Diversified agriculture and forestry company TWK Investments cashed in on a gap in the market left by the war in Ukraine as it grew its exports, particularly of wood chips, as European countries look for alternative sources for timber to Russia.
Revenue from the timber segment, which accounts for more than one-fifth of total revenue, increased 16.7% to R1.88bn, the company said on Wednesday in its 2022 results to end-August. This increase was largely driven by the performance in wood chip exports, lumber and treated pole products, and timber sales.
Wood chips are often used in the production of pulp, which is in turn used for the production of paper, tissues, toilet paper and cardboard boxes.
According to TWK Investments, softwood lumber accounted for almost half of the export value of Belarus, Russia, and Ukraine in 2021. However, the disruption from the war has hit global markets as these countries account for close to one quarter of global lumber shipments in 2021.
“We are getting more queries from Spain, where we do export to, but also Portugal and even Germany,” CEO André Myburgh said on Wednesday in an interview with Business Day.
Asia, including Japan and China, has traditionally been the largest markets for the company headquartered in eMkhondo (formerly Piet Retief) in Mpumalanga. Myburgh added that windfalls such as plantations in Australia becoming smaller, Vietnam reaching near maximum capacity and a weaker rand helped.
In terms of financials, total revenue from continuing operations increased 17.8% to R9.96bn, also helped by improved trading conditions and higher revenue from fertiliser sales. Most of the revenue was generated in its retail and mechanisation segment (50.9%), followed by timber (22%) and grain (17.5%). The rest came from motors and tyres, financial services and corporate.
Net profit after tax rose two fifths to R362.9m and headline earnings per share (HEPS), a measure of profit that strips out impairments and one-off items, jumped 45% to 863c.
The company, with a market cap of R1.88bn at the end of the reporting period, declared a final dividend of 150c.
The company exports most of its products and is in talks with port and freight rail operator Transnet about a possible public-private partnership that could result in it maintaining the part of the port in Richards Bay that it uses.
Myburg said TWK Investments has a plant outside the port and its products are delivered to the port via conveyor belt, but the section inside the port, which Transnet should maintain, is “problematic”.
“We are looking at possibly taking control of that and managing it on their behalf,” he said.
Anthony Clark, an analyst at Small Talk Daily Research, believes TWK Investments will continue to benefit from the demand for paper and pulp productions, particularly as state-owned SA Forestry Company (Safcol) remains in dire need of access to more land for planting forests to service the surging demand for timber.
“If you’re a private business, in due course, as these biological assets grow, the underlying resource that you have will increase in demand. If the state is unable to provide logs, the private sector will pick up the slack and that is where the real money will be made,” he said.
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