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THE YORK TIMBER ORGANISATION LIMITED
(INCORPORATED IN THE REPUBLIC OF SOUTH AFRICA)
(REGISTRATION NUMBER 1916/004890/06)
PRELIMINARY REPORT
FOR THE YEAR ENDED 31 DECEMBER 1999
ABRIDGED GROUP INCOME STATEMENT
31 DECEMBER
1999 1998
R000 R000
OPERATING PROFIT/(LOSS) BEFORE
FINANCE COST, DEPRECIATION
AND TAXATION 1 848 6 462
FINANCE COST (2 361) (2 140)
DEPRECIATION (2 551) (2 712)
TAXATION (101) (65)
(LOSS)/PROFIT AFTER TAXATION (3 165) 1 545
MINORITY INTERESTS (372) (373)
(LOSS)/PROFIT ATTRIBUTABLE TO
ORDINARY SHAREHOLDERS (3 537) 1 172
HEADLINE (LOSS)/PROFIT PER
ORDINARY SHARE (CENTS) (32) 11
NUMBER OF ORDINARY SHARES
IN ISSUE (000'S) 11 040 11 040
ABRIDGED GROUP BALANCE SHEET
31 DECEMBER
1999 1998
R000 R000
ASSETS
NON-CURRENT ASSETS
PROPERTY, PLANT, EQUIPMENT,
VEHICLES AND INTANGIBLES 34 452 36 240
LONG-TERM RECEIVABLES AND INVESTMENTS 8 527 5 656
42 979 41 896
CURRENT ASSETS 27 078 25 952
TOTAL ASSETS 70 057 67 848
EQUITY AND LIABILITIES
ISSUED CAPITAL 3 612 3 612
NON-DISTRIBUTABLE RESERVES 17 167 18 078
DISTRIBUTABLE RESERVES 9 325 11 951
ORDINARY SHAREHOLDERS' FUNDS 30 104 33 641
OUTSIDE SHAREHOLDERS' INTEREST
IN SUBSIDIARY 4 000 3 000
TOTAL SHAREHOLDERS' FUNDS 34 104 36 641
NON-CURRENT LIABILITIES
INTEREST BEARING BORROWINGS 10 683 14 311
CURRENT LIABILITIES 25 270 16 896
TOTAL EQUITY AND LIABILITIES 70 057 67 848
STATEMENT OF CHANGES IN SHAREHOLDERS' FUNDS
31 DECEMBER
1999 1998
R000 R000
SHAREHOLDERS' FUNDS AT
BEGINNING OF YEAR 33 641 32 466
(LOSS)/PROFIT FOR THE YEAR (3 537) 1 172
ADJUSTMENT TO BONUS SHARE AWARD - 3
SHAREHOLDERS' FUNDS AT
31 DECEMBER 1999 30 104 33 641
NET ASSET VALUE PER SHARE:
308,9 CENTS (1998: 331,9 CENTS)
COMMENTARY
NOTHING IS MORE IMPORTANT TO A SAWMILLER THAN HIS LOG SUPPLY. HE MUST BE ABLE
TO RELY UPON IT. BEST IS A LOG SUPPLY PROMISED BY THE GOVERNMENT, FOR THAT
SURELY CAN BE REGARDED AS GILT-EDGED - OR CAN IT'
IN THE 1960S AND '70S, THE GOVERNMENT INDUCED QUALIFIED SAWMILLERS TO COMPETE
FOR LONG-TERM SAWLOG CONTRACTS. THESE CONTRACTS EXPLICITLY PROMISED SECURITY OF
TENURE. THE AIM WAS TO STIMULATE ECONOMIC GROWTH IN RURAL AREAS, ESPECIALLY JOB
CREATION. MOST SAWMILLS IN THE FORMAL SECTOR, INCLUDING YORKCOR'S, WERE
ESTABLISHED ON THE STRENGTH OF SUCH LONG-TERM LOG SUPPLY CONTRACTS.
"EVERGREEN" CONTRACTS
IN 1993 SAFCOL WAS CREATED TO CONTROL THE STATE'S COMMERCIAL FORESTRY ASSETS.
