MASONITE (AFRICA) LIMITED - Summarised audited results

Release Date: 11/08/2016 14:50
Code(s): MAS
 
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Summarised audited results

MASONITE (AFRICA) LIMITED
Incorporated in the Republic of South Africa
Registration number: 1942/015502/06
Share code: MAS ISIN: ZAE000004289
("Masonite" or "the company")

SUMMARISED AUDITED RESULTS

Summarised statement of profit or loss and other comprehensive income
for the year ended 31 December 2015


                                                         Audited         Audited
Rand thousands                               Notes          2015            2014
Revenue                                                  618 166         604 885
Cost of sales                                           (563 746)       (554 910)
Gross profit                                              54 420          49 975
Fair value adjustment of biological assets       3        33 359          52 524
Other operating income                                    10 952          12 785
Insurance proceeds                                        29 294          39 200
Distribution expenses                                    (69 604)        (74 637)
Selling and marketing expenses                           (11 725)        (11 558)
Administrative expenses                                  (22 086)        (22 106)
Other operating expenses                                 (37 676)        (15 883)
Impairment of plant and equipment                        (79 023)              -
Results from operations                                  (92 089)         30 300
Finance income                                             1 379           1 418
Finance expense                                           (3 116)         (3 215)
(Loss)/profit before tax                                 (93 826)         28 503
Income tax credit/(expense)                               23 212          (5 763)
Net (loss)/profit for the year                           (70 614)         22 740
Other comprehensive income/(loss)
Items that may not be classified subsequently
to profit or (loss)                                        1 117          (1 482)
Actuarial gain/(loss) on post-retirement
medical benefit obligation                                 1 552          (2 059)
(Increase)/decrease of income tax                           (435)            577
Total comprehensive (loss)/income for the year
attributable to ordinary shareholders                    (69 497)         21 258
Earnings per share (cents)
Basic                                          8.1          (989)            319
Diluted                                        8.2          (989)            318
Summarised statement of financial position
as at 31 December 2015

                                                  Audited     Audited
Rand thousands                 Notes                 2015        2014
ASSETS
Non-current assets
Property, plant and equipment                      22 824     112 359
Intangible assets                                   1 197       1 400
Biological assets                   3             286 583     253 224
Deferred tax assets                                51 961      19 302
Investments                                         1 399       1 399
Total non-current assets                          363 964     387 684
Current assets
Inventories                                        92 049     100 113
Trade and other receivables                        79 695     102 002
Tax receivable                                      2 546         912
Derivative financial instruments                      732         113
Cash and cash equivalents                          65 339      65 003
Assets classified as held for sale                     37           -
Total current assets                              240 398     268 143
Total assets                                      604 362     664 600
EQUITY AND LIABILITIES
Capital and reserves
Share capital                                       3 570       3 570
Share premium                                       3 156       3 156
Share-based payment reserve          5              2 629       2 629
Retained income                                   378 436     447 933
Total equity                                      387 791     457 288
Non-current liabilities
Deferred tax                                       88 068      78 186
Post-retirement benefit
obligation                           4             35 985      35 718
Straight-lining lease accrual                          33          94
Total non-current liabilities                     124 086     113 998
Current liabilities
Trade and other payables                           76 598      81 616
Provisions                                          6 936       7 848
Amounts payable to fellow subsidiaries              5 027       2 070
Derivative financial instruments                    3 863       1 741
Straight-lining lease accrual                          61          39
Total current liabilities                          92 485      93 314
Total equity and liabilities                      604 362     664 600
Net asset value per share (cents)                   5 431       6 405
Summarised statement of cash flows
for the year ended 31 December 2015


                                                           Audited     Audited
                                                                      Restated
Rand thousands                                                2015        2014
Cash flow from operating activities
Operating profit                                           (92 089)     30 300
Adjusted for:
Movement in fair value of biological assets                (33 359)    (52 524)
Depreciation and amortisation                               21 792      24 444
Impairment of plant and equipment                           79 023           -
IFRS 2 Share-based payment charge                                -           1
Foreign exchange loss/(gain) - unrealised                    1 392        (492)
Increase in liability for retirement benefit obligation     (1 213)     (1 098)
Loss/(profit) on disposal of property, plant and equipment     431      (3 500)
Other non-cash items                                           (39)         27
Change in working capital                                   36 443        (528)
Cash generated from (utilised in) operations                12 381      (3 370)
Taxation paid                                               (1 634)          -
Finance income received                                      1 406       1 451
Finance expense paid                                           (84)       (239)
Net cash generated from/utilised in) operating activities   12 069      (2 158)
Cash flow from investing activities
Replacement of property, plant, and equipment and
intangible assets                                          (11 721)    (27 865)
Proceeds on disposal of property, plant and equipment          176       5 498
Net cash outflow from investing activities                 (11 545)    (22 367)
Cash flow from financing activities                              -           4
Net cash flow from financing activities                          -           4
Net increase/(decrease) in cash and cash equivalents           524     (24 521)
Effects of exchange rates on the balance of cash held in
foreign currencies                                            (188)        819
Net cash and cash equivalents at the beginning of
the year                                                    65 003      88 705
Net cash and cash equivalents at the end of the year        65 339      65 003

