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YORK TIMBER HOLDINGS LIMITED - Unaudited condensed consolidated interim financial results for the six months ended 31 December 2014

Release Date: 30/03/2015 17:45
Code(s): YRK     PDF:  
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Unaudited condensed consolidated interim financial results for the six months ended 31 December 2014

York Timber Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number:
1916/004890/06)
JSE share code: YRK ISIN: ZAE000133450
(“York”, “the Company” or “the Group”)
www.york.co.za

30 March 2015

Unaudited condensed consolidated interim financial results for the
six months ended 31 December 2014


Highlights
- Revenue up 14%
- Adjusted tangible net asset value per share up 4% from 696 cents to
  733 cents
- Operating profit up 62%
- Biological asset value increased by 2% to R2 161,7 million
- Cash from operating activities down by R50 million after investing a
  net R38 million in strategic stock and R86,7 million in the plywood
  plant upgrade


Commentary
Introduction
York delivered promising results for the first six months of the
2015 financial year. Various business process initiatives embarked on
over the last two years are contributing to the sustained profit generating
ability of York. This is underpinned by the consistent improvement of our
biological asset and vast enhancement in processing efficiencies and cost
optimisation.

Group performance and financial review
A 14% increase in revenue translated into improved profitability, which
resulted in a 40% increase in EBITDA over the comparable period. Despite a
10 day industrial action that impacted production and a challenging fire
season, an increase in profitability was achieved. Supported by higher
average selling prices and continued cost optimisation efforts, overall
profitability at sawmills improved by 818% over the comparative period.
A sustainable turnaround at the Wholesale division, made up in part by
the business acquired in the previous year, contributed R3,7 million to
profit during the period.
Forestry contributed 29% less over the comparative period, mainly as
a result of increased external log purchase volumes.

Processing division
Total sawmilling production for the six-month period was up ca 0,8%
compared to the same period last year. Industrial action resulted in almost
10 lost production days. Load shedding contributed to a further loss of
production time and York is liaising directly with Eskom to find a
suitable solution to limit the impact on our facilities. The ongoing
capital investments improved both sawmilling and plywood profitability.
York had started with a capital intensive investment programme during this
reporting period that will further enhance the Company’s EBITDA generating
ability over the next 18 months.

Forestry division
The Forestry division achieved EBITDA of R34,9 million for the period. The
division experienced the worst fire season since 2007 with a total of
2 180 hectares lost. The affected plantations were of different age classes
and the process to clearfell these are almost complete.
York has claimed R11,3 million from its self-insurance fund, which is not
reflected in EBITDA since it represents a cash recovery only. The fire
damage resulted in unplanted areas at period-end being 13,5% higher than
the comparative period. External purchases were 28% more than during the
comparative period, impacting EBITDA by R18,1 million.
Indications are that external log prices will increase at almost double the
consumer price index (CPI) of 5,5% in the immediate future. This is under-
pinned by demand for timber-related products as reflected in an average
12-month rolling increase in industry lumber sales of 7,4%.

Wholesale division
The turnaround strategy yielded positive results, with the division
contributing R3,7 million EBITDA compared to a loss in the previous
financial year. The Remanufacturing division at Roodekop continues to
improve its product offering and market penetration.

Biological asset
The biological asset is valued on a discounted cash flow (DCF) basis using
the key assumptions described in note 5 to the unaudited condensed
consolidated interim financial results on a basis consistent with previous
years.
The temporary unplanted area (TUP) increased at the end of the reporting
period. As areas above the TUP norm are replanted it will increase the
value of the biological asset. York continues to improve the genetic
profile of its planting material and forestry management practices that
will further improve the quality of the biological asset. The investment
cycle and growth in York is of a long term nature and the growth in
underlying asset of the Company confirms the stability of the biological
asset.

