Wrap Text
Unaudited interim results for the six months ended 31 August 2015
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 2015
HIGHLIGHTS
- Headline earnings per share increased by 29.98% to 66.25 cents per share
- Revenue increased by 39.10% to R573.1 million
- Strong cash flow management resulted in cash on hand increasing to
R152.7 million and borrowings decreasing to R483.6 million
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited Unaudited Audited
Six Months Six Months Year Ended
31 August 31 August 28 February
R’000 2015 2014 2015
Revenue 573 195 412 076 932 205
Cost of sales (454 175) (329 392) (757 334)
Gross profit 119 020 82 684 174 871
Other income 599 7 119 8 521
Administrative expenses (54 988) (32 593) (98 900)
Other expenses (1 958) - (691)
Operating profit 62 673 57 210 83 801
Share of profit of
joint ventures and
associates (Net of tax) 44 676 29 943 86 827
Net finance income/(cost) 1 297 (4 958) (2 479)
Profit before taxation 108 646 82 195 168 149
Taxation (24 458) (11 144) (22 520)
Profit after taxation 84 188 71 050 145 629
Profit after taxation and other comprehensive income attributable to:
- Owners of the parent 84 204 71 050 145 716
- Non-controlling interests (16) - (87)
84 188 71 050 145 629
Earnings per share - cents 66.25 55.90 114.65
Headline earnings per
share - cents 66.25 50.97 109.69
Fully diluted earnings per
share - cents 65.98 55.90 114.65
Fully diluted headline earnings
per share - cents 65.98 50.97 109.69
EARNINGS RECONCILIATION
Unaudited Unaudited Audited
Six Months Six Months Year Ended
31 August 31 August 28 February
R’000 2015 2014 2015
Determination of headline and diluted headline earnings
Attributable profit 84 204 71 050 145 629
(Profit)/Loss on disposal of
property, plant and equipment - (41) (83)
Gain on deemed disposal of
interest in joint-venture - (6 222) (6 222)
Headline and diluted headline
earnings 84 204 64 787 139 324
Determination of earnings and diluted earnings
Attributable profit 84 204 71 050 145 629
Earnings and diluted earnings 84 204 71 050 145 629
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) 127 629 127 100 127 100
Reconciliation of the income tax expense
Unaudited Unaudited
Six Months Six Months
31 August 31 August
2015 2014
Applicable tax rate 28.00% 28.00%
Disallowable charges 0.33% 0.21%
Executive share scheme 4.46% -%
Share of profit of joint ventures and
associates - Net of tax (11.51)% (10.20)%
Tax losses for which no deferred income tax
asset was recognised -% 1.15%
Tax losses previously unrecognised -% (3.36)%
Under/(over) provision for deferred tax prior year 1.24% (2.24)%
Effective tax rate 22.52% 13.56%
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited Audited
At At
31 August 28 February
R’000 2015 2015
ASSETS
Non-current assets
Property, plant and equipment 2 531 1 754
Deferred income tax asset 19 957 13 825
Intangible assets 40 852 40 971
Investment in joint ventures and associates 274 244 229 568
Investment property 5 743 5 743
343 327 291 861
Current assets
Inventories 517 165 498 089
Construction contracts and work in progress 260 677 212 364
Trade and other receivables 170 983 171 100
Other current assets 31 175 26 486
Cash and cash equivalents 152 712 130 565
1 132 712 1 038 604
Total assets 1 476 039 1 330 465
EQUITY AND LIABILITIES
Equity
Stated capital 96 022 96 022
Share based payment reserve 31 441 -
Retained income 566 951 482 747
694 414 578 769
Non-controlling interests (103) (87)
Total equity 694 311 578 682
Non-current liabilities
Deferred income tax liability 65 994 37 952
65 994 37 952
Current liabilities
Borrowings 483 583 492 132
Other current liabilities 232 151 221 699
715 734 713 831
Total liabilities 781 728 751 783
Total equity and liabilities 1 476 039 1 330 465
Net asset value per share - cents 546.27 455.30
Net tangible asset value per share - cents 514.13 423.06
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Unaudited Unaudited Audited
Six Months Six Months Year Ended
31 August 31 August 28 February
R’000 2015 2014 2015
Net cash from operations 31 951 121 621 79 177
Net cash (utilised in)/
from investing activities (1 304) (24 989) (25 576)
Net cash (utilised in)/
from financing activities (8 500) 7 150 14 071
Net increase in cash and cash
equivalents 22 147 103 782 67 672
