227 m (11%) in the 2009 financial year as a result of the slowdown in the economy, in particular the construction market. This has been off-set by higher than expected selling prices achieved. Turnover excluding discontinued operations increased by R24.9 million (3%) to R857.1 million compared to the 2008 financial year (R832.2 million).Operating Profit before tax and fair value adjustment to the biological assets declined by R153.4 million (57%) to R114.1 million in 2009 (2008: R267.5 million) mainly due to increased operating expenditure and lower sales volumes. During the period under review, the following significant movements affected operating results: An increase of R14.9 million (2008: R46.1 million) fair value adjustment to the carrying value of the salvaged logs stored on the wet decks. 12 402 m of burnt timber stored on the wet decks at year-end (2008: 218 351 m) was harvested in the period under review. Payment of termination benefits amounting to R4.4 million due to the corporate restructuring (2008: R0.8 million). A R13.0 million foreign exchange gain on the revaluation of the IFLOMA loan (2008: R0.05 million). The loan is US dollar denominated and therefore influenced by movements in the US Dollar and Rand exchange rates.CLOSING EXCHANGE RATES AS AT THE END OF MARCH 2009 2008Rand/US Dollar exchange rate 9,621 8,120 SOUTH AFRICAN FORESTRY COMPANY LIMITED15CHIEF EXECUTIVE OFFICERS REPORTFOR THE YEAR ENDED 31 MARCH 2009 R2.3 million incurred on advisors fees in respect of the privatisation process compared to R9.7 million in 2008. Settlement of R2.5 million (2008: R0 million) was received in respect of a claim for a disputed amount due to the Group by investment companies.The following deviation in operating results could be highlighted as compared to 2008: Higher expenditure in respect of employment costs mainly due to the following: Increase in salaries, wages and related costs is mainly due to annual salary increases plus increased headcount compared to 2008. Increased training costs that included funding for a post graduate chair in forestry at the University of Pretoria. Bonuses include incentive bonus, loyalty bonus and fire-related bonus payments. Increase in retirement benefits due to the utilisation of retirement funds surplus assets that was recognised in 2008.Breakdown of Employments CostsEMPLOYMENT COSTSACTUAL 2009RMILACTUAL 2008RMILACTUAL 2009 VS ACTUAL 2008%Salaries and wages & related costs 187 151 -24%Training 12 4 -249%Bonuses 29 20 -47%Employer contributions - retirement funds 11 -37 130%TOTAL 239 137 -74% In the prior year the materials management costs were reduced by the build up of salvaged log stock stored on the wet deck amounting to R95.9 million (the fair value adjustment included in the amount is R46.1 million). In the current year the build up of salvaged log stock only amounted to R22.4 million (the fair value adjustment included in the amount is R14.9 million). Increased expenditure on asset management due to the increase in depreciation and amortisation as a result of increased capital expenditure. Forestry contractors expenditure declined mainly due to lower transport costs and harvesting of burnt timber as a result of reduced timber salvaging operation activities in the 2009 financial year. Selling costs declined due to lower sales volumes of sawn timber.Fair Value Adjustment to the Biological AssetsThe 2009 financial results include R757.9 million increase in the fair value of the biological assets (2008: R528.7 million). The increase is driven mainly by price assumptions utilised in the fair value model. The assumption uses the log price as at 1 April 2009 in the first year of the model, and then factors in future price predictions according to market expectations.Balance Sheet OverviewAssetsThe Groups non-current assets increased by R852.1 million to R3,763.9 million (2008: R2,911.8 million) mainly due to an increase in the fair value of biological assets (which represents the greatest portion of the Groups assets). SOUTH AFRICAN FORESTRY COMPANY LIMITED16CHIEF EXECUTIVE OFFICERS REPORTFOR THE YEAR ENDED 31 MARCH 2009Current assets decreased by R25.7 million to R691.1 million (2008: R716.8 million) mainly due to the decline in cash and cash equivalents that is offset by the increase in inventory and receivables. NET WORKING CAPITALACTUAL 2009RMILACTUAL 2008RMILACTUAL 2009 VS ACTUAL 2008%InventoriesTrade and other receivablesTrade and other payables187.3185.8(75.1)126.6151.2(105.5)48%23%29%Net Working Capital 298.0 172.3 73%Turnover 857.1 832.2 3%% % % MovementNET WORKING CAPITAL AS PERCENTAGE OF TURNOVER34.77 20.71 14Optimising the levels of working capital remains a key management focus area. LiabilitiesNon-current liabilities increased by R214.8 million in 2009 to R966.2 million (2008: R751.4 million) in 2009 mainly due to an increase in deferred tax as result of an increase in the fair value of the biological assets.The decrease in current liabilities by R78.8 million to R103.5 million (2008: R182.3 million) relates mainly to lower expenses incurred due to reduced production activities in the 2009 financial year. The current income tax liability decreased in the current year as result of reduced operating profit and larger tax payments.During the 2009 financial year, the SAFCOL Board of Directors (the Board) agreed to repay all floating-interest rate finance leases in order to minimise the risk of interest rate fluctuations. The current finance lease obligation amounts to R3.0 million (2008: R17.1 million) which relates to fixed-term interest rate finance leases.Capital ExpenditureSOUTH AFRICAN FORESTRY COMPANY LIMITED17CHIEF EXECUTIVE OFFICERS REPORTFOR THE YEAR ENDED 31 MARCH 2009Capital expenditure incurred in the 2009 financial year amounts to R98.6 million (2008: R76.5 million). The increase of R22.1 million is mainly due to increased spending on motor vehicles, plant and equipment that relate to fire-fighting operations, road maintenance, and replacements in accordance with the vehicle replacement policy. Cash Flow Statement Review Against Prior YearThe Groups cash flow position is under pressure and decreased significantly during the year under review. 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. As mentioned previously, tighter working capital controls have been implemented and are being monitored continuously. Taxation paid in the 2009 financial year amounted to R110.3 million compared to R23.5 million paid in the 2008 financial year. The increase relates mainly to payments in respect of the 2008 financial year and provisional tax payments that were based on a higher estimated taxable income than actual taxable income. The higher estimated taxable income is due to paragraph 19(3) of the Fourth Schedule of the Income Tax Act (the Act) which allows the South African Revenue Services to increase an estimate made for provisional tax purposes. The taxable income on which the first provisional payment is made was therefore increased. Due to changes in legislation in terms of paragraph 20(1) of the Fourth Schedule to the Act, the Group was required at year-end to make the second provisional tax payment based on an amount not less than 80% of its actual taxable income for that year. The term basic amount has been removed. LiquidityLIQUIDITY RATIOSACTUAL YEAR 2009ACTUAL YEAR 2008Current Ratio (Current Assets : Current liabilities)Acid Test Ratio ([Current Assets - Inventory] : Current liabilities)Cash Ratio (Cash and cash equivalents : Current liabilities)6.7:14.9:12.9:13.9:13.2:12.4:1In respect of the current, cash and acid test ratios, our results have generally shown an improvement in maintaining liquidity compared to the 2008 financial year, and we are able to meet our short-term obligations. The main contributing factors that pose a threat to liquidity are the following: Reduced sales due to both the downturn in the economy as well as reduced available volumes due to the recent fires; Extension of accounts receivable days in order to motivate customers to purchase timber; and customers experiencing cash flow problems; Increasing inventory levels due to the downturn in the economy; Possible fires in the 2009 / 2010 financial year; Payment of creditors based on contractual payment terms regardless of the above pressure on cash reserves.SOUTH AFRICAN FORESTRY COMPANY LIMITED18CHIEF EXECUTIVE OFFICERS REPORTFOR THE YEAR ENDED 31 MARCH 2009Restructuring / PrivatisationIn 2008, Minister Alec Erwin informed the Board that the privatisation process of Komatiland Forests (Pty) Ltd (KLF) and the winding up of SAFCOL, will be postponed to allow time to address issues raised during the transaction design which could have a major impact on the privatisation of KLF, if not resolved. He further instructed the Board to address issues relating to the finalisation of the land claims on state forestry land currently being leased by KLF, and the competition concerns before a decision on the way forward regarding privatisation could be made. As a result, the Board was requested to develop a five-year corporate strategy with a strong focus on land claimants and communities. SAFCOL also needed to revise the organisational structure, to align the company with the new vision and mission in order to achieve the objectives of the five-year Corporate and Business Plan, as per the Shareholders request.Komatiland Forests (Pty) Ltd Forestry OperationsThe devastating fires of 2007 totalling more than 17 000 hectares (ha) of plantations, seriously affected six plantations in Mpumalanga. Unfortunately, during 2008 more disastrous fires occurred in four plantations. 4 911 ha of plantations burnt at Berlin, Jessievale, Ngome and Roburnia.In total 574 007 m of burnt timber was salvaged. Burnt timber salvaged in excess of contractual commitments totalling 213 503 m was stored in four of our own wet decks.A total of 1 355 706 m (including the burnt timber) was harvested during the year. Due to the special focus on the recovery of burnt timber, the backlog in thinnings could only be partly addressed and it remains a priority for the next financial year.Silviculture practices were applied consistently in compliance with KLFs silviculture guidelines and 9 095 ha of the burnt areas were replanted during the year. At year-end the temporary unplanted area (TU) amounted to 6 377 ha (2008: 7 950 ha).Under-canopy burning, to reduce fuel loads within pine plantations were continued this year after its successful introduction during 2007. Approximately 8 000 ha of compartments received controlled under-canopy burning in the year under review. The Mlilo fire awareness campaign made use of numerous opportunities to promote fire awareness in communities surrounding KLF plantations. As part of the campaign thirty eight schools were visited in the Lowveld and Highveld area. The 0860 No Fire telephone number together with a new bokkie mascot was introduced and marketed through handouts, flyers, posters, stickers and adverts.Baboon damage as well as mortality in young compartments due to the pitch cancer fungus (Fusarium Circinatum) remained a concern and different working groups are addressing this issue to find suitable solutions.SOUTH AFRICAN FORESTRY COMPANY LIMITED19CHIEF EXECUTIVE OFFICERS REPORTFOR THE YEAR ENDED 31 MARCH 2009Statistics of 2009 Financial Year Fires at KLF PlantationsAMOUNT OF HECTARES DAMAGEDPLANTATIONSYEAR 2009YEAR 2008BergvlietBerlinBlydeBrooklandsJessievaleSpitskopTweefonteinWitklipNgomeRoburnia02,218001,7830006053054,1032631,5483,4651963,5084,50911500TOTAL 4,911 17,707Volumes salvaged out of the burnt compartments: 574,007 m (2008: 951,441 m).Total volume sold (including sales to own sawmill): 1,465,715 m (2008: 1,661,571 m).The total volume of salvaged logs stored in wet decks as at year end (excluding temporary depots): 213,503 m (2008: 218,351 m). Total volume harvested (own harvesting ops): 1,355,706 m (2008: 1,739,304 m).Total area planted during this financial year: 9,095 ha (2008: 7,220 ha).Due to the increased demand for seedlings after the 2007 fires, the Tweefontein Nursery produced more than 10 million seedlings during this financial year against a previous average of between 7 and 8 million plants per year.InnovationThe Group revised the drive and focus of innovation within the operations. Operational innovations are focused on the improvement of current systems and procedures to enhance the value of our assets, especially by embracing productivity and cost savings. These criteria are used as measurements to determine if proposed innovations from our employees can be implemented effectively.Environmental ManagementThe Forest Stewardship Council (FSC) certification of KLF remains intact. During the first surveillance audit of the current certificate cycle conducted from 6 to 10 October 2008, the operations of KLF were evaluated against the requirements of the Qualifor Programme and its forest certification programme accredited by the Forest Stewardship Council. The auditors recommended the continued certification of KLF under certificate number SGS-FM/COC-0068.Several Internal Environmental Impact Assessments (EMPs) were conducted in accordance with the Environmental Management System for operations that posed a significant environmental risk. The environmental section audited the compliance of the operations in accordance with the prescriptions of the EMPs and issued internal Corrective Action Requests (CAR) where necessary.The issuing of prospecting and mining authorisations by the Department of Minerals and Energy (DME) on State forest land remains a risk to the sustainability of KLFs plantation forestry practices. Environmental risks associated with mining operations pose a liability to the Company in terms of compliance with national environmental legislation and FSC standards. All possible routes are pursued to limit the impact of mining in our operations.SOUTH AFRICAN FORESTRY COMPANY LIMITED20CHIEF EXECUTIVE OFFICERS REPORTFOR THE YEAR ENDED 31 MARCH 2009Following the devastating wildfires in the Sabie / Graskop / Nelspruit areas, KLF initiated several unique erosion control programmes, especially on steep and erosion prone slopes. The programme involves the overlaying of the erodability of the specific soil types, the gradient of the slope, and the intensity of the fire in the area. Thereafter, an erosion risk profile is compiled for each plantation affected. Erosion control programmes that focused on high risk areas were identified and control measures put in place. A legislative review on the delineation of wetlands and riparian areas was done following reported loss of planted areas through excision of wetland areas. It was thus concluded that legal obligations with regard to wetland and riparian habitat management, as embodied in the conditions attached to water use licences issued in terms of the National Water Act, should be complied with, and land exchange is to be applied for areas lost due to delineation. KLF will implement a structured and auditable delineation programme. KLF embarked on a process to replace the Environmental Management System for Forest Operations with a new and Integrated Management System. The objective was to design an electronic management system that was user friendly, comprehensive and that would integrate all legal, environmental, safety and health certification and industry standards and requirements into a single management system. At the time of compiling this report, the first phase of the implementation stage of the project was being conducted and early indications were that the project would exceed all expectations.KLF continued to monitor various environmental attributes including grasslands, water quality, Red Data species and High Conservation Forests on a regular basis. Most of this monitoring was conducted by independent specialists and Management recommendations from their reports were implemented where feasible. A separate report on the environmental performance of KLF is published bi-annually and is available for interested stakeholders.Processing OperationsTimbadola SawmillThe second half of the financial year was very difficult for the processing industry due to the global economic recession which saw a decrease in demand for lumber products. Sales for the year were 20 714 m lower than budget and finished product stock increased considerably as a result of lower sales volumes. This created uncertainty regarding the future production policy. Options were investigated to reduce intake, reduce selling prices, or store the unsold portion of the production volume. It was decided to continue with full production, storing the additional volume, and re-assessing the market situation at a later date. Because the market did not improve, an extended shutdown was implemented during December / January. Normal production resumed in February 2009 although there was no improvement in market conditions.The following projects were successfully implemented at the sawmill during the financial year: The installation of power generators to allow all operations to continue during power failures, thus reducing downtime. The replacement of old compressors with insufficient capacity and provision for future plant upgrades. Installation of a new ripsaw to improve wet mill recovery. Upgrade of the planning area and installation of a high capacity planer to ensure production of more high-value products. Purchase of a stress grader which was installed in April 2009. Installation of surveillance cameras throughout the sawmill to assist with safety, security and the monitoring of processes.The 2008 / 2009 financial year was exceptionally difficult for the sawmill due to prevailing market conditions.SOUTH AFRICAN FORESTRY COMPANY LIMITED21CHIEF EXECUTIVE OFFICERS REPORTFOR THE YEAR ENDED 31 MARCH 2009Custom-Cut OperationsOur custom-cut operations continued during the year under review. Despite deteriorating market conditions, the operations remained profitable. The flexible nature of the custom-cut project enabled KLF to maintain, gain, and protect market share by adapting quickly to market demands. It further set industry standards by optimising raw material, thereby enhancing resource value.Other positive contribution of the operation was to significantly reduce raw material losses caused by plantation fires in the Lowveld and Highveld areas, by processing fire-damaged logs initially deemed sub-economical. MarketingRound Wood LogsThe first half of the 2008 / 2009 financial year saw good demand for round logs, and prices achieved on the open market improved by significant margins. During the latter part of the year, the demand for lumber decreased. This resulted in the partial postponement of long-term contract price increases. The gap between long-term contract and open-market prices was finally closed on 1 January 2009.Due to a concerted effort in a very demanding year, 95% of budgeted volumes were sold in 2008 / 2009. It is however envisaged that during the next financial year conditions will be extremely challenging. KLF timber volumes sold, including internal transfers, since the 2004 / 2005 financial year can be summarised as follows:FINANCIAL YEAR 000 m2004 / 20052005 / 2006 (9 months)2006 / 20072007 / 20082008 / 20091 8261 1351 6151 6481 466All long-term sawlog contracts will terminate on 31 March 2011. The current marketing policy was revised to cater inter alia for one-year and multi-year contracts. In the case of multi-year contracts, applicants will bid for the right to the contract while the log price will be determined by the average prices achieved on the short-term (one year and less) bids.LumberDirect lumber sales to customers increased to 86% of total sales, compared to 85% in the previous year. The slowdown in the market led to a decrease of 37 500 m in sales for the period, compared to the previous financial year. Revenue decreased by R4.7 million. Marketing expanded its operations in conjunction with Timbadola sawmill by establishing a warehouse to assist with the disposal of increasing stock volumes from which smaller buyers are targeted. Credit ManagementIt is no understatement that the credit industry globally and in South Africa is facing many challenges. The current economic conditions and the credit crunch had a detrimental effect on KLFs cash flow position due to customers inability to meet their full obligations within the payment terms. Managing credit requires essential co-operation between the companies involved. SOUTH AFRICAN FORESTRY COMPANY LIMITED22CHIEF EXECUTIVE OFFICERS REPORTFOR THE YEAR ENDED 31 MARCH 2009A decision was made to extend payment terms for certain customers with minimum risk of default. Interest is also charged in these circumstances. The risk of default was limited by adhering to credit approval processes which included credit checks and insuring customer debt based on credit ratings with financial institutions. This was a vital step in establishing customer relationships and restricting the negative effect on sales. IFLOMA Operations Good progress was made during the year in managing the concession area of 23 000 hectares as a fully functional plantation asset. The operational timber warehouse, operating in Maputo, mostly sells to the local building industry. Timber was sourced from Indstrias Florestais de Manica, SA (IFLOMA) operations as well as from South Africa.IFLOMA has a staff complement of 678 (2008: 716), including 4 (2007: 4) expatriates. The start-up of the Messica sawmill, and related harvesting and transport operation were considered, but not approved due to the extensive capital cost required (R20 million). As an alternative, it was decided to invest in two mobile mills to process logs in-field.Expanding Operations in MozambiqueWith limited opportunities for expansion of commercial plantation forestry operations in South Africa, it is natural to look at opportunities outside the country, but close to our borders. The Group is well positioned in this regard and is investigating opportunities for new afforestation in Mozambique. However, these and other opportunities were limited by the imminent decision on the future of the Group.A detailed feasibility study was initiated and a final report on a potential afforestation project of approximately 50 000 ha was forwarded to the Shareholder for approval.Human Capital ManagementGeneralOver the past years, SAFCOL was committed to developing and maintaining world-class employment practices, which was aimed at attracting, developing and retaining skilled and competent talent, and the Company strived to achieve these goals.The Group continued to focus, in particular, on the appointment of talented individuals, especially those from historically disadvantaged communities. It also resolved to increase the number of women in managerial and core business occupations. Central to the development of the five-year Corporate and Business Plan, a detailed and business focused human capital strategy was required that would ensure that the Company goals were realised. In this regard, the Human Resources function was reviewed and re-organised to become a business partner with a resultant five-year Human Capital strategy. The strategy will focus on: Talent acquisition and management Leadership capacity building and skills development A high performance culture and effective performance management systems Change management programmesSOUTH AFRICAN FORESTRY COMPANY LIMITED23CHIEF EXECUTIVE OFFICERS REPORTFOR THE YEAR ENDED 31 MARCH 2009Employee RelationsSAFCOL remained committed to ensure harmonious relations with employees and in particular organised labour, based on mutual respect and trust. The existence of the Partnership Forum, a joint structure between Management and the recognised trade unions, continued to play an integral role in fostering and maintaining this relationship. During the period under review, no industrial action was experienced and the collective bargaining processes were handled within the agreed framework. This resulted in parties reaching settlements in relation to wages and other substantive conditions of employment.A climate survey was conducted and the results showed that the majority of employees are committed and proud to be in the employment of the Group. However, the survey report also identified areas of concern that need to be addressed. Management has already communicated to employees the measures put in place to ensure the resolution of the concerns.Skills DevelopmentThe Training Centre continued to serve as the centre of learning excellence through the provision of technical skills training as well as the facilitation of short skill and management development programmes. About 80% of technical skills training took place on-field at the operations. Training opportunities were extended to contractors, communities, as well as municipalities. Below is a photo group of workers from Thaba Chweu municipality undergoing a Basic Fire Fighting Course at the Platorand Training Centre.Other HighlightsKLF participated in various career exhibitions where young people were introduced to forestry and encouraged to consider it as a career.Our training centre continued to offer the one-year forestry bridging programme that candidates are engaged to attend before proceeding to universities and colleges. The programme has since been registered as a learnership with the Forest Education and Training Authority (FIETA). Upon successful completion, the learners obtain a National Qualifications Framework (NQF) level 1 qualification.Picture: Fire Fighting training in progress (Thaba Chweu Municipal workers)SOUTH AFRICAN FORESTRY COMPANY LIMITED24CHIEF EXECUTIVE OFFICERS REPORTFOR THE YEAR ENDED 31 MARCH 2009As at the end of March 2009, KLF had about 10 female foresters out of a population of 70 (inclusive of plantation managers), which constituted a 14,2% representation. It is envisaged that in two to three years time, the new entrance to forestry will significantly improve womens participation in the previously male-dominated industry.In summary, SAFCOL exceeded the set target to register 100 employees in various forestry-related learnerships accredited by FIETA.LEARNERSHIP NQF* CURRENT NEW TOTALGeneral Forestry Programme Level 1 - 19 19Harvesting Level 3 23 25 48Silviculture Level 3 - 29 29Processing Level 3 - 43 43TOTAL 23 116 139*NQF level 3 is equivalent to the National Senior Certificate.Staff Compliment At year-end, the combined SAFCOL Group South Africans Operations staff compliment was as follows:TYPE OF EMPLOYMENT 2008 / 2009 2007 / 2008Permanent* 1 997 1 897Fixed-term 258 271TOTAL 2 255 2 168*The above figure includes 4 expatriates seconded to IFLOMA as noted on the table following. The Mozambican subsidiary, IFLOMA, had the following staff complement:TYPE OF EMPLOYMENT 2008 / 2009 2007 / 2008Local employees** 674 712Expatriates 4 4TOTAL 678 716** Actual number of IFLOMA employees excludes 4 expatriates. SOUTH AFRICAN FORESTRY COMPANY LIMITED25CHIEF EXECUTIVE OFFICERS REPORTFOR THE YEAR ENDED 31 MARCH 2009A summary of the composition of the Groups permanent staff per occupational levels was as follows:SAFCOL/KLF: SUMMARY OF HEADCOUNT - PERMANENT EMPLOYEES - AS AT MARCH 2009RACE AND GENDER DISTRIBUTIONOCCUPATIONAL MALE FEMALEGRAND TOTAL 2009DISABLED 2009GRAND TOTAL 2008DISABLED 2008LEVELSIndianAfricanColouredWhiteSUB TOTALIndianAfricanColouredWhiteSUB TOTALTOTALNUMBERSTotalNumbersTop management(Grade E - F)1 3 0 5 9 0 1 0 1 2 11 0 14 0Senior management (Grade D4 - DE5)0 1 0 12 13 1 1 0 1 3 16 0 11 0Middle management (Grade D1 - D3)0 8 2 33 43 0 4 0 6 10 53 0 54 0Technical & Admin Officers (Grade C1 - C5)0 57 2 28 87 1 17 5 13 36 123 1 112 0Semi-Skilled & discretionary Decision making (Grade B1 - B5)0 636 1 7 644 2 50 4 23 79 723 6 656 4Unskilled & Defined Decision making (Grade A1 - A3)0 850 0 0 850 0 221 