Summarised segment revenues and results
                                        Audited                  Audited
                                   Segment revenue            Segment profit
Rand thousands                     2015          2014        2015         2014
Hardboard                       487 591       443 959    (112 789)      (8 012)
Other products                   41 612        71 855      (5 654)         249
Forestry                        129 900       125 210      37 209       54 504
Intersegment                    (40 937)      (36 139)          -            -
Unallocated                           -             -      11 231        5 665
Total                           618 166       604 885     (70 003)      52 406
Administrative expenses                                   (22 086)     (22 106)
Results from operations                                   (92 089)      30 300
Finance income                                              1 379        1 418
Finance expense                                            (3 116)      (3 215)
Profit before tax                                         (93 826)      28 503
Income tax credit/(expense)                                23 212       (5 763)
Net (loss)/profit for the year
per statement of comprehensive income                     (70 614)      22 740

Summarised segment assets and liabilities
                                                             2015         2014
Rand thousands
Segment assets
Hardboard                                                 156 876      269 721
Other products                                             14 925       23 852
Forestry                                                  311 654      281 373
Unallocated                                               120 907       89 654
Total segment assets                                      604 362      664 600

Segment liabilities
Hardboard                                                  66 641       70 449
Other products                                              4 104        9 445
Forestry                                                   13 293        4 210
Unallocated                                               127 506      121 138
                                                          211 544      205 242
Amounts due to fellow subsidiaries                          5 027        2 070
Total segment liabilities                                 216 571      207 312

Summarised statement of changes in equity
at 31 December 2015
                                                                   Share-
                                                                    based
                                               Share     Share    payment
Rand thousands                               capital   premium    reserve
Balance as at 1 January 2014 Audited           3 566     3 156      2 628

Issue of ordinary shares under the share
incentive scheme                                   4         -          -
Share-based payment charge                         -         -          1
Net profit for the year attributable
to ordinary shareholders                           -         -          -
Other comprehensive income for the year,
net of tax                                         -         -          -
Balance at 31 December 2014 Audited            3 570     3 156      2 629
Issue of ordinary shares under the share
incentive scheme                                   -         -          -
Share-based payment charge                         -         -          -
Net profit for the year attributable
to ordinary shareholders                           -         -          -
Other comprehensive income for the year,
net of tax                                         -         -          -
Balance at 31 December 2015 Audited            3 570     3 156      2 629

                                                       Retained     Total
Rand thousands                                           income    equity
Balance as at 1 January 2014 Audited                    426 675   436 025
Issue of ordinary shares under the share
incentive scheme                                             -          4
Share-based payment charge                                   -          1
Net profit for the year attributable
to ordinary shareholders                                22 740     22 740
Other comprehensive income for the year,
net of tax                                              (1 482)    (1 482)
Balance at 31 December 2014 Audited                    447 933    457 288
Issue of ordinary shares under the share
incentive scheme                                             -          -
Share-based payment charge                                   -          -
Net (loss)profit for the year attributable
to ordinary shareholders                               (70 614)   (70 614)
Other comprehensive income for the year,
net of tax                                               1 117      1 117
Balance at 31 December 2015 Audited                    378 436    387 791
Notes

1. Basis of preparation

The summarised financial statements has been prepared in accordance with the
Listings Requirements of the JSE Limited for summarised financial statements
and the requirements of the South African Companies Act, 71 of 2008 applicable
for summarised financial statements. The summarised financial statements have
been prepared in accordance with the framework concepts and measurement and
recognition requirements of International Financial Reporting Standards
(IFRS), the SAICA Financial Reporting Guides as issued by the Accounting
Practices Committee and financial reporting pronouncements as issued by the
Financial Reporting Standards Council, and also, as a minimum, to contain the
information as required by IAS 34:Interim Financial Reporting.

The full audited financial statements, complying with paragraph 8.57 of the
JSE Limited Listings Requirements are available on the company’s website; at
the company’s registered offices and upon request. This announcement does not
include the information required pursuant to paragraph 16A(J)of IAS 34 –
Interim Financial Reporting. The full integrated annual report is available on
the company’s website; at the company’s registered offices and upon request.

The audited summarised financial statements have been prepared under the
supervision of the Company Secretary (Mr M P Govender) on behalf of Masonite
(Africa) Limited.

Accounting policies
The accounting policies applied in the preparation of the full financial
statements from which these summarised financial statements were derived are
in terms of IFRS and are consistent with those of the previous full financial
statements.

