York Timber Holdings Limited · JSE:YRK
York Timber — FY2011 Earnings Presentation
47 slides from York Timber's earnings presentation, Oct 13, 2011
Slide 1: Investors' Presentation: Annual Financial Results 2011
Investors’ Presentation Annual Financial Results 2011 1
Slide 2: History of York
History of York • Incorporated in 1916 and listed on JSE in 1946 • Organisation was tightly controlled by the Tucker family, who sold out to Blackstar in 2006 • York then acquired Global Forest Products in 2007 making it the largest vertically integrated solid wood processor in Southern Africa • Man
Slide 3: Major Stakeholders
Major Stakeholders Image – good firefighting/detection CoroCapital Limited 3
Slide 4: Performance against 2010 – Focused Areas
Performance against 2010 – Focused Areas Cost Optimisation Reduced cost per unit by 9% Resource Optimisation EBITDA Margin: 20.3%-2011 (10.2%-2010) Maximising cash flow Increase by 84% Improving Biological Assets Value Increased R14.7 million Maintain Market share Volumes up by 11.5% and R
Slide 5: York acquired GFP in 2007 to become SA's largest vertically integrated forest products group
York acquired GFP in 2007 to become SA’s largest vertically integrated solid wood processing forest products group • York is the largest privately owned forestry and timber company in South Africa • The largest lumber and plywood manufacturer in Southern Africa • The 2nd largest plantation owner by
Slide 6: York is a vertically integrated forest products group and a leading player in its market
York is a vertically integrated forest products group and a leading player in its market Plantation Concession Sawmiller Wholesaler Retailer Owner Holder York – 100% owned operations 2nd Biggest – Minority Shareholder at Subsidiaries and Lease Plantations 3rd Biggest – Minority Shareholder at Subsid
Slide 7: At the end of 2008 it became clear that York had to restructure
At the end of 2008 it became clear that York had to restructure • Sales volume declined by 30% • Two of the worst fires in history put pressure on industry financials (±R45m EBITDA and ±R100m in cash cost of increased stock) • Burnt timber that could be salvaged temporarily flooded the market, maski
Slide 8: Results of Restructuring of York
Results of Restructuring of York • Capital Restructure • R500m rights offer • R450m debt repayment • Reorganised and right-sized company • R78m reduction in fixed cost structure • Closure of three sawmills • New experienced senior management • Integrated remuneration strategy introduced • TGRP, Vari
Slide 9: Financial Results
Financial Results a\ TIMBERS
Slide 10: EBITDA Improvement for 2011
EBITDA Improvement for 2011 200000 R28 230 R194 970 180000 R21 013 160000 R49 782 140000 120000 Profit (R’000) 100000 R95 945 80000 60000 40000 20000 0 2010 Revenue Growth Cost of Sales Cost Reduction 2011 Optimisation 10
Slide 11: Annual Results – Year Summary
Annual Results – 4 Year Summary $1,000,000 $800,000 $600,000 $400,000 Profit R'000 $200,000 $0 2008 - 18 months 2009 2010 2011 -$200,000 -$400,000 -$600,000 Operating Profit Insurance and other Net interest paid Hedge interest paid Hedge profit taken Hedge interest equity release Valuation - net of
Slide 12: Annual Results Summary
Annual Results Summary a\ YORK TIMBERS R'000 Audited Audited % 2011 2010 Change Group Revenue 959 143 909 361 5% Gross Profit 420 912 350 117 20% Gross Profit Margin 44% 39% 14% Operating Profit 161 897 69 264 134% Net profit Before Finance Costs 63 459 -30% Net Cash Finance Costs 100 370 124 769 -2
Slide 13: Six Month Analysis – Volume, price and margin
Six Month Analysis – Volume, price and margin 250 000 2 650 2 600 200 000 2 550 R/m3 Product Sold at Gate 2 500 Volume Sold (m3) 150 000 2 450 2 400 100 000 2 350 2 300 50 000 2 250 - 2 200 30% 30% 34% 43% 47% 41% Volume ASP York Gross Margin will be impacted as more external logs are purchased 13
Slide 14: Balance Sheet Trend – assets versus liabilities
Balance Sheet Trend – assets versus liabilities 4,000,000 700 3,000,000 600 2,000,000 500 Cent/ share 1,000,000 400 R’000 0 300 2008 2009 2010 2011 -1,000,000 200 -2,000,000 100 -3,000,000 - Biological asset Property, plant and equipment Goodwill Cash Interest bearing borrowings Deferred tax Provisi
Slide 15: Cash Flow Trend
Cash Flow Trend R 125,000 R 125,000 R 100,000 R 100,000 R 75,000 R 75,000 R 50,000 R 50,000 Cash Balance (R'000) Cash Flows (R'000) R 25,000 R 25,000 R0 R0 -R 25,000 -R 25,000 -R 50,000 -R 50,000 -R 75,000 -R 75,000 -R 100,000 -R 100,000 Cash Retained from Operations Cash Utilised in Investing Activ
Slide 16: Biological Asset
Biological Asset a\ TIMBERS
