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2 INTEGRATED ANNUAL REPORT 2022 NCT is a timber marketing co-operative catering to the needs of private and independent timber growers. Established in 1949, NCT is recognised as an international supplier of quality hardwood pulp wood chips, round wood timber, and is the largest forestry marketing organisation in southern Africa. OUR MISSION NCT assists its members to achieve their full forestry potential and thereby optimise financial results on a sustainable basis. OUR STRATEGY With the strength inherent in co-operative principles and employing motivated staff and appropriate technology, NCT’s mission will be achieved by: • Marketing round-wood timber • Research and development • Extension and planning services • Securing additional timber supplies • Facilitating the harvesting and transportation of timber • Managing the assets of NCT • Distributing available surpluses to members in proportion to patronage • Interacting with appropriate forestry-related organisations • Encouraging social responsibility and sustainable forestry stewardship • Promoting value-adding activities OUR VISION To win and maintain the unreserved confidence and support of all our members, customers and employees.
3 INTEGRATED ANNUAL REPORT 2022 Chairman’s Report 10 General Manager’s Report 12 Corporate Governance 38 Financial Report 57 Contents
4 INTEGRATED ANNUAL REPORT 2022 ABOUT THIS REPORT This integrated report aims to provide an accurate and concise overview of all material matters and describe how NCT achieved its business goals and created value during the financial year ended 28 February 2022. Assurance The Board is responsible for the integrity and completeness of this report. It has been assisted by the audit committee and obtained assurance from internal and external audit (see pages 50 and 51). The Board reviewed the 2022 integrated report on 15 June 2022 and is satisfied that it is a fair and accurate representation of NCT’s performance. Quality management system NCT’s quality management system conforms with the ISO9001:2015 requirements. This system documents the procedures to be followed to ensure that the organisation operates efficiently and offers a quality service to members and customers. NCT is endorsed by two forestry certifications standard, Forestry Stewardship Council® (FSC®) and the Programme for Endorsement of Forest Certification (PEFC) which ensure that timber is sourced from operations that comply with both schemes’ controlled wood requirements. Head office certified to ISO 9001
5 INTEGRATED ANNUAL REPORT 2022 MANAGEMENT DECISION REPORT This integrated report deals with those aspects which need to be considered as part of the management decision report. The Board is satisfied that NCT achieved its objectives by linking members to markets throughout the duration of the global Covid-19 pandemic. NCT created value for its stakeholders through the effective execution of strategy, business plans and policies within the legislative framework and through ethical leadership and effective control. NCT’s business strategy is reviewed as may be required at respective Board meetings. The Board is further satisfied that NCT has complied with the statutory requirements set out in the Co-operatives Act and the NCT constitution. The Board kept a register of interests which is reviewed at each Board meeting. The Board can assure NCT membership that it is a strong organisation and with the joint effort from the Board, management and staff, will continue to achieve its business goals. PBB DAY | CHAIRMAN SECRETARY’S DECLARATION I hereby confirm that, in my opinion as Secretary, the Co-operative has filed all returns required in terms of the Cooperatives Act to the Registrar, and that all such returns are, to the best of my knowledge true, correct and up to date. L J SIMPSON | SECRETARY
6 INTEGRATED ANNUAL REPORT 2022 Growing a sustainable resource with access to over 300 000ha of members’ and NCT-owned commercial plantations Improving efficiencies and investing in equipment and technologies Financial prudence and discipline Integrating the network of professional minds and using modern technology to enhance data management Investing in people to reach operational goals Improving the relationship with a broad range of stakeholders STAKEHOLDERS – Members | Customers | Employees | Communities | Service providers | Industry bodies | B U S I N E S S INPUTS SOCIAL HUMAN INTELLECTUAL FINANCIAL MANUFACTURING NATURAL SUPPORT SERVICES CORE ACTIVITIES THE BUSINESS Logistics Tree Farming Finance Forest Technology Human Resources Wood Chipping Information and Communication techniology Markets Members GOVERNANCE N C T ’ s C A P I T A L S ACTIVITIES
7 INTEGRATED ANNUAL REPORT 2022 Government departments | Competitors | Media | Environmental/conservation lobby groups | General public TURNOVER Group R2.75 billion Co-operative R2.76 billion TOTAL ASSETS Group R2.45 billion Co-operative R1.93 billion DOMESTIC MARKET Pulpwood 368 355 tonnes Non-pulpwood 76 148 tonnes WOOD CHIP EXPORTS 1.6 million tonnes CERTIFICATION FSC 72 000 ha PEFC 9 000 ha LOGISTICS Road: 410 000 tonnes Rail: 283 000 tonnes Loading operations 243 000 tonnes R&D INVESTMENT R3.3 million TRANSPORT CARBON FOOTPRINT A saving of 15 085 kg BIODIVERSITY FOOTPRINT 2 469 ha (NCT farms) SOCIAL SPEND R2.2 million KEY OUTCOMES M O D E L OUTPUTS Quality and high-yield timber/wood chips Efficient, flexible and on-time processes according to specifications Solid financial results carried out on a sustainable basis Market and product intelligence Skilled and motivated employees Positive impact on stakeholders and biodiversity Acacia 869 794 17 539 81% to 120% of GST Mixed Eucalyptus 1 024 958 19 903 81% to 110% of GST TOTAL 1 893 1 752 37 442 MEMBERS Genus GST Actual supply Payment Sliding scale amendment (Tonnes ‘000) (R’000) MEMBER BONUS – Nil SKILLS SPEND R611 000
