1 INTEGRATED ANNUAL REPORT 2023
2 INTEGRATED ANNUAL REPORT 2023
1 INTEGRATED ANNUAL REPORT 2023
2 INTEGRATED ANNUAL REPORT 2023 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 To assist 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, employing motivated staff and appropriate technology, our mission is 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 stakeholders • 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 2023 About this Report 4 Chairman’s Report 8 General Manager’s Report 12 External Stakeholders 15 Internal Stakeholders 32 Environment 36 Governance Report 40 Finance 61 Contents
4 INTEGRATED ANNUAL REPORT 2023 ABOUT THIS REPORT This integrated report aims to provide an accurate and concise overview of all material matters and describe how the NCT group achieved its business goals and created value for the financial year ended 28 February 2023. The NCT group includes NCT Forestry Agricultural Co-operative Limited and its subsidiaries (please refer to our governance section). This report contains both financial and non-financial information, has been compiled by management and includes those aspects which we found to be material enough to report on. Materiality was determined by the impact a reporting item may have on our various stakeholders and whether a reporting item may have created or eroded value for our stakeholders. This report was prepared in accordance with International Financial Reporting Standards (IFRS) for Small and Medium-sized Enterprises (SME), the requirements of the Companies Act (where applicable), the Co-operatives Act, the principles of King IV and the International Integrated Reporting Framework. Co-operative Reports The Board is not required to complete a social report, or a management decision report as stipulated in regulations 33 and 34 of the Co-operative Act 14 of 2005 respectively as NCT is a category C co-operative and the annual financial statements are independently audited. The Board certifies to the best of their knowledge and belief that the social and ethical performance of NCT is in relation with its vision, mission, and goals and within the scope of the NCT Constitution as monitored by the Social and Ethics Committee. The Board further certifies that to the best of their knowledge and belief NCT has complied with all legal requirements and the NCT constitution. This integrated report sets out much of the details ordinarily required by the social report, and the management decision report.
5 INTEGRATED ANNUAL REPORT 2023 Approval The Board can assure the NCT membership that NCT is a strong organisation and with the joint effort from the Board, Management and the NCT staff, will continue to achieve its business goals. The Board acknowledges its responsibility in ensuring the integrity of this Integrated Report. The Board has applied its mind to the Integrated Report and in its opinion this report addresses the material issues and represents fairly the performance of the NCT Group. PBB DAY | CHAIRMAN Assurance The Board and NCT Management obtain both internal and external assurances to test the reliability of the information reported on. The non-financial information has not been audited, but it has been presented to the Audit and Risk Committee as well as the Social and Ethics Committee. The Board is satisfied that the information contained in this report is a fair reflection of NCT’s non-financial performance. Any projections made in this report are made on subjective criteria and cannot be verified nor relied upon for any decision making. The Internal Audit function tests the internal control measures put in place by management to ensure that processes conform to NCT’s quality management system. The internal audit report can be found on page 52. NCT is endorsed by two forestry certifications standards, 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. All financial information was externally audited by Colenbrander Inc. The external audit report can be found on page 53.
6 INTEGRATED ANNUAL REPORT 2023 Growing a sustainable resource with access to over 200 000ha of members’ and NCT-owned commercial plantations. NCT-owned plantations act as a reservior Improving efficiencies and investing in equipment and technologies. Three woodchipping plants, four timber depots and six member-services’ offices Financial prudence and discipline Integrating the network of professional minds and using modern technology to enhance data management Employing and investing in 674 diverse and professional 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 2023 TURNOVER Group R3.28 billion Co-operative R3.28 billion TOTAL ASSETS Group R2.68 billion Co-operative R2.19 billion LOGISTICS Road: 472 000 tonnes Rail: 277 000 tonnes Loading operations 150 000 tonnes R&D INVESTMENT R5 million TRANSPORT CARBON FOOTPRINT A saving of 27 427kg BIODIVERSITY FOOTPRINT 2 469 ha (NCT farms) KEY OUTCOMES OUTPUTS WOOD CHIP EXPORTS 1.8 million tonnes MEMBER BONUS R38 million DOMESTIC MARKET Pulpwood 375 824 tonnes Non-pulpwood 73 210 tonnes CERTIFICATION FSC 70 000 ha PEFC 6 700 ha SKILLED AND MOTIVATED EMPLOYEES 372 training opportunities Acacia 960 1 010 44 512 90% to 110% plus of GST Eucalyptus 1 104 972 31 442 90% to 110% of GST TOTAL 2 064 1 982 75 954 MEMBERS Genus GST Actual supply Payment Sliding scale amendment (Tonnes ‘000) (R’000) TRAINING SPEND R1 million CSR & BBBEE SPEND R1.9 million Government departments | Competitors | Media | Environmental/conservation lobby groups | General public M O D E L
