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YRK - The York Timber Organisation Limited - Abridged Audited Financial
Results For The 18 Months Ended June 2008
The York Timber Organisation Limited
("York" or "the Group")
Reg. No. 1916/004890/06
Share code: YRK
ISIN: ZAE000008108
Abridged Audited Financial Results For The 18 Months Ended June 2008
Global Forest Products acquired for R1,7 billion in July 2007 and
successfully integrated
Net asset value per share up from 941 cents to 2 113 cents
Headline earnings per share up by 280% from 269 cents to 1 019 cents
Cash generated by operating activities increased 28-fold from R8 million to
R224 million
Biological asset growth of 46% since July 2007
ABRIDGED CONSOLIDATED BALANCE SHEET
Audited Audited
30 June 31 December
2008 2006
R`000 R`000
ASSETS
Non-current assets
Property, plant and equipment 363 511 65 801
Biological assets 1 718 407 18 000
Goodwill 610 352 -
Investment property and financial 86 594 6 802
assets
2 778 864 90 603
Current assets
Inventories 197 908 34 724
Biological assets 264 663 -
Trade and other receivables 192 108 59 909
Cash and cash equivalents 222 538 41 731
Other current assets 3 136 2 200
880 353 138 564
Total assets 3 659 217 229 167
EQUITY AND LIABILITIES
Equity
Ordinary share capital and reserves 1 655 668 103 907
Liabilities
Non-current liabilities
Interest bearing long-term 1 128 545 32 757
liabilities
Deferred tax 498 615 9 414
Other long-term liabilities and 72 807 7 889
provisions
1 699 967 50 060
Current liabilities
Interest bearing short-term 64 109 12 050
liabilities
Trade and other payables 233 984 57 676
Current tax payable 5 489 5 474
303 582 75 200
Total liabilities 2 003 549 125 260
Total equity and liabilities 3 659 217 229 167
ABRIDGED CONSOLIDATED INCOME STATEMENT
Pro forma
Audited Audited Unaudited
18 months 12 months 12 months
ended ended 1 July 2007
to
30 June 31 December 30 June
2008 2006 2008
R`000 R`000 R`000
Revenue 1 521 581 393 975 1 274 621
Cost of sales (569 804) (242 481) (405 304)
Gross profit 951 777 151 494 869 317
Other operating income 38 726 6 649 40 659
Selling, general and (765 815) (118 319) (708 453)
administration expense
Profit from operations 224 688 39 824 201 523
Biological asset fair 607 308 5 722 603 308
value adjustment
Profit before finance 831 996 45 546 804 831
costs
Finance income 110 421 2 066 100 629
Finance expense (204 322) (5 282) (193 403)
Profit before tax 738 095 42 330 712 057
Taxation (199 345) (11 014) (193 819)
Profit for the period 538 750 31 316 518 238
Basic earnings per 1 018 284 661
ordinary share (cents)
Fully diluted earnings 981 284 n/a
per ordinary share
(cents)
Headline earnings per 1 019 269 662
ordinary share (cents)
Fully diluted headline 982 n/a n/a
earnings per ordinary
share (cents)
The unaudited pro forma financial information for the 12 months 1 July 2007
to 30 June 2008 are provided for illustrative purposes only and have been
prepared in a manner consistent with the accounting policies of York.
The directors of York are responsible for the preparation of the pro forma
financial information.
The pro forma financial information has been derived by removing the
published interim results for the six months from the current results for the
18 month ended 30 June 2008.