8 INTEGRATED ANNUAL REPORT 2022 the south. We continue to strive for a healthy balance between export and domestic markets. NCT functions optimally at two million tonnes throughput per annum and we need to maintain this momentum going forward. The prognosis for the year ahead is positive and we are confident of achieving similar volumes with the current GST fully subscribed to market. We must ensure that we remain sustainable, especially with our strategically important Acacia volumes, to be able to continue servicing our hard-won markets. All our members need to continue to play their part along the value chain to assist NCT in achieving its sustainability goals. Together we can take control over this. We have little control over factors like the exchange rate with NCT continuously having to adapt and be flexible. A key challenge now emerging, of major concern to us, is the whole logistics chain. State-owned rail transport and port service authorities seem incapable of delivering an effective and efficient service and, of course, these entities are key to our operations. The effect of the Covid-19 pandemic on our business is gradually becoming less of an issue. New potentially far-reaching challenges (let alone the war in Europe) could, however, possibly impact on our business far Chairman’s Report By the time this annual report is published, we will be well into our third year of Covid-19 restrictions. Our world changed dramatically given this pandemic and yet we adapted. The wearing of masks, hand sanitising and social distancing have become second nature to most of us. However, just as we became used to these new norms, we have been shocked once again, with the war in Europe. We referred to the Covid pandemic as a single “Black Swan” event but it now appears as if such unanticipated and disruptive events may well be about to occur in flocks! At NCT we adjusted quickly and definitively and will no doubt have to re-adapt again to remain relevant for our members. Despite the dynamics, NCT was able to market more than two million tonnes of timber on behalf of its members, a level of sales last seen in 2007. Acacia exports reached their highest level over the past year and we managed to successfully market all of members’ committed guaranteed supply tonnage (GST), and more. We have secured China as an anchor customer for our wood chips, and our longstanding Japanese customers have also returned to pre-pandemic volumes. Our domestic sales have rebounded too, proving especially vital for our Eucalyptus growers particularly in P H I L I P DAY
9 INTEGRATED ANNUAL REPORT 2022 more critically and we therefore need to be prepared and ever flexible. Our restructuring process has progressed well with all our mills now under the NCT umbrella, resulting in tax efficiencies, management streamlining and other benefits. The structure committee is now looking at relinquishing control of some of our less profitable farms, in line with the policy to maintain NCT Tree Farming as an efficient and strategic reservoir. Other properties under our subsidiaries will also be brought into the NCT fold. This will have the benefit, as with the mills, of allowing NCT to distribute profits generated, to our members, in a tax efficient manner. From a financial perspective, NCT has performed admirably well despite the second year of the pandemic. We were able to maintain our timber prices to members and towards the end of the year, even managed a small price increase. NCT timber prices continue to be the benchmark against which the domestic market measures itself. While it is critical for our members that we extract maximum value from the value chain, the board remains very aware of the importance of maintaining an adequate financial reserve, in accordance with the NCT reserve policy. It was due to this reserve, that we were able to assist members during the first year of the Covid-19 pandemic, by ensuring the stability of mill delivered prices. Similarly, it must see us through potential future disruptive “Black Swan” events and protect member sustainability. The co-operative achieved a turnover of R2.76 billion and a profit of R55.7 million before tax for the financial year ending February 2022. Looking forward, NCT is committed to improving the US Dollar price received for our wood chips. This, despite a world surplus of pulp material and depressed international prices. We need to call on our ability to be reliable, sustainable and flexible to our clients, providing them with a good quality product when they require it. Together with our long-term relationships with most of our customers, and our extensive experience in wood chips, we are well positioned to secure advantageous global market returns for our members. As far as market risk exposure is concerned, our Chinese customers proving to be stable purchasers of NCT wood chips, and our domestic market exposure to strategically important niche non-paper related products, both contribute very positively indeed. The biomass market to which we contribute further eases our market risk. The Board of NCT functions efficiently and with specific focus. With the present composition of board members, a wealth of knowledge and experience is available to provide management with maximum support, as and when required. Board members have taken on a range of responsibilities enthusiastically within the various sub-committees, efficiently spreading the workload and ensuring optimal participation. It is a pleasure for me to have that kind of support and I am grateful to every board member for their commitment towards serving our members. Vern Schefermann has slotted into his new role as vice-chairman with commitment and dedication. Like his predecessor, James Stegen, he has thrown his weight behind me. I am buoyed by his support. My thanks to all board members for your committed support and invaluable insights throughout the year. My appreciation to your spouses and mine, for the support they give to us during our time spent on NCT business. Then to Danny Knoesen, and his management team and staff, thank you for the committed dedication to the task. PHILIP DAY | CHAIRMAN
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12 INTEGRATED ANNUAL REPORT 2022 It is perhaps testament to the resilience of mankind that the Covid-19 pandemic has become just another spoke in the wheel of our daily lives. That same resilience is continuously evident within our organisation and our industry. It was another remarkable year for NCT, partly because the ongoing pandemic hardly caused any operational disruptions, but mostly because of other challenges advancing along the queue and demanding attention. No report on the year past would be complete without a mention of the crazy week in July 2021, when day after day of looting and unrest rocked our country. NCT, our staff and our assets emerged mostly unscathed, although we did close all our operations down for more than a week as a precaution against the risks associated with that week of turmoil. The SA Rand put out a remarkable performance for the larger part of the year. After being expected to remain well over R15 to the US Dollar, it peaked below R13.50 before the end of May 2021. It lost some ground again in December, but still it showed us that reliance on SA Rand weakness cannot be a dependable strategy for NCT as we navigate our way through tricky pulp pricing cycles and other world events. The Chinese pulp pricing, often the benchmark for our export markets, peaked in February 2021 at around US$750 per tonne after a shocking performance in 2019 and 2020; then promptly lost ground by almost US$200 per tonne up until December 2021. It has shown