8 INTEGRATED ANNUAL REPORT 2023 market mix, is a significant domestic demand for our pulpwood offering. This diverse market array has reduced the NCT exposure to market risk considerably and has contributed towards NCT being ranked as one of the biggest single source woodchip suppliers of the world today. However, we cannot let our guard down and must continue to work hard at being the supplier-of-choice to our existing clients as well as those still to be discovered and engaged. Over the last number of years, we have always regarded the exchange rate as being a major point of exposure. This remains the case but more recently we have been challenged by a series of serious risks closer to home. Here I refer specifically to the State-Owned Enterprises (SOEs) that we must deal with. An alarming decline in service offering and capacity from Transnet ports, rail and Eskom pose arguably the biggest collective threat to our business today. I said last year that if NCT can’t get chips-on-ships, then our business comes to an end. The authorities tasked with managing State-Owned Enterprises (SOEs) have failed dismally, due to a lack of competence, accountability, and skills, to ensure that we, the taxpayers of South Africa, are acceptably served. There seems to be no political will to ensure that these SOEs remain functional. There is also no apparent Chairman’s Report 2023 NCT’s core business has always been to market members timber to the best advantage of members. This is easier said than done and requires every department to be in sync given that NCT offers its members a wide array of services to ensure their business sustainability. NCT is in fact approaching 75 years of service delivery to the independent timber growers of South Africa and 50 years of woodchip export to Japan. Some of our esteemed Japanese clients are still the original clients with which NCT started its marketing journey. This is a remarkable achievement and confirms our commitment to sustainability and loyal service. One of our strategies has been to diversify markets and over the last few years have gone a long way towards achieving this strategic objective. In the East, we count some of the biggest pulp and paper producers in the world, as our clients. We have built relationships with these Japanese and Chinese companies based on our consistent quality offering and reliability of supply. More recently we have explored opportunities into Europe given the consequences of the Russian-Ukrainian war and resulting increased requests for biomass from the likes of the Iberian Peninsula, France, and Scandinavia amongst others. Adding further depth to our substantial P H I L I P DAY
9 INTEGRATED ANNUAL REPORT 2023 willingness to accept private enterprise assistance towards rebuilding these institutions. We have been burdened by massive extra costs because of this service dereliction, which just adds to the ever-increasing cost of doing business in South Africa, whilst trying to remain internationally competitive. Despite having to deal with these obstacles, NCT has posted some significant production and financial figures. We have achieved a R3.281 billion group turnover and shown a profit of R283.2 million. The total number of members tonnes marketed by the Co-Operative is over 2.1 million. NCT continued to be the pulpwood price leader in South Africa and many organisations continue to benchmark their pricing based on ours. The mills have continued to function optimally and together they have chipped and loaded over 40 dedicated woodchip vessels during the course of the year. With the mills running close to capacity, we need to be vigilant about maintaining them to ensure optimal usage and cost-efficiencies. This was highlighted recently when the chipper disc at NCT Richards Bay Wood Chips failed unexpectedly and catastrophically, resulting in downtime of almost two months on our Eucalyptus woodchip production line. I must commend all staff involved in the repair operations, as well as those making alternate market arrangements to ensure that disruption to our Eucalyptus suppliers was kept to the minimum. Again, despite all of the challenges NCT faces the new year with a full order-book and the prospect of another good year for sales volumes. The Board has functioned efficiently and in unison with the strategy and goals of NCT. Together with management, we have ensured that NCT provides outstanding service to its members and customers. We have managed the many obstacles that have presented this year and have overcome or controlled most of them. The Board is continually evolving, and this year sees the term of two of our long-serving directors drawing to a close as they retire. Graeme Freese and Micheon Ngubane have both served NCT for many years and have filled leading roles on the Board. Their dedication and sense of duty has not gone unnoticed and on behalf of all members I thank them and their spouses for this selfless service. I have been well supported by all Board members, as well as management and I am grateful to all involved for this. I must also express my appreciation to all our spouses and families who continually lend their support to enable us to serve NCT and its members. My Vice Chairman, Vernon Schefferman, has been a constant source of support to me, for which I am grateful. Danny Knoesen, our General Manager leads his team with purpose, clear direction and it has been a pleasure to support him this past year. PHILIP DAY | CHAIRMAN “This diverse market array has reduced the NCT exposure to market risk considerably and has contributed towards NCT being ranked as one of the biggest single source woodchip suppliers of the world today.”