0 0 221 1071 2 1050 1TOTAL PERMANENT 1 1555 5 85 1646 4 294 9 44 351 1997 9 1897 5A summary of the composition of the Groups fixed-term contract employees per occupational levels was as follows:SAFCOL/KLF: SUMMARY OF HEADCOUNT - PERMANENT EMPLOYEES - AS AT MARCH 2009RACE AND GENDER DISTRIBUTIONOCCUPATIONAL MALE FEMALEGRAND TOTAL 2009DISABLED 2009GRAND TOTAL 2008DISABLED 2008LEVELSIndianAfricanColouredWhiteSUB TOTALIndianAfricanColouredWhiteSUB TOTALTOTALNUMBERSTotalNumbersTop management(Grade E - F)0 0 0 2 2 0 0 0 0 0 2 0 0 0Senior management (Grade D4 - DE5)0 0 0 1 1 0 0 0 2 2 3 0 4 0Middle management (Grade D1 - D3)0 2 0 5 7 0 2 0 2 4 11 0 8 0Technical & Admin Officers (Grade C1 - C5)0 0 0 8 8 0 0 0 7 7 15 0 13 0Semi-Skilled & discretionary Decision making (Grade B1 - B5)1 55 0 3 59 0 38 3 12 53 112 0 103 0Unskilled & Defined Decision making (Grade A1 - A3)0 61 0 0 61 0 54 0 0 54 115 0 143 0TOTAL PERMANENT 1 118 0 19 138 0 94 3 23 120 258 0 271 0SOUTH AFRICAN FORESTRY COMPANY LIMITED26CHIEF EXECUTIVE OFFICERS REPORTFOR THE YEAR ENDED 31 MARCH 2009Employment EquitySAFCOL is committed to transformation and it has become a business imperative to put measures in place to enable the Group to achieve and maintain a staff complement that reflects South African diversity.A summary of the workforce profile (permanent employees) was as follows:ELEMENTMARCH 2009%MARCH 2008%Race: Black staff at managerial level 51.2 41.9Black staff at all levels 93.4 92.2Gender: BlackWomen at managerial level 25.1 11.5Women all levels 17.6 16.4People with disabilities All groups 0.45 0.26AppointmentsBlack staff at managerial level 85.3 90.0Women at managerial level 38.2 20.7Black women at managerial level 35.3 17.2PromotionsBlack staff at managerial level 54.2 61.0Women at management level 25.0 38.9Black women at management level 20.0 16.7A consultation process for compiling an Employment Equity report was improved to be even more inclusive and effective. Active involvement and participation assisted in ensuring quality reporting and statutory compliance.Bursaries and Study Assistance The process followed in allocating study assistance to employees was guided by a strategy, which focused on the development of individual employees in order to address identified critical skills within the organisation. Bursaries were specifically aligned with employment equity objectives as well as the upliftment of adjacent communities.Assistance Provided to BeneficiariesBURSARIES STUDY ASSISTANCEGROUP GENDERTOTAL%AMOUNT IN RANDTOTAL% AMOUNT IN RAND2008/20092008/2009African Male 35 54 1,166,613 41 51 335,468 Black Female 23 36 545,576 14 18 118,588 IndianMale 0 0 0 0 -Female 0 0 1 1 -ColouredMale 0 0 1 1 15,300 Female 0 0 1 1 21,000 WhiteMale 6 9 276,321 19 24 167,095 Female 1 1 65,448 3 4 36,600 TOTALS 65 100 2,053,958 80 100 694,051SOUTH AFRICAN FORESTRY COMPANY LIMITED27CHIEF EXECUTIVE OFFICERS REPORTFOR THE YEAR ENDED 31 MARCH 2009Field of Study for Bursary and Study AssistanceFIELD OF STUDY NON-EMPLOYEES EMPLOYEES TOTAL %Forestry and related research 45 31 76 52.4Processing 1 5 6 4.1Engineering and artisans 5 5 10 6.9Corporate services 1 6 7 4.8Environmental management 3 0 3 2.1Planning 1 1 2 1.4Human Resources 1 15 16 11.0Finance and administration 7 12 19 13.1Marketing 0 4 4 2.8Other 1 1 2 1.4TOTAL 65 80 145 100.0Bursary Allocation to Non-Employees in Relation to CommunitiesCOMMUNITIES 2008 / 2009 2007 / 2008Adjacent communities 94% 37%Other black communities (rural) 6% 52%Urban communities 0% 11%TrainingThe following is a summary of an analysis of trainees who attended training courses at the Training Centre:BLACK WHITE INDIAN COLOURED TOTALM F M F M F M F M F2008 / 2009 1 310 251 103 66 0 3 11 14 1 424 3342007 / 2008 1 395 213 172 71 0 2 10 5 1 577 291Total training man days (excluding Adult Basic Education and Training (ABET) is summarised as follows:2008 / 2009 2007 / 2008Total Man days 12,735 13,078Total Trainees 1,758 1,868SOUTH AFRICAN FORESTRY COMPANY LIMITED28CHIEF EXECUTIVE OFFICERS REPORTFOR THE YEAR ENDED 31 MARCH 2009ABET attendance is summarised as follows:ABET: NUMBER OF TRAINEESLEVELMALE FEMALE TOTAL2009 2008 2009 2008 2009 20081 9 14 7 8 16 222 15 22 2 11 17 333 16 39 11 23 27 624 58 66 24 27 82 93TOTAL 98 141 44 69 142 210Employee Health and WellnessManaging the Impact of HIV and Aids KLF is committed to managing the impact of HIV and Aids through integrated response strategies in order to empower employees through ongoing knowledge and awareness, and to enhance business sustainability. Emphasis continued to be placed on prevention, voluntary counselling and testing for HIV and Aids, ongoing counselling and support, and integration with local health service providers for treatment. Employee Wellness ProgrammeKLF rolled out a comprehensive medical and wellness programme. The programme allows production workers access to health and wellness services which are provided by a contracted service provider. The service includes the following:WELLNESS SERVICE OCCUPATIONAL HEALTH SERVICEPrimary healthcare (non-medical aid members)Employee assistance programmeIncapacity management Medical consultingThe service provider has a network of health service providers spanning to the north (Limpopo), south (Kwa-Zulu Natal) and central (Mpumalanga). This makes it convenient for workers to access the facilities as close to their area of work as possible. Clinics and consulting facilities have been set up in the respective plantations and equipped accordingly for rendering the above services. An internal and qualified employee wellness consultant was appointed to co-ordinate and champions the programme.SafetyThe Group remains committed to providing a safe and healthy working environment. In the year under review, there was a slight downward trend in external safety audit results. Ten operational units each received a 5-star rating, five received a 4-star rating, five received a 3-star rating, and one a 2-star rating (2008: thirteen 5-star rating, four 4-star rating and four 3-star rating). It must, however be noted that the external audit was conducted on a risk based system which takes severity of injuries into account. The Disabling Injury Frequency rate was 2.0 against a limit of 2.0. The above results must be evaluated in the light of the abnormal and adverse working conditions during the fire recovery operations. SOUTH AFRICAN FORESTRY COMPANY LIMITED29CHIEF EXECUTIVE OFFICERS REPORTFOR THE YEAR ENDED 31 MARCH 2009Management continues to be vigilant and appropriate measures are put in place to ensure standards to maintain safety and minimise potential injuries. To reduce safety risk under adverse conditions and operational requirements, increased visibility and emphasis on all aspects of safety management are ensured.FatalitiesI am pleased to report that in spite of the increased danger of operational activities resulting from the fire recovery projects and replanting programme, there were no fatalities recorded in the year under review.Corporate Governance and the Public Finance Management Act, 1999 (PFMA)The SAFCOL Group endorses the Code of Corporate Practices and Conduct contained in the King II Report. The Group upholds sound accounting principles and internal controls. The required policies, procedures and conditions of employment are in place to ensure that good corporate governance is maintained. The Group complies with the provisions of the PFMA in all material respects.TransformationThe Group embraces all aspects of the Forestry sectors transformation charter, and aspires to exceed the sectors transformation charter targets, demonstrating internal and eternal transformation leadership to the industry. Our goal is to achieve a sustained level 2 contributor level in the medium to long-term. In the year under review, the Group achieved a level 3 B-BBEE contribution as evaluated by an independent verification agency.We believe that partnerships with all role players such as Forestry South Africa, NGOs, interest groups, media, Government and the Joint Community Forums remain a critical network in all our operations. We view transformation from the community impact aspect with a key focus on resource mobilization. All the B-BBEE Codes of Good Practice are intertwined in terms of our transformation agenda. We believe that sound Socio-Economic Development cannot be achieved unless we have strong pillars of Enterprise and Skills Development. We have invested time in formalising the social compacts through the process of Community Engagements Forum and that is in the process of bearing positive and sustainable results.One contribution to strengthening the economy of the country is through our intervention of ensuring that communities are encouraged to grow the small and medium enterprise concept to address the reduction of poverty and increase job creation. We firmly believe we have a leadership role to play in transforming the forestry and sawmilling industry in the future. From the procurement of goods and services, our objective is to secure supply while balancing the competing objectives of lowering total cost of ownership and ensuring the quality, timing, and safety of our purchases, while at the same time meeting operational targets and objectives. This includes B-BBEE targets. In the year under review, we made significant contribution with regards to support given to black-owned and black women-owned businesses. This is reflected in the forestry sector scorecard of 12.62% against a target of 15%. We continue to focus particularly on empowering black women-owned and youth-owned businesses to accelerate their participation in the mainstream economy. A strategic sourcing initiative has since been launched in support of our objectives of maintaining quality and continuity of supply, and building sustainable supply chain security. SOUTH AFRICAN FORESTRY COMPANY LIMITED30CHIEF EXECUTIVE OFFICERS REPORTFOR THE YEAR ENDED 31 MARCH 2009Performance Against B-BBEE Score CardB-BBE Adjusted Generic Score-card for the SAFCOL Group excluding ownership, which is not applicable to State Owned Entities.ELEMENTTARGET SCORESOE WEIGHTBASE SCORE2008SCORE ACHIEVED2009Management Control 15 + 1 Bonus Point 7 11.25Employment Equity 15 + 3 Bonus Point 5 6.42Skills Development 20 10 16Preferential Procurement 20 14 20Enterprise Development 15 2 9.57Socio-economic Development 15 + 3 Bonus Point 15 15Total B-BBEE score 107 52 78.24CONTRIBUTOR LEVEL 6 3Overview of Performance Against ObjectivesPOLICY OBJECTIVE RESULTSUSTAINABLE FORESTRY MANAGEMENTTo manage the raw material resource of the Group in a professional manner to ensure sustainability in the long-term. Continue to manage the forests on a sustainable basis, consistent with the relevant legal requirements and with international independent environmental certification. Continue to strive to return the harvesting program, as soon as practical, to a normalised sustainable yield basis. Manage the forests on a sustainable basis, consistent with Governments macroeconomic policy of functioning efficient and transparent markets for goods. Continue to optimise the long-term value of the existing forest assets. FSC was maintained in all 18 plantations under KLF in the year under review. Harvesting schedules are updated regularly. Annual cut is restricted to sustainable yield to achieve yield normality in the shortest possible time. 9 095 ha of the burnt areas were replanted during the year. At year-end the temporary unplanted area (TU) for KLF was reduced to 5,1% (2008: 6,4%). An updated marketing policy was implemented during the current year. Notices served on sawlog long-tern contracts. Fair value of standing timber increased to R3,2 billion (2008: R2,5 billion).SOUTH AFRICAN FORESTRY COMPANY LIMITED31CHIEF EXECUTIVE OFFICERS REPORTFOR THE YEAR ENDED 31 MARCH 2009POLICY OBJECTIVE RESULTRESEARCH AND DEVELOPMENT To identify and investigate new initiatives and material resources which will contribute to development. KLF to identify and investigate the potential of new initiatives and possible improved and / or new raw genetic material resources which will contribute to the development of the Forestry, Timber, Pulp and Paper sector in South Africa. The Permanent Sample Plots PSP were maintained as part of the PSP programme used for monitoring growth trends and growth modelling. Invested 1.2 % (2008:1.2%) of timber sales in forest research. There was a focus on new hybrids, e.g. Pinus patula cross with Pinus tecunnumani to increase Mean Annual Increment (MAI) and reduce susceptibility to pitch cancer fungus (fusarium). Strong collaborative ties continued with Forestry & Agricultural Biotechnology Institute (FABI) at the University of Pretoria and CAMCORE (International Tree Conservation and Domestication Co-operative). Plantings resumed at recently acquired seed orchards for the main pine species used in KLF.TRANSFORMATION To support the Governments transformation initiatives in all its business activities. Procurement To strive to ensure compliance with, and to exceed all Forestry Charter targets as soon as possible. To ensure that goods and services are fairly and impartially procured from a diverse range of service providers; and that the participation of black people in the provision of those goods and services is maximised. Participated with other players in the process leading to the signing of the forestry industry charter. Developed and aligned the Employment Equity targets in line with the codes of good practice issued by the Department of Trade and Industry. Service providers and suppliers database established where suppliers are requested to supply details of their B-BBEE rating in terms of the Balanced Scorecards. It is preferred that new suppliers added to the database have a B-BBEE rating of levels 1-4. The procurement policy framed in terms of the B-BBEE Codes. Refer to summary Forestry Charter Scorecard provided.SOUTH AFRICAN FORESTRY COMPANY LIMITED32CHIEF EXECUTIVE OFFICERS REPORTFOR THE YEAR ENDED 31 MARCH 2009POLICY OBJECTIVE RESULTTRANSFORMATION (CONTINUED) Broad-Based Black Economic Empowerment (B-BBEE) To sustain and reinforce B-BBEE with reference to job creation, rural development, skills, management training, and economic empowerment of black people, especially women, people with disabilities, and youth. Refer to B-BBEE Score card for scores achieved in 2009.DEVELOPMENTAL OBJECTIVES Accelerated and Shared Growth Initiative for South Africa Skills Development Seeking to halve unemployment, reduce poverty, provide the skills required by the economy, and achieve an average minimum growth rate of 6% be-tween 2010 and 2014. Develop and sustain a strategy to acquire and retain the appropriate critical skills for sustainable forestry management, as well as for the improvement of existing operations. Particular emphasis must be placed on ensuring that black people are involved in skills development pro-grams, which will lead to the achievement of this goal. Though the skills in the forestry related industry are not directly covered under the JIPSA scarce skill category, SAFCOL continued to put measures e.g. bursaries and learnership agreements, in place to encourage young people with a specific focus to women to follow forestry related studies as careers. A forestry chair developed at the University of Pretoria. This will ensure a re-vitalisation of interest in the forestry disciplines. Forestry bridging programme started at Platorand training centre whereby candidates are engaged before proceeding to universities and colleges. The programme has since been registered as a learnership with the Forest Education and Training Authority (FIETA). Upon successful completion the learners obtain an NQF level 1 qualification. As at the end of March 2009, KLF had about 10 female foresters registered in the programme. Exceeded the set target to register about 100 employees in various forestry-related learnerships accredited by FIETA. The FutureAt SAFCOL we believe that business cannot exist in isolation as the external environment plays a critical role in our sustainability. This was supported by the signing of the Forestry B-BBEE Charter, and the establishment of a forestry charter council which heralds a new dawn in the transformation of the South African forestry industry. Our vision, mission and Company objectives were revised to ensure that they remained in line with our Shareholders objectives. SOUTH AFRICAN FORESTRY COMPANY LIMITED33CHIEF EXECUTIVE OFFICERS REPORTFOR THE YEAR ENDED 31 MARCH 2009A comprehensive Corporate and Business strategy was developed to address all aspects of business, especially incorporating affected communities and land claimants as important role players.We are excited at the prospects of going forward with the new strategic direction. We began with the rollout of the five-year Corporate and Business Plan which was approved by the Board. Our point of departure was to ensure that we have systems and people in place in terms of the resources perspective which will enable us to lay a proper foundation during the implementation phase. Our business processes were then aligned to create more synergies within various parts of the business. That approach created an appropriate platform for our internal transformation strategy to set the tone for the external environment.The Corporate and Business Plan positions the Group to not only meet the transformation targets, but also to be a leader within the forestry sector. Our baseline assessment of the B-BBEE level status in terms of the codes of good practice as evaluated by an independent verification agency, reflects a B-BBEE level contribution of 3 for the Group. Aggressive targets have been set in the corporate business plan, which are monitored continuously by the Board. We further focused on our stakeholders perspective and clearly defined the role we needed to play in conjunction with communities, local governments, non-governmental organisations and other interest groups. The positioning of SAFCOLs operations in rural communities presents an opportunity for SAFCOL to play a more active role in the socio-economic development of our communities. In order to successfully implement the revised strategy, we have reviewed the organisational structure. I am pleased that our new operational structures are geared to ensure that we have a multi-functional forestry operation that integrates community initiatives. We now have expertise in senior management that will deal with issues such as enterprise development, socio-economic programmes, community liaison, and transformation, amongst others. Furthermore, a number of social compacts were signed with identified communities and stakeholders bordering our operations. A process to identify socio-economic programmes jointly with them has since resumed. The resolution of land claims on land managed by the Group is one of the priorities set by the Shareholder. SAFCOL aims to set up a settlement model that will grow partnerships with the land claimants in such a manner that will accommodate them and benefit the forestry industry. The current global economic conditions negatively impacted on the Groups overall performance and is expected to continue into the medium-term. The depressed market was preceded by two years of financial losses due to severe fire damages to our plantations. In spite of the challenges we faced during the year, I am pleased to report that our operations successfully implemented aggressive re-planting schedules to reduce temporary unplanted areas and introduced innovative fire prevention campaigns and methods. The Mlilo campaign is becoming a household brand name and is well received by communities, municipalities, fire fighting agencies and other forestry companies. This is one example that shows that working together we can do more to curb incidence of wild fires and ensure sustainable multi-functional forests for all. The timber market experienced shortages in the preceding years before the current global recession. The Groups activities in the downstream market are limited and further vertical integration to soften the blow of the decelerated markets needs to be considered going forward. Management is implementing cost cutting measures and also strict cash management practices on top of a drive to become more innovative in order to survive the current economic conditions. Economic projections indicate that the next financial year is going to be tough and all efforts will be employed in order to save jobs. Forestry business requires a long-term view and it is essential that we take the right decisions for the sustainability of the business. We believe that in the long-term, after the recession has lifted, demand of timber will still exceed the supply. The impact of the last few years fires, the decrease in availability of land for forestry and growing demand will all contribute to the expected timber shortages that will continue to put pressure on the availability of timber. Water demand and environmental pressures will also continue to impact on the availability of timber resources.SOUTH AFRICAN FORESTRY COMPANY LIMITED34CHIEF EXECUTIVE OFFICERS REPORTFOR THE YEAR ENDED 31 MARCH 2009AcknowledgementsI would like to thank Koot van der Walt, who resigned in the year under review to explore other career opportunities, for his contribution to the Group. Koot was the Chief Financial Officer for KLF, and has been an integral part of the management team in KLF. I would like to wish him all the best in his new career. It is with great regret that we heard of the death of Mr. David Gevisser. Mr. Gevisser was a member of the SAFCOL Board from September 1992 up to February 2004. He was appointed as Chairperson of the Board with effect from 1 January 1995. Mr Gevisser had an intimate knowledge of business, sawmilling and forestry, and he made major contributions to the establishment positioning of SAFCOL.I would especially like to recognise the dedication and commitment of our workforce; You are key to the successes of the company. MJ BreedChief Executive Officer35BOARD OF DIRECTORSSOUTH AFRICAN FORESTRY COMPANY LIMITED36 BOARD OF DIRECTORS MS G MOLOIMR MJ BREEDMR M BHABHADate of birth 12 September 1967Service with SAFCOL Appointed as Chairperson on15 September 2006Academic qualifications BA (Law) Masters degree (Town and Regional Planning) Diploma (General Business Management)Other boards on which the individual serves FirstRand Group Ltd Iman Africa (Pty) Ltd Lopier (Pty) Ltd Ithala Ltd Futura (Bata) (Pty) Ltd DUT: Vice Chairperson of Council Forestry Council of South Africa Last organisation of employment Drake & Scull Date of birth 30 July 1959Service 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 2002Academic qualifications BCom (Hons) Chartered Accountant (SA)Other boards on which the individual serves Associate companies Subsidiary companies in SAFCOL Group Kindling Holdings (Dormant) RTP Trading (Dormant)Date of birth29 April 1960Service with SAFCOL Appointed to the SAFCOL Board on 1 April 2005Academic qualifications BProcOther boards on which the individual serve NoneLast organisation of employment Development Bank of Southern Africa (DBSA)DR M DIAHOMR PJ DERMANPROF R HASSANDate of birth 9 March 1960Service with SAFCOL Appointed to the SAFCOL Board on 1 April 2005Academic 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 affiliations South African Medical Association Health Professions Council of South Africa Fellow of the African Leadership InitiativeLast organisation of employment Nelson Mandela Foundation Date of birth 10 February 1947Service with SAFCOL Appointed to the SAFCOL Board on 15 September 2006 Academic qualifications BA BA (Hons) Other boards on which the individual serves NoneLast organisation of employment Director and managing member of CORD Consulting CCDate of birth 22 February 1953 Service with SAFCOL Appointed to the SAFCOL Board on 15 September 2006Academic qualifications MSc, PhD, (Economics) BSc, MSc, (Agric Econ) Other boards on which the individual serves NoneLast organisation of employment Professor and director, Centre for Environmental Economics and Policy in Africa (CEEPA), University of PretoriaSOUTH AFRICAN FORESTRY COMPANY LIMITED37BOARD OF DIRECTORS MR DJ BILLSMAJ. GEN. RPM SEDIBEMR SM RADEBEDate of birth 9 February 1948Service with SAFCOL Appointed to the SAFCOL Board on 1 January 2007 Academic qualifications BSc (Forestry) Research Fellow, Norwegian Forest Research Institute Diploma (Pulp & Paper Technology) Graduate Senior Executive Programme (Sloan School of Management) Member of Institute of Foresters of Australia Fellow Institute of Chartered Foresters UKOther boards on which the individual serves President of Commonwealth Forestry Association (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 Date of birth 14 November 1944Service with SAFCOL Appointed to the SAFCOL board on 15 September 2006 Academic qualifications Practical project management certificate, UNISA -2002 Studying towards an Advanced Project Management qualification, UNISA Other boards on which the individual serves Director Bayethe Holdings (Pty) Ltd Managing Director Vihuru Truck Centre Director Pitsa Ya Sechaba (Pty) Ltd Director Tshwaranang Promotions Director and Representative Austral-Africa (South Africa) Trustee Letaba Trust Chairperson Aerosud Trustee Kayile Trust Chairperson Centurion Aerospace Village (CAV) Director United Manganese of Kgalagadi (UMK) Director Ditswammong (Pty) LtdLast organisation of employment South African Defence Force Retired Major GeneralDate of birth 17 March 1974Service with SAFCOL Appointed to the SAFCOL board on 1 June 2008Academic qualifications Chartered Accountant Post Graduate Diploma in Accountancy Bachelor of CommerceOther boards on which the individual serves Chairperson of Mogale City Municipality Audit Committee Member of City of JHB Metro Advisory Panel to Mayor on Performance Member of City of JHB Metro Group Audit Committee Non-Executive Chairman of Arthur Els Actuarial ConsultingLast organisation of employment Rebahale Consulting (Pty) Ltd MRS E ALEXANDERDate of birth 30 September 1957Service with SAFCOL Appointed to the SAFCOL board on 1 June 2008 Academic qualifications BSc Chemistry & Management BA Laws PD Management International Agri Biotech CourseOther boards on which the individual serves Executive Director of South African Table Grape IndustryLast organisation of employment South African Table Grape IndustryEXECUTIVE COMMITTEESOUTH AFRICAN FORESTRY COMPANY LIMITED40 EXECUTIVE COMMITTEEMR MJ BREEDMR F DE VILLIERSMRS I GRICIUSDate of birth 30 July 1959Service 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 2002Academic qualifications BCom (Hons) Chartered Accountant (SA)Other boards on which the individual serves Associate companies Subsidiary companies in SAFCOL Group Kindling Holdings (Dormant) RTP Trading (Dormant)Date of birth 8 December 1960Service with KLF 1 May 1994 to dateCurrent position Senior Executive: Marketing Academic qualifications BEng. (Electronics)Other boards on which the employee serves Subsidiary companies in SAFCOL Group RTP Trading (Dormant) Kindling Holdings (Dormant)Area of expertise Marketing and processingDate of birth 3 May 1968Service with SAFCOL 12 December 1988 to dateCurrent position Senior Executive Legal ServicesAcademic qualifications BIuris LLBOther boards on which the employee serves NoneArea of expertise Commercial lawMS HM MANYATSAMRS LC MOSSOP-ROUSSEAUMR LN MUDIMELIDate of birth12 January 1979Service with SAFCOL 1 January 2007 to dateCurrent position Chief Financial OfficerAcademic qualifications BCom (Hons) Chartered Accountant (SA)Boards on which the employee serves Subsidiary companies in SAFCOL Group Associate companies in SAFCOL GroupArea of expertise Financial managementDate of birth 7 January 1963Service with SAFCOL 1 August 2006 to dateCurrent