Cash and cash equivalents at the
beginning of the period 130 565 62 893 62 893
Cash and cash equivalents at the
end of the period 152 712 166 675 130 565
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Stated Share Retained Total Non- Total
Capital Based Income Controlling Equity
Payment Interests
Reserve
Balance at 1 March
2014 96 022 - 337 031 433 053 - 433 053
Profit for the
Period - - 71 050 71 050 - 71 050
Total comprehensive
Income - - 71 050 71 050 - 71 050
Balance at 31 August
2014 96 022 - 408 081 504 103 - 504 103
Balance at 1 March
2015 96 022 - 482 747 578 769 (87) 578 682
Reclassification of
share appreciation
rights liability - 17 829 - 17 829 - 17 829
Share-based payment
expense - 13 612 - 13 612 - 13 612
Profit for the
period - - 84 204 84 204 (16) 84 188
Total comprehensive
income - 31 441 84 204 115 645 (16) 115 629
Balance at 31 August
2015 96 022 31 441 566 951 694 414 (103) 694 311
CONDENSED SEGMENT REPORT FOR THE GROUP
Construction Sale of Professional Total
and infrastructure Land and Services
R’000 Development Developments
August 2015
Segment revenue 520 887 42 034 10 273 573 194
Revenue from related parties 468 580 - 10 245 478 825
Revenue from external
customers 52 307 42 034 28 94 369
Inter-segment revenue - - - -
Operating profit 47 030 9 386 8 284 64 700
Finance cost (5 992) - - (5 992)
Adjusted profit before tax 41 038 9 386 8 284 58 708
August 2014
Segment revenue 328 433 70 855 12 788 412 076
Revenue from related parties 213 989 - 4 265 218 253
Revenue from external
customers 114 444 70 855 8 524 193 823
Inter-segment revenue - - - -
Operating profit 26 020 20 437 12 076 58 533
Finance cost (8 371) - - (8 371)
Adjusted profit before tax 17 649 20 437 12 076 50 162
August 2015
Assets per segment 278 626 517 165 22 756 818 547
Goodwill 36 550 - 4 155 40 705
Inventories - 517 165 - 517 165
Work in progress - - 18 601 18 601
Construction Contracts 242 076 - - 242 076
Liabilities per segment
Borrowings (129 181) (354 402) - (483 583)
February 2015
Assets per segment 234 761 498 089 18 308 751 158
Goodwill 36 550 - 4 155 40 705
Inventories - 498 089 - 498 089
Work in progress - - 14 153 14 153
Construction contracts 198 211 - - 198 211
Liabilities per segment
Borrowings (137 730) (354 402) - (492 132)
RELATED PARTY TRANSACTIONS
Unaudited Unaudited
Six Months Six Months
31 August 31 August
R’000 2015 2014
Compensation paid to key employees and personnel 20 316 8 008
Finance income from related parties 3 914 2 891
Contract revenue received from joint ventures 468 580 214 075
Service fees received from joint ventures 10 245 4 265
A RECONCILIATION OF ADJUSTED PROFIT BEFORE TAX IS PROVIDED AS FOLLOWS:
Unaudited Unaudited
Six Months Six Months
31 August 31 August
R’000 2015 2014
Adjusted profit before tax for reportable
segments 58 708 50 163
Group overhead costs (2 027) (1 325)
Share of profit of joint ventures
and associates - net of tax 44 676 29 943
Total segments 101 357 78 781
Finance income - net 7 289 3 414
Profit before tax 108 646 82 195
REPORTABLE SEGMENTS' ASSETS ARE RECONCILED TO TOTAL ASSETS AS FOLLOWS:
Unaudited Audited
Six Months Year Ended
31 August 28 February
R’000 2015 2015
Segment assets for reportable segments 818 547 751 158
Unallocated:
Deferred tax 19 957 13 825
Investment property 5 743 5 743
Property, plant and equipment 2 531 1 754
Intangible assets excluding goodwill 147 266
Investment in joint ventures and associates 274 244 229 568
Loans to joint ventures and associates 17 773 16 793
Loans and receivables 5 757 5 757
Current tax receivable 7 645 3 936
Trade and other receivables 170 983 171 100
Cash and cash equivalents 152 712 130 565
Total assets per the consolidated statement
of financial position 1 476 039 1 330 465
REPORTABLE SEGMENTS’ LIABILITIES ARE RECONCILED TO TOTAL LIABILITIES AS FOLLOWS:
Unaudited Audited
Six Months Year Ended
31 August 28 February
R’000 2015 2015
Segment liabilities for reportable segments 483 583 492 132
Unallocated:
Deferred tax 65 994 37 952
Current tax 382 61
Trade and other payables 231 769 221 638
Total liabilities per the consolidated statement
of financial position 781 728 751 783
COMMENTARY
The Directors present the condensed consolidated interim financial results for the six
months ended 31 August 2015 (“the period”).
