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Audited Abridged Results for the Year Ended 28 February 2014
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")
HIGHLIGHTS
Balance sheet unsecured
Project development pipeline in excess of R17 billion
Headline earnings up 15,76% to R106 million
ABRIDGED AUDITED RESULTS FOR THE YEAR ENDED 28 FEBRUARY 2014
SUMMARISED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Audited Audited
Year Year
ended ended
28 Feb 28 Feb
R’000 2014 2013
Revenue 784 943 798 394
Cost of sales (671 954) (650 436)
Gross profit 112 989 147 958
Other income 1 793 1 265
Other expenses (3 553) (5 146)
Administrative expenses (58 378) (54 703)
Operating profit 52 851 89 374
Share of profit of
Joint ventures (Net of tax) 66 161 29 406
Net finance income (3 797) (1 540)
Profit before taxation 115 215 117 240
Taxation (9 519) (25 937)
Profit after taxation 105 695 91 303
Attributable to:
Equity holders of the Company 105 695 91 303
Minority interest - -
Earnings per share - cents 83.16 71.84
Headline earnings per share - cents 83.16 71.84
Fully diluted earnings per share - cents 83.16 71.84
Fully diluted headline earnings per share - cents 83.16 71.84
SUMMARISED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Audited Audited
Year Year
ended ended
28 Feb 28 Feb
R’000 2014 2013
ASSETS
Non-current assets
Property, plant and equipment 2 612 4 245
Deferred tax 18 639 13 908
Other non-current assets 181 469 135 101
202 720 153 254
Current assets
Inventories 385 826 264 580
Construction contracts and work in progress 179 487 139 251
Trade and other receivables 220 045 45 339
Other current assets 46 566 8 353
Cash and cash equivalents 62 893 198 343
894 817 655 866
Total assets 1 097 537 809 120
EQUITY AND LIABILITIES
Equity
Capital and reserves 433 053 327 358
Total equity 433 053 327 358
Non-current liabilities
Deferred tax 37 128 26 863
Other non-current liabilities - 216
37 128 27 079
Current liabilities
Borrowings 470 929 299 890
Other current liabilities 156 427 154 793
627 356 454 683
Total liabilities 664 484 481 762
Total equity and liabilities 1 097 537 809 120
Net asset value per share - cents 340.7 257.6
EARNINGS RECONCILIATION
Audited Audited
Year Year
ended ended
28 Feb 28 Feb
R’000 2014 2013
Determination of headline and diluted headline earnings
Attributable profit 105 695 91 303
(Loss)Profit on disposal of property - -
Headline and diluted headline earnings 105 695 91 303
Determination of earnings and diluted earnings
Attributable profit 105 695 91 303
Earnings and diluted earnings 105 695 91 303
Number of ordinary shares (‘000) 127 100 127 100
Weighted average shares (‘000) 127 100 127 100
Fully diluted weighted average shares (‘000) 127 100 127 100
SUMMARISED CONSOLIDATED STATEMENT OF CASH FLOWS
Audited Audited
Year Year
ended ended
28 Feb 28 Feb
R’000 2014 2013
Net cash from operations (291 953) 12 585
Net cash from/(utilised in) investing activities (16 091) 8 269
Net cash from financing activities 172 593 73 798
Net increase in cash and cash
equivalents (135 450) 94 652
Cash and cash equivalents the beginning
of the year 198 343 103 691
Cash and cash equivalents the end
of the year 62 893 198 343
SUMMARISED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Stated Retained Total
Capital Income Equity
Balance at 1 March 2012 96 021 721 140 032 285 236 054 006
Comprehensive income
Profit for the year - 91 303 538 91 303 538
Total comprehensive - 91 303 538 91 303 538
income
Balance at 01 March 2013 96 021 721 231 335 823 327 357 544
Comprehensive income
Profit for the year - 105 695 319 105 695 319
Total comprehensive - 105 695 319 105 695 319
income
Balance at 28 February 96 021 721 337 031 142 433 052 863
2014
SUMMARISED SEGMENT REPORT FOR THE GROUP
R’000 Land Professional
Construction Development Services Total
Feb 2014
Segment revenue 762 951 7 440 14 552 784 943
Inter-segment revenue - - - -
Revenue from external
Customers 762 951 7 440 14 552 784 943
Operating profit/(loss) 43 347 (1 469) 13 271 55 149
Finance cost (13 470) 20 - (13 450)
Assets
Goodwill 28 515 - 4 155 32 670
Inventories 21 611 364 215 - 385 826
Construction contracts 179 487 - - 179 487
Liabilities
Borrowings (470 929) - - (470 929)
Feb 2013
Segment revenue 765 925 2 698 32 182 800 805
Inter-segment revenue - - (2 411) (2 411)
Revenue from external
Customers 765 925 2 698 29 771 798 394
Operating profit/(loss) 67 543 (4 909) 28 875 91 509
Finance cost (9 970) - - (9 970)
Assets
Goodwill 28 515 - 4 155 32 670
Inventories 20 206 244 374 - 264 580
Construction contracts 139 251 - - 139 251
Liabilities
Borrowings (221 000) (78 890) - (299 890)
