| Tue 25 Mar 2008, 12:14 | | YRK - The York Timber Organisation - Interim Results For The Twelve |
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YRK
YRK
YRK - The York Timber Organisation - Interim Results For The Twelve
Months Ended 31 December 2007
The York Timber Organisation Limited
(Registration number 1916/004890/06)
Share code: YRK
ISIN: ZAE000008108
("York" or "the Company" or "the Group")
INTERIM RESULTS FOR THE TWELVE MONTHS ENDED 31 DECEMBER 2007
Highlights
- Revenue up 136% to R929.1 million (2006: R393.9 million)
- EBITDA up 267% to R152.7 million (2006: R41.6 million)
- Log and lumber prices increased substantially as a result of South Africa`s
long-term timber shortage
- Forests Fair value adjustment to plantations of R239.9 million
- Fully diluted headline earnings per share up 20% to 323.4 cents (2006:
268.5 cents)
- Cash generated by operating activities grew 654% to R60.4 million (2006: R
8 million)
- Acquisition of Global Forest Products completed in July 2007, making York a
major integrated forestry and sawmilling company
BEE ownership increased to 27%.
York`s acquisition of Global Forest Products ("GFP") significantly changed
the size and nature of the company and resulted in significant increases to
revenue and EBITDA. York now comprises 60 000 hectares of plantations, 30 000
hectares of un-afforested land, eight sawmills, a plywood mill and a national
warehouse network.
The Group produced robust results for the twelve month period under review,
notwithstanding rapidly escalating raw material (saw log) prices and a modest
slowdown in the demand for timber finished products (lumber). The results
were a function of profitable milling operations, a large fair value
adjustment on plantations as a result of log price increases, offset by a
loss and write offs of R106 million on the forest fires in 2007.
Significant progress has been made in integrating York and GFP and ongoing
efforts will be directed towards improving efficiencies and unlocking
operational synergies.
Industry experts project that there will be a chronic shortage of logs in
South Africa over the next 30 years. Log prices increased significantly
during 2007 and are likely to continue increasing. Post the acquisition of
GFP, the company owns sufficient forestry resources to satisfy at least 65%
of its saw log requirements. Ownership of these resources has also enabled
York to benefit from the increases in log prices.
FINANCIAL RESULTS
Revenue for the twelve months to 31 December 2007 increased by 136% to R929.1
million. Sales volumes for the "old York mills" were at the same level as
those for the corresponding period with the balance of the increase due to
the acquisition of GFP.
EBITDA increased by 267% to R152.7 million with EBITDA margin increasing to
16.4% (2006: 10.6%). The improvement in margin was due to higher forestry
margins from the newly acquired GFP forests.
Plantations were re-valued by an amount of R239.9 million, based on the net
standing value method. The method values plantations based on current long
term Komatiland contract prices for saw logs over four years of age,
excluding transport costs, taking into account different diameters and
grades. Spot market prices are currently approximately 16% higher than the
long-term contract prices.
Severe plantation fires were experienced in 2007 and resulted in a
substantial reduction in the planted area of South Africa`s planted
timberlands. York`s uninsured losses arising from the fire amounted to R106
million and comprised fire damage to plantations, fire fighting costs and
costs of log stocks damaged by fire.
Fully diluted headline earnings per share increased 20% to 323.4 cents (2006:
268.5 cents) whilst ordinary earnings per share increased 18.2% to 335.4
cents (2006: 283.6 cents).
Gearing increased from 10.7% in December 2006 to 44.1% in December 2007 due
to the financing raised for the GFP acquisition. Robust operating cashflows
are expected to reduce the debt over the next five years. The interest rate
on 96% of the debt has been hedged until July 2011.
WORKING CAPITAL
Cash generated by operations amounted to R133.1 million (2006: R38.6
million). Working capital required over the period was R72.6 million (2006:
R30.6 million). Included in the working capital required is an amount of
R45.2 million directly attributable to the fires. This investment in working
capital should reverse over the next six months as recoveries are made from
the company`s insurers and the wet-decks stocks are processed and sold. Cash
from operating activities grew 654% to R60.4 million (2006: R8 million).
