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CGR - Calgro M3 - Audited abridged results for the year ended 28 February 2011
and notice of annual general meeting
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 ABRIDGED RESULTS FOR THE YEAR ENDED 28 FEBRUARY 2011 AND NOTICE OF
ANNUAL GENERAL MEETING
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
R`000 Audited Audited Audited
Year Ended Year Ended Year Ended
28 Feb 2011 28 Feb 2010 29 Feb 2009
Revenue 281 849 188 726 233 054
Cost of sales (246 825) (161 058) (182 205)
Gross profit 35 024 27 667 50 849
Other income 4 154 1 784 17 508
Other expenses (9 309) (13 065) (23 705)
Net administrative expenses (30 239) (28 488) (36 260)
Profit on sale of investment - 29 304 -
Operating profit/(loss) (370) 17 203 8 392
Share of profit/(loss) of 16 342 - -
associates/Joint
ventures(Nett of tax)
Net finance cost (661) (1 003) (506)
Profit before taxation 15 311 16 200 7 886
Taxation 1 644 (712) (1 864)
Profit after taxation 16 955 15 488 6 022
Attributable to:
Equity holders of the company 16 955 15 488 6 022
Minority interest - - -
Earnings per share - cents 13.34 12.19 4.74
Headline earnings per share - 13.48 (7.64) 16.32
cents
Fully diluted earnings per 13.34 12.19 3.80
share - cents
Fully diluted headline 13.48 (7.64) 16.32
earnings per share - cents
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Reclassified
R`000 Audited Audited Audited
Year Ended Year Ended Year Ended
28 Feb 2011 28 Feb 2010 29 Feb 2009
ASSETS
Non-current assets
Property, plant and equipment 4 765 7 150 8 100
Deferred tax 11 624 2 135 8 867
Other non-current assets 65 767 53 664 40 566
82 156 62 949 57 533
Current assets
Inventories 234 945 266 393 260 115
Construction contracts 40 646 32 217 64 389
Trade and other receivables 14 602 14 428 18 368
Other current assets 6 119 15 502 13 836
Cash and cash equivalents 14 954 6 059 30 594
311 266 334 599 387 302
Assets of disposal group - - 126 301
classified as held for sale
311 266 334 599 513 603
Total assets 393 422 397 548 571 136
EQUITY AND LIABILITIES
Equity
Capital and reserves 170 674 153 719 138 230
170 674 153 719 138 230
Minority interest in equity - - -
Total equity 170 674 153 719 138 230
Non-current liabilities
Non-current borrowings * - 4 170 4 170
Deferred tax 9 496 4 705 17 424
Other non-current liabilities 3 680 1 999 1 842
13 176 10 874 23 436
Current liabilities
Current borrowings * 154 262 159 859 183 138
Other current liabilities 51 269 55 834 104 094
Bank overdraft 4 041 17 262 15 842
209 572 232 955 303 074
Liabilities of disposal group - - 106 396
classified as held for sale
Total liabilities 222 748 243 829 432 906
Total equity and liabilities 393 422 397 548 571 136
Net asset value per share - 134.4 120.9 108.8
cents
* Liabilities relating to inventory have been reclassified as
current to better align the classification of assets and liabilities
to the operating cycle per IAS 1. Please refer to note 1 and 5 for
more detail.