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12 INTEGRATED ANNUAL REPORT 2023 We close the chapter of another remarkable year, one that will be remembered for its extremes; buoyant export markets, great sales volumes, aggressive timber price hikes, tempered with the paradoxical ongoing deteriorating logistics performance by Transnet Port and Rail, record flooding in April and May, fuel price hikes and the negative impact of the Russian-Ukraine conflict worldwide. We again marketed more than 2.2 million tonnes of members’ timber and were able to pass on substantial timber price increases to our members. In fact, the Eucalyptus and Acacia timber prices moved by 34% and 27% respectively, the single largest annual movement in decades. In solid trading conditions, we chipped and exported the full capacity of Guaranteed Supplied Contracts (GSC) and mill volumes, also securing multi-year contracts with the two largest Chinese pulp manufacturers. Our export volumes peaked at over 1.8 million tonnes. Our ongoing relationships with key Japanese customers continue to reach significant milestones. The conflict in Europe certainly generated a fair amount of interest for our chips, and we received many enquiries from both wood pulp and energy buyers. On a spot basis, we sent a shipment to a new market in Spain, but we were wary of moving volume from existing customers to what seemed likely to be a very temporary demand, and rightly so – the European interest in South African woodchips has all but dried up, with energy concerns mostly dealt with and many countries back to “businessas-usual” despite the conflict. We remain well poised to pursue those strategic enquiries from Europe that are aligned to our own objectives. Our domestic markets have been steadied this year, arguably becoming more reliable and our domestic sales hit a record high of 449 000 tonnes. Our expected challenges with all things Transnet continued to play out, and costs incurred due to vessel delays sadly reached a record high for the year under review. However, we continue to exert influence in the ports and are now actively involved in assisting the ports with equipment breakdowns, overhauls and technical back-up in efforts to improve Transnet maintenance efforts and minimise vessel delays. We have strong representation at a national level in port councils and are ably represented by Forestry South Africa (FSA) as they pursue rail interventions with the Presidency and Transnet directly General Manager’s Report DANN Y KNO E S E N
13 INTEGRATED ANNUAL REPORT 2023 Our mills continue to operate efficiently, and Richards Bay mill complex has bounced back fantastically since having a protracted outage on one line during February and March 2023. We continue to invest in increasing our chipping capacity in Richards Bay. The strategic depot being developed near Umlaas road should become operational during the course of this year and will offer tactical options to NCT operations and members alike, as we utilise it to improve our supply chain efficiencies. The outlook for 2023/24 is positive, however we continue to track the international wood-chip markets and the links between wood-chip demand and the worldwide pulp prices. The cyclical nature of pulp pricing demands constant scrutiny and again in the year under review, Chinese pulp prices peaked above $865 per tonne in quarter three of 2022, then plummeted to below $600 at the end of our financial year. As many countries’ economies struggle, the pulp price continues to trade poorly; below $500 as of June 2023 and this is now starting to impact buying patterns of Chinese pulp makers. We will have vessels postponed as the Chinese come to grips with their weak markets. Our Japanese demand is very stable and worldwide there remains an overall wood-fibre shortage. As we ride out the usual cyclical challenges, our organisation remains well poised, with a strong bill of health, for what the coming years bring to our doorstep. I take thi s oppor tuni ty to congratulate our management team and staff for their contributions throughout a fantastic year for the Co-operative and am proud that we can count on its ongoing commitment to our members and our organisation into another year – no doubt filled with further unknown challenges. On behalf of all NCT staff, I thank the Chairman, Mr Philip Day, and our Board members for their ongoing support and contributions to another successful year for NCT. DANNY KNOESEN | GENERAL MANAGER
14 INTEGRATED ANNUAL REPORT 2023 NCT and the “member-centric” service offering to members It must be recognised that member service is not specifically limited to the Member Services Department. Whilst the Member Services Department acts primarily as the interface between the member and the Co-operative, the overall NCT service offering is a collective from the various interlinked and specialist Departmental components comprising the organisation. This collaboration of service offering is a necessity within an ever-complex operating environment which definitely can no longer be considered “normal”. The following narrative provides an outline of the key operational environmental complexities or events that unfolded during the course of the year and the specific manner in which NCT addressed each of them, or actively pre-empted occurrence of potential hurdles. Given the essence of the Co-operative, a “member-centric” approach is generally adopted, but without ever losing sight of critical “business-centric” considerations in the best interests of member sustainability. The report explores the actions taken by NCT in addressing operational challenges, complexities and events that occurred during the year.