Working capital requirements from normal trade activities remained constant
at 35 days (2006: 35)
2007 FIRES: THE "PERFECT STORM"
The worst ever plantation fires in South Africa`s history were experienced in
2007 and cost York R106 million in damages to its plantation assets and other
related costs. The cost of the fire was charged to the income statement, but
was effectively offset by the gain in plantation values as a result of
increases in log prices.
The rebuild of the Driekop Sawmill will be completed by March 2009. The
damage to the mill and the loss of profits were both insured. Additional
preventative actions are currently being implemented based on the experience
gleaned from last year. These actions have greatly enhanced our ability to
fight or avert future fires of this magnitude. Steps taken include a
strengthening of fire prevention and detection measures, enhanced initial and
extended attack processes and refinements to salvage measures.
MARKET CONDITIONS
The slowdown in domestic construction has been felt in the lumber market. The
value of residential building plans passed for 2007 increased by 5.3%, (2006:
6.4%) while alterations and additions showed strong growth of 11% for the
same period (2006: 9.0%). Lumber output by South Africa`s sawmills declined
by 2.5% over 2007 as a result of reduced raw material supplies. This
partially compensated for the slowing market demand. Demand for plywood is
increasing as the construction of stadiums, bridges, hotels and power-
stations gains momentum.
While the demand for lumber may continue to slow down for some time, a
substantial correction would be needed for a domestic surplus to arise.
Government`s objectives of delivering affordable housing and the large
infrastructural projects already committed to, should be more than adequate
to compensate for any slowdown in the domestic construction market.
Industry analysts Crickmay and Associates have forecast annual lumber
shortages of between 20% and 50% until 2036. These shortages have been
compounded by the destruction of large plantation areas during 2007.
In the period under review, Komatiland Forests (Pty) Limited ("KLF")
continued to narrow the gap between long-term and spot log prices. On 1 April
2007, KLF raised long-term saw log prices by 20% and on 1 September 2007 by a
further 14%. Another significant price increase was announced in February
2008. The predicted long-term domestic shortage of lumber will mean that
South Africa will have to import a large portion of its future requirements
and local prices are therefore expected to continue to rise until import
parity is reached. Thereafter they should track exchange rates and
international lumber prices. Import parity on sawn timber is estimated to be
20% above current prices (at an exchange rate of R7.80 to the US dollar). At
April 2008, long-term prices will be 36% below spot prices. The closure of
the gap between long-term and spot prices is expected to result in import
parity being achieved. However, any further weakening of the rand will raise
import parity levels further and result in further timber price increases.
OPERATIONAL PERFORMANCE
Satisfactory progress has been made in unlocking additional operational
profits from the synergy opportunities arising from the GFP acquisition. The
erstwhile York sawmills have benefited from a more stable raw material supply
and the newly acquired GFP sawmills have shown improvements in recoveries and
product mixes.
The loss incurred by the Plywood business has been reduced from R30 million
in the previous 12 month period to R9.6 million in the 6 month period ending
December 2007, and notwithstanding large increases in log cost. Most
importantly the operation became profitable in November and the future
outlook for Plywood is positive as a result of high demand and ongoing
improvements within the plant as the recently upgraded equipment ramps up
performance.
Certain of York`s processing operations have standby generators which can be
used to avoid production losses from load shedding. At other plants, timber
residue fuelled turbines and steam engines are being de-mothballed and will
be started up during 2008. York is positioned to exceed the required 10%
saving in power consumption once the steam generators are commissioned and
certain sawmilling plants are decommissioned during 2008 in line with the
synergy plan.
Warehousing profits are down as a result of extra costs associated with the
expansion of York`s warehouse network in Durban and Cape Town and the limited
importation of timber below import parity levels in order to set up foreign
timber supply lines for the future.
STRATEGY
The acquisition of GFP has contributed to York`s vision of securing a
sustainable resource supply. The inherent value of the plantations in an
environment of log shortages, and likely increasing shortages, provides a
solid underpin to the business and as log prices rise and processing
efficiencies and synergies are unlocked, the outlook for the company should
be favourable.
