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CGR - Calgro M3 - Interim report for the six months ended 31 August 2009
Calgro M3 Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number: 2005/027663/06)
Share code: CGR & ISIN: ZAE000109203
("Calgro M3" or "the company" or "the group")
INTERIM REPORT FOR THE SIX MONTHS ENDED 31 AUGUST 2009
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited Unaudited Audited Audited
six months six months year year
ended ended ended ended
R`000 31 Aug 2009 31 Aug 2008 28 Feb 2009 29 Feb 2008
Revenue 112 832 116 889 233 054 316 677
Cost of sales (92 277) (83 998) (182 205) (239 719)
Gross profit 20 555 32 891 50 849 76 958
Net administrative
expenses (14 270) (26 297) (34 787) (29 433)
Impairment of inventory (11 385) - (8 991) -
Gain on cancellation
of put option - 17 035 17 035 -
Impairment of goodwill - (8 828) (14 714) -
Profit on sale of
investment 29 450 - - -
Operating profit 24 350 14 801 8 392 47 525
Net finance cost 226 (1 362) (506) (2 393)
Profit before taxation 24 576 13 439 7 886 45 132
Taxation (2 974) (1 914) (1 864) (13 723)
Profit after taxation 21 602 11 525 6 022 31 409
Total comprehensive
income 21 602 11 525 6 022 31 409
Profit attributable to:
Owners of the company 21 602 11 525 6 022 31 409
Earnings per share
- cents 17.00 9.07 4.74 30.33
Headline earnings
per share - cents (2.93) 16.01 16.32 30.40
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited Unaudited Audited Audited
six months six months year year
ended ended ended ended
R`000 31 Aug 2009 31 Aug 2008 28 Feb 2009 29 Feb 2008
ASSETS
Non-current assets
Property, plant
and equipment 8 388 8 417 8 100 7 782
Loans to associates 19 888 - - -
Other non-current assets 51 639 32 117 49 433 28 610
79 915 40 534 57 533 36 392
Current assets
Inventories 254 414 276 971 260 115 251 417
Construction contracts 67 125 144 363 64 389 91 000
Trade and other
receivables 6 824 19 063 18 368 54 684
Other current assets 13 361 59 930 13 836 43 027
Cash and cash equivalents 25 930 176 30 594 3 111
367 654 500 503 387 302 443 239
Assets of a disposal group
classified as held
for sale - - 126 301 -
Total assets 447 569 541 037 571 136 479 631
EQUITY AND LIABILITIES
Equity
Capital and reserves 159 833 145 948 138 231 133 171
Total equity 159 833 145 948 138 231 133 171
Non-current liabilities
Non-current borrowings 165 702 190 141 117 957 165 269
Other non-current
liabilities 14 725 27 749 19 266 13 766
180 427 217 890 137 223 179 035
Current liabilities
Current borrowings 10 036 112 563 69 350 91 205
Other current liabilities 82 364 46 731 104 094 70 912
Bank overdraft 14 909 17 905 15 842 5 308
107 309 177 199 189 286 167 425
Assets of a disposal group
classified as held
for sale - - 106 396 -
Total equity and
liabilities 447 569 541 037 571 136 479 631
Net asset value per
share - cents 352.14 425.68 449.36 377.37
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited Unaudited Audited Audited
six months six months year year
ended ended ended ended
R`000 31 Aug 2009 31 Aug 2008 28 Feb 2009 29 Feb 2008
Net cash from
operating activities 33 272 (71 530) 68 240 (289 327)
Net cash from investing
activities 7 614 8 917 (30 666) (12 728)
Net cash from financing
activities (44 617) 47 081 (20 625) 300 372
Net (decrease)/increase
in cash and cash equivalents
and bank overdraft (3 731) (15 532) 16 949 (1 683)
Cash and cash equivalents
and bank overdraft at the
beginning of the year 14 752 (2 197) (2 197) (514)
Cash and cash equivalents
and bank overdraft
at the end of the year 11 021 (17 729) 14 752 (2 197)
EARNINGS RECONCILIATION
Unaudited Unaudited Audited Audited
six months six months year year
ended ended ended ended
R`000 31 Aug 2009 31 Aug 2008 28 Feb 2009 29 Feb 2008
Determination of headline earnings
Attributable profit 21 602 11 525 6 022 31 409
Impairment of goodwill - 8 828 14 714 -
Loss/(profit) on disposal
of property, plant
and equipment - - - 72
Profit on sale of investments
- net of tax (25 327) - - -
Headline earnings (3 725) 20 353 20 736 31 481
Determination of diluted earnings
Attributable profit 21 602 11 525 6 022 31 409
Share option expense - 1 253 (963) 963