15 INTEGRATED ANNUAL REPORT 2023 External Stakeholders Extreme weather / Climate change Incessant rain events have become the order of the day, leading to timber inaccessibility, supply interruption and a logistical nightmare. During the year some intense heatwaves also occurred, clearly endorsing the fact that climate change is occurring. Around April 2022, NCT Durban Wood Chips was flooded and the rail link to Sappi Saiccor destroyed. In late May 2022 a repeat of the April floods occurred this time affecting the Greytown Branch rail-line. Ongoing out-of-season rain events hampered access to timber both in field and on depots. Addressing impacts of climate change New all-weather depots were built at NCT Baynesfield Estate in order to ensure sustained buffer stock availability (Acacia and E. smithii) to augment member supply, particularly when normal timber flow is impeded. Priority attention was given towards restoring flooded weighbridges and electrics at NCT Durban Wood Chips in record time after the April floods, thereby limiting member inconvenience. Members were encouraged to place more reliance on road than rail (as ironical as that seems). Transnet Freight service levels are simply incapable of dealing with contingencies, even those weather-related. Two new 6000l fire trucks were purchased to service NCT Tree Farms and member farms within their footprint. Fire protection and standby crew capacity was maintained on all NCT Farms. Key operational challenges, complexities and events impacting on stakeholders. Key actions taken / Services rendered
16 INTEGRATED ANNUAL REPORT 2023 The war in Ukraine and the global hangover from the COVID-19 pandemic led to high bunker fuel prices (high cost of freight) and constrained vessel / container availability, in turn leading to high market discernment in terms of affordable raw material sourcing. Local transport costs soared given fuel price increases which proved challenging specifically to the more distant and marginal Eucalyptus growers / suppliers. Extreme Rand volatility (against the US dollar) is now established as the new norm. Ongoing communication and encouragement to members via the Member Brief was initiated to ensure quality and accurate supply performance given global competition for most economical quality pulpwood. NCT must retain its competitiveness on the global stage. Rigid performance monitoring (against allocation) implemented and maintained in order to remove exaggerated requests from the allocation process and allowing more room for reliable supply. R50/tonne increase in Eucalyptus price (effective 1 June 2022) to assist suppliers facing fuel-price increases. NCT maintained consistent focus on ongoing cash-flow management and not cash-position. This in the best interests of members (and their own cash-flow needs). Regular workshops held with small growers in Zululand (reliant on Eucalyptus markets) regarding the market situation. Daily monitoring of exchange rate dynamics and judicious appl ication of Rand-value hedges or buckets iniated primarily to protect the budgeted Rand-value. Global economic upheaval Addressing economic challenges…
17 INTEGRATED ANNUAL REPORT 2023 Ongoing severe decline in rail service in both north and south of the NCT area of jurisdiction. Port services at both ports continue to decline rapidly in tandem. Limited road truck availability due to high and everincreasing demand due to rail decline. A train derailment occurred within NCT BayFibre mill precinct mid-year. Various occurrences of stranded laden rail wagons in north and south due either to flood damage or rail damage (poor maintenance / cable theft et al.). Engagement at the highest level with Transnet authorities and support of Forestry South Africa (FSA) industry lobbying initiatives continue. Approval given for the establishment of a depot situated in Cato Ridge which NCT plans to use as a tactical sale point and holding depot. Contracting in of more road vehicle capacity wherever possible. A 120 000 tonne/annum Performance-Based Standard (PBS) abnormal vehicle contract was signed in the south to run back-to-back with NCT loading operations. More timber storage practiced on both farm and Vryheid East depots. The search continues for more appropriate depot facilities at tactical sites across the province. Vryheid East depot surface hardening and drainage improvement was executed to facilitate more efficient and extended timber storage. NCT engineers supported Transnet personnel during the repair of the BayFibre derailment damage in order to complete repairs without undue delay. Emergency advance payments were made to members whose wagons were delayed by Transnet for an inordinate time period. Critical challenges on the logistics front Ensuring that your timber gets to mill
18 INTEGRATED ANNUAL REPORT 2023 NCT TIMBER TO MARKET (TONNES) Growth of tonnes delivered by PBS vehicles – 10-year trend Tonnes Tonnes Millions
19 INTEGRATED ANNUAL REPORT 2023 PBS vehicles – the face of the future?
20 INTEGRATED ANNUAL REPORT 2023 The year started, and ended, with an arguably insatiable market demand for Acacia. Extremly busy chip-vessel line-ups at both Richards Bay and Durban were experienced. There was ongoing interest in the NCT Eucalyptus and biomass offering by current and potential new clients. Ongoing provision of global market news and developments via the monthly Member Brief. Special briefs outlining the ongoing situation at Durban Wood Chips (vessel schedule changes and existing shed capacity) guiding overall member supply. Regular engagement with members at District level regarding supply against allocation and provision of additionals as and when appropriate to replace “dropped” loads in order to ensure that client demand was met. Forward price increases designed to allow members to capitalise on future positive market prospects: • R130 / tonne on Acacia (effective 20 July 2022) • R100 / tonne on Eucalyptus (effective 1 August 2022). Decision to increase the Guaranteed Supply Premium (GSP) to R50 / tonne on both Acacia and Eucalyptus. Applicable to: • Acacia 90 to 110% plus of sliding scale • Eucalyptus 90 to 110% of sliding scale. (The 110% plus extension to the Acacia benefit was in keeping with the massive call for Acacia throughout the year). R25 / tonne price increase for both Acacia and Eucalyptus (effective 1 October 2022). The limit for approved advance requests was raised to R120 000 / month maximum, to assist those members in need of emergency cash flow. NCT BayFibre remained open throughout December 2022 to facilitate maximum Acacia access. NCT mill log yards were used as reservoirs as far as practically possible. Ongoing market demand for Acacia and increasing interest shown in Eucalyptus Providing access to markets and meeting tight supply deadlines
