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The 2015 Annual Report for NCT Forestry
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Established in 1949, NCT Forestry Co-operative Limited is a timber marketing co-
operative catering to the needs of private and independent timber growers. It
is recognised as an international supplier of quality hardwood pulp chips, round-
wood timber and the largest forestry marketing organisation in southern Africa.
100%BayFibre
Wood Chipping Plant
Pty Limited
100%ShinCel
Shield
Wood Chipping Plant
Pty Limited
100%NCTDurban Wood Chips
Wood Chipping Plant
Pty Limited
100%Pulp United
Beneficiation Projects
Pty Limited
100%NCT Tree Farming
Farm Management
Pty Limited
100%Forest Resources
Tree Farms
(Pty) Limited
100%First ForestryInvestmentSecond ForestryInvestment
Dormant Investment
(Pty) Limited
100%NCTInformationSystems
IT Outsource
(Pty) Limited
100%ImpandeForestryDevelopment
Dormant BEE Vehicle
Section 21 Company
DebentureNTECo-operative
Bark Extract
Limited Company
100%Richards BayWood Chips
Wood Chipping Plant
Division
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NCT assists its members to achieve their full forestry potential and thereby optimise financial results on a
sustainable basis.
Service vision
To win and maintain the unreserved confidence and support of all its members, customers and
employees.
Strategy
With the strength inherent in co-operative principles and using motivated staff and appropriate
technology, the NCT mission will be achieved by:
Culture
NCT strives to be a dynamic and competent organisation delivering quality products and services. In fulfilling this,
the directors and staff will act with pride and integrity while adapting to changing circumstances.
Mission
• Facilitating the harvesting & transportation of
timber where possible.
• Managing NCT’s assets to the benefit of
members.
• Distributing available surpluses to members in
proportion to their patronage on an equitable
basis.
• Interaction with all appropriate industry and
governmental organisations.
• Encouraging sustainable forestry stewardship.
• Promoting value adding activities.
• Marketing timber through:
• Sales negotiation
• Buying, selling and logistic activities
• Financial administration of trading activities
• Expansion of market opportunities
• Keeping members informed
• Servicing customers
• Quality awareness
• Extension and planning services.
• When necessary, securing additional supplies of timber
through the management, harvesting or purchasing of
plantations.
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CONTENTS
Chairman’s Statement 7
General Manager’s Report 13
Financial Report
Performance Highlights 37
Statement of Financial Position 48
Abridged Income Statement 50
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CHAIRMAN’S STATEMENT
Factors impacting on the business
The year under review was the third year in a row that the US Dollar prices at which NCT sells into the international
market had been under pressure. The weakening of the SA Rand against the US Dollar fortunately served as a
cushion for NCT and its members. Not only did it stabilise prices paid to members for both Eucalyptus and Acacia
pulpwood, it also allowed for price increases, price enhancements and a bonus of R15/tonne from profits made
on NCT-owned farms. This bonus was paid out to all timber suppliers (including non-pulpwood timber) for the
2014/2015 financial year.
Harald Niebuhr
NCT’s mission remains to assist its members in the long-term maximisation of the proceeds
they receive from their timber farming activities. A combination of collective marketing
and excellent service delivery is what is required to achieve this objective. Activities and
developments during the past year have again concentrated on these core functions of NCT.
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Although lower oil prices resulted in a temporary reduction in fuel prices, the cost squeeze at farm gate continued
to stress profitability for timber growers. Challenges encountered were higher-than-inflationary wage increases as
well as productivity reductions.
The uncertainty surrounding land reform continued to influence investment decisions.
Performance
NCT continued to attract new members, an indication that timber growers see NCT as an organisation that still
provides them with a service they require.
The total volumes of sales have recovered well from previous years, especially with regard to Eucalyptus pulpwood
out of Richards Bay. The tonnages of timber that NCT’s logistical systems helped to move to markets have
increased.
The lack of access to NCT’s traditional markets over the last few years has paved the way for the marketing team
to venture into new territory, including doing business in countries such as China, India and Taiwan. This has
allowed the organisation to go on to achieve greater independence. A word of appreciation to NCT’s customers
who made it possible for members to sell their timber in an over-supply period.
NCT’s financial return to members for the supply of timber has been positive. In line with NCT’s mission, prices paid
to members for the supply of timber were kept as high as possible. The cash flow position of the organisation was
bolstered with additional reserves necessary for NCT to continue the role of handling exchange-rate fluctuations
and varying stock levels.
Operations
All wood chip facilities performed well throughout the year due to increased volume throughput and containment
of costs. A major project was initiated to ensure that information and expertise is shared between the business
units.
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The first steps have been taken to bring NCT Richards Bay Wood Chips (the former Mondi Silvacel facility) back
into production.
The benefits of NCT Tree Farming and the NCT-owned farms under its management have again underlined not
only the strategic value, but also the profit generating potential at times when sustainable volumes are harvested.
Outlook
The year under review has certainly shown signs of a steady market recovery. General developments in the
international wood chip market are pointing towards a closer balance between wood chip supply and demand.
This, together with an anticipated increase in local market competition, suggests a more positive outlook for the
South African timber grower.
It is critical for NCT to focus on remaining a reliable supplier. The business world in which NCT operates with
its ever-increasing complexities places a greater burden on members as well as NCT staff. This ought to lead to
greater efficiency in the use of limited resources.
Board and management
We bid farewell to Mike Woodburn, who not only served as director, but also as vice-chairman for a few years.
Our appreciation goes to Mike for his valuable contribution during this time and we wish him and his wife, Kim,
all the best with their new endeavors.
During the year, we welcomed James Stegen as director to the board; we wish him a fulfilling time serving the
membership of NCT.
Graham Burnett assumed the role of marketing advisor at NCT Durban Wood Chips (DWC) while Danny Knoesen
added the day-to-day management of DWC to his responsibilities.
