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YORK TIMBER HOLDINGS LIMITED - Reviewed preliminary condensed consolidated financial results for the year ended 30 June 2012

Release Date: 25/09/2012 08:20
Code(s): YRK     PDF:  
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Reviewed preliminary condensed consolidated financial results for the year ended 30 June 2012

York Timber Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number:  1916/004890/06)
JSE Share code: YRK
ISIN: ZAE000133450
("York" or "the Company" or "the Group")
   
REVIEWED PRELIMINARY CONDENSED CONSOLIDATED FINANCIAL RESULTS
for the year ended 30 June 2012
   
SALIENT FEATURES
------------------------------------
* Revenue up 16% to R1.1bn 
* Operating profit margin at 15%
* Biological asset fair value adjustment of R134m (F2011: R15m)
* Profitable utilisation of externally purchased logs in processing operations
* Profit after tax up 260% to R138m
* EPS up 250% to 42c
   
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OPERATING REVIEW
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OVERVIEW

York produced strong results for the year, benefitting from operational efficiencies and continuing to build on the prior years results. In addition, the Groups debt was renegotiated during the year resulting in a more robust balance sheet and a significantly greater opportunity for York to explore future growth opportunities.

OPERATING ENVIRONMENT

York operates in a highly competitive market characterised by increasing international competition. Local suppliers struggle to meet industry demand and saw log prices remain high due to limited supply. These factors have pressurised solid wood processors operating margins. York, however, successfully realigned its processing operations to operate at profitable margins and expects to extract efficiencies from its operations.
 
Lumber and plywood volume sales increased as the housing shortage and the improvement of infrastructure is being addressed in Southern Africa. The Lumber Price Index increased by 3% during the financial year. South Africa is currently a net importer of both lumber and plywood products. 

OPERATIONAL REVIEW

Yorks forestry and processing operations are highly dependent on technology to ensure resource optimisation and to uphold competitiveness at an international level. In this regard, the company consistently benchmarks the following aspects of its operations against local and international peers:  production, product recovery ratios, cost per unit of products, overhead and support structure ratios, technology utilisation and research & development. On a production cost and volume recovery basis, York compares favourably against European, North America and Australasian counterparts but lags slightly behind South America processors. Yorks future expansion programme will address this shortcoming. 

FORESTRY

The forestry unit harvests and delivers in excess of 20,000 logs per day to the processing facility. During FY2012, the development of an in house log tracking system began which will enhance supply chain management. This system will be integrated with the Groups information systems, and monitor the integrity of and increase visibility to the downstream processes. York has developed superior plant material through its breeding programme, which has a research history of more than 50 years. We anticipate that on-going developments in this programme will ensure that our plantations will be more tolerant to pest and diseases and resilient in the face of climate change.

PROCESSING

The use of technology in the processing unit has optimised value through log merchandising, where the most effective way of cutting different types and lengths of logs is determined electronically. This is further enhanced by Yorks ability to saw patterns and combinations of products on the basis of market demand. This provides flexibility to assign the correct resources rapidly and to deliver throughput, ensuring profitability.

FINANCIAL REVIEW

FINANCIAL PERFORMANCE

Despite the tough operating environment, York maintained its focus on increasing market share, resulting in lumber product volumes increasing by 14% whilst plywood volumes increased by 8%. Total revenue increased by 16% to R1.1bn in FY2012. The success of the cost and resource optimisation strategy was reflected in an 8% increase in annual costs compared with the 13% increase in products brought to market. This resulted in a healthy operating profit margin of 15% for the year (FY2011: 16%).

York successfully negotiated a refinancing of its R600m debt facility with the Land and Agricultural Bank of South Africa (Land Bank), which has already and will continue to contribute to future cost savings. This, combined with a lower hedge interest expense and higher interest income, resulted in net finance costs of R81m, 27% lower than the prior year.

The refinancing provides York with the flexibility to increase its saw log intake from external plantations. This is necessary to manage optimal returns for shareholders. The optimal balance between harvesting owned plantations and purchasing from external sources is a critical strategic management objective in an environment where the existing log supply constraints are expected to worsen.

The Groups operating profit of R166m (FY2011: R162m) was bolstered by a fair value adjustment to the biological asset of R134m in FY2012 (FY2011: R15m). This was driven mainly by net growth of circa 450,000 cubic metres in the York plantation as a substantial quantity of saw logs was sourced from external plantations, and a net increase in the selling prices of logs.

