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CALGRO M3 HOLDINGS LIMITED - Audited results for the year ended 29 February 2016

Release Date: 11/05/2016 07:05
Code(s): CGR     PDF:  
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Audited results for the year ended 29 February 2016

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”)


AUDITED RESULTS FOR THE YEAR ENDED 29 FEBRUARY 2016

HIGHLIGHTS

–  Operating profit up 91.2% to R160.2 million (2015: R83.8 million)

–  Earnings Per Share up 33.3% to 152.77 cents (2015: 114.65 cents)

–  Headline Earnings Per Share up 26.7% to 138.96 cents (2015: 109.69 cents)

–  A strong pipeline to the value of R27 billion

–  Net Debt to Equity at a healthy ratio of 0.59 (2015: 0.62)

–  Zero fatalities


CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

                                     Audited          Audited
                                  Year Ended       Year Ended
                                 29 February      28 February
R’000                                   2016             2015

Revenue                            1 204 064          932 205
Cost of sales                       (952 517)        (757 334)
Gross profit                         251 547          174 871
Other income                          19 466            8 521
Other expenses                        (5 757)            (691)
Administrative expenses             (105 089)         (98 900)
Operating profit                     160 167           83 801
Share of profit of joint ventures
and associates - Net of tax           67 234           86 827
Net finance income/(cost)             11 874           (2 479)
Profit before tax                    239 275          168 149
Taxation                             (46 090)         (22 520)
Profit after tax                     193 185          145 629


Profit after taxation and other comprehensive income attributable to:

– Owners of the parent               194 176          145 716
– Non-controlling interests             (991)             (87)
Total comprehensive income           193 185          145 629


Profit after taxation attributable to:    

Equity holders of the company        194 176          145 716
Earnings per share – cents            152.77           114.65
Headline earnings per share - cents   138.96           109.69
Fully diluted earnings per share
cents                                 150.45           114.65
Fully diluted headline earnings per 
share – cents                         136.85           109.69


EARNINGS RECONCILIATION
                                     Audited          Audited
                                  Year Ended       Year Ended
                                 29 February      28 February
R’000                                   2016             2015

Determination of headline and diluted headline earnings

Attributable profit                  194 176          145 716
Loss/(profit) on disposal of  
property                                  79              (83)
Gain on deemed disposal of interest 
in joint venture                     (17 632)          (6 222)
Headline and diluted headline 
earnings                             176 623          139 411


Determination of earnings and diluted headline earnings

Attributable profit                  194 176          145 716
Earnings and diluted earnings        194 176          145 716
Number of ordinary shares (‘000)     127 100          127 100
Weighted average shares (‘000)       127 100          127 100
Fully diluted weighted average 
shares (‘000)                        129 062          127 100


CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

                                       as at            as at
                                 29 February      28 February
R’000                                   2016             2015

ASSETS

Non-current assets

Property, plant and equipment           3 827           1 754
Deferred income tax asset              13 788          13 825
Intangible assets                     159 039          40 971
Investment in joint ventures 
and associates                          6 080         229 568
Investment property                         -           5 743
                                      182 734         291 861

Current assets

Inventories                           453 093         498 089
Construction contracts 
and work in progress                  923 521         212 364
Trade and other receivables           285 893         171 100
Other current assets                   17 188          26 486
Cash and cash equivalents              80 071         130 565
                                    1 759 766       1 038 604

Total assets                        1 942 500       1 330 465

EQUITY AND LIABILITIES

Equity

Stated capital                         96 022          96 022
Share based payment reserve            47 922               –
Retained income                       676 923         482 747
                                      820 867         578 769
Non-controlling interests              (1 078)            (87)

Total equity                          819 789         578 682

Non-current liabilities

Deferred income tax liability         241 041          37 952
                                      241 041          37 952

Current liabilities

Borrowings                            538 463         492 132
Other current liabilities             343 207         221 699
                                      881 670         713 831

Total liabilities                   1 122 711         751 783

Total equity and liabilities        1 942 500       1 330 465
  
Net asset value per share - cents      645.00          455.30

Net tangible asset value 
per share - cents                      519.87          423.06


CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

                                     Audited          Audited
                                  Year Ended       Year Ended
                                 29 February      28 February
R’000                                   2016             2015

Net cash generated from operating     35 511           79 177
activities        

Net cash invested in investing 
activities                          (140 533)        (25 576)

Net cash from financing activities    54 528          14 072

Net increase in cash and cash 
equivalents                          (50 494)         67 673