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Board function and corporate governance
The board establishes broad corporate policies for the co-operative and its controlled entities (referred to
collectively as the “group”), sets the strategic direction for the group and oversees management with a focus on
enhancing the interests of the members. The board is also responsible for the corporate governance of the co-
operative and its subsidiaries.
Acknowledgements
The board appreciates the commitment and dedication of management and staff of the co-operative and its
subsidiaries. The board also expresses the valuable contribution made by auditors, bankers and associated
organisations for their assistance and co-operation.
Most of all, NCT sincerely values the continued loyal support of its customers and members.
Looking back over the last few years gives me great confidence in NCT and all who are involved in its operations.
I believe the co-operative is well-positioned to face the challenges and opportunities which the future holds.
HARALD NIEBUHR
CHAIRMAN
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GENERAL MANAGER’S REPORT
Patrick Kime
The past year is one in which all of NCT’s business units performed extremely well.
This performance, together with an improving international wood chip market, resulted in
a year that was considerably better than the preceding few years for the co-operative and
its valued members.
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HIGHLIGHTS
• Assisted in part by a weakening of the Rand/US dollar exchange rate, NCT’s wood chip mills and farms returned
profits that enabled reasonable increases to NCT’s mill prices.
• For the first time in NCT’s history, a bonus arising specifically from NCT’s own farm profits was paid on all
tonnes supplied during the financial year.
• NCT’s wood chipping operations were placed under a single manager for the first time, enabling a process
towards new synergies, cost efficiencies and benchmarking to begin.
• Total timber sales marketed through NCT were up 8% on the previous year, being over two million tonnes, and
members were in a position to market in excess of their committed tonnages of hardwood pulpwood.
• Regular shipments to India, as well as some renewed business with Japan, ensured the end to the mixed
Eucalyptus oversupply of the previous two years. Members generally had unrestricted market access for this
genus.
• Wood chip customers expressed appreciation for improved wood chip quality following a number of
interventions during the year.
• High organisational stability was again evident through exceptionally low staff turnover in the co-operative and
its subsidiaries.
• Forty years of valuable business between NCT and Nippon Paper, via Sumitomo Corporation, was marked by
visits of the President of Nippon Paper to South Africa and several NCT directors to Japan.
The international market for wood chips continued to grow, albeit marginally, over the past year. This growth,
together with decreased exports from the world’s largest wood chip exporter, Vietnam, bought about a
discernable tightening in the supply/demand balance during the year; the oversupply in the beginning of the
year had become a close-to-balanced situation by the end of the year. A swing in the market was marked by
several customers from Japan, China, Taiwan, and Korea, who have not traded with South Africa for several years
showing renewed interest in NCT’s wood chips.
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SALES & VOLUME
Over two million tonnes of timber were marketed through NCT, an increase of 8% on the previous year. Hardwood
pulpwood sales into wood chip markets rose 10% to 1,8 million tonnes. Sales into local non-pulpwood markets
were down 8% to 115 000 tonnes, compared to last year. By genus, sales for the year comprised 53% Eucalyptus;
42% Acacia and 5% Pinus.
NCT continued to identify and engage with potential local and international role-players in the solid bio-fuels
industry, though no feasible projects have been viable to date.
MEMBER SUPPLIES
The supply to mill performance of members into the 2013/14 Guaranteed Supply Contract (GSC), which period
ended 31 October 2014, was very encouraging. Overall, 1,6 million tonnes (both genera) were achieved against
an overall combined Guaranteed Supply Tonnage (GST), signed up by members, of 1,7 million tonnes.
Accuracy & reliability
The above strike rate is indicative of a good supply year with more than adequate mill access having been
provided to members. It is noticeable that the GSC is becoming an ever-more important contributory tool in the
marketing environment of NCT where accuracy and reliability of supply are paramount.
A collaborative approach between members and mills has resulted in a significant improvement in the timber
quality arriving at NCT mills. An awareness campaign aimed at reducing the amount of small diameter tops
in loads delivered to mill as well as emphasising the importance of delivering only clear-fell age timber has
paid handsome dividends. The interaction with members in a series of quality workshops was valuable from
a communication and knowledge sharing perspective and the positive response received was illustrated in a
significant decrease in thin-end diameters and overall increased densities.
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Adding value to small-scale growers
Small-scale growers, particularly along the Zululand north coast, continue to suffer the ravages of the gall wasp
mainly on E. grandis or E. grandis based-hybrid plantings. This is devastating given the small-scale nature of their
enterprise. It often takes a crisis to stimulate innovation and NCT rose to this by focusing on Corymbria henryi as
an alternative planting option.
Two trial sites have accordingly been established at kwaSokhulu and Manguzi, with early results proving that
C.ihenryi can grow successfully in Zululand. Planted in blistering heat, the Manguzi trial illustrated that C. henryi
has a high likelihood of being able to survive under adverse conditions, given that the 40% of the trial which
survived, comprised mainly C. henryi. To date, small-scale growers in Zululand have around 43,05ha under
C.ihenryi while considerable quantities of seed have been placed under germination at various nurseries to be
planted during the new planting season. NCT Tree Farming has provided suitable sites to bulk up C. henryi
planting material.
For the benefit of small-scale growers, NCT operates two depots in the KwaZulu-Natal midlands that serve as a
point of sale to those growers with logistical constraints and small loads.
The depots reflected a throughput of 18 000 tonnes for the year and assisted 171 growers by connecting the rural
KZN midlands with main road and rail networks to the coastal mills.
Engaging with members
A series of Members, Mills & Markets interactive sessions were held. In essence, the objective to cement the
concept of the firm marriage between mills and the co-operative as a whole, in the minds of members, was
achieved. The combined mill management team was introduced to members, the new NCT wood chips facility
introduced and the way forward in terms of marketing and mill application discussed. This series was arguably
the watershed event preceding the new improved NCT that is doing so well.
The combined management of NCT’s wood chip mills (north and south) and the closer relationship between
mill and co-operative has definitely had a positive impact on the member base. Access to market by members
have improved given enhanced mill capacity flexibility leading towards better access to storage facilities, more
accommodating timber intake and the ability to (albeit as a last resort) divert timber, if required.
