Border Timbers release a fair set of final results

A fair set of results from Border in what management say was an impressive performance although sales volumes were not as high as budgeted. Turnover at $21.9 million was up 59% from prior period, with a split of 60% local: 40% exports, prior period 51%:49% respectively. The dominance in the kiln dried timber market is paying off for the company in view of the faster cash cycle and good pricing.

Salaries were high at 27% of turnover due to unfavourable negotiations by the NCEs. A total of $4.1 million was spent on capex whilst $2.3 million was spent on R&M thus lowering the operating profitability. A $11 million fair value gain on the biological assets was registered up from $9 million. High finance costs of $1.1 million were however incurred on borrowings to fund capital expenditure. The attributable profit for the period thus amounted to $5 million (FY 2010: $7.2 million).

The balance sheet shows borrowings of $7.2 million with $1.1 million in long term debt. The current ratio is weak at 0.9x, as the cashflow position was supported by financing activities at $2.3 million.

On the operations, roundwood production increased by 40% although it was still short on the target. Poles contributed 12% of sales (FY 2010: 8%) with Zambia contributing well on the export front, whilst a return in demand from Kenya was also noted. In addition to the traditional Botswana and S.A exports markets, a $1.2 million contract for poles was acquired from a cellular mobile company in Mozambique. The sawmills' capacity utilisation averaged 67% up from 42% in 2010.

Recoveries for the period stood at 40% versus 45% due to the bulk of the timber coming from productive thinning operations. A small log line was thus commissioned in June 2011.

The group is currently focusing on plantation development and clearing the silvicultural backlog. The targets on silviculture were met during the period with 14,000ha worked on whilst the remaining backlog is expected to be cleared by June 2013. The accelerated planting program resulted in 1,276ha being replanted during the year, against a cleared felled area of 562ha.

Power shortage continues to be a setback at BTI (loss for the period of $245,000), although a preferred power supply contract with ZETDC concluded in June is expected to improve power supply in the next year, and return the business to profitability. A total of 193 ha was lost to fire during the period and the company is working with authorities to keep arson fires within check. One of two pole treatment autoclaves destroyed by the fire in June has since been replaced and the second due to be commissioned in October 2011.

The outlook for Border Timbers is promising given the high demand for poles currently obtaining. An equipment replacement program is currently in place which should impact positively on production volumes and harvesting costs.

Management forecast between 200,000m3 and 240,000m3 of roundwood production for FY 2012. Yields have also improved and average between 16m3/ha and 18m3/ha. The company also has adequate funds for its working capital, which should see a reduction in finance costs post the two year asset replacement program. Ratings are undemanding at a PER of 3.8x and PBV of 0.2x, Nontando Zunga of Imara Stockbrokers say they recommend investors BUY although getting the shares could however prove difficult due to limited free float of 4%.