| Tue 2 Nov 2010, 14:33 | | PFG - Pioneer Food Group Limited - Finalisation of settlement with the |
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PFG
PFG
PFG - Pioneer Food Group Limited - Finalisation of settlement with the
Competition Commission and trading update
Pioneer Food Group Limited
Incorporated in the Republic of South Africa
Registration number: 1996/017676/06
Share code: PFG
ISIN code: ZAE000118279
("Pioneer Foods" or "the Company")
Finalisation of settlement with the Competition Commission and trading update
1. Pioneer Foods has over the past several months issued SENS announcements
regarding the Bread, Milling and other matters, as well as updating
shareholders on settlement negotiations between Pioneer Foods and the
Competition Commission ("the Commission") (collectively referred to as "the
parties"). In this regard, shareholders are referred to the SENS
announcements dated between 3 February 2010 and 30 September 2010. As
stated in those announcements the Commission had in its referrals to the
Competition Tribunal ("the Tribunal") sought to levy administrative
penalties of R1.6 billion in each of the two milling matters, calculated as
10% of the Pioneer Food Group annual turnover for the financial year ended
30 September 2009, resulting in a combined total of R3.2 billion.
2. As stated in the SENS announcement dated 21 September 2010 the Commission
has withdrawn its appeal against the order of the Tribunal in the Bread
matter, while Pioneer Foods has withdrawn its cross appeal in the same
matter. The Bread matter has accordingly been finalised.
3. Shareholders are advised that the parties have subsequently agreed to a
full and final settlement ("the Settlement Agreement") that concludes the
Milling matters and all other investigations and proceedings between the
Commission and Pioneer Foods relating to any alleged contraventions by
Pioneer Foods of the Competition Act 89 of 1998, as amended ("the
Competition Act").
4. The Parties will file an application today for confirmation of the
Settlement Agreement by the Tribunal as provided for in the Competition
Act. The application will be heard on a date to be determined by the
Tribunal.
5. The salient provisions of the Settlement Agreement are set out in 5.1 to
5.10 below. These provisions remain subject to confirmation of the
Settlement Agreement by the Tribunal.
5.1 Pioneer Foods will pay an administrative penalty of R250 million to
the Commission. The Commission will pay this sum to the National
Revenue Fund.
5.2 Pioneer Foods will pay a sum of R250 million to the Industrial
Development Corporation ("IDC") to be utilized to promote competition
in the agri-processing value chain.
5.3 The total monetary value of the administrative penalty and the IDC
payment will be R500 million. For the avoidance of doubt, this
figure of R500 million excludes the administrative penalty of R195
718 614 imposed by the Tribunal in the Bread matter and which was paid
by Pioneer Foods in April 2010.
5.4 Pioneer Foods has also decided to commit to a reduction in its gross
profit over a defined period in respect of a selection of defined
wheaten flour and bread products. The pricing commitment shall amount
to a reduction of R160 million in gross profit when benchmarked
against an agreed base period. This will benefit the consumer should
the reductions be passed on through the trade.
5.5 The settlement amounts payable by Pioneer Foods as detailed in 5.1 and
5.2 above will become payable in the following tranches:
5.5.1 R66 666 667 within five days of confirmation of the
Settlement Agreement as an order of the Tribunal ("the first
payment date");
5.5.2 R216 666 667on the first anniversary of the first payment
date; and
5.5.3 R216 666 667 to be paid on the second anniversary of the
first payment date.
5.6 Pioneer Foods furthermore undertook not to reduce its committed
cumulative capital expenditure of R1 228 million from 2010 to 2013 as
a result of the Settlement Agreement, and commits to increasing the
capital expenditure by a further R150 million over the same period.
The aforesaid expenditure is linked to certain anticipated capital
programmes. Although subject to economic, market and other conditions,
it is Pioneer Foods` firm intention to retain the overall investment,
which will assist in job creation as capacity grows.