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LOGISTICS
NCT provides a transport brokering service to members and handled logistics business worth R160 million.
Rail
NCT negotiated a fair 6,5% rail tariff increase on branch lines for the year beginning 1 April 2014 with mainline
business adjusted to 7,7%.
NCT is committed to discussions with Transnet and the KwaZulu-Natal Department of Transport aimed at
revitalising the branch line services and attracting more volumes back onto rail.
Road
NCT continued to participate in an industry-wide initiative aimed at eradicating over-loading on roads.
Since 2013, PBS (performance based standard) vehicles have formed part of NCT’s road brokerage fleet. These
carry a 20% extra payload and continue to reduce the direct cost to growers and the number of trips carried out
on the country’s roads.
Scheduling system
NCT’s scheduling system has become an integral part of its logistics activities providing a web-based, real-time,
virtual operation benefiting all registered users. There is a marked reduction in queuing and off-loading times at
wood chip mills indicative of an enhanced system.
SUBSIDIARIES
NCT Tree Farming (Pty) Limited
Area under management
NCT Tree Farming managed 33 contracts in the financial year. These totalled a planted area of 25 766ha of which
18 074ha is owned or leased by NCT Forestry and its subsidiaries; 2 395ha owned by the joint venture company,
Freewheel Trade & Invest; and member farms accounting for 5 297ha.
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Performance of own farms and their contribution to NCT
During the financial year, the NCT-owned plantations supplemented member supplies and contributed significantly
to the Forest Stewardship Council® (FSC®) certified tonnes required by the market. Market conditions allowed
farms to sell 97% of their sustainable potential, enabling a substantial profit for NCT. This occasioned a special
R15/tonne bonus to members.
The owned farms also contributed a significant portion of the E.smithii shipments from NCT Durban Wood Chips
and the Richards Bay mills and assisted with fulfilling the Sappi Saiccor mixed Eucalyptus contract obligations.
NCT Tree Farming also successfully concluded the management of NCT’s standing Acacia purchase from Mondi
in the Kranskop area.
Dry conditions at the beginning of the season impacted on Acacia pulpwood and bark deliveries from Melmoth.
The marketing of the smaller Pinus log sizes remains a challenge specifically from Melmoth.
NCT Tree Farming continue to assist the technology department in the establishment and maintenance of research
plots and seed orchards over a variety of site classes situated on the NCT-owned northern and southern farms.
Other management schemes
The plantations managed on behalf of members range in size from 37 – 1 500 planted hectares. Ownership of
these plantations includes municipalities, farming companies and members with other farming interests. Market
conditions improved for these members during the year with log, pole and bark price increases. The lower fuel
price also contributed to higher gross profits than originally budgeted.
Challenges
Insect pests and Acacia rust damage occurred on some farms which required chemical control. Investment was
required to deal pro-actively with possible timber theft and community land issues.
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NCT Durban Wood Chips & Richards Bay Mills
This financial year saw a robust performance by all three wood chip mills with volumes contributing to a solid
financial performance at each site.
Significant key milestones were marked during the period.
• The Richards Bay complex raised its export tonnes significantly for the second year in a row, on the strength
of increased Eucalyptus demand. Total exported tonnes exceeded the one million mark at 1,066m tonnes, up
38% on the previous year.
• It also marked the sale of two E smithii vessels to a key customer in Japan, unlocking the value of this species in
both the north and south.
• Eucalyptus sales exceeded Acacia sales in the north for the first time in many years with a steady supply being
exported to Indian markets. The diversity of customers Richards Bay services has become a strategic strength
for the co-operative.
• NCT Durban Wood Chips (DWC) export tonnes were slightly down at 0,48m tonnes, but also recorded a major
milestone in that a mixed Eucalyptus shipment to an Indian customer was achieved during the year.
At DWC, Graham Burnett (CEO) handed over day-to-day operational responsibilities to Danny Knoesen but
continued to be the marketing link to its main Japanese customer for the mill.
Quality
Solid improvements in the quality of inbound timber with regard to sizing and age profiles, especially in the
north, allowed NCT to pass this onto its customers.
NCT also obtained numerous pulping data and tests from the Sappi Technology centre that will serve as
benchmarks for its wood chip quality.
Management
With all three mills under a single management structure for the first time in their history, there has been a
significant degree of consolidation and standardisation in many areas, including human resources and payroll,
health and safety, procurement, production, engineering and stores. This has included sharing of knowledge,
expertise and best practices with regular forums and interaction between the mills, now the norm.
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During this period, the former Mondi facility of Silvacel (now owned by NCT) came under the curatorship of NCT
mill management with a small technical team that has been preparing the facility to become operational again.
After the facility was dormant for two years, some expected difficulty has been experienced with the chipper line,
but as was expected, the plant will become operational in May 2015.
BROAD-BASED BLACK ECONOMIC EMPOWERMENT (BBBEE)
NCT achieved Level 7 BEE status. The main contributing factor for the accreditation is reflected in the manner
business is conducted at NCT.
NCT procured more than 285 000 tonnes of timber from BEE empowered suppliers with its subsidiary, NCT Tree
Farming securing business to BEE contractors to the value of over R15 500 million for the year
NCT contributed in excess of R600 000 towards rural and community projects. Beneficiaries to these projects are
predominantly found in area where NCT members operate.
NCT further responded to the call for the skills shortage in the country and offered 29 women the opportunity to
study towards a business administration/new venture creation diploma, five of whom are physically-challenged.
Over R1 million was spent on skills development.
ACCREDITATION
Forest certification
The majority of NCT’s wood chips are sold to Japanese pulp and paper companies where there is a strong demand
for certified products. This demand is driven by large buyer groups requesting FSC products as part of their good
governance (environmental & social programmes).
NCT offers two FSC group certification schemes: the main group for forest management units for timber areas
greater than 1 000ha; and the SLIMF (Small & low impact managed forests) group for forest managed units less
than 1 000ha.
