After opening its partially underwritten R250m rights offer to shareholders on Monday, York Timbers’ future plans to fuel its growth strategy now rest on how many shareholders will follow their rights.
Shareholders have until January 6 to participate in the process, with rights offered at a ratio of 43 shares for every 100 York shares owned, at a price of R1.75 per share.
The subscription price represents a 33.87% discount to the R2.65 price of York’s shares on December 1, the day immediately before the offer was published after approval from the board’s chair Nonzukiso Siyotula.
The R695m JSE-listed forestry and sawmill company has detailed plans to use the capital raise to procure more timber externally in a bid to preserve its current volumes and to make much-needed upgrades to its manufacturing plants.
A minimum of R111m and up to about R160m will be underwritten by large shareholder A2 Investment.
Operating through its processing plants, forestry and fleet, wholesale and agricultural segments, York owns 58,763 hectares of Forest Stewardship Council-certified plantations.
The Mpumalanga-based group, which finally appointed CFO Gerald Stoltz as its permanent CEO in July after 11 months of searching, said the capital would provide it with an opportunity to increase the age at which trees are harvested from 20 years to 23 years.
This is expected to enhance shareholder returns in the medium- to long-term by adding 85,000 cubic metres of additional higher-value, larger logs to its inventory. The result would be a net standing value after eight years that is about 30% higher.
Small Talk Daily analyst Anthony Clark highlighted that for many years York was an underperformer which didn’t pay dividends.To bring the company back to consistent profitability and improve operating margins, the rights issue and the very nature of extending the life of the forests was the start of that process.
“Every additional year past 20 years that you leave a tree planted, you can add 10%-15% to its underlying value upon harvesting,” he said.
“So the very fact that the new York management wants to extend the life of a tree by as much as five years may have a short-term implication to the harvesting rates and cashflows, but in the long run it will gain significant amounts of profit and additional cash flow when the trees are harvested at an opportune time,” Clark said.
Though shareholders following their rights would have to fork out cash now in the dilutive rights offer Clark, who added that he would be following his rights, said management was doing the right thing for the longevity of the group.
The rights offer comes against the backdrop of a tough operational year for York, characterised by higher-than-average rainfall that hampered production and industrial action that caused weeks of disruptions and had a negative effect on its liquidity.
For the year that ended in June, the 106-year-old group reported the value of its biological assets was down 2%. This saw headline earnings per share decrease from 42c to 9c, while cash generated from operations tumbled from R425m in 2021 to R202m.
However, the group was adamant that it is pursuing opportunities to improve operational efficiency, streamline harvesting processes and manage its logistics more efficiently.
York said in the period it planted 4,346 hectares, which reduced unplanted areas to their lowest levels since 2007.
York said an additional 60 hectares of soft citrus would be established in the new financial year, adding that the citrus varieties planted can accommodate the additional cold treatment required by the recently promulgated EU regulations, albeit at a higher cost.
Moreover, it reported a good price recovery in lumber and plywood prices, saying it aims to benefit from volume growth in the future.
“York is better positioned to reassess its clear-felling approach given its reduced debt levels compared to previous years,” the group said.
York reduced its debt by R133m to R404m in the year to end-June.
“While some patience will be required from shareholders, we believe that the increase in harvesting age will significantly improve shareholder returns in future years,” York said.
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