ABRIDGED CONSOLIDATED CASH FLOW STATEMENT
Audited Audited
18 months 12 months
ended ended
30 June 31 December
2008 2006
R`000 R`000
Cash flows from operations 252 333 38 656
Net working capital changes (27 961) (30 641)
Cash flows from operating activities
Cash generated/(utilised) by 224 372 8 015
operating activities
Finance income 31 561 891
Income from investments 52 362
Finance expense (163 279) (5 282)
Taxation paid (5 704) (1 475)
Net cash from operating activities 87 002 2 511
Business combination (1 684 520)
Net cash utilised in other investing (83 526) 10 065
activities
Net cash from financing activities 1 861 851 20 448
Net increase/(decrease) in cash and 180 807 33 024
cash equivalents
Cash and cash equivalents at 41 731 8 707
beginning of period
Cash and cash equivalents at end of 222 538 41 731
period
ABRIDGED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Fair value
adjustment
asset
Total Available
Share Share share for sale
capital premium capital Reserve
R`000 R`000 R`000 R`000
Group
Balance at 1 January 552 3 060 3 612 -
2006
Issue of shares - 1 1 -
Change in fair value of - - - 144
available-for-sale
financial assets
Total income and - - - 144
expense recognised
directly in equity
Profit for the year - - - -
Balance at 1 January 552 3 061 3 613 144
2007
Issue of shares 3 511 1 049 490 1 053 001 -
Buy-back of own shares (144) (28 074) (28 218) -
Share based payment - - - -
Change in fair value of - - - (363)
available-for-sale
financial assets
Share issue expenses - (21 855) (21 855) -
Total income and - (21 855) (21 855) (363)
expense recognised
directly in equity
Profit for the period - - -
Balance at 30 June 2008 3 919 1 002 622 1 006 541 (219)
Share-based
payment Retained Total
reserve income equity
R`000 R`000 R`000
Group
Balance at 1 January - 68 834 72 446
2006
Issue of shares - - 1
Change in fair value of - - 144
available-for-sale
financial assets
Total income and - - 144
expense recognised
directly in equity
Profit for the year - 31 316 31 316
Balance at 1 January - 100 150 103 907
2007
Issue of shares - - 1 053 001
Buy-back of own shares - (28 218)
Share based payment 10 446 - 10 446
Change in fair value of - - (363)
available-for-sale
financial assets
Share issue expenses - - (21 855)
Total income and - - (22 218)
expense recognised
directly in equity
Profit for the period 538 750 538 750
Balance at 30 June 2008 10 446 638,900 1 655 668
Calculation of headline earnings - Group 30 June 2008:
Group
Audited
18 months 12
ended 30 months
June 2008 ended 31
December
2006
R`000 R`000
Basic earnings attributable to equity holders 538 750 31 316
of the parent
- Loss/(surplus) on disposal of property, 400 (80)
plant and equipment
- Increase in fair value of investment - (1 381)
property
- Loss on sale of non-current assets held for 339 -
sale
- Impairment of property, plant and equipment - (213)
Headline earnings for the period 539 489 29 642
In terms of Circular 8/2007, increase in fair value of listed investments
should no longer be added back in the calculation of headline earnings. The
headline earnings for 2006 have been restated by removing the add back of the
increase in fair value of 5,2 cents, from 263,3 cents to 268,5 cents.
Abridged consolidated segmental analysis
Sawmilling Plywood
(All amounts in 2008 2006 2008 2006
thousands)
Revenue
External sales 916 241 230 657 180 064 -
Inter-segment sales 45 710 5 010 - -
Total revenue 961 951 235 667 180 064 -
Result
Fair value adjustment
biological assets
Trading 112 465 (5 860)
Segment result 112 465 35 359 (5 860) -
Unallocated expenses
Profit from
operations
Net finance costs
Income tax expense
Profit for the year
Segment assets 409 471 122 271 98 397 -
Unallocated corporate
assets
Consolidated total
assets
Segment liabilities 176 150 35 330 15 970 -
Unallocated corporate
liabilities
Non-current and
current loans and
borrowings
Taxation and deferred
taxation
Consolidated total
liabilities
Additions to - - - -
biological assets
Capital expenditure 22 299 6 132 469 -
Depreciation 20 653 4 532 1 754 -
Impairment of - 300 - -
tangible assets
Merchandising Forestry
(All amounts in 2008 2006 2008 2006
thousands)
Revenue
External sales 368 941 160 807 56 335 2 511
Inter-segment sales 34 483 - 461 618 -
Total revenue 403 424 160 807 517 953 2 511
Result
Fair value adjustment 607 308
biological assets
Trading 10 147 172 318
Segment result 10 147 8 106 779 626 3 668
Unallocated expenses
Profit from
operations
Net finance costs
Income tax expense
Profit for the year
Segment assets 83 118 47 554 2 153 193 17 611
Unallocated corporate
assets
Consolidated total
assets
