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The York Timber Organisation Limited - INTERIM REPORT FOR THE SIX MONTHS TO 30
JUNE 2003
The York Timber Organisation Limited
Registration number. 1916/004890/06
Share code: YRK ISIN: ZAE000008108
INTERIM REPORT FOR THE SIX MONTHS TO 30 JUNE 2003
GROUP INCOME STATEMENTS
Unaudited Audited
30 June 31 December
2003 2002 2002
R000 R000 R000
Revenue 52 924 41 745 94 378
Cost of sales (21 041) (17 950) (42 166)
Gross profit 31 883 23 795 52 212
Staff costs (14 343) (11 370) (23 929)
Depreciation (1 306) (920) (2 106)
Other operating expenses (11 367) (8 193) (15 024)
Profit from operations 4 867 3 312 11 153
Legal costs (1 143) (1 217) (4 352)
Increase in net policy value of sinking fund - - (31)
Profit before finance costs 3 724 2 095 6 770
Finance costs (312) (585) (678)
Profit before taxation 3 412 1 510 6 092
Taxation (992) (22) (2 397)
Profit after taxation 2 420 1 488 3 695
Minority shareholders" interest (199) (177) (397)
Net profit for period 2 221 1 311 3 298
Reconciliation of earnings and headline
earnings
Net profit for period 2 221 1 311 3 298
Profit on sale of fixed assets 569 - -
Headline profit for period 1 652 1 311 3 298
NOTES TO THE FINANCIAL STATEMENTS
Unaudited Audited
30 June 31 December
2003 2002 2002
1. Earnings per share (cents) 20,1 11,9 29,9
2. Headline earnings per share (cents) 14,9 11,9 29,2
3. Dividends per share (cents) - - -
4. Net asset value per share (cents) 526 358 506
5. Shares in issue (000) 11 040 11 040 11 040
Additional information
6. Capital expenditure for the period (R000) 5 435 242 3 841
7. Capital expenditure committed (R000) - - 476
8. Capital expenditure authorised (R000) - - 769
9. Gearing (%) 6 9 (6)
10. Current ratio (Ratio) 1,03 1,12 1,13
GROUP BALANCE SHEETS
Unaudited Audited
30 June 31 December
2003 2002 2002
R000 R000 R000
ASSETS
Non-current assets
Property, plant, equipment and vehicles 60 502 28 181 56 180
Investments 1 908 1 908 1 908
Long-term receivables 5 631 5 631 5 631
Sinking fund 3 207 3 238 3 207
71 248 38 958 66 926
Current assets 32 170 24 480 26 886
Inventories 11 013 6 646 6 501
Accounts receivable 16 408 17 569 13 229
Bank balances and cash 4 749 265 7 156
Total assets 103 418 63 438 93 812
EQUITY AND LIABILITIES
Capital and reserves
Share capital 3 612 3 612 3 612
Non-distributable reserves 21 159 14 660 21 579
Accumulated profits 29 301 17 216 26 660
Ordinary shareholders" funds 54 072 35 488 51 851
Minority shareholders" interest
in subsidiary 4 000 4 000 4 000
Total shareholders" funds 58 072 39 488 55 851
Non-current liabilities 13 973 1 998 14 064
Interest bearing borrowings 2 700 1 998 2 791
Deferred taxation 11 273 - 11 273
Current liabilities 31 373 21 952 23 897
Accounts payable 24 531 19 683 22 663
Taxation 763 81 172
Short-term borrowings 6 079 2 188 1062
Total equity and liabilities 103 418 63 438 93 812
ABRIDGED GROUP CASH FLOW STATEMENTS
Unaudited Audited
30 June 31 December
2003 2002 2002
R000 R000 R000
Cash generated by operating activities (1 390) 6 728 19 410
Finance costs (511) (762) (1 075)
Dividends and tax paid (401) (97) (309)
Net cash (outflow)/inflow from
operating activities (2 302) 5 869 18 026
Net cash (outflow)/inflow from
investing activities (5 031) (242) (5 114)
Net cash inflow/(outflow) from
financing activities 4 926 (9 041) (9 435)
Net (decrease)/increase in bank balances
and cash (2 407) (3 414) 3 477
Bank balances and cash at beginning of year 7 156 3 679 3 679
Bank balances and cash at end of period 4 749 265 7 156
STATEMENTS OF CHANGES IN EQUITY
Unaudited - at 30 June
Non-
Share Share distri- Accumu-
butable lated
capital premium reserve profit Total
R000 R000 R000 R000 R000
Balance at 31 December 2001 552 3 060 15 079 15 486 34 177
Depreciation on asset revaluations
reversed (416) 416 -
Expenses of non-revenue producing
subsidiaries (3) 3 -
Net profit for period 1 311 1 311
Balance at 30 June 2002 552 3 060 14 660 17 216 35 488
Balance at 31 December 2002 552 3 060 21 579 26 660 51 851
Depreciation on asset revaluations
reversed (416) 416 -
Expenses of non-revenue producing
subsidiaries (4) 4 -
Net profit for period 2 221 2 221
Balance at 30 June 2003 552 3 060 21 159 29 301 54 072
CHAIRMAN"S REVIEW
Half year to 30 June 2003
ROBUST IMPROVEMENTS
Yorkcor has posted a 25% improvement in headline earnings for the first half