Diluted earnings 21 602 12 778 5 059 32 372
Number of ordinary
shares 127 100 127 100 127 100 127 100
Weighted average shares 127 100 127 100 127 100 103 562
CONDENSED SEGMENT REPORT FOR THE GROUP
Construction Land Professional Inter-group
development services & holding Total
R`000
Aug 2009
Revenue
104 363 8 276 519 (326) 112 832
Operating (loss)/profit
4 098 21 835 (820) (763) 24 350
Aug 2008
Revenue
110 235 6 542 112 - 116 889
Operating (loss)/profit
16 185 (1 104) (101) (179) 14 801
Aug 2009
Total assets
254 227 304 297 10 197 (121 152) 447 569
Total liabilities
(114 432) (282 086) (4 498) 113 280 (287 736)
Feb 2009
Total assets
294 363 416 814 10 073 (150 114) 571 136
Total liabilities
(150 326) (415 567) (3 792) 136 780 (432 905)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to the owners of the company
Share Share Other Retained Total
Capital premium reserves income equity
(Rands)
Balance at 01 March 2008
1 271 96 020 450 963 141 36 186 235 133 171 097
Profit for the year
- - - 6 022 452 6 022 452
Share appreciation scheme
- - (963 141) - (963 141)
Balance at 28 February 2009
1 271 96 020 450 - 42 208 687 138 230 408
Profit for the period
- - - 21 602 285 21 602 285
Total comprehensive income for the period ended 31 August 2009
- - - 21 602 285 21 602 285
Balance at 31 August 2009
1 271 96 020 450 - 63 810 972 159 832 693
Notes
1. Basis of preparation
These consolidated condensed financial statements are prepared in accordance
with International Financial Reporting Standards (IFRS) on Interim Financial
Reporting (IAS34), Schedule 4 of the South African Companies Act and the
Listings Requirements of the JSE Limited. The accounting policies are consistent
with those used in the annual financial statements for the year ended 28
February 2009.
2. Independent audit
These consolidated condensed financial statements have been not been audited.
3. Dividends
No dividends have been declared for this interim period.
COMMENTS
1. Nature of business
Calgro M3 is a mixed-use housing development company, established in 1995,
focusing on the acquisition of land, town planning, project management of civil
infrastructure, services installation and the marketing and construction of
residential properties. The company is currently predominantly Gauteng-based.
The niche market for the group`s housing products comprises two specific market
segments: integrated housing and mid to high income developments.
Integrated housing comprises three components:
"BNG homes" (Breaking New Ground initiative as Government Gazetted 2005) valued
according to government subsidy scales which are currently set at
R55 705 for fully subsidised houses, plus a further subsidy of R22 162 per unit
for the provision of municipal engineering services;
"GAP homes" - valued between R180 000 and R340 000. This falls within the
requirements of the financial services sector charter of 2005; and
"Affordable homes" - valued between R240 000 and R600 000 per unit.
The company`s business strategy supports government`s proactive drive, which is
expressed in the `Breaking New Ground` initiative, aimed at ensuring the
creation of sustainable settlements. This is achieved through the integration of
various income groups, as well as the provision of socio-amenities such as
schools, creches, clinics, religious sites, community centres, sports grounds
and business sites, all within the fully integrated community.
Mid to high income residential
These are homes valued between R600 000 and R1.8m, aimed at the owner-occupier
in secure complexes in prime locations.
2. Financial overview
Calgro M3 is weathering one of the toughest economic storms in decades with the
effect that financial institutions opt to be risk-averse in the property
development sector. The board remain optimistic that opportunities exist to grow
the company further, create sustainable jobs and secure Calgro M3`s position as
a leader in all spheres of residential developments. Calgro M3 has contained
costs through the restructuring of management structures and a reduction of
overheads in accordance with the company`s business model and current strategy.
