| Mon 26 May 2008, 7:05 | | CGR - Calgro M3 Holdings Limited - Audited annual |
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CGR
CGR
CGR - Calgro M3 Holdings Limited - Audited annual results for the year ended 29
February 2008
Calgro M3 Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number: 2005/027663/06)
Share code: CGR ISIN: ZAE000109203
"Calgro M3" or "Calgro" or "the company"
AUDITED ANNUAL RESULTS FOR THE YEAR ENDED 29 FEBRUARY 2008
Condensed consolidated balance sheet
29 February 28 February
R`000 2008 2007
ASSETS
Non-current assets
Property, plant and equipment 7,782 1,505
Other non-current assets 28,610 5,896
36,392 7,401
Current assets
Inventories 251,417 34,433
Construction contracts and receivables 91,000 6,855
Trade and other receivables 54,684 12,093
Other current assets 43,027 6,700
Cash and cash equivalents 3,111 1,066
443,239 61,147
Total assets 479,631 68,548
EQUITY AND LIABILITIES
Equity
Capital and reserves 133,171 4,778
133,171 4,778
Minority interest in equity - 207
Total equity 133,171 4,985
Non-current liabilities
Borrowings 165,269 519
Other non-current liabilities 13,766 134
179,035 653
Current liabilities
Borrowings 91,205 32,760
Other current liabilities 70,912 28,570
Bank overdraft 5,308 1,580
Total liabilities 167,425 62,910
Total equity and liabilities 479,631 68,548
Net asset value per share (cents) 104.8 5.4
Condensed consolidated income statement
Year ended Year ended
29 February 28 February
R`000 2008 2007
Revenue 316,677 124,169
Cost of sales (239,719) (104,578)
Gross profit 76,958 19,591
Net administration expenses (29,433) (12,848)
Operating profit 47,525 6,743
Net finance cost (2,393) (176)
Profit before taxation 45,132 6,567
Taxation (13,723) (2,193)
Profit after taxation 31,409 4,374
Attributable to:
Equity holders of the company 31,409 4,167
Minority interest - 207
31,409 4,374
Earnings per share - cents 30.33 4.48
Headline earnings per share - cents 30.40 4.47
Fully diluted headline earnings per share - cents 28.32 4.48
Earnings reconciliation
Year ended Year ended
29 February 28 February
R`000 2008 2007
Determination of headline earnings
Attributable profit 31,409 4,167
Loss/(profit) on disposal of property, plant
and equipment 72 (7)
Headline earnings 31,481 4,160
Determination of diluted earnings
Attributable profit 31,409 4,167
Share option expense 963 -
Diluted earnings 32,372 4,167
Number of ordinary shares 127,100 93,000
Weighted average shares 103,562 93,000
Fully diluted weighted average shares 114,299 93,000
Condensed consolidated statement of changes in equity
Reserves for own
shares/Share
Share Share repurchase Retained Minority Total
(Rands) capital premium reserve income interest equity
Balance at
01 March 2006 100 609,943 610,043
Profit for
the year 4,166,848 206,926 4,373,774
Issue of shares 830 830
Balance at
01 March 2007 930 4,776,791 206,926 4,984,647
Profit for
the year 31,409,443 31,409,443
Issue of shares 341 96,020,450 96,020,791
Share appreciation
scheme 963,141 963,141
Acquisition of minority
interest (206,926) (206,926)
Balance at
29 February 2008 1,271 96,020,450 963,141 36,186,234 - 133,171,096
Condensed consolidated cash flow statement
Year ended Year ended
29 February 28 February
R`000 2008 2007
Net cash from operating activities (289,327) (20,664)
Net cash from investing activities (12,728) (8,552)
Net cash from financing activities 300,372 30,599
Net (decrease)/increase in cash and cash
equivalents and bank overdraft (1,683) 1,383
Cash and cash equivalents and bank overdraft
at the beginning of the year (514) (1,897)
Cash and cash equivalents and bank overdraft
at end of the year (2,197) (514)
Business combinations
On 18 January 2008, the group acquired 100% of the share capital of CTE
Consulting (Pty) Ltd, a town planning company operating in South Africa.
The acquisition of CTE Consulting did not contribute to revenue or profits
during the current financial year.