SOON THEREAFTER A PRIVATISATION PROGRAMME WAS LAUNCHED. SAWMILLERS WERE PUT
UNDER PRESSURE TO RELINQUISH THEIR ENDURING SAWLOG RIGHTS AND TO AGREE TO THREE
YEARS' NOTICE OF TERMINATION. CLEARLY THIS WOULD BOOST THE VALUE OF THE
PLANTATIONS SOON TO FALL UNDER THE HAMMER IN THE PRIVATISATION PROCESS. NO
COMPENSATION, HOWEVER, WAS OFFERED TO THE SAWMILLERS FOR THEIR SACRIFICE, YET
ALMOST ALL OF OUR COMPETITORS YIELDED TO SUCH A ONE-SIDED ARRANGEMENT. BOLD
THOUGH IT MAY HAVE BEEN TO STAND UP TO A DOMINANT SUPPLIER, YORKCOR REFUSED TO
SURRENDER ITS EVERGREEN CONTRACTS. AT STAKE WAS SIGNIFICANT SHAREHOLDER VALUE.
IN CONSEQUENCE, CONFLICT WITH SAFCOL BECAME UNAVOIDABLE. WE RELIED UPON THE
RULE OF LAW.
SUCCESSFUL LITIGATION
YORKCOR HAS SCORED A NUMBER OF IMPORTANT SUCCESSES IN THE DEFENCE OF ITS
EVERGREEN ENTITLEMENTS. IN 1994, THE GOVERNMENT INSTITUTED ACTION TO HAVE
YORKCOR'S CONTRACT IN RESPECT OF THREE FORESTS NEAR BUSHBUCKRIDGE DECLARED
VOID. THE HIGH COURT, HOWEVER, REJECTED THE CLAIM AND AWARDED YORKCOR
SUBSTANTIAL DAMAGES FOR DEFAULTING ON THE SUPPLY QUOTA. THE GOVERNMENT IS
TAKING THAT JUDGMENT TO THE SUPREME COURT OF APPEAL WHERE IT IS EXPECTED TO BE
HEARD THIS YEAR. THE JUDGMENT DEBT IN YORKCOR'S FAVOUR, INCLUDING INTEREST AND
COSTS, NOW AMOUNTS TO ABOUT R5,0 MILLION. ANOTHER SIGNIFICANT SUCCESS WAS
GAINED IN 1996, WHEN SAFCOL CONSENTED TO AN ORDER OF COURT WHICH ENSURED THAT
THE GROUP'S RIGHT TO INDEFINITE TENURE WOULD BE RESPECTED. IN THE TEETH OF THIS
COURT ORDER, SAFCOL HAS INSTITUTED A FRESH ACTION IN ANOTHER EFFORT TO BRING TO
AN END TWO OF YORKCOR'S
LONG-TERM SAWLOG CONTRACTS NEAR WHITE RIVER. UNDERSTANDABLY, THERE IS PRESSURE
UPON SAFCOL TO ENSURE THAT OUR SUPPLY ENTITLEMENTS DO NOT GIVE US AN ADVANTAGE
OVER OUR RIVALS. WE, ON THE OTHER HAND, HAVE A DUTY TO STAKEHOLDERS, NOT TO
SURRENDER SHAREHOLDER VALUE - CERTAINLY, NOT WITHOUT FAIR AND REASONABLE
COMPENSATION. OUR LEGAL ADVISERS ARE CAUTIOUSLY OPTIMISTIC ABOUT THIS
LITIGATION.