21 INTEGRATED ANNUAL REPORT 2023 (from previous page) Moisture measurement trials using innovative high-tech equipment were initiated with a view towards establishing appropriate technology at all NCT mills to improve moisture measure accuracy and remove any subjectivity from the equation. NCT Tree Farming played a major role in supplementing member hardwood supply notably during early and late Acacia season. The NCT Tree farms also contributed significantly towards the critical E. smithii Project South. Sales over the last 10 years NCT FARMS AND LEASES TIMBER SALES – TONNES
22 INTEGRATED ANNUAL REPORT 2023 To fully optimise farm revenues, non-pulpwood and higher value markets need to be continually sought. NCT’s ongoing commitment towards looking for diversification opportunities on the product front and in the marketplace. Eucalyptus peeler markets make up a large percentage of the NCT special market tonnage in sight of declining Pinus availability. Zero commission to be charged on special market sales going forward and we expect special market sales volumes via NCT to increase accordingly. Support of a Stellenbosch University research project exploring the use of Eucalyptus material in solid wood structural applications. NCT’s obligation to continually assess alternative markets and explore diversification opportunities Finding markets Sales by Genus (tonnes) Sales by Market (tonnes)
23 INTEGRATED ANNUAL REPORT 2023 Ukraine war-driven demand for coal has caused major uncontrolled coal truck inundation at both Richards Bay and Durban Ports and resultant competition from coal vessels, for limited berth access. At Durban, poor Port management resulted in grain vessels occasionally impeding access of pulpwood vessels to the NCT berth. Ongoing engagement with the Ports authority at highest level to improve service delivery and fair access to facilities. Members encouraged via the Districts and Member Brief to deliver their loads in the early and less subscribed hours of the day. Increased competition for very limited and degraded Port facilities Addressing the limited access Coal versus timber – an on-going battle
24 INTEGRATED ANNUAL REPORT 2023 High demand for NCT product has led to a record supply year. This demands of NCT to ensure cost-efficiencies and equipment reliability in order to sustain maximum benefits back to the member. NCT’s assets and structure are under constant scrutiny as far as efficiencies and benefit-return to members are concerned. A need was identified to rationalise and consolidate certain elements of NCT Tree Farming. Major maintenance conducted successfully on Durban Wood Chips chipper motor and casing. Stacker refurbishment at NCT BayFibre successfully executed in October 2022. Approval given for the establishment of a second chip line at NCT Richards Bay Wood chips. This in anticipation of higher future pulpwood intakes and the establishment of a tactical biomass footprint. Commencement with the extension of the cement chip storage slab at NCT Richards Bay Wood Chips mill in anticipation of increased pulpwood and biomass intake. The replacement of the steel cladding on the Durban Wood Chips chip-shed commenced. On t he NCT Tr e e F a rmi ng f r on t , t he L en j ane management unit has been taken out of Forest Resources (Pty) Ltd and sold to NCT where it has been consolidated with Enyathi farms. The Enyathi unit now comprises 5 243ha of Eucalyptus and Acacia and provides employment opportunity for 500 people. A percentage of the Enyathi mixed Eucalyptus is being converted to E. smithii aimed at the NCT Richards Bay complex. The Broadmoore farms (part of Shincel (Pty) Ltd) were placed on open tender in June 2022 and sold January 2023. NCT will lease back the Broadmoore land with standing timber from the owner for a period of five years to allow for full utilisation of the remaining standing timber resource. The remaining farms owned by Forest resources (Pty) Ltd and Shincel (Pty) Ltd will be sold to NCT at market value during the 2023/24 financial year. The critical need for NCT to remain relevant, competitive, and cost-efficient Ensuring ongoing cost and operational efficiencies
25 INTEGRATED ANNUAL REPORT 2023 A protracted strike by Transnet workers in Richards Bay and Durban occurred in the latter half of the year. Access to Durban Wood Chips was impeded for a short period. Regular updates regarding the situation were provided to members via special Member Briefs. External industrial action Communicating external events An unexpected and destructive breakdown of the chipper occurred that severely impeded Eucalyptus access to mill. The NCT Durban Wood Chips and Richards Bay engineering teams combined resources and expertise and effected the repair over the course of two months (at least a month in advance of expectation). Special briefs kept members regularly informed of repair progress. A workshop was held with Eucalyptus smallgrowers most affected by the breakdown and temporary lack of market access. Limited Eucalyptus chipping was conducted via NCT BayFibre so as to meet client order and allow limited Eucalyptus flow to continue. Catastrophic breakdown of the NCT Richards Bay Wood Chips chipper early 2023. Addressing the damage and limiting loss.
