Wrap Text
Unaudited Interim results for the six months ended 31 August 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")
Unaudited Interim Results for the six months ended 31 August 2016
- Earnings before interest and taxation increased by 11,4% to R119,6 million
(2015: R107,5 million)
- Net cash generated from operations increased to R94 million (2015: R32,0 million)
while borrowings decreased to R525,5 million
- No fatalities during the period
- Net debt to equity strengthened to 0,53 (Feb 2016: 0,59)
- Headline earnings per share down 1,7% to 65,13 cents per share
Condensed consolidated statement of comprehensive income
Unaudited Unaudited Audited
six months six months year ended
31 August 31 August 29 February
R'000 2016 2015 2016
Revenue 720 233 573 195 1 204 064
Cost of sales (539 331) (454 175) (952 517)
Gross profit 180 902 119 020 251 547
Other income 1 165 599 19 466
Other expenses - (1 958) (5 757)
Administrative expenses (67 654) (54 988) (105 089)
Operating profit 114 413 62 673 160 167
Share of profit of joint ventures
and associates - Net of tax 5 199 44 676 67 234
Net finance (cost)/income (1 011) 1 297 11 874
Profit before tax 118 601 108 646 239 275
Taxation (35 469) (24 458) (46 090)
Profit after taxation 83 132 84 188 193 185
Other comprehensive income - - -
Total comprehensive income 83 132 84 188 193 185
Profit after taxation and other
comprehensive income attributable to:
- Owners of the parent 82 754 84 204 194 176
- Non-controlling interests 378 (16) (991)
83 132 84 188 193 185
Profit after taxation attributable to:
Equity holders of the company 82 754 84 204 194 176
Earnings per share - cents 65,11 66,25 152,77
Headline earnings per share - cents 65,13 66,25 138,96
Fully diluted earnings per share - cents 63,96 65,98 150,45
Fully diluted headline earnings
per share - cents 63,98 65,98 136,85
Earnings reconciliation
Unaudited Unaudited Audited
six months six months year ended
31 August 31 August 29 February
R'000 2016 2015 2016
Determination of headline
and diluted earnings
Attributable profit 82 754 84 204 194 176
Profit/(loss) on disposal of property 25 - 79
Gain on deemed disposal of
interest in joint venture - - (17 632)
Headline and diluted headline earnings 82 779 84 204 176 623
Determination of earnings and
diluted earnings
Attributable profit 82 754 84 204 194 176
Earnings and diluted earnings 82 754 84 204 194 176
Number of ordinary shares ('000) 127 100 127 100 127 100
Weighted average shares ('000) 127 100 127 100 127 100
Fully diluted weighted average
shares ('000) 127 384 127 629 129 062
Condensed consolidated statement of financial position
Unaudited Unaudited Audited
six months six months year ended
31 August 31 August 29 February
R'000 2016 2015 2016
Assets
Non-current assets
Property, plant and equipment 3 854 2 531 3 827
Deferred income tax asset 12 500 19 957 13 788
Intangible assets 159 016 40 852 159 039
Investment in joint ventures and
associates 11 279 274 244 6 080
Investment property - 5 743 -
186 649 343 327 182 734
Current assets
Inventories 363 424 517 165 453 093
Construction contracts and work
in progress 1 151 033 260 677 923 521
Trade and other receivables 235 670 170 983 285 893
Other current assets 34 351 31 175 17 188
Cash and cash equivalents 70 545 152 712 80 071
1 855 023 1 132 712 1 759 766
Total assets 2 041 672 1 476 039 1 942 500
Equity and liabilities
Equity
Stated capital 96 022 96 022 96 022
Share-based payment reserve 61 263 31 441 47 922
Retained income 759 677 566 951 676 923
916 962 694 414 820 867
Non-controlling interests (700) (103) (1 078)
Total equity 916 262 694 311 819 789
Non-current liabilities
Deferred income tax liability 274 636 65 994 241 041
274 636 65 994 241 041
Current liabilities
Borrowings 525 503 483 583 538 463
Other current liabilities 325 271 232 151 343 207
850 774 715 734 881 670
Total liabilities 1 125 410 781 728 1 112 711
Total equity and liabilities 2 041 672 1 476 039 1 942 500
Net asset value per share - cents 720,90 546,27 645,00
Net tangible asset value per share - cents 595,79 514,13 519,87
Condensed consolidated statement of cash flows
Unaudited Unaudited Audited
six months six months year ended
31 August 31 August 29 February
R'000 2016 2015 2016
Net cash generated from
operating activities 94 224 31 951 35 511