UNSUCCESSFUL ARBITRATION
IN 1995, SAFCOL DEMANDED INCREASED LOG PRICES TO EQUATE TO THOSE THAT ITS OTHER
CUSTOMERS HAD AGREED. WE DID NOT REGARD THEIR CONSENT TO THE HIGHER PRICES AS
HAVING BEEN EXTRACTED AT ARM'S LENGTH. HERE WAS A DOMINANT SUPPLIER WHILST
THESE CUSTOMERS WERE UNDER THE SHADOW OF THREE YEARS' NOTICE. WE ARGUED FOR
EVEN-HANDED NEGOTIATIONS AND A PRICE THAT WAS FAIR AND REASONABLE. WE AGREED TO
REFER THE PRICE DISPUTE TO ARBITRATION. THE ARBITRATOR GAVE HIS DECISION ON
31 MARCH 2000. SAVE IN CERTAIN MINOR RESPECTS, HIS AWARD FAVOURS SAFCOL. THE
PUBLICATION OF THIS PRELIMINARY REPORT HAS BEEN HELD OVER UNTIL THE
ARBITRATOR'S AWARD HAS BECOME AVAILABLE AND ITS IMPLICATIONS DIGESTED. THE
ACCOMPANYING FINANCIAL FIGURES PROVIDES RETROSPECTIVELY FOR ESTIMATED LOG PRICE
INCREASES AWARDED BY THE ARBITRATOR.
PRIVATISATION AND MADIBA FORESTRY CONSORTIUM
IN A STRATEGIC INITIATIVE LED BY MATHEWS PHOSA AND NTHATO MOTLANA JNR., DURING
THE YEAR UNDER REVIEW YORKCOR PARTICIPATED IN THE MADIBA FORESTRY CONSORTIUM
WHICH INCLUDED A GLOBAL FOREIGN FOREST PRODUCTS COMPANY AND MADIBA MILLS. AFTER
COMPREHENSIVE PREPARATION, OUR CONSORTIUM SUBMITTED A BID FOR THE MPUMALANGA
PACKAGE IN THE SAFCOL PRIVATISATION OFFERING. THE GOVERNMENT HAS NOT ACCEPTED
ANY OF THE BIDS FOR THIS PACKAGE WHICH INCLUDES OVER 120 000 HECTARES OF
SOFTWOOD FOREST, BUT IT HAS INVITED FRESH EXPRESSIONS OF INTEREST. THE
ACCREDITATION OF OUR CONSORTIUM HAS AGAIN BEEN ACCEPTED, BUT THE GOVERNMENT HAS
OVERRUN ITS INDICATED TIMETABLE. IN FACT, IT APPEARS THAT THE WHOLE IDEA OF
PRIVATISING THIS MAJOR ASSET MAY BE SHELVED. THE ACCOMPANYING FINANCIAL
STATEMENTS HAVE BEEN CHARGED WITH THE CONSIDERABLE COSTS OF PREPARING AND
SUBMITTING A FIRM BID FOR THE MPUMALANGA PACKAGE LAST YEAR.
OPERATIONS IN 1999
THE SAWMILLING INDUSTRY IS UNDERGOING MASSIVE CHANGE. A SHADOW OF UNCERTAINTY
CONCERNING RESOURCE ENTITLEMENTS HOVERS OVER THE TIMBER MARKETS. SALES OF
LUMBER IN THE FORMAL SECTOR IN 1999 IMPROVED BY ONLY 1,78% OVER THE SLUMP
FIGURES OF 1998. FORMAL SECTOR SALES FOR THE INDUSTRY REACHED ONLY 1 151 448 M3
COMPARED WITH 1 131 346 M3 IN 1998, 6,5% DOWN ON THE PREVIOUS YEAR. LITTLE
WONDER THAT COMPETITION WAS CUTTHROAT WITH SAWMILLERS' PRICES UNDER PRESSURE.
IN THE FACE OF THESE CHALLENGING CONDITIONS, THE GROUP WAS ABLE TO IMPROVE
REVENUE BY NEARLY 10,0% FROM R57 252 000 TO R62 440 000. OUR SELLING PRICES, BY
AND LARGE, WERE BETTER THAN INDUSTRY AVERAGES, GRADE FOR GRADE. THE INTENSIFIED
MARKETING EFFORT AND DILIGENT COST CONTROL ENABLED THE GROUP TO POST A NET
PROFIT OF R1 157 000, AMOUNTING TO EARNINGS OF 10,5 CENTS PER SHARE FOR THE
FIRST HALF OF 1999. SINCE THEN SUBSTANTIAL ABNORMAL COSTS CHARGED TO THE
GROUP'S INCOME STATEMENT HAVE RESULTED IN A LOSS FOR THE YEAR OF R3 537 000, OR
32 CENTS PER SHARE. THESE INCLUDED SUBSTANTIAL COSTS RELATING TO THE BID FOR
SAFCOL'S FORESTRY ASSETS, LEGAL EXPENSES FOR COURT AND ARBITRATION PROCEEDINGS
AND SUPPORT FOR MADIBA MILLS, AN EMPOWERMENT OPERATION AND STRATEGIC ALLY.