The Group’s operational results again showed strong improvement over the period under
review with headline earnings per share (HEPS) increasing by 29.98% to 66.25 cents
(August 2014: 50.97 cents), profit after tax increasing to R84.2 million (August 2014:
R71 million) and earnings per share (EPS) increasing by 18.52% to 66.25 cents (August
2014: 55.90 cents). Diluted headline earnings of 65.98 cents per share was achieved as
a result of a small dilution caused by the new executive share scheme.
Despite a tough trading environment, the Group’s diversification within the various
residential market sectors and our ability to timeously adapt to our changing environment
allows us to efficiently operate between different market sectors when required.
Management views the Group’s variable costing model as key to reducing risk in uncertain
times.
Our main focus during the six months under review was the implementation of our R19
billion project pipeline to ensure sustainable growth. The Group is pleased to report
that we were successful in this endeavour and that we now have 12 active projects in the
ground, of which the last will start generating revenue during the 2017 financial year.
These projects will contribute by generating cash and profits, which should improve the
Group’s debt gearing ability and enable the Group to fund the current and future project
pipeline.
The secured project pipeline remains in excess of R19 billion as a result of sales price
escalation, although no new projects were added during the past six months due to the
focus on implementation of the pipeline.
Cash flow management remains one of the biggest challenges associated with the roll out
of multiple projects. Cash generated from operations of R84 million, of which R52 million
was invested back into new projects, resulted in reported cash generated from operations
of R32 million. Decrease in debt of R8.5 million and increase in cash on hand of R22.1
million to R152.7 million is evidence that this challenge is being appropriately managed.
Management will continue to keep a watchful eye on cash flow requirements during these
initial project phases, and ensure that cash returns from all projects are maximised.
Management is actively working on unlocking the value tied up in the old mid to high-end
land portfolio, as we believe that cash can be utilised more profitably for the Group in
the integrated segment of the market. The Group targets a minimum Return on Equity ratio
of 30% over the medium to long term.
The Group’s most significant non-project specific achievements during the period:
o Fleurhof again being awarded the best FLISP project of the year, best Social Housing
Project and best integrated project of the year during the 2015 at the provincial
Govan Mbeki Awards and best FLISP at the National Govan Mbeki Awards;
o All projects currently in the ground are profitable;
o Maintaining jobs created on construction sites in excess of 5 000;
o The commencement of a new comprehensive training and local economic development
programme that is being rolled out on our South Hills project as a pilot, with
great success thus far;
o Reaping the rewards of our in-house skills transfer and mentorship programme that
has led to promotions within the Group; and
o The Group again being fatality-free on all construction sites.
The Group’s most significant project specific achievements during the period:
o Installation of infrastructure resulted in the Group now having 4 582 serviced
opportunities in the following projects:
o South Hills;
o Belhar;
o Witpoortjie;
o Jabulani Hostels; and
o 3rd phase of the Fleurhof project.
o Construction is currently under way on 3 857 units, and include among others:
o The first 627 Belhar units;
o Jabulani Hostels phase II - 296 units;
o Fleurhof – 2 068 units; and
o Scottsdene - 495 units.
Marketing of the Group’s first memorial park commenced and although great strides were
made in building relationships in the sector, no material financial contribution was
made to this set of results. As was to be expected, setting up a new business concept
and changing market perception takes time. Burial’s to date were well managed, and it is
expected that sales will gain momentum towards the end of this financial year. With a
substantial inventory investment carried on the statement of financial position for this
project to date, the expectation is to see some contribution from this business towards
the year-end financial results.
Group revenue increased by 39.1% to R573 million (Aug 2014: R412 million) during the
period while Group revenue, including joint ventures, grew to R1 billion (August 2014:
R660 million).
The Group’s gross profit margin increased slightly to 20.76% (August 2014: 20.07%) as a
result of achieving a better mix between infrastructure installation and top structure
construction. Gross profit margins fluctuate constantly as margins are lower during the
infrastructure installation cycle of the project and increase during the top structure
construction cycle of the project.