some improvement since then, but from what we can see, this is more on the back of supply-chain constraints/scarcity rather than market fundamentals. Paper pricing and low paper demand will continue to pressurise the pulp prices as paper manufacturers struggle with massive increases to input costs from all quarters. Domestic markets have also returned to normal operations and volumes were mostly as expected for the year. The nett result was that our increase in export volumes to above 1.6 million tonnes saw the co-op sell more than two million tonnes of members’ timber (export plus domestic) for the financial year, a number we have not seen in many years. The combination of a strong SA Rand, and lack of market fundamentals to drive our US Dollar prices up in the export markets, did indeed place pressure on our revenue lines. Coupled with domestic pressure from inflation driving factors such as fuel, electricity, maintenance, port, and even labour cost increases, the importance of these two million tonnes in keeping General Manager’s Report DANN Y KNO E S E N
13 INTEGRATED ANNUAL REPORT 2022 the co-op cost-per-tonne numbers efficient, cannot be understated. If we had sold 200 000 tonnes, or even 100 000 tonnes fewer, we would have faced the only option which would have been to reduce timber prices to members by between R30 to R50. As an aside, the handling, scheduling, receiving of rail and road trucks carrying two million tonnes poses its own operational challenges. The inevitable congestion at our mills as shipping deadlines loom will continue to receive attention into the new year. We continuously need to look at the viability of solutions that incorporate how we schedule deliveries in terms of time-windows, as well as the need for holding facilities. Ultimately, perhaps, a combination of multiple innovations is required, and we will use the new year to iron out solutions to improve the rateable arrival of trucks at mills, drive up efficiencies, and reduce vehicle congestion, at NCT facilities. By far the largest challenge that has thrust its way into our daily operational lives is, without a doubt, the impact of a poorly performing state-owned rail and port authority detrimentally affecting access to, and operations within, the ports of Durban and Richards Bay. State-owned enterprise issues are well-known and receive regular coverage in our local media. I want to assure members that, as an organisation, we are doing everything to make a favourable impact on these challenges. Other than the daily, weekly interactions with senior rail and port executives and operational staff, we continue to strive to have more control over our own destiny through involvement/lobbying for private participation on key rail lines, as well as on the berths used to load wood chips in our ports. NCT is doing this as part of an industry collaboration through Forestry South Africa (FSA) and has also partnered with other stakeholders in submitting a high-level proposal to the port authority to take over maintenance and cleaning of the berth used by NCT in Richards Bay. NCT staff continue to participate in forums where our industry can have a voice and generate change. In 2022 we will see whether our efforts will deliver any favourable considerations for the industry proposals. Regardless, dealing with both rail and port authorities remains the largest challenge we face for the next few years. Other than the obvious supply chain challenges experienced in 2021/22, there are some very positive aspects to reflect on as we move into 2022/23: • We have again sold almost all the timber our members have for the new year. Our existing customers have requested in excess of the GST and we will do what we can, but within the constraints we know we face from the supply chain. We do however predict another year of two million tonnes sold. • We continue to look at alternative market destinations – in 2021 we sent shipments to Portugal and this year other European countries remain on the radar. • We received very positive, albeit moderate US Dollar increases in both Chinese and Japanese markets; at a time where other countries pricing remained flat. We see this as an indication of the high regard in which we are held, I take this opportunity to congratulate staff for their tenacity and resilience throughout another tumultuous year and know that we can count on their ongoing commitment to our members and our organisation into another year filled with unknown trials and challenges. DANNY KNOESEN | GENERAL MANAGER
14 INTEGRATED ANNUAL REPORT 2022 MARKETS While NCT’s export sales clearly contribute the lion’s share of market access provision, there is a significant contribution that local (domestic) markets provide. NCT’s overall total sales recovered year-on-year with 39% in the 2021/22 financial year compared to the previous year, of which the first quarter was hampered by the pandemic lockdowns. There was a strong demand for Acacia from the wood chipping mills despite Covid-19 lockdowns and force majeure letters issued by some customers. Total Acacia sales exceeded a record one million tonnes. Domestic pulpwood Eucalyptus sales to local pulp mills improved despite invoked force majeure due to lockdowns which affected the first half of the previous year. Ongoing access challenges experienced by members supplying into our major domestic market were extremely frustrating. However 368 355 tonnes (primarily Eucalyptus) successfully marketed through this avenue, comprised 18% of the total NCT marketed volume. This is a significant market, providing NCT members with much needed market diversity and tactical geographic access. Total volume 2.1 million tonnes with market destination NCT Durban Wood Chips 25% NCT Richards Bay Wood Chips 53% Local Pulpwood (corporates) 18% Non-pulpwood 4%
15 INTEGRATED ANNUAL REPORT 2022 Non-pulpwood There was a good recovery for non-pulpwood markets. Those markets make up 3.6% of NCT’s total sales volumes into 22 local markets. Sales increased 16% from 65 698 tonnes to 76 148 tonnes. This was mainly due to securing alternative markets with the push back from the local pulp producers during last year’s pandemic period. No bad debts were incurred in the first trading of NCT’s in-house credit verification system. Wood chips NCT’s views on the international wood chip markets remain unchanged – the Japanese sector may never return to pre-Covid-19 import volumes; and China remains the main area for potential growth as new capacity starts up during the next two years. Other markets such as Korea and Taiwan remain flat. However, from NCT’s perspective, our Japanese customers returned to normal imports from us, and then a little more. Our new Chinese customers kept their volumes constant and continue to call on both Richards Bay and Durban, proving strategic importance to NCT. All of this is a direct result of NCT working hard to position itself as a stable and reliable trading partner, with high degrees of flexibility and professionalism to all of our markets. Export by destination China 31% Other 3% Japan 65%