Profit after tax of R138m (2011: R38m) resulted in a 250% increase in EPS.

FINANCIAL POSITION AND CASH FLOW

The improved profitability resulted in a 49.6% increase in net cash from operations to R146m in FY2012. Following loan repayments and after capital expenditure of R36.3m, York reported an increase in cash holdings to R144.6m.

The Company restructured its debt during the year, initially through a relaxation of covenants, at an additional interest margin of 0.7%, to allow it to expand its external saw log purchase strategy.  The debt facility was subsequently refinanced with the Land and Agricultural Bank creating flexibility for future growth.

OUTLOOK AND PROSPECTS

Yorks future prospects are positive as we anticipate that continued industry margin pressure will result in a consolidation of the industry, in which York is well positioned to participate.

FY2013 will see us increase our focus on contractor accountability and responsibility as we align all our contractor standards to acceptable benchmarks.

Our focus for the next financial year will be to continue to deliver on the seven pillars around which the restructuring was built, namely: cost optimisation, resource optimisation, maximisation of cash flow, sustained improvement of biological assets, maintaining market share, investment in human capital and implementation of the strategic growth plan for the business.

OTHER
The condensed group financial statements of York Timber Holdings Limited for the year ended 30 June 2012 have been reviewed by the companys auditor, KPMG Inc. In their review report, dated 25 September 2012, which is available for inspection at the Companys Registered Office, KPMG Inc states that their review was conducted in accordance with the International Standard on Review Engagements 2410, Review of Interim Information Performed by the Independent Auditor of the Entity, that applies to a review of group preliminary financial information, and have expressed an unmodified conclusion on the condensed group preliminary financial statements.



Sabie, Mpumalanga
25 September 2012
Sponsor
One Capital
   
   

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REVIEWED PRELIMINARY CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 30 June 2012
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PRELIMINARY CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
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                                                    2012        2011
                                                Reviewed    Reviewed
                                                   R'000       R'000
ASSETS 
NON-CURRENT ASSETS
Biological assets (note 4)                     1 782 061   1 616 363   
Investment property                               26 088      24 940      
Property, plant and equipment                    404 609     404 665     
Goodwill                                         565 442     565 442     
Intangible assets                                  3 205       3 275       
Other financial assets                             1 311       1 004       
TOTAL NON-CURRENT ASSETS                       2 782 716   2 615 689   
   
CURRENT ASSETS
Biological assets (note 4)                       288 161     320 035            
Inventories                                      151 322     148 807     
Trade and other receivables                      137 080     124 595     
Cash and cash equivalents                        144 570     103 484      
Current tax receivable                                 -       3 524
TOTAL CURRENT ASSETS                             721 133     700 445     
TOTAL ASSETS                                   3 503 849   3 316 134   
   
EQUITY AND LIABILITIES
EQUITY
Share capital (note 5)                         1 521 914   1 521 914
Reserves                                             408      (5 826)
Retained income                                  647 998     510 180     
TOTAL EQUITY                                   2 170 320   2 026 268   
   
LIABILITIES
NON-CURRENT LIABILITIES
Cash-settled share-based payments                 16 054       6 497       
Deferred tax                                     519 183     432 451
Loans and borrowings                             529 550     539 657     
Provisions                                        46 575      54 643      
Retirement benefit obligations                    22 179      21 454      
TOTAL NON-CURRENT LIABILITIES                  1 133 541   1 054 702   
   
CURRENT LIABILITIES
Current tax payable                                    7         369
Cash-settled share-based payments                  2 100           -
Loans and borrowings                              28 850      74 568
Provisions                                             -         285
Trade and other payables                         169 031     159 942     
TOTAL CURRENT LIABILITIES                        199 988     235 164     
TOTAL LIABILITIES                              1 333 529   1 289 866   
TOTAL EQUITY AND LIABILITIES                   3 503 849   3 316 134   
   