26 INTEGRATED ANNUAL REPORT 2023 The dynamic supply and demand situation required full member buy-in to NCT strategies and tactics as the year unfolded. Members experienced huge frustration due to the stopstart nature of access to our major domestic market in the south. Chain-of-Custody and matters certification are top priorities of NCT in order to maintain certification status and ultimately market access. Poor economic conditions and the perceived easy availability of timber through nefarious means are driving opportunists to exploit the timber supply-chain regularly. Recognition of the role that women play in forestry remains important to NCT. Full in-person zone meeting series held in May 2022 were well attended and received. The 2022 NCT Annual General Meeting of members was also well received and attended. High level interaction with our major domestic market’s Chief Executive Officer resulted in somewhat improved access which was encouraging and has resulted in a mutual understanding of circumstances and requirements. Zululand District Office was brought up to full staff strength with the appointment of a District Forest Coordinator after the existing staff member was internally transferred to NCT Tree Farming. All signed up Guaranteed Supply Tonnages were scrutinised carefully and amended prior to acceptance, thereby ensuring that realistic tonnages were “in play” for the year. Chain-of-Custody workshops held at District level and formal investigations of known cases of alleged breach conducted. Support rendered to the excellent industry wide SHE is Forestry initiative with well-deserved recognition given to specific ladies within the NCT tree grower and staff contingents. NCT IT personnel have developed an APP for rollout to members and suppliers. This will facilitate paperless delivery and end-to-end visibility along the supply-chain for security and Chain-of-Custody purposes. Continuous need to support members and monitor performance Rendering support
27 INTEGRATED ANNUAL REPORT 2023 NCT’s Tree Farming footprint borders a number of rural communities. Maintaining positive relationships with these communities is essential particularly given the challenging economic climate prevailing which can lead to friction and conflict. A structured community assistance programme has been established targeted specifically at neighbouring communities. An NCT Community Liaison Officer continuously assists NCT Estate Managers with communications and needs assessments. NCT has, to date, assisted with critical aspects such as work and contracting opportunities, bursaries and provision of essentials such as: • Solar borehole • Community hall for mobile clinics • A feeding scheme initiative • Cattle fencing • Material for mobile libraries • Flood relief to flood victims • Infant care equipment for foster home • Musical instruments for music literacy initiative • School uniforms • Special needs devices for children with disabilities. Six NCT sponsored community members achieved N6 level qualifications. Ever-present and growing aspirations of our neighbouring communities Maintaining community relations
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30 INTEGRATED ANNUAL REPORT 2023 Guaranteed Supply Contract results for the year 2021/22 One of the largest service renderings of NCT, on an annual basis, is arguably the roll-out, management and monitoring of the Guaranteed Supply Contract tonnages committed by members and suppliers. This process comprises the critical link between Member and Markets and is the baseline to the annual supply plan. The graphs that follow show the performances against Guaranteed Supply Tonnages of the various Districts for both Acacia and Eucalyptus. Acacia was clearly in more demand and enjoyed the most access, however, it must be stated in the same breath that performing suppliers of both genera had ample opportunity to secure their full premium across the full period of the year.
31 INTEGRATED ANNUAL REPORT 2023 Eucalyptus : actual supply against GST (tonnes) Acacia : actual supply against GST (tonnes)
32 INTEGRATED ANNUAL REPORT 2023 Internal Stakeholders Human Capital NCT places great value on its employees. We invest in our employees throughout the NCT employee life cycle as we believe our employees are important stakeholders of the organisation. We believe that these investment initiatives improve motivation which builds into a positive work experience and the NCT culture which we all value. NCT understands the importance of having a competent and efficient workforce which feels valued and can contribute positively to the organisation. As such, we place time and effort on our attraction and recruitment efforts, the retention of the best skills through competitive and fair remuneration packages, training and development opportunities, and overall employee participation. The life-cycle of NCT employees NCT continued with restructuring at the NCT Richards Bay Mill to achieve efficiency and flexibility of the operational staff. The 2018 restructuring process left the Richards Bay Chipping operations slightly fragmented and inflexible due to the production shift structure. In the first year of the Covid-19 pandemic, this inflexibility stood out as a major risk to the business where the new norm required more agility and a flexible workforce structure. NCT started the restructuring process with the goal of achieving a unified Richards Bay Chip Mill workforce structure. Supporting terms and conditions of employment were offered to support the requirements of the operations across the two chipping lines. This warranted the creation of multi-skilled positions which would operate across the two chipping lines.
33 INTEGRATED ANNUAL REPORT 2023 171 159 NCT successfully concluded the restructuring process and employees moved into the multi-skilled positions at the beginning of January 2023. The agility of the new workforce structure has proved its efficiency during the first few months of 2023. The restructuring also resulted in 29 employees (17 Bayfibre and 12 NCT RBWC) opting for retrenchment despite having been offered alternative employment in which they would have had similar or improved conditions of employment. Another restructuring initiative revolved around the change in the senior management structure following the retirement of the Tree Farms Manager. The departments have been reorganised to allow for the streamlining and consolidation of certain functions. These initiatives should further improve the efficiencies and build into the long-term succession plan of the senior management team. At the end of the reporting period NCT employed 674 full-time employees across all its operations. NCT Staff 2023
34 INTEGRATED ANNUAL REPORT 2023 During the reporting period, NCT spent R1 million on training staff. We were able to recover R252 400 from the Fibre Processing and Manufacturing SETA as a skills development refund for the training done in the previous reporting period. During the year NCT placed special focus on Emotional Quotient (EQ) Training of junior to senior management. The course was designed to enable leaders to recognise, understand and manage the impact of emotion on behaviour to engage team members more effectively. 38 employees completed the EQ course, and we believe that the new skills learned will lead to motivated teams and improve business results. Employee Training and Development Employee Demographics SETA Refund and Training Spend (Rands) The Employment Equity Committee oversees equity related matters at NCT. The committee met three times during the reporting period during which it conducted barrier analyses, noted the Work-Place Skills Plan (WSP) and Annual Training Report (ATR), and reconstituted the committee to allow for greater representation of its workforce. The equity report was submitted for the Co-operative, NCT Durban Wood Chips (Pty) Ltd and Bayfibre (Pty) Ltd. At the end of the reporting period, it was noted that the NCT male–female representation remained at 76% and 24% respectively. The overall racial distribution for the NCT group is more aligned with the provincial demographics. There is however still a need for more transformation at middle to senior management level.
