York Timbers restructuring nears the peak

A major restructuring process ordered in 2009 by southern African timber manufacturing giant, York Timbers, is coming close to maturity with multitudinous implications.

The development of an integrated processing site at Sabie in Mpumalanga can perhaps be seen as a peak in the four years old restructuring. The feature of a co-generation power facility in this project will be interesting to watch against the country’s broader power generation trends. And there is move towards a vertically integrated operation.

The JSE listed York Timbers may be a relatively small operation in revenue terms but few companies have a vast presence on the environment like it does. Changing industry dynamics have ensured that the relationship between such companies and the environment is no longer a one way affair. Rising environmental consciousness and technology advancement has forced companies like York Timbers, Sappi and Mondi, into more accountability.

Financial results for the year ended June 2013 show York Timbers posting revenue of R1.1bn which is only 2% up from last years figure. Operating profit declined slightly to R161.3m from R166m reflecting a slow building market.

These numbers come out of a vast ‘biological asset base’ made out of 93 877 hectares in landholdings which are concentrated around the Mpumalanga Province. Of this total, 60 905 hectares is dedicated to commercial plantations and mainly pine trees, 32 972 hectares is marked as ‘non-commercial area’ and includes 25 018 hectares of conservation area.

The latter profile adds to an extraordinary presence of a commercial entity on the environment and the attendant politics of land and conservation tend to be huge. As such York Timbers has to enjoy microscopic scrutiny.york

Indeed York Timbers features prominent on the radar screens of environmental activists the Centre for Environmental Rights (CER). Most recently the York Timbers was hauled to court by the Department of Environmental Affairs (DEA) for contravening procedures when constructing a road around its Sabie operations. Regional Magistrate Nomaswazi Shabangu ruled on the 4th of April 2013 in favour of the DEA and granted a confiscation order of R450 000 under the Prevention of Organised Crime Act against York Timbers. The company is appealed the ruling. The CER has used this case amongst others to argue that ‘environmental crime’ is rife in South Africa.

York Timbers is very much aware of its position and makes some effort of speaking about its business impact. In their 2013 annual report York Timbers’ CEO Pieter van Zyl and chairman Jim Meyers say the company foresees significant changes in the timber industry. These include requirements for clean energy and advancement of engineered wood products.

Van Zyl and Meyers note that “New developments driving these changes include York’s integrated site development at Sabie, as well as the upgrade of Sappi’s Ngodwana mill near Nelspruit and the recent sale of the Usuthu plantation”.

The development of the Sabie integrated site is huge in York Timbers’ world. The company says land use for the site has already been approved and the Environmental Impact Assessments will be completed by May 2014.

Van Zyl and Meyers note that “The purpose of the proposed Sabie integrated site, which will be a first for York Timbers, is to extract the maximum value from the available fibre in the escarpment area while increasing productivity. This will be achieved by integrating various processing facilities into one”.

“By integrating the various processing facilities, the fibre from the plantations will be used to produce the optimal final product while the energy efficiency of the plant will be significantly improved. Since various functions will be integrated, the production costs for the processing facilities will be considerably reduced”.

The integration will not only maximise the value extraction from the available fibre, but will also increase energy efficiency and cost competitiveness,” says Van Zyl and Meyers.

The cogeneration proposition of the project is worth highlighting. Van Zyl and Meyers say “To optimise residual raw material, a medium density fibre (MDF) processing plant and co-generation power facility is also under consideration”.

Fuel for the plant will be received from the various processing facilities as well as from the plantations and external sources. “The cogeneration plant will produce thermal energy for the sawmill, plywood and MDF plant. Excess energy will be used to produce electrical energy for which the design capacity will be 20MW.

The company further noted that “There are opportunities to reduce carbon emissions even further. Plans are under consideration to use available biomass from York’s plantations to convert into electrical and heat energy”.

Carbon emissions produced within the production cycle would be offset by energy produced from biomass, and surplus energy could be sold into the national power grid. The management of the energy balance and opportunities for energy from biomass is a key opportunity in the future”.

York Timbers is positioned as major player in South Africa claiming market share in excess of 21%. It claims to be the largest sawn lumber producer in South Africa. In the financial results for the year ended June 2013 the company says “all indicators reflected subdued market activity”.

“York performed in line with the wider lumber market trends during the period with both industry and York sales volumes contracting by around 4%”.

The main driver of this contraction is an ailing building sector. The company notes that “Lower demand was experienced for lumber products, specifically in the residential building sector, with the various instances of industrial action experienced throughout the country further negatively impacting disposable income and consumer confidence”.

York Timbers noted that Lumber margins are disproportionate to other primary building materials due to the fragmented supply base. “York is leading the initiative for market consolidation”.

The company noted that during the year ended June 2013 consolidation continued at the merchant and retail distributor level of the lumber market. For its part York Timbers acquired the Germiston-based Thorpe Timber Company and Timber Preservation Services in Cape Town. These were to be clustered with York’s Pretoria warehouse which creates a larger whole sale division.

“This will create new market channels, strengthen York’s market presence and open up the potential to move up the value chain,” says the company.

news@ujuh.co.za

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