Balance sheet movements
The Company continued the investment in the self-insurance fund and
contributed another R4,6 million towards the fund. The total value of the
fund at period end was R31,7 million. Working capital grew considerably
during the year due to an increase in imported stock at the Wholesale
division. Overall stock value increased by R38 million as a result of a
decision to improve market share in certain product categories.
York commenced the expansion of its plywood plant and the project has
been funded from operating cash flow for the interim to the extent of
R86,9 million to date. A capital loan of R280 million for the project
was approved during February 2015.

Adjusted tangible net asset value
Adjusted tangible net asset value (TNAV) represents the physical net
asset value including property, plant and equipment, biological assets,
all other assets and all liabilities, but excluding intangible items
such as goodwill and deferred tax. As at 31 December 2014, York’s TNAV
was 733 cents against a closing share price of 300 cents. In light of
same the Board approved a share repurchase programme.

Cash flow
Cash from operating activities decreased by R50 million as a result
of the net investment in inventory of R38 million together with an
increase in accounts receivable of R26,6 million due to increased
sales. Available cash was applied to capital expenditure of
R86,9 million, of which only R6,8 million was funded through an increase
in borrowings. York has sufficient capacity in its general banking
facility until the capital loan comes into effect.
Outlook
The expansion of the plywood plant constitutes the first step in
diversifying our earnings base and introducing new technology as well
as extracting more value from our raw material. Execution of this
project is planned with minimal disruption to current production. After
achieving a successful turnaround at the Wholesale division, this division
is now set to trade in a wider product range by providing a diversified
and expanded market offering.
In addition York has started a programme of “Best-in-Class” practice
where the design of processes will be streamlined and enhanced to
reduce cost, overheads and improve productivity of assets and
efficiencies. This structured approach adopted by York will ensure a
measurable payback and sustain York’s competitiveness locally and
internationally.
York has observed the comments made during the State of the Nation
Address regarding land ownership and is considering the possible
impact on the business.

Consolidated statement of financial position
                              31 Dec 2014 31 Dec 2013 30 Jun 2014
                                Unaudited    Unaudited    Audited
                                    R’000        R’000      R’000
Assets
Non-current assets
Biological asset (note 5)       1 802 706    1 816 337  1 834 963
Investment property                21 876       22 842     21 866
Property, plant and
equipment                         525 332      449 261    463 645
Goodwill                          565 442      565 442    565 442
Intangible assets                   2 027        2 077      2 439
Deferred tax                        8 030        9 126      8 495
Other financial assets             31 711       23 074     38 464
Total non-current assets        2 957 124    2 888 159  2 935 314
Current assets
Biological asset (note 5)         359 013      294 246    268 129
Inventories                       272 108      188 058    234 032
Trade and other receivables       198 474      153 657    171 893
Cash and cash equivalents          40 391      152 425    110 464
Total current assets              869 986      788 386    784 518
Total assets                    3 827 110    3 676 545  3 719 832

Equity and liabilities
Equity
Share capital                     16 562        16 562        16 562
Share premium                  1 505 352     1 505 352     1 505 352
Reserves                            (668)            –          (668)
Retained income                  875 902       768 519       805 856
Total equity                   2 397 148     2 290 433     2 327 102
Liabilities
Non-current liabilities
Cash-settled share-based
payments                          14   657      12   472      12   363
Deferred tax                     601   015     563   653     574   879
Loans and borrowings             522   647     542   615     528   459
Provisions                        11   671      18   927      11   671
Retirement benefit
obligations                       24 670        22 583        24 313
Total non-current
liabilities                    1 174 660     1 160 250     1 151 685
Current liabilities
Current tax payable                    2             2             2
Loans and borrowings              46 976        31 547        34 157
Cash-settled share-based
payments                           3 617       13 399      13 785
Operating lease liabilities          454          138         358
Trade and other payables         204 245      180 776     192 743
Bank overdraft                         8            –           –
Total current liabilities        255 302      225 862     241 045
Total liabilities              1 429 962    1 386 112   1 392 730
Total equity and
liabilities                    3 827 110    3 676 545   3 719 832