of 2003 - from 11,9 cents per share for the six months ended 30 June 2002 to
14,9 cents for the same period this year. Our much improved strategic position
and operational capability has become manifest in our financial statements. Net
profit for the six months to 30 June rose from R1 311 000 last year to R2 221
000 in 2003 - these results translate to a 69% improvement in earnings per
share, from 11,9 cents to 20,1 cents per share. The tax provision amounted to
R992 000 (R22 000 for the same period last year). The half-year"s revenue is up
26%, from R41,7 million to R52,9 million The quality of group sales and
production efficiencies made for a 33% improvement in margins - group gross
profit rose from R23,8 million to R31,9 million.
Significantly, the net asset value per share is enhanced by almost 50% from
358 cents at 30 June 2002 to 526 cents per share at 30 June 2003.
CASH AND ASSET MANAGEMENT
Tight cash and asset management brought strength to our group balance sheet.
Yorkcor"s gearing amounted to a mere 6% (2002: 9%). Despite capital expenditure
of R5, 4 million invested during the half year under review (2002:
R0,24million), Yorkcor boosted its cash balances at the bank from R0,27 million
to R4,75 million.
All in all, the group"s financial position is in good shape for the
opportunities and challenges that lie ahead.
MARKETS
In the period under review, Yorkcor sought and found markets that were
hospitable. The group continued to outperform national performance averages. For
the half year ended 30 June 2003, softwood lumber sales for formal lumbermills,
nationally, totalled 843 937 m3 from 736 232 m3 during the same period in 2002 -
an increase of 14,6%. Industry prices have lagged behind inflation by about 5%
over the past five years due mainly to the strengthening of the rand. At R1
200/m3, the Lumber Price Index for SA Pine is about 12,5% higher than Southern
Yellow Pine, its American rival which currently sells at about R1,067/m3. Rough
lumber exports have softened, along with other commodities, in the teeth of our
hardening currency. On the other hand, plans passed for local residential
housing are burgeoning.
The recent fires in Mpumalanga have been devastating: the extent of the
damage has yet to be measured, but it has already been declared a disaster area.
This foreshadows timber shortages and rising prices. Management is losing no
time focusing on plans to address the new situation. A windfall for Yorkcor
could be emerging: our long-term strategies for secure sources of supply have
taken on greater dimensions and redoubled urgency.
ABOIL WITH CHANGE
We do not remember a time when so many momentous developments have
simultaneously ignited challenge and opportunity in our industry. A critical
event playing out at this time is the far-reaching process by which government
is disposing of major publicly owned forestry assets. The issue is one of method
rather than principle.
Government involvement in the forest products industry is ubiquitous. To what
extent is it really being phased out' Apart from the troubled Komatiland
restructuring process, government retains and will retain participation through
Safcol in the privatised forestry assets. Through the Industrial Development
Corporation ("IDC") it has substantial equity stakes in Global Forest Products
and the Merensky Group. A shadow of compounding concentration overcasts control
of wood resources and markets. The Competition Tribunal is looking at the
situation at a high level, but more needs to be put on the table for its
scrutiny.
These compelling changes and gyrations are springboards for opportunity. We
are pleased about the experience, vigour and timeliness of our new boardroom
blood, which we announce today. The tide is rising, we believe, for enterprise
and creativity in the timber industry and for Yorkcor.
The legal arena
Almost all our competitors have given up on their rights to a secure supply
of sawlogs from state owned plantations. Yorkcor, almost alone, engages the
authorities and the law to vindicate its "evergreen" supply contracts. We are
much encouraged by the warmth of support from so many in all sectors of the
timber business. Until now the results of litigation have been good. A number of
encounters are, however, still pending.
