Safcol pins hopes on new business model to unlock R3bn project pipeline

Stated-owned forestry company Safcol, which improved its financial performance in 2011/12 on the back of a recovery in lumber markets, expects to complete a review into its future role and structure by September, which could open the way for it to again invest in sawmilling and extend its Southern African portfolio.

The company has earmarked potential investment worth R3-billion, but currently does not have the mandate, nor the financial wherewithal to implement them.

However, the group’s shareholder Minister, Public Enterprises’ Malusi Gigaba, stressed that privatisation was not an option being contemplated by the review, which was being conducted by the Stellenbosch University.

Instead, it would interrogate the economic impact of allowing Safcol to pursue a strategy of vertical integration – a strategy from which it was instructed by a Cabinet memo in 2007 to desist, after its Komatiland Forests were earmarked for privatisation.

The analysis would seek to understand the potential impact such a strategy would have on the competitive environment, as well as on job creation and the potential for downstream economic spinoffs.

It is understood that the plan would also be canvassed with South Africa’s competition authorities and other stakeholders.

Safcol, which comprises 18 plantations covering 187 320 ha, currently has one sawmill and rents capacity at two others. It is also an 80% shareholder in Industrias Florestias de Manica (Ifloma), in the Manica province of Mozambique.

“Once we have received the review, we will then take a decision,” Gigaba said, adding that every effort would be made to ensure that the decision did not “impair competitive business activities within this sector”.

The objective was to use Safcol to meet government’s stated economic and development objectives, including further regional integration.

Therefore, under the new structure, emphasis was likely to be given to Safcol’s role within the region, both as an investor and as a competent manger of forestry assets.

Besides Ifloma, which had growth potential, Safcol had also been awarded forest assets management contracts in the region and it planned to pursue further such opportunities.

Various funding options would be considered to enable Safcol to make its growth-supporting investments, which could not depend only on fiscal support.

Acting CEO Maureen Manyama-Matome indicated the group had undergone far-reaching restructuring and reorganisation in 2011/12, in a bid to reduce costs and increase efficiencies.

The group, which made losses in 2009/10 and 2010/11, reported an accounting profit of R209-million in 2011/12, on the back of a 22% rise in revenue to R862-million. Its full results would be published in its annual report, which is due for release in September.

However, Manyama-Matome argued that vertical integration was necessary for the group to be placed on a more sustainable growth path.

The company, which would be led in future by Nomkhita Mona, was also keen to pursue green-energy investments and was in advanced discussions with Eskom about the potential of supplying biomass for co-firing in the power utility’s coal-fired power stations.

It also saw growth prospects in the promotion of timber-frame housing and forestry expansion.

However, 61% of Safcol’s land was also currently under land claim and Gigaba indicated that the group would need to review its business model to include potential new landowners to “ensure continuity, development and an inclusive partnership”.

He said prevailing land ownership uncertainty had already resulted in a decrease in land under forestry to around 9.1%.