35 INTEGRATED ANNUAL REPORT 2023 Health and Safety remains a top agenda item for both Management and the Board. To improve NCT’s compliance as a group, it was decided to centralise the co-ordination of the NCT Occupational Health and Safety Management System. The various procedures within NCT’s operations are being combined into group-wide practices. Strategically, all elements of the safety system would be simplified and aligned towards the nature and requirements of all parts of our business. The process of coordinating compliance in a systematic manner automatically improves quality along the way. The rapid digitisation process brought on by the pandemic, equipped NCT with the necessary platform to migrate paper-based safety files towards a digital shared folder system which makes it easier for senior management to have oversight with regards to legal compliance. Steady progress was made in this reporting period and according to the implementation plans, NCT should have a central Safety, Health, Environment and Quality (SHEQ) Management System in place by the end of 2023. We are pleased that during the reporting period we had no fatalities. Health and Safety 1% 7% 10% 82% Black Coloured Indian White Employee Representation by Race Male – Female Distribution
36 INTEGRATED ANNUAL REPORT 2023 Ongoing critical market demand for Forest Stewardship Council (FSC) certified timber, Programme of the Endorsement of Forest Certification (PEFC) as an extension to the certification array and overall quality management. Our Japanese markets still require a minimum of 30% FSC material whilst our Chinese clients are asking for PEFC material. Certification creates market access hence the critical necessity to maintain the NCT certification status. Increasing need to ensure sustained access to optimum genetic material. Climate change and client demand for top quality product places pressure on NCT to plant only the best genetic material. High priority placed by the industry as a whole, on environmental sustainabiliy, is a priority adopted by NCT, which guides our ongoing dcision making. Ensuring a stable reservoir of certified timber. NCT Tree Farming maintained FSC certification on all NCT-owned farms and on the larger managed farms. In addition, PEFC certification has been achieved on the smaller managed farms. NCT ended its association with the formal ISO 9001 Quality Management System and adopted own Quality Management System. This will extend the scope of quality management across all NCT divisions. Ensuring optimum planting material A third-generation E. smithii grafted seed orchard was established on the NCT Enon plantation. This orchard will be an important source of improved seed for members plantations. The NCT farms host most of the hybrid clone screening trials, allowing material to be thoroughly tested before it is commercialised for members to plant on their farms. An NCT Research Scientist has been appointed to increase research capacity. The roll-out of proven, appropriate, and latest genetic material (both Eucalyptus and Acacia) to small-growers via the ongoing and successful Project Regeneration was continued. (continued next page . . . . ) Key operational challenges, complexities and events impacting on environmental aspects Key actions taken / Services rendered in environmental context Environment NCT understands that successful and sustainable timber production is totally reliant on environmental health and diverse, unimpeded ecological service renderings. Environmental awareness and appropriate management procedures and protocols are maintained on own farms and encouraged on member farms. Advice and extension is provided and subscriptions and adherence to certification principles are adhered to. As a responsible contributor to the global forestry industry, NCT remains fully invested in natural capital for the sake of sustainable production today and into the future, forever.
37 INTEGRATED ANNUAL REPORT 2023 Maintaining biodiversity NCT maintains 25% of its own area in an unplanted and natural state for biodiversity purposes. This includes 200ha mist-belt forest and a protected Natal cycad colony. Management advice is also rendered to members with areas of high conservation significance The rapid onset of forest-related technology and the need to keep up to date Remaining critically involved in technological advances NCT as a significant player within the global chip industry is obligated to remain at the cutting edge of technological developments. NCT invests in collaborative Industry Research Programmes: • Tree breeding and pest management at the Institute for Commercial Forestry Research (ICFR) • Tree pathology and entomology at the University of Pretoria. NCT continues to support and sponsor researchers in appropriate fields:- • Genome sequenc ing for Acac i a mearns i i (MSc complete). • Economic impact caused by and control of Gonipterus spp. (Snout beetle) (In progress) • Off-site / off-target fate of common agrochemicals with specific view towards FSC applicable options. (In progress) • Appropriate and sustainable technology-based methodologies for small and medium timber farmers. (In progress) (. . . . From previous page) Eighty small-growers from Zululand and the Midlands participated in Project regen with 189.4ha planted. To date a total of 1262.55ha has been planted via this project.