In a watershed judgment on 27 February of this year, the High Court declared
the Minister of Forestry and his Director General to be in contempt of Court for
neglecting to honour orders of court in Yorkcor"s favour. Yorkcor was awarded a
punitive costs order and the government was ordered to make a quantified offer
for the supply of sawlogs over five years.
Pending before the Competition Tribunal is a complaint brought by Mondi
against Safcol concerning charges under the Competition Act. The complaint
concerns an allegation that the arbitration clause in the evergreen contracts
between Yorkcor and Safcol has the effect of substantially preventing or
lessening competition. It is ironic, if not flattering, to be the target of a
competition complaint from a group a hundred times or so our size.
In September 2002 the High Court dismissed an application by Safcol to
declare two of Yorkcor"s evergreen contracts invalid. Safcol is taking that
decision on appeal. No date has been set for the hearing. Pending also, however,
is another attempt to strike down the same contracts. Depending on the outcome
of these current skirmishes are claims and counter claims involving price
disputes.
We are cautiously optimistic about all pending matters and have taken
appropriate steps to deal with any eventuality.
Perhaps the most important matter being litigated concerns Yorkcor"s substantial
claim for compensation from the government for terminating one of our evergreen
contracts. The arbitration to determine the amount we should be paid in June
2004, resumes later this month.
In December 2001, the Minister of Water Affairs and Forestry gave Yorkcor
five years" notice of termination of its York Lumber contract over three forests
near Bushbuckridge, ostensibly in the public interest. The declared intention
was to convert these timberlands into a conservation area. The government has
conceded that it is liable to pay "reasonable and adequate compensation"". Only
the quantum has to be determined on the basis of the value of the group"s York
Lumber "business as a going concern, enjoying the benefits of this contract
without interruption".
It is expected that the arbitrator will make his award before the end of the
year and that the government will effect payment of the compensation by 30 June
2004.
OUTLOOK
Mixed signals are coming from the industry arena. The privatisation of the
state"s assets in Mpumalanga and Limpopo remain a key factor in developments.
Preparations by Yorkcor to strike down that process continue. The Department of
Public Enterprises (DPE) has refused certain information required for launching
the litigation to derail the bidding process. Yorkcor has instructed its legal
advisors to pursue the matter and they are gathering the necessary information.
The DPE has advised our lawyers to obtain that information through the mechanism
of the Promotion of Access to Information Act. The extensive fire damage already
referred to is being weighed in the scales. We are considering our options.
THE BOARD
A few months ago I mentioned that we were seeking to strengthen our board to
provide for leadership commensurate with the opportunities that Yorkcor is
poised to tackle. I am pleased to announce that two figures of great stature and
capability have accepted our invitation to join the board of Yorkcor - Dr
"Tienie" van Vuuren and Benjamin Trisk. They take up their appointments as non-
executive directors with effect from 1 September 2003.
Dr van Vuuren served with distinction on the Yorkcor board for ten years
until 1992, when he left us to become the chief executive officer of Safcol. He
led that parastatal for ten years until his retirement on 31 August 2002.
Formerly, the director of the Graduate School of Management at the University of
Pretoria and a general manager of the Hans Merensky group, he has served as a
director of OTK Holdings Ltd and other companies in key sectors.
Benjamin Trisk, the other appointee, has a record of outstanding
accomplishment in corporate funding and deal-making. He became widely known in
investing circles during his years at Davis Borkum Hare Inc. He played an
influential role in the Premier Milling Group and did much to turn Exclusive
Books into the thriving business it is today.
Apart from their role in widening the opportunities for Yorkcor and turning
them to good account, the new appointments to the board will bring commitment
and effectiveness to the promotion of important alliances, developing mergers
and acquisitions, raising capital, forming empowerment partnerships and
promotion of corporate governance.
We intend to structure the board and the share register of Yorkcor further to
embrace strong empowerment representation. The extensive experience and the wide
connections of our new directors will facilitate these plans.
BASIS OF ACCOUNTING
These consolidated abridged annual financial statements were drawn up in
compliance with South African Statements of Generally Accepted Accounting
Practice and the company has complied with the requirements of the Companies
Act, 1973. They are consistent with the company"s accounting policies.
DIVIDEND
No dividend has been declared for the six-month period ended 30 June 2003.
By order of the board
Solly Tucker
Chairman
Pretoria
1 September 2003
Registered office Transfer Secretaries
5th Floor, Yorkcor Park Computershare Limited
86 Watermeyer Street 70 Marshall Street
Val de Grace, Pretoria 0184 Johannesburg 2001
PO Box 380 PO Box 61051
Pretoria 0001 Marshalltown 2107
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