Chairman’s report

ANOTHER YEAR OF GROWTH FOR YORK

This continues the sound foundation over the past six years and bears testimony to the focus on cost-efficiency in all operations, together with significant expansions in capacity and improved technology.

  • Revenue increased by 3% over the previous year
  • Net profit after tax increased by 54%
  • Headline earnings at R369 million is 55% up on 2016
  • Biological assets appreciated by 21% to R2 828 million
  • Underlying tangible net asset value of 1 007 cents per share represents an increase of 21%

York has produced another pleasing set of results, with growth in revenue, profit and underlying assets.

SOUTH AFRICAN ECONOMY UNDER PRESSURE AND YORK RESPONDS

Despite a gradually improving global growth outlook, stronger global commodity prices and an improvement in local weather conditions, domestic growth remains under pressure.

This has also had a contracting effect on consumer confidence. The Rand remains volatile amid political uncertainty and socio-economic protests.

York has responded to the recessionary economic environment by continuing to keep costs in line and thereby continuing to deliver good financial performance. This is coupled with a strong focus on customer service, ensuring that customers receive the best products, at the right time and at competitive pricing, York is increasing its use of state-of-the-art technology in production and harvesting to support its intense focus on financial strength and customer satisfaction. This is reflected in the substantial investment in increased capacity. York also makes significant investments in research and development of disease-resistant species and analysis of varying soil conditions across its plantations to enhance optimum growth of the sustainable biological asset.

Sales in the export market continue to grow, capitalising on better growth in other emerging economies.

Although there have been numerous bid delays, York remains committed to its strategy of expanding its revenue base by exploring biomass electricity opportunities through its participation in the REIPPPP or on an alternative platform.

STRONG MANAGEMENT AND SKILLS DEVELOPMENT

The Board remains very appreciative of the good work and dedication shown by the high-quality senior management team.

We are also confident that York’s extensive Human Resource initiatives will continue to address balanced employee skills development and ensure that it has focused, qualified and motivated employees to meet its strategic goals.

The close working relationship between directors and management will ensure that the interests of shareholders and all other stakeholders are reflected in the strategic objectives of the Company.

SOCIAL DEVELOPMENT

York continues to provide a safe working environment for all its employees and contractors.

It also places strong emphasis on community development and contributions through directed programmes. York acknowledges that its forests and operations touch the livelihoods of a large number of people and therefore engages with the communities in which it operates.

OUTLOOK

The Company continues its focus on opportunities for growth that will benefit all stakeholders. The biological assets are showing good growth and are expected
to improve even further as new, well matched species are added to York’s healthy sustainable forests. The increased capacity of the Plywood Expansion Project has now been commissioned and further technological improvements and expansions are already in progress to support the growth strategy. York has the intellectual, human and financial resources to deliver on this strategy and enhance its standing as a responsible corporate citizen.

APPRECIATION

I thank my fellow directors for their active participation in setting York’s strategy. I am grateful for the dedication and hard work of the Chief Executive Officer, Pieter van Zyl, and his senior management team. They continue to grow and embrace technology in delivering on the Company’s strategy. We also extend our heartfelt appreciation to all York’s employees for their extra effort.

Dr Jim Myers
Chairman
22 September 2017

Chief Executive Officer’s report

SOLID PERFORMANCE IN TOUGH CONDITIONS

York delivered a solid performance in 2017 in trying macro economic circumstances

Revenue grew by 3%

Locally, sales volumes in most product categories were down due to the absence of economic growth and lack of confidence in the construction sector. York’s market share increased in the subdued local lumber and plywood markets. York has successfully entered new international markets, where demand remains strong. The East and West African regions have shown positive growth.

EBITDA is up 3%

The Wholesale strategy has reduced distribution costs and given York the ability to respond quickly to customer buying patterns. The full benefit of the Plywood Expansion Project is not yet being realised. As York becomes more efficient in distributing products for the export market, costs will be reduced.