Slide 17: York's primary asset is its forests – a renewable asset with significant option value
York’s primary asset is its forests – a renewable asset with significant option value Pine Plantations Eucalyptus Plantations 30 3rd Clearfell 30 2nd Thinning Thinning 400 to 250 Clearfell 25 650 to 400 25 1st Thinning 1 356 to Prune 650 20 Height (m) 20 7.0 m Height (m) Prun e 15 15 5.0 m Brash Pru
Slide 18: Biological Asset: Sustainable Yield, Annual Cut vs Standing Volume
Biological Asset Sustainable Yield Annual Cut vs Standing Volume 1,200,000 9,000,000 8,500,000 1,000,000 8,000,000 Annual Net Standing Volume (m3) Annual Volume Off Take (m3) 800,000 7,500,000 600,000 7,000,000 6,500,000 400,000 6,000,000 200,000 5,500,000 0 5,000,000 2012 2013 2014 2015 2016 2017 2
Slide 19: Biological Asset Valuation Methodologies
Biological Asset Valuation Methodologies • Net Standing Volume (NSV) - Total Standing volume of trees at point in time after 27% downward adjustment for risk factors - Volume multiply by prevailing market prices • Discounted Cash Flow (DCF) - Planted area with age class distribution of trees after 2
Slide 20: Explanation of DCF Valuation Method
Biological Asset Explanation of DCF Valuation Method Pine Yield Prognosis 1200 000 Growth of past and recent plantings Growth of future plantings No establishment costs All cost associated 1000 000 accounted for Reflected in Balance sheet 800 000 Plantation Volume m3 Value used to 600 000 test Goodw
Slide 21: Biological Asset Sensitivity Analysis
Biological Asset Sensitivity Analysis Variable 2011 R’000 2010 R’000 1% increase in the current log prices 32 346 30 804 0.25% increase in forecasted log prices 78 633 82 258 0.25% increase in forecasted cost inflation rise (23 570) (23 727) 0.5% increase in pre-tax cost of debt (25 884) (25 532) 0.
Slide 22: Debt Refinance
Debt Refinance a\ TIMBERS
Slide 23: R2.75 bn of gross tangible asset value underpins York's debt
R2.75 bn of gross tangible asset value(1) underpins York’s debt York’s quality assets • >4 times asset cover (2) on current term facilities • Regularly enumerated by way of physical counting of trees – MicroForest model updated accordingly • Asset has been regularly verified by 3rd party monitors •
Slide 24: Debt – existing structure
Debt – existing structure Effective Fixed Interest rate at reporting date Effective R 000 (fixed by interest Variable Interest Audited Audited rate swap as rate at reporting 2011 2010 appropriate) date Fixed rate borrowings 576 375 634 296 RMB Senior Term A 63 836 80 300 12.83% 8.83% RMB Senior Term
Slide 25: A number of alternative financing options have been investigated
A number of alternative financing options have been investigated Option Description • Investors primarily comprising asset managers High Yield Bond • Usually no capital repayments = free up cash in the business • Usually covenant “light” = only have incurrence covenants • 8 – 12 year debt – amortise
Slide 26: Debt – salient terms with Institution A compared to existing
Debt – salient terms with Institution A when compared to existing Feature Institution A (term sheet subject to DD) Existing Quantum R600m R600m Term 10 years Less than 3 years (senior) Less than 4 years (mezz) Rate More favourable than existing Jibar plus 6.1% (increasing to 8%) Profile Sculpted amo
Slide 27: The Market
The Market
Slide 28: International lumber prices are expected to increase substantially in the next 4 years
International lumber prices are expected to increase substantially in the next 4 years (1) as international demand exceeds supply Demand Issues Supply Issues • Explosive demand is forecast in China / Chile as • The majority of wood was previously sourced from regulators encourage wooden frame houses
Slide 29: South African supply in 2010 believed to be 20% below demand
South African in 2010 is believed to be 20% below demand and is expected to drive prices upwards Crickmay Estimates of Demand and Supply Gap (1) • Cash strapped forest owners have been (1) 3 Actual supply/demand gap Volume (m ) felling immature timber to generate cash in Timber sales (June 2009 - Ma
Slide 30: Key Drivers of Lumber Sales
Key Drivers of Lumber Sales Cum Y/Y % Change: Local Building Lumber Sales (m3) vs Total BPP (m2) : January 2002 - July 2011 (Source: Crickmay Associates, BMI-BRSCU Workings) 70% 50% 30% 10% -10% -30% -50% Apr 02 Oct 02 Apr 03 Oct 03 Apr 04 Oct 04 Apr 05 Oct 05 Apr 06 Oct 06 Apr 07 Oct 07 Apr 08 Oct
Slide 31: Key Drivers: Building Product Groups by value
Key Drivers The market for major Building Product Groups by value: 2009 (Source: BMI-BRSCU) 0% 2% 4% 6% 8% 10% 12% 14% 16% Roofing and Vertical Cladding 4.90% Ceilings and Partitioning 1.40% Walling 8.10% Paving 1.50% Wall Tiles 1.52% Flooring 6.98% Cement 14.29% Aggregate and Sand 7.15% Reinforcing