EARNINGS RECONCILIATION
R`000 Audited Audited Audited
Year Ended Year Ended Year Ended
28 Feb 2011 28 Feb 2010 29 Feb 2009
Determination of headline
earnings
Attributable profit 16 955 15 488 6 022
Profit on disposal of - (25 202) -
subsidiary(net of tax)
Loss on disposal of property, 179 - -
plant and equipment
Impairment of goodwill - - 14 714
Headline earnings 17 134 (9 714) 20 736
Determination of diluted
earnings
Attributable profit 16 955 15 488 6 022
Share option expense - - (963)
Diluted earnings 16 955 15 488 5 059
Number of ordinary shares 127 100 127 100 127 100
(`000)
Weighted average shares 127 100 127 100 127 100
(`000)
Fully diluted weighted 127 100 127 100 133 208
average shares
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
R`000 Audited Audited Audited
Year Ended Year Ended Year Ended
28 Feb 2011 28 Feb 2010 29 Feb 2009
Net cash from operating 24 266 959 68 240
activities
Net cash from investing 9 137 (4 128) (30 666)
activities
Net cash from financing (11 287) (22 785) (20 626)
activities
Net (decrease)/increase in 22 116 (25 954) 16 948
cash and cash equivalents and
bank overdraft
Cash and cash equivalents and (11 203) 14 751 (2 197)
bank overdraft at the
beginning of the year
Cash and cash equivalents and 10 913 (11 203) 14 751
bank overdraft at the end of
the year
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(Figures in Rands) Share Share Reserves
capital premium for own
shares/
share
purchase
reserve
Balance at 1 March 2008 1 271 96 020 450 963 141
Profit for the period - - -
Share appreciation scheme - - (963 141)
Balance at 28 February 2009 1 271 96 020 450 -
Profit for the period - - -
Balance at 28 February 2010 1 271 96 020 450 -
Profit for the period - - -
Balance at 28 February 2011 1 271 96 020 450 -
Retained Minority Total
income interest equity
Balance at 1 March 2008 36 186 235 - 133 171 097
Profit for the period 6 022 452 - 6 022 452
Share appreciation scheme - - (963 141)
Balance at 28 February 2009 42 208 687 - 138 230 408
Profit for the period 15 488 109 - 15 488 109
Balance at 28 February 2010 57 696 796 - 153 718 517
Profit for the period 16 955 441 - 16 955 441
Balance at 28 February 2011 74 652 237 - 170 673 958
CONDENSED SEGMENT REPORT FOR THE GROUP
R`000 Construction Land Professional Total
Development Services
(Figures in
Rands)
Feb 2011
Segment revenue 239 890 37 329 4 630 281 849
Inter-segment - - - -
revenue
Revenue from 239 890 37 329 4 630 281 849
external
Customers
Profit on sale - - - -
of Investment
Operating 2 053 (1 766) 394 681
(loss)/profit
Finance cost (862) (1 165) - (2 027)
Assets
Goodwill 28 515 - 4 155 32 670
Inventories 20 213 214 733 - 234 946
Prepayments - - - -
Construction 39 614 - 1 032 40 646
contracts
Liabilities
Borrowings (62 369) (91 893) - (154 262)
Feb 2010
Segment revenue 173 080 13 764 3 984 190 828
Inter-segment - - (2 103) (2 103)
revenue
Revenue from
external
Customers 173 380 13 764 1 881 188 725
Profit on sale - 29 305 - 29 305
of Investment
Operating (346) (12 146) 1 324 (11 168)
(loss)/profit
Finance cost (4 052) (26) - (4 078)
Assets
Goodwill 28 515 - 4 155 32 670
Inventories 18 491 247 902 - 266 393
Prepayments 246 7 176 - 7 422
Construction 32 217 - - 32 217
contracts
Liabilities
Borrowings (53 638) (110 392) - (164 030)
Feb 2009
Segment revenue 223 963 8 810 4 824 237 597
Inter-segment - - (4 543) (4 543)
revenue
Revenue from 223 963 8 810 281 233 054
external
Customers
Profit on sale - - - -
of Investment
Operating 12 852 (3 402) (136) 9 314
(loss)/profit
Finance cost (1 152) 498 - (654)
Assets
Goodwill 28 515 - 4 155 32 670
Inventories 22 870 237 245 - 260 115
Prepayments 1 054 5 026 - 6 080
Construction 64 389 - - 64 389
contracts
Liabilities
Borrowings (66 351) (150 956) - (217 307)
COMMENTARY
INTRODUCTION
The directors present the audited condensed consolidated financial results for
the year ended 28 February 2011 ("the year"), which reflect a recovering
integrated market segment.
The Group has reassessed its presentation of the statement of financial position
to better align the classification of assets and liabilities to the operating
cycle (note 1 and 5).
The operating cycle for inventory is considered to be longer than 12 months.