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PRELIMINARY CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
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                                                    2012        2011
                                                Reviewed    Reviewed
                                                   R'000       R'000
Revenue                                        1 112 843     959 143
Cost of sales                                   (691 324)   (538 180)   
Gross profit                                     421 519     420 963     
Other operating income                            28 412       5 802      
Selling, general and administration expenses    (283 863)   (264 868)   
OPERATING PROFIT                                 166 068     161 897      
Loss on non-current assets held for sale               -     (13 362)
Fair value adjustments                           130 843      14 924    
Investment income                                  6 484       2 217       
Finance costs excluding hedge interest expense   (79 356)    (78 866)
Hedge interest expense paid                       (1 997)    (21 504)
Hedge interest expense (ineffective portion)      (5 955)    (11 992)
Profit before taxation                           216 087      53 314      
Taxation                                         (78 269)    (14 997)
PROFIT FOR THE YEAR                              137 818      38 317
   
Other comprehensive income/(loss):
Available-for-sale
 financial asset adjustments                         308        (341)
Effects of cash flow hedges                        8 290      28 756
Taxation related to components of
 other comprehensive income                       (2 364)     (8 005)
Other comprehensive income for the
 year net of taxation                              6 234      20 410
   
TOTAL COMPREHENSIVE INCOME                       144 052      58 727
   
EARNINGS PER SHARE
Basic and diluted earnings per share
 (cents) (note 7)                                      42         12 
HEADLINE EARNINGS PER SHARE                                
Basic and diluted headline earnings
 per share (cents) (note 8)                            42         16
   

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PRELIMINARY CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
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                           Share       Share    Retained      
                         capital     premium      income    
                           R'000       R'000       R'000       
BALANCE AT 1 JULY 2010
(Reviewed)                16 562   1 505 352     471 863
Profit for the year            -           -      38 317
BALANCE AT 30 JUNE 2011
(Reviewed)                16 562   1 505 352     510 180
Profit for the year            -           -     137 818
BALANCE AT 30 JUNE 2012
(Reviewed)                16 562   1 505 352     647 998
   
   
                                  Fair value
                                  adjustment
                                     assets-    
                                   available      
                         Hedging   -for-sale     TOTAL
                         Reserve     reserve     EQUITY
                           R'000       R'000      R'000
BALANCE AT 1 JULY 2010
(Reviewed)               (26 673)        437   1 967 541
Profit for the year            -           -      38 317
Other comprehensive income
Change in fair value of
 cash flow hedge,
 net of tax               20 704           -      20 704
Change in fair value
 of available-for-sale
 financial assets,
 net of tax                    -        (294)       (294)
Total other comprehensive
 income                   20 704        (294)     20 410
Total comprehensive income
 for the year             20 704        (294)     58 727
BALANCE AT 30 JUNE 2011
(Reviewed)                (5 969)        143   2 026 268
Profit for the year            -           -     137 818
Other comprehensive income
Change in fair value of
 cash flow hedge,
 net of tax                5 969           -       5 969
Change in fair value
 of available-for-sale
 financial assets,
 net of tax                    -         265         265
Total other comprehensive
 income                    5 969         265       6 234
Total comprehensive income
 for the year              5 969         265     144 052
BALANCE AT 30 JUNE 2012
(Reviewed)                     -         408   2 170 320
   

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PRELIMINARY CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
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                                                    2012        2011
                                                Reviewed    Reviewed
                                                   R'000       R'000
CASH FLOWS FROM OPERATING ACTIVITIES
Cash receipts from customers                   1 311 067   1 166 643
Cash paid to suppliers & employees            (1 113 979)   (979 404)
Cash generated from operations                   197 088     187 239
Interest income                                    6 410       2 179
Dividends received				              74          38
Finance costs                                    (66 783)    (91 750)
Tax received/ (paid)                               9 260         (82)
NET CASH FROM OPERATING ACTIVITIES               146 049      97 624
   
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment        (36 340)    (18 887)
Proceeds from disposal of property, plant
 and equipment                                       376         601
Purchase of intangible assets                       (937)     (1 352)
NET CASH FROM INVESTING ACTIVITIES               (36 901)    (19 638)
   
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of loans and borrowings                (68 062)    (59 601)
Instalment sale receivables receipts                   -         606
NET CASH FROM FINANCING ACTIVITIES               (68 062)    (58 995)
   
TOTAL CASH MOVEMENT FOR THE YEAR                  41 086       18 991
Cash at the beginning of the year                103 484       84 493
CASH AT THE END OF THE YEAR                      144 570      103 484 
   
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NOTES TO THE PRELIMINARY CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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1. BASIS OF PREPARATION
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These preliminary condensed consolidated financial statements have been prepared in accordance with the Listings Requirements of the JSE Limited and the Companies Act of South Africa, 2008 (as amended) and the Companies Regulations, 2012. The Group has applied the recognition and measurement requirements of the International Financial Reporting Standards (IFRS) and the AC 500 standards as issued by the Accounting Practices Board (APB) and the presentation and disclosure requirements of International Accounting Standard (IAS) 34 Interim Financial Reporting.
  