2. Auditor’s opinion

These summarised financial statements for the year ended 31 December 2015 have
been audited by Deloitte & Touche, who have expressed a modified opinion
thereon, with an emphasis of matter paragraph on going concern. The auditor
also expressed a modified opinion, with an emphasis of matter paragraph on
going concern, on the full financial statements for the year ended 31 December
2015 from which these summarised financial statements have been derived.

Emphasis of Matter – Going Concern
Without qualifying their opinion, the auditors draw attention to the report of
the directors, note 34 and note 35 to the financial statements which indicates
that the company applied for business rescue on 22nd December 2015, incurred a
net loss of R69 497 000 for the year ended and entered into a series of
transactions to support the company’s operational existence in the foreseeable
future. These conditions, along with other matters as set forth in Note 11,
indicate the existence of a material uncertainty which may cast significant
doubt on the company’s ability to continue as a going concern.
A copy of the auditor’s report on the summarised financial statements and of
the auditor’s report on the full financial statements are available for
inspection at the company’s registered office together with the financial
statements identified in the respective auditor’s reports. Deloitte & Touche
has not audited future financial performance and expectations expressed by
management included in the commentary in the accompanying summarised financial
statements and accordingly do not express an opinion thereon. The auditor’s
report does not necessarily report on all of the information contained in this
summarised financial statements report. Shareholders are advised that in order
to obtain a full understanding of the nature of the auditor’s engagement they
should obtain a copy of that report together with the accompanying summarised
financial statements from the company’s registered office.

3. Biological assets

Land, logging roads and related facilities are accounted for under property,
plant and equipment. Trees and sugar cane are generally felled at the optimum
age when ready for their intended use. After harvest, timber to be utilised at
the mill is accounted for under inventories.

Timber and sugar cane are accounted for as biological assets. Biological
assets are stated at fair value with any resultant gain or loss recognised in
the statement of comprehensive income. The company owns timber plantations
which it operates in order to supply the mill at Estcourt with its primary raw
material. Sugar cane has been planted in areas unsuitable for timber, in order
to use the land productively.

Rand thousands                                                2015        2014
Timber plantations
Establishment costs                                         71 565      65 287
Immature timber                                             81 370      73 232
Mature timber                                              124 278     104 252
Total                                                      277 213     242 771
Sugar cane
Establishment costs                                          3 195       3 759
Immature sugar cane                                          4 288       4 195
Mature sugar cane                                            1 887       2 499
Total                                                        9 370      10 453
Total biological assets                                    286 583     253 224

4. Retirement benefit obligation

The company provides post-retirement medical benefits to retired employees who
were employed before January 1997.
The liability in respect of this post-retirement medical benefit is
actuarially valued on an annual basis using the Projected Unit Credit Method.
All actuarial gains and losses are recognised immediately through other
comprehensive income in order for the net plan asset or liability recognised
in the statement of financial position to reflect the full value of the plan
deficit or surplus. There are no plan assets held.
Past service costs are recognised as an expense on a straight-line basis over
the average period until the benefits vest. To the extent that benefits have
already vested, past service costs are recognised immediately.

5. Employee Share Incentive Scheme

The adoption of IFRS 2 Share-based Payment (IFRS 2) in 2005 required that all
awards made after 7 November 2002 be accounted for in the financial statements
of the company. IFRS 2 requires a "fair value" to be placed on employee share
options. Fair value is measured as the market price of the entity’s options
adjusted for the terms and conditions applicable to the option. Since employee
share options are not traded there is no market price available, hence the use
of an option-pricing model in determining its fair value. The fair value of
the share option is measured using a stochastic model, based on the standard
binomial options pricing model (which is mathematically consistent with the
Black-Scholes Model) but allows for the particular features of employee share
options to be modelled realistically. IFRS 2 has therefore been applied to the
Masonite Share Incentive Scheme in respect of the awards made to executive
directors and senior management on 4 January 2011.

6. Segmental reporting

A segment is a distinguishable component of the company that is engaged in
providing products or services which are subject to risks and rewards that are
different from those of other segments. The basis of segment reporting is
representative of the internal structure used for management reporting, as
well as the structure in which the chief operating decision maker reviews the
information.

The basis of segmental allocation is determined as follows:

- revenue that can be directly attributed to a segment and the relevant
  portion of the profit that can be allocated on a reasonable basis to a
  segment, whether from sales to external customers or from transaction with
  other segments of the company;

- operating profit that can be directly attributed to a segment and a relevant
  portion of the operating profit that can be allocated on a reasonable basis
  to a segment, including profit relating to external customers and the
  expenses relating to transactions with other segments of the company; and

- total assets are those that are employed by a segment in its operating
  activities and that are directly attributable to the segment or can be
  allocated to the segment on a reasonable basis.