OUTLOOK
ON THE WHOLE, YORKCOR'S SAWMILLING OPERATIONS WERE MUCH IMPROVED IN THE FIRST
QUARTER OF THE CURRENT YEAR, DESPITE THE UNPRECEDENTED RAINS WHICH SERIOUSLY
DISRUPTED PRODUCTION AND SALES FOR SEVERAL WEEKS AT OUR YORK LUMBER MILL.
ACTION HAS BEEN TAKEN TO BOOST OUR MARKETING EFFECTIVENESS AND CONTAIN
OPERATING COSTS. WE HAVE, THEREFORE, BUDGETED FOR A RETURN TO PROFITABILITY IN
2000.
YEAR 2000
THE COMPANY DID NOT EXPERIENCE ANY YEAR 2000 PROBLEMS.
BY ORDER OF THE BOARD
SOLLY TUCKER JOHN BONE
CHAIRMAN DIRECTOR
6 APRIL 2000
REPORT OF THE INDEPENDENT AUDITORS
THE FINANCIAL INFORMATION SET OUT IN THIS REPORT HAS BEEN REVIEWED, BUT NOT
AUDITED, BY THE GROUP'S AUDITORS KPMG INC. THEIR UNQUALIFIED REVIEW REPORT IS
AVAILABLE FOR INSPECTION AT THE COMPANY'S REGISTERED OFFICE.
REGISTERED OFFICE: TRANSFER SECRETARIES:
5TH FLOOR, YORKCOR PARK COMPUTERSHARE
86 WATERMEYER STREET, SERVICES LIMITED
VAL DE GRACE, PRETORIA 0184 41 FOX STREET
PO BOX 380, PRETORIA 0001 JOHANNESBURG 2001
TEL: (012) 804 9730 PO BOX 61051
MARSHALLTOWN 2107
DIRECTORS:
*S TUCKER, *ISD TUCKER, JLWC BONE, *AC DE VILLIERS, DR J KOPP, S MOTLANA
*EXECUTIVE DIRECTORS
ABNORMAL COSTS IMPACT ON YORKCOR'S RESULTS
THE YORK TIMBER ORGANISATION (YORKCOR) HAS ANNOUNCED ITS RESULTS FOR THE YEAR
ENDED DECEMBER 1999, REPORTING A LOSS PER SHARE OF 32 CENTS, COMPARED TO A
PROFIT OF 11 CENTS A SHARE FOR THE COMPARATIVE PERIOD LAST YEAR.
"A SHADOW OF UNCERTAINTY CONCERNING RESOURCE ENTITLEMENTS HOVERS OVER THE
TIMBER MARKET," SAYS CHAIRMAN SOLLY TUCKER. FORMAL SECTOR LUMBER SALES IN 1998
HAD DROPPED BY 6.6%. THE IMPROVEMENT OF 1.78% IN SALES WAS NOT NEARLY ENOUGH TO
LIST THE INDUSTRY OUT OF ITS SLUMP OF 1998. YORKCOR OUTPERFORMED INDUSTRY
AVERAGES BY IMPROVING REVENUE BY 10% TO R62,4 MILLION, COMPARED TO
R57.3-MILLION THE PREVIOUS YEAR, AND BY ACHIEVING BETTER SELLING PRICES, BY AND
LARGE, THAN INDUSTRY AVERAGES.
FOR THE FIRST HALF OF 1999, THE GROUP POSTED EARNINGS OF 10,5 CENTS PER SHARE,
OVERTAKING THE RESULT OF 10,0 CENTS PER SHARE FOR THE WHOLE OF THE PREVIOUS
YEAR.