Operating profit and the effective tax rate was negatively affected by the valuation of
the previous cash settled share appreciation rights scheme (SAR) for members who opted
not to convert to the new equity settled executive share scheme and the additional
expense of the executive share scheme. The current cash settled SAR scheme is in the
process of being settled and together with the new share scheme will lead to a future
cost saving of around R30 million per year at the current share price growth.
The difference between HEPS and EPS in the comparative reporting period was due to a
gain on the deemed disposal as a result of the buy-out of our joint venture partner
(International Housing Solutions) in the Summerset project (Clidet No 1014 Propriety
Limited). The Group now owns 100% of this project.
Profits from joint ventures increased to R44.7 million (August 2014: R29.9 million).
These joint ventures are essentially finance joint ventures and Calgro M3 takes
responsibility for operational matters and related operating cost of these joint
ventures.
The Group’s cash position remains strong at R152.7 million (February 2015: R130.6
million). Working capital however continues to be closely monitored by focusing on the
timely recovery of debtors and the transfer of properties to clients.
Total net debt decreased to R330.9 million (February 2015: R361.6 million), as a result
of the Group entering a more cash positive cycle in its projects. A project generally
becomes net cash positive at around 50% completion, due to cash/capital invested in the
initial phases of a project to acquire land, pay professional fees, install bulk and
link infrastructure, install internal infrastructure and construction of top structures.
The statement of financial position remains stable with total assets growing to R1.48
billion (February 2015: R1.33 billion). Investment in infrastructure on our Witpoortjie,
Belhar, La Vie Nouvelle, Fleurhof, South Hills and Memorial Parks projects, saw some
significant additions during the period under review and resulted in an increase in
inventory, construction contracts and deferred tax balances. Management is of the opinion
that the Group is appropriately structured to support the implementation of the secured
pipeline and ensure future growth.
With the Group’s balance sheet now completely unsecured, the interest of all stakeholders
is aligned to maximise returns.
Land for development remained at similar levels as at the end of February 2015 with a
market value in excess of R1.4 billion and carried at a cost of R600 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. Inventory to the value of R1
958 211 was impaired during the period ended 31 August 2015.
SHARE APPRECIATION RIGHTS SCHEME (SAR)
With respect to the cash settled SAR scheme introduced for directors and senior management
on 1 March 2012, there were 10 378 172 SAR’s outstanding at 1 March 2015. 2 666 667 SAR’s
were exercised during the period under review, 5 021 977 SAR’s were converted to the new
equity settled executive share scheme (ESS) with the balance remaining on the cash
settled SAR scheme. An amount of R15 025 185 was recognised as an expense in the statement
of comprehensive income for the period ending 31 August 2015 with respect to the cash
settled SAR scheme. The revaluation of the converted SAR scheme resulted in a positive
movement of R6 653 409 in the statement of comprehensive income for the same period,
resulting in a net effect of R8 371 776.
The ESS was approved by shareholders on 29 July 2015 (grant date). The ESS was introduced
to align the interest of executives with that of shareholders and to reduce the negative
effect that the current cash settled SAR scheme has on the statement of comprehensive
income. Under this scheme 10 215 573 shares were allocated to directors and senior
management at a purchase price of R4.08 per share. The shares will become unrestricted
over a period of three to six years (vesting period), with the first vesting date being
1 March 2017.
The scheme was valued using the 30 day volume weighted average price (VWAP) of the shares
on 29 July 2015 (grant date). This new scheme will eliminate the volatile impact that
the revaluation of the cash settled SAR scheme had on the statement of comprehensive
income. An initial amount of R17 829 049 was transferred from the previous cash settled
SAR liability to the share based payment reserve on the date of modification from the
cash settled SAR scheme to the equity settled ESS. The expense related to the ESS
recognised in the statement of comprehensive income for the period ending 31 August 2015
is R13 611 891.
The total expense recognised in administrative expenses in the statement of comprehensive
income relating to the SAR and ESS scheme for the period ending 31 August 2015 was R21
983 668 (August 2014: R5 377 927). This, together with the increase in employee related
expenses as a result of the increase in capacity to convert the current pipeline has
contributed to the increase in administrative expenses for the period.
HEALTH & SAFETY
The Group maintained its exceptional safety record and was again free of fatality and
serious injuries in the workplace. The Group will not take this position for granted and
a continuous effort is made to maintain the Group’s target level of zero harm.