A RECONCILIATION OF ADJUSTED PROFIT BEFORE TAX IS PROVIDED
Audited Audited
Year Year
ended ended
28 Feb 28 Feb
R’000 2014 2013
Adjusted profit before tax for reportable segments 41 699 81 538
Group overhead cost (2 298) (2 135)
Share of profit of joint ventures – Net of tax 66 161 29 406
Total segments 105 563 108 809
Finance income – net 9 652 8 431
Profit before tax 115 215 117 240
RELATED PARTY TRANSACTIONS
Audited Audited
Year Year
ended ended
28 Feb 28 Feb
R’000 2014 2013
Compensation paid to key employees and personnel 16 624 20 925
Finance income from related parties 7 833 6 409
Contract revenue received from joint ventures 473 660 391 117
Services fees received from joint ventures 13 810 29 103
COMMENTARY
INTRODUCTION
During the period under review the Group has paved the way for its next growth phase.
It has grown its project pipeline to over R17 billion, strengthened and consolidated its
balance sheet to achieve the cash flow flexibility required in the integrated residential
development environment and increased its exposure to public sector clients as a result of
Government’s drive towards infrastructure development.
Accelerated infrastructure investments during the period resulted in margin and cash flow pressure.
However, these investments will facilitate sustained growth over the next 24 months. In addition, the Group’s
exposure to subsidised housing in South Africa will be diversified further through a R812 million project
appointment in Namibia, the Group’s first venture beyond South Africa’s borders. Further growth into Africa will
commence once the Group proves its ability to operate beyond the South African borders.
Management is of the opinion that R10 billion of the secured pipeline can be rolled out in the next five to six years.
The Group will remain focused on its core business: providing residential property opportunities aimed at the
entry-level consumers; specialising in the integrated development market segment; and maintaining its presence in the
mid to high segment of the market.
The strategy of turnkey development will remain, but we will complement internal construction capacity with the use of
reputable external sub-contractors. This will allow the Group to grow without being distracted from its core focus.
The Group’s most significant achievements/events during the year:
- Through the policy of utilising local labour and skills training on site, the Group was able to create in excess of
5 000 direct new job opportunities;
- Fleurhof awarded the Housing Project of the Year by the South African Housing Foundation;
- Fleurhof Views awarded the Govan Mbeki Award 2013 for the best Social Housing project;
- Calgro M3 Holdings awarded Annual Report 2013 merit award from the Chartered Secretaries South Africa in association with
Johannesburg Stock Exchange and Link Market Services;
- Calgro M3 awarded the R812 million Otjomuise project in Windhoek, Namibia;
- Calgro M3 awarded the R225 million second phase of the successful Jabulani Hostels project;
- Handover of the first CRU (Community Residential) and BNG (Breaking New Ground) units to the City of Cape Town on the
Scottsdene project;
- Handover of the first phase of the R97 million social housing project constructed for the City of Johannesburg to its
Social Housing Institute, Joshco;
- Withdrawal from the Boitekong project in the North West province in an amicable way when financial closure could not be
reached with the Rustenburg Municipality;
- Completing the first units on the La Vie Nouvelle Lifestyle Estate project;
- Commencing the installation of infrastructure on the R750 million Witpoortjie project;
- Taking energy efficient water heating to the next level on low income residential developments with the use of heat pumps
and induction geysers, and using gas reticulation for both water heating and cooking;
- Commencing its reduction in exposure to finance joint venture partners by completing the Jukskei View joint venture project,
agreeing to repurchase the shareholding in the Summerset project, and repayment of capital on the Fleurhof project that will
enable the Group to extract its profit in cash within the next period under review;
- The Group was again fatality free on all its construction sites.
FINANCIAL RESULTS
From a financial perspective, the year under review was an exciting but challenging one for the Group.
Land for development with a current market value in excess of R 1,3 billion is carried at a cost of R 550 million.
This excess should flow through as profits over the next few years. The aforesaid valuation takes into account a reduction of
joint venture partner interest.