TUCKER SAYS: "THE IMPROVED FIRST HALF EARNINGS WERE THE RESULT OF AN
INTENSIFIED MARKETING EFFORT AND DILIGENT COST CONTROL IN A TOUGH MARKET. BUT
SINCE THEN SUBSTANTIAL ABNORMAL COSTS FROM LEGAL EXPENSES, THE BID FOR SAFCOL'S
MPUMALANGA FORESTS AND SUPPORT FOR OUR EMPOWERMENT PARTNER IN THE BID
CONSORTIUM, HAVE BEEN CHARGED TO THE GROUP'S INCOME STATEMENT."
THE CHALLENGING SITUATION IN THE LUMBER MILLING INDUSTRY IMPACTED UPON THE
YEAR'S RESULTS. "THE SAWMILLING INDUSTRY IS UNDERGOING MASSIVE CHANGE," SAYS
TUCKER. YORKCOR'S STRATEGY TO MEET THE CHALLENGES EFFECTIVELY, ATTRACTED
SUBSTANTIAL ABNORMAL COSTS, THE NET EFFECT OF WHICH WAS TO DROP THE COMPANY
INTO A LOSS FOR THE YEAR OF R3,5-MILLION.
YORKCOR HAS SCORED A NUMBER OF IMPORTANT SUCCESSES IN DEFENCE OF ITS EVERGREEN
CONTRACTS WHICH GUARANTEE SECURITY OF TENURE FOR ITS SAWLOG SUPPLY. THE
GOVERNMENT HAS SOUGHT TO REDUCE THE TENURE ON THE BASIS OF THREE YEARS' NOTICE
OF TERMINATION. THE ENDURING ADVANTAGE NEVERTHELESS ATTRACTED SUBSTANTIAL
LEGAL COSTS.
IN A SEPARATE PRICE DISPUTE WITH SAFCOL OVER INCREASED LOG PRICES WHICH WAS
REFERRED TO ARBITRATION, THE ARBITRATOR'S AWARD HAS FAVOURED SAFCOL, SAVE IN
CERTAIN MINOR RESPECTS.
EXPENSES WERE ALSO INCURRED THROUGH YORKCOR'S PARTICIPATION IN THE MADIBA
FORESTRY CONSORTIUM, AND IN SUPPORTING ITS EMPOWERMENT PARTNER AND STRATEGIC
ALLY. THE GOVERNMENT DID NOT ACCEPT ANY OF THE BIDS FOR THE MPUMALANGA STATE
ASSETS, BUT HAS INVITED THE MADIBA CONSORTIUM TO MAKE A FRESH BID IN 2000.
HOWEVER, TUCKER SAYS THAT THERE ARE INDICATIONS THAT THE PRIVATISATION OF THE
MPUMALANGA FORESTS MAY BE SHELVED.
COMMENTING ON THE CURRENT YEAR, TUCKER SAYS: "ON THE WHOLE, YORKCOR'S FIRST
QUARTER PERFORMANCE DURING 2000 SHOWS SUBSTANTIAL IMPROVEMENT, NOTWITHSTANDING
THE UNPRECEDENTED RAINS WHICH SERIOUSLY DISRUPTED PRODUCTION AND SALES FOR
SEVERAL WEEKS AT OUR YORK LUMBER MILL. ACTION PLANS HAVE BEEN PUT IN PLACE TO
BOOST SALES BY IMPROVED MARKETING EFFECTIVENESS AND FURTHER TRIMMING OPERATING
COSTS.
"WITH THE ABNORMAL EXPENSES HAVING BEEN ABSORBED IN 1999, THE DECKS ARE CLEARED
FOR MANAGEMENT TO FOCUS ON THE GROUP'S CORE ACTIVITIES AND WE EXPECT A RETURN
TO PROFITABILITY FOR 2000," HE SAYS.
ENDS
ISSUED FOR : YORKCOR LIMITED
CONTACT : SOLLY TUCKER (012) 804 9730 / 083 456 9900
FAX NO: : (012) 804 8611
E-MAIL : SOL@YORKCOR.CO.ZA
ISSUED BY : TISH STEWART PR ASSOCIATES
CONTACT : TISH STEWART (011) 325 4195 / 082 443 6399
FAX NO : (011) 325-4199
E-MAIL : TISH@TSPR.CO.ZA
DATE : 06 APRIL 2000
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