York Timber Holdings Limited Investor Presentation 30 June 2014 - - PowerPoint PPT Presentation

York Timber Holdings Limited

York Timber Holdings Limited

Investor Presentation 30 June 2014 Results

York Timber Holdings Limited 2

Comparative Financial Results

 Revenue Compounded Annual Growth Rate (CAGR) 8.4%  Significant improvement of 42% in cash flow from operations when compared to the prior year  Biological asset growth CAGR of 2.1%

R'000 Audited % Audited % Audited % Audited 2014 Change 2013 Change 2012 Change 2011 Group Revenue 1 323 976 17% 1 131 994 2% 1 112 843 16% 959 143 Gross Profit 431 958 5% 410 298

• 3% 421 519

0% 420 912 Gross Profit Margin 33%

• 10%

36%

• 4%

38%

• 14%

44% Operating Profit 116 811 -28% 161 365

• 3% 166 068

3% 161 897 Operating Margin 9%

• 38%

14%

• 4%

15%

• 12%

17% Net Cash Finance Costs 56 440 3% 54 672

• 33% 81 353
• 19% 100 370

Cash Flow From Operations 151 461 42% 106 486 -46% 197 087 5% 187 239 Biological Assets 2 103 092 0% 2 100 870 1% 2 070 222 7% 1 936 398 Interest Bearing Borrowings 562 616

• 6% 597 173

7% 558 400

• 9% 614 225

Net Working Capital 213 182 18% 180 446 51% 119 372 5% 113 460 Earnings 49 757

• 53% 106 864 -22% 137 818 260% 38 317

Earnings Per Share (cents) 15 -54% 32 -22% 42 247% 12 TNAV Per Share (cents) 706 3% 688 5% 655 7% 612

York Timber Holdings Limited 3

Cost escalation of 24% related to acquisition of wholesale division Cost optimisation delivering benefits Gross profit margins decline by 3% but, York old GP intact when compared to prior year Operating margin declined by 5% Abruptness of wage increases, internal transport and utilities and purchase of external logs impacted cost base

Financial Year 2014: Explanation of Cost and Margin Movement

Margin Movement Explained Cost Movement Explained

2013 Financial Year 2014 Margin Explained Prior Year Combined York old Roodekop & Epping Revenue 1 131 994 1 323 976 1 158 628 165 348 Cost of sales 64% 67% 64% 91% GP% 36% 33% 36% 9% Operating Margin % 14% 9% 11%

• 7%

Total cost (Revenue - Operating margin) 1 207 165 Cost movement 2013 to 2014 236 536 Reconcilliation 24% External log purchase movement 35 781 Fixed cost contribution from Roodekop & Epping 63 549 Increased cost of sale due to merchandising trading 151 017 Other

• 13 812

236 536

York Timber Holdings Limited 4

Prices on lumber increased by 2.8% (less than CPI) Purchased 23.3% more logs from external parties to preserve own plantations as maturity age not at optimal level Reduction in other income relate to environmental provision released – prior year R27.6 m vs. current year R7.2 m Forestry division performed well during the year, driven by high eucalyptus prices and above inflation increases for pine

EBITDA Reconciliation

From 2013 to 2014 : R’000

R187 153 R22 806

• R35 781
• R17 916

R156 262 (R50 000) R0 R50 000 R100 000 R150 000 R200 000 R250 000 2013 Net Revenue Growth External Log purchases Increased expenses & reduced other income 2014

York Timber Holdings Limited 5

Net Working Capital increased by R33 million due to wholesale business acquisition Goodwill tested and remains in tact against biological asset value which increased marginally year on year Biological asset maintaining consistent level despite increase in discount rate and reduced price assumptions Interest-bearing borrowings reduced with loan increase to purchase wholesale business

Balance Sheet

Growth in TNAV continued 100 200 300 400 500 600 700 800 (R2 000 000) (R1 000 000) R0 R1 000 000 R2 000 000 R3 000 000 R4 000 000 2009 2010 2011 2012 2013 2014 Cents

Biological asset Property, plant and equipment Goodwill Cash Interest bearing borrowings Deferred tax Provisions and other Net working capital NAV per share (cents)

York Timber Holdings Limited 6

Cash balance reduced R48.2 million driven by increased property, plant and equipment investment of R66.1 million Cash flow from

• perating activities

improved by 42% year

• n year driven by

higher volume sales from acquisition of wholesale business Financing activities in the year include funding obtained for wholesale business acquisition

Cash Flow

Cash generation remains strong

• 20 000

40 000 60 000 80 000 100 000 120 000 140 000 160 000 180 000

• 200 000
• 150 000
• 100 000
• 50 000
• 50 000

100 000 150 000 200 000

30-Jun-10 30-Jun-11 30-Jun-12 30-Jun-13 30-Jun-14

Net cash from operating activities Net cash applied to investing activities Net cash applied to financing activities Total cash at end of year