position Senior Executive Corporate ServicesAcademic qualifications BA BA (Hons) (Geography) Higher Diploma in Education BIurisBoards on which the employee serves Subsidiary Companies in SAFCOL Group African Forestry Forum Food and Trees for AfricaArea of expertise Spatial planning, legal, land and forestry matters, managementDate of birth5 October 1974Service with KLF 1 April 2003 to dateCurrent position Senior Executive Corporate Communication & LiaisonAcademic qualifications BSc Natural Sciences BSc (Hons) Zoology MDPBoards on which the individual serves Subsidiary companies in SAFCOL Group Forestry South Africa, Exco MemberArea of expertise Environmental Management and Public RelationsSOUTH AFRICAN FORESTRY COMPANY LIMITED41EXECUTIVE COMMITTEEDR GJ WESSELSMR AA MUTSHINYAMR JHR VAN DER SIJDEDate of birth6 September 1957Service with SAFCOL 1 June 2006 to dateCurrent position Senior Executive Strategy, Planning and ICT Academic qualifications PhD (Mineral Economics) MSc (Applied Mathematics) BSc (Hons) Operations Research BSc Mathematics and Applied Mathematics BCom (Hons) Financial Accounting Certificate in the Theory of Accountancy Chartered Accountant (SA)Other boards on which the employee serves NoneArea of expertise Strategic planning and business management, financial and mathematical modellingDate of birth31 March 1964Service with SAFCOL 1 September 2006 to dateCurrent position Senior Executive Human Capital ManagementAcademic qualifications BA Admin BA (Hons) Industrial Psychology Certificate Programme: Organisational Development ConsultingBoards on which the employee serves Subsidiary companies in SAFCOL Group Associate companiesArea of expertise Human Resources and transformation interventionsDate of birth15 June 1958Service with KLF 3 January 1976 to dateCurrent position Senior Executive ForestsAcademic qualifications BSc (Hons) Forestry MSc Forestry MBABoards on which the employee serves Subsidiary companies of KLFArea of expertise Forestry and researchMR P CHETTYDate of birth5 December 1969Service with SAFCOL 19 January 2009 to dateCurrent position Senior Executive Enterprise DevelopmentAcademic qualifications BCom & CIABoards on which the employee serves Subsidiary companies in SAFCOL Group Associate CompaniesArea of expertise Business Management and Enterprise DevelopmentGROUP FINANCIAL REVIEWSOUTH AFRICAN FORESTRY COMPANY LIMITED44 GROUP FINANCIAL REVIEW FOR THE YEAR ENDED 31 MARCH 2009 FINANCIAL RESULTS 2009YEARR0002008YEARR0002007YEARR0002006YEARR0002005YEARR000Turnover 857,118 832,188 653,436 326,654 640,696Operating profit / (loss) (PBIT) before IAS 41 fair value adjustments to biological assets 114,093 267,489 182,919 40,119 (16,720)IAS 41 fair value adjustments to biological assets 757,915 528,715 861,354 170,972 328,836Profit before interest and taxation (PBIT) 872,008 796,204 1,044,273 211,091 312,116Investment income 45,916 45,387 26,464 25,436 16,110Finance costs (958) (2,432) (2,041) (2,389) (1,956)Share of profit of associates 52,838 32,630 63,734 23,878 17,731Profit before taxation (PBT) 969,804 871,790 1,132,430 258,016 344,001Income tax expense (267,579) (230,222) (303,284) (72,092) (111,238)Net profit 702,225 641,568 829,146 185,924 232,763Loss from discontinued operation (348) (3,036) (28,559) (17,181) -Dividend paid - - - (30,000) (30,000)Retained income for the year 701,877 638,532 800,587 138,743 202,763FINANCIAL POSITION2009YEARR0002008YEARR0002007YEARR0002006YEARR0002005YEARR000AssetsProperty. plant and equipment 260,878 204,476 156,274 148,823 164,611Investment property 4,803 4,667 4,667 4,667 4,667Intangible assets 1,289 1,660 2,039 2,421 2,9973Biological assets 3,218,274 2,460,359 1,930,076 1,068,722 898,111Investments in associates 227,622 178,976 161,346 151,162 129,784Loans and receivables - 6,220 11,813 19,109 2,473Available-for-sale financial assets 4,857 4,385 3,464Deferred taxation asset 975 1,506 4,495 1,813 -Pension and provident fund assets 45,216 49,576 - - -Current assets 691,082 716,837 495,248 278,542 292,970Equity and LiabilitiesCapital and reserves 3,385,342 2,694,987 2,047,372 1,249,633 1,113,123Deferred taxation liability 964,719 738,456 575,075 295,012 219,522Long-term provisions - - - 16,409 17,648Borrowings 1,459 12,574 16,915 7,957 7,886Pension obligation - 334 - - -Current liabilities 103,478 182,311 130,061 106,248 137,434Cents Cents Cents Cents CentsBasic earnings per share(net profit/number of shares) 220,7 200,8 251,7 53,1 73,2% % % % %Return on equity (PBT/ capital and reserves) 31,9 36,6 67,0 20,4 35,9Return on capital employed(PBT/ (capital and reserves + non-current liabilities) 31,8 36,4 66,1 20,0 34,8Net margin (PBT/ turnover) 113,1 102,8 161,1 66,9 53,7Please note the following:Profit before tax for the current and comparitive years exclude the results of the discontinued operation which are disclosed separately.45GROUP VALUE ADDED STATEMENTSOUTH AFRICAN FORESTRY COMPANY LIMITED46 GROUP VALUE ADDED STATEMENT FOR THE YEAR ENDED 31 MARCH 2009The 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.2009% 2008 % R000 R000 TurnoverLess: Direct cost (excluding labour cost)857,148466,487 845,017408,026Value added by operationsAdd: Fair value adjustment to biological assets390,662757,915436,991528,715 Add: Investment income & share of profit of associates1,148,57798,754965,70678,017TOTAL VALUE ADDED 1,247,331 1,043,723 Distributed as follows:Employees (remuneration. benefits. social welfare and training)228,049 19.9 137,038 14.2 Providers of finance 959 0.1 2,433 0.3 Corporate social investment 8,040 0.7 4,900 0.5 Government for taxation 267,579 23.3 230,222 23.8 SUB TOTAL 504,627 44.0 374,593 38.8 Value reinvested 742,703 64.7 669,130 69.3 Depreciation and Amortisation 40,826 3.6 30,598 3.2 Retained income for the year 701,877 61.1 638,532 66.1 TOTAL VALUE DISTRIBUTED 1,247,331 108.7 1,043,723 108.1 % Allocation Of Group Value Added2009 VALUE ADDED 2008 VALUE ADDEDEmployeesProviders of FinanceCorporate Social InvestmentGovernment TaxationEmployeesProviders of FinanceCorporate Social InvestmentGovernment TaxationPlease note the following:Group value added includes the results of the discontinued operation for both years under review.47FINANCIAL HIGHLIGHTSSOUTH AFRICAN FORESTRY COMPANY LIMITED48 FINANCIAL HIGHLIGHTS FOR THE YEAR ENDED 31 MARCH 20092009YEARR0002008YEARR0002007YEARR0002006NINE MONTHSR0002005YEARR000Turnover 857,148 845,017 685,083 359,926 640,696Operating profit / (loss) before the effect of fair value adjustments to biological assets113,745 264,453 154,360 22,938 (16,720)Profit before interest and taxation - PBIT 871,660 793,168 1,015,714 193,910 312,116Profit before taxation - PBT 969,456 868,753 1,103,872 240,835 344,001Net profit 701,877 638,532 800,587 168,743 232,763Capital expenditure 98,569 76,533 44,498 11,295 28,234Please note the following:Financial highlights include the results of the discontinued operation for both the current and prior years under review.Turnover1,000900800700600500400300200100Financial YearRand (Million)2009 2008 2007 2006 2005Net ProfitRand (Million)Financial Year2009 2008 2007 2006 2005900800700600500400300200100Capital ExpenditureRand (Million)Financial Year2009 2008 2007 2006 20051201008060402049RESPONSIBILITY OF DIRECTORSSOUTH AFRICAN FORESTRY COMPANY LIMITED50 RESPONSIBILITY OF THE DIRECTORS FOR THE ANNUAL FINANCIAL STATEMENTS 31 MARCH 2009The Directors are required in terms of the South African Companies Act, 1973, 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 and Company 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 the Groups 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 2009, set out on pages 60 to 136, and the reports by the Chairperson and the Chief Executive Officer set out on pages 8 to 34 were approved by the Board of Directors on 22 July 2009 and are signed on its behalf by:GMoloi MJBreedChairperson Chief Executive Officer51REPORT OF THE COMBINED AUDIT AND RISK MANAGEMENT COMMITTEESOUTH AFRICAN FORESTRY COMPANY LIMITED52 REPORT OF THE COMBINED AUDIT AND RISK MANAGEMENT COMMITTEE 31 MARCH 2009We are pleased to present our report for the financial year ended 31 March 2009.The Combined 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 2009, the Audit Committee consisted of Mr. S Radebe, Mr. M. Bhabha, Mr. D.J. 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 Chief Financial Officer and the 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 Company and Group. The Audit committee adopted terms and references as formally set by the Board, and it satisfied its responsibilities for the year under review. A total of four meetings were held during the year under review and in all meetings 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 and annual financial statements of SAFCOL, 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 present the state of affairs of the Group and Company 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.S Radebe53COMPANY SECRETARYS REPORTSOUTH AFRICAN FORESTRY COMPANY LIMITED54 CHAIRPERSON OF THE COMBINED AUDIT AND RISK MANAGEMENT COMMITTEE COMPANY SECRETARYS CERTIFICATE 31 MARCH 2009Declaration by the Company Secretary in terms of Section 268G (d) of the Companies Act: In my capacity as Company Secretary, I hereby confirm, in terms of the Companies Act, 1973, that for the year ended 31 March 2009, 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. I Gricius Group Company Secretary55INDEPENDENT AUDITORS REPORT TO THE MINISTER OF PUBLIC ENTERPRISESSOUTH AFRICAN FORESTRY COMPANY LIMITED56 INDEPENDENT AUDITORS REPORT TO THE MINISTER OF PUBLIC ENTERPRISES FOR THE YEAR ENDED 31 MARCH 2009Report on the Financial StatementsWe have audited the Group annual financial statements and annual financial statements of South African Forestry Company Limited, which comprise the consolidated and separate balance sheets as at 31 March 2009, and the consolidated and separate income statements, the consolidated and separate statements of changes in equity and consolidated and separate cash flow statements for the year then ended, and a summary of significant accounting policies and other explanatory notes, and the Directors report, as set out on pages 60 to 136.Directors Responsibility for the Financial StatementsThe Companys 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 Companies Act of South Africa and the Public Finance Management Act, 1999 (Act No. 1 of 1999) (PFMA). 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.Auditors 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 and General Notice 616 of 2008, issued in Government Gazette No. 31057 of 15 May 2008. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance 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 auditors 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 entitys 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 entitys internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made 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, the financial statements present fairly, in all material respects, the financial position of South African Forestry Company Limited as at 31 March 2009, 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 Companies Act of South Africa and the PFMA.SOUTH AFRICAN FORESTRY COMPANY LIMITED57INDEPENDENT AUDITORS REPORT TO THE MINISTER OF PUBLIC ENTERPRISESFOR THE YEAR ENDED 31 MARCH 2009Report on Other Legal and Regulatory RequirementsReporting on Performance InformationWe have performed procedures of an audit nature on the performance information set out on pages 30 to 32.Directors Responsibility for the Performance InformationThe Companys Directors have additional responsibilities as required by section 55(2)(a) of the PFMA to ensure that the annual report and audited financial statements fairly present the performance against predetermined objectives of the public entity.Auditors ResponsibilityWe conducted our engagement in accordance with section 13 of the Public Audit Act, 2004 (Act No. 25 of 2004) read with General Notice 616 of 2008, issued in Government Gazette No. 31057 of 15 May 2008.In terms of the foregoing our engagement entailed performing procedures of an audit nature to obtain an understanding of the internal controls relating to performance information, including the related systems, processes and procedures. Our procedures included conducting limited substantive procedures on the performance information. The procedures selected depend on the auditors judgement.We believe that the evidence we have obtained provides a basis for reporting material shortcomings in the process, systems and procedures of reporting against predetermined objectives that may come to our attention during the performance of our engagement and that may impact on the public interest, in the findings below:FindingsThere are no significant findings.PricewaterhouseCoopers IncDirector: HO ZastrauRegistered AuditorJohannesburgDate: 22 July 2009REPORT OF THE DIRECTORSSOUTH AFRICAN FORESTRY COMPANY LIMITED60 REPORT OF THE DIRECTORS FOR THE YEAR ENDED 31 MARCH 2009The Directors hereby present their report on the activities of the South African Forestry Company Limited (SAFCOL) and the Group for the twelve months ended 31 March 2009.ShareholdingAll the issued shares of the Company are held by the Government of the Republic of South Africa. The Directors have not been granted any authorisation to issue additional shares.Nature of BusinessThe Company and its subsidiaries, incorporated in terms of the Companies Act, 1973, read in conjunction with the provisions of the Management of State Forests Act, 1992, operate mainly in the forestry and forest products industry. The Group employs approximately 2 255 (2008: 2 168) people in South Africa and 674 (2008: 712) people in Mozambique (excluding 4 expatriates). 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.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 operating subsidiaries and associated companies. The operational subsidiaries are Komatiland Forests (Pty) Ltd (KLF), Industrias Florestais de Manica, SA (IFLOMA), Mountains to Oceans Forestry (Pty) Ltd., and Themba Timber (Pty) Ltd. SAFCOLSAFCOL continuously endeavours to achieve Governments objectives in the shareholders compact, which includes opportunities within the wider Forest, Timber, Pulp and Paper industry. SAFCOL always strives to be recognised as a preferred employer, to improve innovation and technical excellence, to earn acceptable returns for its shareholder, to protect the natural environment in which it operates, and to ensure a greener heritage for all. The Group invests resources to help develop future prospects for historically disadvantaged groups.KLFKLFs main business is the conduct of forestry, timber-harvesting, timber-processing and related activities. Its main source of revenue is 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 can be derived from the nursery, ecotourism, harvesting and transport operations, as well as property related transactions and other investments.KLF consists of 18 plantations covering 187 320 ha. The total plantable area is approximately 124 000 ha (2008: 125 000 ha) in extent which are managed in separate compartments of approximately 12 ha each. The plantation stock consists of approximately 90% pine, 8% eucalyptus and 2% acacia and other species. Pine and eucalyptus are clearfelled mainly for saw logs, and acacia to a large degree produces bark and fibre.SOUTH AFRICAN FORESTRY COMPANY LIMITED61REPORT OF THE DIRECTORS FOR THE YEAR ENDED 31 MARCH 2009KLF 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 sawmillers located in and around its plantations. After thinning and clearfelling, pine is used to produce veneer, pruned logs, saw logs and pulpwood. Eucalyptus is harvested to produce saw logs, poles, mining timber or pulpwood. Saw logs are graded in four categories reflecting size. Grade A denotes small diameter saw logs and grade D the largest diameter. The thinning and clearfelling regime determines the average age, size and quality of the saw logs available for sale and thereby drives the grade mix of sales. Pruned veneer, Grade C, and Grade D represent the highest quality pine sawlogs.KLF has a research centre and nursery that currently manages various trial plots in several plantations across the Limpopo, Mpumalanga and Kwazulu-Natal provinces. The nursery produces plants for all the plantations operated by KLF. A majority of the plants are pine, with a minority being eucalyptus. The nursery proved to be an invaluable asset for the supply of plants during the disaster recovery process following the recent major fires. Management believes that the research centre is critical for the ongoing effectiveness and sustainability of forestry silviculture within KLF.IFLOMAIFLOMA is a public limited liability company registered in Mozambique. The IFLOMA project was originally established by the Mozambican Government in the 1980s. The plantations were established on an area of approximately 23 600 ha (2008: 17 000 ha) in extent, providing saw logs to two sawmills. Operations are located in the Manica district, Manica Province in the centre of the Republic of Mozambique along the Mutare / Beira corridor. This is an ideal location from which to serve markets in Mozambique, Zimbabwe and South Africa.Sound and mutually beneficial relationships with neighbouring communities are an essential aspect for the sustainability of the Companys operations.Since 2004, IFLOMA has embarked on various social investment projects to address specific needs identified by surrounding communities through joint forums. Specific focus areas include the maintenance of infrastructure for public benefit and support to schools.Messica Complex0This complex serves as the administrative hub for the forestry operations, and also includes the Messica Sawmill, a pole treatment plant, and a particle board facility.The Messica Plant has not been operational for some years and requires repairs and rehabilitation. An in-depth study is required regarding available volumes of saw logs, pine chips and fuel wood (for the boilers), before re-commissioning.Penhalonga SawmillThis small sawmill is located on the Penhalonga plantation and includes a frame saw and double log edger. Maputo WarehouseThis is a modern warehouse with office facilities situated in the city of Maputo. The warehouse is located ideally for selling sawn lumber and other products directly to end-users and agents.SOUTH AFRICAN FORESTRY COMPANY LIMITED62REPORT OF THE DIRECTORS FOR THE YEAR ENDED 31 MARCH 2009Privatisation, Corporatisation and RestructuringIn order to facilitate the restructuring of the States commercial forestry assets, SAFCOL corporatised its core forestry assets into five wholly owned subsidiaries established solely for privatisation purposes. As at 31 March 2009, the disposal of the majority shareholding of four of these packages was completed. Due to the complexity of the land claims on KLF land and 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 of Directors (the Board) resolved that the privatisation process will be postponed to the foreseeable future. The postponement was to allow both the Department and the Board to address issues raised above before a decision on the way forward regarding privatisation could be made. 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 Transactions The status of privatisation transactions can be summarised as follows:PACKAGE CURRENT STATUSEastern 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.Mpumalanga, Limpopo and KwaZulu-Natal, including the operations in Mozambique - KLFBy the end of March 2007, the Government announced its intention to privatise KLF by 31 March 2009. At present, the privatisation deadline has been extended by at least five years.Interest in Privatised EntitiesSAFCOL retains a maximum 25% beneficial interest in one of the privatised forestry packages, SQF; and 16% beneficial interest in SFP, AFC and MTO. Where SAFCOL retains influence, its role is to ensure, on behalf of Government, that the majority shareholders of these entities implement the business plan undertakings that were committed to in theprivatisation process. Influence is secured by representation on the Boards of the entities, and supported in the respective shareholders agreements containing extensive minority protection clauses in place for a maximum period of five years after the implementation of each of the initial privatisation transactions. The extensive minority protection has lapsed in SFP and SQF and only remains in the shareholders agreements in respect of AFC and MTO.SOUTH AFRICAN FORESTRY COMPANY LIMITED63REPORT OF THE DIRECTORS FOR THE YEAR ENDED 31 MARCH 2009Up to 19% of the Companys interest in the privatised packages has been earmarked for disposal to the following entities:ENTITY PORTION OF INTERESTA trust established in terms of the National Empowerment Fund (NEF) Act, 105 of 1998orA trust established for the benefit of surrounding local communities.10%Governments policy decision in respect of the disposal of the 10% interest to the NEF or community trusts has not yet been finalised, but it is expected that the disposals will be transacted at a price that approximates market value. Active efforts to finalise the disposal of the 10% to the NEF or community trusts are being undertaken. The Department of Public Enterprises (DPE) notified SAFCOL previously that a service provider was appointed to assist the DPE in developing a framework for the transfer of such interest. The Board has been mandated by the Shareholder to take full responsibility for the implementation of the various ESOPs. It was indicated in the relevant offer documents that the ESOPs would be able to acquire the relevant interest at a discount of approximately 15%. The SFP, MTO and AFC ESOP transactions have been completed. With regard to SQF, an in principle agreement was reached with eligible employees that due to the low number of staff members who were still employed by SQF, an ESOP would not be viable, and that the employees would receive financial compensation in lieu of an ESOP. This process is almost complete, with few outstanding payments to be made which are expected to be finalised early in the 2009 / 2010 financial year. Land Lease KLF currently leases the land on which its plantations are situated in terms of an arrangement entered into with the Minister of Water Affairs and Forestry as part of the establishment of SAFCOL as a State Owned Entity. Land ClaimsVarious communities, families and individuals have instituted claims against the State in terms of the Restitution of Land Rights Act, 1994 (Act 22 of 1994), with respect to portions of State forest land upon which the Group conducts its business. The multitude of land claims are in different stages of research and resolution by the Land Restitution Commission (LRC). SAFCOL has made active efforts to clarify the status of the various land claims and to discuss the possible resolution of the claims with the LRC at both national and regional level. A co-operative relationship between the LRC and SAFCOL has been maintained throughout the year.SAFCOL has tried to assist where possible, and it is hoped that the investigation into land claims by the relevant Regional Land Claims Commissioners (RLCCs) will progress substantially in the next year, and that resolution can be found for forestry areas under claims. SAFCOL has met with the relevant LRC, various land claimant communities and other stakeholders to endeavour to find a way to proceed with claims over the land over which it is operative. Land claims over land owned by the Group, being both the Shannon plantations in the Barberton district and the Abacus properties in the Ngome area of KwaZulu-Natal, have been investigated by the relevant RLCCs and settlement offers for both the land and the standing timber have been received by SAFCOL. The Board has considered these settlement offers and agreed in principle thereto and it is hoped that the resolution of the two sets of claims will proceed during 2009 / 2010.Advisors Fees The total cumulative expenditure on advisors fees since the commencement of the restructuring process in 1995 amounts to R58,1 million as at 31 March 2009, including R2,3 million (2008: R9,7 million) for the year under review.SOUTH AFRICAN FORESTRY COMPANY LIMITED64REPORT OF THE DIRECTORS FOR THE YEAR ENDED 31 MARCH 2009Non-core AssetsAs at 31 March 2009, the so-called non-core assets and operations remaining within SAFCOL included the following: Mountains to Oceans Forestry (Pty) Ltd (Mountains) Financing vehicle for forestry Enterprise Development projects, promoting SMMEs in the forestry industry. Shannon properties short rotation hardwood plantation under a long-term lease to a third party until 2019. Harlands Saligna Ltd (dormant company) deregistered during the 2009 financial year. Valgrace Investments (Pty) Ltd (dormant company) sold during the 2009 financial year; and Minority interests in the four privatised entities.Shannon PropertiesSAFCOL received an offer from the RLCC for the plantation situated close to Barberton and received approval from the Board to proceed with the transaction subject to Section 54 approval of the Public Finance Management Act (PFMA). The matter now rests with the RLCC and the Minister of Land Affairs and Agriculture. The plantation is currently under long-term lease to Mondi.Lebanon Fruit Farm TrustA deed of sale has been entered into between the Department of Public Works and SAFCOL for the acquisition, and simultaneously between SAFCOL and the Lebanon Fruit Farm Trust for the disposal of farm land in the Western Cape. All agreements have been signed and the transferring attorneys are currently busy with the transfer. The planned implementation date is September 2009.Seed OrchardThis farm is situated in the Mtubatuba district, it was purchased by SAFCOL for the establishment of a seed orchard, conserving and relocating genetic material. The Group took ownership of the property on 14 May 2008. The 127 ha farm can accommodate the seed orchards needed and also has the capacity to ensure that a portion of the land will be set aside for communityenterprise development. To date, land has been cleared and prepared for planting and the first 4 ha of seed orchards are already planted. A research nursery is in operation and upgrade on infrastructure is in progress.General ReviewThe financial results of the Company and of the Group are fully set out in the annual financial statements, which form part of the annual report. The Company and Group are managed in accordance with commercial business principles and, subject to restraints placed on them, attempt to compete on an equal basis with the rest of the industry.The Group has, during the year under review, realised a profit before taxation and after discontinued operations of R969.5 million (2008: R868.8 million profit) after including an increase in the carrying value of standing timber in the amount of R 757.9 million (2008: R528.7 million). This increase in the value of standing timber is explained fully in Note 11 to the annual financial statements. The total negative impact of the fire salvage operations is estimated to be R203.3 million (2008: R367.6 million). As a result of the fires, a total of 228 458 m (2008: 218 351 m) salvaged logs with a fair value of R118.3 million (2008: R95.9 million) are stored on wet decks. Also included in the results is a realised adjustment to the retirement fund assets of a decrease of R4.0 million (2008: R49.2 million increase). As a result of the corporate restructuring, termination costs amounting to R4.4 million (2008: R0.8 million) are included in the results. All Labour Relations Act requirements were followed.SOUTH AFRICAN FORESTRY COMPANY LIMITED65REPORT OF THE DIRECTORS FOR THE YEAR ENDED 31 MARCH 2009The Group financial results, as