York has the scope and capacity to acquire additional plantations to further
reduce its purchase of raw material from third parties and will continue to
seek such acquisitions. A medium-term goal will be complementary
international acquisitions giving the Group the ability to address
substantial shortfall of timber predicted for South Africa.
LIQUIDITY OF SHARES
During the 12 months under review, York completed a R350 million rights offer
to fund the acquisition of GFP and a R203 million issue of shares for cash to
finance working capital within the merged Group.
As a consequence, the number of ordinary shares in issue increased from 11
040 597 to 78 370 068 and the liquidity of the shares improved dramatically.
The number of shareholders increased from 331 in 2006 to 706 in 2007, with
51% of shareholdings classified as non-public (i.e. holding more than 10%)
and 49% classified as public.
BEE EQUITY HOLDING BOLSTERED
Together with two of its major shareholders, the Industrial Development
Corporation ("IDC") and Blackstar Investors Plc, York completed two black
economic empowerment transactions in the period. Excluding the IDC stake,
approximately 27% of the Company`s equity is now owned by previously
disadvantaged individuals.
PROSPECTS
The prospects for the last six months of the period are positive, and the
Directors of York expect the Company to maintain its current growth as
operational efficiencies emerge and log prices continue to rise.
For and on behalf of the board
Lance Cooper John Lehman
Chief Executive Officer Chief Financial Officer
Condensed consolidated interim income statement
For the twelve months ended 31 December 2007
Reviewed Audited
31 December 31 December
In thousands of Rands 2007 2006
Revenue 929 169 393 975
Cost of sales (379 167) (242 481)
Gross profit 550 002 151 494
Other operating income 5 375 927
Distribution expenses (78 142) (6 883)
Other expenses (324 526) (103 919)
EBITDA 152 709 41 619
Fair value adjustment 239 943 5 722
Write offs relating to the fire (106 403) -
Depreciation and amortisation (15 697) (5 068)
Profit from operations 270 552 42 273
Arbitration awards provision - 3 273
Profit before finance costs 270 552 45 546
Finance income 5 867 2 066
Finance expenses (85 310) (5 282)
Profit before tax 191 109 42 330
Income tax expense (56 142) (11 014)
Profit for the period 134 967 31 316
Attributable to:
Equity holders of the parent 134 967 31 316
Fully diluted earnings per share - cents 323.8 283.6
Basic earnings per share - cents 335.4 283.6
Condensed consolidated interim balance sheet
As at 31 December 2007
Reviewed Audited
31 December 31 December
In thousands of Rands 2007 2006
ASSETS
Total non-current assets 2 512 069 90 603
Property plant and equipment 365 474 65 801
Biological assets 1 514 024 18 000
Goodwill 624 618 -
Investment property 7 400 5 900
Other investments 553 902
Total current assets 604 967 138 564
Inventories 165 537 34 724
Trade and other receivables 249 792 59 909
Cash and cash equivalents 189 638 41 731
Non-current assets held for sale - 2 200
Total assets 3 117 036 229 167
EQUITY AND LIABILITIES
Issued capital 3 918 552
Share premium 1 002 740 3 061
Retained earnings 235 261 100 294
Total equity attributable to equity 1 241 919 103 907
holders of the parent
Total non-current liabilities 1 556 266 50 060
Interest bearing loans and borrowings 1 153 163 32 757
Provisions 53 985 7 889
Deferred tax liabilities 349 118 9 414
Total current liabilities 318 851 75 200
Interest bearing loans and borrowings 67 027 12 050
Trade and other payables 241 079 57 676
Income tax payable 10 745 5 474
Total equity and liabilities 3 117 036 229 167
Condensed consolidated interim cash flow statement
For the twelve months ended 31 December 2007
Reviewed Audited
31 December 31 December
In thousands of Rands 2007 2006
Cash flows from operating activities
Cash generated by operating activities 60 420 8 015
Finance income 5 867 891
Finance expense (85 310) (5 282)
Taxation paid (6 742) (1 475)
Income from investments - 362
Net cash (outflow)/inflow from operating (25 765) 2 511
activities
Cash flows from investing activities
Proceeds from sale of property, plant and 1 078 783
equipment
Additions to property, plant and (29 292) (2 787)
equipment
Additions to biological assets (20 690) -
Acquisition of subsidiaries, net of cash (1 698 786) 2 000