16 INTEGRATED ANNUAL REPORT 2022 The Richards Bay mill complex and Durban mill are both exposed to inadequate state-delivered port services. In addition, the mills felt the effects of fires which broke out on separate occasions in October as well as coal pressing all other commodities for berth priorities. Richards Bay There was a strong market appetite for Acacia in 2021, even during the traditional out of season period. This resulted in a challenging intake of 200 000 tonnes from June to September, averaging over 40 000 tonnes per month. System improvements have been implemented to accommodate Acacia receipts at either the Richards Bay Wood Chips or BayFibre mills which gives greater operational flexibility to the complex. Overall, the Richards Bay mill complex exported over 1.1 million tonnes and loaded a record 31 vessels during the period under review, this despite the following challenges: • An altered berthing system to accommodate certain exports due to the fire damage late in the year. This placed pressure on all commodities with excessive delays to vessels including the dedicated wood chip berth. • The poor maintenance of the port conveyor systems, loading equipment and general housekeeping. • Extensive power supply delays due to load shedding and several serious municipal transformer fires. The complex carried out upgrades to laboratory equipment, installed a new replacement chipper disc at BayFibre and effected a significant amount of structural steel maintenance on the export conveyor systems and throughout the facility. This work continues into the new year, with issues such as the abnormally high cost and scarcity of steel, and the high production volumes required by customers, forcing the work plan to extend over several years. Total export sales by species – 1.1 million tonnes Acacia 58% E. smithii 5.5% Eucalyptus 33.5% Biomass 3%
17 INTEGRATED ANNUAL REPORT 2022 Durban The mill achieved 500 000 tonnes for export during the year and loaded 11 vessels, accomplishing its highest volume ever on a single vessel: loading 47 800 tonnes on a Japanese-bound ship. During the year, the mill also reached the unique milestone of loading its 200th vessel since starting up in 2004. Dealing with multiple customers out of the mill, with slightly differing wood chip specifications, has called for a high degree of efficiency and flexibility. The blurring of the lines between Acacia and E. smithii seasons involved crucial management of shed space to accommodate both species, and the log yard became filled to capacity on regular occasions. Of the 11 vessels loaded, six held combined cargos of E. smithii and Acacia wood chips. Continuous communication with all suppliers and addressing the accuracy of daily deliveries with stakeholders was key towards meeting cargo readiness deadlines across multiple vessels and customers. Continuous enhancements are carried out in parallel with maintenance activities, and during the year the upgrade of the log deck has assisted with less downtime and efficient production flow resulting in increased daily throughput from the chipper. Rail and road deliveries can now be off-loaded simultaneously, resulting in less standing time for the road deliveries. The installation of the new 80-tonne raised entry weighbridge has enabled the mill to accept Performance Based Standard (PBS) vehicle loads and prevents ingress of woody contaminants into the electronics and load cells. Total export sales by species – 499 438 tonnes Acacia 72% E. smithii 28%
18 INTEGRATED ANNUAL REPORT 2022 2000 1500 1000 500 0 Eucalyptus E. Smithii Acacia Biomass FY2016 493 168 948 FY2017 744 188 855 FY2018 466 190 937 71 FY2019 431 140 901 71 FY2020 156 182 815 27 FY2021 273 132 730 56 NCT EXPORT SALES by GENUS ( 000s ) FY2022 354 226 1013 38 NCT export sales by genus ( 000s ) – all mills
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20 INTEGRATED ANNUAL REPORT 2022 Members entered the supply year with no real inkling that the markets were in our favour, despite the prospects of extended supply seasons and milestone developments occurring regularly on the member front: • There was a successful transition from shareholding members to members in accordance with the revised NCT constitution, with share values redeemed back to 226 members who required such. • Longer term planning forecasts were implemented to provide suppliers with a longer planning window. • Formal performance monitoring was introduced, which methodology has been continuously improved since inception. • The PEFC certification process was rolled out to extend the certified base available to NCT and ultimately our markets. • Our market prospects grew along with the exponential growth in Chinese demand as they recovered from a protracted trade war with the USA (as well as Covid-19). • Eucalyptus suppliers capitalised on the NCT “hunt for gum” in the first half of the year and many signed up supplementary Eucalyptus GST agreements to fulfil the increased demand. Eucalyptus at this time was actually more in demand than Acacia. The market dynamic experienced in these early months likely contributed towards the angst felt by our rail suppliers who were let down by poor rail service delivery. These problems were to escalate as the year progressed leading to a focused assessment of road versus rail as an alternative transport mode. By April, it had become clear that out of season demand was real and an aspect that NCT would have to contend with henceforth. A great deal of communication was sent out to members. Reduced E. globulus supply on the global stage kept the demand for E. smithii high and the interest in Acacia by clients new to the genus grew significantly. Despite NCT maintaining a cautious approach to in-person meetings given Covid–19, physical zonal meetings were held and well-attended by members starved of one-on-one contact. Our contact meetings however did not extend to workshops and field days which we felt prudent to postpone until such time as the pandemic became under control. The fluctuating SA Rand/US Dollar exchange rate and the resulting first of two Eucalyptus price reductions occurring in May required a great deal of explanatory communication to the member base, focused on the need for prudent cost control. MEMBERS
