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YRK - The York Timber Organisation - Interim Financial Results For
The Six Months Ended 31 December 2008
Press Release
The York Timber Organisation Limited
(Incorporated in the Republic of South Africa)
(Registration number 1916/004890/06)
Share code: YRK
ISIN: ZAE000008108
INTERIM FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2008
The York Timber Organisation Limited has announced its interim results
for the six months to 31 December 2008. Comparing the results to the pro
forma corresponding six-month period to 31 December 2007, headline
earnings per share (HEPS) was 27.4 cents, 84.2% down on the comparable
period. After accounting for the fully convertible preference shares
issued in the company`s BEE transaction in February 2007, fully diluted
HEPS declined 84.4% to 26.5 cents.
"The main reason for the decline in HEPS was a materially reduced fair
value adjustment of R5.4 million (2007: R239.9 million) to biological
assets when compared to the previous period," says York CEO Lance Cooper.
"This was because there were no log price increases during the period."
As a result of weaker market conditions, revenue decreased 3.3% to R660
million. Gross profit declined by 16.9% as a result of margin pressure
caused by rising input and raw material costs that could not be passed on
to York`s customers due to market conditions.
Operating profit was up 9.5% from R97.4 million to R106.6 million,
including the 2007 fire insurance settlement. Of this insurance income,
R27.8 million was for business interruption and R50.2 million was once-
off amounts for capital expenditure for the Driekop sawmill rebuild.
.
Inventory values increased by 54.5%, mainly due to log salvage operations
necessitated by the 2007 and 2008 forest fires. Receivables and other
debtors decreased by 15.8%, resulting from the reduced turnover, whilst
debtors` days showed a marginal weakening.
Market conditions
Demand for sawn timber decreased during the latter half of 2008.
The Institute of Timber Construction`s statistics show a 17% decline in
timber utilisation in plated roof trusses in 2008, mainly attributable to
the decrease in domestic housing construction. Production capacity in the
industry is currently declining as less efficient sawmills close and
existing mills decrease production.
The market for Plywood remained strong as a result of the substantial
volumes of timber consumed in large, mainly government-funded
infrastructure projects.
"Overall, the negative market impacted York`s operations and resulted in
a decrease in turnover, cash flow and gross profit. Log inventories
increased as a result of the salvage operations of fire damaged logs from
the 2007 and 2008 fires, the slowdown in demand and lower production at
our sawmills," says Cooper.
Insurance claim settled
The insurance claim arising from the 2007 fire at the company`s Driekop
sawmill was settled and the underwriters have undertaken to pay the final
outstanding amount of R64 million in March 2009. The proceeds from the
R190 million claim were utilised to rebuild thesawmill and compensate for
business interruption over a period of 19 months.
Operational review
Early in the period, several projects aimed at enhancing York`s long-term
sustainability were executed. Capex of R12 million was incurred to
improve operational efficiencies and strengthen fire fighting
capabilities.
An amount of R9 million was invested in replanting 3 080 hectares of
timber damaged in plantation fires in order to facilitate commercial
rehabilitation over the shortest space of time and restore normality to
York`s plantations and ensure its sustainability.
Towards the end of 2008, trading conditions deteriorated resulting in
most capex projects being put on hold, whilst replanting of the remainder
of the burnt areas was slowed. Management has implemented a stringent
cost control programme to improve internal efficiencies and increase
sales volumes, while carefully monitoring debtors.
"Management continues to focus on unlocking synergy benefits and
improving efficiencies throughout the company. Rationalisation of
marginal sawmills is under consideration to reduce sawn timber output to
80% as a result of reduced market demand for timber products. The
decrease in sawmilling volumes will result in an improved ratio of own
timber processed to bought out timber and is positive for margins and
cash flows," says Cooper.
A R9 million upgrade of the Sabie sawmill was carried out between
September and December 2008. The upgrade has resulted in labour savings,
an improved product mix and higher recovery rates. Production at the
sawmill, which was disrupted throughout the period of the upgrade, was
restored to normal levels in January 2009. The lower production volumes
during the upgrade helped to avoid a build-up of finished goods stocks as
a result of the weak market.
The Driekop sawmill will be rebuilt at an estimated cost of R120 million
and will commence production in April 2009, when the Driekop auxilliary
and temporary sawmills will be closed to avoid placing additional
production on the market. "The new Driekop sawmill is being rebuilt to
replicate York`s successful Nicholson & Mullen and Jessievale sawmills
and an improvement in margins is expected as the sawmill increases
production output," says Cooper.
For a second successive year, widespread fires damaged major areas of
plantations throughout South African. Damage to York`s plantations at
2 000 hectares was considerably lower compared to damage suffered in 2007
and the losses were covered by insurance. The total industry volume
damaged in the 2008 plantation fires exceeded 40 000 hectares compared to
84 000 hectares in 2007, making 2008 the second-worst fire year in the
history of South African forestry. Once the surplus of logs arising from
the accelerated harvesting and salvage operations has been depleted, it
is forecasted that industry log availability will decrease for at least
the next 25 years.
Outlook
"Whilst adverse trading conditions are expected to continue throughout
2009, York`s cash flow is expected to improve as the excess fire salvage
log inventories are reduced. The positive impact of the rebuilt Driekop
sawmill will contribute to improved margins later in 2009, supported by
efficiency gains at York`s other sawmilling operations that will continue
throughout 2009, the possible cost savings at marginal sawmills and an
improved ratio of own timber processed. In addition, cost control
measures implemented in 2008 have begun delivering savings in the current
period," concludes Cooper.
About YORK
The York Timber Organisation Limited, which is headquartered in Sabie,
Mpumalanga, is South Africa`s largest vertically integrated solid wood
products group, growing pine and eucalyptus on 61 000 hectares, and
converting logs to sawn timber through seven mills and a plywood plant to
serve a range of building, construction, infrastructure, furniture and
packaging markets.
SSUED FOR : YORK TIMBER HOLDINGS LIMITED (YORK): 013 764 9200
CONTACT : Lance Cooper, CEO: 083 227 4700
FAX NO : 013 764 1164
E-MAIL : lcooper@york.co.za
WEBSITE : www.york.co.za
ISSUED BY : YORK Corporate and Investor Communications
CONTACT : Tish Stewart 011 442 5536 / 082 443 6399
FAX NO : 011 447 9317
E-MAIL : tishstewart@mweb.co.za
DATE : 04 March 2009
Date: 04/03/2009 12:01:02 Supplied by www.sharenet.co.za
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