Net cash utilised in investing activities (97 194) (1 304) (140 533)
Net cash (utilised in)/from
financing activities (6 556) (8 500) 54 528
Net (decrease)/increase in cash and
cash equivalents (9 526) 22 147 (50 494)
Cash and cash equivalents at
the beginning of the period 80 071 130 565 130 565
Cash and cash equivalents at the
end of the period 70 545 152 712 80 071
Condensed consolidated statement of changes in equity
Share-
based
Stated payment Retained
R'000 capital reserve income
Balance at 1 March 2015 96 022 - 482 747
Reclassification of share
appreciation rights liability - 17 829 -
Share-based payment expense - 13 612 -
Comprehensive income
Profit for the period - - 84 204
Total comprehensive income - - 84 204
Balance at 31 August 2015 96 022 31 441 566 951
Balance at 1 March 2016 96 022 47 922 676 923
Share-based payment expense - 13 341 -
Comprehensive income
Profit for the period - - 82 754
Total comprehensive income - - 82 754
Balance at 31 August 2016 96 022 61 263 759 678
Non-
controlling Total
R'000 Total interests equity
Balance at 1 March 2015 578 769 (87) 578 682
Reclassification of share
appreciation rights liability 17 829 - 17 829
Share-based payment expense 13 612 - 13 612
Comprehensive income
Profit for the period 84 204 (16) 84 188
Total comprehensive income 84 204 (16) 84 188
Balance at 31 August 2015 694 414 (103) 694 311
Balance at 1 March 2016 820 867 (1 078) 819 789
Share-based payment expense 13 341 - 13 341
Comprehensive income
Profit for the period 82 754 378 83 132
Total comprehensive income 82 754 378 83 132
Balance at 31 August 2016 916 962 (700) 916 262
Condensed segment report for the group
Property Professional
R'000 Development Services
August 2016
Total segment revenue 718 288 858
Revenue from joint ventures and associates 42 456 858
Revenue from third parties 675 832 -
Revenue of joint ventures and associates 204 447 -
Combined revenue 922 735 858
Operating profit 116 967 (604)
Finance costs (10 110) -
Adjusted profit before tax 106 857 (604)
August 2015 (restated)
Total segment revenue 562 921 10 273
Revenue from joint ventures and associates 468 580 10 245
Revenue from third parties 94 341 28
Revenue of joint ventures and associates 453 506 -
Combined revenue 1 016 427 10 273
Operating profit 56 416 8 284
Finance costs (5 992) -
Adjusted profit before tax 50 424 8 284
August 2016
Assets per segment 1 553 117 16 938
Goodwill 154 801 4 155
Inventories 260 066 -
Work in progress - 12 783
Construction contracts 1 138 250 -
February 2016
Assets per segment 1 433 723 16 938
Goodwill 154 801 4 155
Inventories 368 185 -
Work in progress - 12 783
Construction contracts 910 737 -
Memorial
R'000 Parks Total
August 2016
Total segment revenue 1 087 720 233
Revenue from joint ventures and associates - 43 314
Revenue from third parties 1 087 676 919
Revenue of joint ventures and associates - 204 447
Combined revenue 1 087 924 680
Operating profit (254) 116 109
Finance costs (30) (10 140)
Adjusted profit before tax (284) 105 969
August 2015 (restated)
Total segment revenue - 573 194
Revenue from joint ventures and associates - 478 825
Revenue from third parties - 94 369
Revenue of joint ventures and associates - 453 506
Combined revenue - 1 026 700
Operating profit - 64 700
Finance costs - (5 992)
Adjusted profit before tax - 58 708
August 2016
Assets per segment 103 358 1 673 413
Goodwill - 158 956
Inventories 103 358 363 424
Work in progress - 12 783
Construction contracts - 1 138 250
February 2016
Assets per segment 84 908 1 535 569
Goodwill - 158 956
Inventories 84 908 453 093
Work in progress - 12 783
Construction contracts - 910 737
Additional information
Reconciliation of adjusted profit/(loss) before tax is provided as follows:
Unaudited Unaudited
six months six months
31 August 31 August
R'000 2016 2015
Adjusted profit before tax for reportable segments 105 969 58 708
Group overhead cost (1 695) (2 027)
Share of profit of joint ventures and associates 5 199 44 676
Total segments 109 473 101 357
Finance income 9 128 7 289
Profit before tax 118 601 108 646
Reportable segment assets are reconciled to total assets as follows:
Unaudited Audited
six months year ended
31 August 29 February
R'000 2016 2016
Segment assets for reportable segments 1 673 413 1 535 569
Unallocated:
Deferred tax 12 500 13 788
Investment property - -
Property, plant and equipment 3 854 3 827