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The NCT SLIMF management system was developed in 2014 and is designed to enable medium-scale operations
to achieve FSC certification. A number of workshops were held to train members in this management system
which has resulted in some growth in the total certified area.
These group schemes allow members to achieve the FSC standard under joint management and thus reduce costs
and administrative burden. NCT also pays a premium of R20/tonne for FSC-certified pulpwood to encourage
members to achieve and maintain FSC certification.
Seventy-nine management units 77 000ha of plantations are covered by the two certificates. Thirty-six per cent
of all timber marketed through NCT in 2014 was FSC-certified. In addition, NCT has systems in place that allow
for most non-FSC-certified timber to be marketed as controlled wood.
The FSC standard for non-FSC-certified controlled wood has been designed to encourage companies to avoid
trading in illegally harvested wood, wood harvested in violation of traditional and civil rights, wood harvested in
forests where high conservation values are threatened by management activities and wood from forests in which
genetically modified trees are planted. The controlled wood standard allows companies to mix FSC-certified
timber with timber from controlled sources.
During 2013 NCT was issued with an FSC chain-of-custody certificate which allows NCT to market all sources of
FSC-certified timber under one certificate.
One of the challenges with the FSC system is that it is not always scale-appropriate. NCT leads an industry project
to develop systems that will make FSC certification more accessible to small-scale operations. The project is
funded by the FSC, Forestry SA and industry contributions. The aim is to be able to certify smaller management
units and thereby produce more FSC-certified timber for marketing.
NCT is also involved in a project to review the national principles, criteria and indicators framework. During
this process, an auditable standard will be developed that can be submitted to other certification systems for
endorsement. One such system is the Programme for Endorsement of Forest Certification Systems (PEFC) which
is widely recognised in international markets. This system is based on endorsing a locally developed standard and
has the advantage of ensuring that the standard is relevant to both scale and to plantation forests.
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ISO standard
TUV carried out a surveillance ISO audit with no corrective actions raised. All systems and procedures are
well-entrenched in NCT with good buy-in from staff. The inter-departmental procedures ensure continuity in
responsibilities between departments. ISO forms part of the induction programme for all new staff at NCT and
the ISO procedures play an essential role in ensuring stability in the services that NCT offers members when new
staff join the organisation.
During 2014, all new internal auditors underwent training at IQS (Environmental Quality & Training Consultants).
The commitment from internal auditors is commendable and their constructive contributions add to the value
of NCT’s ISO systems.
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PESTS AND DISEASES
Over the past few years, new introductions of pests and diseases have resulted in increased damage in Eucalyptus
and Acacia plantations. This is a global problem driven largely by an increasing movement of people and products.
The South African timber industry is fortunate to have the world-class Tree Protection Co-operative Programme
(TPCP) to assist with dealing with this severe threat.
The main approaches to managing pest and disease problems in forestry include deploying material that is more
tolerant or through biological control. NCT supports various initiatives through the tree improvement programme
to ensure that members have access to disease/pest tolerant planting stock. This is done through selection of
species for planting or through breeding projects that select tolerant families or clones (hybrids).
In the past decade, the TPCP has developed impressive biological control capacity. The positive impact of this
investment is being realised with a number of control agents being developed and released. NCT has assisted with
this programme by doing releases on members’ farms for the control of the Sirex wood wasp (Sirex noctillio), the
bronze bug (Thaumastocoris peregrinus) and the Eucalyptus gall wasp (Leptocybe invasa).
During the summer of 2013/2014, severe damage occurred in many Acacia plantations in the Kwazulu-Natal
midlands. Initial research indicated that the causal agent was an Acacia rust disease identified as Uromycladium
acaciae. NCT has initiated an industry research programme to develop management strategies for this new
pathogen threat. Work includes a breeding strategy to produce tolerant material; developing monitoring
protocols; chemical control strategies and research into understanding the biology of the rust.
TREE IMPROVEMENT
The NCT tree improvement programme benefits members by making available improved genetic material. This
is a multi-faceted programme which requires improved genetics to be captured by seed or clone production and
distributed and marketed to NCT growers through private nurseries.
The programme currently focuses on three projects: 1) production of new hybrid clones; 2) improvement of
Eucalyptus smithii; and 3) the development of improved seed production capacity for Corymbia henryi.
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Clonal hybrids offer a number of opportunities for improvement. Different species can be hybridised and then
selected based on the desirable traits of the parent species. Key selection traits used in the NCT programme are
pest resistance, wood properties and vigour.
E. smithii has become an important species for NCT and is highly sought after by a number of customers. NCT has
invested in a joint breeding project with SAPPI Research to improve the species. One of the main limiting factors
to expanding the area planted to this species is its susceptibility to a root rot disease (Phytophthora). This project
will focus on developing material that is more tolerant of the pathogen and thereby expand the area planted to
E. smithii.
C. henryi has pulping characteristics that are of a similarly high quality to those of E. smithii. The niche site for this
species has been identified as warm temperate to sub-tropical regions of South Africa. This species has the added
advantage of being able to perform on drought prone sites and being an unsuitable host for the Eucalyptus gall
wasp (Leptocybe invasa). NCT is investing in a collaborative breeding project to improve the vigour and uniformity
of this species.
TIMBER RESOURCE
The foundation on which NCT’s business is built, is the resource base of its members’ plantations which accounts
for over 300 000ha (21%) of afforested land in South Africa.
Planted land owned or leased by NCT totals 18 074ha. Of the NCT-owned production area, 61% is planted to
Eucalyptus, 28% to Acacia and 11% Pinus. Pinus is mainly planted on the northern farms on areas not suited to
hardwoods.
NCT’s shareholding membership stands at 1 800 made up of members who own timber farms, growers who farm
in tribal areas, and contractors.
NCT and subsidiary-owned farms are all FSC-certified. The farms serve as timber reservoirs to be drawn upon
to supplement member supplies to wood chipping plants in Richards Bay and Durban as well as other NCT
corporate customers.