Accordingly the associated liabilities have been reclassified as current as they
are expected to be settled within the same operating cycle as inventory. It was
concluded that the reclassification would provide more useful information by
classifying liabilities that are expected to be settled in the Groups operating
cycle in the same manner as assets that are expected to be realised within that
period.
Group revenue for the year increased by 49% from R189 million to R282 million.
This was as a result of various projects breaking ground with the installation
of services as well as the construction of units in the Fleurhof project.
Highlights of the group`s most significant achievements during the year
included:
Pennyville:
* Successful completion of the project and translating experience and lessons
learnt on the project into the Fleurhof and Jabulani developments;
Fleurhof:
* Completing the installation of infrastructure for Ext 2 and 3, and
receiving a section 82 certificate for Ext 2 after successfully handing
over the services to the Municipal Owned Entities (MOE`s);
* Completing the first units aimed at the bonded market and handing units
over to end-users;
* Entering into bulk sale agreements for social housing units for Madulamoho;
Jabulani:
* Breaking ground with the installation of civil infrastructure for the
Hostels and commencing construction of top-structures;
* Entering into bulk sale agreements for rental units for Diluculo in the
CBD;
* Breaking ground with the installation of services on the CBD project;
Jukskei View:
* Receiving a section 82 certificate and breaking ground on the construction
of houses;
City of Cape Town:
* Expanding outside of Gauteng for the first time through the award to the
Group of a project developing land on behalf of the City of Cape Town into
an integrated development;
Bloemfontein:
* Successfully concluding a joint venture ("JV") agreement to construct
social housing units for the Free State Housing Company in Bloemfontein;
Development Finance:
* Securing development finance in excess of R400 million for projects in a
recovering market, enabling the Group to double construction revenue in the
last six months of the year.
FINANCIAL RESULTS
Group revenue increased by 49% to R282 million (2010: R189 million), while gross
profit margin decreased by 2.23% compared to the previous year. This was mainly
attributable to the Group`s projects all being in the commencement phase
(services installation) while margins will only increase on top structure
development.
The 2010 difference between earnings and Headline earnings was due to the sale
of a 30% stake in the Fleurhof project for a profit of R 29,3 million.
Headline earnings increased to positive R17,1 million (2010: R 9,7 million
loss). This was mainly as a result of the commencement of two new projects.
Three of the pipeline of 8 new projects, are expected to commence during 2011
calendar year.
A modern risk approach has been adopted to protect the group`s cash resources
and to achieve and maintain optimal returns.
Capital expenditure was kept to a minimum during the year to improve working
capital and restrict debt.
Three key contracts are currently running simultaneously. Construction contracts
are therefore converted into cash at a much quicker rate compared to previous
years.
Cash on hand at year-end increased to a positive R10.9 million (2010: negative
R11.2 million). This was due mainly to a R 53,2 million increase in cash
generated from operations and lower debt repayments.
The current debt: equity ratio is close to 1:1 which is expected to increase,
mainly due to upfront capital outlay necessary to secure new projects.
Interest-bearing liabilities decreased to R156,3 million (2010: R167,6 million)
The liquidity ratio has drastically improved with the current assets (excluding
inventory) well above the current liabilities (excluding liabilities relating to
inventory).
The goodwill (R32.7 million) on the Group`s statement of financial position
relates mostly to developments.
OPERATIONAL REVIEW
Although government has committed to continued infrastructure spend, delays in
rolling-out projects are still being experienced, causing our Integrated housing
projects to be delayed during the year. The Group was able to spread its risk by
commencing construction on the Jabulani Hostels, Jabulani CBD and Jukskei View
projects. Since Calgro`s vision is not to be the biggest construction group in
the country, but one of the best specialists. The directors are of the opinion
that the Group will reach a stage during the current financial year when our in-
house construction capacity will be fully utilised. This will compel the Group
to again look at making use of external sub contractors. The challenges
associated with maintaining quality at Calgro M3`s high quality standards will
then be treated as a priority.
