Ondersterpoort Biological Products briefing on their budget and strategic plan for 2010

Meeting report

Ondersterpoort Biological Products strategic plan
Mr Dave Mitchell, Acting Chairperson, Ondersterpoort Biological Products (OBP) began the presentation, saying that ODP’s mandate was to prevent and control animal diseases. He explained that OBP was a registered company which was owned by the state and was a public entity. OBP had a non-executive board (with the Managing Director as the only executive member on the board) which was totally committed to good corporate governance.

Dr Mandisa Dyasi, Managing Director of OBP, proceeded to give a brief history of the establishment. OBP was established in 1908 as a veterinary institute. In 1968 it was established as a dedicated vaccine facility and in 1992 it became a state owned entity and started manufacturing vaccines.
Dr Dyasi said that, while OBP was known for the manufacturing of animal vaccines, the institution focused on sheep, goats, horses and cattle with a small component in poultry.  There were several key vaccines which were unique to OBP including the Bluetongue vaccine, African Horse sickness vaccine, Rift Valley Fever vaccine and a number of autogenous vaccines. They were also flexible in terms of producing custom made vaccines.

Dr Dyasi outlined the twelve steps in the 2010 – 2012 OBP strategic plan:
1. Support livestock Industry by supplying vaccines
2. Increase net operational profit
3. Build partnerships with Provincial Governments
4. Strategic vaccine bank in partnership with Government
5. Access to Government funding for capital expansion project.
6. Development of new products
7. Human capital development
8. Innovation and scientific expertise in African diseases
9. OBP globally recognized centre of Excellence
10. Key role player in primary health programmes of Department of Agriculture, Forestry and Fishing.
11. BEE Product distribution partnerships
12. Improve Marketing Expertise and regulatory compliance

The first step was part of the company’s mandate – to support the livestock industry by supplying vaccines. OBP wanted to ensure that vaccines were available when required. As part of this step in the strategic plan, OBP was working to support emerging farmers so that they could develop into commercial farmers. In order to support these farmers, OBP had formed many partnerships with various groups which worked together to educate and inform. One of the ways in which this education was executed, was by broadcasting radio programmes in indigenous languages to ensure that all farmers were provided with necessary information.
The second and third steps were to increase the net operational profit of the company as well as build partnerships with provincial governments. OBP had found partnerships with provincial governments were very important in the context of supporting South African livestock. They had to ensure that provincial governments were able to access vaccines in the event of any outbreak. OBP had already been in talks with provincial governments in order to make sure that key vaccines were stockpiled. This led to the next step in the strategy.
OBP wanted to establish a vaccine bank in partnership with government because vaccines took a long time to produce and should therefore be stockpiled for use at a later stage. For example, the production time of the vaccine for Rift Valley Fever was 6 weeks.

The idea of a vaccine bank tied in with the next step which was to gain access to government funding for a capital expansion project so as to develop new products, which was part of the strategic plan. Mr Dyasi explained that in order to do so, money needed to be invested so that research into new products could be done. In the past, Ondersterpoort was viewed as a centre of excellence for animal vaccines. There was, therefore, a need for research funding to develop new products. In this way, perhaps OBP could one day again be viewed as a leader in animal vaccines. OBP would also like to improve their human capital development which meant developing the skills and qualifications of the staff through training and education.
Another area of concern was innovation and scientific expertise in South African diseases. There were certain diseases which were endemic to Africa and that they could not rely on European countries to supply vaccines. OBP would like to be globally recognised as a centre of excellence. They would like to be competitive worldwide thereby reversing the trend of scientists emigrating and instead making it attractive for scientists to now immigrate to South Africa.

The second last step in the strategic plan was to improve BEE product distribution partnerships. OBP could not afford its own cold storage distribution throughout the country and therefore had had to rely on partnerships with distribution companies.
The last step was to improve marketing expertise and regulatory compliance especially for the external and export market. In order for animal vaccines to be sold in another country, it had to comply with the regulations of that particular country. Regulatory compliance would lead to higher international sales.

Dr Dyasi said that there had been an outbreak of Rift Valley Fever in the Northern Cape in November 2009 which had spread to the Free State. When the outbreak was first established, ODP had recommended to the authorities that a ring vaccination be implemented. This entailed all the areas in and around the Northern Cape using the vaccine to prevent further spreading of the disease. Only the Western Cape had responded with the appropriate action of using the vaccine. The vaccine should be used as a preventative measure and not as a cure as it was very difficult to deal with this disease once the outbreak had already occurred. He said that the inactive Rift Valley Fever vaccine was the most common vaccine used and that in February and March 2010, OBP sold more of this vaccine than they usually would in a year. Another batch was due to be completed by Friday 19 March 2010. Mainly sheep had been lost in this outbreak.
OBP Chief Financial Officer, Mr A Nthso, explained the financial projection. Revenue of R94.9 million was projected for the year ending 31 March 2011. The projected revenue for this year ending the 31 March 2010 was R86.3 million. However, the current revenue for OBP was R89 million as of Friday 12 March 2010, meaning that the projected revenue for this year had been exceeded. The cost of sales projected for the financial year ending March 2011 was R40.7 million while the gross profit was R54.2 million. There would be an operating income of R1.3 million and projected expenses of R61 million. This resulted in a projected operating loss of R5.4 million. For the years ending 2012 an operating profit of R1.2 million was predicted and for 2013, R2.9 million.
There were various assumptions which were made in creating the budget and projections for the upcoming years. Revenue increases and inflation were considered as well as Eskom tariff increases. There would also need to be a salary increase among employees of between 4% and 8%. OBP also had to assign money to its company branding in order to increase visibility.