Cash on hand Balances

York Timber Holdings Limited 7

York market share for lumber at similar levels, whilst plywood market share is declining Lumber sales grew by 4.7% CAGR from 2009 Plywood sales grew by 14.2% CAGR from 2009 Plywood expansion to regain market share

Market Dynamics and Demand

2009 2010 2011 2012 2013 2014 Thousand m³ sold 1 301m³ 1 413m³ 1 525m³ 1 533m³ 1 567m³ 1 633m³ Year on year growth 9% 8% 1% 2% 4% CAGR 8.6% 8.3% 5.6% 4.8% 4.7% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 0m³ 200m³ 400m³ 600m³ 800m³ 1 000m³ 1 200m³ 1 400m³ 1 600m³ 1 800m³ Sales in thousand m³

Growth of lumber sales

20 000m³ 70 000m³ 120 000m³ 170 000m³ 220 000m³ 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Growth of plywood sales

Sales Volume Market Demand

18 months

York Timber Holdings Limited 8

York supplies 52% of the current market demand Imports represent 44% of total market supplied predominantly from China and Brazil Plywood expansion will deliver increased annual capacity to replace imports and will be able to further extract value from pruned logs

Plywood Industry

Plywood Supply Origin

Imports - 44% (6011m3) ELB - 4%(600m3) York - 52%(7230m3)

8

Countries of Plywood Imports

Brazil Canada China Gabon Germany Hong kong India Indonesia Italy Malawi Malaysia Russian Fed Singapore Taiwan Thailand Turkey USA UK Vietnam Zimbabwe

m3

R 40 R 45 R 50 R 55 R 60 R 65 R 70 R 75 R 80 R 85 R 90

• 1 000

2 000 3 000 4 000 5 000 6 000 7 000 8 000 9 000 10 000

R/m2

Plywood sales & price evolution

Sales m³ ASP - R/m²

York Timber Holdings Limited 9

Operate 5 sawmills in Sabie, Graskop, White River and Jessievale (including Golden Rhino) Major plywood manufacturing plant in South Africa EBITDA R54.3 million Capital expenditure

• f R52.8 million

Processing Division (Sawmills and Plywood plant)

• Highlights

Production volume increase of 2,7% and sales volume dispatched 5,6% higher on previous year Plywood production volume increased 3,3% from previous year with investment in drying capacity Capex at Jessievale sawmill installing finger joint capability and increasing drying capacity Golden Rhino sawmill re-commissioned as part of York’s fibre

• ptimisation strategy
• Challenges

Processing cost increases 7,5% (wages and utilities) – not absorbed by efficiency improvements Lumber selling prices under pressure – 2,3% lower than previous year Increased production but contributing less due to suppressed selling prices

York Timber Holdings Limited 10

York continuously benchmark operating divisions locally and internationally Existing infrastructure not

• ptimal to be an

international player Capital intensive nature of manufacturing processes and high cost give return challenge for investors

Processing division (continued)

Challenges in context York Available Technology linear meters 60 m / min 150 - 180 m / min Productivity Rated top in RSA Comparable to South America Efficiency ratio (volume recovery) 47% 50% Cost utilisation 100% 66% Log paying capability factor 1.5 x 2.25 x Mill configuration Structural Flexible Barrier to entry Capital availability Incremental with continued margin squeeze Leapfrog but capital intensive

York Timber Holdings Limited 11

Total hectares 94 098 Despite harvesting of 690 730m3, plantation standing volume grew by 270 672m3 EBITDA R118.4 million (22% increase

• ver prior year)

Capital expenditure R7.9 million

Forestry Division

• Highlights

Eucalyptus price escalation in excess of 10%, whilst above inflation increases from pine logs (6.4% > CPI) Benchmarked harvesting and silviculture cost at comparable levels Temporary unplanted area at historically low supporting biological asset valuation Quality of York's biological assets (plantations) has improved substantially over the last few years Self-insurance plantation investment of R38 million invested to date providing cover of R100 million for each single event

• Challenges

Baboon damage remains an agricultural industry challenge External purchase of logs increased to R182 million with a negative impact of R28.6 million on EBITDA Improved selling prices and increased volume from forestry asset

York Timber Holdings Limited 12

Forestry Division (Continued)

• Yield regulation is done in accordance

to a sustainable rotation age of 25 years

• Site specie matching critical to obtain

maximum yield

• Volume growth incorporated in

discounted cash flow valuation equates to 949 980m3 over rotation age

• New specie growth stock impact hybrid

and new silviculture practises

York Timber Holdings Limited 13

0.5 0.6 0.7 0.8 0.9 1.0 1.1 1.2 1.3 1.4 12.0 13.0 14.0 15.0 16.0 17.0 18.0 19.0 20.0 RESPONSE RATIO MAT (°C)