The Group settled secured debt and joint venture debt in an amount of R458 million and successfully raised R252 million worth of
unsecured three and four-year maturity bonds on the corporate capital market. The debt was settled by utilising a combination of
these new bonds, cash previously on hand and cash generated from operations. In addition to the above, the Group also invested a
further R121 million in new projects that will start generating profits in the next financial year. These elements are considered
an important catalyst for the next growth phase.
Revenue generated by the joint ventures managed by Calgro M3 increased by 14.9% to R685 million. The rest of the Group’s revenue
decreased by 1.7% to R785 million. The Group’s profit after tax increased by 15.76% to R106 million. A solid operating performance
from the Fleurhof project boosted the Group’s share of profits from joint ventures to R66 million after tax. The de-gearing of this
project in the year under review will enable the Group to start extracting development profit in cash in the new financial year.
The following non-recurring items adversely affected the Group’s performance:
- A non-cash write-down of R5.7 million relating to feasibility expenses on the Clayville project;
- Jabulani CBD project lost R 28 million in the current year. This was largely due to electricity delays that brought about
out-of-budget holding costs, security costs, construction escalation breakages, vandalism, theft to units and the cost of
supplying temporary power to units already occupied.
The Groups gross profit margin decreased in line with expectation to 14.4% from 18.5% due to the focus on investment in
accelerated installation of services (generally at lower margins) during the 2014 financial year. The margin decrease was
further exaggerated by the non-recurring loss on the Jabulani CBD project.
The operating margin for the Group, calculated in conjunction with the share of profits from the joint ventures, gives a
more realistic reflection of the movement in operating margin year on year, as Calgro M3 takes responsibility for operational
management and related operating cost of the joint ventures. These joint ventures are all financial joint ventures and therefore
do not have overheads.
The combined revenue including joint ventures, amounted to R 1,469 billion for the year (2013: R 1,394 billion), with combined
operating profit including joint ventures being R 144 million (2013: R 130 million). This equates to a combined operating margin
of 9,85 % compared to 9,34 % for the previous year.
The Group continues to expand and grow, and again made a sizable capital inventory investment of R 121 million in new projects
(La Vie Nouvelle, Sagewood and Belhar) that will start generating revenue and cash inflows in the new financial year.
The fast-tracking of existing projects (Fleurhof, Jabulani and Witpoortjie) and debt settlement in joint venture projects amounting
to R 87 million and R 125 million respectively, resulted in timing differences between cost incurred on infrastructure and construction
and the funds receivable from those projects, which largely contributed to an increase of R 215 million in construction contracts and trade
& other receivables. The majority of these funds were received after year end.
Cash on hand at year end was R63 million, a decrease from R198 million the previous year. The main reasons for this decrease can be attributed
to investments in new projects in the amount of R 121 million, the fast tracking of services on current projects for R 87 million and consolidation
of debt in the joint ventures amounting to R 125 million.
OPERATIONAL REVIEW
The Group continued to spread its risk through diversifying its exposure in Gauteng, Free State and the Western Cape provinces by accepting
the award of the project in Namibia. This followed the delay of the Group’s planned venture into the North West Province, as financial closure
could not be reached, and the Group’s subsequent withdrawal from the project.
The balance between internal and external contractors will be managed during the year ahead while the focus on construction quality will be
maintained to ensure it remains at the highest level. The principle of supplementing internal construction capacity with reputable external
sub-contractors will be maintained and carried forward into the newly awarded Otjomuise project in Namibia where a partnership agreement was
entered into with a local construction company.
The recovery of the mid-to-high income housing segment of the South African market has led to the Group constructing its first units aimed at
this market segment since 2009. With infrastructure completed for the first phase of the La Vie Nouvelle retirement and lifestyle estate project
in Fourways, the Group achieved sufficient sales to commence with the construction of units. The Group plans to bring more “landbanked” parcels to
market in this recovering market segment.
The installation of infrastructure for the first phase of the R268 million Sagewood project in Midrand, which is aimed at the affordable market,
has been completed and construction of top structures was well underway at financial year-end. Revenue and associated profit from this project could,
however, not be accounted for in this year’s results as clearance for transfer was not obtained by the end of February 2014.
OCCUPATIONAL HEALTH & SAFETY (“OHS”)
The board is pleased to report on the Group’s exceptional OHS track record. Despite the dramatic increase in the number of employees on construction sites,
the Group not only remained fatality-free, but also free of any serious injuries in the workplace. This underlines the Group’s on-going and absolute commitment
to ensuring that it maintains its zero harm target achievements.
