Despite challenging market conditions, integrated forestry company York Timbers increased its earnings before interest, taxes, depreciation and amortisation (Ebitda) and core earnings by 12% and 59%, respectively, for the full year ended June 30.

The company on Tuesday pointed out that the Ebitda growth was the result of investment in processing and forestry operations in the last few years, together with continued efficiency gains.

A weak industry demand and declining lumber prices, however, saw revenue decline by 1% in the period.

The expanded plywood plant, meanwhile, enabled a 32% increase in plywood sales over the prior year.

While the new plywood plant has not yet produced a full 12 months of earnings, it is now fully operational, with the 48 daylight press installation completed on time and within budget.

Plywood now contributes 30% of the group’s turnover and represents an important source of diversification of earnings for the company, particularly for the export market.

Plywood exports, York said, in a year with a predominantly strong rand, represented 8% of total revenue.

Forestry mechanisation initiatives, together with cost savings through the integration of the supply chain in the Highveld, are bearing fruit, York added, noting that this division increased its profitability to R163-million for the year.

External forestry sales improved marginally from the prior year, the company added.

Lumber sales, meanwhile, were impacted on by a reduced intake owing to high log prices in the Mpumalanga region.

Inefficient processing operations have been scaled down, with other operations functioning at capacity, York noted, adding that operating margins were maintained by buying less logs externally and focusing on customer service.

Additionally, certain processing facilities experienced labour unrest and unprotected strikes, which negatively impacted on the company’s sales volumes.

Fair value adjustments in the year reflect a 3% increase in the biological asset value, mostly owing to volume growth.

The prior year, however, included a large one-off fair value adjustment arising from an alignment of the asset valuation model to forestry management practices that are resulting in improved yields every year, as well as the application of a 20-year rotation rather than the historic 25-year rotation cycle.

This, York explained, skewed relative earnings in the prior year, and resulted in earnings a share being 62% lower in the current year.

In terms of the company’s balance sheet and cash flows, capital expenditure is starting to normalise post the investment in the plywood plant, which resulted in improved cash generation with loans and borrowings reduced by R108-million in the year.

Reduced inventory levels and increased creditor payment terms contributed to a decrease in net working capital, while R8-million was invested into the company’s self-insurance fund.

Net asset value a share increased by 5% to R9.89 a share.

Despite facing low economic growth in South Africa, York noted that the company would continue to focus on cash generation through cost-efficiencies and optimisation of its supply chain.

The company also noted that it would continue to work with labour to minimise industrial relations issues and to contribute to an environment that benefits all stakeholders.

In the medium to long term, however, York noted that it remains well-positioned to benefit from consolidation in the industry.

In the absence of a significant improvement and economic growth and prospects, York noted that the next year is likely to be difficult for the South African economy.

Owing to this, the company had adjusted its strategy accordingly, noting that it would implement further changes to its supply chain and operations where necessary.

“While there may be some short-term cost to the necessary changes, the outlook for the company is positive, despite the difficult market conditions,” York concluded.