Intangible assets excluding goodwill 60 83
Investment in joint ventures and associates 11 279 6 080
Loans to joint ventures 6 374 2 700
Loans and receivables - -
Current tax receivable 27 977 14 488
Trade and other receivables 235 670 285 894
Cash and cash equivalents 70 545 80 071
Total assets per the consolidated statement of financial
position 2 041 672 1 942 500
Reportable segment liabilities are reconciled to total liabilities as follows:
Unaudited Audited
six months year ended
31 August 29 February
R'000 2016 2016
Segment liabilities for reportable segments - -
Unallocated:
Borrowings 525 503 538 463
Deferred tax 274 636 241 041
Current tax 472 419
Trade and other payables 324 799 342 787
Total liabilities per the consolidated statement
of financial position 1 125 410 1 122 710
Related-party transactions
Unaudited Unaudited
six months six months
31 August 31 August
R'000 2016 2015
Compensation paid to key employees and personnel 20 080 20 316
Finance income from related parties 4 895 3 914
Contract revenue received from joint ventures 42 511 468 580
Services fees received from joint ventures 858 10 245
COMMENTARY
Nature of business
Calgro M3 is a property developer, focused on the lower end of the residential
market involved in large scale Integrated Developments and the development and
establishment of Memorial Parks.
Introduction
The Group's diversification within residential market sectors and its ability to
timeously adapt to a changing environment allows it to efficiently operate between
different market sectors when required.
As communicated in the 2016 integrated report and in line with the Group's strategic
plan to diversify its exposure between residential sectors, the Group increased its
focus on the private sector, in anticipation of the reduction in public sector spending
leading up to the 2016 local elections.
Management views the Group's variable costing model as key to reducing risk in
these uncertain times. Attention was placed on cash preservation, and creating
long-term investment opportunities, that will complement and ensure sustainable
growth of the development business. Management remains confident in its short to
medium term growth strategy, and with the implementation of its new re-branded
marketing efforts as well as the Real Estate Investment Trust ("REIT") investment
(discussed later in the commentary), it is well positioned in the current unpredictable
economic environment. Notwithstanding the challenges that have been faced,
management is confident that growth will be restored in the second half of the year.
Changes in the segmental report
During the previous financial year, a decision was taken to align the segmental
report to the Group's current and future strategic goals. The following three
segments are reported on:
- Property Development;
- Professional Services; and
- Memorial Parks.
As per the SENS announcement of 29 August 2016, Calgro M3 is in the process of
investing in a REIT. Due to the strategic nature of this transaction, the investment
will be reported on as a separate segment, as soon as the first units have been
acquired by the entity.
Financial performance
Group revenue increased by 25,7% to R720,2 million (2015: R573,2 million)
supported by Fleurhof being accounted for as a subsidiary of the Group. Combined
revenue, however, decreased by 9,9% to R922,7 million mainly due to the slowdown
in infrastructure investment in the lead up to local municipal elections and the
community unrest at various projects, the worst affected being South Hills which
was brought to a complete standstill for the longest time during the election period.
In addition, the construction of units sold to the private sector only commenced
towards the end of the reporting period and will therefore only start contributing to
profit in the next six months.
It should be noted that as from 29 February 2016, Fleurhof Ext 2 (Pty) Ltd is
accounted for as a subsidiary of the Group and no longer as a joint venture.
Subsequently the effect is an increase in revenue, cost of sales and gross profit of
the Group, and a decrease in share of profits from joint ventures and associates.
The tax rate of the Group is also impacted by this consolidation as the share of
profits from joint ventures and associates are accounted for net of tax.