Cash and cash equivalents at the 
beginning of the year                130 565          62 893

Cash and cash equivalents at the 
end of the year                       80 071         130 565



CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

                      Stated    Share   Retained     Total        Non-      Total
                     capital    based     income           controlling     equity
                              payment                        interests 
R’000                         reserve
Balance at 1 March
2014                 96 022        –    337 031    433 053           –    433 053

Profit for the
Period                    –        –    145 716    145 716         (87)   145 629

Total comprehensive
Income for year ended
28 Feb 2015               –        –    145 716    145 716         (87)   145 629

Balance at 1 March
2015                 96 022        –    482 747    578 769         (87)   578 682

Reclassification of
share appreciation
rights liability          –   21 240         –      21 240           –     21 240

Share-based payment
expense                   –   26 682         –      26 682           –     26 682

Profit for the
period                    –        –    194 176    194 176        (991)   193 185

Total comprehensive
income for year ended
29 Feb 2016               –   47 922    194 176    242 098        (991)   241 107

Balance at 29 Feb 
2016                 96 022   47 922    676 923    820 867      (1 078)   819 789


CONDENSED SEGMENT REPORT FOR THE GROUP

                            Property       Professional      Memorial       
R’000                    Development           Services         Parks       Total

Feb 2016
Total segment revenue      1 183 418             19 990           655   1 204 063

Revenue from joint ventures 
and associates             1 089 145                  -             -   1 089 145
Combined revenue           2 272 563             19 990           655   2 293 208

Operating profit             151 495             15 891        (1 894)    165 492
Finance costs                (18 742)                 -           (36)   (18 778)
Adjusted profit before tax   132 753             15 891        (1 930)    146 714

Feb 2015 (restated)
Total segment revenue        913 081             19 123             -     932 204

Revenue from joint ventures 
and associates               728 424                  -             -     728 424
Combined revenue           1 641 505             19 123             -   1 660 628

Operating profit              69 004             17 031             -      86 035
Finance costs                (12 229)                 -             -    (12 229)
Adjusted profit before tax    56 775             17 031             -      73 806


                            Property       Professional      Memorial       
R’000                    Development           Services         Parks       Total

Feb 2016
Assets per segment:        1 433 724             16 938        84 908   1 535 570
Goodwill                     154 801              4 155             -     158 956
Inventories                  368 185                  -        84 908     453 093
Work in progress                   -             12 783             -      12 783
Construction contracts       910 738                  -             -     910 738

Feb 2015 (restated)
Assets per segment:          687 844             18 308        45 007     751 159
Goodwill                      36 550              4 155             -      40 705
Inventories                  453 083                  -        45 007     498 090
Work in progress                   -             14 153             -      14 153
Construction contracts       198 211                  -             -     198 211


A RECONCILIATION OF ADJUSTED PROFIT BEFORE TAX IS PROVIDED AS FOLLOWS:

                                     Audited          Audited
                                  Year Ended       Year Ended
                                 29 February      28 February
R’000                                   2016             2015

Adjusted profit before tax for 
reportable segments                  146 714           73 806
Group overhead costs                  (5 326)          (2 234)
Share of profit of joint ventures
and associates                        67 234           86 827
Profit before tax, finance income 
and finance cost                     208 622          158 399
Finance income                        30 657            9 774
Profit before tax                    239 275          168 149


REPORTABLE SEGMENTS’ ASSETS ARE RECONCILED TO TOTAL ASSETS AS FOLLOWS:

                                     Audited          Audited
                                  Year Ended       Year Ended
                                 29 February      28 February
R’000                                   2016             2015

Segment assets for reportable 
segments                           1 535 570         751 159

Unallocated:
Deferred tax                          13 788          13 825
Investment property                        -           5 743
Property, plant and equipment          3 827           1 754
Intangible assets 
Excluding goodwill                        83             266
Investment in joint ventures 
and associates                         6 080         229 568
Loans to joint ventures                2 700          16 793
Loans and receivables                      -           5 757
Current tax receivable                14 488           3 936
Trade and other receivables          285 893         171 100
Cash and cash equivalents             80 071         130 565

Total assets per the consolidated 
statement of financial position    1 942 500       1 330 465


REPORTABLE SEGMENTS’ LIABILITIES ARE RECONCILED TO TOTAL LIABILITIES AS FOLLOWS:

                                     Audited          Audited
                                  Year Ended       Year Ended
                                 29 February      28 February
R’000                                   2016             2015