acquired
Sale of other investments - 10 069
Net cash (outflow)/inflow from investing (1 747 690) 10 065
activities
Cash flows from financing activities
Increase in borrowings 890 100 20 447
Proceeds from the issue of ordinary and 1 031 262 1
preference share
Net cash inflow from financing activities 1 921 362 20 448
Net increase in cash and cash equivalents 147 907 33 024
Cash and cash equivalents at beginning of 41 731 8 707
period
Cash and cash equivalents at end of 189 638 41 731
period
Condensed consolidated interim statement of changes in equity
For the twelve months ended 31 December 2007
Ordinary
Share Share Retained
In thousands of Rands capital premium earnings Total
Balance at 1 January
2006 552 3,060 68,834 72,446
Change in fair value of available-
for-sale financial assets 144 144
Net profit for the
period 31,316 31,316
Total recognised income
and expense for the 31,460 31,460
period
Share issue -
1 1
Balance at 31 December
2006 552 3,061 100,294 103,907
Net profit for the 134,967
period 134,967
Total recognised income 134,967
and expense for the 134,967
period
Write off of share -
issue costs (21,738) (21,738)
Buy-back of ordinary (28 073) -
shares (144) (28,217)
Issue of shares 1,049 -
3,510 490 1,053,000
Balance at 31 December 1,002, 1,241
2007 3,918 740 235,261 919
Segmental report
for the twelve months ended 31 December 2007
Business segments
(All amounts in thousands)
Sawn timber products Plywood
2007 2006 2007 2006
Revenue
External sales 561 161 230 657 92 295 -
Inter-segment sales 28 052 5 010 - -
Total revenue 589 213 235 667 92 295 -
Result
Segment result 59 205 35 359 (9 636) -
Unallocated expenses
Unallocated income
Profit from operations
Other information
Segment assets 486 839 162 261 76 511 -
Unallocated corporate
assets
Consolidated total assets
Segment liabilities 137 376 35 330 8 112 -
Unallocated corporate
liabilities
Non-current and current
loans and borrowings
Taxation and deferred
taxation
Consolidated total
liabilities
Additions to biological - - - -
assets
Capital expenditure 12 365 6 132 174 -
Depreciation 12 021 4 532 1 157 -
Impairment of tangible - 300 -
assets
Merchandising Forestry
2007 2006 2007 2006
Revenue
External sales 240 898 160 807 34 815 2 511
Inter-segment sales - - 225 810 -
Total revenue 240 898 160 807 260 625 2 511
Result
Segment result 6 427 8 106 225 606 3 668
Unallocated expenses
Unallocated income
Profit from operations
Other information
Segment assets 57 506 47 554 2 454 284
Unallocated corporate
assets
Consolidated total assets
Segment liabilities 48 938 25 907 113 190 -
Unallocated corporate
liabilities
Non-current and current
loans and borrowings
Taxation and deferred
taxation
Consolidated total
liabilities
Additions to biological - - 20 690 -
assets
Capital expenditure 16 864 16 737 -
Depreciation 757 236 1 762 -
Impairment of tangible - - -
assets
Elimination Consolidated
2007 2006 2007 2006
Revenue
External sales - - 929 169 393 975
Inter-segment sales (253 862) (5 010) - -
Total revenue (253 862) (5 010) 929 169 393 975
Result
Segment result - - 281 602 47 133
Unallocated expenses (11 783) (8 101)
Unallocated income 733 3 241
Profit from operations 270 552 42 273
Other information
Segment assets 3 075 140 209 815
Unallocated corporate 41 896 19 352
assets
Consolidated total assets 3 117 036 229 167
Segment liabilities 307 616 61 237
Unallocated corporate (12 552) 4 328
liabilities
Non-current and current 1 220 190 44 807
loans and borrowings
Taxation and deferred 359 863 14 888
taxation
Consolidated total 1 875 117 125 260
liabilities
Additions to biological 20 690 -
assets
Capital expenditure 29 292 6 996
Depreciation 15 697 4 768
Impairment of tangible - 300
assets
Note 4 - Business segments
Business segments: The Company is organised into four major operating
divisions - Sawn timber products, Plywood, Merchandising and Forestry. The
divisions are the basis on which the Company reports its primary segment
information. The Sawn timber products segment produces and sells a broad
range of structural and industrial sawn timber products. The Plywood division
manufactures and sells plywood products. The Merchandising division buys and
sells timber related products on a wholesale basis. The Forestry division
owns plantations on which it grows pine and eucalyptus trees that are felled
on a rotational basis and then sold.
