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Chief Financial Officer’s Report  cont.
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– Banking facilities –
Following the unbundling from Barloworld Limited, the group has increased its short-term borrowing facilities with external financial institutions. These facilities were utilised to fund capital expansion programmes and investment in working capital.
 
– Incentivisation accounting –

Post unbundling from Barloworld, PPC re-imbursed Barloworld R30 million in full and final settlement of the equity-settled share incentive scheme liability relating to the number of unexercised Barloworld share options held by PPC executive directors and senior executives. This payment was charged against equity compensation reserves.

A total of R3 million (2006: R1 million; 2005: R3 million) was expensed in terms of IFRS 2, relating to the equity-settled share option scheme referred to above, and also the recently introduced cash-settled long-term share option scheme. This scheme is the replacement to the Barloworld share option scheme which previously incentivised PPC executive directors and senior management on a long-term basis.
 
– Share buyback –
The directors have general authority to buy back a maximum of 7,5% of the issued share capital of PPC. A special resolution will be put forward at the next annual general meeting for approval to renew this authority and to increase it to 10%. Share buybacks will be considered on an ongoing basis, where appropriate.
 
– Capital structure –

Balance sheet structuring is a key focus, and the strong cash flows and current low levels of borrowings will enable the group to take on higher levels of debt. Future capital expenditure will be funded through borrowings. As the equity of the group has been eroded by special dividends, a debt to equity ratio is not an appropriate measurement and the board has determined that gross debt/EBITDA and interest cover are more appropriate. Target debt levels of around two times gross debt/EBITDA multiple and around five times interest cover has been established that will, at current levels, allow for approximately R5 billion debt.

Several options for capital restructuring and optimisation of the weighted average cost of capital are being evaluated with advisers.
 
– Segmental information –
Although IFRS 8 (Operating Segments) has not yet been adopted by the company, and only becomes effective for financial years after 1 January 2009, business and geographical information has been included in note 39.
 
 
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