Local timber group York Timbers has fleshed out ambitious plans to establish a R1.4-billion biomass power plant at its timber plant in Mpumalanga, which will deliver 25 MW into the national grid and allow the company to generate energy income from what would otherwise be discarded biomass waste produced by its six timber operations.
Addressing analysts and shareholders at a presentation of the company’s results for the 12 months ended June 30, CEO Pieter van Zyl said the project, which would further diversify the company’s earnings base, would see York Timbers participating in the Department of Energy’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) in the expedited fourth bid window that closes on November 11.
“This project will strengthen York’s earnings before interest, taxes, depreciation and amortisation- (Editda-) generating capability, diversify earnings and extract increased value from available biomass in the group.
“We will be using a huge volume of biomass that would otherwise be useless. It’s a key game changer for the company, as, in the past, we simply burned the biomass or left it to turn into compost,” he noted.
To enable participation into the empowerment-conscious REIPPPP, York had created a ringfenced company, York Timber Energy, which is 25% held by the community and staff through a trust, with the remainder owned by the parent group.
“Of the R1.4-billion capital expenditure (capex) required to develop the plant, a big portion – about 75% – of this is debt, so we’ve geared as far as possible with debt.
“The plant, which will use Austrian technology, will provide us with between 10 and 20 years of predictable cash flow,” he remarked.
York’s revenue-diversification-driven capex programme had also seen it undertaking an expansion project at its Sabie plant, creating an integrated site that was expected to significantly improve the use of available fibre and boasted a central log merchandising yard, a sawmill, a medium-density fibreboard plant and an upgraded and expanded plywood plant.
The first phase of the Sabie integrated site saw the expansion of the plywood plant, which entailed the installation of a boiler and new heat exchangers in one of the veneer dryers, as well as the conversion of the log conditioning chambers
from hot water to steam.
The boiler increased the available thermal energy of the plant and the heat exchangers increased the thermal energy transfer of the dryer.
The conversion of the log conditioning chambers meant that the logs were no longer boiled in hot water, but rather steamed until the required core temperature was reached.
This reduced the initial moisture content of the veneer and, subsequently, the amount of moisture that had to be removed during the drying process.
Thus, the available thermal energy was increased, the effective transfer was increased and the amount of energy required to dry the veneer was reduced, which, ultimately, led to increased production capacity.
The upgrade was due to be completed in the last quarter of the 2016 financial year.
“We’ve managed to increase the yearly production capacity from 78 000 m3 to 133 000 m3 and, had we developed this plant from green- field status, it would have cost us between R700-million and R800-million, rather than our budgeted R300-million,” said Van Zyl.
Looking to the group’s financial performance for the 12 months, York increased its cash generated from operations by R31-million to R183-million for the year, pushed up largely by the previously lossmaking wholesale division, which was acquired from Iliad Africa, which became profitable during the year.
Revenue increased 17% to R1.54-billion, while operating profit improved 23% to R116.8-million on the back of improved sales, better average selling prices and operational efficiencies.
Earnings per share, meanwhile, improved 107% to R31 apiece, while overall Ebitda rose 28% to R199.3-million.
The group’s remanufacturing division con- tributed R392.5-million in turnover for the 12 months, benefiting from its ability to meet short delivery lead times though immediate stock availability across a range of products.
The forestry division’s Ebitda, meanwhile, decreased 29% year-on-year, in line with York’s sustainable forestry management practices and outside procurement strategy, Van Zyl outlined.
“Industry log prices for solid wood processing continues to increase for larger-diameter logs; at the same time, the hectares managed for pine have long seen log rotation continue to reduce,” he commented.