set out in the annual financial statements, can be summarised as follows: 2009*R0002008*R000Turnover 857, 148 845, 017Profit before Taxation 969, 456 868, 753Net Profit 701, 877 638, 532Capital Expenditure 98, 569 76, 533 % %Return on Equity 31.9 36.6Return on Capital Employed 31.8 36.4*The figures include discontinuing operationsThe total amount of capital expenditure for the year under review was R98.6 million (2008: R76.5 million). Capital expenditure is R24.1 million (2008: R37 million) behind budget mainly due to the lead times involved in delivering equipment and efforts that are being made by the Group to source equipment from BEE suppliers, and well-managed capital expenditure.SubsidiariesThe interest of the Company in the profits / (losses) before taxation and after discontinuing operations of its subsidiaries is:2009R2008RKomatiland Forests (Pty) Ltd 899, 915, 845 814, 729, 377Mountains to Oceans Forestry (Pty) Ltd (1, 241) (1, 263)Valgrace Investments (Pty) Ltd* 0 0Harlands Saligna Ltd** 0 0 * Dormant; sold during 2009 financial year. ** Dormant; deregistered during 2009 financial year.Expansion into MozambiqueIt is part of the strategic objective of the SAFCOL Group to profitably manage and expand the existing IFLOMA operations. It is our intention to get the plantation into a sustainable rotation of saw timber, and to establish new Eucalyptus plantations in the Sofala province of Mozambique. These will involve the expansion of the current nursery and clone bank at Messica plantation to establish seedling supply and other infrastructural developments. Shareholders approval is awaited on this regard.Plantation Fires and DamagesNot withstanding all the changes to policies and procedures and additional actions introduced by Management, operations were again affected by fires during the period under review. Fire spread and intensity is mainly influenced by weather conditions like temperature, moisture, and wind, which is not controllable.Management remains positive that actions like prescribed burning under trees, the Mlilo fire awareness campaign, and closer interactions with communities through formal social compacts, will reduce hectares lost due to fires.SOUTH AFRICAN FORESTRY COMPANY LIMITED66REPORT OF THE DIRECTORS FOR THE YEAR ENDED 31 MARCH 20094 911 ha were damaged by fires mainly on Berlin, Jessievale, Ngome and Roburnia plantations. Due to the extent of the damage, compounded by the disastrous fires of 2007, the impact of the recent fires on Management and budgets continue to be enormous.Incremental costs due to the salvage operations and increased planting and tending costs negatively impacted current year results and will have a material impact on the financial results in the short to medium-term. All salvage operations were completed without any serious injuries.The benefits of large operations have once again been proven through the effective and efficient relocations of resources to harvesting and re-establishment of affected areas.Property, Plant and EquipmentThere has been no major change in the nature or use of property, plant and equipment other than the reclassification of the Shannon property to investment property in 2008. Valuation of Biological AssetsThe valuations of the standing timber for all the operating entities, including IFLOMA, are performed by an external forestry economist, using detailed information extracted from the core forestry and financial systems. Assumptions and estimates are used in recording plantation volumes, cost per cubic metre, and product mix. A major consideration is the estimation of future growth. The inputs to our growth model are complex and involve estimations, all of which are updated regularly. The fair value model and the methodology and assumptions utilised have been revised to obtain a more accurate valuation. This has resulted in a change in estimate in the fair value of plantations at year-end, in order to have a more accurate model in terms of species, volumes, income, expenses and prices. The change has been applied prospectively and fully disclosed in the financial statements.Corporate GovernanceCode of Corporate Practices and Conduct (the Code)The Directors endorse the Code as set out in the King II Report and have adopted it as far as possible. By supporting theCode, 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 Groups 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.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 fulfill their functions and obligations. SOUTH AFRICAN FORESTRY COMPANY LIMITED67REPORT OF THE DIRECTORS FOR THE YEAR ENDED 31 MARCH 2009The 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 Company 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 Company and monitors compliance with policies and achievement against objectives. The Directors comply with their fiduciary duties, which include among 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.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 R2.5 million as full and final settlement of a claim instituted by SAFCOL against investment companies. Estimated R 1.1 million (2008: R166.4 million) in respect of the 5 702 m (2008: 415 722 m) of fire damaged young timber as a result of the catastrophic fires. The total impairment of the carrying value of standing timber is R107.3 million (2008: R235.0 million).Risk ManagementThe 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; and 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 Groups Risk Management Framework based on the Australian / New Zealand Risk Management Standard AS / NZS4360: 2004, indicating the overall process and responsibilities applied in the organisation.Governments 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.SOUTH AFRICAN FORESTRY COMPANY LIMITED68REPORT OF THE DIRECTORS FOR THE YEAR ENDED 31 MARCH 2009The top key risks for the Group have been established, based on extensive workshops held throughout the organisation and risk treatment plans that have been finalised.Key Risks The core asset and processing capacity of the Group may be threatened by fires, natural disasters, pests, and diseases. The Shareholders instructions and policy statements, including privatisation of KLF, may impact on the Groups growth and profitability. The future restructuring of the Group may result in smaller but uneconomical units which may negatively influence the sustainability of the resulting enterprises. There is a risk that the Group may lose its Forestry Stewardship Council and other business enabling certification resulting from actions on State forest land by external parties. The Group may lose productive land due to land claims, illegal occupation of land by adjacent communities, and actions emanating from exercising mineral rights. Global warming may cause climate change that adversely affects our business. AuditThe function of internal audit within the framework of SAFCOL is to: Evaluate the functioning of the risk management process and internal control system. 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 to provide reasonable assurance of the fair presentation of the financial statements.Surplus CashThe Groups cash equivalents and short-term deposits are placed with investment grade financial institutions on terms not exceeding three months.Remuneration PhilosophyThe 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; and Ensure both internal and external equity and fairness.SOUTH AFRICAN FORESTRY COMPANY LIMITED69REPORT OF THE DIRECTORS FOR THE YEAR ENDED 31 MARCH 2009To 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 Groups 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 individuals worth to the Group; A performance management system that serves both to differentiate individual and / or team performance, as well as 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 gradings, and updating of structures for approval by the Board; A structured and open communication approach regarding the Groups 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.Retirement Funds Closure of Executive Umbrella Provident FundFollowing the closure of the Fund by Investment Solutions on 31 December 2008, the membership of nine employees who were members of the Fund were transferred to the SAFCOL Provident Fund with effect from I January 2009 under conditions approved by the SAFCOL Board.Utilisation of Surplus in the Provident FundApproval has been granted by the Board for the extension of the utilisation of the Contribution Holiday from 1 April 2009 to 31 March 2010. DividendsDue to the uncertainty of the economic crisis, the worsening of the financial performance of the Group and its impact on surplus cash available within the Group, no dividends have been proposed by the Board for 2009.Going ConcernThe Directors believe that the Group will be a going concern in the year ahead. For this reason, they continue to adopt the going concern basis in preparing the Group annual financial statements.SOUTH AFRICAN FORESTRY COMPANY LIMITED70REPORT OF THE DIRECTORS FOR THE YEAR ENDED 31 MARCH 2009Legal ProceedingsThe 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 Governments decision not to continue with the previous privatisation process. The matter is being defended and the Directors have been advised by the companys legal advisers that the chances of successfully defending the matter are good.DirectorsThe following Directors were in office at 31 March 2009:COMMITTEESG Moloi (Chairperson) FMJ Breed (Chief Executive Officer) NoneE Alexander C, R, T, FM Bhabha C,R,TDJ Bills* C,F (Chairperson)PJ Derman R,T (Chairperson)M Diaho C,T,R (Chairperson)R Hassan FS Radebe R, T, F,C (Chairperson)RPM Sedibe R,T*Australian citizenF = Finance, Investment and Transaction CommitteeR = Remuneration CommitteeT = Transformation CommitteeC = Combined Audit and Risk Management CommitteeWith 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: DJ Bills took over the role of an Independent Non-Executive Chairperson of the Combined Audit and Risk Management Committee from TF Zulu in an acting capacity with effect from 1 May 2008. S Radebe took over this role on a permanent basis with effect from 1 July 2008. E Alexander was appointed on 1 June 2008. S Radebe was appointed on 1 June 2008. Resignation: JP Coetzer resigned on 30 June 2008.SOUTH AFRICAN FORESTRY COMPANY LIMITED71REPORT OF THE DIRECTORS FOR THE YEAR ENDED 31 MARCH 2009Board 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 CommitteeThe 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 to be responsible for its recommendations and will, within these terms of reference: Determine, agree and develop the Companys general policy on executive and senior management remuneration; Determine specific remuneration packages for Executive Directors of the Company, including but not limited to basic salary, benefits in kind, any annual bonuses, performance based incentives, share incentives, pensions and other benefits; and 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 Companys performance and to ensure that they are fairly, but responsibly rewarded for their individual contributions and performance. Transformation CommitteeThe primary objective of the Transformation Programme is to ensure that the Company 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; and Policies and Procedures. The Committees secondary objective is to develop strategies that will create an organisational culture, structures and processes that seek to support Governments 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 Resources, will be responsible for enforcing, monitoring and auditing development and progress. The exclusion of any person capable of contributing to the Groups 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. Finance, Investment and Transaction CommitteeThe 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 DPE, since its authority isbeing limited to a considering and monitoring function. All decisions required are recommended to the Board for approval.SOUTH AFRICAN FORESTRY COMPANY LIMITED72REPORT OF THE DIRECTORS FOR THE YEAR ENDED 31 MARCH 2009The 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 role of the Finance, Investment and Transaction Committee is to: Consider and recommend to the Board an appropriate Delegation of Authority Framework enabling the Company 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 Company; Monitor the financial performance of the Company 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 items, 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 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 Company and requested to do so by the Board or a Board Sub-Committee; Consider all contractual matters relating to the Companys relationship with the Shareholder and recommend to the Board for actions; and 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 CommitteeThe Combined Audit and Risk Management Committee is an important element of the Boards system of monitoring andcontrol. 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; 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; and To consider other relevant matters referred to it by the Board.This Committee considers the Companys risk management policy and strategy and reviews the integrity of the risk management process and significant risks facing the Company. 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 SOUTH AFRICAN FORESTRY COMPANY LIMITED73REPORT OF THE DIRECTORS FOR THE YEAR ENDED 31 MARCH 2009submission to the Board. Following the Committees review, reports are submitted to the Board if the Committee is not satisfied with any aspect of the proposed financial reporting by the Company.The Committee monitors compliance with relevant legislation and ensures that an appropriate system of internal control is maintained to protect the Companys 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.Company Secretariat and Corporate GovernanceDuring the year under review, the Company engaged the services of KPMG to conduct a corporate governance review audit in order to ensure that the Company continues to carry its affairs in line with best corporate practices. The review is inprogress. Mrs. I. Gricius resigned as Company Secretary effectively 31 March 2009. Mr. R Shirinda was appointed with effect from 1 April 2009 as Acting Company Secretary. He was then appointed by the Board on a permanent basis with effect from 15 May 2009. Board PerformanceThe following meetings were held and attended by the Board of Directors and its Sub-Committees for the period under review:Non-executives ExecutivesSAFCOL BoardG MoloiChairPJ DermanRPM SedibeR HassanM BhabhaM DiahoDJ BillsE Alexander Appointed 1/6/08S RadebeAppointed 1/6/08MJ BreedJP CoetzerResigned 1/6/0810 April 08 Scheduled Y Y Y Y Y N Y N/A N/A Y Y16 May 08 Scheduled Y Y N Y N Y Y N/A N/A Y Y12 June 08 Ad Hoc Y Y Y Y Y N Y N Y Y Y10 July 08 Scheduled Y N N Y Y N Y Y Y Y N/A14 Aug 08 AGM Y Y Y Y Y N Y Y Y Y N/A14 Aug 08 Scheduled Y Y Y Y Y N Y Y Y Y N/A16 Oct 08 Scheduled Y Y Y N Y Y Y Y Y Y N/A12 Nov 08 Scheduled Y Y Y N Y Y Y Y Y Y N/A12 Feb 08 Scheduled Y Y Y Y Y N Y Y Y Y N/AAttendanceScheduled 100% 87.5% 75% 75% 87.5% 37.5% 100% 100% 100% 100% 100%Ad hoc 100% 100% 100% 100% 100% 0% 100% 0% 100% 100% 100%Note: Minister Alec Erwin addressed the Board at an ad hoc meeting held 31 March 09.SOUTH AFRICAN FORESTRY COMPANY LIMITED74REPORT OF THE DIRECTORS FOR THE YEAR ENDED 31 MARCH 2009The members attendance of Board and relevant Committee meetings can be summarised as follows: Remuneration CommitteeM DiahoChairRPM SedibeM Bhabha PJ DermanE AlexanderAppointed01/07/08S RadebeAppointed01/07/089 April 08 Scheduled Y Y Y Y N/A N/A15 May 08 Scheduled Y Y N Y N/A N/A9 July 08 Scheduled Y Y Y N N YRemuneration CommitteeM DiahoChairRPM SedibeM Bhabha PJ DermanE AlexanderAppointed01/07/08S RadebeAppointed01/07/0815 Oct 08 Scheduled Y Y Y Y Y Y11 Feb 08 Scheduled N Y Y Y Y YAttendance 80% 100% 80% 80% 66.6% 100%The members attendance of Board and relevant Committee meetings can be summarised as follows: Transformation CommitteePJ DermanChairM BhabhaRPM SedibeM DiahoE AlexanderAppointed01/07/08S RadebeAppointed01/07/089 April 08 Scheduled Y Y Y Y N/A N/A15 May 08 Scheduled Y N Y Y N/A N/A9 July 08 Scheduled N Y Y Y Y Y13Aug 08 Scheduled Y Y Y N Y Y15 Oct 08 Scheduled Y N Y Y N Y11 Feb 09 Scheduled Y Y Y N Y YAttendance 83.3% 83.3% 100% 66.6% 75% 100%SOUTH AFRICAN FORESTRY COMPANY LIMITED75REPORT OF THE DIRECTORS FOR THE YEAR ENDED 31 MARCH 2009Finance, Investment and Transaction Committee DJ BillsChairR Hassan G Moloi E AlexanderAppointed01/07/08S RadebeAppointed01/07/089 April 08 Scheduled Y Y Y N/A N/A16 May 08 Scheduled Y Y Y N/A N/A13 Aug 08 Scheduled Y Y Y Y Y11 Nov 08 Scheduled Y Y Y Y Y11 Feb 09 Scheduled Y Y N Y YAttendance 100% 100% 80% 100% 100%Combined Audit and Risk Management Committee TF ZuluAppointed 01/06/07Chair 01/05/08M Bhabha M DiahoD BillsChair 01/05/08-30/06/08E AlexanderAppointed 01/07/08S RadebeAppointed 01/07/08Chair 01/07/0913 May 08 Scheduled N Y Y Y N/A N/A9 July 08 Scheduled N/A Y Y Y Y Y15 Oct 08 Scheduled N/A N Y N N Y11 Feb 09 Scheduled N/A Y N Y Y YAttendance N/A 75% 75% 75% 66.6% 100%Y Attended / N Did not attend / N/A Not ApplicableSOUTH AFRICAN FORESTRY COMPANY LIMITED76REPORT OF THE DIRECTORS FOR THE YEAR ENDED 31 MARCH 2009Directors and Executive Committee RemunerationFees for services as Director Managerial services2009 2008 Salary Performance RelatedBonuses Retirement Fund & Medical aid contributionsFire Bonus DLoyalty Bonus E R R R R R R R RExecutive Directors of SAFCOL - 3,021,496 1,819,269 843,858 - 135,688 5,820,311 13,101,418 MJ Breed AChief Executive Officer 2,214,728 1,819,269 622,133 - 93,945 4,750,075 7,878,445 JP Coetzer A.B.CFinancial Director 806,768 - 221,725 - 41,743 1,070,236 5,222,973 Non-executive Directors of SAFCOL 3,003,328 - - - - - 3,003,328 2,134,007 G Moloi Chairperson of the Board of Directors662,047 - - - - - 662,047 538,950 E Alexander BMember of the Board of Directors275,905 - - - - - 275,905 -M Bhabha Member of the Board of Directors304,249 - - - - - 304,249 284,479 DJ Bills GMember of the Board of Directors423,824 - - - - - 423,824 335,731 PJ Derman Member of the Board of Directors261,314 - - - - - 261,314 232,298 M Diaho Member of the Board of Directors328,470 - - - - - 328,470 288,199 R Hassan Member of the Board of Directors189,754 - - - - - 189,754 206,472 B Njobe FMember of the Board of Directors- - - - - - - 30,122 RPM Sedibe Member of the Board of Directors237,094 - - - - - 237,094 217,756 S Radebe BMember of the Board of Directors304,511 - - - - - 304,511 -T Zulu B,CMember of the Board of Directors16,160 - - - - - 16,160 -Executive Committee - 9,258,232 3,479,267 1,187,867 650,673 355,386 14,931,424 12,421,545 LC Mossop RoussouwSenior Executive: Corporate Services- 690,143 277,278 123,774 - 27,574 1,118,769 912,129 HM Manyatsa AChief Financial Officer- 1,113,653 470,043 130,167 - 36,871 1,750,735 1,082,419 P Chetty BSenior Executive: Enterprise Development- 184,657 60,417 26,238 - - 271,311 -GJ Wessels ASenior Executive: Strategy, Planning and ICT- 1,395,041 630,630 260,591 213,586 60,266 2,560,114 2,259,014 AA MutshinyaSenior Executive: Human Capital Management- 1,124,082 466,200 163,699 - 43,873 1,797,854 1,257,180 I Gricius ASenior Executive: Legal Services- 538,551 316,720 - - 19,697 874,968 755,190 F de Villiers ASenior Executive: Marketing- 1,095,429 436,194 147,919 209,235 42,017 1,930,794 1,663,175 JS van der Walt A,B,CSenior Executive: Enterprise Development- 1,076,308 - 107,147 10,434 46,283 1,240,171 1,606,030 LN MudimeliSenior Executive: Corporate Communication and Liason- 1,013,326 394,065 70,677 8,539 38,406 1,525,013 1,284,135 JHR van der Sijde ASenior Executive: Forests- 1,027,041 427,720 157,655 208,880 40,399 1,861,695 1,602,273 Total 3,003,328 12,279,728 5,298,536 2,031,725 650,673 491,074 23,755,063 27,656,970 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 Bonus paid relating to fire salvage operationsE Loyalty bonus paid quarterly to all employees as a result of the privatisation. The final bonus was paid in October 2008F Resigned / Retired in the prior yearG Foreign Director and receives an additional international allowanceSOUTH AFRICAN FORESTRY COMPANY LIMITED77REPORT OF THE DIRECTORS FOR THE YEAR ENDED 31 MARCH 2009SecretaryI. Gricius*PO Box 1771Silverton0127*Mrs. I. Gricius resigned 31 March 2009 and was replaced by Mr. R. Shirinda.BankersABSA Bank LimitedFirstRand Bank LimitedThe Standard Bank of South Africa Limited Nedbank LimitedInvestec LimitedAuditorsExternal Auditors PricewaterhouseCoopers IncInternal Audit Service Providers Tereo Krino Business Assurance Consultants (Pty) Ltd KPMGEnvironmental Auditors SGS South Africa (Pty) LtdAttorneys Gildenhuys Lessing Malatji Attorneys Hofmeyr Herbstein & Gihwala Inc. Jarvis Pudney Attorneys Jasper van der Westhuizen & Bodenstein Inc. Morajane du Plessis Inc. Roestoff, Venter & Kruse Attorneys Deneys Reitz Werksmans Incorporated Tabacks Corporate Law AdvisorsRegistered Office and Postal AddressSouth African Forestry Company LimitedRegistration number: 1992/005427/06HB Forum Building13 Stamvrug StreetVal de GracePretoriaTel: +27 12 481-3500Fax: +27 12 804-3716GROUP INCOME STATEMENTSOUTH AFRICAN FORESTRY COMPANY LIMITED80 GROUP INCOME STATEMENT FOR THE YEAR ENDED 31 MARCH 2009NOTESYEARENDED31 MARCH 2009YEARENDED31 MARCH 2008YEARENDED31 MARCH 2009YEARENDED31 MARCH 2008GROUP GROUP COMPANY COMPANYR R R RContinuing OperationsTurnover 3 857,118,337 832,187,724 27,711,792 31,090,196 Cost of sales (552,928,034) (514,308,256) - - Gross profit 304,190,303 317,879,468 27,711,792 31,090,196 Other operating income 757,309,474 572,886,600 - 174,845 Administrative expenses (68,653,275) (61,902,191) (25,074,702) (22,300,741)Other operating expenses (120,838,502) (32,659,645) (31,034,307) (25,586,668)Operating profit / (loss) 4 872,008,000 796,204,232 (28,397,217) (16,622,368)Investment income 5 45,916,216 45,387,326 47,621,876 45,349,766 Finance costs 6 (957,985) (2,431,639) (2,102,057) (8,076,644)Share of profit of associates 13 52,837,928 32,629,564 - - Profit before tax 969,804,159 871,789,483 17,122,602 20,650,754Income tax expense 7 (267,579,137) (230,221,753) (5,421,611) (15,566,791)Profit for the year from continuing operations 702,225,022 641,567,730 11,700,991 5,083,963 Discontinued Operations Loss for the year from discontinued operations20 (347,714) (3,036,043) - - Profit For The Year 701,877,308 638,531,687 11,700,991 5,083,963 81GROUP BALANCE SHEETSOUTH AFRICAN FORESTRY COMPANY LIMITED82 GROUP BALANCE SHEET FOR THE YEAR ENDED 31 MARCH 2009NOTESAs At31 March 2009As At31 March 2008As At31 March 2009As At31 March 2008Group Group Company CompanyR R R RAssetsNon-current Assets 3,763,915,357 2,911,825,732 27,738,732 36,849,786 Property, plant and equipment 9 260,878,226 204,336,546 410,010 473,648 Investment property 8 4,802,646 4,806,428 4,802,646 4,806,428 Intangible assets 10 1,289,426 1,660,315 - - Biological assets - Plantations 11 3,218,274,492 2,460,359,321 - - Investments in subsidiaries 12 - - 320 17,841 Investments in associates 13 227,622,469 178,975,858 15,495,737 19,687,054 Loans and receivables 15 - 6,220,168 - 6,220,168 Available-for-sale financial assets 16 4,856,766 4,384,882 4,606,093 4,134,209 Pension and provident fund assets 32 45,215,999 49,576,000 1,535,504 4,224 Deferred taxation asset 24 975,333 1,506,214 888,422 1,506,214 Current Assets 691,082,264 716,837,036 678,658,783 660,756,400 Inventories 17 187,277,778 126,605,359 65,129 54,878 Trade and other receivables 18 185,826,796 151,237,215 7,670,391 10,689,952 Current income tax assets 7 16,016,396 11,077 7,843,571 672,102 Cash and cash equivalents 19 295,940,590 432,979,030 288,454,667 419,645,348 Loans and receivables 15 6,020,704 5,723,096 6,020,704 5,723,096 Investments in subsidiaries 12 - - 368,604,321 223,971,024 Assets classified as held for sale 21 - 281,259 - - Total Assets 4,454,997,621 3,628,662,768 706,397,515 697,606,186 Equity And LiabilitiesCapital And Reserves 3,385,342,045 2,694,987,380 692,267,020 680,566,029 Share capital 22 318,013,254 318,013,254 318,013,254 318,013,254 Non-distributable reserves 23 119,879,231 131,401,874 126,821,456 126,821,456 Retained earnings 2,947,449,560 2,245,572,252 247,432,310 235,731,319 Non-current Liabilities 966,177,146 751,364,370 - - Deferred taxation liability 24 964,718,533 738,456,474 - - Borrowings 25 1,458,613 12,573,896 - - Pension obligation 32 - 334,000 - - Current Liabilities 103,478,430 182,311,018 14,130,495 17,040,157Trade and other payables 26 75,104,812 105,501,323 8,678,751 11,314,747 Current income tax liabilities 7 - 53,270,712 - - Provisions 27 26,820,247 19,046,083 5,451,744 5,725,410Borrowings 25 1,553,371 4,492,900 - - Total Equity And Liabilities 4,454,997,621 3,628,662,768 706,397,515 697,606,18683GROUP STATEMENT OF CHANGES EQUITYSOUTH AFRICAN FORESTRY COMPANY LIMITED84 GROUP STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 MARCH 2009NOTES Non-distributable Reserves ShareCapital CapitalProfitReserve RetirementFundReserve RevaluationReserve ForeignCurrencyTranslationReserve RetainedEarnings Total R R R R R R RGroup2009 Balance at 1 April 200822,23318,013,254 64,373,511 64,000,000 (603,538) 3,631,901 2,245,572,252 2,694,987,380 Foreign currency translation reserve - - - - (11,522,643) - (11,522,643)Profit for the year - - - - - 701,877,308 701,877,308 Balance at 31 March 200922,23318,013,254 64,373,511 64,000,000 (603,538) (7,890,742) 2,947,449,560 3,385,342,045 2008 Balance at 1 April 200722,23318,013,254 64,373,511 64,000,000 (603,538) (5,452,172) 1,607,040,565 2,047,371,620 Foreign currency translation reserve - - - - 9,084,073 - 9,084,073 Profit for the year - - - - - 638,531,687 638,531,687 Balance at 31 March 200822,23318,013,254 64,373,511 64,000,000 (603,538) 3,631,901 2,245,572,252 2,694,987,380 Company 2009 Balance at 1 April 200822,23318,013,254 64,373,511 64,000,000 (1,552,055) - 235,731,319 680,566,029 Profit for the year - - - - - 11,700,991 11,700,991 Balance at 31 March 200922,23318,013,254 64,373,511 64,000,000 (1,552,055) - 247,432,310 692,267,020 2008 Balance at 1 April 200722,23318,013,254 64,373,511 64,000,000 (1,552,055) - 230,647,356 675,482,066 Profit for the year - - - - - 5,083,963 5,083,963 Balance at 31 March 200822,23318,013,254 64,373,511 64,000,000 (1,552,055) - 235,731,319 680,566,029 85GROUP CASH FLOW STATEMENTSOUTH AFRICAN FORESTRY COMPANY LIMITED86 GROUP CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH 2009NOTES YearEnded 31 March 2009 Year Ended 31 March 2008 YearEnded31 March 2009 Year Ended31 March 2008 Group Group Company Company R R R ROperating activitiesProfit for the year before tax and after loss from discontinued operations 969,456,445 868,753,440 17,122,602 20,650,754 Adjusted for : Depreciation of property, plant and equipment 4,9 39,632,802 29,552,414 160,267 131,155 Depreciation of investment property 4,8 3,782 3,792 3,782 3,792 Impairment of property, plant, and equipment 4,9 - 476,879 - - Amortisation of intangible assets 4,10 1,189,205 1,041,284 - - Unrealised foreign exchange (gain) / loss 4 (11,272,720) 5,913,003 - - Increase in fair value adjustment - Agricultural produce 4,33 (14,924,682) (45,898,685) - - (Profit) / Loss on disposal of interest in associates 4 - (254,908) - 703,359 Share of profit in associates 13 (52,837,928) (32,629,564) - - Investment income - interest income 5 (45,873,111) (45,347,438) (47,621,876) (45,349,766)Investment income - dividends received 5 (43,105) (39,888) - - Finance costs 6 959,005 2,432,698 2,102,057 8,076,644 Profit on disposal of property, plant and equipment 4,9 (1,978,005) (123,464) - (174,845)Surplus on disposal of non-current assets held for sale 21 (254,383) - - - Movement in fair value of biological assets 4,11 (757,915,170) (528,715,199) - - Increase / (Decrease) in provisions 27 7,774,164 (12,808,635) (273,666) (4,896,006)Reversal of impairment of associate 13 (808,515) - (808,513) - Operating cash flows before movements in working capital 133,107,784 242,355,729 (29,315,347) (20,854,913) Working capital changes (110,733,829) (47,562,643) 373,314 7,839,220 Increase in inventories 33 (45,747,737) (55,330,602) (10,251) (2,271)(Increase) / decrease in trade and other receivables 33 (34,589,581) (32,566,116) 3,019,561 8,323,664 (Decrease) / Increase in trade and other payables 33 (30,396,511) 40,334,075 (2,635,996) (482,173) Cash generated from / (utilised in) operations 22,373,955 194,793,086 (28,942,033) (13,015,693) Investment income - interest received 5 45,873,111 45,347,438 47,621,876 45,349,766 Finance costs 6 (959,005) (2,432,698) (2,102,057) (8,076,644)Investment income - dividends received 5 43,105 39,888 - - Taxation paid 7 (110,307,136) (23,549,297) (11,975,289) (14,871,309) Net cash (outflow) / inflow from operating activities (42,975,970) 214,198,417 4,602,497 9,386,120 Investing activities Purchases of property, plant and equipment 9 (97,753,570) (75,878,263) (96,629) (384,340)Proceeds from disposal of property, plant and equipment 9 3,051,673 571,728 - 329,826 Proceeds on disposal of non-current assets held for sale 21 528,676 - - - Purchases of biological assets 11 - (1,568,238) - - Proceeds on disposal of associates 33 - 254,908 - 254,908 Purchases of intangible assets 10 (815,045) (655,222) - - Increase in available-for-sale financial assets 16 (471,884) (920,488) (471,884) (920,488)Decrease in loans and receivables 15 5,922,560 5,589,071 5,922,560 5,589,071 Associate loans repaid 33 4,999,830 15,000,000 4,999,830 15,000,000 (Increase) / Decrease in investments in subsidiaries 12 - - (144,615,776) 70,496,042 Decrease / (Increase) in net pension and provident fund assets 32 4,026,001 (49,242,000) (1,531,280) - Net cash (outflow) / inflow from investing activities (80,511,759) (106,848,504) (135,793,179) 90,365,019 Financing activitiesDecrease in borrowings 25 (14,054,812) (8,768,349) - - Net cash outflow from financing activities (14,054,812) (8,768,349) - - Net (decrease) / increase in cash and cash equivalents (137,542,541) 98,581,564 (131,190,681) 99,751,139 Cash and cash equivalents at the beginning of the year 19 432,979,030 333,612,832 419,645,348 319,894,209 Effect of foreign exchange rate changes 504,101 784,634 - - Cash and cash equivalents at the end of the year 19 295,940,590 432,979,030 288,454,667 419,645,348 87NOTES TO THE ANNUAL FINANCIAL STATEMENTSSOUTH AFRICAN FORESTRY COMPANY LIMITED88 NOTES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 20091. 