21 INTEGRATED ANNUAL REPORT 2022 June saw the second Eucalyptus price reduction as well as an Acacia price reduction. At this time Member services also had to contend with a rail-service delivery failure at the Vryheid East depot causing wagon delays and log jams. The civil unrest in July severely curtailed Member services’ staff movements within the various districts. Shortly thereafter good news surfaced in the form of vastly increased Acacia demand and a procurement programme followed to ensure that all available Acacia made it to market, the dilemma being that the high demand had sparked close to the winter months, further endorsing that out of season supply is very real. Supplying into the out-of-season market demand was not made easy in the latter part of the year given events such as a widespread electrical outage across the port of Richards Bay in October 2021 that interrupted the loading of a Eucalyptus vessel, requiring again, a lot of background co-ordination and explanation. Re-imbursement of the Acacia and then the Eucalyptus price reduction amounts deducted earlier in the year were well-received. This was overshadowed with news of a massive fire on the sulphur conveyor at the Richards Bay port placing NCT wood chip loading and berth access in jeopardy. Much communication to the member base ensued with behind-thescenes volume planning to meet a revised and busy vessel line up. This period was also characterised by exceptionally regular and high rainfall events making timber accessibility challenging and requiring staff to call on members daily for updates of supply against slot bookings and allocations. The intensified market interest particularly in Acacia, the increased flow of timber and general economic malaise, attracted unwanted opportunists’ intent on capitalising on member timber illicitly. Our attention was drawn to several cases and investigations regarding chain-of-custody break, ownership disputes and community claims on timber. The calendar year ended on a high with the announcement of both an Acacia and Eucalyptus price increase which spurred on a much-needed timber flow at the right time. In May, the Zululand district office relocated from Richards Bay town to the Richards Bay Wood Chip facility where it is better placed from safety, access and timber environment perspectives. It certainly was a year of ups and downs. From a supply against GST perspective, Eucalyptus supply outpaced the supply fit achieved by Acacia. The two graphs overleaf illustrate the results achieved quite clearly. These dynamics led to a revision in the GST sliding scale to reward the conscientious suppliers of both genera as well as to slightly compensate the Acacia suppliers for the slower start to the market experienced. Acacia GST holders were awarded 100% premium against 81% to 120% of GST and Eucalyptus GST holders 100% of premium against 81% to 110% of GST. From feedback received, the member base appreciated this concession.
22 INTEGRATED ANNUAL REPORT 2022 Note that tonnes depicted below are GST pulpwood tonnes only. Additional non-GST supplier and corporate pulpwood, as well as non-pulpwood tonnes marketed, all contributed to the 2.1 million tonne sale.
23 INTEGRATED ANNUAL REPORT 2022 NCT conducted its tenth member survey to gauge member sentiment and rate the organisation’s service levels. Three additional fields of information were included – members’ GSC tonnage, hectarage and the designation of the respondent completing the questionnaire. An average score of 85.1 compared to the last survey’s score of 89.5 was achieved. The lower average score can be attributed to the pandemic and civil unrest. The spread of the average scores ranged from the lowest of 81.6 to the highest of 91.1. Given these high scores, the conclusion can be drawn that there is a generally high degree of member satisfaction with NCT’s service offering. The graph shows the average scores achieved across all surveys conducted to date. 92 90 87 85 82 80 70 60 50 2004 2005 2007 2009 2011 2013 2015 2017 2019 2021 Average score – members 83 86 87 86 92 86 88 90 90 85 Score
24 INTEGRATED ANNUAL REPORT 2022 Acacia supply by supplier category (tonnes) Growers (all demographics) 464 000; 59% Small-scale growers 9000; 1% Agents 95 000; 12% Contractors 154 000; 19% NCT Tree Farming 72 000; 9% Eucalyptus supply by supplier category (tonnes) Growers (all demographics) 494 000; 52% Small-scale growers 118 000; 12% Agents 118 000; 12% Contractors 105 000; 11% NCT Tree Farming 123 000; 13%
25 INTEGRATED ANNUAL REPORT 2022 Resource NCT’s membership stands at approximately 1 600 whose timber resource covers over 311 000ha (21%) of afforested land in South Africa. Planted land owned or leased by NCT accounts for 19 000ha. Membership is made up of members who own timber farms, growers who farm in tribal areas and agents and contractor suppliers. Member resource – 311 563ha Acacia 32% Eucalyptus 47% Pinus 21%
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27 INTEGRATED ANNUAL REPORT 2022 The higher demand for wood chips resulted in increased volumes of Eucalyptus and Acacia pulp log delivery from NCT-owned plantations in comparison with the previous financial year. Supplementing members’ supply from NCT-owned farms assisted the completion of orders at certain periods, notably late in the 2020/21 Acacia season and also with the 2021 E. smithii supply into Durban Wood Chips. NCT Tree Farming maintained FSC-certification on all NCT-owned farms and also obtained PEFC certification for NCT-owned and managed farms. NCT farms total planted area 18 947ha – by genus breakdown and destination Acacia 38% Durban Wood Chips Richards Bay Wood Chips Other E. smithii 19% Durban Wood Chips Richards Bay Wood Chips Mixed Eucalyptus 41% Richards Bay Wood Chips Local pulp (corporates) Other Pinus 2% TREE FARMING
28 INTEGRATED ANNUAL REPORT 2022 LOGISTICS Depots have proven to be valuable strategic stock holding facilities along the supply chain. The two depots in the KwaZulu-Natal midlands continue to link small growers in rural areas to local markets. These depots facilitated more than 8 700 tonnes of members’ timber into mills. In addition, the Vryheid East depot supplied 116 000 tonnes into markets albeit that operations and intake volumes were detrimentally affected by poor rail service levels. NCT continues to broker road and rail transport business along with benchmarking supply-chain costs for members. NCT’s scheduling system remains an integral part of logistics activities providing a web-based, real-time virtual daily delivery planning system through which up to 8 000 tonnes per day are scheduled and delivered to various NCT markets. In its commitment to improve efficiencies, NCT is in the process of developing a mobile phone application aimed amongst others at providing tracking of a load and a paperless documentation process. TRANSPORT MODE TOTAL (tonnes) NCT brokered (tonnes) OTHER (tonnes) Road 1 817 006 409 870 1 407 136 Rail 282 994 282 994 TOTAL 2 100 000 692 864 1 407 136