Group revenue for the half year ended August 2009 decreased by 3.5%, from R116m
to R113m. Although the gross profit margin decreased by 3.6% compared to the
previous year, administrative overheads were contained to a sustainable level of
R14.2m as a result of close monitoring and implementation of tight management
controls. As a consequence of the current economic climate, the company has
surplus land in the mid to high segment of the market, to its requirements, some
of which have been earmarked for sale to increase liquidity, and have
accordingly been impaired to current nett realisable value. Operating profit
excluding fair value adjustments, impairments and non-operational gains for the
six months under review amounted to R4.9m compared to R3.3m for the comparable
reporting period, and R12.7m for the 12 months ended 28 February 2009. Profit
on sale of investment amounting to R25.3m after tax is attributable to the sale
of a 30% stake in the Fleurhof project as previously reported.
The decrease in the gross profit percentage can be attributed to the group
taking over a portion of construction on the Pennyville project, to maintain
quality and control deliverables.
There was a further decrease in current liabilities, partly as a result of
repayment out of operating cash flows and partly as a result of converting
current liabilities to long-term liabilities. Cash generated from operations
was also positive, amounting to R33.2m. This is consistent with year-end but a
great improvement on the comparable reporting period.
3. Operational overview
The general credit crunch impacted on all segments of the business during the
six months under review. During August, financial institutions announced the
relaxation of their lending criteria to end- user finance in the affordable
segment of the market.
The limited availability of funding from provincial and local government is a
concern. However, the flexibility in managing cash flows provided by the
integrated development model and the somewhat moderate availability of funding
lines from financial institutions are providing opportunities for Calgro M3.
Furthermore, the emergence of a strong social and rental component in the
integrated segment of the market is also creating additional opportunities for
existing and new projects, thereby diversifying the group`s exposure.
Construction on the Pennyville project is nearing completion and the project
will be concluded during the next six months. The installation of services on
the Fleurhof project is well under way with completion of the first phase of the
project scheduled for the first quarter of 2010, it should be noted however that
limited contribution to profits is expected from the completion of phase 1 of
the Fleurhof project.
The mid to high income segment has not yet witnessed an improvement in sales,
although interest has picked up. The group does not foresee a correction in this
market segment during the next 18 months and properties acquired in this segment
will be "land-banked", with holding cost serviced monthly, until the market
improves.
Achievements in the year under review:
- new industry standards are being set with regard to sectional title BNG
units under construction on our Pennyville project;
- new partnerships with significant role-players in the industry were
secured, relating to assisting government in delivering on their housing
commitments;
- the company was awarded a hostel redevelopment project by the Gauteng
Department of Housing, of which the first phase is to commence in January
2010; and
- transfer was taken of a property from Johannesburg Property Company for the
construction of 1 600 units in the Jabulani CBD, Soweto.
4. Industry overview and prospects
The shortage of housing in South Africa is estimated at 2 million BNG units and
an additional 600 000 affordable homes, with added pressure being created by
funding constraints at both provincial and local government levels.
Lack of funding for housing projects has resulted in emerging and established
contractors venturing into other market segments and forging new partnerships
with government, funders and developers alike. Calgro M3`s solid performance in
the delivery of good quality houses and excellent working relationships with
government has positioned the company favourably to benefit from these
public/private partnerships while supporting government on its commitment of
delivering 250 000 houses a year. Government`s "Breaking New Ground" initiative,
which focuses on integrated and mixed housing developments, is in direct
alignment with the company`s business model.
The continued housing shortage in the affordable market translates into a strong
demand, notwithstanding the prevailing macro-economic environment. In the light
of recent downward interest-rate movements and banks` relaxation of lending
criteria, this market shows all indications of being the first to recover.
The group expects the macro-economic environment to remain unchanged and
properties acquired in the mid to high income market segment will be "land-
banked" until market conditions improve.
Subsequent events
No significant events have occurred in the period between the reporting date and
the date of this announcement.
For and on behalf of the Board
Johannesburg
21 October 2009
Directors:
PF Radebe (Chairperson)*, BP Malherbe (acting CEO), JB Gibbon*, WJ Lategan, MP
Lakhethe*, N Maninjwa*, H Ntene*, FJ Steyn
*Non-executive
Registered office: 112 - 11th Street, Parkmore, Sandton 2196
(Private Bag X33, Craighall 2024)
Transfer secretaries: Computershare Investor Services (Pty) Ltd
70 Marshall Street, Johannesburg 2001
(PO Box 61051, Marshalltown 2107)
Company Secretary: F Pieterse
Designated advisor: PSG Capital (Pty) Ltd
Auditors: PricewaterhouseCoopers Inc.
www.calgrom3.com
Date: 21/10/2009 07:05:01 Supplied by www.sharenet.co.za
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