Details of net assets acquired and goodwill are as follows:
R`000
Fair value of assets acquired:
Property, plant and equipment 579
Goodwill 4,155
Consideration paid:
- Cash paid (234)
- Fair value of shares issued(1,500,000 shares at R3.00 a share
in Calgro M3 Holdings Ltd) (4,500)
(4,734)
Cash consideration paid (234)
Net assets acquired represent property, plant and equipment. No intangible
assets existed or contingent liabilities were recognised on the date of
acquisition.
The goodwill is attributable to the directors` know-how of integrated housing
developments.
The fair value of the shares issued was based on the share price as at 16
November 2007 (the date of listing).
Condensed segment report for the group
2008
R`000 Clusters Integrated housing Total
Revenue 72,629 244,048 316,677
Operating (loss)/profit (7,655) 55,180 47,525
Total assets 234,292 245,339 479,631
Total liabilities 140,615 205,845 346,460
2007
R`000 Clusters Integrated housing Total
Revenue 58,262 65,907 124,169
Operating profit 2,889 3,854 6,743
Total assets 42,804 25,744 68,548
Total liabilities 40,147 23,416 63,563
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) and Schedule 4 of the South African Companies Act. The
accounting policies are consistent with those used in the annual financial
statements for the year ended 28 February 2007.
These consolidated condensed financial statements must be read in conjunction
with the audited annual financial statements. A copy of the audited annual
financial statements is available for inspection at the registered office of the
company.
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.
COMMENTS
NATURE OF BUSINESS
Calgro is a mixed use housing development company, established in 1995. Our
business model focuses on the acquisition of land, project management of civil
infrastructure, services installation, town planning, marketing and construction
of homes.
The group`s housing products target the specific markets of integrated housing
and cluster housing, primarily in Gauteng.
Integrated housing comprises three components:
1. RDP homes - costed at government subsidy scales currently R43,000 for "give
away" houses. In addition, there is a rental housing subsidy of R80,000 per
rental house.
2. "GAP" homes - are valued at between R180,000 and R400,000, falling within the
requirements of the Financial Sector Charter 2005;
3. Affordable homes - valued at between R400,000 and R600,000. Our business
strategy supports government`s proactive drive as expressed in the "Breaking New
Ground" initiative aimed at ensuring the creation of sustainable human
settlements. This is achieved through the integration of various income groups
of buyers/beneficiaries as well as provision of socio-amenities such as schools
and hospitals within a fully integrated community development.
Cluster developments
These are homes valued at between R900,000 and R1.6m.
FINANCIAL OVERVIEW
Group revenue for the year-end February 2008 grew by 155%, from R124m toR317m.
This improvement in revenue has been complemented by an increase in margins to
24.3% from 15.8% in the prior year.
The group overheads have been well contained at R29.4m and the margin
improvement has contributed to an overall 605% rise in operating profit and 657%
increase in headline earnings to R31.5m. Headline earnings per share have grown
by 580% to 30.40 cents per share.
Achievements in the year under review
The company has achieved significant milestones in the last year.
1. The company listed on the AltX on 16 November 2007, and raised R55m in a
private placement to support the company`s strategic focus, being the
acquisition of land for future developments as well as fast tracking the
delivery of the signature Pennyville landmark integrated development and the
streamlining of existing funding arrangements.
2. In the listing process Broad Based Economic Empowerment (BBEE) equity holding
increased to 25.12% being held by various BEE groupings.
3. Calgro completed the acquisition of 441ha of prime land for the Fleurhoff
integrated development, 12km south of Johannesburg CBD. This will accommodate
6,500 homes. FNB has provided finance for the acquisition of land and also
provided a development bond for the development. Town planning for the project
has commenced and Calgro is on track to begin the installation of civil
infrastructure by September 2008, with the construction of homes beginning in
March 2009. The estimated turnover from this project is R1.6bn.
4. The company has completed the purchase of 391ha of prime land in Midrand for
an integrated housing development with an option to acquire a further 280ha of
adjacent land from the seller. The 391ha project will accommodate 14,700 homes.
Nedbank has provided finance for the acquisition of land. Town planning for the
project has commenced and Calgro is on track to obtain transfer once subdivision
is completed. The project is expected to commence in the first quarter of the
financial year 2009. The expected turnover from the project is R2.6bn and is
expected to run over the next seven years.
5. On 1 March 2007 Calgro acquired the minority share of its Pennyville
Zamimpilo Relocation Project (PZR) in Pennyville, south of Johannesburg CBD. It
purchased the 37.5% minority share on 1 March 2007 with cash and shares to be
issued in the new Fleurhoff project.