The restructuring of the Fleurhof project to accelerate the bonded (privately
-funded) component, in lieu of the fully subsidised market, was successfully
completed and 203 units were handed over to end users. The construction of the
first 24 sectional title units was nearing completion towards the end of
February 2011 and construction began on 176 units in Ext. 3 of the project.
The Group was able to start the installation of infrastructure on the Jabulani
CBD and Jabulani Hostel projects towards the end of the financial year. These
contracts will be major revenue drivers in the year ahead. Construction also
commenced on the Jukskei View project on the first nine of 575 units.
With the increase in construction, numerous job opportunities were created.
Unemployment in the immediate vicinity of our construction projects is
noticeably visible. However, the employability of the community raised
concerns. The Group`s training program was therefore significantly expanded and
an adult education programme was also introduced in a JV with a locally-based
training company.
Recovery of the affordable housing market continued to gain traction during the
year, moving the challenge for the group to source serviced stands at the pace
dictated by market demand rather than the availability of development finance.
The company is grateful to our financial partners who loyally supported us
during the tough trading conditions, and is looking forward to a mutually
beneficial working relationship in more normalised market conditions.
The mid-to-high income housing operations recovered slowly as expected, but
projects in this market segment did not contribute significantly during the
year. Three such projects were launched in the year under review, but the sales
hurdle of access to development finance has not yet been reached. With all
development rights in place the Group will continue to "landbank" the balance of
these properties while attempting to reduce its exposure to financial
institutions.
SAFETY, HEALTH & ENVIROMENT ("SHE")
The board is pleased to report again on the Group`s SHE track record. Despite
the number of employees on construction sites increasing dramatically towards
the end of the financial year, the Group was again not only fatality free, but
also free of any serious injuries in the workplace. This reflects the company`s
ongoing and absolute commitment to ensuring the Group sustains its target of
zero harm.
BOARD OF DIRECTORS
The Group was able to retain the services of all executive directors but saw a
change in non-executive directors. Two non-executive directors resigned during
the year as a result of new work commitments. We wish both Mssrs. Mmakgoshi
Phetla-Lukhethe and Noxolo Maninjwa all the best for the future and thank them
for their contribution.
A new independent non-executive director - Ralph Patmore - was appointed during
the year to enhance the board and audit committee composition in line with
corporate governance developments. He brings considerable experience as an
executive director of a JSE listed construction and supply company.
The Group also secured the experience of Rob Wesselo as non executive director.
Rob is a former director of a JSE listed construction company and has experience
in the financial sector.
PROSPECTS
The South African government`s public works programme, specifically in the
arenas of power generation, transport, water and housing, has the potential to
create growth opportunities within the domestic construction sector, provided
delays can be overcome.
The continued non-delivery of promised integrated housing during the year served
to further increase the already-existing backlog. The Minister of Human
Settlements, Tokyo Sexwale, with his focus on demolishing sub-standard houses
constructed since 1994, will add to the backlog figures. A secured pipeline of
integrated development projects will allow the Group to assist government in
their endeavour to eradicate the housing shortage in line with the company`s
evolving public-private partnership policy. These projects will gain momentum as
Municipalities grappling with budget constraints start to accept the design-
construct-finance model on a turn-key project basis.
With recovering market conditions and operations stabilised in Gauteng, the
Group took the decision to expand into other provinces in South Africa in
partnership with select local contractors. The Group has been successful in
securing a project for the City of Cape Town and in being awarded a tender for
the construction of social housing units for the Free State Housing Company in
Bloemfontein.
The company sees extensive opportunity in the provision of quality housing for
the integrated and GAP housing market segments, with the focus shift to Social
and Rental units within these segments. As these are still fairly new market
segments, the group is learning every year and will strive to improve the
quality of lives of those residing in its developments.
Any reference to future financial performance included in this announcement has
not been reviewed or reported on by the Group`s external auditors.
ANNUAL REPORT
The annual report containing notice of the annual general meeting will be posted
to shareholders on or about 31 May 2011.