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30 INTEGRATED ANNUAL REPORT 2022 It is important for NCT to ensure sustainability of the plantation resource from which the co-operative sources timber. This resource is under pressure from a changing climate, associated tree-health problems; economic pressures and mismanaged land-reform projects. Climate change is already a measurable reality and South Africa is especially vulnerable to its impacts. Weather patterns over the past few years confirm this trend with damage to plantations being caused by extreme events such as frost, snowfalls, strong winds, floods, extended hot dry periods and pests (insects and pathogens). Pest damage is often associated with tree stress, a changing climate is causing increasing stress to plantations and new introductions of pests are exacerbating the situation. Tree improvement and research A tree-improvement programme (including site species matching) is an essential component of a strategy to manage the impacts of a changing climate, the related pest damage, and to ensure sustainable volume production. Over the past 20 years, NCT has invested significantly in hardwood tree-improvement programmes including maintaining a broad genetic base; advanced generation breeding of important species; and developing a hybrid-clone programme to select superior genotypes and propagate them through cuttings (clones). Some notable achievements in the tree-improvement programme over the past five years include: • the development and release of novel hybrid clones selected for resilience and wood properties; • the development of rust-tolerant and frost-tolerant wattle breeding populations and associated seed production capacity; • the development and commercialisation of Acacia clones selected for frost tolerance and disease tolerance. In addition to tree improvement, NCT has funds research into plantation protection and silviculture. Certification Sustainability in the broad sense includes economic, environmental, and social interests. Forest certification systems have been developed to verify good practice with regards to these aspects. Certification has also become an essential marketing tool, with most customers requiring some form of independent verification. NCT is currently managing two group-certification schemes that are certified under the Forest Stewardship Council® (FSC®) and the Programme for Endorsement of Forest Certification (PEFC) systems. These programmes allow NCT members to have their farm certified under the NCT umbrella. FOREST TECHNOLOGY
31 INTEGRATED ANNUAL REPORT 2022 The NCT FSC-group-scheme has been in existence for 22 years. However, most of the farms certified under this scheme can be classified as large-scale. The complexity and costs of managing plantations under the FSC system precludes many smaller operations from achieving FSC certification. To resolve this challenge, NCT has been working with industry partners to develop a market-based standard that is more relevant to South African plantation forestry, particularly for smaller scale operations. This new standard has been internationally endorsed by the PEFC and although this is a new certificate, NCT already has over 20 independent farmers registered on the system.
32 INTEGRATED ANNUAL REPORT 2022 As sales volumes increase, the supply chain becomes increasingly complex. To ensure that the supply chain is tightly controlled from procurement to storage, to wood chipping and shipping, processes must be reassessed. This requires improving technologies and information systems to enable greater levels of automation and allowing the visibility needed for a secure and reliable supply chain. The intent is to automate operations further where practical and possible to improve efficiency and accuracy and reduce costs. NCT’s information systems focus on supporting critical business processes while ensuring the protection and retention of knowledge in the organisation. NCT continually invests in education and training of employees on the successful use of specific systems and technology. Enhancing technological learning expands technical knowledge and ultimately builds capacity for innovation. This year, NCT’s IT department focussed on telecommunications, network security and new software enhancements: • A cloud-based telephone management system was implemented at Durban Wood Chips. The system works on an internet connection but retains the traditional landline numbers. This has alleviated problems related to bad connections and theft around the copper-wire infrastructure. • A hybrid design to improve accessibility of email services to end users was structured with the move to Microsoft Exchange Online but retaining NCT’s on-premises domain controller. • The upgrade of NCT’s electronic data storage allows for a complete encrypted platform with multiple use access levels. This manages risks related to data security, confidentiality and integrity of information. • Further advancements to the membership management, SAFAS/PEFC and payment systems were accomplished to better service members. • A totally on-line and monitoring platform was developed in-house for NCT’s virtual AGM, integrating member details and stringent authentication processes to cast votes. INFORMATION and COMMUNICATIONS TECHNOLOGY
33 INTEGRATED ANNUAL REPORT 2022 A great organisation cannot be built without great people. Simply put, NCT is proud of its staff who performed exceptionally well during a year with many challenges. Despite all of the disruptions, we believe that we achieved our objective of maintaining staff motivation by means of the manner in which we introduced new staff into NCT, the training, remuneration and benefit packages provided, and, very importantly, the additional support rendered for employee wellbeing. NCT conducted in-house employee surveys to gauge staff sentiment. Positive results were received regarding NCT’s approach to Covid-19 with high scores (over 80%) attained for employee pride, leadership and culture of the organisation. Employee training and development Staff need be on top of their game in an ever-evolving world where technology becomes more high-tech, legal compliance more involved and overall scientific advances are a given. NCT plays an active role in ensuring that its staff receive the necessary training to keep skills sharp, and we further invest in self-development where there is mutual benefit. NCT invested R611 000 in staff training, recovering R247 846 from the Fibre Processing and Manufacturing SETA as a skills development refund for the training carried out in the previous reporting period. In addition to staff training, NCT has continued to show its commitment to student development by sponsoring two full-time forestry students at the Nelson Mandela University. NCT also supports five students in their post-graduate studies towards MSc or PhD qualifications in forestry research ranging from technology-based advancement in forestry operations to the Eucalyptus snout beetle. HUMAN RESOURCES