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HUMAN RESOURCES
NCT aims to create a positive corporate culture in which employees understand their roles and are inspired to
perform. The organisation continues to prioritise the development of its employees with special focus on the
overall well-being of employees to maintain an efficient and productive working environment.
At the end of the financial year, NCT employed 545 staff – 114 salaried, 399 wage earners and 29 learnership
students.
Employee development
NCT recognises that the sustainability of the business relies on its ability to build an ever-improving reserve of
intellectual capital by developing, nurturing and retaining talent. Consistent with this, NCT focuses on skills and
career planning to attract, develop and retain staff.
Employees who wish to study towards a diploma or degree relevant to their work profile have the option of
applying for a study bursary through NCT. Three employees have taken up such an opportunity during this
reporting period in the fields of marketing, accounting and business administration.
The Workplace Skills Plan and Annual Training Report have been submitted to the Fibre, Processing and
Manufacturing (FP&M) Seta. This confirms NCT’s support for the development of skills and its compliance to
legislation. As a result, NCT has received a refund of R77 168 which will be used to supplement its training
programme.
In addition, NCT funds an off-site student learnership programme.
NCT’s Forestry Programme through the Nelson Mandela Metropolitan University (NMMU George Campus
continues to be successful. NCT has two students studying towards a national diploma in forestry this year, as
well as two employees studying towards their BTech in forestry on a part-time basis.
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Employment equity
NCT continues with a fully functioning Employment Equity committee initiated in 1999. For the past 16 years
the committee has ensured that disadvantaged staff have the opportunity to grow and develop within the
organisation. In September 2014, NCT successfully submitted the Employment Equity Report as requested by
the Department of Labour.
Employee wellness
Managing employee wellness is a direct investment in the organisation: a healthy workforce is a more productive
one. In support of this, NCT and Discovery Health host the popular annual Wellness day. This is dedicated to
ensuring that all staff health care concerns are addressed by qualified professionals.
CORPORATE RESPONSIBILITY
NCT’s approach to corporate social responsibility focuses on the promotion of prosperity and improving the lives
of rural communities, conserving our natural heritage and reducing our environmental footprint.
Community projects
NCT invests 1% of its pre-tax profit into community programmes.
The year under review marked a milestone in NCT’s social investment programme, impacting on 26 communities
in KwaZulu-Natal and Mpumalanga. NCT also received Top Donor awards from the Durban and Pietermaritzburg
Community Chests for its contribution to rural projects.
All projects are assessed prior to approval, on a case-by-case basis and are required to have documented objectives.
Projects focus on:
• Literacy and education (with particular focus on early childhood development;
• Welfare of the most vulnerable especially orphans and HIV infected children.
• Special needs equipment for the physically- and mentally-challenged.
• Food security with the establishment of vegetable gardens.
• Small-business development.
• Basic infrastructure at schools and home run crèches.
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Climate change
In view of current global environmental concerns regarding climate change, the organisation’s Green policy
encourages the sustainable use of natural resources, recycling of materials and reduction of waste. NCT promotes
the practice of Reduce, Reuse, Recycle.
The policy is two-pronged: first to educate and encourage members to implement environmentally-friendly
systems on farms; and second to encourage all employees to be environmentally conscious.
Biodiversity conservation and responsible forestry
Since 2002, NCT has been involved in the conservation of the endangered oribi antelope and plays an active role
in ensuring that its members are encouraged to preserve natural grassland habitats. Education, awareness and
translocation of Oribi form the basis of the working group’s programme.
During 2014 NCT received US$50 000 from the Critical Ecosystem Partnership Fund (CEPF) towards establishing
a 750ha protected area in Ozwathini, in the KwaZulu-Natal (KZN) midlands. The planned protected area contains
valuable scarp forests and the most significant remaining patch of endangered KZN Sandstone Sourveld. The
project will involve developing a management plan and training the community in the fundamentals of grassland
management. This work is being done in conjunction with a FSC funded project to enable growers to become
FSC-certified using a radical new landscape approach.
In addition to this, NCT has been awarded a contract by the Global Environmental Facility (GEF) to the value
of R8imillion to train and develop small- to medium-scale timber growers in the Umgungundlovu district
municipality. This will involve employing mentors and trainers to develop the capacity of communities, land
reform beneficiaries and small-scale farmers to improve their timber production and their capacity to manage the
ecosystems. The project will also test various new land management approaches.
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THE ROAD AHEAD
NCT’s current human, manufacturing and farm assets and structures, place the organisation in arguably the
strongest position it has yet enjoyed in its 65 year history. Despite the challenges that exist and always have
existed, members can continue to view their tree farming future with confidence. The ongoing low availability
and high cost of timber farming land, which continuously rises at rates exceeding inflation, is evidence of the
inherent value that tree farming, supported by co-operative marketing, attracts in South Africa over the long-
term.
I thank all members for their support and keen interest in their co-operative, and hope that their efforts and
resilience will be rewarded by improving market conditions.
Finally, to all staff and management of the greater NCT, your commitment and teamwork is greatly valued and
appreciated.
PATRICK KIME
GENERAL MANAGER
36
37
NCT FORESTRY CO-OPERATIVE LIMITED AND ITS SUBSIDIARIES
F I N A N C I A L R E P O R Tfor the year ended 28 February 2015
H I G H L I G H T S
2015 2014
Tonnes Tonnes
Tonnes sold 2 014 229 1 774 978
Co-operative trading results 2015 2014
NCT NCT
R’000 R’000
Turnover 1 424 586 1 341 704
Net income/(loss) before tax 27 365 106 117
Group trading results GROUP GROUP
Turnover 1 768 249 1 677 464
Net income/(loss) before tax 98 800 159 867
Group farming results FARMS FARMS
Turnover
NCT owned & leased farms 86 798 80 616
BayFibre owned & leased farms 59 856 46 666
Forest Resources owned & leased farms 50 981 38 363
ShinCel owned farms 8 905 8 819
Farm turnover 206 540 174 464
Net income/(loss) before revaluations and tax
NCT owned & leased farms 17 334 11 763
BayFibre owned & leased farms 8 330 6 896
Forest Resources owned & leased farms 6 447 2 769
ShinCel owned farms -1 400 -914
Farm net profit 30 711 20 514
A bonus of R11.50 per tonne was declared in the current year.