The net effect of the above is an increase in operating profit of 82,5% for the period
to R114,4 million (2015: R62,7 million). The latter due to the increase in top structure
construction and the decrease in infrastructure investment. The inclusion of Fleurhof
as a subsidiary of the Group also contributed to the increase in operating profit.
The 23,0% increase in operating expenses is not in line with the increase in revenue
or gross profit margin, but is overly inflated by non-recurring items such as a VAT
penalty that is being disputed. This cost line increased further with outlays for the
rebranding and marketing campaigns, targeted at the private segment of the market.
The re-branding initiative has brought about an 80% increase in open market sales,
the benefit of which will only be seen with the construction of these units over the
next 6 - 18 months. These marketing and education drives are improving the quality
of our clients' credit records, and this bodes well for our mantra of contributing
towards the wellbeing of the people of South Africa and ensuring a better future
for all.
Basic earnings per share ("EPS") remained relatively flat for the period, decreasing
by 1,72% to 65,11 cents per share (2015: 66,25 cps). Similarly, headline earnings
per share ("HEPS") decreased by 1,69% to 65,13 cents per share (2015: 66,25 cps).
Inventory and construction contracts increased by R137,8 million over the period,
reflecting that investment into infrastructure and new projects was constrained.
Current tax receivable increased by R13,5 million over the period as a result of
delays in income tax refunds and legislative processes.
Management believes that the Group's current net debt to equity ratio of 0,53
(February 2016: 0,59) provides a good base with room to increase gearing to
support the rollout of the pipeline and new investments.
The cash outflows associated with the payment of the final instalment of the
Fleurhof purchase price of R93 million and a net settlement in borrowings of
R13 million during the period, was supported with positive cash generated from
operations on a number of projects. This was further supported by the much lower
than normal capital investment in long-term projects due to the "consolidation" by
management of the operations prior to the municipal elections.
Operational performance
Property Developments
During the period, 4 542 houses were under construction, of which 1 272 have been
handed over to owners. An additional 5 239 opportunities are being serviced of which
the majority were started post the local elections. On completion of these services
just over 10 000 serviced opportunities will be available for future construction.
The Witpoortjie project won the Gauteng Govan Mbeki award for the best Affordable
and FLISP Project, and the Scottsdene project was awarded the best Social Housing
Project nationally. It is pleasing to note that other Group projects are starting to be
recognised. Ten out of the Group's 12 residential projects in the ground contributed
towards this period's revenue. Fleurhof remains the single largest contributor and
flagship project, but other projects are starting to take their rightful place in
contributing to the numbers.
The first two phases of Witpoortjie and La Vie Nouvelle's infrastructure services were
completed. Top structure construction and infrastructure installation in various
stages of completion are progressing well at South Hills, Summerset, Jabulani
Hostels, Jabulani CBD, Scottsdene, Belhar, Brandwag and Otjomuise in Namibia.
Government remains committed to the rollout of catalytic and mega housing projects
and Calgro M3 is well positioned to benefit from this when Government spending
normalises. With the newly established REIT (discussed later in the commentary)
the Group managed to create critical scale in the private sector that should enhance
its ability to roll out projects quicker and more efficiently. It is not the development
business' intention to only sell units to the REIT. At least 50% of the private sector
sales will remain focused on the end user, supported by the marketing and education
campaigns. The sale of units to the REIT will not affect the progress made, and
continued pursuit to increase the Group's open market sales significantly.
Implementation of the Vista Park and Leratong projects are delayed. It is expected
that the Tanganani and Kwa Nobuhle projects will commence with bulk infrastructure
before the financial year-end, ensuring that Calgro M3 is well positioned to mitigate,
to some extent, the delays at Vista Park and Leratong.
Calgro M3 expects the South African economy to remain subdued and so too
consumer spending. With increased development construction as a result of the
Group's new REIT investment, as well as new infrastructure to commence in the
second half of the year, the Group has committed to assist South Africa not only in
eradicating the housing backlog, but also by ensuring job creation which in turn will
drive economic growth. Various new training and skills development programmes
will be launched over the next 6 - 12 months, and although this comes at a cost, the
upliftment of communities will drive sustainability in the medium to long term.
Professional Services
The new architectural department is making a positive impact. This turnkey model
assisted in supporting our investment in the REIT, as we are now able to use this
approach to create income generating assets at attractive yields in a cost effective
manner. The increased capacity in the segment continues to add value in the turnkey
business model as the pipeline materialises.