Consolidated statement of comprehensive income
                               Six months   Six months        Year
                                     ended        ended      ended
                              31 Dec 2014 31 Dec 2013 30 Jun 2014
                                Unaudited    Unaudited     Audited
                                     R’000        R’000      R’000
Revenue                            763 036      671 934  1 323 976
Cost of sales                     (541 946)    (468 453)  (892 018)
Gross profit                       221 090      203 481    431 958
Other operating income               9 892        8 306     17 215
Selling, general and
administration expenses           (169 342)    (173 823)  (332 362)
Operating profit                    61 640       37 964    116 811
Fair value adjustments              62 537        5 241     (2 084)
Bargain purchase on
acquisition                              –            –      2 984
Profit before finance costs        124 177       43 205    117 711
Investment income                    2 040        2 646      5 820
Finance costs                      (29 569)     (28 212)   (56 440)
Profit before taxation              96 648       17 639     67 091
Taxation                           (26 602)      (3 982)   (16 097)
Profit for the period               70 046       13 657     50 994
Other comprehensive income/(loss)
Available-for-sale
financial asset adjustments              –         (569)      (569)
Remeasurement of defined
benefit liability                        –            –       (668)
Other comprehensive income
for the period net on
taxation (subtotal)                      –         (569)    (1 237)
Total comprehensive income          70 046       13 088     49 757
Basic earnings per share
(cents) (note 7)                        21            4         15
Headline earnings per share
(cents) (note 8)                        21            4         14

Consolidated statement of cash flows
                               Six months   Six months       Year
                                     ended       ended      ended
                              31 Dec 2014 31 Dec 2013 30 Jun 2014
                                Unaudited    Unaudited    Audited
                                     R’000       R’000      R’000
Cash flows from operating
activities
Cash generated from
operations                         26 468       76 792    151 461
Investment income                    2 040       2 646      5 820
Finance costs                     (29 359)     (28 212)   (56 440)
Taxation paid                            –           –          –
Net cash from operating
activities                            (851)     51 226    100 841
Cash flows from investing
activities
Purchases of property,
plant and equipment               (86 897)      (36 419)     (66 169)
Purchases of intangible
assets                                (12)          (43)      (2 127)
Proceeds from disposal of
property, plant and
equipment                             189             1          463
Proceeds from disposal of
intangible assets                       –             -           37
Acquisition of subsidiaries,
net of cash acquired                    –             –      (34 228)
Purchase of financial
assets                             (4 563)            –      (14 000)
Sale of financial assets           11 316         6 326        5 717
Purchase of biological
assets                                  –        (4 349)      (4 206)
Harvesting of purchased
plantations                         3 940             -            -
Net cash from investing
activities                        (76 027)      (34 484)    (114 513)
Cash flows from financing
activities
Net movement in loans and
borrowings                          6 797       (23 011)     (34 558)
Net cash from financing
activities                          6 797       (23 011)     (34 558)
Total cash movement for the
period                            (70 081)       (6 269)     (48 230)
Cash at beginning of period       110 464       158 694      158 694
Cash at end of period              40 383       152 425      110 464

Consolidated statement of changes in equity
                                                           Available-
                                    Share         Share     for-sale
                                  capital       premium      reserve
                                    R’000         R’000        R’000
Balance at 1 July 2013
(audited)                          16 562     1 505 352          569
Profit for the year                     –             –            –
Other comprehensive income
Change in defined benefit
plan, net of tax                        –             –            –
Change in fair value of avail-
able-for-sale financial assets,
net of tax                              –             –         (569)
Total other comprehensive
income                                  –             –         (569)
Total comprehensive income for
the year and total
transactions with owners                –             –         (569)
Balance at 30 June 2014
(audited)                               –             –            –
Profit for the period                   –             –            –
Other comprehensive income
Change in fair value of
available-for-sale
financial assets, net of                –             –            –
tax
Total other comprehensive
income                                  –             –            –
Total comprehensive income for
the period and total
transactions with owners                –            –           –
Balance at 31 December 2014
(unaudited)                        16 562    1 505 352           –


