MASONITE (AFRICA) LIMITED - Second report to shareholders by the business rescue practitioner

Second report to shareholders by the business rescue practitioner

MASONITE (AFRICA) LIMITED
 (Incorporated in the Republic of South Africa)
(Registration number 1942/015502/06)
Share code: MAS ISIN: ZAE000004289
(“Masonite” or “the Company”)
 (Under supervision)


         SECOND REPORT TO SHAREHOLDERS BY THE BUSINESS RESCUE
                            PRACTITIONER
This report is to be read in conjunction with the first report to Shareholders issued on the 22nd of
March 2016.

1.     Business Rescue process

       The Business Rescue process continues and will do so until there has been substantial
       implementation of the Business Rescue Plan.

       Statutory notifications continue to be given timeously to all affected parties.

       Updates on the business rescue process and notifications are displayed on the Company’s
       website : www.masonite.co.za, under the business rescue tab.

2.     Post commencement finance

       The Company continues to trade using the post commencement finance overdraft facility
       provided by Grindrod Bank.

       The Company does not trade on credit and pays its suppliers in advance.

3.     Trading post-business rescue

       Masonite continues to operate in a challenging business environment, the first few months
       of 2016 has been no exception.

       3.1     Mill update

               The company continued to invest behind its planned maintenance, safety quality and
               environment program in the Mill. Although the Mill continued to suffer from sporadic
               breakdowns, the Mill output for the Jan-May period is ahead of projections. The
               combination of some improvement in delivered volumes, local pricing increases
               materializing to projection and tight control of costs has ensured that the business
               has traded better than anticipated, although well behind historic levels. The improved
               Volume through the Mill ensured that the business traded at close to breakeven over
               the April, May months which helped reduce the year to date loss to be slightly better
               than forecasted. The Company’s fight for market share against cheaper substitutes in
             the primary export market has intensified over the period. Margins remain tight and
             cash continues to be squeezed.

             The senior leadership team remains in place, however, resignations in both the Mill
             and the sales team continue. The company has had to consider filling a limited number
             of key critical vacancies; while maintaining the ‘Less is More’ Program.

     3.2     Forestry update

             Delivered timber volumes remain firm and prices continue to be healthy. Although
             the sector is facing both wage and cost inflation, timber prices through the early part
             of 2016 have lifted. Masonite continues to invest in the Silviculture planting plan
             despite the difficult cash situation.

     The management team has maintained an active program to ensure that Employees, Suppliers
     and Customers over this period are informed. The leadership remains engaged on the agenda,
     working closely with the business rescue team to ensure the best possible result for the
     business.

4.   Transaction process

     Following a rigorous adjudication of the bids received, the Business Rescue Practitioner
     (“BRP”), supported by the Transaction Advisors and the Company’s board of directors,
     concluded that the rescue of the Company could best be achieved by the conclusion of the
     following inter-dependent transactions :

     4.1     The sale of the Company’s forestry business to World Hardwood (Pty) Limited
             (“Forestco”) for the sum of R385 million in terms of a Forestry Sale of Business
             Agreement;

     4.2     The conclusion of a Subscription Agreement between the Company and Grey West
             Fencing Proprietary Limited (“Millco”) in terms whereof Millco will subscribe for 1 000
             ordinary shares in the Company at a subscription consideration of R1 000.00;

     4.3     The sale of the plant and equipment of the Mill to Warhorse Private Equity Proprietary
             Limited (“Assetco”) for the sum of R100.00; and

     4.4     The repurchase by the Company of its entire issued share capital other than the shares
             subscribed for by Millco, with the result that Millco shall be the sole shareholder of
             the Company.

     The BRP is of the opinion that the bidder who was selected as the preferred bidder and with
     whom the rescue transactions were concluded, presented the bid most beneficial to the
     Company’s Creditors, employees and Shareholders as :

     (i)     It provides for the purchase of the Company’s assets at an attractive price (value);
     (ii)    It has funding certainty and limited conditionality;
     (iii)   It is structured in such a manner that the Mill will continue to operate;
     (iv)    All the Company’s employees remain employed;
     (v)     The preferred bidder has the necessary experience and expertise to carry on the
             Company’s forestry business and to operate the Mill.



5.   Business Rescue Plan
       The Business Rescue Plan (“the Plan”) was published on 6 May 2016. The meetings of Creditors
       and Shareholders which were held on 16 May 2016 were postponed to 19 May 2016 to enable
       the Chairman of the Employees Representative Committee to caucus with his members.

       At the adjourned meeting of the 19th of May 2016, the requisite majority of Creditors and
       Shareholders approved and adopted the Plan (as amended) which, in essence, provides for
       the conclusion of the interdependent transactions referred to in paragraph 4 above and
       thereafter the settlement of the Creditors’ claims and a distribution to Shareholders, currently
       anticipated at R33,38 per share.

6.     Implementation of the Plan

       Substantial implementation of the Plan will be deemed to have occurred on payment of the
       full purchase price and implementation of the Share Repurchase Transaction.


7.     Conditions Precedent

       The offer to purchase is subject to conditions precedent, including approval by the
       Competitions Commission of South Africa. It is anticipated that this will be achieved by 31
       August 2016, whereafter the net proceeds will be paid to Creditors and Shareholders.


PIERRE BERRANGÉ

SENIOR BUSINESS RESCUE PRACTITIONER

22 JUNE 2016



Sponsor

Nedbank Corporate and Investment Banking

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