Segment liabilities for reportable segments                   
Unallocated:
Borrowings                           538 463          492 132
Deferred tax                         241 041           37 952
Current tax                              419               62
Trade and other payables             342 788          221 638

Total liabilities per the 
consolidated statement
of financial position              1 122 711          751 783


RELATED PARTY TRANSACTIONS
                                     Audited          Audited
                                  Year Ended       Year Ended
                                 29 February      28 February
R’000                                   2016             2015

Compensation paid to key employees    
and personnel                         67 448           48 667

Finance income from 
related parties                       22 388            6 506

Contract revenue received 
from joint ventures                  799 930          501 106

Service fees received
from joint ventures                   21 183            9 349


COMMENTARY 

NATURE OF BUSINESS

Calgro M3 is a property developer, focused on the lower end of the residential market through large-scale Integrated Developments, and the development of Memorial Parks. 

INTRODUCTION

Calgro M3, for the sixth consecutive year, delivered a solid set of financial results despite difficult market conditions.
The Group’s focus over the past year was to ensure that more projects in the pipeline were converted into construction projects and thus contributed to revenue. 
The Group was successful in this and currently has 12 of its 17 residential projects in the ground, ensuring that risk is sufficiently spread over projects, provinces and customer bases. 
It has also launched its pilot Memorial Park project.

The secured pipeline increased from R19 billion to R27 billion. This will ensure enough construction work for the next seven to eight years. 
It is the Group’s goal to extend the pipeline further and provide stakeholders with an estimated 10 year visibility.

CHANGES IN THE SEGMENTAL REPORT

During the year under review a decision was taken to align the segmental report to the Group's current and future strategic goals. 
With Calgro M3 Memorial Parks starting to contribute to revenue and profit, the following three segments are reported on:

1) Property Development
2) Professional Services
3) Memorial Parks

OPERATIONAL AND FINANCIAL PERFORMANCE


Property Developments

During the year a total of 5,837 houses were constructed and 3,575 additional opportunities were serviced, bringing the total number of available serviced opportunities for 
the year ahead to 6,585.

Fleurhof remains a flagship project and is recognised by the Department of Human Settlements as a premium integrated project in South Africa. 
The project accounts for just over half of the current revenue of the Group. 

The Jabulani CBD development and Jabulani Hostels redevelopment remain challenging projects, with delays experienced as a result of regular community action and limited availability of
bulk amenities.
However good progress was made to stabilise the situation and build community relations. This project will be a bigger contributor towards revenue during the year ahead.

With the phased infrastructure installation on the Witpoortjie, South Hills, Summerset and La Vie Nouvelle projects, a priority during the past financial year, 
the Group is now well placed to enhance revenue and cash flow contributions from these projects in the year ahead and actively reduce reliance on the Fleurhof project. 

Sales at the Group’s La Vie Nouvelle retirement development remained slow. After a relaunch of the development and an improved marketing plan and sales drive, sales volumes 
improved substantially. 

On the Scottsdene project most of the units that were sold have been constructed and handed over. 
Although a fair amount of debtors were collected post financial year-end, this project made a positive contribution to the Group during the financial year. 
Another good contribution is expected in the year ahead. 

The first 629 units in the Belhar project are well underway, with bulk infrastructure upgrades on the future phases expected to commence during the latter part of the new financial year. 
This will see an additional 3,000 units coming into the market.

The Brandwag project in the Free State is nearing completion and all regulatory approvals for the new Vista Park project have been received, making the commencement of 
infrastructure installation imminent.

In Namibia the contractors are back on site after contractual delays as a result of all government funded housing projects in Namibia being placed on hold by 
the Namibian Government pending an investigation by the National Department of Housing into local housing schemes. 
The Calgro M3 project was cleared at the end of February 2016, with building re-commencing during March 2016.


Professional Services

The Professional Services segment continued to add value in the turnkey business model and ensured that profits from this segment were retained in the Group. 
A new architectural department was added to this segment towards the end of the 2016 financial year which will result in additional value-add.


Memorial Parks

The launch of the first Memorial Park project was not without challenges, but the Group is pleased to report that sales are increasing and that it remains committed to this business as a 
significant contributor in future. Marketing effort is being focused on funeral directors, who are the first port of call with respect to advising on funerals, 
and great strides were made in building relationships in this area. 

From a financial position, with the sales picking up, several potential bulk deals are being negotiated. The contribution to the current financial year was negligible as 
sales only started increasing towards the end of the financial year. 