                                  Defined
                                  benefit      Retained       Total
                                     plan        income      equity
                                    R’000         R’000       R’000
Balance at 1 July 2013
(audited)                               -       754 862   2 277 345
Profit for the year                     -        50 994      50 994
Other comprehensive income
Change in defined benefit
plan, net of tax                     (668)            –        (668)
Change in fair value of avail-
able-for-sale financial assets,
net of tax                              -             –        (569)
Total other comprehensive
income                               (668)            –      (1 237)
Total comprehensive income
for the year and total
transactions with owners                -        50 994           -
Balance at 30 June 2014
(audited)                            (668)      805 856   2 327 102
Profit for the period                   –        70 046      70 046
Other comprehensive income
Change in fair value of avail-
able-for-sale financial assets,
net of tax                              –            –           –
Total other comprehensive
income                                  –            –           –
Total comprehensive income for
the period and total
transactions with owners                –        70 046      70 046
Balance at 31 December 2014
(unaudited)                          (668)      875 902   2 397 148


Notes to the consolidated financial statements
1. Basis of preparation
These unaudited condensed consolidated interim financial statements
have been prepared in accordance with the JSE Listings Requirements,
the Companies Act of South Africa, 2008 (as amended), and the
Companies Regulations, 2011. The Group has applied the recognition
and measurement requirements of International Financial Reporting
Standards (IFRS) and the AC 500 standards as issued by the Accounting
Practices Board (APB), as well as the presentation and disclosure
requirements of International Accounting Standard (IAS) 34 Interim
Financial Reporting. The financial results have been compiled under
the supervision of Pieter van Buuren CA(SA), the Chief Financial
Officer.
These condensed results do not include all the information required
for full annual financial statements, and should be read in
conjunction with the audited consolidated financial statements as at
and for the year ended 30 June 2014 which are available on the
Company’s website, www.york.co.za, or at the Company’s registered
office.
The financial results have not been reviewed or audited. The
financial results, which have been prepared on the going-concern
basis, were approved by the Board of Directors on 27 March 2015.
There have been no material changes to judgements or estimates of
amounts reported in prior reporting periods.
The Group financial results are presented in Rand, which is the
Company’s functional currency. All financial information presented
has been rounded to the nearest thousand.
The significant accounting policies and methods of computation are
consistent in all material respects with those applied in the year
ended 30 June 2014.

2. Additional disclosure items
                                 31 Dec 2014 31 Dec 2013 30 Jun 2014
                                   Unaudited   Unaudited     Audited
                                       R’000       R’000       R’000
Authorised capital commitments:
- Contracted, but not
provided                            135 351        16 457       5 068
- Not contracted                     46 248         3 611     290 160
Capital expenditure                  86 909        28 317      68 296
Depreciation of property,
plant and equipment                  24 970        17 054      38 206
Amortisation of intangible
assets                                  424           223         924
Impairment of trade
receivables                               –            12      (6 866)

– A claim against one of the subsidiaries was concluded during the
  reporting period with no material effect on the financial position
  of the Group.
– The Group participates in a pooled banking facility of
  R145,2 million granted by FirstRand Bank Limited. Group companies
  have provided cross suretyships of R5 million in favour of FirstRand
  Bank Limited in respect of their obligations to the bank. The Group
  did not have any other contingent liabilities at the reporting date.
– The Group did not have any covenant defaults or breaches of its
  loan agreements during the period under review or at the reporting
  date.
– No events have occurred between the reporting date and the date of
  release of these results which require adjustment of or disclosure in
  these results.
– No movement occurred in the number of shares issued during the
  period under review.

3. Comparative figures
The unaudited condensed consolidated interim financial results are
for the six months ended 31 December 2014. The comparative unaudited
condensed consolidated interim financial results for the six months
ended 31 December 2013, and the annual financial statements for the
year ended 30 June 2014, are presented as published and have not been
restated.

4. Operating segments
The Group has three reportable segments which are the Group’s
strategic divisions. The Group operates in one geographic segment,
namely countries within the Southern Africa Development Community
(SADC).