Segment liabilities 34 621 25 907 45 042 -
Unallocated corporate
liabilities
Non-current and
current loans and
borrowings
Taxation and deferred
taxation
Consolidated total
liabilities
Additions to - - 45 725 -
biological assets
Capital expenditure - 864 14 321 -
Depreciation 514 236 3 286 -
Impairment of - - -
tangible assets
Elimination Consolidated
(All amounts in 2008 2006 2008 2006
thousands)
Revenue
External sales - - 1 521 581 393 975
Inter-segment sales (50 775) (5 010) - -
Total revenue (50 775) (5 010) 1 521 581 393 975
Result
Fair value adjustment
biological assets
Trading
Segment result - - 896 378 47 133
Unallocated expenses (64 382) (1 587)
Profit from 831 996 45 546
operations
Net finance costs (93 901) (3 216)
Income tax expense (199 345) (11 014)
Profit for the year 538 750 31 316
Segment assets 2 744 179 187 436
Unallocated corporate 915 038 41 731
assets
Consolidated total 3 659 217 229 167
assets
Segment liabilities 271 782 61 237
Unallocated corporate 17 218 4 328
liabilities
Non-current and 1 208 235 44 807
current loans and
borrowings
Taxation and deferred 504 105 14 888
taxation
Consolidated total 2 001 340 125 260
liabilities
Additions to 45 725 -
biological assets
Capital expenditure 37 089 6 996
Depreciation 26 207 4 768
Impairment of 300
tangible assets
Business segments:
The Group is organised into four major operating divisions - Sawn Timber
Products, Plywood, Merchandising and Forestry. The divisions are the basis on
which the Group 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.
Geographic segments:
The Group regards its business as a single geographic 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.
NOTES TO THE ABRIDGED CONSOLIDATED FINANCIAL STATEMENTS
The Group is domiciled in South Africa. The abridged consolidated Group
financial results of the 18 months ended 30 June 2008 comprise the Company
and its subsidiaries (together referred to as the Group).
The abridged consolidated financial results were authorised for issue on 16
September 2008.
(a) Basis of preparation
These abridged The York Timber Organisation Limited ("the Group") financial
results for the eighteen months ended 30 June 2008 constitute a summary,
prepared in terms of International Accounting Standard 34, of the Group`s
audited financial statements. They have been prepared in accordance with
International Financial Reporting Standards and the South African Companies
Act 1973, as amended.
KPMG Inc.`s unmodified auditors` reports included in the annual financial
statements and on the summarised financial statements contained in this
abridged report are available for inspection at the company`s registered
office.
(b) Basis of measurement
The financial statements have been prepared on the historical cost basis
except for the following:
- financial instruments held for trading and financial instruments classified
as available for sale are measured at fair value;
- derivative financial instruments are measured at fair value;
- investment property is measured at fair value; and
- biological assets are measured at fair value less estimated point of sale
costs.
(c) Functional and presentation currency
The financial statements are presented in Rands, which is the Group`s
functional currency. All financial information presented in Rands has been
rounded to the nearest thousand.
(d) Use of estimates and judgments
The preparation of financial statements in conformity with IFRS requires
management to make judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts of assets,
liabilities, income and expenses. Actual results may differ from these
estimates. These judgments and estimates are reviewed annually by management.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised and in any future periods affected. Judgments and
estimates that have a significant effect on the financial statements, are:
- biological assets,
- goodwill;
- investment property;
- trade and other receivables;
- provisions;
- measurements of share-based payments;
- valuation of financial instruments; and
- contingencies.
(e) Basic and headline earnings per share
Basic earnings per share are calculated by dividing the earnings attributable
to ordinary shareholders for the period of R538,7 million (December 2006:
R31,3 million) by the weighted average of 52 930 865 ordinary shares in issue
(December 2006: 11 040 597 shares).
Headline earnings per share are calculated by dividing the earnings
attributable to ordinary shareholders for the period of R539,3 million
(December 2006: R29,6 million) by the weighted average of 52 930 865 ordinary
shares in issue (December 2006: 11 040 597 shares).