Financial Review

A growth in revenue of 29.2% to R1.2 billion (2015: R932 million) and in combined revenue of 38.1% to R2.3 billion (2015: R1.6 billion), supported growth in operating profit and earnings. 
On a segmental basis Property Development contributed 98.2%, Professional Services 1.7% and Memorial Parks 0.1% to the total revenue of the Group. 

An increase in operating profit of 91.2% to R160.2 million (2015: R83.8 million) was due to the increase in revenue, in combination with the increase in the gross profit margin and 
limited increase in administrative expenses. 

Calgro M3 successfully acquired the remaining 30% of the Fleurhof project for a total consideration of R243 million towards the end of the financial year. 
The impact of the acquisition on the Statement of Comprehensive Income sees a fair value gain on the deemed disposal of the previously held 70% shareholding in the joint venture of R17.6 million, 
that is accounted for in other income (excluded from HEPS) and the corresponding goodwill of R118.3 million on the deemed acquisition of 100% of Fleurhof, which accounts for the 
main increase in intangible assets. Fleurhof is accounted for as a subsidiary of the Calgro M3 Group at 29 February 2016 for statement of financial position purposes, 
with income during the year remaining at a joint venture level. This acquisition resulted, amongst other, in a R702 million increase in construction contracts and work-in-progress, 
and a R173 million increase in the deferred income tax liability (see 2016 Integrated Annual Report for further detail).  

The gross profit margin increased from 18.8% to 20.9% due to a better mix between infrastructure installation and top structure construction across the projects in the ground. 

Basic earnings per share (EPS) increased by 33.3% to 152.77 cents per share. Headline earnings per share (HEPS) increased by 26.7% to 138.96 cents per share. 
The main differences between EPS and HEPS is a R17.6 million deemed fair value gain on the acquisition of the remaining 30% stake of the Fleurhof project.

Finance income increased significantly as a result of funding provided to various joint ventures through working capital where interest is charged on debtors’ balances. 
This was done to fast track projects by investing in their early completion. 
A further increase resulted from interest earned on debtors balance related to the sale of the four pockets of land. 
This strategy remains within the realm of Calgro M3’s strategy to unlock working capital tied up in inventory.

The Fleurhof acquisition resulted in pressure on cash-on-hand at year-end, which is down 38.7%, with only R46.3 million in new debt raised during the year. 
Nonetheless, the Group has sufficient short-term receivables to build up cash resources post the year-end.

The majority of the working capital increase is attributable to the acquisition of Fleurhof, where construction contracts consist of partially and installed services on future phases that 
will be developed in the 2017, 2018 and 2019 financial years. 
Unfortunately funds to the value of R67.5 million were not received from the registration of 184 sectional title units before year-end.
Once sectional title and property transfers are completed, cash flow is expected to increase in May 2016. 
In addition, a large number of affordable units were delayed due to various external factors, 
outside of the Group’s control. The total amount, in excess of R100 million, is expected to be received by end of May 2016. 
These amounts, together with amounts owing from Government and amounts 
from bulk transactions that only became due after year-end (for which commitments for payment before end of May 2016 have been received), will restore the Group’s healthy cash position. 

Calgro M3 successfully restructured the majority of its debt maturing in the 2017 financial year in addition to the early settlement of two bonds prior to their maturity dates, 
with payment made from operating cash. 

Although the land portfolio is carried in the financial statements at a value of R453 million, the total external valuations of the Group’s land portfolio, excluding joint venture partner 
interests, has been maintained in excess of R1.36 billion. 


New Share Schemes:

During the financial year, two significant changes took place to the historical cash settled share appreciation rights (SAR) scheme. These changes included 
i) the conversion of the old cash settled SAR scheme to an equity settled executive share scheme for some participants; 
and ii) settlement of participants that chose not to convert to the equity settled scheme.

Refer to the Circular included in the 2015 Notice of AGM and Resolution passed in respect of the Executive Share Incentive Scheme, and 2016 Integrated Annual Report for detail.


SUSTAINABILITY

The Group remains fully committed to sustainability. A detailed Sustainability Report is available on the website at www.calgrom3.com.  


PROSPECTS

It is expected that Government will slow down on infrastructure spend. In the case of housing however, it remains committed to the rollout of catalytic and mega projects 
and Calgro M3 is well positioned to benefit in this regard. The acquisition of the Leratong development after year-end is a case in point, where Calgro M3 together 
with McCormick Property Development and Sasuka, have joined forces to provide some 12,000 residential units. 