34 INTEGRATED ANNUAL REPORT 2022 Employee demographics The NCT group staff complement stands at 725 employees with a 75:25 (%) male-female ratio. This remains an area targeted for improvement. NCT continues actively to work towards achieving a workforce which is representative of the KwaZulu-Natal demographics. NCT submitted its 23rd annual employment equity report. Succession planning continues to receive attention. The overall demographic distribution for the NCT group: Overall employee demographics African White Indian Coloured 82% 10% 7% 1%
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36 INTEGRATED ANNUAL REPORT 2022 Communities NCT continue to acknowledge the need for a structured approach to interact with communities living on and adjacent to some of its farms. To assist estate managers with regular communication and to better assess community needs and possible conflicts, a community liaison officer was appointed. With the prevailing economic situation impacting negatively on communities, NCT’s investment in these rural areas is important to unlock possible employment and contracting opportunities and to provide communities with some appropriate and practical basic needs and infrastructure support. NCT responded to some of the land-related challenges by launching a social and labour plan in which the plight and expectations of communities residing in and adjacent to NCT-owned farms have been identified and better understood. Several key outcomes were achieved: • Water tanks and connections to pipelines and boreholes have been provided to solve the problem of access to clean water and sanitation. NCT also facilitated connections to local municipal power supply. • The construction of waiting areas at a clinic and pension pay-out point to provide shelter for patients and pensioners attending. • Food parcels were distributed to staff and families living in and around its northern estates following the July civil unrest. • Sport kits were presented to soccer and netball teams participating in a two-day local sports event. • As part of its youth development initiative, NCT donated computers to two high schools. Provision of school desks also formed part of this initiative. • Learnerships in animal and plant production were awarded to learners from neighbouring communities as part of an on-the-job training initiative. High-achieving learners were awarded bursaries to a technical college with work experience offered at an NCT wood chipping mill. Furthermore, NCT’s social investment programmes impacted on 23 communities in the form of much needed: • hospital beds and ventilators • personal protective equipment • food hampers to communities and schools/creches • mobile wash basins for early childhood development creches SOCIAL RESPONSIBILITY
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38 INTEGRATED ANNUAL REPORT 2022 Biodiversity NCT and members farms are managed as commercial operations with the primary objective of producing wood and other commercial produce. However, significant areas are managed for conservation and other environmental services. Wetlands (including streams and rivers) have been delineated and the riparian buffers provide important ecological corridors for biodiversity. Many farms have set aside representative conservation areas. Good examples can be seen in the numerous forest patches and grasslands that have been preserved on farms. On NCT-owned farms approximately 25% of the land area is unplanted and managed primarily for conservation purposes. These include areas of high conservation significance such as a 202ha mist belt forest and the Natal cycad colony in a protected area. NCT also supports: • The Ground Hornbill project through a monitoring programme on all farms where the bird has been identified. In association with the Ground Hornbill Project, a series of awareness presentations are regularly carried out in surrounding communities. • The Oribi Working Group in its translocation programme, annual surveys and anti-poaching activities. • The Karkloof conservancy in protecting the crane species and anti-poaching efforts in the area.
39 INTEGRATED ANNUAL REPORT 2022 GOVERNANCE REPORT NCT’s Board believes that good corporate governance cannot be compromised and is committed to follow best practices and lead with high ethical standards. The NCT Board is comprised of 12 non-executive directors of which one is independent with no direct commercial interests in forestry. Board members are elected at the Annual General Meeting and the Board may further appoint Board members as may be needed. During the reporting period, Philip Day was re-appointed as Chairman and Vernon Schefermann was appointed as the new Vice-chairman. These appointments were made at the Board meeting held after the AGM. The 2021 AGM had to be postponed due to the civil unrest which took place across KwaZulu-Natal in July 2021. The AGM was again held online due to the rise in Covid-19 cases at the time. The Board delegates the executive functions to the General Manager who is responsible for the appointment of a specialist management team. The governance framework is maintained by the Secretary who acts as an advisor to both the Board and the management team. Board members serve on several committees and NCT’s subsidiaries during their respective terms of office. Members of management also serve within this structure to report on performance, propose strategy and execute decisions of the Board. The Mills committee is a new addition to the governance structure. The following committees were in place during the reporting period: Statutory committees Audit and Risk To oversee the audit function and review risk matters Social and Ethics To oversee all matters affecting NCT stakeholders Non-statutory committees Executive To consider market related matters and other executive decisions Marketing To consider marketing matters Mills To oversee the wood chip mills division Tree Farms To oversee NCT tree farming division and management projects Structure To oversee group structure matters
40 INTEGRATED ANNUAL REPORT 2022 Governance Report NCT Chipping Operations Jacob Kotzé General Manager Tree Farming James van Zyl Manager Commercial Services Kerry Moffett Manager Financial Services Jean Simpson Manager Corporate Services Deepak Mohanlal Manager IT Services Craig Norris Manager Forest Technology Services Vusi Dladla Manager Development Services SENIOR MANAGEMENT Danny Knoesen General Manager NCT Group BOARD of DIRECTORS Philip Day – Chairman Vern Schefermann James Stegen Anthony Gibbs Harald Niebuhr Graeme Freese Guy Payn Micheon Ngubane Colin Hohls Andrew Mason Juanita Mason Thuli Motloli Isaac Premananthan Internal Auditor Rob Thompson Manager Member Services Durban Wood Chips Lenny Naidoo (Mill manager) Derek Rall (Plant engineer) Richards Bay Wood Chips Ryno Martyn (Mill manager) Charles Atkins (Plant engineer)