(f) Fully diluted basic and headline earnings per ordinary share
The calculation of fully diluted basic earnings per ordinary share is based
on earnings attributable to ordinary shareholders of R543,6 million (December
2006: R29 million) and the weighted average of 55 407 812 fully diluted
ordinary shares (December 2006: 11 040 597 shares).
The calculation of fully diluted headline earnings per ordinary share is
based on headline earnings attributable to ordinary shareholders of R543,9
million (December 2006: R29 million) and the weighted average of 55 407 812
fully diluted ordinary shares (December 2006: 11 040 597 shares).
(g) Dividends
Preference dividends amounting to R4,6 million (2006: R0,957 million) were
paid during the period. 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.
(h) Net Asset Value per share
Net Asset Value per share is calculated by dividing the net asset value as at
30 June 2008 of R1,655 million (December 2006: R103 million) by 78 370 068
ordinary shares in issue as at the end of the period (December 2006: 11 040
597 shares).
(i) Significant accounting policies
Except for the adoption of IFRS 2: Share-based payments and IFRS 7: Financial
Instruments: Disclosures, the accounting policies applied by the Group in
these abridged consolidated 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.
(j) Year-end change
The Group`s year-end has been changed from December to June to fall in line
with the Global Forest Products` financial year-end.
BUSINESS COMBINATION
Acquisition of Global Forest Products (GFP)
York purchased 100% of all the shares in and shareholders` claims against
Global Forest Products (Pty) Limited and South African Plywood (Pty) Limited
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, debt facilities extended by Rand Merchant Bank Limited and a vendor
consideration issue to the Independent Development Corporation (IDC).
Approval of the purchase was ratified by shareholders on 12 July 2007.
GFP is an integrated forest products business, with its head quarters
situated in Sabie, South Africa. It manages almost 87 000 hectares of land,
predominantly pine plantations. The business also owns and operates timber
processing facilities which include three sawmills and a plywood plant. GFP
was a significant supplier of solid wood products to the South African market
and actively exported to five other countries. All land holdings of GFP are
Forest Stewardship Council certified. Plantations are classified into two
areas, namely Escarpment, situated in Sabie, Graskop and White River areas,
and Highveld. The sawmills are situated in the same areas. Goodwill
representing the difference of fair values of net assets purchased and the
acquisition price, was underpinned by the availability of own logs for the
GFP and York mills, thereby ensuring sustainability. Refer to the calculation
below.
The acquiree`s revenue and profit since acquisition date (13 July 2007) was
approximately R1,1 billion and R700 million (EBIT) respectively.
Pre Fair value Recognised
acquisition values
R`000 carrying adjustments on
amounts acquisitions
Business combinations
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 receivables 121 593 - 121 593
Cash and cash equivalents 4 868 - 4 868
Loan and borrowings (257 066) - (257 066)
Deferred tax liabilities (332 226) 36 651 (295 575)
Trade and other payables (155 053) (54 653) (209 697)
Net identifiable assets and 1 153 705 (74 669) 1 079 036
liabilities
Goodwill on acquisition 624 613
Consideration paid in cash, 1 703 649
satisfied in cash
Warranty provision refunded (14 293)
in cash by vendors
Business combination cost 32
Cash and cash equivalents (4 868)
purchased
Net cash outflow 1 684 520
Fair values of assets and liabilities
The identifiable assets, liabilities and contingent liabilities of the
acquiree that existed at the date of acquisition are recognised in the
consolidated financial statements at fair value.
Biological assets
- These were valued on the Standing Timber methodology, using the pre-fire
volumes and selling prices information available in early July 2007.
Property, plant and equipment
- Land was valued independently and the value increased by R95,6 million
- Residential and commercial buildings were valued independently and an
increased value of R35,1 million
- Industrial buildings were independently valued at replacement value, but a
fair value could not be established owing to the integration of these
businesses with the plantation business and the lack of a market for
buildings in their locality. No adjustment to carrying values was therefore
made.
- The fair value of the remaining plant and equipment by business unit was
then established by reviewing the recoverable amounts of the business units
as cash-generating units based on value in use calculations. These
calculations used in cash flow projections were based upon a detailed five-
year forecast which was based on the current installed production facilities
and business circumstances (as at July 2007). The calculations reflected the
requirement to impair assets to the value of R238,2 million over the
operations Sabie Mill, Driekop and Plywood.