The goal of this segment is to be an internal Group service and although revenues
generated by this segment are eliminated on consolidation, it still has a profitable
impact on the overall Group results. The intention of management is not to grow this
business outside of internal requirements.
Memorial Parks
Calgro M3 Memorial Parks continued to grow and made a small contribution to
revenue. With burial sites and funeral policy sales steadily increasing, management
is positive that this business will start contributing to profits for the full
financial year.
The marketing and insurance partnership agreement announced in May 2016 with
Conduit Capital and their insurance arm, Constantia, has already made a positive
impact. The goal is to generate annuity income to compensate for lumpy
development cash flows.
Management is proud to announce the acquisition of Fourways Memorial Park,
effective October 2016, for a total purchase consideration of R24,5 million on
lucrative interest free payment terms. Fourways Memorial Park is a well-known
private memorial park in Johannesburg. The acquisition includes the associate
private memorial park business, with essential skills and experience which will
ensure quicker and more efficient growth of this segment.
Venture into Real Estate Investment Trust ("REIT")
On 16 August 2016, Calgro M3, in a joint announcement with SA Corporate Real
Estate, announced the formation of a REIT to service the rental market in South
Africa. The purpose for Calgro M3 is to secure annuity revenue which can be used
as operating cash and improved Group gearing ability. This will also assist
Government in eradicating the South African housing backlog and diversifies
Calgro M3's revenue streams. In the first phase of this initiative, AFHCO Calgro M3
(held 51% by SA Corporate and 49% by Calgro M3) will acquire new units to be
developed by Calgro M3 in Johannesburg and Cape Town for a total consideration
of R1,6 billion. It is the intention to grow the portfolio to reach property investments
in the residential market across South Africa of between R10 billion and R15 billion.
This REIT controlled company is to target net property income yields of circa 11%.
Currently no additional equity is required for the first phase investment of R522 million
which will be funded from the Calgro M3 balance sheet.
Sustainability
The Group remains fully committed to sustainability. A detailed sustainability report
is available on the website, www.calgrom3.com.
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 numbers. The Group continues to strive for a safe, harm-free working
environment.
Board of directors
There was no change to the Board of Directors during the period.
Appreciation
Delivering another satisfactory set of results does not come without dedication from
management, staff, contractors, suppliers and all stakeholders. 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 interim 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 interim financial statements from which the summarised
consolidated interim 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 interim financial statements have been prepared by Mr WA Joubert,
CA(SA), and were approved by the board on 13 October 2016.
2. Independent audit
These condensed consolidated interim financial statements have not been audited
or reviewed by the Group's external auditors.
3. Financial instruments
The carrying value of all financial instruments are equal to the fair value of those
instruments at 31 August 2016 with the exception of borrowings. The carrying value
of borrowings at 31 August 2016 was R525,5 million, with a corresponding fair value
of R534,1 million. The difference is attributable to these bonds trading in an active
market and are classified as level 2 in the IFRS 13 fair value hierarchy.
4. Bond exchange
During the period ended 31 August 2016, the Group repaid R117,1 million in
borrowings that matured, as well as raised a total of R104,0 million in a combination
of one and three-year notes.
Subsequent to 31 August 2016, another R15 million in three-year instruments were
successfully raised.
Total finance cost incurred for the period amounted to R31,9 million
(2015: R29,4 million) of which R21,8 million (2015: R23,4 million) was capitalised to
inventory and construction contracts.
5. Dividends
The board of directors has resolved not to declare a dividend for the reporting
period. The board is of the opinion that available cash should be retained in the
Group to fund the steep growth phase that the Group is in.
BP Malherbe
(Chief Executive Officer)
WJ Lategan
(Managing Director)
WA Joubert
(Financial Director)
Johannesburg
17 October 2016
Directors
PF Radebe (Chairperson)*#
BP Malherbe (Chief Executive Officer)
WJ Lategan (Managing Director)
FJ Steyn
WA Joubert (Financial Director)
W Williams
V Klein*#
H Ntene*#
R Patmore*#
ME Gama*#
HC Cameron*#
* Non-executive
# Independent
Registered office
Calgro M3
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
Date: 17/10/2016 07:05:00 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.
Sharenet Sites 