The company’s reportable segments are as follows:

- Hardboard;
- Other products; and
- Forestry.
Rand thousands                                              2015         2014

7. Income tax (credit)/expense
Current tax                                                    -         (119)
Deferred tax                                             (23 312)       5 882
Total                                                    (23 312)       5 763

8. Earnings per share

8.1 Basic
Basic earnings per share is calculated by dividing the
profit attributable to ordinary shareholders by the
weighted average number of shares in issue during the year.
Profit attributable to ordinary shareholders              (70 614)     22 740
Weighted average number of ordinary shares in issue     7 139 558   7 136 392
Basic earnings per share (cents)                             (989)        319

8.2 Diluted
Diluted earnings per share are calculated to reflect the potential dilution
that could occur if all of the company’s outstanding share options were
exercised by the option holders. The number of shares in issue has been
adjusted by the weighted average number of shares outstanding in terms of
outstanding options 2015: 99 499 (2014: 99 499) to assume conversion of all
dilutive potential ordinary shares.
The dilution of earnings per share is the result of options granted to
executive directors and senior management, on 4 January 2011, to acquire)
shares at a weighted average price of R29,69 per share on or before December
2020.

Rand thousands                                               2015         2014
Profit attributable to ordinary shareholders              (70 614)      22 740
Weighted average number of ordinary shares in issue     7 139 558    7 136 392
Adjusted for weighted average share options outstanding     3 340        5 149
Weighted average number of ordinary shares (diluted)
at 31 December                                          7 142 898    7 141 541
Diluted earnings per share                                   (989)         318
8.3 Headline earnings
Reconciliation of headline earnings
                                 2015    2015    2015    2014   2014    2014
                                Gross     Tax     Net   Gross    Tax     Net
Net (loss)/profit for the year
Adjusted for:
Loss/(gains) on disposal of
land and buildings                  5      (1)      4  (4 747) 1 329  (3 418)
Loss on disposal of plant and
equipment                         426    (119)    307   1 247   (349)    898
Insurance proceeds in respect of
damaged equipment              (3 866)  1 082  (2 784) (2 800)   784  (2 016)
Loss of property, plant and
equipment damaged in the
explosion                           -       -       -     572   (160)    412
Gain on expropriation of land    (219)     61    (158)      -      -       -
Impairment of plant and
equipment                      79 023 (22 126) 56 897       -      -       -
Headline earnings                             (16 348)                18 616

Headline earnings per share (cents)             (229)                    261
Diluted headline earnings per share (cents)     (229)                    261

9. Restatement of comparatives

9.1 Restatement of headline earnings for the year ended 31 December 2014
The restatement required arises as a result of the unintentional inclusion of
the insurance proceeds received related to the plant, machinery and equipment
and the unintentional exclusion loss on disposal of plant, machinery and
equipment from the explosion at Masonite’s mill in Estcourt on 6 June 2014.

                                                                         2014
                                                                        R’000
Headline earnings (previously reported)                                20 220
Adjusted for:
Insurance proceeds on plant, machinery and equipment
damaged in the explosion                                               (2 800)
Loss on disposal of plant, machinery and equipment
damaged in the explosion                                                  572
Tax effect of the above adjustments                                       624
Restated headline earnings                                             18 616

Headline earnings per share as reported in the 2014 integrated annual report
Basic                                                         (cents)     283
Diluted                                                       (cents)     283
Restated headline earnings per share
Basic                                                         (cents)     261
Diluted                                                       (cents)     261
9.2 Restatement of statement of financial position as at 31 December 2014

The restatement of statement on financial position rises as a result of
reclassification of accrual for quantity purchase discounts from trade and
other receivables to trade and other payables and the separate disclosure of
deferred tax assets, deferred tax liabilities and provisions.


Rand thousands                              2014
                                      Previously                            2014
                                        reported           Effect of    Restated
                                                    reclassification
                                           R’000               R’000       R’000
ASSETS
Non-current assets
Property, plant and equipment            112 359                   -     112 359
Intangible assets                          1 400                   -       1 400
Biological assets                        253 224                   -     253 224
Deferred tax assets                            -              19 302      19 302
Investments                                1 399                   -       1 399
Total non-current assets                 368 382              19 302     387 684
Current assets
Inventories                              100 113                   -     100 113
Trade and other receivables              102 002               8 773     110 775
Tax receivable                               912                   -         912
Derivative financial instruments             113                   -         113
Cash and cash equivalents                 65 003                   -      65 003
Total current assets                     268 143               8 773     276 916
Total assets                             636 525              28 075     664 600
EQUITY AND LIABILITIES
Capital and reserves
Share capital                              3 570                   -       3 570
Share premium                              3 156                   -       3 156
Share-based payment reserve                2 629                   -       2 629
Retained income                          447 933                   -     447 933
Total equity                             457 288                   -     457 288
Non-current liabilities
Deferred tax                              58 884              19 302      78 186
Post-retirement benefit
obligation                                35 718                   -      35 718
Straight-lining lease accrual                 94                   -          94
Total non-current liabilities             94 696              19 302     113 998
Current liabilities
Trade and other payables                  80 691                   -      81 616
Provisions                                     -               7 848       7 848
Amounts payable to fellow subsidiaries     2 070                   -       2 070
Derivative financial instruments           1 741                   -       1 741
Straight-lining lease accrual                 39                   -          39
Total current liabilities                 84 541               8 773      93 314
Total equity and liabilities             636 525              28 075     664 600