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 Accounting Policies2.1 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 interpretation 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, financial assets and liabilities at fair value through profit or loss, and incorporate the following principal accounting policies.2.2 Statement of compliance The Annual Financial Statements and Group Annual Financial Statements of SAFCOL are prepared in accordance with International Financial Reporting Standards (IFRS) and the requirements of the South African Companies Act, 1973, as well as the Public Finance Management Act, 1999. The Directors are also required to exercise their judgement in the process of applying the Group and Companys accounting policies. In the current year, the Group and Company have 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 2008.Standards, Amendment and Interpretations Effective in 2009 IFRIC 14, The Limit on a Defined Benefit Asset (effective from 1 January 2008). Standards, Amendment and Interpretations Effective in 2009, but not Relevant to the Group and Companys Operations IFRIC 12,Service Concession Arrangements (effective from 1 January 2008). Standards, Amendments and Interpretations to Existing Standards that are not yet Effective and have not been Early Adopted by the Group and Company IAS 1 (Revised), Presentation of financial statements (effective from 1 January 2009). IAS 32 (Amendment), Financial instruments: Presentation, and IAS 1 (Amendment), Presentation of financial statements Puttable financial instruments and obligations arising on liquidation (effective from 1 January 2009). IFRS 1 (Amendment) First time adoption of IFRS and IAS 27 Consolidated and separate financial statements(effective from 1 January 2009). IAS 27 (Revised), Consolidated and separate financial statements (effective from 1 July 2009).SOUTH AFRICAN FORESTRY COMPANY LIMITED89NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 2009 IFRS 3 (Revised), Business combinations (effective from 1 July 2009). IFRS 5 (Amendment), Non-current assets held for sale and discontinued operations (and consequential amendment to IFRS 1, First-time adoption) (effective from 1 July 2009). IAS 28 (Amendment), Investments in associates (and consequential amendments to IAS 32, Financial Instruments: Presentation and IFRS 7, Financial instruments: Disclosures) (effective from 1 January 2009). IAS 36 (Amendment), Impairment of assets (effective from 1 January 2009). IAS 38 (Amendment), Intangible assets (effective from 1 January 2009). IAS 19 (Amendment), Employee benefits (effective from 1 January 2009). IAS 39(Amendment), Financial instruments: Recognition and measurement (effective from 1 January 2009). IAS 1 (Amendment), Presentation of financial statements (effective from 1 January 2009). There are a number of minor amendments to IFRS 7, Financial instruments: Disclosures, IAS 8, Accounting policies, changes in accounting estimates and errors, IAS 10, Events after the reporting period, IAS 18, Revenue, IAS 34, Interim financial reporting, IAS 40, Investment property and IAS 41, Agriculture, which are part of the IASBs annual improvements project published in May 2008 (not addressed above). These amendments are unlikely to have an impact on the Group and Companys accounts and have therefore not been analysed in detail. IFRIC 16, Hedges of a net investment in a foreign operation (effective from 1 October 2008). IAS 16 (Amendment), Property, plant and equipment (and consequential amendment to IAS 7, Statement of cash flows) (effective from 1 January 2009). IAS 40 (Amendment), Investment property (and consequential amendments to IAS 16) (effective from 1 January 2009). IAS 41 (Amendment), Agriculture (effective from 1 January 2009). Standards, Amendments and Interpretations issued, but not yet Effective and not Relevant to the Group and Companys Operations IFRS 8,Operating Segments (effective from 1 January 2009). IFRIC 13, Customer loyalty programmes (effective from 1 July 2008). IAS 29 (Amendment), Financial reporting in hyperinflationary economies (effective from 1 January 2009). IAS 31 (Amendment), Interests in joint ventures (and consequential amendments to IAS 32 and IFRS 7) (effective from 1 January 2009). IAS 20 (Amendment), Accounting for government grants and disclosure of government assistance (effective from 1 January 2009). The minor amendments to IAS 20 Accounting for government grants and disclosure of government assistance and IAS 29, Financial reporting in hyperinflationary, which are part of the IASBs annual improvements project published in May 2008 (not addressed above). These amendments will not have an impact on the Group and Companys operations as described above. IFRIC 15, Agreements for construction of real estates (effective from 1 January 2009). IAS 23 (Amendment), Borrowing costs (effective from 1 January 2009). IFRS 2 (Amendment), Share-based payment (effective from 1 January 2009). IAS 23 (Amendment), Borrowing costs (effective from 1 January 2009).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.SOUTH AFRICAN FORESTRY COMPANY LIMITED90NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 20092.3 Consolidation PrinciplesSubsidiaries and Basis of ConsolidationThe consolidated annual financial statements incorporate the financial statements of the Company and its subsidiaries. Subsidiaries are those entities over which the Group and Company has power to exercise control over the financial and operating policies. This is evidenced generally by a shareholding of more than one-half of the voting rights, to obtain benefits from their activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered in assessing whether the Group and Company control another entity.The operating results of the subsidiaries are included from the effective dates of acquisition and up to the effective dates of disposal. Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group and Company.Investments in subsidiaries are shown at cost, 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.The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group and Company. 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 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 and Companys share of the identifiable net assets acquired are 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.Investments in AssociatesAn associate is an entity over which the Group and Company are in a position to exercise significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights, and through participation in the financial and operating policy decisions of the investee. 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 results, assets and liabilities of associates are incorporated in the consolidated financial statements using the equity method of accounting, 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. Under the equity method, investments in associates are carried in the Group balance sheet at cost as adjusted by post-acquisition changes in the Groups share of the net assets of the associate, less any impairment in the value of individual investments. The Group and Companys investment in associates includes goodwill (net of any impairment losses) identified on acquisition. When the Groups 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.Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Groups 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. SOUTH AFRICAN FORESTRY COMPANY LIMITED91NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 2009The Company carries investments in subsidiaries and associates at cost less accumulated impairment losses in its separate financial statements. 2.4 Property, Plant and Equipment Land is stated at cost and not depreciated. All other categories of property, plant and equipment are stated at historical cost less related accumulated depreciation and accumulated impairment losses. Cost also includes site restoration costs that are recognised as a liability. Subsequent expenditure to property, plant and equipment is capitalised when it is probable that future economic benefits from the use of the asset will be increased and the cost can be measured reliably. If a replacement part is recognised in the carrying amount of an item of property, plant and equipment, the carrying amount of the replaced part is de-recognised.Depreciation is not provided for on assets in the course of construction. All other property, plant and equipment, with the exception of land, are depreciated using the straight-line method to allocate their cost or re-valued amounts to their residual values over the estimated useful lives of the assets. The methods of depreciation, useful lives and residual values are reviewed annually and adjusted if necessary. Assets held under finance lease are depreciated over their estimated useful lives on the same basis as owned assets, or where shorter, the term of the relevant lease. The cost of renewal and maintenance of assets are expensed as they are incurred. Where the estimated useful life of an asset is extended, such costs are capitalised and depreciated over the adjusted life of the asset. Where significant parts of an item have different useful lives, these parts are depreciated over their individual estimated useful lives. The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset, and recognised in profit or loss for the period.Increases in the carrying amount arising on revaluation of land and buildings are credited to Non-Distributable Reserves in shareholders equity. Decreases that offset previous increases of the same asset are charged against other reserves directly in equity; all other decreases are charged to the income statement. Each year the difference between depreciation based on the re-valued carrying amount of the asset charged to the income statement and depreciation based on the assets original cost is transferred from other reserves to retained earnings.An assets carrying amount is written down immediately to its recoverable amount if the assets carrying amount is greater than its estimated recoverable amount.Estimated Useful Life per Category is as Follows: 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 years2.5 Investment PropertyInvestment property, principally comprising land on which plantations are situated, is held for long-term rental yields and is not occupied by the Group and Company. SOUTH AFRICAN FORESTRY COMPANY LIMITED92NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 2009Investment 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 Company, and the cost of the investment property can be measured reliably.Investment property is recognised initially at cost. Transaction costs are included in the initial measurement. Subsequently, investment property is carried at cost less accumulated depreciation on buildings. Buildings are depreciated over a period of 50 years.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. These assets are reported at cost less accumulated amortisation and accumulated impairment losses. Amortisation is charged on a straight-line basis over the intangible assets estimated useful life, which is reviewed annually. Acquired computer software licences are amortised over 5 years, compared to the prior year amortisation of 3 years. This better reflects the rate at which economic benefits are expected to flow from the use of the assets.An intangible asset is derecognised: on disposal; or when no future economic benefits are expected from its use or disposal.The gain or loss arising from the de-recognition of an intangible asset is determined as the difference between the net disposal proceeds, if any, and the carrying amount of the asset. It is recognised in profit or loss when the asset is de-recognised.2.7 Dividend DistributionDividend distribution to the Companys shareholder is recognised as a liability in the Group and Companys financial statements in the period in which the dividends are approved by the Companys shareholder.2.8 Impairment of Assets The carrying amounts of the Group and Companys 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 units 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 Plantations are stated at fair value less estimated point-of-sale costs. Fair value of plantations is estimated based on the present value of the net future cash flows from the asset, discounted at a market determined pre-taxation rate. Increases or decreases in value are recognised in the income statement. All expenses incurred in maintaining and protecting the assets are recognised in the income statement. All costs incurred in acquiring additional planted areas are capitalised. SOUTH AFRICAN FORESTRY COMPANY LIMITED93NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 20092.10 Financial AssetsThe Group and Company classifies its financial assets in the following categories: at fair value through profit or loss, 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 ReceivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets. 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 AssetsAvailable-for-sale financial assets are non-derivatives that are either designated in this category, or are not classified in any of the other category. 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.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, or the present value of expected future cash flows of the net asset base (unlisted investments). 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 as a separate component of the Group and Companys 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 and Company assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is 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.Regular 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 for all financial assets not carried at fair value through profit or loss. 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.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 and Companys right to receive payment are established.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 arms 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.SOUTH AFRICAN FORESTRY COMPANY LIMITED94NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 20092.11 Non-Distributable ReservesRetirement Fund ReserveAccelerated 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 balance sheet of the Group and Company 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 ReserveIf 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 Groups financial year-end in accordance with section 2.23 Foreign Currency Transactions.Revaluation ReserveThe revaluation of Non-current Assets and Equity Instruments are charged to the Non-Distributable Reserve and therefore not 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 balance sheet. 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 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. SOUTH AFRICAN FORESTRY COMPANY LIMITED95NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 2009The amount of the provision is the difference between the assets 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 recognised initially at fair value and measured subsequently at amortised cost using the effective interest method.2.16 Inventories Harvested timber is stated at the lower of cost (being the fair value less estimated point-of-sale costs at the date of harvest), and net realisable value.Inventories (other than harvested timber) are stated at the lower of cost and net realisable value. 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. Merchandise and 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 represents the estimated selling price less all estimated costs of completion and variable costs to be incurred in marketing, selling and distribution.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 LeasesOperatingLeases 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 charged against income on a straight-line basis over the period of the lease.FinanceLeases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. Leased assets are capitalised at the lower of fair value and the present value of the minimum lease payments at inception of the lease and depreciated over the shorter of the useful life of the asset and the lease term. SOUTH AFRICAN FORESTRY COMPANY LIMITED96NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 2009The capital element of future obligations under the leases is included as a liability in the balance sheet. 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 Provisions are recognised in the balance sheet when the Group and Company have a present legal or constructive obligation as a result of past events, for which it is probable that an outflow of economic benefits will occur and where a reliable estimate can be made of the amount of the obligation. Provisions are discounted where the effect of discounting is material. The discount rate used is a pre-taxation rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. The increase in the provision due to passage of time is recognised as an interest expense.A provision for restructuring is recognised when the Group and Company have approved a detailed and formal restructuring plan, and the restructuring either has commenced or has been announced publicly. Costs relating to ongoing activities are not provided for.2.20 Employee Benefits Pension PlansThe group companies operate various pension schemes; namely the SAFCOL Pension Fund, the SAFCOL Pension-Linked Provident Fund, and the SAFCOL Provident Fund. The schemes are funded generally through payments to insurance companies or trustee-administered funds, determined by periodic actuarial calculations. The Group and Company have both defined benefit and defined contribution plans. The SAFCOL Pension Fund and the SAFCOL Pension-LinkedProvident Fund are defined benefit schemes; and the SAFCOL Provident Fund is a defined contribution plan. A defined contribution plan is a pension plan under which the Group and Company pay fixed contributions into a separate entity. The Group and Company have 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. A defined benefit plan is a pension plan that is not a defined contribution plan. 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 balance sheet 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.For defined contribution plans, the Group and Company pay contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The Group and Company have no further payment obligations once the contributions have been paid. 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.SOUTH AFRICAN FORESTRY COMPANY LIMITED97NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 2009Other Post-Employment ObligationsSome group companies provide post-retirement healthcare benefits to their retirees. The entitlement to these benefits is 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 are 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 are charged or credited to the income statement in the period in which they arise. These obligations are re-valued annually by independent qualified actuaries.Termination BenefitsTermination benefits are payable when employment is terminated by the Group and Company 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; or 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.Profit-Sharing and Bonus PlansThe Group and Company recognise a liability and an expense for bonuses and profit-sharing based on a formula thattakes into consideration the profit attributable to the Group and Companys shareholders after certain adjustments. TheGroup 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 per the income statement represents the sum of current tax and deferred tax. The current income tax charge is calculated based on the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Companys subsidiaries and associates operate and generate taxable income. 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.The tax payable currently is based on taxable profit for the year. 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. Deferred tax is tax expected to be payable or recoverable on temporary differences arising between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are recognised generally 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 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 tax profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, except where the Group and Company are able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the near future. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. SOUTH AFRICAN FORESTRY COMPANY LIMITED98NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 2009Deferred tax is calculated at the tax rates that have been enacted or substantially enacted by the balance sheet date, and are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset and when it relates to income taxes levied by the same authority and the Group and Company intend to settle their current tax assets and liabilities on a net basis.2.22 Share CapitalOrdinary shares are classified as equity. Where any group company purchases the Companys equity share capital, the consideration paid, including any directly attributable incremental costs (net of income taxes), is deducted from equity attributable to the Companys equity holders until the shares are cancelled or re-issued. Where such shares are subsequently re-issued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the Companys equity holders.2.23 Foreign Currency TransactionsFunctional and Presentation CurrencyItems included in the financial statements of each of the Groups entities are measured using the currency of the primaryeconomic environment in which the entity operates (the functional currency). The consolidated financial statements arepresented in South African Rand (R), which is the Companys functional and presentation currency.Transactions and BalancesTransactions in currencies other than South African Rand are recorded at the rates of exchange prevailing on the dates of thetransactions or valuation where items are re-measured. At each balance sheet date, monetary assets and liabilities that aredenominated in foreign currencies are re-translated at the rates prevailing on the balance sheet date. Non-monetary assetsand liabilities carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the datewhen the fair value was determined. Gains and losses arising on the settlement of such transactions and on re-translation are recognised in profit or loss for the period, except for exchange differences arising on non-monetary assets and liabilitieswhere the changes in fair value are recognised directly in equity.Group CompaniesThe results and financial position of all the group entities (none of which has the currency of a hyper- inflationaryeconomy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet; income and expenses for each income statement 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); and all resulting exchange differences are recognised as a separate component of equity.On consolidation, exchange differences arising from the translation of the net investment in foreign operations and of borrowings, are taken to shareholders equity. When a foreign operation is partially disposed of or sold, exchange differences that were recorded in equity are recognised in the income statement as part of the gain or loss on sale.SOUTH AFRICAN FORESTRY COMPANY LIMITED99NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 20092.24 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 and Companys activities.Revenue is shown net of value-added tax, returns, rebates and discounts and after eliminating sales within the Group and Company.The Group and Company recognise revenue when the amount of revenue can be measured reliably, it is probable that future economic benefits will flow to the entities, and when specific criteria have been met for each of the Group and Companys activities as described below. The amount of revenue is not considered reliably measurable until all contingencies relating to the sale have been resolved. The Group and Company base their estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.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 customers acceptance of theproducts. 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 ServicesThe 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.Interest IncomeInterest is recognised on a time-proportion basis using the effective interest method. When a receivable is impaired, theGroup and Company reduce the carrying amount to its recoverable amount, being the estimated future cash flow discounted atthe original effective interest rate of the instrument, and continues unwinding the discount as interest income. Dividend IncomeDividend income is recognised when the right to receive payment is established. 2.25 Research and Development Expenditure on research and development is normally charged against operating income as incurred and not deferred. 