Inventories of finished goods
- Finished goods were valued at selling prices less the cost of disposal and
a reasonable profit margin for the selling effort of the acquirer.
- Inventory was valued at July 2007 achieved selling prices, less a selling
margin of 5% and Warehouse Distribution costs in the case of the Plywood
division.
- Aggregate values of all business unit inventory required an upward
valuation of R415 000. Owing to the immateriality no adjustment was made.
Intangible assets
- No intangible assets were identified as part of the assets taken over.
Goodwill of R610 million was raised, being the difference between the
acquisition cost and the fair values of assets and liabilities.
Deferred tax assets and liabilities
- Acquired deferred tax assets and liabilities were recognised at the
probable amount of the tax benefit/liability that will be recovered/payable,
assessed from the point of view of the acquirer and the Group as a whole.
Indemnities in a business combination
- The contingent liabilities with respect to environmental costs were valued
and an amount of R54 million was provided for in the calculation of the
business combination.
Liabilities incurred or assumed
- The cost of a business combination included liabilities incurred or assumed
by the acquirer (Group) in exchange for control of GFP. Future losses or
other costs expected to be incurred due to the acquisitions, such as the
costs of restructuring GFP, were not part of the business combination as they
were not liabilities at the date of acquisition.
- By definition no adjustment was made for restructuring costs.
Consideration for business combination
- Consideration paid by York for the acquisition of the businesses consisted
of three parts:
- R350 million - 23 333 333 ordinary shares issued through rights offer at
R15 per share
- R500 million - 33 333 333 shares issued through "Vendor Consideration
Issue" at R15 per share
- Cash consideration of R854 million.
COMMENTARY
The 18-month financial period that spanned January 2007 to June 2008 marked
the dawn of a new era in York`s history. The Group acquired the business of
Global Forest Products (GFP) as a going concern with effect from 1 July 2007,
transforming York into a vertically integrated forestry company, including 62
000 hectares of plantations, eight timber processing mills and 3 700
employees. The GFP assets were successfully integrated into York,
notwithstanding a large plantation fire on 12 July 2007, less than one month
after the acquisition date. Management has made meaningful progress towards
achieving the Group`s three-year synergy plan to unlock additional margins as
a result of the merger. The R1,7 billion acquisition of GFP was funded with
half debt and half equity. York intends to repay the acquisition debt over an
eight-year period with cash generated by the Group`s operations.
Financial review
- Headline earnings per share (HEPS) was up 280% to 1 019 cents (2006: 269
cents). Compared to the post-merger 12-month period. HEPS was up 150% to 671
cents.
- The biological assets are fair valued at the Net Standing Value Method and
have increased 46% in value since they were acquired in July 2007. The
increase arose due to the rise in saw log prices in the South African market
as a result of the shortage in raw material. This value increase was
notwithstanding the write-off of timber to the value of R87 million as a
result of the July 2007 fires. The long-term liability arose mainly due to
acquisition finance raised to purchase GFP. The acquisition of R1,7 billion
was financed with R850 million equity finance and R850 million loan finance.
GFP already had asset-based finance loans of R257 million which were part of
the net assets acquired.
- Net Asset Value per share grew 125% to 2 113 cents (2006: 934 cents) and
Tangible Net Asset Value per share grew 42%, from 941 cents (2006) to 1 334
cents.
- The majority of revenue growth resulted from acquisition with some of the
growth being due to increases in selling prices.
- The residential building market is seasonal in nature, with the July to
December period usually being better than the January to June period.
- The increase in the Gross Margin percentage from 38% to 63% is due to the
change in the nature of the Group from a mainly manufacturing concern to that
of a vertically integrated forestry company with its own manufacturing
plants. The direct ownership of the forestry business gives York access to
its own raw material.
- During the period under review certain material items affected the results:
- The fair value adjustment of the biological asset of R607 million is
largely attributable to rapidly rising log prices. The fair value of
biological assets is discussed in detail under a separate paragraph.
- Certain restructuring costs of R8,3 million which relate to the
retrenchment cost of senior management as a result of the merger.