9.3 Restatement of statement of cash flows for the period ended 31 December
2014

The restatement of cash utilised in operations, for the year ended 31 December
2014, arises as a result of non-cash interest on post-retirement benefit
obligation being included in the movement in post-retirement benefit
obligation and the separate disclosure of provisions in the statement of
financial position and the reclassification of quantity purchases discount
from trade and other receivables to trade and other payables.

                                             2014
                                       Previously          2014          2014
                                         reported    Adjustment      Restated
                                            R’000         R’000         R’000

Cash flow from operating activities
Cash utilised in operations                 (394)       (2 976)        (3 370)
Finance income received                    1 451             –          1 451
Finance expense paid                      (3 215)        2 976           (239)
Net cash utilised in from operating
activities                                (2 158)            –         (2 158)

Cash flow from investing activities
Replacement of property, plant and
equipment and intangible assets          (27 865)            –        (27 865)
Proceeds from disposal of property,
plant and equipment                        5 498             –          5 498
Net cash outflow from investing
activities                               (22 367)            –        (22 367)

Cash flow from financing activities
Proceeds on issue of ordinary shares           4             –              4
Net cash inflow from financing
activities                                     4             –              4
Net decrease in cash and cash
equivalents                              (24 521)            –        (24 521)
Effects of exchange rates on the
balance of cash held in foreign
currencies                                   819             –            819
Net cash and cash equivalents at
the beginning of the year                 88 705             –         88 705
Net cash and cash equivalents at
the end of the year                       65 003             –         65 003

Cash generated from operations
Profit from operations                    30 300             –         30 300
Adjusted for:
Depreciation and amortisation             24 444             –         24 444
Movement in the fair value of
biological assets                        (52 524)            –        (52 524)
IFRS 2 Share-based payment charge              1             –              1
Profit on disposal of property,
plant and equipment                       (3 500)            –         (3 500)
Increase in liability for retirement
benefit obligation                         1 878        (2 976)        (1 098)
Foreign exchange gain – unrealised          (492)            –           (492)
Straight-lining lease accrual                 27             –             27
Operating cash flows before movement
in working capital                           134        (2 976)        (2 842)
Decrease in inventories                    2 067             –          2 067
Increase in receivables                   (9 320)            –         (9 320)
Increase in payables                       6 725        (6 039)           686
Increase in provisions                         –         6 039          6 039
                                            (394)       (2 976)        (3 370)

10. Subsequent events

10.1 Borrowing facilities
During December 2015 overdraft facilities were withdrawn by both Standard Bank
of South Africa and Nedbank. In order to ensure that the business continues as
normal and that all creditors are paid, the business rescue practitioner
secured post commencement finance overdraft facility in the sum of R110
million with Grindrod Bank for a period of 12 months from the date of initial
utilization of the facility against a cession of the company’s debtors book
and the registration of a first covering mortgage bond including a cession of
rental income, to the sum of R150 million over the company’s plantations in
favour of Grindrod Bank.

10.2 Sale of business
On 19 May 2016 creditors and shareholders approved the business rescue plan
compiled by the business rescue practitioner (BRP). The BRP recommended the
sale of the business as follows:

a) Sale of the forestry business to World Hardwood Proprietary Limited
(“Forestco”) for the sum of R385 million;
b) Sale of the mill plant and equipment to Warhorse Private Equity Proprietary
Limited (“Assetco”) for the sum of R100,00;
c) Grey West Fencing Proprietary Limited (“Millco”) will subscribe for 1000
ordinary shares in the company at a subscription consideration of R1 000,00;
and
d) The company will repurchase 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.