5.7 The Settlement Agreement contains certain admissions by Pioneer Foods,
namely that:
5.7.1 In respect of the Milling matters (which include maize and
wheat), Pioneer Foods admits that it has contravened section
4(1)(b)(i) of the Competition Act to the extent set out in
its answering affidavits filed with the Tribunal in those
matters. These matters have been referred to before;
5.7.2 Pioneer Foods admits that it has submitted certain
information to and have received certain information from
certain industry bodies; and
5.7.3 Pioneer Foods admits that on an occasion in 2007 it
contravened the provisions of section 8(c) of the
Competition Act relating to exclusionary conduct.
5.8 Pioneer Foods has ceased to engage in the conduct referred to in 5.7
above pending the outcome of the Commission`s investigation and any
further proceedings. Pioneer Foods undertakes in future not to make
any utterances that may reasonably be construed as a threat to enter
into a price war or an inducement to raise prices. For the avoidance
of doubt, this undertaking does not preclude Pioneer Foods from
continuing to price competitively, and in so doing protect or increase
its market share, in any market in which it participates.
5.9 Pioneer Foods agrees to cooperate fully with the Commission in its
prosecution of any other parties who are the subject of its
investigations and referrals to the Tribunal.
5.10 Pioneer Foods will continue with its existing compliance programme
incorporating corporate governance, designed to ensure that the board,
management and staff of Pioneer Foods do not engage in any
contraventions of section 4(1)(b) of the Competition Act.
6. The Settlement Agreement was entered into in full and final settlement of,
and upon confirmation as an order by the Tribunal concludes, all
investigations and proceedings between the Commission and Pioneer Foods
relating to any alleged contraventions by Pioneer Foods of the Competition
Act that are the subject of the Commission`s investigations. The Milling
matters, as well as various other matters including a wheat milling and
baking exchange of information complaint, a white maize milling information
exchange investigation, an exclusionary conduct complaint, poultry industry
complaints and an egg industry complaint, are included in the settlement.
7. Shareholders are referred to the SENS announcement dated 8 April 2010 in
which it was stated that Pioneer Foods had made a provision of R350 million
for the payment of potential administrative penalties (this figure includes
the provision of R196 million previously raised in respect of the Bread
matter). Shareholders were subsequently notified in the Company`s SENS
announcement dated 21 September 2010 that, although all the terms and
conditions of the settlement had not yet been finalised at that time,
indications were that the settlement amount would exceed the provision
previously made by Pioneer Foods.
8. In terms of the Listings Requirements of the JSE Limited, a listed company
is required to publish a trading statement as soon as it is satisfied that
a reasonable degree of certainty exists that its financial results for the
next reporting period will differ by 20% or more from those of the previous
corresponding reporting period.
As a result of the Settlement Agreement an additional provision of R464
million will be raised for the financial year ended 30 September 2010,
taking into account the original provision of R350 million and the
subsequent payment of the R196 million penalty for the bread matter. As a
result, earnings per share and headline earnings per share for the 12
months ended 30 September 2010, are expected to decrease between 80% and
95% from the previous corresponding period.
Shareholders are further advised that if the provisions and penalty on the
bread matter, which has already been paid, are not taken into account, an
increase of between 47% and 62% could have been expected in earnings per
share and an increase of between 35% and 50% in headline earnings per share
for the 12 months ending 30 September 2010, from the previous corresponding
period.
Shareholders are further advised that given the expected decline in
earnings, a final dividend will not be declared for the financial year
ended 30 September 2010.
The financial information on which this trading statement is based has not
been reviewed and reported on by the company`s auditors.
9. Shareholders are referred to the cautionary announcement dated 30 September
2010 and are advised to continue to exercise caution when dealing in their
Pioneer Foods shares until a further announcement is made.
2 November 2010
Paarl
Sponsor
PSG Capital
Date: 02/11/2010 14:33:18 Produced by the JSE SENS Department.
The SENS service is an information dissemination service administered by the
JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or
implicitly, represent, warrant or in any way guarantee the truth, accuracy or
completeness of the information published on SENS. The JSE, their officers,
employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature,
howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