With 12 projects in the ground at different phases and the expectation that the Vista Park, Leratong and the Kwa Nobuhle projects will commence with bulk infrastructure in the 
third and fourth quarter of the new financial year, Calgro M3 is well diversified to weather difficult trading conditions. 

Calgro M3 expects that economic growth will be low and that the consumer will remain under pressure. The Group remains confident in its ability to switch between product categories in order 
to keep the financial performance acceptable. 

Statements contained in this announcement, regarding the prospects of the Group, have not been reviewed or audited by the group’s external auditors.


SAFETY

The Group is pleased to report that from an Occupational Health and Safety perspective, it was once again fatality-free despite growth in both activity and workforce, having created in excess 
of 5,000 jobs during the year. Unfortunately it was not accident-free. An incident occurred where three members of the workforce were admitted to the Milpark Hospital after an electric shock. 
All three individuals have recovered. Although no further serious injuries occurred in the work place, the injuries sustained are viewed in a serious light and the Group will endeavour 
to continuously aim at achieving its target of zero harm in the workplace. 


PROJECT RECOGNITION 

Calgro M3 again achieved high recognition for its projects, being awarded the best FLISP (Finance Linked Individual Subsidy Programme) project of the year, best social housing project and 
the best integrated project of the year at the 2015 Goven Mbeki awards.


BOARD OF DIRECTORS AND OPERATIONAL MANAGEMENT

The Group retained the services of all Executive Directors of the Board with the exception of Deon Steyn that resigned in June 2015. Waldi Joubert and Wayne Williams were appointed as 
Executive Directors in June 2015. John Gibbon retired as Non-executive director and chairman of the Audit Committee during January 2016, with Hugh Cameron being appointed in May 2015 
to replace John upon his retirement. Venete Klein joined the Board in January 2016, bringing a far-reaching skills set that will further benefit the Group. Operational management has 
been strengthened by the appointment of skills necessary to ensure that each area within the Group’s turnkey integrated development model is staffed with the correct expertise and experience.


NOTICE OF ANNUAL GENERAL MEETING AND INTEGRATED ANNUAL REPORT

Notice is hereby given that the Annual General Meeting of the Company will be held at 10h00 on 1 July 2016 at Calgro M3 Boardroom, Calgro M3 Building, Ballywoods Office Park, 33 Ballyclare Drive, 
Bryanston, Sandton, whereby shareholders of the Company, will be entitled to transact business as stated in the notice of the Annual General Meeting. 
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, is Friday, 24 June 2016. 
The last date to trade to be able to attend, participate and vote at the annual general meeting is Friday, 17 June 2016.

The Company’s integrated annual report containing the audited annual financial statements for the year ended 29 February 2016 and the notice of Annual General Meeting are available on the 
company’s website hosted at www.calgrom3.com from today and will be posted to shareholders on or about 30 May 2016.


APPRECIATION

The production of a satisfactory set of results does not come without dedication from management, staff, contractors, suppliers and other stakeholders in the process. 
Calgro M3 remains committed to “Building homes and changing lives” and will continue on this path to ensure South Africans have homes and environments which close the social gap.  

Calgro M3 wishes to thank shareholders and financiers for their continued support. 


Notes

1.       Basis of preparation

The summarised consolidated financial statements are prepared in accordance with the requirements of the JSE Limited Listings Requirements and the requirements of the Companies Act 
applicable to summarised financial statements. The Listings Requirements require summarised consolidated financial statements 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) and were approved by the board on 10 May 2016.

2.       Independent audit  
     
The summarised consolidated financial statements are extracted from audited information, but are 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 summarised consolidated financial statements and for ensuring that the financial information has been 
correctly extracted from the underlying annual financial statements.

3.       Dividends    
                 
The Board of Directors has, due to the fact that Calgro M3 is in a steep growth phase, the challenging economic climate and tough trading conditions, 
resolved not to declare a dividend for this reporting period, thereby retaining the available cash to fund growth in the Group. 


 BP Malherbe                                        WJ Lategan
(Chief Executive Officer)                          (Managing Director)

 Johannesburg                                        10 May 2016  

Directors:
PF Radebe (Chairperson)*, BP Malherbe (Chief Executive Officer), WJ Lategan (Managing Director), WA Joubert (Financial Director), FJ Steyn, W Williams, V Klein*, H Ntene*, 
R Patmore*, ME Gama*, HC Cameron*. 
(*Independent Non-executive)

Registered office: Calgro M3 Building, 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.

Website: www.calgrom3.com





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