The segmental analysis is as follows:
                                              Sawmills
                              31 Dec 2014     31 Dec 2013 30 Jun 2014
                                Unaudited       Unaudited     Audited
                                    R’000           R’000       R’000
Revenue: external sales           527 982         651 055     996 886
Revenue: inter-segment
sales                             105 452                –        177 133
Total revenue                     633 434          651 055      1 174 019
Depreciation and
amortisation                      (20 936)         (15 210)       (31 761)
Reportable segment profit*         36 365            4 442         54 331
Fair value adjustment                   –                –              –
Capital expenditure                81 991           25 516         52 872

                                                Wholesale
                              31 Dec 2014      31 Dec 2013 30 Jun 2014
                                Unaudited        Unaudited     Audited
                                    R’000            R’000       R’000
Revenue: external sales           203 130                 –    278 568
Revenue: inter-segment
sales                                   –                  –
Total revenue                     203 130                  –      278 568
Depreciation and
amortisation                         (712)                 –       (1 154)
Reportable segment profit*          3 682                  –       (5 289)
Fair value adjustment                   –                  –            –
Capital expenditure                    89                  –        3 482
*Being earnings before
interest, taxation, depreciation,
amortisation, impairment and
fair value adjustments (EBITDA).




                                                Forestry
                              31 Dec 2014      31 Dec 2013 30 Jun 2014
                                Unaudited        Unaudited     Audited
                                    R’000            R’000       R’000
Revenue: external sales            31 549           20 527      47 822
Revenue: inter-segment            288 968          285 193     572 946
sales
Total revenue                     320 517          305 720        620 768
Depreciation and
amortisation                       (2   416)        (1 711)        (3   693)
Reportable segment profit*         34   873         49 171        118   478
Fair value adjustment              62   567          5 365         (1   984)
Capital expenditure                 3   322            534          7   993

                                                     Total
                              31 Dec 2014      31 Dec 2013 30 Jun 2014
                                Unaudited        Unaudited     Audited
                                    R’000            R’000       R’000
Revenue: external sales           762 661          671 582   1 323 276
Revenue: inter-segment
sales                              394 420         285 193        750 079
Total revenue                    1 157 081         956 775      2 073 355
Depreciation and
amortisation                       (24 064)        (16   921)     (36   608)
Reportable segment profit*          74 921          53   613      167   520
Fair value adjustment               62 567           5   365       (1   984)
Capital expenditure                 85 402          26   050       64   347
*Being earnings before interest,
taxation, depreciation,
amortisation, impairment and
fair value adjustments (EBITDA).
                               31 Dec 2014      31 Dec 2013 30 Jun 2014
                                 Unaudited        Unaudited     Audited
                                     R’000            R’000       R’000
Reconciliation of reportable
segment profit or loss
Total EBITDA for reportable
segments                           74 921            53 613        167 520
Depreciation, amortisation
and impairments                   (25 395)          (17 296)       (36 608)
Unallocated amounts                12 114             1 647        (14 101)
Operating profit                   61 640            37 964        116 811


5. Biological assets
                               31 Dec 2014      31 Dec 2013 30 Jun 2014
                                 Unaudited        Unaudited     Audited
                                     R’000            R’000       R’000
Reconciliation of biological
assets
Opening balance                  2 103 092        2 100 870      2 100 870
Fair value adjustment:
– Increase due to growth
and enumerations                  198 082           154 896        447 357
– Decrease due to
harvesting                       (161 792)         (162 788)      (326 057)
– Adjustment to standing
timber values to reflect
fair value at period end            22 337           13 257       (123 284)
Purchased plantation                     –            4 348          4 206
Closing balance                  2 161 719        2 110 583      2 103 092
Classified as non-current
assets                           1 802 706        1 816 337      1 834 963
Classified as current
assets*                           359 013           294 246        268 129
Change in discounted cash flow
(DCF) value attributable to:
Opening balance                  2 103 092        2 100   870    2 100   870
Growth                               3 175           18   614      131   897
Revenue and price                  157 124          119   493       53   659
Operating cost                    (146 663)         (24   014)     (35   314)
Discount rate                       44 991         (108   728)    (152   226)
Purchased plantations                    –            4   348        4   206
Closing balance                  2 161 719        2 110   583    2 103   092