There have been no material changes in judgements or estimates of amounts reported in prior reporting periods.
   
The Group financial results are presented in Rand, which is the Groups functional currency. All financial information presented has been rounded to the nearest thousand.
   
The significant accounting policies and methods of computation are in terms of IFRS and are consistent in all material respects with those applied in the previous period.  
 

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2. ADDITIONAL DISCLOSURE ITEMS
------------------------------------
                                                    2012        2011
                                                Reviewed    Reviewed
                                                   R'000       R'000
Authorised capital commitments:
- Contracted, but not provided                     4 117       2 651
- Not contracted                                   5 798       5 459
Depreciation of property, plant & equipment       35 387      32 305
Amortisation of intangible assets                  1 007         768
Impairment/(reversal of impairment) of
 property, plant & equipment                      (3 994)         90 
Impairment of trade receivables                      132          99 
   
- The Group did not have any litigation settlements during the
  reporting period.
- The Group participates in a pooled banking facility granted by First
  Rand Bank Limited. As such, the Group has provided an unlimited
  suretyship in favour of First Rand Bank Limited in respect of its
  subsidiaries obligations to the bank. The Group did not have any other
  contingent liabilities at year end.
- The Group did not have any covenant defaults or breaches of its loan
  agreements at the reporting date.
- No events occurred between the reporting date and the release of
  the final results which required adjustment of or disclosure in
  these results.
   

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3. OPERATING SEGMENTS
------------------------------------
   
The Group has two reportable segments which are the Groups strategic
divisions. The Group operates in one geographic segment, namely
countries within the Southern Africa Development Community (SADC). 
   
The segment analysis is as follows:                 2012        2011
                                                Reviewed    Reviewed
                                                   R'000       R'000
* Timber products *
Revenue: external sales                        1 042 790     897 556
Revenue: inter-segment sales                           -           -
Total revenue                                  1 042 790     897 556
Depreciation and amortisation                    (27 271)    (27 818)
Reportable segment profit#                        57 961      30 086
Capital expenditure                               21 959      10 236
   
* Forestry *
Revenue: external sales                           69 436      60 897
Revenue: inter-segment sales                     491 494     429 894
Total revenue                                    560 930     490 791
Depreciation and amortisation                     (4 835)     (5 255)
Reportable segment profit#                       136 402     165 103
Fair value adjustment to biological assets       133 824      14 724
Capital expenditure                                1 015       7 440
   
* Total for reportable segments *
Revenue: external sales                        1 112 226     958 453
Revenue: inter-segment sales                     491 494     429 894
Total revenue                                  1 603 720   1 388 347
Depreciation and amortisation                    (32 106)    (33 073)
Reportable segment profit#                       194 363     195 189
Fair value adjustment to biological assets       133 824      14 724
Capital expenditure                               22 974      17 676
   
# being earnings before interest, taxation,
  depreciation & amortisation and fair value adjustment (EBITDA)
   
* Profit *
Total EBITDA for reportable segments             194 363     195 189
Depreciation, amortisation and impairments       (28 658)    (33 163)
Unallocated amounts: corporate office                363       (129)
Operating profit                                 166 068     161 897
   

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4. BIOLOGICAL ASSETS
------------------------------------
                                                    2012        2011
                                                Reviewed    Reviewed
* Reconciliation of biological assets *            R'000       R'000
   
Opening balance                                1 936 398   1 921 674
Fair value adjustment:
- Increase due to growth and enumerations        453 552     312 530
- Decrease due to harvesting                    (322 318)   (358 167)
- Adjustment to standing timber values             2 590      60 361
  to reflect sales price, cost and discount rate
  assumptions					 
Closing balance                                2 070 222   1 936 398
   