10.2.1 Forestry sale of business agreement
The Forestry Sale of Business Agreement (“the Forestry Agreement”) provides
for the sale of the company’s forestry business to World Hardwood Proprietary
Limited as a going concern at a purchase price of R385 million. The salient
terms of the Forestry Agreement are:

a) The forestry business is defined as the company’s business of owning and
undertaking forestry and/or cane farming activities in respect of the
company’s forestry properties and comprising the company’s forestry sale
assets, forestry assumed liabilities and the forestry employees all as defined
in the Forestry Agreement.
b) Payment of the purchase price is to be secured within three business days
after the later of the date of the signature of the party last signing the
Forestry Agreement and the fulfilment of the conditions precedent by World
Hardwood providing to the company or its attorneys a written irrevocable
guarantee or guarantees for the purchase price on terms and from a bank
acceptable to the company.
c) Payment of the purchase price is to be made on the registration date(s) of
transfer of each of the forestry immovable properties into the name of World
Hardwood Proprietary Limited.
d) The Forestry Agreement provides that the first registration date (of the
immovable properties) shall not occur until and unless the simultaneous
registration of transfer of the forestry immovable properties comprising not
less than 85% of the aggregate value of such properties will occur, on which
date the company will deliver the forestry business to Forestco as a going
concern and will take all such steps and do all that is reasonably necessary
to place Forestco in possession and control of the forestry business.
e) The Forestry Agreement provides that in respect of any of the forestry
immovable properties not transferred on the closing date (as defined in the
Forestry Agreement) from the closing date until the registration date of such
immovable properties, Forestco shall pay the Company occupational interest at
the rate of 6% per annum calculated on the value of each such forestry
immovable property.
f) The employees employed in the Company’s forestry business will be
transferred to World Hardwood Proprietary Limited as contemplated in section
197 of the Labour Relations Act of South Africa.

10.2.2 Sale of mill plant and equipment agreement
The Sale of Plant and Equipment Agreement (the “Asset Agreement”) provides for
the sale of the Company’s plant and equipment used in the Mill to Warhorse
Private Equity Proprietary Limited (Assetco) for the sum of R100-00. The
salient terms of the Asset Agreement are:

a) The sale of mill plant and equipment is subject to the fulfilment or waiver
of the conditions precedent.
b) Payment of the purchase price is to be made by Warhorse Private Equity
Proprietary Limited to the company on the first registration date of any of
the company’s forestry immovable properties into the name of World Hardwood
Proprietary Limited, which date shall not be timed to occur until and unless
the simultaneous registration of transfer of such properties comprising not
less than 85% of the aggregate value of the properties will occur and against
delivery of the plant and equipment by the company to Warhorse.
c) After becoming owner of the plant and equipment, Assetco will make it
available for use by the company in its business pending consideration as to
the replacement thereof. All costs in connection with the plant and
equipment, including the decommissioning and scrapping thereof in due course
will be borne by Assetco.
10.2.3 Subscription agreement
In terms of the Subscription Agreement Grey West Fencing Proprietary Limited
(Millco) shall subscribe for 1 000 ordinary shares in the Company against
payment of R1 000-00. The salient terms of the Subscription Agreement are:
a) The Subscription Agreement is subject to the fulfilment or waiver of the
conditions precedent.
b) The share subscription transaction together with the Share Repurchase
Transaction (set out in paragraph 9.2.4 below) will, if implemented,
constitute an intermediate merger for purposes of the Competition Act and
consequently the company and Grey West Fencing Proprietary Limited will
prepare and submit a joint merger filing.

10.2.4 Share Repurchase Transaction
The salient terms of the Share Repurchase Transaction are:

a) The company’s present shareholders shall be obliged to sell their shares to
the company in return for payment of a repurchase price calculated in
accordance with a formula set forth in the transaction implementation
agreement.
b) The BRP shall pay the share repurchase price from the funds held in a Share
Repurchase Price Settlement Account opened by the BRP for the purpose of
receiving and holding all the amounts allocated to payment of the share
repurchase price and for payment of the amount required to ensure compliance
with the company’s obligations in respect of the post-employment healthcare
benefits.
c) The share repurchase price shall be paid to the present shareholders pro-
rata to their shareholdings as follows:
i. An initial payment to be made as soon as reasonably possible, but no later
than thirty days, after the first registration date of any of the company’s
immovable properties into the name of World Hardwood Proprietary Limited.
ii. Further payments as monies are received into the Share Repurchase Price
Settlement Account until each shareholder has received full payment of the
share repurchase price.
d) Following the share repurchase, shareholders, with the exception of Millco
once it is a shareholder of Masonite, shall not be entitled to exercise any
rights pertaining to their shares and the shareholders’ only remaining right
will be to receive any unpaid portion of the share repurchase consideration.

10.2.5 Post-retirement benefit obligation
The liability in respect of post-employment healthcare benefits, at 31
December 2015, was R35.9 million. This amount includes an approximately R33,
0 million in respect 88 former employees who qualify for this benefit. In
satisfaction of the claim of former employees qualifying for post-employment
healthcare benefit, the BRP will conclude an agreement with an insurance
company in terms of which an annuity is purchased for each of the former
employees to fund the monthly medical aid premiums in respect of such
employees. The current estimated total purchase price of the annuities is
R24, 0 million.
11. Going Concern

As more fully described in the report to stakeholders on page 2 the current
business conditions, reliability challenges at the Mill and inability to
regain lost market share to substitute products adversely impacted the
company’s performance through 2015 and the company has reported a loss for the
year.