• P. pat
• P. ell
• P. tae

PxT_H+L ExC

Ratio 1.0 = historical maximum site yield potential Genotype response ratio variable to MAT Ratio > 1.0 indicates superior genotype to previous generation material Ratio < 1.0 indicates inferior genotype or

• ff-site planting

York focus on optimal growth curve matched to growth site index

Key forestry focus

Mean annual temperature (MAT) genotype response curves

York Timber Holdings Limited 14

New division - previously only included Pretoria warehouse Results included once-

• ff restructuring costs of

R4.3 million Restructuring process

• nly concluded in March

2014 while business turned profitable in last quarter EBITDA loss of R5.3 million Capital expenditure of R3.5 million

Wholesale Division

• Highlights

Increased lumber and plywood volume sales by 41 996m3 Added remanufacturing & treating capability Increased product diversification and improved distribution network Unlocking upstream value through re-commissioning of Golden Rhino Increased ability to carry inventory through distribution channel allow sawmills to increased production capacity

• Challenges

Utilise cost structure more effectively Operate at a profitable margin New businesses acquired enable volume growth

York Timber Holdings Limited 15

Wholesale Division (continue): Strategic Value

 Allow York access to wider product range  Support low storage area customers and have the ability to restock during the month  Remanufacturing and treating plant capabilities added to service  Provide a platform for expansion into Southern African markets  Management structure  Competent management team in place  Efficient procurement strategy to cater for market requirements  Enhance service delivery Wholesale Division has and will continue to play a key role in the strategic growth of York

York Timber Holdings Limited 16

Corporate Social Investment

Empowering the communities in which we operate

York Timber Holdings Limited 17

YORK GROWTH STRATEGY

EBITDA accretive Market development Human capital investment Corporate governance Social responsibility Biological asset enhancement with fibre

• ptimisation from available resources

and increased plantation area Invest in appropriate processing technology to lower cost of production, improve throughput and increase product range

The basis of York’s growth strategy

York Timber Holdings Limited 18

Construction period of 18 months Environmental approval received Increased labour productivity of 51% despite adding 48 new permanent jobs Term sheet signed with the Land Bank Investment exceeds internal hurdle rate Support capacity for further growth into Sub Sahara Africa

Growth Strategy Phase 1: Plywood expansion Salient Feasibility Figures

Total investment ZAR 271 559 544 Incremental increase in EBITDA (real) ZAR 93 433 440 Investment / EBITDA (real) x 2.91 NPV @ 13.21% (real) for 10 year planning horizon ZAR 131 349 269 NPV @ WACC (real) for 10 year planning horizon ZAR 247 991 028 IRR (real) % 28 IRR (nominal) % 35 Payback period years 4.37 Discounted payback period @ WACC years 4.96 Incremental increase in volume intake per annum m3 106 833 Increase in labour productivity % 51

York Timber Holdings Limited 19

Growth Strategy (continued): Future Phases

Description of various projects Cogen: thermal and electrical energy co- generation from available biomass including plantation residue Sawmill: increased production capability with improved processing technology to allow efficient value recovery and cost

• ptimisation

MDF Plant: given low value of residue products the opportunity exists to substantially add value by investing in a MDF plant

York Timber Holdings Limited 20

Conclusion

Corporate action Management and focus challenges Restructuring of business and return to profitability Successful rights issue and refinancing of debt Develop a growth strategy Growth strategy implemented with focus

• n EBITDA generation

Development of new product ranges and targeted export markets Unlock asset potential

Before 2007 2008 - 2014 2015 onwards  During 2014 York did not recover cost escalations from the market except in divisions where York is competitive  A clear growth path for York has been defined to address shortcomings  Incremental investment has kept York profitable but reinvestment is required to provide shareholders with expected returns  This value will be unlocked given the growth plan over the next four years

York Timber Holdings Limited 21

Disclaimer

This presentation contains forward-looking statements about York ’s operations and financial conditions. The company has prepared this presentation based on information available to it at the time of writing, including information derived from public sources. No representation or warranty, express or implied, is provided in relation to the fairness, accuracy, correctness, completeness or reliability of the information,

• pinions or conclusions expressed herein.

This presentation is not intended to be relied upon as advice to investors, potential investors or funders and does not take into account the investment objectives, financial situation or needs of any investor. All investors should consider such factors in consultation with a professional advisor of their choosing when deciding if an investment is appropriate. The company undertakes no obligation to update or revise these forward–looking statements to reflect events or circumstances that arise after the date made or to reflect the occurrence of unanticipated events. Inevitably, some assumptions will not materialize, and unanticipated events and circumstances may affect the ultimate financial results. Projections are inherently subject to substantial and numerous uncertainties and to a wide variety of significant business, economic and competitive risks, and the assumptions underlying the projections may be inaccurate in any material respect. Therefore, the actual results achieved may vary significantly from the forecasts, and the variations may be material.