Geographical segments: The Company regards its business as a single
geographical segment.
Segment assets and liabilities: Segment assets include all operating assets
used by a segment and consist principally of operating cash, receivables,
inventories and property, plant and equipment, net of allowances and
provisions. While most such assets can be directly attributed to individual
segments, the carrying amount of certain assets used jointly by two or more
segments is allocated to the segments on a reasonable basis. Segment
liabilities include all operating liabilities and consist principally of
accounts, wages and accrued liabilities. Segment assets and liabilities do
not include deferred income taxes and taxes currently payable.
Inter-segment transfers: Segment revenue, segment expenses and segment
results include transfers between business segments. Such transfers are
accounted for at competitive market prices charged to unaffiliated customers
for similar goods. Those transfers are eliminated in consolidation.
There were no changes in segment accounting policy although two new segments
were added.
Note to financial statements
For the twelve months ended 31 December 2007
Acquisition of Global Forest Products
Pre acquisition Fair Recognised
carrying value values on
R`000 amounts adjustments acquisition
Property, plant and 342 963 (56 677) 286 286
equipment
Biological assets 1 321 968 - 1 321 968
Inventories 106 658 - 106 658
Trade and other 121 593 - 121 593
receivables
Cash and cash 4 868 - 4 868
equivalents
Loans and borrowings (257 066) - (257 066)
Deferred tax liabilities (332 226) 36 651 (295 575)
Trade and other payables (155 053) (54 643) (209 696)
Net identifiable assets 1 153 705 (74 669) 1 079 036
and liabilities
Goodwill on acquisition 624 618
Consideration paid in 1 703 654
cash
Cash and cash (4 868)
equivalents purchased
Acquisition of 1 698 786
subsidiaries, net of
cash acquired
York purchased 100% of all the shares in and shareholders` claims against
Global Forest Products (Pty) Ltd and South African Plywood (Pty) Ltd during
the period under review for an amount inclusive of acquisition costs of R1
703 million. The acquisition was settled by cash raised from a rights offer
and debt facilities extended by Rand Merchant Bank Ltd.
Global Forests is an integrated forest products business, head quartered in
Sabie, South Africa that manages almost 87 000 ha of land, predominantly pine
plantations. The business also owns and operates timber processing
facilities which includes three sawmills and a plywood plant. Global Forests
is a significant supplier of solid wood products to the South African market
and actively exports to five other countries. All land holdings of Global
Forests are Forest Stewardship Council certified. Plantations are classified
into two areas, namely Escarpment situated in Sabie, Graskop and White River
areas and the Highveld. The Sawmills are also situated in these areas.
Goodwill representing the difference of fair values of assets purchased and
the acquisition price, is underpinned by the availability of own logs for the
Global and York mills, ensuring sustainability. The calculation of the
intangible assets arising as a result of the merger have not been finalized.
The detailed split of the goodwill and intangible assets will be separately
disclosed in the annual results for the period ending June 2008.
The acquiree`s revenue and profit since acquisition date (13 July) was R445,6
million and R173,1 million (EBIT) respectively. The financial effects, had
the acquisition for the business combination been effected on 1 January,
would have been R1 533 million for group revenue and R530.7 million for group
EBIT for the twelve months ended 31 December 2007.