The directors concluded that the outlook for the business in its current form
would continue to present significant challenges in terms of sales volume,
pricing and costs as well as the need to implement the capital projects
required to keep the Mill operational. Accordingly, the company applied for
business rescue on 22 December 2015.

As more fully explained in the report to stakeholders the BRP, supported by
the Transaction Advisors and the board of directors, entered into a series of
transactions that resulting in the sale of the forestry business, sale of
plant and equipment, a repurchase by the company of its entire share capital
and a Subscription Agreement for the issue of shares to Millco.

The bid provides for the sale of the company’s forestry assets at an
attractive price (value), has funding certainty and limited conditionality, is
structured in such a manner that the Mill will continue to operate, the
company’s Mill employees remain employed and company maintains the necessary
experience and expertise to operate the Mill.

The above offer has been approved by the Competitions Commission of South
Africa.

The company, under new ownership, will review the current business model in
order to further improve operational efficiencies, reduce costs and restore
the business to a sustainable long term cash generating position. In the
interim, the company is in the process of arranging a debtor invoice
discounting facility and support for this will be provided through
confirmation of intent by the new shareholder. The new shareholder has
provided a letter of support to the company while they wait for response on
the debtor invoice discounting facility. This support will also be provided
should the debtors invoice discounting facility not be approved.

After considering the company trading and cash flow forecasts in light of the
above, the directors have a reasonable expectation that the company will have
adequate resources to continue in operational existence for the foreseeable
future. For these reasons they continue to adopt the going concern basis in
preparing the financial statements.

Report to Stakeholders

OVERVIEW
2015 was a difficult year for Masonite. The difficult business conditions and
increasing reliability challenges at the Mill, combined with the carry over
impact of the explosion at the Mill in June 2014, continued to adversely
impact the company’s performance through 2015.

These factors complicated the company’s efforts to regain lost market share to
substitute products, both locally and internationally. Market pricing
continued to be highly competitive.

In view of the increasing capital requirements of the aging Mill, a
challenging trading environment and weakening cash position, the board of
directors carefully reviewed various strategic options for the business. The
company minimized capital expenditures other than investing in the ‘Forestry
First’ strategy while these options were being considered.

At the same time, the company maintained its focus on cost reductions and cash
preservation through its freeze on employment and tight management of
controllable costs while maintaining its preventative maintenance, quality,
safety and environment standards.

In the last quarter of 2015, it became apparent that the company could
encounter cash flow challenges in the following six months that were unlikely
to be reversed. This was due to forecasted continuing trading losses and
falling cash combined with the anticipated capital projects required to keep
the Mill operational.

In light of this, the board of directors concluded that the company was
financially distressed in that it appeared to be reasonably unlikely that the
company would be able to pay all its debts as they became due and payable
within the immediate ensuing 6 months and, accordingly, the company applied
for voluntary business rescue on 22 December 2015.

TRADING
Revenue of R618,2 Million (+2,2%) was driven by Mill volumes (+9,2%) which
remain significantly below 2013 levels. Mill prices (-6,6%) remained under
pressure for most of the year as we fought to regain volume sales for the
Mill. Local volumes showed some growth in the retail hardboard, door panel and
packaging sector while the local furniture and construction sectors continue
to struggle. Export volumes continue to be impacted by substitute products in
the door sector.

Despite the cost reduction and cash preservation plan, mill operating costs
continued to increase as a result of rising labour and energy costs.

As a result, margins held at 8,8% (2014: 8,3%) but remain significantly below
historical levels (2013: 26,7%) and well below levels required to sustain the
business.

The once off business interruption insurance proceeds of R29,3 million
received in 2015 was the final insurance payment in respect of the explosion
at the Mill in 2014.

The cost of the evaluation process referred to above and legal fees in respect
of land claims resulted in once off other operating expenses of R16 million.
As part of the adopted business rescue plan (see details below), all mill
plant and equipment is planned to be sold to Warhorse Private Equity
Proprietary Limited (Assetco) for R100,00. This has resulted in an impairment
of R79,0 million charged to the income statement.

(Loss)/profit before taxation deteriorated significantly in 2015 from a profit
of R28,5 million to a loss of R93,8 million.

FINANCIAL POSITION
Property, plant and equipment was impaired by R79,0 million as detailed above.
Capital expenditure of R5,5 million was incurred to maintain the operation of
the Mill. Only essential planned capital expenditure was authorised during the
year while the company assessed the various options for the business.

Inventories decreased mainly due to lower levels of raw materials, finished
goods and an increase in the provision for inventory to reduce the carrying
value to net realisable value in light of the difficult trading conditions,
offset by higher levels of maintenance spares.