41 INTEGRATED ANNUAL REPORT 2022 BayFibre (Pty) Limited NCT Durban Wood Chips (Pty) Limited Shield Overall Manufacturers (Pty) Limited Forest Resources (Pty) Limited Shincel (Pty) Limited BOARD COMMITTEES MANAGEMENT Executive Audit & Risk Marketing Mills Social & Ethics Structure Tree Farming Member Services Tree Farming Wood chipping Logistics Forest Technology Development Services Finance Information Technology Corporate Services Board and COMMITTEE ATTENDANCE Day, PBB 8/8 1/1 2/2 Schefermann, AV 8/8 1/3 (appointed) 1/1 2/2 3/3 1/1 3/3 Freese, GL 8/8 2/2 1/1 2/2 Gibbs, AP 7/8 3/3 2/2 1/1 2/2 Hohls, C 7/8 2/3 1/1 3/3 1/1 2/2 Mason, AE 8/8 3/3 1/1 Mason, JF 8/8 3/3 3/3 1/1 Motloli, NC 8/8 3/3 2/2 1/1 2/2 Niebuhr, HG 8/8 2/2 0/3 (resigned) 1/1 1/1 Ngubane, MT 7/8 3/3 2/2 2/3 (appointed) 1/1 2/2 Payn, G 8/8 3/3 1/1 2/2 Stegen, JW 8/8 3/3 1/1 1/1 NCT Board MEETINGS SOCIAL and ETHICS AUDIT and RISK STRUCTURE MILLS TREE FARMING NCT AGM SUBSIDIARY BOARD MEETINGS
42 INTEGRATED ANNUAL REPORT 2022 Graeme Freese Anthony Gibbs Colin Hohls Harald Niebuhr Philip Day Chairman James Stegen Vice-chairman Thuli Motloli Micheon Ngubane Guy Payn Vern Schefermann Andrew Mason Juanita Mason Board of Directors
43 INTEGRATED ANNUAL REPORT 2022 Ryno Martyn Charles Atkins Derek Rall Lenny Naidoo Mills‘ Management Durban Wood Chips Richards Bay Wood Chips Deepak Mohanlal Jean Simpson Jacob Kotzé Craig Norris James van Zyl Rob Thompson Kerry Moffett Vusi Dladla Danny Knoesen General Manager Management
44 INTEGRATED ANNUAL REPORT 2022 King IV The Board applies the King IV code on Corporate Governance Principle 1 The governing body should lead ethically and effectively. Board members are elected by NCT members and committed to ethical governance. Principle 2 The governing body should govern the ethics of the organisation in a way that supports the establishment of an ethical culture NCT ethics is overseen by the Social and Ethics committee. The leadership is committed to ethical decision making. Principle 3 The governing body should ensure that the organisation is and is seen to be a responsible corporate citizen. The public relations department ensures that NCT’s social projects are published when implemented by management. Principle 4 The governing body should appreciate that the organisation’s core purpose, its risks and opportunities, strategy, business model, performance and sustainable development are all inseparable elements of the value creation process. The Audit and Risk committee oversee all risk matters. Strategy is developed as required by changing circumstances or opportunities that arise throughout the year. Management reviews the NCT business strategy every year. Principle 5 The governing body should ensure that reports issued by the organisation enable stakeholders to make informed assessments of the organisation’s performance, and its short, medium and long-term prospects. NCT publishes an integrated report every year. Financial results are prepared in line with IFRS for SME’s. Principle 6 The governing body should serve as the focal point and custodian of corporate governance in the organisation. Management reports to the Board at each board meeting. The Board meets regularly at which meeting operational and strategic matters are considered. Principle 7 The governing body should comprise the appropriate balance of knowledge, skills, experience, diversity and independence for it to discharge its governance role and responsibilities objectively and effectively. The Board comprise of 12 members duly elected by members and appointed by board members as required. The Board are all non-executive directors representing members and comprise of the requisite skills to execute its duties. One director is independent with no direct interest in forestry but brings legal insight. Principle 8 The governing body should ensure that its arrangements for delegation within its own structures promote independent judgement and assist with balance of power and the effective discharge of its duties. A number of committees exist on which board members and management serve and are supported by terms of reference. Principle 9 The governing body should ensure that the evaluation of its own performance and that of its committees, its chair and its individual members, support continued improvement in its performance and effectiveness. A formal evaluation was not undertaken in the reporting period. Principle 10 The governing body should ensure that the appointment of, and delegation to, management contribute to role clarity and the effective exercise of authority and responsibilities. Executive functions are delegated to the General Manager who in turn subdelegates functions to the executive management. Principle 11 The governing body should govern risk in a way that supports the organisation in setting and achieving its strategic objectives. Risk matters are reviewed by management and reported to the Audit and Risk committee. Principle 12 The governing body should govern technology and information in a way that supports the organisation setting and achieving its strategic objectives. NCT is supported by a dedicated IT department who develops technology as required by the NCT business. ICT practices are supported by various policies and procedures. Principle 13 The governing body should govern compliance with applicable laws and adopted, non-binding rules, codes and standards in a way that supports the organisation being ethical and a good corporate citizen. NCT continues with business practices in line with all applicable legislation, codes of practices such as FSC, PEFC, ISO 9001, King IV, and the principles of good governance for co-operatives. Principle 14 The governing body should ensure that the organisation remunerates fairly, responsibly and transparently so as to promote the achievement of strategic objectives and positive outcomes in the short, medium and long term. NCT remunerates in line with industry players which is monitored through salary benchmarking Packages and benefits are structured to attract and retain talent on the different occupational levels. Principle 15 The governing body should ensure that assurance services and functions enable an effective control environment, and that these support the integrity of information for internal decision-making and of the organisation’s external reports. Combined assurance is obtained through external auditors and internal auditors.
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