Presenting the balance sheet, ODP intended to end the financial year 2010/11 with Property, Plant and Equipment of R74.5 million and current assets of R99.2 million. Total assets were projected at R173.7 million and Equity and Liabilities at R165.1 million.

In conclusion, Mr Mitchell reminded the committee that the OBP plant was initially built in the 60s and that, because of its age, a large amount of money had been budgeted for future maintenance of the building. For this reason, amongst others, OBP was looking forward to receiving adequate funding.

Discussion
Mr S Abram (ANC), referred to the upgrading of the OBP facility upgrade, and asked what kind of investment OBP was looking to receive and whether the investment could come from private sources.
Mr Mitchel replied that it was very difficult to predict how much money would be needed for the facility upgrade but estimated that it would require R500 million from investors.

Dr Dyasi added that feasibility studies had been done which indicated that it would make more financial sense to build a new smaller factory.

Ms D Carter (COPE) wanted to know if the vaccine available on Friday 19 March 2010 would be sufficient to deal with the current Rift Valley Fever endemic. She asked what ODP could do to ensure that sufficient products were available to farmers. Ms Carter asked what the shelf life for the vaccines were.

Dr Dyasi replied that the batch being made available on 19 March 2010 would not be sufficient to deal with the current outbreak of Rift Valley Fever. The vaccine was, however, not being paid for and was being provided as a loan until the provincial governments would be able to pay. The shelf life or expiration dates differed from product to product and it was up to regulatory institutions to decide what the shelf lives of products were.

Ms M Pilusa-Mosoane (ANC) inquired about OBP’s relationship with provincial governments before the recent outbreak of Rift Valley Fever. She asked if Zimbabwe and Sudan were the only other countries to which vaccines were provided or if there were other African countries.

Mr Du Toit (DA) asked how OBP would proceed with their interaction with government bodies after the lack of response during the current Rift Valley Fever.

Mr L Bosman (DA) asked about the difficulties involved in maintaining relationships with provincial government. He asked whether OBP was experiencing an outflow of scientists and what their plans were to quell or reverse this. He also asked if government should be contributing to the funding required to maintain and upgrade the OBP factory.

On Rift Valley Fever and government response, Dr Dyasi said that the vaccines were meant as a preventative measure and often, especially considering the recent recession, farmers were not able to afford the OBP vaccines. OBP could only continue to educate and inform but it was up to the farmers to decide whether or not to vaccinate. OBP’s vaccines were available to all countries in the SADC region. There was a significant loss of capacity after 1994 when OBP saw many of its scientists emigrating to other countries. OBP believed that if they were to receive funding for research purposes that more scientists would view OBP as a centre of excellence and would choose to work there instead of looking outside of the country

Ms N Phaliso (ANC) asked if the improvement of emerging farmers was in process and if so, where it was taking place.

Mr Dyasi said that the improvement of emerging farmers could only be successful if OBP could work in conjunction with other role players. OBP had a programme where educational leaflets were created in indigenous languages in order to inform and educate these emerging farmers.

Ms Carter asked if there was a return policy on expired products.

Mr Dyasi replied that all expired products were destroyed once the expiration dates were reached.

Mr Du Toit asked if OBP non executive directors travelled extensively, due to the large travel allowance. He asked if the Rift Valley Fever vaccine could be used on humans or if it was limited to animals.

Mr Mitchel replied that certain members lived in different provinces and needed to travel back and forth between their homes and Pretoria where OBP was situated.

Mr Dyasi said that the Rift Valley vaccine was only meant for animals and would not be effective in human beings.

Mr Abram expressed his concern over the outbreak of Rift Valley Fever and asked Mr Dyasi what the implications of the outbreak would be. He had not heard anything about the outbreak in local media and asked why this was so.

Mr Dyasi acknowledged the danger involved with the outbreak of the Rift Valley Fever. The disease had become endemic and outbreaks of this disease usually followed heavy rains and was spread by mosquitoes. The disease was a trans-boundary disease meaning that it could be spread between animals and humans. There had been media coverage of the outbreak and more was planned in the near future. He would be appearing on television and radio in the very near future to discuss this outbreak and further educate the public.

Ms Mabuza reminded OBP of a document which they submitted to the City Of Tshwane regarding noise from the airport close to the OBP facility and asked how OBP was dealing with this and whether animals were indeed affected by the noise.

Mr Dyasi said that initial concerns about the noise affecting the animals were not founded. Those in charge of the construction of the airport had built the runway so that it faced away from the OBP complex and therefore noise from the airport was kept at a minimum.

The meeting was adjourned.