Prospects
Trading conditions in the construction and development sector remained challenging, with
uncertainty surrounding the micro/macro-economic environment, economic growth, a
potential recession and higher inflation and interest rates. The National Department of
Human Settlements, however, recently launched its new Catalytic Housing project
implementation plan, which should assist in alleviating some of the challenges
experienced by the sector. The construction of units for Public Sector and strong end-
user sales in the FLISP, GAP and Affordable markets are all contributing towards making
integrated developments, based on Private Public Partnerships, successful. The Group is
also currently investigating other opportunities in the residential market, outside the
public sector. The Group is well positioned to capitalise on numerous opportunities and
will aim to continuously grow the secured pipeline in the next six months. Together with
converting the current pipeline, the Group will also focus on expanding its sustainable
and diversified pipeline, stretching beyond five years, while retaining its core focus
on the residential market.
With the Group’s first memorial park launched, and the first burials done, the Group
views this as a long term, sustainable solution to create sustainable parks whilst at
the same time contributing towards restoring dignity in the burial place. The Group is
endeavouring to make a difference by taking the memorial park business completely off
the national electricity grid.
Any reference made to prospects in this announcement has not been reviewed by the Group’s
external auditors.
APPRECIATION
Our management team and staff have been instrumental in ensuring that growth could be
sustained. We thank them and look forward to continuing on this path of creating value
for our shareholders. We would also like to thank our partners, clients and shareholders
for maintaining confidence in us.
Notes
1. Basis of preparation
These condensed consolidated financial statements are prepared in accordance with
International Financial Reporting Standard IAS34 - Interim Financial Reporting IAS34,
the SAICA financial reporting guides as issued by the Accounting Practices Committee and
Financial Pronouncements as issued by the Financial Reporting Standards Council, the
South African Companies Act and the Listings Requirements of the JSE Limited. The
accounting policies applied in the preparation of these interim financial statements are
in terms of International Financial Reporting Standards (IFRS) and are consistent with
those applied in the annual financial statements for the year ended 28 February 2015.
The preparation of financial statements in conformity with IFRS requires the use of
certain critical accounting estimates. It also requires management to exercise its
judgement in the process of applying the Group’s accounting policies.
The operating cycle of inventory, construction contracts and work in progress is
considered to be longer than 12 months. Accordingly the associated assets and liabilities,
including debt, are classified as current as they are expected to be settled within the
same operating cycle as inventory, construction contracts and work in progress.
The 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 October 2015.
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 2015 with the exception of borrowings. The carrying value of
borrowings at 31 August 2015 was R483 583 418 with a corresponding fair value of
R494 559 469. The difference is attributable to these bonds trading in an active market
and is classified as level 2 in the fair value hierarchy.
4. Bond exchange
During the period ended 31 August 2015, the Group repaid R22.5 million in borrowings
that expired as well as early settled another R61 million that would have expired in the
2017 financial year.
Subsequent to 31 August 2015 another R74 million in bonds expiring in June 2016 were
successfully converted to new 5 year instruments.
Total finance cost incurred for the period amounted to R29 416 215 (August 2014: R26 123
074) of which R23 423 409 (August 2014: R17 739 214) was capitalised to inventory and
construction contracts.
5. Dividends
No dividends have been declared for the period. The Board is of the opinion that the
Group must continue to retain cash to maintain the present growth and create
shareholder value.
6. Board of directors
Changes were made to the board of directors during the six months under review, being:
- Mr Hugh Colin Cameron was appointed as an independent Non-Executive Director with
effect from 8 May 2015;
- Mr Wayne Williams was appointed as Executive Director of the Company with effect
from 1 June 2015;
- Mr Willem Jakobus (Wikus) Lategan was appointed as Managing Director of the
Company with effect from 1 June 2015;
- Mr Willem Adolph (Waldi) Joubert was appointed as Financial Director with effect
from 1 June 2015;
- Mr Deon Noel Steyn resigned his position as Executive Director with effect 1 June
2015.
BP Malherbe (CEO) WJ Lategan (Managing Director) WA Joubert (Financial Director)
Johannesburg 9 October 2015
Directors:
PF Radebe (Chairperson)*#, BP Malherbe (Chief Executive Officer), WJ Lategan (Managing
Director), WA Joubert (Financial Director), FJ Steyn, W Williams, JB Gibbon*#, 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
Announcement date: 12 October 2015
Date: 12/10/2015 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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