Slide 32: York Market Segmentation
York Market Segmentation 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% Overseas Export Nam & Neigbourhing FS & Lesotho Eastern Cape W, S, N Cape KZN MPU/LIM/NW Gauteng 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% Actual Market Share Magnitude of Regional Market With a 26.74% market share (20% a
Slide 33: Customer Profile
Customer Profile Source: York’s estimates of the cost of the impact of various market forces Maintain a 40% / 60% split to ensure no over reliance on Corporate customers 33
Slide 34: Pricing: Industry Indicators
Pricing: Industry Indicators PRODUCER PRICE INDEX (PPI) OF SELECTED BUILDING MATERIALS: JAN 2002- APRIL 2011 (Source: StatsSA; BMI-BRSCU Workings) 320 310 300 290 280 270 260 250 240 230 220 210 200 190 180 170 160 150 140 130 120 110 100 90 July July July July July July July July July May May May M
Slide 35: Pricing dynamics
Pricing dynamics 120.00% 100.00% 80.00% 60.00% 40.00% 20.00% 0.00% SA Pine Kiln Dried Cum Building & Construction Cum CPI Cum LPI Cum Source: York’s estimates of the cost of the impact of various market forces Sawmill prices versus Retail prices 35
Slide 36: Strategy
Strategy a\ TIMBERS
Slide 37: York Strategy Implementation: Strategic Filter
York Strategy Implementation Internal Increased resource Skill Set Improve Strategic footprint Position Supply Chain Optimisation Cash Resource Generation optimisation Expand Product Market Range turnover Synergies to York’s benefit Strategic Filter York has identifying strategic growth potential op
Slide 38: York Strategic Objectives
York Strategic Objectives Strategic Value adding of Increase product Expand biological Energy – thermal products below Growth range footprint and electrical cost of sale Cost Lowest cost Cost effective Technology and Focused manufacturer in plantation Leadership innovation driven engineering South A
Slide 39: Benchmarking in ZAR - Forestry
Benchmarking in ZAR - Forestry Benchmark target for cost saving in Forestry is R39.4m, achievable through log optimisation 39
Slide 40: Key Projects for Cost Optimisation: Forestry
Key Projects for Cost Optimisation Forestry Improved Logistics Log Control Third Party Logs Silviculture Mechanised Site Specie Acquire Specific Log Tagging Harvesting Matching Dimensions Genetic Tree Length Long Term Improvement/Hy Log Scanning Extraction Contracts brids Inbound Tending & Swap Weig
Slide 41: Benchmarking in USD - Sawmilling
Benchmarking in USD - Sawmilling York Target Australia York South Africa Germany Austria Czech Rep. Southern Sweden China Labour Cost Finland Other Direct Cost New Zealand Overhead - Admin Brazil Net Wood Cost Siberia EBITDA Canada - Ontario USS - East Chile 30 USD USS - West per m3 Canada Prairies
Slide 42: Key Projects for Cost Optimisation: Processing
Key Projects for Cost Optimisation Processing Sabie Sawmill Plywood Integrated Site Jessievale New Additional Wetmill line. Plant Layout Dedicated Log Yard Wet Mill Upgrade Driekop Performance Automated Green New Resin Film Tree Length Boiler / Kilns Chain Line Optimisation Log Yard Co-Generation Pl
Slide 43: Social Upliftment
Social Upliftment Schools Career SMME Business Mushroom Retrenched Days Support Picking Project Employees • Understanding the • 165 pre- selected • 1609kg mushrooms Project World of Work and individuals in harvested within 20 • 195 beneficiaries Careers business skills with days received Cabinet • I
Slide 44: Key Challenges
Key Challenges DEA – Court Industry Siviculture Renumeration consolidation Log Purchasing Case Baboon Control Fire Season Strategy Improvements Plan Ongoing concern Reaching the end Substantial Contractor Based on value Plea bargained Too many saw Forestry South Poor season – volume acquired perform
Slide 45: York offers an attractive investment opportunity
York offers an attractive investment opportunity • Following the unprecedented industry difficulties in 2009, York restructured to align with the current market conditions • York is now best positioned among its peers for the current market – and stands to benefit from any improvement in demand • Yo
Slide 46: The timber asset class is receiving increasing global interest
The timber asset class is receiving increasing global interest due to favourable value drivers and asset class features • Dual value appreciation features : − Income from harvesting - forecast to increase over time due to the scarcity of trees locally and internationally − Capital appreciation - tim
Slide 47: Thank You Question Session
Thank You Question Session a\ TIMBERS