- Direct costs of R25,7 million relating to the fires in July 2007 of
which R3,3 million related to fire fighting, R5,3 million write-off of
roadside stocks destroyed and R17,5 million relating to additional
harvesting and re-planting costs.
- The pre- and post-merger differences show a larger proportion of earnings
going to lenders which is indicative of the change in the debt equity
structure of the Group. The larger debt is secured by the value of the
biological assets. The rationale for the increase in gearing was due to lower
risk cash flows being generated as a result of the acquisition of the large
resource of timber.
- The total net finance costs for the period amounted to R93,9 million (2001:
R3,2 million) after adjusting for the following items:
- The share-based payment of R10,4 million relates to the conversion
right of the preference shares issues to York`s Staff and Community
Trusts during March 2007. This is a once-off charge to the income
statement. The 10 million ordinary shares issued to the Staff and
Community Trusts funded by the IDC were issued at fair value and will
not attract any share-based payment charge.
- As part of the debt funding raised for the acquisition of GFP, York
entered into an interest rate swap transaction of R1,15 billion to hedge
itself against the risk of interest rate increases. In terms of IFRS the
swap has to be fair valued. The current fair value of the swap amounts
to R78,8 million. The R78,8 million income is a once-off benefit as York
intends to use hedge accounting with effect from 1 July 2009.
Segmental review
Forestry
The Forestry division had an operating margin of 32,3% for the period under
review. This is after costs of R25 million were expensed as a result of the
July 2007 fires.
Sawmilling
The decline in operating margin of Sawmilling was mainly due to the newly
acquired underperforming GFP operations. The rapid rise in raw material costs
also had the effect of reducing margins.
Plywood
The Plywood business had a difficult operational period for the six months to
December 2007, posting a loss of R9,6 million. During the six months ended
June 2008 the division posted a profit of R3,7 million.
Warehousing
Margins in the Warehousing business declined as a result of the slower market
and set-up costs incurred for expansion.
Working capital
- Net working capital increased from R36,9 million to R156 million. Net
working capital of R73 million was acquired through the acquisition of GFP.
- Working capital as a percentage of sales reduced to 6,7% as at the end of
June 2008. This was as a result of good working capital management.
- Included in the debtors are insurance collectables of R14,1 million and
forestry roadside stock and wetdeck stocks of R26,6 million, accumulated
largely as a result of the fire.
Cash flow
- Cash from operations amounted to R252 million (2006: R39 million).
- Cash flow generated during the period amounted to R50 million after capital
expenditure and before forestry acquisitions. All capital expenditure is
currently financed out of own cash resources.
Loans and borrowings and financial instruments
- The net debt after cash amounted to R970 million as at the June year-end,
with a reduction of 6% from the balance as at 31 December 2007 of R1 030
million.
- Of the loan facilities, R630 million does not amortise the capital, but
there is a bullet payment at the end of the loan period (R430 million in July
2015 and R 200 million July 2014).
- The Group has a swap agreement in place to hedge against interest rate
hikes. The swap rate is Buying at JIBAR of 9,6% and Selling at JIBAR of
12,3%. The swap agreement was fair valued as at the end of June 2008 at
R78,08 million.
- The Group complied with all of its debt covenants during the period under
review.
Biological assets
- As at the year-end, the Group had 55 237 ha of planted pine and eucalyptus
at varying ages and 5 718 ha of unplanted areas.
- The hectares of timber younger than four years was 14,781ha and four years
and older was 40 352ha.
- Depending on the age of the trees, a hectare would have an estimated volume
(m3) of timber available at any point of time.
- The current estimated volume of all timber older than four years is 4 489
867m3 of pine and 339 779m3 of eucalyptus. The Group does not estimate a
volume for trees that are younger than four years.
- For the timber four years and older and based on the market prices for each
m3 of timber, a value is calculated. The timber that is younger than four
years is valued at cost incurred (actual planting and maintenance costs).
- The average price per m3 of timber is R403 after deducting the harvesting
costs of approximately R75 per m3 of standing timber. During the period under
review market prices rose by 69%.