Net profit increased by 54%

This was driven by a 21% growth in the value of the biological assets. This includes an adjustment for York’s improved rotation age cycle of its plantations, brought about by applying precision forestry practices and improved genetic planting material. There is an increase in the calculated headroom of goodwill, resulting in no risk of impairment. The biological assets’ value is a fair reflection of its current market value.

Earnings per share up 59%

As York continues its share buyback programme, earnings were spread over a lower number of shares, hence outpacing the growth in net profit. The Board of Directors believes that York’s share price does not reflect the underlying value of the Company and will request approval to continue its share buyback programme. Core earnings per share is, however, down due to increases in depreciation and interest paid.

Return on equity improved from 9% to 12%

This was achieved through fair value adjustments from maintaining a healthy biological asset, reducing long-term cost of funding and interest received on positive cash fl ow achieved throughout the year.

Net asset value per share is up 17%

York invested a further R154 million in its processing capabilities and R59 million in standing trees.

Cash generated from operations remains positive at R170 million

At year-end, York had R159 million in cash and sufficient cash reserves to fund the increase in working capital.

PROGRESS AGAINST YORK’S STRATEGIC INITIATIVES

In the 2016 integrated annual report, York crystallised its medium-term targets (inclusive of the Biomass Power Plant Project) for achievement within three years. The results of the past year made some inroads towards achieving these goals:

  • Positive cash generation and growth in EBITDA
  • York continued with its share buyback to support total shareholder return. (The share price does not reflect the value of the Company).
  • Sustainable asset management practices and growth in net asset value
  • Strategic alignment of the Company to be competitive and operate on a sustainable basis.

Medium-term targets will be revised if there is no further progress in the REIPPPP by 30 September 2017.

TIMBER PROMISE

Consumers are committing to greater use of timber for housing, furniture, doors, frames, decking and other innovative purposes. Through their willingness and desire to adopt wood for its aesthetic value and wider applications, the industry can respond by delivering on these needs.

Timber has substantial benefits for users as it is a sustainable resource, carbon positive, sustains rural development and is structurally and architecturally appealing. York continues to invest in scientific research to better understand the advantages that wood properties possess. The benefits of wood properties have not yet been fully exploited and this provides exciting opportunities for enthusiasts to unlock these benefits.

Expanding needs and the wider base of customers from diverse sectors in housing, tourism upgrades, adventure tourism, furniture manufacturing and engineering will in turn drive greater demand that will lead to significant job creation, skills development and stimulation of the timber industry.

That is the timber promise.

FUTURE OUTLOOK

South Africa’s economy is technically in a recession, with low consumer confidence and spending, particularly in the building and construction sector. This downturn has been worsened by Government’s inability to deliver and execute its projects. York will therefore scale down its operations in line with demand and expand into new markets with higher value product in niche, rather than volume markets.

The insourcing of mechanical harvesting and transport has proven to be very successful and York will continue introducing further appropriate technologies and equipment upgrades. Traditional costs associated with outdated forestry practices are being replaced with better utilisation of capital equipment, fuel load reduction, improvement in tree breeding and enhancing the genetic selection for better planting material that will respond more effectively to growth sites.

Sustainable raw material supply is key to the success of York’s growth strategy. South Africa has limited permissible area available to expand its forestry footprint. York is therefore exploring options in expanding its forestry operations outside of South Africa.

The plywood operation is set to deliver the expected results and is currently achieving the defined and required operational specifications. The commissioning of the higher-capacity press will allow York to further increase volume output and produce a wider product range aimed at the export market.

It is unfortunate that there has been no announcement for the preferred bidder of the REIPPPP submitted under the expedited 4b window.

York is exploring alternative options to participate in the energy market as this remains a very viable revenue stream.

York is expanding its warehouses, with the aim of making York’s customers successful in challenging market conditions.

THANK YOU

I would like to thank everyone at York for their hard work in the past year. A special thank you goes to the Board of Directors for their mature guidance of York’s strategy and the management team for their extra effort. We have shown that not only trees grow at York, but our people as well.

Pieter van Zyl
Chief Executive Officer
22 September 2017

York’s summarised strategy will be focusing on the following nine key areas to improve quality of earnings and diversifi cation of revenue.