Notice of Annual General Meeting
Notice is hereby given that the Annual General Meeting of shareholders will be
held at 10h00 on Tuesday, 20 July 2011 at the boardroom, Calgro M3, Ballywoods
Office Park, Cederwood, 33 Ballyclare Drive, Bryanston, to transact business as
stated in the notice of the Annual General Meeting posted to shareholders as
detailed above.
APPRECIATION
The turnaround experienced in the last two years would not have been possible
without the support and dedication of our senior executive team and senior
management. The board also thanks its staff without whose continuous commitment,
the Groups objectives could not have been realised.
In conclusion management expresses its deep appreciation to the Calgro M3 board
for its support and guidance and would also like to thank stakeholders,
financial and development partners for their continued support during tough
times.
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 2010.
The Group has reassessed its presentation of the statement of financial position
to better align the classification of assets and liabilities to the operating
cycle (note 1 and 5).
The operating cycle for inventory is considered to be longer than 12 months.
Accordingly the associated liabilities have been reclassified as current as they
are expected to be settled within the same operating cycle as inventory. It was
concluded that the reclassification would provide more useful information by
classifying liabilities that are expected to be settled in the Groups operating
cycle in the same manner as assets that are expected to be realised within the
period.
These consolidated condensed financial statements must be read in conjunction
with the audited annual financial statements. A copy of the audited annual
financial statements will be posted to shareholders on or about 31 May 2011.
2. Independent audit
These consolidated condensed financial statements have been audited by our
auditors PricewaterhouseCoopers Inc., who have performed the audit in accordance
with the International Standards on Auditing. A copy of the unqualified audit
report is available for inspection at the registered office of the company.
3. Dividends
No dividends have been declared for the financial year.
4. Profit on sale of investment
The prior year profit on the sale of investment relates to the SENS announcement
released on 13 March 2010, when shareholders were advised that Calgro M3 Land, a
100% held subsidiary, had entered into a sale of shares agreement, in which
Calgro M3 Land disposed of a 30% equity interest in Fleurhof, to South African
Housing Fund for a total cash consideration of R30 million. A further amount of
R50 million was advanced in the form of a shareholders` loan.
5. Reclassification
RECLASSIFICATION OF CONDENSED CONSOLIDATED COMPREHENSIVE STATEMENT
OF FINANCIAL POSITION
Reclassified
R`000 Audited Re- Audited
Year Ended Classifi- Year Ended
28 Feb 2010 cation 28 Feb 2010
28 Feb 2010
2010
Non current Liabilities
Borrowing 154 379 (150 209) 4 170
154 379 (150 209) 4 170
Current Liabilities
Borrowings 9 650 150 209 159 859
9 650 150 209 159 859
Reclassified
R`000 Audited Re- Audited
Year Ended Classifi- Year Ended
29 Feb 2009 cation 29 Feb 2009
29 Feb 2009
2009
Non current Liabilities
Borrowing 117 957 (113 787) 4 170
117 957 (113 787) 4 170
Current Liabilities
Borrowings 69 350 113 787 183 137
69 350 113 787 183 137
6. Contingent asset/ Post Balance Sheet Event
There were no events after the year ended 28 February 2011 or any Contingent
assets that warrant disclosure.
Subsequent to the previous year end of 28 February 2010, a subsidiary company
submitted a VAT claim to the South African Revenue Services (SARS) involving an
amount of R25,8 million which arose from an alternative interpretation obtained
by management concerning the possible zero rating of certain income received.
No decision on this matter had been received from SARS prior to the year ended
28 February 2010. This amount was accounted for as a contingent asset and
received during 2011.
BP Malherbe WJ Lategan
(Chief executive officer) (Financial Director)
Johannesburg
16 May 2011
Directors:
PF Radebe (Chairperson) *, BP Malherbe (Chief executive officer), WJ Lategan
(Financial Director), FJ Steyn, DN Steyn, JB Gibbon*#, H Ntene*, R Patmore*#, RN
Wesselo*.
(*Non-executive)
(# Independent)
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)
Designated advisor: Grindrod Bank Limited
Auditors: PricewaterhouseCoopers Inc.
www.calgrom3.com
Date: 16/05/2011 07:05:01 Supplied by www.sharenet.co.za
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