The timber is valued as follows:
Timber younger than 4 years R41 488
Timber 4 years and older R1 947 876
Purchased of Standing Timber R6 294
Net standing value R1 983 070
Market conditions
York`s sawn timber market share increased from 8% of the Southern African
market in December 2006 to 19% of the market in June 2008, following the
acquisition of GFP. Market conditions were tough during the period under
review due to the slowdown in residential construction and a temporary
oversupply of timber caused by surplus logs being processed by the industry
as a result of fire salvage operations. Recent wide-spread fires in September
2008 are likely to extend the log salvage operations and temporary oversupply
deep into 2009 until the last of the recently burnt plantations have been
salvaged. These latest fires will however further compound the long-term
shortage as many of the trees that were damaged were under eight years old
and are not salvageable.
During the period under review, industry log prices rose 69% whilst sawn
timber prices rose by 24%. Processing operations throughout the timber
industry experienced margin squeeze and several inefficient mills were forced
to close.
York`s recently acquired Driekop sawmill was damaged in the 2007 fire and is
currently being rebuilt for commissioning in March 2009. Benefits from the
reinstatement of the damaged mill will only be fully evident during the 2010
financial period.
Forest fires
Forestry operations were disrupted by the worst plantation fires in South
Africa`s history in July 2007. Almost 11 000 hectares of York`s plantations
were affected by the fires that also destroyed 6,5% of South Africa`s pine
sawlog reserves. Once the fires had been contained, the damaged trees were
felled and either processed or stored under irrigation. By June 2008, more
than half the total burnt area had been replanted. The remainder of the burnt
areas will be replanted within the next 12 months.
The effects of the fire negatively impacted York`s operational cash flow
during the year under review as a large volume of burnt logs had to be felled
and stored under permanent irrigation (SUPI) for processing during the next
financial period and replanting of the vast burnt areas is being telescoped
into a two-year period to normalise the growing regimes as quickly as
possible. On a positive note, the processing of SUPI log stocks during the
next 12-month period will result in additional working capital being
unlocked.
Timber warehousing
This division has operated since 2002 from York`s Cordelfos Warehouse in
Pretoria West and has recently been expanded to supply the KwaZulu-Natal and
Western Cape markets. The Warehouse operation is geared to supply the smaller
retailer, as well as York`s larger customers. Whilst York`s warehouses
purchase most of their timber from suppliers in the Southern African market,
the medium-term objective is to warehouse and distribute imported timber to
the Group`s customer base. The warehouses will enable York to maintain and
grow its market share in the sawn timber market once import parity is
breached and South Africa is forced to import timber to overcome the forecast
long-term timber shortage.
Dividends
Taking into consideration the debt facilities extended by York`s bankers for
the GFP acquisition and other growth plans, no dividend (save for preference
dividends) was declared during the period under review. During the previous
year no dividend was declared.
Strategy
York`s short-term strategy is to procure further plantations in close
proximity to its existing operations. These acquisitions will provide York
with further growth and improved sustainability as the group becomes
increasingly self sufficient. In addition, management will focus on reducing
costs and improving efficiencies of the recently acquired GFP operations.
Outlook
Notwithstanding slower trading conditions in 2008, York is well positioned to
benefit from the timber shortage and eventual timber imports. The Group is
approximately 60% self-sufficient from its own timber plantations, owns seven
modern, well-managed sawmills and a plywood mill and is focusing on further
acquisitions, locally and abroad, to increase its ownership of forestry
resource. The substantial cost savings being implemented, together with
improved efficiencies, will ensure that York is well positioned to meet its
objectives during the current market downturn so as to reap the benefits once
the economy begins to improve.
Lance Cooper John Lehman
Chief Executive Officer Chief Financial Officer
17 September 2008
Executive Directors:
Lance Cooper (CEO), John Lehman (CFO),
Gay Mokoena (Director Corporate Services)
Non-Executive Directors:
Jim Myers (Chairman, USA), Andrew Bonamour,
Paul Botha, Dick Claunch, Shakeel Meer,
Tlhopheho Modise, Simon Murray, Piet Odendaal
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 (Proprietary) Limited
70 Marshall Street, Johannesburg 2001
PO Box 61051, Marshalltown 2107
www.york.co.za
Date: 17/09/2008 12:00:01 Supplied by www.sharenet.co.za
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