Approval of the purchase was ratified by Shareholders on 12 July 2007
Fully Basic Basic and
Diluted Fully
Diluted
Reconciliation of headline 2007 2007 2006
earnings
Basic earnings per share - cents 323.8 335.4 283.6
Loss/(surplus) on disposal of (0.4) (0.4) (0.7)
fixed assets
Increase in fair value of - - (12.5)
investment properties
Revaluation of plant - (1.9)
Headline earnings per share 323.4 335.0 268.5
Increase to previous period 20.4% 24.7%
Note to reconciliation of headline earnings
In terms of Circular 8/2007 increases in fair values of listed investments
should no longer be added back in the calculation of headline earnings.
Headline earnings for 2006 are therefore restated by removing the add back of
the increases in fair value of 5.3 cents, from 263.2 cents to 268.5 cents.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL
STATEMENTS
The company is domiciled in South Africa. The condensed consolidated Group
interim financial results of the company for the 12 months ended 31 December
2007 comprise the company and its subsidiaries (together referred to as the
Group)
The condensed consolidated interim financial results were authorised for
issue on 25 March 2008.
(a) Basis of preparation
The condensed consolidated interim financial results of The York Timber
Organisation Limited have been prepared in accordance with International
Financial Reporting Standard (IFRS) IAS 34: Interim Financial Reporting. The
condensed interim financial results do not include all of the information
required for full annual financial statements, and should be read in
conjunction with the most recent consolidated financial statements of the
Group as at and for the year ended 31 December 2006.
(b) Basic and headline earnings per share
Basic and headline earnings per share are calculated by dividing the earnings
attributable to ordinary shareholders for the period of R134.9 million
(December 2006: R31.3 million) by the weighted average of 40,246,113 ordinary
shares in issue. (December 2006: 11,040,597 shares).
(c) Fully diluted headline earnings per ordinary share
The calculation of fully diluted headline earnings per ordinary share is
based on headline earnings attributable to ordinary shareholders of R137.7
million (December 2006: 29.1 million) and the weighted average of 42,526,807
fully diluted ordinary shares (December 2006: 11,040,597).
(d) Dividends
Preference dividends amounting to R0,957 million were paid in July 2007.
Unpaid preference dividends amounting to R1.765 million were accrued for at
31 December 2007 and are due for payment in July 2008. The preference shares
issued are convertible at the option of the holder, and are therefore
classified as a liability, in accordance with the classification requirements
of IAS 32. Accordingly the preference dividends are included in finance
expense.
(e) Review by external auditors
KPMG Inc., the company`s independent auditor, has issued an unmodified review
report on the condensed consolidated interim financial results. Their review
report is available for inspection at the company`s registered office.
(f) Significant accounting policies
Except for the adoption of IFRS 2 : Share based payments, the accounting
policies applied by the Group in these condensed consolidated interim
financial results are the same as those applied by the Group in the most
recent annual financial statements as at and for the year ended 31 December
2006.
(g) Year-end Change
The companies` year-end has been changed from December to June to fall in
line with the GFP financial year end. The current results are based on a 12
month period. The next results reported in June 2008 will be for an 18 month
period.
(h) Contingent Income
The Driekop fire damage claim is well advanced and should be settled within
the next 3 months. The quantum of the materials damage claim is R110
million, the loss of profits is R75 million and R8 million for additional
costs of workings. Income of R13.2 million of the claim is included in these
results.
Executive Directors: Lance Cooper (CEO), John Lehman (CFO), Gay Mokoena
(Corporate Services)
Non-Executive Directors: Jim Myers (Chairman, USA), Andrew Bonamour, Paul
Botha, Dick Claunch, Shakeel Meer, Tlhopheho Modise, Simon Murray, Gavin
Tipper.
Company Secretary: Francois Dekker
Registered Office:
York Corporate Offices, 3 Main Road, Sabie, 1260
Tel 013 764 9200 Fax 013 764 3245 PO Box 1191, Sabie, 1260
Transfer Secretaries:
Computershare Investor Services 2004 (Proprietary) Limited,
70 Marshall Street, Johannesburg 200
PO Box 61051, Marshalltown 2107
www.yorkcor.co.za
Date: 25/03/2008 12:14:02 Produced by the JSE SENS Department.
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