38
CO-OPERATIVE ACTIVITIES
VOLUMES
2015 2014
Eucalyptus pulpwood 985 657 775 203
Pinus pulpwood 20 529 16 200
Acacia pulpwood 885 694 858 430
Other sales 122 349 125 145
2 014 229 1 774 978
TURNOVER
As can be seen above, sales volumes have improved this year. This is largely due to two factors:
1. Expanding the exports of the Richards Bay mills to include new customers in China and India, as well as an
expanded customer base in Japan has resulted in increased purchases by the Richards Bay mills from NCT.
2. The signing of a supply contract with Sappi Saiccor for an annual 230 000 tonnes of Eucalyptus has improved
the outlook of members in southern KwaZulu-Natal.
For the record, the volume of Eucalyptus pulpwood has increased by 27,15%, Acacia pulpwood by 3,18%, and
Pinus pulpwood by 26,72%. However non-pulpwood sales declined by 2,23%. There continues to be only the
one Pinus pulpwood market, Mondi Richards Bay, which is of some concern.
With the increase in sales volume and higher prices charged to the mills, turnover at NCT improved by 6,18% to
R1,425 billion.
39
NET PROFIT BEFORE TAX
NCT has reported a net profit before taxation of R27,4 million for the 2015 financial year. This compares with a
profit of R106,1 million for the 2014 financial year. The major contributors to these results are:
• Profits from NCT’s own trading activities of R0,3 million
• Members’ bonus paid of R20,8 million
• Dividends received of R3,6 million
• Net financing expenses of R4,3 million as a result largely of the Silvacel purchase
• Profits reported by NCT’s farms, before plantation adjustments, of R17,3 million
• Net favourable fair value adjustment to NCT’s own plantations of R32,4 million.
40
SUBSIDIARY ACTIVITIES
BAYFIBRE (PTY) LTD (BAYFIBRE)
FOREST RESOURCES (PTY) LIMITED (FORESTCO)
ForestCo is a 100% subsidiary of BayFibre, although Nippon Paper Mills of Japan, through their South African
subsidiary, still hold preference shares in the company. This company’s sole assets consists of two timber farms,
Longridge and Lenjane (4 195ha), both situated in northern KwaZulu-Natal.
Since ForestCo is a wholly-owned subsidiary of Bayfibre, which in turn is a wholly-owned subsidiary of NCT, no
consolidated Bayfibre financial statements are prepared. The results of each are discussed separately below.
FORESTCO
ForestCo reported a profit before tax of R23,5 million for the year under review. This compares to a loss of
R1,4imillion for the previous financial year. Included in the current year’s results are profits before plantation
revaluations of R6,4 million earned by the two farms. In addition, favourable plantation revaluations of
R18,4imillion were reported. No dividends were declared by ForestCo during the year.
The balance sheet of ForestCo reflects a net worth of R66,4 million. This has been increased by the transfer of
R16,8 million profit after tax this year. However, current liabilities continue to exceed current assets this year by
R20,4 million (2014 – R22,9 million). Included in the current liabilities are inter-company loans of R21,7 million.
Such loans would not be repaid whilst trade creditors remain unpaid.
BAYFIBRE
During the current year, BayFibre converted from a co-operative to a company.
The ability to declare bonuses from BayFibre, which were tax-deductible in BayFibre’s accounts, has now been lost
due to the conversion, and profits made by BayFibre must now be taxed in full in BayFibre’s name.
BayFibre is 100% owned by NCT.
41
BayFibre’s investments include:
• Land in Richard’s Bay, upon which the wood chip facility is built
• The wood chip mill, storage area and exporting facility
• Three farms totalling 6 899ha in northern KwaZulu-Natal
• Land and buildings in Pietermaritzburg, which are rented out
• Its subsidiary, ForestCo, mentioned above.
BayFibre reported a profit before tax for the 2015 year of R34,1 million. The comparative profit last year was
R55,9 million. The current year’s figures include profits before timber revaluations of R8,3 million earned by
the three BayFibre farms. There was however an unfavourable fair value adjustments on the BayFibre farms of
R7,7imillion. These results are largely a function of a generally weaker Rand/US Dollar exchange rate of R10:94:US$
achieved on average during the year, offset by higher costs of timber. The 2014 results are reported before a
bonus of R42imillion was declared and paid. As noted, because BayFibre is now a company, no tax deductions
for bonuses paid are allowed, and thus no bonuses were declared in the 2015 year.
The balance sheet of BayFibre at February 2015 reflects a net worth of R282,1 million. Last year the net worth was
R246,7 million. Current assets exceed current liabilities by R76,1 million (2014 – R43,6 million). BayFibre’s stock
decreased by R17,4 million to R93,0 million.
The current board of directors of BayFibre consists of PB Day, VC Dladla, IA Hill, NG Mosala and A van Rooyen.
SHINCEL (PTY) LTD (SHINCEL)
SHIELD OVERALL MANUFACTURING (PTY) LTD (SHIELD)
ShinCel owns and operates a wood chip exporting facility on leased land within the Port of Richards Bay. It also
owns three farms in the KwaZulu-Natal midlands (1 274ha). NCT has owned 45% of the share capital of ShinCel
since its inception. The remaining 55% of ShinCel’s share capital is owned by Shield, which in turn is a wholly-
owned subsidiary of NCT. As a result, NCT owns directly and indirectly, all the shares in ShinCel.
42
SHINCEL
The current board of directors of ShinCel consists of PB Day, VC Dladla, IA Hill, NG Mosala and A van Rooyen.
The financial results of ShinCel reflect a profit before tax of R8,3 million for the year to February 2015. This
includes losses before timber revaluations of R1,4 million made by the ShinCel farms, and favourable plantation
fair value adjustments of R2,2 million. These results are on the back of a generally weaker exchange rate of
R11,06:US$, offset by higher timber input costs. No dividend was declared for the year.