2.26 Key sources of estimation and uncertaintyThe 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 TimberThe methods and assumptions used in determining the fair value of the standing timber in the plantations are reviewed everyfive years. In the current year, the methodology and assumptions utilised in the fair value model have been revised toobtain a more accurate valuation in terms of species, volumes, income, expenses and prices. The amendments to the model represent a change in estimate as the change does not alter the valuation policy and a fair value is still calculated based on the discounted cash flow method using a pre-tax discount rate. The change relates to new information available in the current year and better reflects the economic benefits that are expected to flow from the use of the asset. The changes have been applied prospectively. Refer to note 30 for a detailed description of the changes to the methodology.SOUTH AFRICAN FORESTRY COMPANY LIMITED100NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 2009 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 pre-tax real 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. Allowance for Credit LossesAt each balance sheet date, the Group and Company assess whether there is any objective evidence that debtors are impaired. If evidence of impairment exists, the allowance is calculated as the fair value of the debtor less the present value of the estimated recoverable amount.Allowance for Inventory LossesAllowance for 15% of nursery stock due to non-germination, based on historical information.ProvisionsProvisions are raised in accordance with determinations of the Directors, based on available information. Income TaxesThe Group and Company are subject to income taxes in South Africa and Mozambique jurisdictions. Significantjudgement is required in determining the worldwide provision for income taxes. There are many transactions and calculationsfor which the ultimate tax determination is uncertain during the ordinary course of business. The Group and Companyrecognise liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the finaltax outcome of these matters is different from the amounts that were initially recorded, such differences will affect the incometax and deferred tax provisions in the period in which such determination is made.Fair Value of Financial InstrumentsThe fair value of financial instruments that are not traded in an active market is determined by using valuationtechniques. The Group and Company use their judgement to select a variety of methods and makes assumptions that are mainly based on market conditions existing at each balance sheet date. SOUTH AFRICAN FORESTRY COMPANY LIMITED101NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 20092.27 Comparative FiguresComparative figures are re-stated in the event of a change in accounting policy or prior period error.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 that are indicative of conditions that arose after the balance sheet date are dealt with by way of a note.YEAR ENDED 31 MARCH 2009 YEAR ENDED 31 MARCH 2008 YEAR ENDED 31 MARCH 2009YEAR ENDED 31 MARCH 2008GROUP GROUP COMPANY COMPANYR R R R3. TURNOVERContinuing operationsTimber sales 644,156,708 586,889,847 - -Sawn timber sales 182,718,484 218,112,562 - -Other 30,243,145 27,185,315 27,711,792 31,090,196857,118,337 832,187,724 27,711,792 31,090,196Discontinued operations (refer to note 20)Sawn timber sales - 12,715,655 - - Other 30,182 113,681 - - 30,182 12,829,336 - - TOTAL 857,148,519 845,017,060 27,711,792 31,090,1964. OPERATING PROFIT / (LOSS)Operating profit / (loss) is arrived at after taking the following items into account:Non-recurring itemsContinuing operationsTransfer duties paid - 20,724 - 20,724(Profit) / Loss on disposal of 9% of shares in Amatole Forest Company (Pty) Ltd- (254,908) - 703,359Termination benefits 4,414,454 823,769 2,194,924 823,769Settlement received pursuant to litigation (2,500,000) - (2,500,000) -Siyaqhubeka Forests (Pty) Ltd - payment in lieu of Employee Share Ownership Plan460,514 - 460,514 -TOTAL 2,374,968 589,585 155,438 1,547,852Plantation ValuationContinuing operationsIncrease in fair value adjustment - Plantations (refer note 11) (757,915,170) (528,715,199) - -Profit due to fair value adjustment of plantations (757,915,170) (528,715,199) - -Auditors remunerationContinuing operationsAudit fees 1,829,400 1,507,400 839,734 613,392Other services 140,360 116,601 - 52,500 Expenses 19,353 22,544 18,085 17,000 Under provision - prior year 429,246 - 22,800 -TOTAL 2,418,359 1,646,545 880,619 682,892SOUTH AFRICAN FORESTRY COMPANY LIMITED102NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 2009YEAR ENDED 31 MARCH 2009 YEAR ENDED 31 MARCH 2008 YEAR ENDED 31 MARCH 2009YEAR ENDED 31 MARCH 2008GROUP GROUP COMPANY COMPANYR R R R4. OPERATING PROFIT / (LOSS) (CONTINUED)Profit on disposal of property, plant and equipment (refer note 9)Buildings and utilities 15,622 - - -Motor vehicles (1,817,947) (256,447) - (127,113)Plant and equipment (191,898) 84,151 - (46,027)Computer equipment 11,955 12,338 - 2,264Furniture and fittings 4,263 18,526 - (6,275)Leasehold improvements - buildings and utilities - 17,958 - 2,306Leasehold improvements roads - 10 - -(1,978,005) (123,464) - (174,845)Attributable to:Continuing operations (1,888,098) (123,784) - (174,845)Discontinued operations (refer note 20) (89,907) 320 - -TOTAL (1,978,005) (123,464) - (174,845)Depreciation of property, plant and equipment (refer note 9)Buildings and utilities 4,933,816 4,148,591 - - Motor vehicles 8,793,175 6,032,541 39,422 20,953 Plant and equipment 18,205,916 15,408,997 - 237Computer equipment 3,025,493 1,805,576 61,830 80,732Furniture and fittings 492,030 565,806 39,992 29,101 Leasehold improvements - buildings and utilities 3,662,330 1,108,374 19,023 132 Leasehold improvements - telephone lines and fences 66,356 51,859 - - Leasehold improvements - roads 453,686 430,670 - - 39,632,802 29,552,414 160,267 131,155 Attributable to: Continuing operations 39,565,716 29,027,034 160,267 131,155 Discontinued operations 67,086 525,380 - - TOTAL 39,632,802 29,552,414 160,267 131,155 Depreciation of investment property (refer note 8) Continuing operations Investment Property 3,782 3,792 3,782 3,792 Amortisation of intangible assets (refer note 10) Continuing operations Computer software 1,189,205 1,041,284 - - Impairment of property, plant and equipment (refer note 9)Discontinued operations Buildings and utilities - 476,826 - - Plant and equipment - 53 - - - 476,879 - - Fees for servicesAdministrative and legal 11,719,477 8,377,289 11,605,386 7,139,023Managerial 636,417 637,179 580,161 647,747 Technical 19,585,407 23,783,438 6,638,388 10,610,660 31,941,301 32,797,906 18,823,935 18,397,430 Attributable to: Continuing operations 31,938,121 32,746,535 18,823,935 18,397,430 Discontinued operations 3,180 51,371 - - TOTAL 31,941,301 32,797,906 18,823,935 18,397,430 SOUTH AFRICAN FORESTRY COMPANY LIMITED103NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 2009YEAR ENDED 31 MARCH 2009 YEAR ENDED 31 MARCH 2008 YEAR ENDED 31 MARCH 2009YEAR ENDED 31 MARCH 2008GROUP GROUP COMPANY COMPANYR R R R4. OPERATING PROFIT / (LOSS) (CONTINUED)Movements in Inventory (refer to note 33) Increase in fair value adjustment - Agricultural produce (14,924,682) (46,128,332) - - Write-down of inventories to net realisable value - 229,647 - - (14,924,682) (45,898,685) - - Attributable to:Continuing operations (14,924,682) 45,898,685) - - Discontinued operations - - - - TOTAL (14,924,682) (45,898,685) - - Staff costsSalaries and wages 168,266,628 137,241,882 15,407,597 9,816,133 Bonuses 29,201,024 19,868,974 5,433,972 1,847,669 Benefits and other costs 30,581,684 17,023,953 1,219,119 1,489,606 Employer contributions - Defined benefit plans - (28,451,409) - - Employer contributions - Defined contribution plans 10,993,902 (9,081,377) (154,668) 826,496 Employer contributions - Post retirement medical aid - 436,455 - 7,854 239,043,238 137,038,478 21,906,020 13,987,758 Attributable to:Continuing operations 239,043,238 136,139,562 21,906,020 13,987,758Discontinued operations - 898,916 - - TOTAL 239,043,238 137,038,478 21,906,020 13,987,758 Operating lease chargesLand 64,063 206,356 - 206,356 Buildings and utilities 3,544,265 2,303,427 1,003,477 923,611 Motor vehicles - 12,768 140,565 - Plant and equipment 300,826 54,723 - - Computer equipment 142,296 349,148 - 113,233 Furniture and fittings 766,710 872,694 - 1,234 Leasehold improvements - telephone lines and fences - 400 - - Loose tools 54,912 88,139 - - 4,873,072 3,887,655 1,144,042 1,244,434 Attributable to:Continuing operations 4,873,072 3,887,422 1,144,042 1,244,434 Discontinued operations - 233 - - TOTAL 4,873,072 3,887,655 1,144,042 1,244,434 Foreign exchange gain Continuing operations Realised (1,736,521) (5,962,252) - - Unrealised (11,272,720) 5,913,003 - - TOTAL (13,009,241) (49,249) - - Research costs expensedContinuing operations Research expenditure is incurred on applied research performed mainly on tree improvement and growth and yield research.8,697,717 6,864,830 - - Directors emolumentsContinuing operationsFor services as Directors 3,003,328 2,134,007 3,003,328 2,134,007 Managerial services 5,820,311 8,271,132 5,820,311 6,757,753 TOTAL 8,823,639 10,405,139 8,823,639 8,891,760 The Executive Director has an employment contract with SAFCOL with a notice period not exceeding one year. The Non-Executive Directors are appointed for a fixed-term of 3 years.SOUTH AFRICAN FORESTRY COMPANY LIMITED104NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 2009YEAR ENDED 31 MARCH 2009 YEAR ENDED 31 MARCH 2008 YEAR ENDED 31 MARCH 2009YEAR ENDED 31 MARCH 2008GROUP GROUP COMPANY COMPANYR R R R5. INVESTMENT INCOMEContinuing operationsInterest on call deposits and surplus cash 41,698,997 40,574,697 41,706,186 40,574,580 Other interest received 4,174,114 4,772,741 5,915,690 4,775,186 Dividends received 43,105 39,888 - - 45,916,216 45,387,326 47,621,876 45,349,766 6. FINANCE COSTS Interest on:Bank overdrafts 3,048 1,638 3,048 1,636 Finance leases 834,850 2,264,037 - - Short-term loans 121,107 167,023 2,099,009 8,075,008 959,005 2,432,698 2,102,057 8,076,644 Attributable to:Continuing operations 957,985 2,431,639 2,102,057 8,076,644 Discontinued operations (refer note 20) 1,020 1,059 - - TOTAL 959,005 2,432,698 2,102,057 8,076,644 7. INCOME TAX EXPENSEContinuing operationsTax expense comprises:South African normal tax - current period 43,969,306 60,850,630 5,319,920 6,907,816 - prior period adjustment (2,938,201) 3,707,637 (516,101) 5,688,585 Deferred taxation (refer note24) - current period 223,679,168 163,531,347 88,758 2,816,025 - prior period adjustment 2,868,864 1,977,774 529,034 - - rate change - 154,365 - 154,365 Taxation per income statement 267,579,137 230,221,753 5,421,611 15,566,791 The total charge for the year can be reconciled to accounting profit as follows:Profit from continuing operations 969,804,159 871,789,483 17,122,602 20,650,754 Loss from discontinued operations (347,714) (3,036,043) - - Profit from operations 969,456,445 868,753,440 17,122,602 20,650,754 Income tax expense calculated at 28% (2008: 29%) 271,447,805 251,938,498 4,794,329 5,988,719 Effect of share of profit of associates (14,794,620) (9,462,574) - - Effect of expenses that are not deductible in determining taxable profit 10,906,532 8,477,043 525,591 3,835,694 Effect of changes in tax rates (from 29% to 28%) - (26,416,625) - 53,793 Adjustments recognised in the current period in relation to the current tax of prior periods19,420 5,685,411 101,691 5,688,585 267,579,137 230,221,753 5,421,611 15,566,791 (Payable) / Receivable at the beginning of the period:South African normal tax (53,259,635) (12,250,665) 672,102 (1,602,806)Adjustment prior period 2,938,201 (3,707,637) 516,100 (5,688,585)Paid during the period 110,307,136 23,549,297 11,975,289 14,871,309 Taxation for the period per income statement: (43,969,306) (60,850,630) (5,319,920) (6,907,816)Receivable / (Payable) at the end of the period:South African normal taxation 16,016,396 (53,259,635) 7,843,571 672,102 TOTAL 16,016,396 (53,259,635) 7,843,571 672,102 Current income tax assets 16,016,396 11,077 7,843,571 672,102 Current income tax liabilities - (53,270,712) - - SOUTH AFRICAN FORESTRY COMPANY LIMITED105NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 2009YEAR ENDED 31 MARCH 2009 YEAR ENDED 31 MARCH 2008 YEAR ENDED 31 MARCH 2009YEAR ENDED 31 MARCH 2008GROUP GROUP COMPANY COMPANYR R R R8. INVESTMENT PROPERTY Carrying amount at the beginning of the period 4,806,428 4,810,220 4,806,428 4,810,220 Cost 4,856,393 4,856,393 4,856,393 4,856,393 Accumulated Depreciation (49,965) (46,173) (49,965) (46,173)Depreciation (3,782) (3,792) (3,782) (3,792)Carrying amount at the end of the period 4,802,646 4,806,428 4,802,646 4,806,428 Cost 4,856,393 4,856,393 4,856,393 4,856,393 Accumulated Depreciation (53,747) (49,965) (53,747) (49,965)The fair value of the investment properties as at 31 March 2009 was R84,393,000 (2008: R84,393,000). The valuation was performed by an independent professional valuer in December 2004.SAFCOL received an offer of R84,393,000 from the Regional Land Claims Commissioner for the plantation situated close to Barberton and has received approval from the Board to proceed with the transaction subject to Public Finance Management Act approval. The matter now rests with the Land Restitution Commission. It is uncertain when the transaction would occur.The gross property rental income earned by the group from its investment properties, all of which are leased out under gross operating leases, amounted to R2,150,724 (2008: R1,968,600).SOUTH AFRICAN FORESTRY COMPANY LIMITED106NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 2009 Total Land Buildings and utilities Motor vehicles Plant and equipment Computer equipment Furniture and fittings Leasehold improvements - buildings and utilities Leasehold improvements - telephone lines and fences Leasehold improvements - roads Capital work in progress 9. PROPERTY, PLANT AND EQUIPMENTMovement reconciliationGroup 2009Carrying amount at the beginning of the period204,336,546 4,029,244 38,278,056 37,039,152 84,259,862 4,740,755 2,045,728 18,672,997 380,286 9,018,984 5,871,482 Additions97,753,570 - 5,214,228 38,343,318 37,612,530 4,425,756 255,736 5,379,090 245,145 749,443 5,528,324 Depreciation (refer note 4)(39,632,802)- (4,933,816)(8,793,175)(18,205,916)(3,025,493)(492,030)(3,662,330)(66,356)(453,686)- Disposals(1,073,668)- (15,622)(226,207)(815,621)(11,955)(4,263)- - - - Proceeds(3,051,673)- - (2,044,154)(1,007,519)- - - - - - Profit / (Loss) on disposal (refer note 4)1,978,005 - (15,622)1,817,947 191,898 (11,955)(4,263)- - - - Transfer from / (to) assets classified as held-for-sale (refer note 21)6,966 - - 193,939 (186,973)- - - - - - Translation of foreign entity(512,386)- 758,176 541,737 246,942 18,285 16,007 - - - (2,093,533)Carrying amount at the end of the period260,878,226 4,029,244 39,301,022 67,098,764 102,910,824 6,147,348 1,821,178 20,389,757 559,075 9,314,741 9,306,273 Group 2008 Carrying amount at the beginning of the period156,130,873 1,658,244 38,713,734 26,975,534 62,375,185 2,592,086 2,177,890 9,509,219 413,945 9,328,652 2,386,384 Additions75,878,263 2,371,000 2,725,717 15,421,602 37,596,839 3,934,188 391,152 10,290,310 18,200 121,012 3,008,243 Depreciation (refer note 4)(29,552,414)- (4,148,591)(6,032,541)(15,408,997)(1,805,576)(565,806)(1,108,374)(51,859)(430,670)- Impairment (refer note 4)(476,879)- (476,826)- (53)- - - - - - Disposals(448,264)- - (15)(387,806)(12,358)(29,917)(18,158)- (10)- Proceeds(571,728)- - (256,462)(303,655)(20)(11,391)(200)- - - Profit / (Loss) on disposal (refer note 4)123,464 - - 256,447 (84,151)(12,338)(18,526)(17,958)- (10)- Transfer from / (to) assets classified as held-for-sale (refer note 21)(281,259)- - (15)(281,244)- - - - - - Translation of foreign entity3,086,226 - 1,464,022 674,587 365,938 32,415 72,409 - - - 476,855 Carrying amount at the end of the period204,336,546 4,029,244 38,278,056 37,039,152 84,259,862 4,740,755 2,045,728 18,672,997 380,286 9,018,984 5,871,482 Movement reconciliationCompany 2009 Carrying amount at the beginning of the period473,648 - - 239,290 - 96,942 137,416 - - - - Additions96,629 - - - - 7,800 64,637 24,192 - - - Depreciation (refer note 4)(160,267)- - (39,422)- (61,830)(39,992)(19,023)- - - Carrying amount at the end of the period410,010 - - 199,868 - 42,912 162,061 5,169 - - - Company 2008 Carrying amount at the beginning of the period375,444 - - 146,771 6,260 171,577 48,198 2,638 - - - Additions384,340 - - 246,524 - 14,381 123,435 - - - - Depreciation (refer note 4)(131,155)- - (20,953)(237)(80,732)(29,101)(132)- - - Disposals(154,981)- - (133,052)(6,023)(8,284)(5,116)(2,506)- - - Proceeds(329,826)- - (260,165)(52,050)(6,020)(11,391)(200)- - - Profit / (Loss) on disposal (refer note 4)174,845 - - 127,113 46,027 (2,264)6,275 (2,306)- - - Carrying amount at the end of the period473,648 - - 239,290 - 96,942 137,416 - - - - Capitalised leased assets with a net book value of R 3 973 450 (2008: R 16,669,130) are encumbered in terms of finance lease obligations (refer note 25).A register of land and buildings is available for inspection at the registered office of the Company.SOUTH AFRICAN FORESTRY COMPANY LIMITED107NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 2009COST ORVALUATIONACCUMULATEDDEPRECIATION ANDIMPAIRMENT LOSSESCARRYINGAMOUNTR R R9. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)Group - 2009 Land 4,029,244 - 4,029,244 Buildings and utilities 77,226,820 (37,925,798) 39,301,022 Motor vehicles 131,192,640 (64,093,876) 67,098,764 Plant and equipment 274,946,343 (172,035,519) 102,910,824 Computer equipment 23,018,356 (16,871,008) 6,147,348 Furniture and fittings 8,942,937 (7,121,759) 1,821,178 Leasehold improvements - buildings and utilities 27,225,728 (6,835,971) 20,389,757 Leasehold improvements - telephone lines and fences 792,804 (233,729) 559,075 Leasehold improvements - roads 11,487,376 (2,172,635) 9,314,741 Capital work in progress 9,306,273 - 9,306,273 TOTAL 568,168,521 (307,290,295) 260,878,226 Group - 2008 Land 4,029,244 - 4,029,244 Buildings and utilities 71,281,937 (33,003,881) 38,278,056 Motor vehicles 94,158,449 (57,119,297) 37,039,152 Plant and equipment 241,156,347 (156,896,485) 84,259,862 Computer equipment 18,728,969 (13,988,214) 4,740,755 Furniture and fittings 8,714,885 (6,669,157) 2,045,728 Leasehold improvements - buildings and utilities 21,846,637 (3,173,640) 18,672,997 Leasehold improvements - telephone lines and fences 547,659 (167,373) 380,286 Leasehold improvements - roads 10,737,933 (1,718,949) 9,018,984 Capital work in progress 5,871,482 - 5,871,482 TOTAL 477,073,542 (272,736,996) 204,336,546 Company - 2009 Motor vehicles 280,307 (80,439) 199,868 Computer equipment 1,005,884 (962,972) 42,912 Furniture and fittings 748,382 (586,321) 162,061 Leasehold improvements - buildings and utilities 24,192 (19,023) 5,169 TOTAL 2,058,765 (1,648,755) 410,010Company - 2008 Motor vehicles 280,307 (41,017) 239,290 Computer equipment 998,084 (901,142) 96,942 Furniture and fittings 683,745 (546,329) 137,416 TOTAL 1,962,136 (1,488,488) 473,648 SOUTH AFRICAN FORESTRY COMPANY LIMITED108NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 2009YEAR ENDED 31 MARCH 2009 YEAR ENDED 31 MARCH 2008 YEAR ENDED 31 MARCH 2009YEAR ENDED 31 MARCH 2008GROUP GROUP COMPANY COMPANYR R R R10. INTANGIBLE ASSETSMovement reconciliationSoftwareCarrying amount at the beginning of the period 1,660,315 2,039,278 - - Cost 4,920,721 4,258,400 - - Accumulated amortisation (3,260,406) (2,219,122) - - Additions 815,045 655,222 - - Amortisation (refer note 4) (1,189,205) (1,041,284) - - Translation of foreign entity 3,271 7,099 - - Carrying amount at the end of the period 1,289,426 1,660,315 - - Cost 5,739,037 4,920,721 - - Accumulated amortisation (4,449,611) (3,260,406) - - 11. BIOLOGICAL ASSETS - PLANTATIONSCarrying amount at the beginning of the period 2,460,359,321 1,930,075,884 - - Gain / (Loss) arising from changes in fair value less point of sale costs due to:Physical statistics (232,842,129) (144,392,626) - - Prices 1,829,781,723 813,830,000 - - Discount rate - 141,620,000 - - Costs (839,024,424) (282,342,175) - - Net increase for the period (refer note 4) 757,915,170 528,715,199 - - Additions - Seed Orchard - 1,568,238 - - Carrying amount at the end of the period 3,218,274,492 2,460,359,321 - - The fair value model and the methodology and assumptions utilised have been revised to obtain a more accurate valuation in terms of species, volumes, income, expenses and prices. The change has been applied prospectively.The fair value of the plantations are calculated by using the present value of projected future cash flows after taking into consideration the following assumptions: Activity costs in accordance with the operating statements of plantations for the past period. The market prices per cubic metre are based on market expectations per log class. Plantation areas of 140,877 ha (2008: 141,047 ha) for the Group and nil ha (2008: nil ha) for the Company. Physical statistics in accordance with the plantation management system. These statistics are affected by the impact of fires, enumeration updates and product optimisation. Discount rate is determined based on a pre-tax weighted average cost of capital adjusted for a market risk premium. Rate used: 12.3% (2008:12.3%). The valuations were performed by an independent external forestry economist.The plantations are situated on land leased from the South African Government, land managed on concession from the Mozambican Government, and land owned by Kamhlabane Timber (Pty) Ltd, Palm Ridge Farm. The Shannon plantation in Mpumalanga and a portion of the Ngome plantation in Kwazulu-Natal are on land owned by the Group.SOUTH AFRICAN FORESTRY COMPANY LIMITED109NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 2009YEAR ENDED 31 MARCH 2009 YEAR ENDED 31 MARCH 2008 YEAR ENDED 31 MARCH 2009YEAR ENDED 31 MARCH 2008GROUP GROUP COMPANY COMPANYR R R R12. INVESTMENTS IN SUBSIDIARIESShares at cost less amounts written-off - - 320 17,841 Amounts owing by subsidiaries - - 368,604,521 223,988,545 SUB TOTAL - - 368,604,841 224,006,386 Amounts owing to subsidiaries - - (200) (17,521)Net interest in subsidiary companies - - 368,604,641 223,988,865 Issued Share CapitalEffective Percentage HeldCarrying amount of Holding Company Interest Shares at Cost Net Indeb- tedness R R Unlisted - 2009 Mountains to Oceans Forestry (Pty) Ltd 100 100 200 947,083 Komatiland Forests (Pty) Ltd 120 100 120 367,657,238 TOTAL 320 368,604,321 Unlisted - 2008 Valgrace Investments (Pty) Ltd * 218 100 218 (218)Mountains to Oceans Forestry (Pty) Ltd 100 100 200 744,351 Harlands Saligna Ltd ** 4,998 100 17,303 (17,303)Komatiland Forests (Pty) Ltd 120 100 120 223,244,194 TOTAL 17,841 223,971,024 * All shares sold on 1 April 2008** Deregistered on 25 April 2008All 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 amount of R 294,041,618 (2008: R 294,041,618) and an interest bearing short-term loan to the amount of R 73,615,620 to KLF (2008: R 70,797,424 from KLF). Both loans are unsecured and no terms of repayment have been set. The establishment loan bears interest at 0,0% and the short-term loan bears interest 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 Mountains to the amount of R 200 (2008: R 200) and an interest bearing short-term loan to the amount of R 947,283 to Mountains (2008: R 744,551). Both loans are unsecured and no terms of repayment have been set. The establishment loan bears interest at 0,0% and the short-term loan bears interest at prime rate for both periods under review.SOUTH AFRICAN FORESTRY COMPANY LIMITED110NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 2009YEARENDED31 MARCH 2009YEARENDED31 MARCH 2008YEARENDED31 MARCH 2009YEARENDED31 MARCH 2008GROUP GROUP COMPANY COMPANYR R R R13. INVESTMENTS IN ASSOCIATESCost of investment 61,273,652 61,273,652 61,273,652 61,273,652 Repayment of shareholder loan (30,957,907) (25,958,077) (30,957,907) (25,958,077)Impairment of investment (2,356,728) (3,165,241) (4,519,702) (5,328,215)Share of profit since acquisition, net of dividends received249,915,317 197,077,389 - - Movement in loans and impairment relating to disposal(4,201,898) (4,201,898) (2,038,924) (2,038,924)Disposed (46,049,967) (46,049,967) (8,261,382) (8,261,382)Proceeds (40,510,112) (40,510,112) (40,510,112) (40,510,112)(Loss) / Profit on disposal of associates (5,539,855) (5,539,855) 32,248,730 32,248,730 227,622,469 178,975,858 15,495,737 19,687,054 2009Siyaqhubeka Forests (Pty) LtdSingisi Forest Products (Pty) LtdMTO Forestry (Pty) LtdAmathole Forestry Company (Pty) LtdTOTALShareholding and voting power 25% 16% 16% 16% Summarised financial information of associates R R R R RTotal assets 566,505,000 870,962,000 579,545,883 43,284,567 2,060,297,450 Total liabilities 151,292,000 455,038,000 249,085,657 24,463,205 879,878,862 Net assets 415,213,000 415,924,000 330,460,226 18,821,362 1,180,418,588 Groups share of associates net assets 103,803,250 66,547,840 52,873,636 3,011,418 226,236,144 Loans - - 2,039,805 1,703,248 3,743,053 Impairment attributable to reserves - - - (2,356,728) (2,356,728)103,803,250 66,547,840 54,913,441 2,357,938 227,622,469 Revenue 131,798,904 558,038,000 532,074,390 36,276,900 1,258,188,194 Profit for the period 139,684,000 46,064,000 80,163,190 9,683,904 275,595,094 Groups share of associates profit for the period 35,252,000 3,124,320 12,912,183 1,549,425 52,837,928 2008Siyaqhubeka Forests (Pty) LtdSingisi Forest Products (Pty) LtdMTO Forestry (Pty) LtdAmathole Forestry Company (Pty) LtdTOTALShareholding and voting power 25% 16% 16% 16% Summarised financial information of associates R R R R RTotal assets 458,390,000 699,470,000 506,881,666 26,876,087 1,691,617,753 Total liabilities 184,185,000 303,073,000 257,122,587 17,738,629 762,119,216 Net assets 274,205,000 396,397,000 249,759,079 9,137,458 929,498,537 Groups share of associates net assets 68,551,250 63,423,520 39,961,453 1,461,993 173,398,216 Loans 4,999,830 - 2,039,805 1,703,248 8,742,883 Impairment attributable to reserves - - - (3,165,241) (3,165,241)73,551,080 63,423,520 42,001,258 - 178,975,858 Revenue 167,949,000 495,125,000 368,200,000 28,388,011 1,059,662,011 Profit for the period 40,417,000 39,728,000 103,408,000 2,113,763 185,666,763 Groups share of associates profit for the period 9,667,800 6,350,560 16,611,204 - 32,629,564 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; or- provision of essential technical information.Associates were equity accounted based on the following: - The draft financial statements as at 31 December 2008 were used in respect of Siyaqhubeka Forests (Pty) Ltd and Singisi Forest Products (Pty) Ltd (Financial year-end: 31 December 2008).- For Amathole Forestry Company (Pty) Ltd, 31 March 2009 management accounts were used (Financial year-end: 30 September 2008).