Classified as non-current assets               1 782 061   1 616 363
Classified as current assets#                    288 161     320 035
                                               
# Being the biological assets to be harvested
  and sold in the 12 months after year end.
   
* Key assumptions used for the calculation of the 
   discount rate: *
Risk free rate (2012: R186 bond; 2011: R157 bond)  7.95%       7.50%
Cost of equity                                    14.40%      13.00%
Pre-tax cost of debt                               9.50%      10.00%
Target debt:equity ratio                          65.00%      70.00%
After-tax weighted average cost of capital        11.75%      11.30%
   
The other key assumptions have been updated as follows:
- Volumes: Forecast volumes were updated at the reporting date using
  a merchandising model.
- Log prices: The price per cubic metre is based on current and future
  expected market prices per log class. It was assumed that prices
  will increase marginally over the short term and at 6% * (2011: 6%)
  over the long term. 
- Operating costs: The costs are based on the unit costs of the forest
  management activities required to enable the trees to reach the age
  of felling. The costs include the current and future expected costs
  of harvesting, maintenance and risk management, as well as an
  appropriate amount of fixed overhead costs. The costs exclude the
  costs necessary to get the asset to the market.  A long term
  inflation rate of 5.5% * (2011: 5.5%) was used.
   
  (* The Group believes that as a result of the anticipated shortage
  in local log supply and forecast long term demand, long term
  revenue inflation will be greater than cost inflation.)

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5. SHARE CAPITAL
------------------------------------
                                                    2012        2011
                                                Reviewed    Reviewed
* Reconciliation of the number of shares issued *   '000        '000
   
Number of shares in issue                        331 241     331 241
   
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6. RELATED PARTIES
------------------------------------
The Groups related parties are its subsidiaries and key management,
including directors. No change in control occurred in the Groups
subsidiaries from the prior period. No businesses were acquired or
disposed during the year. The compensation paid to the Groups key
management will be disclosed in the Groups annual report for the
year ended 30 June 2012.
   
   
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7. EARNINGS PER SHARE
------------------------------------
The calculation of basic earnings per share
is based on:
                                                    2012         2011
                                                   R'000        R'000
                                                Reviewed     Reviewed
Basic earnings attributable to
 ordinary shareholders                           137 818       38 317
   
Weighted average number of ordinary shares
('000)                                           331 241      331 241
   
Earnings per share (cents)                            42           12
   
There were no instruments that had a dilutive effect.
   

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8. HEADLINE EARNINGS PER SHARE
------------------------------------
                                                    2012        2011
                                                   R'000       R'000
                                                Reviewed    Reviewed
* Reconciliation of basic earnings
 to headline earnings *
Basic earnings attributable
 to ordinary shareholders                        137 818      38 317 
Loss/(Profit) on sale of assets and
 liabilities                                         508        (217)
Tax on profit on sale of assets and liabilities     (142)          -
Loss on non-current assets held for sale               -      13 362
Fair value adjustment on
 investment property                               2 980        (172)
Tax on fair value adjustment on                     (556)          -
 investment property
(Reversal of impairment)/ impairment of 
 plant, equipment and vehicles                    (3 994)         65
Tax on reversal of impairment of                   1 118           -  
 plant, equipment and vehicles                            
Headline earnings for the period                 137 732      51 355
   
Weighted average number of ordinary shares
('000)                                           331 241     331 241 
   
Headline earnings per share (cents)                   42          16

There were no instruments that had a 
dilutive effect.
   
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GROUP INFORMATION:
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Executive directors:     Pieter van Zyl (CEO) and Duncan Erskine (CFO)
Non-executive directors: Jim Myers* (Chairman, USA), Paul Botha,
                         Dr Azar Jammine*, Shakeel Meer,
                         Gavin Tipper* (* independent)
Registered office:       York Corporate Office,
                         3 Main Street, Sabie, 1260
Postal address:          PO Box 1191, Sabie, 1260
Company secretary:       Fusion Corporate
                         Secretarial Services (Pty) Ltd
Transfer secretaries:    Computershare Investor Services (Pty) Ltd
Sponsor:                 One Capital
Auditors:                KPMG Inc.
Preparer:                Duncan Erskine
     
info@york.co.za
www.york.co.za


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