The comparative figures from last year are a profit of R18,7 million on the back of an average exchange rate of
R10,41:US$, and a favourable plantation valuation of R2,1 million.
The balance sheet of ShinCel at February 2015 reflects a net worth of R155,5 million, which has increased from
R149,6 million last year. Current assets exceed current liabilities by R112,8 million. ShinCel’s stock decreased by
R57,3 million over the last year to R23,3 million.
SHIELD
The only income source for Shield would be the dividend it would receive from ShinCel. Consequently, it remained
dormant over the past year.
The directors of Shield for the past year were Messrs HG Niebuhr and RC Golding.
NCT FORESTRY CO-OPERATIVE LTD t/a RICHARDS BAY WOOD CHIPS (SILVACEL)
In 2015, the transfer of the Silvacel site from Mondi was finalised. The staff at BayFibre started to strip down and
restore the wood chipping line for use again. At the year-end, this process was on-going and during the year,
R7,5 million had been spent on repairing and replacing plant and equipment. In June 2015 (after the financial
year-end), the first test of wood chips were produced.
The trade name ‘Silvacel’ remained with Mondi, and the site was renamed Richards Bay Wood Chips. It is wholly-
owned by NCT, and operates as a division of NCT. Its results are incorporated into the NCT results.
43
NCT DURBAN WOOD CHIPS (PTY) LTD (DURBAN)
Durban owns and operates a wood chip exporting facility on leased land within the Port of Durban. It is a wholly-
owned subsidiary of NCT. However, Hokuetsu-Kisho Paper Mills of Japan, continue to hold preference shares in
Durban.
Durban’s board of directors consists of Dr CA Seele, VC Dladla, NG Mosala, GL Freese and G Payn.
Durban’s financial results for the year ended February 2015 reflected a net profit before tax of R21,1 million.
This compares to a profit before tax of R22,7 million last year. Whilst the average exchange rate achieved this
year was R10,92:US$ compared to R10,03 last year, turnover was lower than last year. This was as a result of the
additional ship which was due to have been loaded, being incomplete at year-end, resulting in the sale only being
recognised in March 2015.
No dividends were declared in the current year.
44
The balance sheet of Durban at February 2015 reflects a net worth of R72,4 million. This has increased from
R57,2 million last year. Current assets exceed current liabilities by R39,1 million. Durban’s stock holding increased
by R62,8 million to a closing balance of R74,4 million. Again, the delay in loading a ship in port at 28 February
2015, resulted in the sale being postponed to the new financial year, and the wood chips loaded being reflected
as stock at year-end.
NCT TREE FARMING (PTY) LTD (TREE FARMING)
Tree Farming manages farms on behalf of NCT’s members. In addition, this company manages NCT’s own farms,
Enon, Ingwe, Baynesfield, de Billot lease, Noble Paradise lease and Umvoti standing plantation on behalf of
the co-operative. Tree Farming also manages the three ShinCel farms situated in the KwaZulu-Natal midlands,
three BayFibre farms in northern KwaZulu-Natal and Mpumulanga and two Forest Resources farms in northern
KwaZulu-Natal. NCT owns 100% of the share capital of Tree Farming, and is represented on the board of Tree
Farming by Messrs PB Day, VG Keyser, MT Ngubane and AV Schefermann.
Tree Farming’s income statement reflects a net profit before tax of R276 000 for the 2015 financial year. This
compares to a net profit before tax of R189 000 in the previous year.
At 28 February 2016, Tree Farming will be incorporated into NCT and from that point onwards will operate as a
division of NCT. The Tree Farming company will thereafter be deregistered.
PULP UNITED (PTY) LTD (PULP UNITED)
Pulp United has been dormant since the decision to cease operations was taken by its board in June 2013. No
payments were made on behalf of Pulp United in the current year, and no expenses were incurred.
NCT continues to own 100% of Pulp United. The board of directors consists of Mr PL Kime.
NCT has written off R46,8 million loans to Pulp United.
45
NCT INFORMATION SERVICES (PTY) LTD (NIS)
NIS is a small, dormant subsidiary with was used by NCT in the past to purchase computer equipment wholesale.
No trading occurred during the current year.
The company has been earmarked for deregistration.
FIRST FORESTRY INVESTMENTS (PTY) LTD (FFI)
As these funds have all been repaid to the investors, this company is now a dormant shell and did not trade during
the current year. This company has also been earmarked for deregistration.
SECOND FORESTRY INVESTMENTS (PTY) LTD (2FI)
The company too is a dormant shell and did not trade during the current financial year. This company will also
be deregistered.
NCT IMPANDE FORESTRY DEVELOPMENT NPC (IMPANDE)
Impande is a section 21 company and is also dormant. It too will be deregistered.
46
NCT GROUP RESULTS
GROUP INCOME STATEMENT
The consolidated results reflects turnover of R1,768 billion for the current year, up R90,7 million on last year.
This reflects the increased sales volumes sold during the year, as reported in earlier commentary, as well as the
generally weaker exchange rate over almost the entire financial year.
The Group reported a profit of R98,8 million before taxation charges. This is lower than last year by R61,0 million.
Net plantation revaluation adjustments contributed R45,3 million to the profits above. Some of the reasons for
the lower profits were the increased prices paid for members’ timber, the increased borrowing costs to finance
the Silvacel purchase, as well as the R20,8 million bonus paid to members.
Group cashflow (treasury cash) improved by R72,8 million between 2014 and 2015. Apart from the net profit,
the reduction in group stock holding of R19,5 million contributed to the improved cashflow. Bonuses and price
enhancements of R42,9 million were paid subsequent to the year-end and are not reflected in the above cash
position.
GROUP BALANCE SHEET
Included with this report are an abridged income statement for the year ended February 2015 as well as an
abridged balance sheet at this date. Highlights in the balance sheet include:
Total assets for the NCT group exceed R1,47 billion – up R170,6 million on last year
Current assets at the group exceed current liabilities (a cursory liquidity test) by R296 million
Net worth of the group increased by R74,7 million to R1,02 billion.