- Draft financial statements at 28 February 2009 were used for MTO Forestry (Pty) Ltd (Financial year-end: 28 February 2009).A reversal of impairment amounting to R 808,515 (2008 : R0) was recognised in the current year as the recoverable amount of the investment in Amathole Forestry Company (Pty) Ltdexceeded its carrying value. SAFCOL disposed of 9% of the investment in Amatole Forestry Company (Pty) Ltd in 2008, which caused a decrease in the impairment of investment of R 958 077.No significant transactions occurred between the dates of the associates respective financial reporting dates and SAFCOLs reporting date. SOUTH AFRICAN FORESTRY COMPANY LIMITED111NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 200914. FINANCIAL INSTRUMENTS BY CATEGORYThe accounting policies for financial instruments have been applied to the items below: Group Loans and receivables Available-for-sale Total 31 March 2009 Assets as per balance sheet Loans and receivables (note 15) 6,020,704 - 6,020,704 Available-for-sale financial assets (note 16) - 4,856,766 4,856,766 Trade and other receivables (note 18) 185,826,796 - 185,826,796 Cash and cash equivalents (note 19) 295,940,590 - 295,940,590 TOTAL 487,788,090 4,856,766 492,644,856 Liabilities at fair value through profit and loss Other financial liabilities Total Liabilities as per balance sheet Borrowings (note 25) - 3,011,984 3,011,984 Trade and other payables (note 26) 75,104,812 - 75,104,812 TOTAL 75,104,812 3,011,984 78,116,796 Loans and receivables Available-for-sale Total 31 March 2008 Assets as per balance sheet Loans and receivables (note 15) 11,943,264 - 11,943,264 Available-for-sale financial assets (note 16) - 4,384,882 4,384,882 Trade and other receivables (note 18) 151,237,215 - 151,237,215 Cash and cash equivalents (note 19) 432,979,030 - 432,979,030 TOTAL 596,159,509 4,384,882 600,544,391 Liabilities at fair value through profit and loss Other financial liabilities Total Liabilities as per balance sheet Borrowings (note 25) - 17,066,796 17,066,796 Trade and other payables (note 26) 105,501,323 - 105,501,323 TOTAL 105,501,323 17,066,796 122,568,119 Company Loans and receivables Available-for-sale Total 31 March 2009 Assets as per balance sheetLoans and receivables (note 15) 6,020,704 - 6,020,704 Available-for-sale financial assets (note 16) - 4,606,093 4,606,093 Investments in subsidiaries (note 12) - 368,604,641 368,604,641 Trade and other receivables (note 18) 7,670,391 - 7,670,391 Cash and cash equivalents (note 19) 288,454,667 - 288,454,667 TOTAL 302,145,762 373,210,734 675,356,496 Liabilities at fair value through profit and loss Other financial liabilities Total Liabilities as per balance sheetTrade and other payables (note 26) 8,678,751 - 8,678,751 TOTAL 8,678,751 - 8,678,751 Loans and receivables Available-for-sale Total 31 March 2008 Assets as per balance sheet Loans and receivables (note 15) 11,943,264 - 11,943,264 Available-for-sale financial assets (note 16) - 4,134,209 4,134,209 Investments in subsidiaries (note 12) - 223,988,865 223,988,865 Trade and other receivables (note 18) 10,689,952 - 10,689,952 Cash and cash equivalents (note 19) 419,645,348 - 419,645,348 TOTAL 442,278,564 228,123,074 670,401,638 Liabilities at fair value through profit and loss Other financial liabilities Total Liabilities as per balance sheet Trade and other payables (note 26) 11,314,747 - 11,314,747 TOTAL 11,314,747 - 11,314,747 SOUTH AFRICAN FORESTRY COMPANY LIMITED112NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 2009YEAR ENDED 31 MARCH 2009 YEAR ENDED 31 MARCH 2008 YEAR ENDED 31 MARCH 2009YEAR ENDED 31 MARCH 2008GROUP GROUP COMPANY COMPANYR R R R15. LOANS AND RECEIVABLESYork Timbers Limited deferred claim settlementPayments 6,149,695 12,999,102 6,149,695 12,999,102 - within one year 6,149,695 6,778,934 6,149,695 6,778,934- in the second to fifth years inclusive - 6,220,168 - 6,220,168Less unearned interest income (128,991) (1,055,838) (128,991) (1,055,838)- within one year (128,991) (1,055,838) (128,991) (1,055,838)- in the second to fifth years inclusive - - - -Present value of payments 6,020,704 11,943,264 6,020,704 11,943,264- within one year 6,020,704 5,723,096 6,020,704 5,723,096 - in the second to fifth years inclusive - 6,220,168 - 6,220,168 Non-current loans and receivables - 6,220,168 - 6,220,168 Current loans and receivables 6,020,704 5,723,096 6,020,704 5,723,096 6,020,704 11,943,264 6,020,704 11,943,264 Amounts receivable from York Timbers Ltd pertaining to a cancellation action due in three annual payments from 1 July 2007. The deferred claim settlement bears interest at prime rate less 3.5%.16. AVAILABLE-FOR-SALE FINANCIAL ASSETSBeginning of the year 4,384,882 3,464,394 4,134,209 3,213,721 Movement for the year 471,884 920,488 471,884 920,488 End of the year 4,856,766 4,384,882 4,606,093 4,134,209 Less: current portion - - - - Non-Current portion 4,856,766 4,384,882 4,606,093 4,134,209 Available-for-sale financial assets include the following:UnlistedTimber Workers Co-operative Insurance Brokers 4 4 4 4 Transvaal Wattle Growers Co-op Agricultural Company Limited 1,000 1,000 1,000 1,000 NTE investment 250,673 250,673 - - Risk finance policy - Guardian National 4,605,089 4,133,205 4,605,089 4,133,205 4,856,766 4,384,882 4,606,093 4,134,209 None of the financial assets is either past due or impaired.The Directors value all unlisted investments at cost.17. INVENTORIESAt cost 58,264,564 29,878,771 65,129 54,878 Raw materials 5,287,100 2,398,439 - - Work in progress 3,386,071 2,494,583 - - Finished goods 35,118,782 12,760,690 - - Consumable stores 14,472,611 12,225,059 65,129 54,878 At net realisable valueFinished goods 10,653,678 845,624 - - At fair value Agricultural produce - saw logs 118,359,536 95,880,964 - - TOTAL 187,277,778 126,605,359 65,129 54,878 SOUTH AFRICAN FORESTRY COMPANY LIMITED113NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 2009YEAR ENDED 31 MARCH 2009 YEAR ENDED 31 MARCH 2008 YEAR ENDED 31 MARCH 2009YEAR ENDED 31 MARCH 2008GROUP GROUP COMPANY COMPANYR R R R18. TRADE AND OTHER RECEIVABLESTrade accounts receivable 179,070,598 145,576,611 2,933,599 6,655,957 Provision for doubtful debt (7,552,762) (8,803,115) - (3,085,303)Other receivables 14,308,960 14,463,719 4,736,792 7,119,298 Trade and other receivables 185,826,796 151,237,215 7,670,391 10,689,952 The fair values of trade and other receivables are as follows: Trade and other receivables 185,826,796 151,237,215 7,670,391 10,689,952 As at 31 March 2009, trade receivables of the Group of R 125,736,303 (2008: R 94,031,850) and of the Company of R 2,933,599 (2008: R 3,553,611) were fully performing. Other receivables of the Group of R 12,456,693 (2008: R 11,325,315) and of the Company of R 4,736,792 (2008: R 6,081,682) were fully performing.The average credit period for the Group is 69 (2008: 56) days. Interest is charged on trade receivables that default. The Group and Company have provided for the majority of receivables over 150 days based on past experience, which indicates that receivables that are past due beyond 150 days are generally not recoverable. Some past due debtors older than 150 days however have not been provided for due to specific conditions in regards to the payment of the debt. The overall recoverability of the amount owed is not perceived to be in doubt. Trade receivables between 60 days and 120 days are provided for based on estimated irrecoverable amounts.Included in the Group and Companys trade and other receivables are receivables with a carrying amount of R 47,633,800 (2008: R 45,880,050) for the Group and for the Company R 0 (2008: R 1,054,659) which are past due at the reporting date, but the Group and Company have not provided for them 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 IMPAIREDTrade receivables 47,336,672 44,605,704 - 17,043 31 - 60 Days 32,912,512 35,233,252 - - 60 - 90 Days 12,207,392 2,718,274 - - 90 - 120 Days 461,668 1,625,982 - 1,778 120 - 150 Days (21,104) 3,844,912 - - 150+ Days 1,776,204 1,183,284 - 15,265 Other receivables 297,128 1,274,346 - 1,037,616 31 - 60 Days 214,969 40,567 - - 60 - 90 Days 80,764 85,220 - - 90 - 120 Days 1,851 (3,602) - - 120 - 150 Days 8,431 1,224 - - 150+ Days (8,887) 1,150,937 - 1,037,616 TOTAL 47,633,800 45,880,050 - 1,054,659 Included in the Group and Companys trade and other receivables are receivables with a carrying amount of R 7,552,762 (2008: R 8,803,115) and R 0 (2008: R 3,085,303) which are impaired and provided for. These relate to a number of independent customers which are in difficult economic situations. The ageing of the trade receivables and other receivables that are impaired are as follows:AGEING OF IMPAIRED RECEIVABLESTrade receivables 5,997,623 6,939,057 - 3,085,303 60 - 90 Days 9,448 56,172 - 41,007 90 - 120 Days 85,554 40,206 - 40,206 120 - 150 Days 1,955,851 699,336 - - 150+ Days 3,946,770 6,143,343 - 3,004,090 Other receivables 1,555,139 1,864,058 - - 60 - 90 Days 189 1,968 - - 90 - 120 Days 5,990 3,719 - - 120 - 150 Days 16,929 14,750 - - 150+ Days 1,532,031 1,843,621 - - TOTAL 7,552,762 8,803,115 - 3,085,303 The credit quality of trade and other receivables that are neither past due nor impaired can be assessed by reference to historical information about the counterparty default rates. Major trade receivables are insured based on the external credit ratings of the specific counterparties. Internal credit checks are performed for other receivables.Counterparties without external credit rating Fully performing trade receivables Customers with no default history 125,736,303 83,415,790 2,933,599 3,553,611 Customers with default history - 10,616,060 - - TOTAL 125,736,303 94,031,850 2,933,599 3,553,611 SOUTH AFRICAN FORESTRY COMPANY LIMITED114NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 2009YEAR ENDED 31 MARCH 2009 YEAR ENDED 31 MARCH 2008 YEAR ENDED 31 MARCH 2009YEAR ENDED 31 MARCH 2008GROUP GROUP COMPANY COMPANYR R R R18. TRADE AND OTHER RECEIVABLES (CONTINUED)Movement In The Allowance For Doubtful DebtsBalance at beginning of the year 8,803,115 5,915,657 3,085,303 2,723,834 Impairment losses recognised on receivables 2,645,125 3,809,712 - 596,844 Amounts written off as uncollectible (3,400,758) (762,324) (3,085,303) (235,375)Amounts recovered during the year (494,720) (159,930) - - Balance at the end of the year 7,552,762 8,803,115 - 3,085,303 In determining the recoverability of trade and other receivables, the Group and Company consider any change in the credit quality of trade and other receivables from the date the credit was initially granted up to the reporting date. The concentration of the credit risk is limited due to the customer base being large. Accordingly, the Directors believe that there is no further credit provision required in excess of the allowance for doubtful debts.All round wood and lumber receivables are secured by either bank guarantees, credit insurance (80%) or cash prepayments. Small sundry 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 EQUIVALENTSCurrent account 34,440,590 27,979,030 288,454,667 14,645,348 Short-term deposits 261,500,000 405,000,000 - 405,000,000 TOTAL 295,940,590 432,979,030 288,454,667 419,645,348 20. DISCONTINUED OPERATIONSA discontinued operation is a component which has been disposed of or is classified as held-for-sale and represents a separate major line of business or geographical area of operations, or is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations.Blyde SawmillOn 28 May 2007 the SAFCOL Board of Directors approved the closure by its subsidiary Komatiland Forests (Pty) Ltd of its Blyde sawmill. The sawmill was declared structurally unsafe. The closure of Blyde sawmill was completed by October 2007, but transactions still ocurred in 2009 financial year.The results of the discontinued operation included in the Groups income statement and cash flow statement are set out below.A consolidated analysis of the results of these discontinued operations, and the result recognised on the re-measurement of assets are as follows:Income statementTurnover (refer note 3) 30,182 12,829,336 - - Cost of sales - (14,633,443) - - Net profit / (loss) 30,182 (1,804,107) - - Other operating income 89,907 - - - Administrative expenses (40,925) (149,226) - - Other operating expenses (425,858) (1,081,651) - - Operating loss (346,694) (3,034,984) - - Finance costs (refer note 6) (1,020) (1,059) - - Loss before tax (347,714) (3,036,043) - - Attributable income tax expense - - - - Loss for the year from discontinued operations (347,714) (3,036,043) - - Cash flow statementOperating cash flows (89,903) (477,199) - - Investing cash flows 89,903 477,199 - - Total cash flows - - - - SOUTH AFRICAN FORESTRY COMPANY LIMITED115NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 2009YEAR ENDED 31 MARCH 2009 YEAR ENDED 31 MARCH 2008 YEAR ENDED 31 MARCH 2009YEAR ENDED 31 MARCH 2008GROUP GROUP COMPANY COMPANYR R R R21. ASSETS CLASSIFIED AS HELD FOR SALE Movement reconciliation: Assets classified as held for sale - 281,259 - - Carrying amount at the beginning of the period 281,259 - - - Transferred (from) / to assets classified as held for sale (refer note 9) (6,966) 281,259 - - Disposed during the period (274,293) - - - Proceeds (528,676) - - - Surplus on disposal 254,383 - - - Carrying amount at the end of the year - 281,259 - - Assets held for sale consist of the following: Property, plant and equipment Motor vehicles - 15 - - Plant and equipment - 281,244 - - TOTAL - 281,259 - - Assets classified as held for sale relate to assets that were not in use in the current year and will be disposed within the next 12 months.22. SHARE CAPITALAuthorised1 500 000 000 Ordinary shares of R1 each 1,500,000,000 1,500,000,000 1,500,000,000 1,500,000,000 Issued318 013 254 Ordinary shares of R1 each 318,013,254 318,013,254 318,013,254 318,013,254 23. NON-DISTRIBUTABLE RESERVES Capital profit reserve 64,373,511 64,373,511 64,373,511 64,373,511 Capital surplus on sawmill insurance claims 37,061,007 37,061,007 37,061,007 37,061,007 Adjustment to fixed asset opening balances (669,042) (669,042) (669,042) (669,042)Cancellation of provision for transfer cost on transfer of land 27,981,546 27,981,546 27,981,546 27,981,546 Retirement fund reserve 64,000,000 64,000,000 64,000,000 64,000,000 Lump-sum payment to retirement funds 20,000,000 20,000,000 20,000,000 20,000,000 Pension fund shortfall funded by Government 44,000,000 44,000,000 44,000,000 44,000,000 Revaluation reserve (603,538) (603,538) (1,552,055) (1,552,055)Adjustment to net asset valuation upon corporatisation (603,538) (603,538) (1,552,055) (1,552,055)Foreign currency translation reserve (7,890,742) 3,631,901 - - TOTAL NON-DISTRIBUTABLE RESERVES 119,879,231 131,401,874 126,821,456 126,821,456 24. DEFERRED TAXATION Reconciliation of opening balance to closing balance of deferred tax liability / (asset):Opening balance 736,950,260 570,579,886 (1,506,214) (4,476,604)Reversing differences for prior period adjustments 2,868,864 1,977,774 529,034 - Income tax rate change (from 29% to 28%) - (21,803,122) - 154,366 Originating / (Reversing) differences on assets 8,574,411 8,577,626 436,501 (17,927)(Reversing) / Originating differences on provisions (4,483,173) 3,394,760 (133,577) 2,166,022 Reversing / (Originating) differences on allowances 999,740 1,414,950 (214,166) 666,746 Reversing differences on finance leases 86,728 652,869 - - Reversing difference on deferred income - 1,183 - 1,183 Originating differences on assessed loss - 38,850 - - Originating differences due to fair value adjustments to plantations 217,571,886 158,327,724 - - Originating differences on pension and provident fund assets 1,174,484 13,787,760 - - CLOSING BALANCE 963,743,200 736,950,260 (888,422) (1,506,214)Deferred tax liability 964,718,533 738,456,474 - - Deferred tax asset (975,333) (1,506,214) (888,422) (1,506,214)SOUTH AFRICAN FORESTRY COMPANY LIMITED116NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 2009YEAR ENDED 31 MARCH 2009 YEAR ENDED 31 MARCH 2008 YEAR ENDED 31 MARCH 2009YEAR ENDED 31 MARCH 2008GROUP GROUP COMPANY COMPANYR R R R24. DEFERRED TAXATION (CONTINUED)Deferred taxation consists of the following temporary differences:Capital allowances 937,781,175 715,669,285 507,269 72,185 Plantations 891,138,685 677,612,967 - - Property, plant & equipment 46,644,336 38,064,751 507,269 72,185 Minor assets (1,846) (8,433) - - Provisions (11,292,981) (10,132,098) (1,440,591) (2,482,188)Finance lease liability (156,777) (243,504) - - Deferred income - 1,183 - 1,183 Other allowances 5,139,073 4,951,701 44,900 902,606 Biological assets - agricultural produce: saw logs 17,310,466 12,915,933 - - Pension and provident fund assets 14,962,244 13,787,760 - TOTAL 963,743,200 736,950,260 (888,422) (1,506,214)Deferred taxation assets are recognised for tax loss carry-forwards to the extent that the realisation of the related tax benefit through future taxable profits is probable.25. BORROWINGS Obligations under finance leases Minimum lease payments 3,011,984 17,066,796 - - within one year 1,553,371 4,492,900 - - in the second to fifth years inclusive 1,458,613 12,573,896 - - Finance charges 263,831 3,554,329 - - within one year 198,912 1,547,586 - - in the second to fifth years inclusive 64,919 2,006,743 - - Total repayments 3,275,815 20,621,125 - - within one year 1,752,283 6,040,486 - - in the second to fifth years inclusive 1,523,532 14,580,639 - - Non-current borrowings 1,458,613 12,573,896 - - Current borrowings 1,553,371 4,492,900 - - 3,011,984 17,066,796 - - Finance lease obligations are capitalised between 1.5% and 2.75% less than prime rate. The effective interest rates prevailing at year-end ranged between 8.66% and 11.55% (2008: 8.66% and 11.55%). The lease terms are 5 years with between 1 and 3 years remaining. These liabilities are secured by installment lease agreements over assets with a net book value of R3,973,450 (2008: R16,669,130) - refer note 9. Monthly repayments are R146,024 (2008: R503,374).26. TRADE AND OTHER PAYABLESTrade accounts payable 43,506,448 63,989,262 676,876 2,128,178 Accruals 19,350,724 35,698,568 6,895,206 8,007,049 Other payables 12,247,640 5,813,493 1,106,669 1,179,520 TOTAL 75,104,812 105,501,323 8,678,751 11,314,747 SOUTH AFRICAN FORESTRY COMPANY LIMITED117NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 2009YEAR ENDED 31 MARCH 2009 YEAR ENDED 31 MARCH 2008 YEAR ENDED 31 MARCH 2009YEAR ENDED 31 MARCH 2008GROUP GROUP COMPANY COMPANYR R R R27. PROVISIONSEmployee bonus 24,065,862 11,865,323 4,608,804 4,197,051 Balance at the beginning of the period 11,865,323 8,743,200 4,197,051 2,366,000 Provisions made during the period 24,065,863 12,019,848 4,608,804 4,197,051 Provisions utilised during the period (10,304,001) (7,620,657) (4,197,051) (2,366,000)Provisions reversed during the period (1,561,323) (1,277,068) - - Product claims 582,203 1,167,515 - - Balance at the beginning of the period 1,167,515 221,103 - - Provisions made during the period 2,309,536 1,167,514 - - Provisions reversed during the period (2,624,209) (221,102) - - Provisions utilised during the period (270,639) - - - Retrenchment benefits - - - - Balance at the beginning of the period - 5,883,057 - 5,883,057 Provisions made during the period - 823,769 - 823,769 Provisions utilised during the period - (6,706,826) - (6,706,826)Legal costs - - - - Rehabilitation of exit areas - - - - Provisions reclassified as an accrual - 4,600,000 - 4,600,000 Provisions utilised during the period - (3,600,000) - (3,600,000)Provisions reversed during the period - (1,000,000) - (1,000,000)Land lease 2,172,182 2,174,059 842,940 844,819Balance at the beginning of the period 2,174,059 3,452,606 844,819 2,123,366 Provisions made during the period 14,920,848 206,356 14,920,848 206,356 Provisions reversed during the period (14,922,725) (1,484,903) (14,922,727) (1,484,903)Regeneration backlog - - - - Balance at the beginning of the period - 2,588,132 - - Provisions reversed during the period - (2,588,132) - - Post retirement medical aid - 3,839,186 - 683,540 Balance at the beginning of the period 3,839,186 10,966,620 683,540 248,993 Provisions made during the period - 10,563,258 - 612,641 Provisions reversed during the period (661,160) (178,094) (129,787) (178,094)Provisions utilised during the period (3,178,026) (17,512,598) (553,753) - Balance at the end of the period 26,820,247 19,046,083 5,451,744 5,725,410Employee bonusEmployee bonus calculations are prescribed in the relevant conditions of employment or performance bonus scheme as approved by the Board of Directors.Product claimsProvision for product returns based on terms and conditions of sale.Retrenchment benefitsThe Retrenchment benefits provision relates to two Executive Directorss retention agreements in the prior year. In settlement of this contractual obligations, the amounts due to theDirectors were verified by an independent firm of auditors before payment and paid to them during the last quarter of the prior year. New employment contracts were entered into with them. Rehabilitation of exit areasIn the prior year, the short-term portion of the provision for rehabilitation cost was based on estimated rehabilitation costs per hectare clear felled for exit areas in the Western Cape, EasternCape and Kwazulu-Natal. The obligation in respect of the St Lucia exit areas were settled with the new land manager, whereas the obligation in respect of the Western and Eastern Cape exit areas lapsed on 31 March 2007. Land leaseProvision of land which SAFCOL leases from the Department of Water Affairs and Forestry (DWAF). The payment dates of this provision is uncertain.Regeneration backlogProvision for replanting of temporary unplanted areas as per sustainable forestry practices to ensure FSC compliance. The assumptions for this provision are similar to the IAS 41 fair valuemodel assumptions for planted areas set out in note 11. This provision is revised annually to reflect the movement in unplanted areas. 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 the current year.SOUTH AFRICAN FORESTRY COMPANY LIMITED118NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 2009YEAR ENDED 31 MARCH 2009 YEAR ENDED 31 MARCH 2008 YEAR ENDED 31 MARCH 2009YEAR ENDED 31 MARCH 2008GROUP GROUP COMPANY COMPANYR R R R28. CAPITAL COMMITMENTSCapital Expenditure Authorised and contracted 6,728,282 30,990,703 - - This capital expenditure will be financed from cash flows generated from operations, or external financing if required.29. RELATED PARTIESIdentity of related partiesSAFCOL is the holding company of the Group and is owned 100% (2008: 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 and its 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 Groups Directors or key personnel.The Group does not provide any services to related parties for no consideration.Material related party transactionsDetails 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 BEARINGSubsidiaries (note 12) Beginning of the year - - 294,041,618 382,171,749 Loans repaid during the year - - - (88,130,131)End of the year - - 294,041,618 294,041,618 Associates (note 13) Beginning of the year 3,209,720 4,167,797 3,209,720 4,167,797 Loans repaid during the year - (958,077) - (958,077)End of the year 3,209,720 3,209,720 3,209,720 3,209,720 (B) LOANS TO RELATED PARTIES - INTEREST BEARINGSubsidiaries (note 12) Beginning of the year - - 744,551 443,169 Loans advanced during the year - - 70,809,537 213,322 Interest charged - - 3,008,815 88,060 End of the year - - 74,562,903 744,551 Associates (note 13)Beginning of the year 5,533,163 20,533,163 5,533,163 20,533,163 Loans repaid during the year (5,632,429) (17,298,663) (5,632,429) (17,298,663)Interest charged 632,599 2,298,663 632,599 2,298,663 End of the year 533,333 5,533,163 533,333 5,533,163 (C) LOANS FROM RELATED PARTIES - INTEREST BEARINGSubsidiaries (note 12)Beginning of the year - - (70,797,424) (88,130,131)Loans repaid during the year - - 72,866,100 25,284,704 Interest charged - - (2,068,676) (7,951,997)End of the year - - - (70,797,424) (D) LOANS FROM RELATED PARTIES - NON-INTEREST BEARING Subsidiaries (note 12)Beginning of the year - - (17,721) (17,721)Loans repaid during the year - - 17,521 - End of the year - - (200) (17,721)SOUTH AFRICAN FORESTRY COMPANY LIMITED119NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 2009YEAR ENDED 31 MARCH 2009 YEAR ENDED 31 MARCH 2008 YEAR ENDED 31 MARCH 2009YEAR ENDED 31 MARCH 2008GROUP GROUP COMPANY COMPANYR R R R29. RELATED PARTIES (CONTINUED) (E) SALES OF GOODS AND SERVICES ServicesSubsidiaries - - (9,600,000) (14,400,000)Associates - (143,096) - (143,096) - (143,096) (9,600,000) (14,543,096)Sale of goodsAssociates (186,400) - - - Other State Owned Entities (1,847,027) (1,908,668) - - (2,033,427) (1,908,668) - - Operating lease rentals received Subsidiaries - - (15,428,406) (14,446,476) - - (15,428,406) (14,446,476)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 SERVICESServices - Associates 2,877 - - - - Other State Owned Entities 7,648,810 8,790,395 - 1,354,905 7,651,687 8,790,395 - 1,354,905 Services are received from related parties on normal commercial terms and conditions. (G) YEAR-END BALANCES ARISING FROM SALES / PURCHASES OF GOODSReceivables from related parties:Subsidiaries - - 2,449,099 3,208,392 Associates - 61,573 - 61,573 Other State Owned Entities 49,433 1,007,540 - - 49,433 1,069,113 2,449,099 3,269,965 Payables to related parties:Subsidiaries - - (213,804) (324,506)Associates (91,667) - - - Other State Owned Entities (759,918) (624,929) - - (851,585) (624,929) (213,804) (324,506)(H) KEY MANAGEMENT COMPENSATIONSalaries and other short-term employee benefits 20,751,736 31,499,826 14,194,062 22,895,177 SOUTH AFRICAN FORESTRY COMPANY LIMITED120NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 2009YEAR ENDED 31 MARCH 2009 YEAR ENDED 31 MARCH 2008 YEAR ENDED 31 MARCH 2009YEAR ENDED 31 MARCH 2008GROUP GROUP COMPANY COMPANYR R R R30. PRIOR PERIOD ERRORS AND CHANGES IN ESTIMATESPrior Period ErrorsAn error was made in prior years in the classification of Investment Property as Property, 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 (189,226) (4,667,167) (189,226) (4,667,167)Decrease in Property, plant and equipment accumulated depreciation 46,173 - 46,173 - Increase in Investment Property 143,053 4,667,167 143,053 4,667,167 Changes in accounting estimates for the valuation of Biological AssetsDuring the year the fair value model, methodology and assumptions utilised have been revised. This was performed to obtain a more accurate valuation in terms of species, volumes, income, expenses and prices.The changes to the model are summarised as follow:- Volume and prices were split per the group working circle (pine saw logs, pine fibre, gum saw logs, gum fibre, gum poles) while in prior years all crops were treated as pine saw logs in regards to volumes and silviculture operations.- Overheads split into fixed and variable (only road maintenance) which was not performed in the prior year.- Research cost were excluded while overheads costs were included.- The use of a mid-year discount which was not included in the prior year.The amendments to the model represent a change in estimate as the change does not alter the valuation policy and a fair value is still calculated based on the discounted cash flow method using a pre-tax discount rate. The change relates to new information available in the current year and better reflects the economic benefits that are expected to flow from the use of the asset. If the current year, plantations were valued based on prior year assumptions, this would have resulted in a total fair value of R3,289,212,687 as at 31 March 2009 compared to R3,218,274,492 per the new methodology (refer note 11). The change has been applied prospectively. The income statement and balance sheet impact are reflected below:Loss arising from changes in fair value of Biological Assets: (70,938,196) - - - Decrease in income tax expense (movement in Deferred tax) 19,862,695 - - - Decrease in profit (51,075,501) - - - Decrease in Biological Asset (70,938,196) - - - Decrease in Deferred Tax liability 19,862,695 - - -Decrease in equity (51,075,501) - - - SOUTH AFRICAN FORESTRY COMPANY LIMITED121NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 200931. Risk ManagementCapital Risk ManagementThe Group manages its capital to ensure that entities in the Group will be able to continue as a going concern. The Groups overall strategy remains unchanged from 2008.The management of financial risks takes place within SAFCOLs centralised treasury and risk management functions. The objective is to ensure that the Group is not unduly exposed to financial risks.The capital structure of the Group consists of debt, which includes short and long-term borrowings included in note 25, and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in notes 22 and 23.Risk Management PoliciesRisk management policies are formally documented and approved. The accountability for developing and maintaining risk control rests with the risk management function within the Group under the guidance of the Board of Directors. Compliance with policies and exposure limits is reviewed by the internal auditors on a continuous basis.Targets for Capital Structure There is virtually no gearing and all operational and capital requirements are financed from own operations. This may change within the next year due to current market conditions and to allow for more efficient use of cash.No dividends have been declared in the current financial year (2008: R 0).Gearing RatioThe Groups Finance, Investment and Transaction Committee reviews the capital structure quarterly. The gearing ratio at year-end was as follows: NOTES YEARENDED31 MARCH 2009YEARENDED31 MARCH 2008YEARENDED31 MARCH 2009YEARENDED31 MARCH 2008GROUP GROUP COMPANY COMPANYR R R RDebt (i) 25 3,011,984 17,066,796 - - Equity (ii) 22,23 3,385,342,045 2,694,987,380 692,267,020 680,566,029 Net debt to equity 0.09% 0.63% 0.00% 0.00%(i) Debt is defined as long-term and short-term borrowings, as detailed in note 25.