PROSPECTS
The size of the integrated and affordable market segment, driven by the dire need for housing, will ensure sustained growth in this market segment in the
foreseeable future. Notwithstanding the new entrants into this market segment, management is of the opinion that sufficient project opportunities exist within
the borders of South Africa to sustain such growth. The Group recognises the immense growth opportunities within South Africa’s borders and will ensure controlled
growth by only venturing into new provinces when we are comfortable that existing operations in provinces where we currently do business are fully operational and self-sustaining.
The secured pipeline of integrated development projects will allow Calgro M3 to assist government in its endeavour to eradicate the housing shortage in line with our evolving
public-private partnership policy. It is the Group’s intention to continually grow the pipeline beyond the next five years while controlling and limiting increases in overheads so
that the full benefit of the growth expected from the pipeline is realized.
Statements contained in this announcement, regarding the prospects of the group, have not been reviewed or audited by the group’s external auditors.
BOARD OF DIRECTORS
The Group was able to retain the services of all executive and non-executive directors.
ANNUAL REPORT AND NOTICE OF ANNUAL GENERAL MEETING
Notice is hereby given to all shareholders of the Company as at the record date of 23 May 2014 (being the record date to receive notice of the Annual General Meeting in terms of
section 59(1) of the Companies Act, 71 of 2008, as amended, (“the Companies Act”)) that the Annual General Meeting of the Company will be held at 10h00 on 2 July 2014 at the main boardroom,
Calgro M3 offices, 1st Floor, Cedarwood House, Ballywoods Office Park, 33 Ballyclare Drive, Bryanston, whereby shareholders of the Company as at the record date of 27 June 2014
(being the record date to participate and vote in the Annual General Meeting in terms of section 62(3)(a), read with section 59(1)b, of the Companies Act), will be entitled to transact business
as stated in the notice of the Annual General Meeting posted to shareholders on or about 30 May 2014, which meeting shall be participated in and voted at by shareholders .
APPRECIATION
The positive turnaround experienced since refocusing the business on the integrated market segment would not have been possible without the support and dedication of our loyal staff,
senior management and executive team. We would like to thank every Calgro M3 employee, whose continuous commitment and enthusiasm has contributed towards the success of Calgro M3.
The board would also like to thank all other stakeholders, particularly its financial and development partners, government and our suppliers for their continued and loyal support.
Notes
1. Basis of preparation
The summarised consolidated financial statements are prepared in accordance with the requirements of the JSE Limited Listings Requirements for abridged reports,
and the requirements of the Companies Act applicable to summarised financial statements. The Listings Requirements require abridged reports to be prepared in accordance
with the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards (IFRS) and the SAICA Financial Reporting Guides
as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council and to also, as a minimum, contain the information
required by IAS 34 Interim Financial Reporting. The accounting policies applied in the preparation of the consolidated financial statements from which the summarised consolidated financial
statements were derived are in terms of International Financial Reporting Standards and are consistent with those accounting policies applied in the preparation of the previous consolidated
annual financial statements.
The consolidated financial statements have been prepared by Mr WA Joubert (CA)SA under supervision of Mr WJ Lategan CA(SA) and were approved by the board on 9 May 2014.
2. Independent audit
This summarised report is extracted from audited information, but is not itself audited. The consolidated annual financial statements were audited by PricewaterhouseCoopers Inc.,
who expressed an unmodified opinion thereon. The audited consolidated annual financial statements and the auditor’s report thereon are available for inspection at the company’s registered office.
The directors take full responsibility for the preparation of the abridged report and the financial information has been correctly extracted from the underlying annual financial statements.
3. Dividends
Cash will be retained to fund growth in the absence of readily available development finance. The board of directors has therefore resolved not to declare a dividend for this reporting period.
BP Malherbe WJ Lategan
(Chief Executive Officer) (Financial Director)
Johannesburg 9 May 2014
Directors:
PF Radebe (Chairperson)*#, BP Malherbe (Chief Executive Officer), WJ Lategan (Financial Director), FJ Steyn, DN Steyn, JB Gibbon*#, H Ntene*, R Patmore*#,ME Gama*#.
(*Non-executive)
(# Independent)
Registered office: Cedarwood House, Ballywoods Office Park, 33 Ballyclare Drive, Bryanston, 2196. (Private Bag X33, Craighall 2024)
Transfer secretaries: Computershare Investor Services (Pty) Ltd
70 Marshall Street, Johannesburg 2001
(PO Box 61051, Marshalltown 2107)
Sponsor: Grindrod Bank Limited
Auditors: PricewaterhouseCoopers Inc.
www.calgrom3.com
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