A 21% appreciation in the value of York Timber’s commercial plantations to R2.8bn in the year to June helped to boost earnings per share by 59%, offsetting weak local market conditions.
The value of these assets rose because the rotation age cycle was improved, precision forestry was applied and the genetic planting material was enhanced, York Timber said on Tuesday. Excluding this revaluation, core headline earnings fell to 17c from 31c a share.
York’s shares, which are not highly liquid, slipped 1.2%, to 247c after the results were released. They are 13.3% lower than a year ago and at a deep discount to the latest net asset value of 943c a share.
Management intends to seek permission from shareholders at the forthcoming annual general meeting to continue buying back the shares, since they are not reflective of the underlying value. In the past year, 4.6% of the shares were repurchased.
Last week, York said it was negotiating with a Norwegian-based company, Green Resources, which owns forestry assets in Tanzania, Uganda and Mozambique, about combining the two businesses.
If discussions were successful, it would create a geographically diversified business of a scale to access international capital markets for investment.
York Timber CEO Pieter van Zyl said final details and due diligence were still being finalised and he could not provide any financial information at this stage. He said Green Resources, a private company mostly owned by Norwegian investors, had invested a great deal in its plantations in the past 20 years.
The combined entity would have about 108,000ha of cultivated hectares and about 122,000ha available to plant.
Although York Timber’s sales in SA were depressed by the static economy and lack of confidence in the construction sector over the past year, international demand for plywood was strong.
York grew its market share in West and East Africa.
A 17% price hike from state-owned forestry company Safcol, which York Timber considered to be unreasonable, added to local operating difficulties as York sourced logs from elsewhere while it held discussions with Safcol to resolve the matter. Bringing logs to its Mpumalanga sawmills from further away added to logistical costs.
York sources about 37% of its logs from third parties including Sappi, Mondi and farmers, to supplement its own material.
The company has invested a total of R410m in a plywood expansion project. It had to source from internal cash resources an additional R70m on top of the original budgeted R340m to buy a new higher-capacity press as two older presses are failing.
Van Zyl said the efficiency of the new press, to be commissioned in February, would improve the value of the final products by 10%-15% above the original targets.