Trade receivables decreased mainly due to lower sales in the last quarter of
2015, offset by a change in classification of the provision for quantity
purchase discounts from trade receivables to trade payables.   Prepayments and
other receivables in 2014 included an accrual of R10,0 million in respect of
the 2014 mill explosion insurance claim; this amount was received in the first
quarter of 2015.

Trade and other payables in 2015 includes the provision for quantity purchase
discounts granted to customers referred to above. The moratorium placed on
Trade Payables due to the commencement of voluntary business rescue
proceedings in December 2015 resulted in further increases.

The company managed to conserve its cash position at the end of 2015 ending
with cash balances of R65,3 million (2014: R65,0 million).

This was possible due to a focus on inventory reductions, lower levels of
trade receivables at year end, the receipt of insurance proceeds and reduced
capital expenditures. In addition, the moratorium placed on Trade Payables by
the commencement of voluntary business rescue proceedings reduced cash
outflows at year end.

These short term cash benefits are unlikely to continue. The cash balance at
the end of 2015 was considered to be insufficient to sustain the Company which
was forecast to continue to be impacted by low gross margins, rising costs and
increasingly high capital expenditure.

BUSINESS RESCUE
In the last quarter of 2015, management projections indicated that there would
be a cash deficit within the ensuing 6 months which was unlikely to reverse.
Historically the company operated with unsecured banking facilities through
its bankers. During December 2015, both bankers unilaterally withdrew their
overdraft facilities and the company was not able to secure any further
borrowings. As such, the company did not have adequate overdraft banking
facilities to meet the anticipated cash flow deficit. These factors led the
board of directors to conclude that the company was financially distressed.
For this reason, the board of directors of the company applied for voluntary
business rescue on 22 December 2015. Pierre de Villiers Berrange was appointed
as the Senior Business Rescue Practitioner.

CONDUCT OF COMPANY’S BUSINESS SUBSEQUENT TO COMMENCEMENT OF BUSINESS RESCUE
PROCEEDINGS
Pursuant to the BRP’s appointment, consultations were held with the company’s
directors and management and unfettered access was granted to the company’s
financial records and affairs to enable an informed decision to be made by the
BRP regarding the company’s future. Having become familiar with the company’s
financial status and affairs, the BRP was satisfied that it was in the
interest of the company and stakeholders that the company should carry on with
its usual business activities for the immediate future. To enable the business
to continue to operate, the BRP secured a Post Commencement Finance (“PCF”)
overdraft facility of R110 million with Grindrod Bank for a period of 12
months against a cession of the company’s receivable book and the registration
of a first covering mortgage bond over all its properties planted to timber or
cane for R150 million in favour of Grindrod Bank.

PRINCIPAL STEPS TAKEN BY THE BRP TO SECURE THE SUCCESSFUL RESCUE OF THE
COMPANY
Following the consultations and investigations with the company’s directors
and management, the BRP considered all avenues to facilitate the rescue of the
company, including a restructuring of the company’s business and the
possibility of re-capitalising the company.

The BRP concluded that the rescue of the company would best be achieved by
either: a structured sale of the company’s business as a going concern, or a
merger, or by virtue of the sale of the company’s shares or the sale of the
company’s forestry division and the Mill in separate transactions. To achieve
the above objective and to advise and assist in the implementation of the
rescue process, the BRP appointed the Corporate Finance Division of Investec
as Transaction Advisors.

THE TRANSACTION
Following a rigorous adjudication of the bids received, the 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
transactions as set out in 9.2 above.

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:

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

The abovementioned transactions were approved, with no conditions attached, by
the Competitions Commission of South Africa.   The transactions are now
unconditional.

The effective date for the implementation of the transactions is 1 July 2016.
The closing date will be on registration of transfer of the forestry
properties comprising not less than 85% of the aggregate value of all the
forestry properties. Thereafter the first trance will become payable to
creditors and shareholders. It is anticipated that this will be achieved by
31 August 2016; where after the net proceeds will be paid to creditors and
shareholders.

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

On behalf of the Board of Directors, we would like to offer our sincere thanks
to the executive team, managers, employees, customers, suppliers and all other
stakeholders for their commitment and support during this challenging period.

M G Leitch                                              HJ Loring
Chairman                                                Chief Executive Officer

11 August 2016

DIRECTORS MG Leitch (Chairman), HJ Loring (CEO), WP Coetzee, N Maharajh, GE
Coulter (USA), LP Repar (Canadian),CA Virostek (Canadian), RE Lewis(USA)

COMPANY SECRETARY
MP Govender

TRANSFER SECRETARIES
Computershare Investor Services (Proprietary) Limited
70 Marshall Street, Johannesburg, 2001

SPONSOR
Nedbank Corporate and Investment Banking
135 Rivonia Road, Sandton, 2196

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