                               31 Dec 2014      31 Dec 2013 30 Jun 2014
                                 Unaudited        Unaudited     Audited
                                     Cubic            Cubic       Cubic
                                    metres           metres      metres
Reconciliation of standing
volume
Opening balance                 5 596    094      5 325 421      5 325 421
Increase due to growth and
enumerations                      419    624        328 138        961 402
Decrease due to harvesting       (342    746)      (344 855)      (690 730)
Closing balance                 5 672    972      5 308 704      5 596 093
*Being the biological assets
to be harvested and sold in the
12 months after the reporting date.
The additional key assumptions underlying the discounted cash flow
valuation are 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
  expected market prices per log class. It was assumed that log prices
  will increase at 5,85% and 6,25% over the next two years
  respectively and at 6% over the long term* (2013: 7% and 7% over the
  next two years and 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 expected costs
  of harvesting, maintenance and risk management, as well as an
  appropriate amount of fixed overhead costs. A contributory asset
  charge takes into account the cost of fixed assets utilised to
  generate cash flows from the biological asset over the valuation
  period. The operating costs exclude the transport costs necessary to
  get the asset to market. These costs have been reviewed and updated
  to current actual costs. An inflation rate of 5,5% for the next year
  and 6% over the long term* (2013: 5,5%) was used.
*Management believes that as a result of the anticipated deficit
between local log supply and forecast long-term demand, long-term
revenue inflation will be greater than cost inflation.

6. Related parties
The Group’s related parties are its subsidiaries and key management,
including directors. No change in control occurred in the Company’s
subsidiaries from the prior period. No businesses were acquired or
disposed of during the period.

7. Earnings per share
The calculation of basic earnings per share is based on:

                                31 Dec 2014   31 Dec 2013 30 Jun 2014
                                  Unaudited     Unaudited     Audited
Basic earnings attributable
to ordinary
shareholders (R’000)                70 046         13 657      50 994
Weighted average number
of ordinary shares in issue
(R’000)                            331 241        331 241     331 241
Earnings per share (cents)              21              4          15
No change occurred in the
number of shares in issue and no
instruments had a dilutive effect.

8. Headline earnings per share
The calculation of headline earnings per share is based on:

                                31 Dec 2014   31 Dec 2013 30 Jun 2014
                                  Unaudited     Unaudited     Audited
                                      R’000         R’000       R’000
Reconciliation of basic
earnings to headline earnings
Basic earnings attributable
to ordinary shareholders            70 046         13 657      50 994
Loss/(profit) on sale of
assets and liabilities
(net of tax)                             8             57        (402)
Fair value adjustment on
investment property (net
of tax)                                 24            101          81
(Reversal)/impairment of plant,
equipment and vehicles
(net of tax)                            –           13        229
Bargain purchase on
acquisition                             –            –     (2 984)
Headline earnings for the
period                             70 078      13 828      47 918
Weighted average number of
ordinary shares (’000)            331 241     331 241     331 241
Headline earnings per
share (cents)                         21            4          14


Company information
Executive directors: Pieter van Zyl (CEO), Pieter van Buuren (CFO)
Non-executive directors: Dr Jim Myers* (Non-executive Chairman, USA),
Paul Botha, Dr Azar Jammine*, Shakeel Meer, Dinga Mncube*,
Thabo Mokgatlha*, Gavin Tipper*
* Independent

Registered office:
York Corporate Office, 3 Main Road, Sabie, Mpumalanga
Postal address: PO Box 1191, Sabie, 1260
Tel: +27 013 764 9200
Fax: +27 013 764 1027

Auditors: KPMG Inc.
Company secretary: Sue Hsieh
Sponsor: One Capital
Transfer secretaries: Computershare Investor Services Proprietary
Limited

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