(ii) Equity includes all capital and reserves of the Group.SOUTH AFRICAN FORESTRY COMPANY LIMITED122NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 2009NOTE 31 (CONTINUED)Significant Accounting PoliciesDetails 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.Classes of Financial InstrumentsNOTESYEAR ENDED31 MARCH 2009YEAR ENDED31 MARCH 2008YEAR ENDED31 MARCH 2009YEAR ENDED31 MARCH 2008GROUP GROUP COMPANY COMPANYR R R RFinancial AssetsLoans and receivables 15 6,020,704 11,943,264 6,020,704 11,943,264 Available-for-sale financial assets 16 4,856,766 4,384,882 4,606,093 4,134,209 Subsidiary companies - Investments 12 - - 320 17,841 Subsidiary companies - Non-interest bearing loans12 - - 294,041,618 294,041,618 Subsidiary companies - Interest bearing loans12 - - 74,562,903 744,551 Trade and other receivables 18 185,826,796 151,237,215 7,670,391 10,689,952 Cash and cash equivalents 19 295,940,590 432,979,030 288,454,667 419,645,348 Total Financial Assets 492,644,856 600,544,391 675,356,696 741,216,783 Financial LiabilitiesBorrowings 25 3,011,984 17,066,796 - - Subsidiary companies - Interest bearing loans12 - - - 70,797,424 Subsidiary companies - Non-interest bearing loans12 - - 200 17,721 Trade and other payables 26 75,104,812 105,501,323 8,678,751 11,314,747 Total Financial Liabilities 78,116,796 122,568,119 8,678,951 82,129,892 At the reporting date there are no significant concentrations of credit risk for loans and receivables. The carrying amount reflected above represents the Groups maximum exposure to credit risk for such loans and receivables.Major Financial RisksThe following major financial risks that the organisation is exposed to have been identified: Forward Exchange Risk 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. Credit Risk the risk of default by counterparties. Cash Flow Interest Rate Risk - the risk of loss arising from changes in interest rates through higher interest payments or lower interest receipts.SOUTH AFRICAN FORESTRY COMPANY LIMITED123NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 2009NOTE 31 (CONTINUED) Market Risk 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 volatilities on all of the above. Liquidity Risk the risk that the Group has insufficient funds or marketable securities available to fulfil its cash flow obligations on time. Compliance Risk 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. Operational Risk the risk resulting from inadequate or failed internal processes, people, and systems, or from external events. Price Risk the risk that changes in log price has on the financial performance and cash flows of the Group.Forward Exchange RiskThe 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 Groups 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 RiskFinancial assets, which potentially subject the Group to concentrations of credit risk, consist principally of cash, short-term deposits, and trade and other receivables. The Groups cash equivalents and short-term deposits are placed with high credit quality financial institutions. All external investments held are rated AA or A1, or fully secured. Trade receivables are presented net of the allowance for doubtful debts. Credit risk with respect to trade receivables is moderate due to the Groups 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 Groups exposure is on the full amount of the foreign currency receivable on 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 Groups 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 Committee has established a credit policy under which each new customer is analysed individually for creditworthiness before the Groups standard payment terms and conditions are offered. The Groups review includes external ratings, where available, and in some cases, bank references. Credit limits (purchase limits) established for each customer represent the maximum open amount without requiring approval from the Credit Committee. These credit limits are reviewed regularly. Customers that fail to meet the Groups benchmark credit-worthiness may transact with the Group only on a pre-payment basis.SOUTH AFRICAN FORESTRY COMPANY LIMITED124NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 2009NOTE 31 (CONTINUED)Cash Flow Interest Rate RiskThe 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 Groups exposure to interest rate risk and the effective interest rate on financial instruments at balance sheet date are set out in the following tables:GROUP NOTES WEIGHTEDAVERAGEEFFECTIVEINTERESTRATE FLOATINGINTERESTRATE NON-INTERESTBEARINGTOTAL % R R RAs at 31 March 2009 AssetsLoans and receivables 15 9.50 6,020,704 - 6,020,704 Available-for-sale financial assets 16 4,605,089 251,677 4,856,766 Trade and other receivables 18 - 185,826,796 185,826,796 Cash and cash equivalents 19 9.67 295,940,590 - 295,940,590 Total Financial Assets 306,566,383 186,078,473 492,644,856 LiabilitiesBorrowings 25 8.99 3,011,984 - 3,011,984 Trade and other payables 26 - 75,104,812 75,104,812 Total Fnancial Liabilities 3,011,984 75,104,812 78,116,796 Net Financial Assets 303,554,399 110,973,661 414,528,060 As at 31 March 2008 Total Financial Assets 11.00 449,055,499 151,488,892 600,544,391 Total Financial Liabilities 11.05 17,066,796 105,501,323 122,568,119 Net Financial Assets 431,988,703 45,987,569 477,976,272 SOUTH AFRICAN FORESTRY COMPANY LIMITED125NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 2009NOTE 31 (CONTINUED)The Companys exposure to interest rate risk and the effective interest rate on financial instruments at balance sheet date are set out in the following tables:COMPANYNOTESWEIGHTEDAVERAGEEFFECTIVEINTERESTRATE FLOATINGINTERESTRATE NON-INTERESTBEARINGTOTAL % R R RAs at 31 March 2009 Assets Loans and receivables 15 9.50 6,020,704 - 6,020,704 Available-for-sale financial assets 16 4,605,089 1,004 4,606,093 Subsidiary companies - Investments 12 - 320 320 Subsidiary companies - Non-interest bearing loans12 - 294,041,618 294,041,618 Subsidiary companies - Interest bearing loans12 6.50 74,562,903 - 74,562,903 Trade and other receivables 18 - 7,670,391 7,670,391 Cash and cash equivalents 19 9.67 288,454,667 - 288,454,667 Total Financial Assets 373,643,363 301,713,333 675,356,696 Liabilities Subsidiary companies - Non-interest bearing loans12 - 200 200 Trade and other payables 26 - 8,678,751 8,678,751 Total Financial Liabilities - 8,678,951 8,678,951 Net Financial Assets 373,643,363 293,034,382 666,677,745 As at 31 March 2008 Total Financial Assets 11.01 436,466,368 304,750,415 741,216,783 Total Financial Liabilities 8.00 70,797,424 11,332,468 82,129,892 Net Financial Assets 365,668,944 293,417,947 659,086,891 Sensitivity Analysis for Variable Rate InstrumentsThe 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 Groups profit / (loss) and equity for the year ending 31 March 2009 are set out in the table below. This increase / (decrease) is attributable to variable interest rate borrowings, cash and cash equivalents and loans and receivables. This analysis assumes that all other variables, in particular foreign currency rates, remains constant. SOUTH AFRICAN FORESTRY COMPANY LIMITED126NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 2009NOTE 31 (CONTINUED)YEAR ENDED31 MARCH 2009YEAR ENDED31 MARCH 2008YEAR ENDED31 MARCH 2009YEAR ENDED31 MARCH 2008GROUP GROUP COMPANY COMPANYR R R RVariable Rate Instrument Sensitivity AnalysisSensitivity if the interest rate increases by 200 basis points Increase in Profit or Loss 6,071,088 8,895,776 7,472,867 7,313,379 Increase in Equity - - - - Sensitivity if the interest rate decreases by 200 basis pointsDecrease in Profit or Loss (6,071,088) (8,895,776) (7,472,867) (7,313,379)Decrease in Equity - - - - Market Risk (Fair Value Estimation)At 31 March 2009 and 31 March 2008 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.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 Groups 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 RiskLiquidity risk arises primarily from variation in revenue flows as well as the Groups ability to repay principle debt and interest.The Groups 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; and Diversification of funding and investing activities.SOUTH AFRICAN FORESTRY COMPANY LIMITED127NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 2009NOTE 31 (CONTINUED)The table below analyses the Groups financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet to the contractual maturity date. NOTESCARRYINGAMOUNTCONTRACTUALCASH FLOWSLESS THAN1 YEAR1 - 5YEARSTOTAL R R R R RLiquidity Risk Table as at 31 March 2009 Group Borrowings 25 3,011,984 3,011,984 1,553,371 1,458,613 3,011,984 Trade and other payables26 75,104,812 75,104,812 75,104,812 - 75,104,812 78,116,796 78,116,796 76,658,183 1,458,613 78,116,796 Company Trade and other payables26 8,678,751 8,678,751 8,678,751 - 8,678,751 8,678,751 8,678,751 8,678,751 - 8,678,751 NOTESCARRYINGAMOUNTCONTRACTUALCASH FLOWSLESS THAN1 YEAR1 - 5YEARSTOTAL R R R R RLiquidity Risk Table as at 31 March 2008 Group Borrowings 25 17,066,796 17,066,796 4,492,900 12,573,896 17,066,796Trade and other payables26 105,501,323 105,501,323 105,501,323 - 105,501,323 122,568,119 122,568,119 109,994,223 12,573,896 122,568,119Company Trade and other payables26 11,314,747 11,314,747 11,314,747 - 11,314,747 11,314,747 11,314,747 11,314,747 - 11,314,747Compliance RiskThis 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.SOUTH AFRICAN FORESTRY COMPANY LIMITED128NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 2009NOTE 31 (CONTINUED)Operational RiskThe Groups approach to managing operational risk has led to the establishment of the following practices: Policies and procedures to sustain effective risk management; and The on-going assessment of the effects of changes in the regulatoryenvironment and adaptation of the processes accordingly.Price Risk The devastating fires experienced in 2007 and 2008 had a negative long-term impact on the supply of logs. The impact of the downturn in the economy has a negative impact on current and future demand and prices. The recent open market process failed to establish the new sales prices for the forthcoming year. As a result, prices have been adjusted in accordance with market expectations.Fair ValuesFair Values versus Carrying AmountsThe fair values of financial assets and liabilities, together with the carrying amounts shown in the balance sheet, are as follows:NOTESGROUP31 MARCH 2009 31 MARCH 2008CARRYINGAMOUNTFAIRVALUECARRYING AMOUNTFAIRVALUER R R RFinancial Assets Loans and receivables 15 6,020,704 6,020,704 11,943,264 11,943,264 Available-for-sale financial assets 16 4,856,766 4,856,766 4,384,882 4,384,882 Trade and other receivables 18 185,826,796 185,826,796 151,237,215 151,237,215 Cash and cash equivalents 19 295,940,590 295,940,590 432,979,030 432,979,030 Total Financial Assets 492,644,856 492,644,856 600,544,391 600,544,391Financial Liabilities Borrowings 25 3,011,984 3011,984 17,066,796 17,066,796 Trade and other payables 26 75,104,812 75,104,812 105,501,323 105,501,323Total Financial Liabilities 78,116,796 78,116,796 122,568,119 122,568,119 Unrecognised gain / (loss) - -SOUTH AFRICAN FORESTRY COMPANY LIMITED129NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 2009NOTE 31 (CONTINUED)NOTESCOMPANY31 MARCH 2009 31 MARCH 2008CARRYINGAMOUNTFAIRVALUECARRYING AMOUNTFAIRVALUER R R RFinancial Assets Loans and receivables 15 6,020,704 6,020,704 11,943,264 11,943,264 Available-for-sale financial assets 16 4,606,093 4,606,093 4,134,209 4,134,209 Subsidiary companies - Investments 12 320 320 17,841 17,841 Subsidiary companies - Non-interest bearing loans12 294,041,618 294,041,618 294,041,618 294,041,618 Subsidiary companies - Interest bearing loans 12 74,562,903 74,562,903 744,551 744,551 Trade and other receivables 18 7,670,391 7,670,391 10,689,952 10,689,952 Cash and cash equivalents 19 288,454,667 288,454,667 419,645,348 419,645,348 Total Financial Assets 675,356,696 675,356,696 741,216,783 741,216,783 Financial LiabilitiesBorrowings 25 - - - - Subsidiary companies - Interest bearing loans 12 - - 70,797,424 70,797,424 Subsidiary companies - Non-interest bearing loans12 200 200 17,721 17,721 Trade and other payables 26 8,678,751 8,678,751 11,314,747 11,314,747 Total Financial Liabilities 8,678,951 8,678,951 82,129,892 82,129,892 Unrecognised gain / (loss) - - Basis for Determining Fair ValuesThe 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 AssetsThe fair value of available-for-sale financial assets is determined by reference to the deemed cost price at the reporting date.Non-derivative Financial LiabilitiesFair value is calculated based on the present value of future principal and interest cash flows discounted at the market rateon interest at the reporting date. For finance leases, the market rate of interest is determined by reference to similar lease agreements.Trade and Other ReceivablesThe fair value of trade and other receivables is estimated as the present value of future cash flows, discounted at the marketrate of interest at the reporting date. Carrying amount approximates fair value due to the short-term nature of trade and other receivables.SOUTH AFRICAN FORESTRY COMPANY LIMITED130NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 2009NOTE 31 (CONTINUED)Interest Rates used for Determining Fair ValueThe interest rates used to discount estimated cash flows was as follows:BorrowingsNOTESYEAR ENDED31 MARCH 2009YEAR ENDED31 MARCH 2008R R25 8.66% - 11.55% 8.66% - 11.55% 32. Employee BenefitsRetirement FundsDuring the past two years SAFCOL and its subsidiary, KLF, were involved in a process aimed at the consolidation of the Groups retirement fund dispensation. This resulted in the transfer of the membership from three other retirement funds to the SAFCOL Provident Fund during this period. At year-end, all permanent employees of SAFCOL Group were either members of the SAFCOL Provident Fund or the Forestry Workers Pension Fund, a retirement fund option for workers in forestry and related industries. Both of these funds are defined contribution funds.With effect from 1 December 2007, membership of all SAFCOL and KLF employees who were members of the SAFCOL Pension Fund or the SAFCOL Pension-Linked Provident Fund (both defined benefit funds) was transferred to the SAFCOL Provident Fund. The defined benefit funds will be liquidated as soon as the fund interests of the relevant members have been transferred to the SAFCOL Provident Fund, and individual annuities have been purchased for the pensioners of these funds.During November 2008, the Group was informed that the Investment Solutions Executive Provident Fund, an umbrella retirement dispensation for executives, would be closed on 31 December 2008. Group employees who were members of the Investment Solutions fund became members of the SAFCOL Provident Fund with effect from 1 January 2009. Old Mutual Employee Benefits is the administrator of the SAFCOL Retirement Funds.The SAFCOL Provident Fund was 153.3% funded as at 30 June 2004. As at 30 June 2007 the Fund was 108.5% funded (net of the 30 June 2004 surplus distribution). At year-end, the surplus in the Fund (apportioned to the employer in accordance with the provisions of the Pension Fund Act, 1956) amounted to R 10.1 million (2008: R18.4 million), after funding had been utilised for contribution holidays, the enhancement of benefits, and the settlement of the employers post-retirement medical aid liability.According to the results of a statutory valuation of the defined benefit funds as at 30 June 2007, the funding level of the SAFCOL Pension Fund was 121.9%, resulting in a surplus of R43.4 million. Surplus of R6.5 million in the SAFCOL Pension-Linked Provident Fund emanated from a funding level of 106.2%. In both instances, the surplus was applied for contribution holidays, the enhancement of benefits, and the settlement of the employers post-retirement medical aid liability.SOUTH AFRICAN FORESTRY COMPANY LIMITED131NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 2009NOTE 32 (CONTINUED)Following the consideration of the valuations by the Board of Trustees, the employer contribution rates to the defined contribution funds in terms of the respective rules were as follows:GROUP AND COMPANYDEFINED BENEFIT DEFINED CONTRIBUTIONFORESTRY WORKERS PENSION FUNDSAFCOL PENSION FUNDSAFCOL PENSION -LINKED PROVIDENT FUNDSAFCOL PROVIDENT FUND Section A BenefitsSection C BenefitsSection D Benefits*Contribution rate 28.73% 29.70% 16.00% 17.50% 16.00% 16.00%Members 7.51% 7.59% 6.00% 7.50%_6.00%Employer 21.22% 22.11% 10.00% 10.00% 16.00% 10.00%* Non-contributory fund: deemed members contributions of 6.0% included as employer contributions.YEAR ENDED31 MARCH 2009YEAR ENDED31 MARCH 2008YEAR ENDED31 MARCH 2009YEAR ENDED31 MARCH 2008GROUP GROUP COMPANY COMPANYR000 R000 R000 R000Balance Sheet DIisclosure Non-current balance sheet assets Pension and provident fund assets 45,216 49,576 1,536 4 Non-current balance sheet obligationsPension obligation - 334 - - 334 - Current balance sheet obligations Post-employment medical benefits - 3,839 - 684 Employee incentive bonuses 24,066 11,865 4,609 4,197 Leave pay 10,123 9,555 536 - Termination benefits - - - - 34,189 25,259 5,145 4,881 Income Statement Disclosure Post retirement benefits - defined contribution- (967) - - Post retirement benefits - defined benefit (4,263) 23,257 - - Post-employment medical benefits (3,839) (7,127) - - Employee incentive bonuses 12,201 3,122 412 1,831 Termination benefits 4,415 824 2,195 824 Leave pay (567) 11 536 (779) 7,947 19,120 3,143 1,876 SOUTH AFRICAN FORESTRY COMPANY LIMITED132NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 2009NOTE 32 (CONTINUED)The actuarial valuation in terms of IAS 19 for the SAFCOL Pension Fund and the SAFCOL Pension-Linked Provident fund produced the following results:The following information is disclosed for the Group only.PENSION FUNDPENSION-LINKED PROVIDEND FUND2009 2008 2009 2008The actual return on plan assets was 21,376 8,152 8,371 3,026The principal actuarial assumptions used were as follows:Discount rate 9.00% 9.25% 9.00% 9.25%Expected return on plan assets 6.00% 10.50% 6.00% 10.50%Future salary increases n/a 7.25% n/a 7.25%Future pension increases n/a 4.05% n/a 4.05%Inflation rate n/a 6.25% n/a 6.25%Mortality rates:Pre-retirement - SA 85/90 ultimatePost-retirement - PA(90) ultimate rated down 1 year with 0.75% improvement per annumPlan assets are comprised as follows:Cash 97.56% 5.15% 97.78% 10.22%Equity nil 90.54% nil 80.77%Bonds 2.44% 4.31% 2.22% 9.01%Property and other nil nil nil nilTotal International nil nil nil nil100.00% 100.00% 100.00% 100.00%SOUTH AFRICAN FORESTRY COMPANY LIMITED133NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 2009NOTE 32 (CONTINUED)PENSION FUND PENSION-LINKED PROVIDENT FUNDYEAR ENDED31 MARCH 2009YEAR ENDED31 MARCH 2008YEAR ENDED31 MARCH 2009YEAR ENDED31 MARCH 2008GROUP GROUP COMPANY COMPANYR000 R000 R000 R000The amounts recognised in the balance sheet are determined as follows:Present value of funded obligations 84,360 82,060 1,032 54,209 Fair value of plan assets (115,565) (113,286) (4,984) (53,875)Funded status of the plan (surplus)/deficit (31,205) (31,226) (3,952) 334Asset deemed to be irrecoverable - - - -(Asset)/liability recognised in the balance sheet (31,205) (31,226) (3,952) 334Opening balance (31,226) - 334 - Contributions 5,106 (6,631) (5,106) (1,004)Income statement movement (5,085) (24,595) 820 1,338Closing balance (31,205) (31,226) (3,952) 334 Changes in the present value of the defined benefit obligation are as follows:Opening defined benefit obligation 82,060 56,292 54,209 39,687Current service costs - 1,411 - 952Interest cost 7,591 5,316 5,014 3,631Acturial loss 8,702 2,383 4,177 771Pension surplus apportionment 98,353 65,402 63,400 45,041Risk premiums - (694) - (329)Benefits paid (13,993) (1,647) (62,368) (1,737)Outsourced pensioners cost - 3,129 - 1,911Past service costs - 15,097 - 8,853Member contributions - 773 - 470Closing defined benefit obligation 84,360 82,060 1,032 54,209Changes in the fair value of plan assets are as follows: Fair value of plan assets at the beginning of the year 113,286 100,071 53,875 51,441Total contributions (5,106) 7,404 5,106 1,474Benefit payments (13,993) (1,647) (62,368) (1,737)Expected return of plan assets 12,181 9,665 5,657 4,821Risk premiums - (694) - (329)Pensioners outsourced - - - -Acturial gain/(loss) 9,197 (1,513) 2,714 (1,795)Fair value of plan assets at the end of the year 115,565 113,286 4,984 53,875The amount recognised in the income statement are determined as follows:Current service cost - 1,411 - 952Interest cost 7,591 5,316 5,014 3,631Expected return on plan assets (12,181) (9,665) (5,657) (4,821)Past service costs - 15,097 - 8,853Curtailment costs - 3,129 - 1,911Acturial (gain)/loss unrecognised (495) 9,307 1,463 (11,864) (5,085) 24,595 820 (1,338)SOUTH AFRICAN FORESTRY COMPANY LIMITED134NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 2009NOTE 32 (CONTINUED)GROUP2009R0002008R000SAFCOL Pension Fund Asset 31,205 31,226SAFCOL Provident Fund Asset * 10,059 18,350SAFCOL Pension -linked Provident Fund Liability 3,952 -Total asset per the balance sheet 45,216 49,576SAFCOL Pension -linked Provident Fund Liability - 334Total liability per the balance sheet - 334*The SAFCOL Provident Fund Asset relates to the initial surplus apportionment exercise. This asset consists of funds held in a money market and cash portfolio, and is managed separately from the plan assets of the fund. The plan assets of the fund are held in multi-managed portfolios in accordance with the approved investment strategy.Future Contributions, Income Statement Charges and Income Statement CreditsThe expected contributions to post employment benefit plans for the year ending March 2010 approximate R0.0 million (2008: R1.0 million). The expected income statement credit for the defined schemes is estimated to be approximately R 2.1 million (2008: R 5.2 million).Experience AdjustmentsGROUPExperience adjustments on plan liabilitiesExperience adjustments on plan assets2009R0002008R00012,879(11,911)3,1543,308968 6,462Summary of the employee benefits assets and obligations as determined actuarially each year:GROUPPresent value of the obligationFair value of plan assets2009R0002008R0002007R00085,392(120,549)136,269(167,161)95,979(151,512)(35,157) (30,892) (55,533)Post Retirement Medical AidIn terms of the Groups policy, the employer accepted responsibility for 50% of the post-retirement medical aid costs for retired employees. During 2006, the Group embarked on a process to dispose of this liability. This process was finalised prior to year-end when all the employers proposals made for the enhancement of retirement benefits, as compensation for the loss of the employers post-retirement medical aid subsidy, was implemented. As set out in note 27, the employers accrued liability with regards to post retirement medical aid amounts to R 0 (2008 : R 3.8 million) as at 31 March 2009.SOUTH AFRICAN FORESTRY COMPANY LIMITED135NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 2009YEAR ENDED 31 MARCH 2009 YEAR ENDED 31 MARCH 2008 YEAR ENDED 31 MARCH 2009YEAR ENDED 31 MARCH 2008GROUP GROUP COMPANY COMPANYR R R R33. CASH FLOW RECONCILIATIONInventories Movement per the Balance Sheet (note 17) (60,672,419) (102,128,673) (10,251) (2,271)Movement in inventory (note 4) 14,924,682 45,898,685 - - Effects of forex translation - 899,386 - - Movement per Cash Flow Statement (45,747,737) (55,330,602) (10,251) (2,271)Trade and other receivables Movement per the Balance Sheet (note 18) (34,589,581) (33,781,016) 3,019,561 8,323,664 Effects of forex translation - 1,214,900 - - Movement per Cash Flow Statement (34,589,581) (32,566,116) 3,019,561 8,323,664 Trade and other payables Movement per the Balance Sheet (note 26) (30,396,511) 42,448,362 (2,635,996) (482,173)Effects of forex translation - (2,114,287) - - Movement per Cash Flow Statement (30,396,511) 40,334,075 (2,635,996) (482,173)Proceeds on disposal of associates Balance at the beginning of the year (note 13)(40,510,112) (40,255,204) (40,510,112) (40,255,204)Balance at the end of the year (note 13) (40,510,112) (40,510,112) (40,510,112) (40,510,112)Movement per Cash Flow Statement - 254,908 - 254,908 Associate loans repaid Balance at the beginning of the year (note 13)(25,958,077) (10,000,000) (25,958,077) (10,000,000)Balance at the end of the year (note 13) (30,957,907) (25,958,077) (30,957,907) (25,958,077)4,999,830 15,958,077 4,999,830 15,958,077 Loan repayment relating to sale of share in associate- (958,077) - (958,077)4,999,830 15,000,000 4,999,830 15,000,000 SOUTH AFRICAN FORESTRY COMPANY LIMITED136NOTES TO THE ANNUAL FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 MARCH 200934. Contingent LiabilitiesLand ClaimsFollowing 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 SAFCOLs founding legislation. Notices of these claims have been published in the Gazette. This includes claims on the land on which the Timbadola Sawmill is situated.All the claims are currently under investigation by the relevant Land Claims Commissioners. Owing to the value of the Timbadola Sawmill, the Minister of Land Affairs has agreed that the claimants will be offered financial compensation for the land if their rights are restored.To enable the Minister of Water Affairs and Forestry to pay a market-related rental to claimants, communities, and other beneficiaries in respect of State forests managed by KLF, the Company has agreed to lease the relevant State forests in terms of Section 27 of the National Forests Act, 1998. Currently, a draft lease agreement is still under discussion with the Department of Water Affairs and Forestry and it is hoped to have the lease in place during the 2009 / 2010 financial year.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 Board has considered these settlement offers and agreed in principle thereto and it is hoped that the resolution of the two sets of claims will proceed during 2009 and 2010.Banking FacilitiesThere are contingent liabilities in respect of: Bank guarantees in respect of third party liabilities to the amount of R0.3 million (2008: R0.3 million) Cross suretyships between the Company and its wholly owned subsidiary for any indebtedness, which any of them may have, to specific financial institutions in respect of cash management and financing facilitiesLitigationThe 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 Governments decision not to continue with the previous privatization process. The matter is being defended and the Directors have been advised by the companys legal advisers that the chances of successfully defending the matter are good.The nature of the Groups 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.