38 INTEGRATED ANNUAL REPORT 2023 There is increasing pressure on key organisations such as NCT to reduce carbon emissions. Reducing carbon emission is a significantly difficult undertaking in an era of rail service decline and route restrictions on specialised road vehicles. Key logistics decisions regarding the choice of mode, improved technology, and choice of markets, led to NCT achieving a carbon saving of 27 427kg. Increasing focus on the need to reduce carbon emissions Measuring emissions Carbon Footprint Mode/Market Tonnes Average kms Carbon Factor Total Emissions Carbon Factor Savings Comments (g) (kg) (kg) Road 360 395 490 62 10 949 Rail 624 424 600 22 8 242 All Road 984 819 545 62 33 277 22 328 Savings using rail as an alternative mode PBS 114 090 490 50 2 795 20% less fuel and improved technology PBS To Standard Road 474 485 490 62 14 415 3 466 Savings using PBS vehicles SAPPI /NCT SWOP 119 669 220 62 1 632 1 632 Logistics savings Total Savings 27 427 To calculate the carbon emissions, the activity-based approach will be followed shown below as: CO2 = tonnes transported x average distance travelled x CO2 emissions factor per tonne – km / 1 000 000 Source: (McKinnon et al., 2015)
39 INTEGRATED ANNUAL REPORT 2023
40 INTEGRATED ANNUAL REPORT 2023 The NCT Board is committed to good corporate governance and subscribes to the best practices to lead with ethical standards to give assurance to the NCT membership of good performance, legitimacy, and effective control. The Board is guided by the Principles of Good Governance for Co-operatives and King IV in its development of good governance policies and practices. The NCT business model, objectives, and strategies are developed in line with our governance policies and practices. The Board is satisfied that NCT managed to achieve its business objectives by linking members to markets during the reporting period. NCT was able to create 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 the respective Board and Management meetings. Any major deviation from the NCT business objectives needs to be decided by its voting members. During the reporting period there were no major deviation from the NCT business objectives. All other decisions taken at the 2022 AGM were implemented during the reporting period. NCT is governed by a Board of non-executive Directors. Board members are elected at the Annual General Meeting and the Board may further appoint Board members as may be needed. At the end of the reporting period the NCT Board comprised of 13 non-executive directors of which one was independent with no direct commercial interests in forestry. During the reporting period four directors were re-elected at the 2022 Annual General Meeting. An additional four directors were appointed at a Board meeting following the AGM. Mr Philip Day was re-appointed as Chairman and Mr Vernon Schefermann was re-appointed as the Vice Chairman. The Board delegates the executive functions to the General Manager who is responsible for the appointment of a specialist management team. The Board promotes good governance through independent decision making. This is monitored through the declaration of interest register which was kept during the reporting period and regularly reviewed. The governance framework is maintained by the Secretary who acts as an advisor to both the Board and the Management Team. The Board members serve on several committees and the NCT 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 following committees were in place during the reporting period. Governance Report
41 INTEGRATED ANNUAL REPORT 2023 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 Tree Farms To oversee the Tree Farming division and management projects Structure To oversee group structure matters Mills To oversee the Chip Mills division 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
42 INTEGRATED ANNUAL REPORT 2023 NCT Chipping Operations Craig Norris Manager Tree Farming James van Zyl Manager Commercial Services Kerry Moffett Manager Financial Services (CFO) Jean Simpson Manager Corporate Services Deepak Mohanlal Manager IT Services Vusi Dladla Manager Development Services SENIOR MANAGEMENT Danny Knoesen General Manager 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 Brian Bhengu 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) Yolisa Mfabe Internal Auditor Board and Management 2023
43 INTEGRATED ANNUAL REPORT 2023 Board attendance Board meeting attendance Board Meetings 2022/03/02 2022/04/20 2022/06/15 2022/07/19 2022/07/20 2022/09/21 2022/11/08 2022/11/18 2023/02/01 PBB Day Y Y Y Y Y Y Y Y Y 9 GL Freese Y N Y Y Y Y Y Y Y 8 APG Gibbs Y Y Y Y N Y Y Y Y 8 C Hohls Y Y Y Y Y Y Y Y Y 9 AE Mason Y N Y Y Y Y Y Y Y 8 JF Mason Y Y Y Y Y Y Y Y Y 9 NC Motloli N Y Y Y Y N N Y Y 6 MT Ngubane Y Y Y Y Y Y Y Y Y 9 HG Niebuhr Y Y Y Y Y Y Y Y Y 9 G Payn Y N Y Y Y Y Y Y Y 8 AV Schefermann Y Y Y Y Y Y Y Y Y 9 JW Stegen Y Y Y Y Y Y Y Y Y 9 BS Bhengu N/A N/A N/A N/A Y Y N N Y 3
44 INTEGRATED ANNUAL REPORT 2023 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 SMEs. 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. Information and Communication Technology (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, 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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