47
CORPORATE GOVERNANCE
During the year, three meetings of the Risk committee were held:
27 May 2014 Update on BayFibre conversion and Silvacel purchase
17 June 2014 Discuss final audit findings and approve annual financial statements for the 2014 year
12 March 2015 Approve pre-audit plan for the 2015 year
In the current year, the internal auditor audited BayFibre, ShinCel, Durban Wood Chips, the two holding depots,
selected NCT group farms and selected district offices.
The internal auditor sits on the Risk committee and his reports are submitted, via the NCT chairman, to the Risk
committee for appropriate follow-up.
During the financial year, the committee variously comprised:
BV Aitken – Chairman (Director)
JW Stegen – Chairman (Director)
TF Fakazi (Director)
IA Hill (Director)
G Payn (Director)
M Woodburn (Director)
PL Kime (Management)
RC Golding (Management)
AD Moodley (Internal Auditor)
DPR Fourie (External Auditor)
BS Carshagen (External Auditor)
Mr Stegen replaced Mr Aitken as chairman during the year when Mr Aitken resigned from the Risk committee.
48
NCT FORESTRY CO-OPERATIVE LIMITED & ITS SUBSIDIARIES
S TAT E M E N T O F F I N A N C I A L P O S I T I O N
AS AT 28 FEBRUARY 2015
GROUP CO-OP
2015 2014 2015 2014
R’000 R’000 R’000 R’000
ASSETS
Non-current assets 987 215 824 672 539 275 373 182
Property, plant & equipment 451 583 340 822 166 277 38 612
Investments 11 052 11 052 171 725 171 725
Plantation inventories 519 138 467 514 191 338 157 561
Non-current receivables 5 442 5 284 9 935 5 284
Current assets 484 942 476 880 375 158 369 726
Inventories 169 726 189 242 1 993 2 573
Receivables & prepayments 98 522 122 689 156 549 182 732
Loans to subsidiaries 0 0 61 794 68 347
SA Revenue Services 46 082 63 855 0 16 821
Cash & cash equivalents 170 612 101 094 154 822 99 253
Total assets 1 472 157 1 301 552 914 433 742 908
49
EQUITY & LIABILITIES
Capital & reserves 1 018 445 943 808 504 532 483 221
Share capital 1 827 1 852 1 827 1 852
Reserves 1 016 618 941 956 502 705 481 369
Non-current liabilities 264 467 169 092 146 560 51 790
Long-term borrowings 104 384 16 525 87 253 0
Deferred tax liabilities 143 213 139 288 46 711 40 783
Other payables 16 870 13 279 12 596 11 007
Current liabilities 189 245 188 652 263 341 207 897
Trade & other payables 165 912 178 295 146 300 149 050
Short-term borrowings 19 346 3 406 19 346 33
Loans from subsidiaries 0 0 95 448 58 814
SA Revenue Services 3 987 6 951 2 247 0
Total equity & liabilities 1 472 157 1 301 552 914 433 742 908
NCT FORESTRY CO-OPERATIVE LIMITED & ITS SUBSIDIARIES
S TAT E M E N T O F F I N A N C I A L P O S I T I O N
AS AT 28 FEBRUARY 2015
GROUP CO-OP
2015 2014 2015 2014
R’000 R’000 R’000 R’000
50
Turnover 1 768 249 1 677 464 1 424 586 1 341 704
Net income for the year 119 658 159 867 48 223 106 117
After charging
Auditors remuneration 827 839 491 421
Consultants’ fees 1 166 954 1 109 907
Depreciation 30 294 32 021 2 963 3 222
Directors’ emoluments 1 182 1 273 1 173 1 210
Finance costs 12 312 4 949 11 708 4 387
Salaries & wages 106 186 99 836 37 306 33 837
Impairment of investment in Pulp United 0 0 0 -115
Loss on sale of assets 227 0 168 0
After crediting
Dividends received 3 591 1 480 3 591 43 480
Finance Income 7 569 11 462 7 420 4 276
Profit on sale of assets 0 92 0 127
Change in fair value of biological assets 45 255 35 630 32 408 15 699
Distribution to members
Members’ annual bonus -20 858 0 -20 858 0
Taxation -24 138 -46 920 -6 029 - 27 458
Transfer to reserves 74 662 112 947 21 336 78 659
NCT FORESTRY CO-OPERATIVE LIMITED & ITS SUBSIDIARIES
A B R I D G E D I N C O M E S TAT E M E N T
AS AT 28 FEBRUARY 2015
GROUP CO-OP
2015 2014 2015 2014
R’000 R’000 R’000 R’000
51
52
Directorate
The following directors represented members as at 28 February 2015.
Harald Niebuhr – Chairman
Philip Day – Vice-chairman
Brian Aitken, Themba Fakazi, Graeme Freese, Ian Hill, Volly Keyser, Nomalanga Mosala, Micheon Ngubane,
Guy Payn, Vern Schefermann, James Stegen and André van Rooyen.
In terms of the statute, Messrs Day, Hill, Payn, Keyser and Ms Mosala are due to retire.
Directors’ emoluments amount to R615 000 for the period for which formal approval will be sought at the Annual
General Meeting.
Management
Patrick Kime General Manager
Rob Thompson Assistant General Manager & Manager: Member Services
Vusi Dladla Manager: Development Services
Richard Golding Manager: Financial Services
Andy Jones Manager: Administration Services
Craig Norris Manager: Forestry Technology Services
Isaac Premananthan Manager: IT Services
James van Zyl Manager: Commercial Services
Danny Knoesen General Manager: NCT Wood Chipping Operations
Jacob Kotzé General Manager: NCT Tree Farming (Pty) Ltd
Auditors
It is recommended that Messrs PricewaterhouseCoopers Inc continue in office as auditors until the conclusion of
the next Annual General Meeting.
Justin James advertising • Colour Display Marketing