6. During the financial year, Calgro acquired a town-planning business, CTE Town
and Regional Planners (Pty) Ltd. This acquisition enhances the company`s
capabilities in the control of the town planning process, thus achieving
internal skills and capacity in dealing with municipalities and other government
planning institutions.
7. The increase in borrowings for the year is directly attributable to the
acquisition of land for the future pipeline of the company. All interest-bearing
borrowings are matched to the purchase of land and directly attributable to
individual pieces of land. All finance costs related to land acquisitions are
capitalised to inventory as a direct cost associated to the development. These
costs are released to the income statement as and when the land is transferred
to the buyer and the associated revenue is recognised.
Operations
Integrated development segment
In the integrated market, PZR continues to perform well. This project includes
the development of 2,800 homes and is expected to be completed in the 2009
financial year. MS5, our subsidiary that focuses on the provision of affordable
homes has been less impacted by general macroeconomic issues due to the overall
shortage of houses in this segment of the market and continues to perform to
expectation.
Eskom`s power availability has not affected this part of the business due to
internal service agreements between City Power and City of Johannesburg, our
principal client. Most importantly, the national specification for RDP homes
does not require power. In late April 2008, Housing Minister Lindiwe Sisulu
confirmed that government has undertaken to supply all integrated developments
with electricity.
Cluster segment
The cluster segment of the business under performed in the last year for three
primary reasons:
Firstly, macroeconomic factors including higher interest rates, the National
Credit Act, inflation, negative business sentiment and consumer confidence have
directly impacted cluster sales. As a result there has been a slowdown in both
the willingness to purchase as well as availability of credit for such
purchases.
Secondly, there are delays in registering land and property transfers. This is
due to the fact that such transfers are affected by planning approvals by the
municipalities concerned. Currently we are experiencing backlogs owing to the
inability of the municipalities to achieve timely deadlines.
Thirdly, Eskom`s power availability has had an impact on the cluster segment of
the business with Calgro being unable to timeously obtain development rights on
select cluster projects.
"Green" initiative
Electricity has become a significant issue in South Africa. Eskom has further
issued a directive that residential developments will only be permitted if they
consume less than 100 kilovolt-amperes (KVA) per project. Calgro has developed a
proactive "green" initiative, which includes an electricity-saving component,
which has resulted in the ground breaking model that allows Calgro to build
cluster homes with an overall consumption of 2 KVA per house, as opposed to the
accepted 8+KVA, thus meeting Eskom`s requirements. Calgro will be implementing
this initiative in select cluster projects which will result in a limited impact
on future delivery of projects. This will have an enhanced appeal to the
community in reducing electricity expenses.
In regard to remedial measures to correct the cluster underperformance, and in
line with the prospectus, the company has fast tracked the strategic focus of
the business so as to achieve the 80% integrated and 20% cluster business split.
LISTING FORECAST
In the prospectus prior to listing the group provided a forecast to 29 February
2008. Below is a segmental comparison between the forecasts and audited results
to 29 February 2008.
Turnover
R`000
Division Forecast Actual % difference
Integrated housing 287,361 244,048 (15)
Cluster housing 275,451 72,629 (74)
Group total 562,812 316,677 (44)
Operating profits/(losses)
R`000
Division Forecast Actual % difference
Integrated housing 48,731 55,180 13
Cluster housing 39,832 (7,655) (119)
Group total 88,563 47,525 (46)
Earnings per share
The group achieved earnings per share of 30.33 cents and headline earnings per
share of 30.4 cents being 10% below forecast headline and earnings per share of
33.8 cents. The factors that have contributed to this are detailed below.
Impacting factors
Turnover
This was negatively impacted by poor performance of the cluster division. The
factors that have contributed to this are largely macroeconomic factors that the
company has no control over such as increasing inflation and interest rates,
increased food prices, increased fuel costs and escalating general cost of
living. Further, as these factors are expected to persist for the coming 12 to
18 months, the company has focused on immediate corrective actions aimed at
ensuring that the business is not impacted negatively going forward.
The company has decided to contain the contribution of the cluster division to
20% of the business going forward. This will be achieved through the following
actions that are currently being implemented:
1. Sale of select cluster land - The company has evaluated its cluster land and
identified those projects that are impacted negatively and put these in the
market for sale. This will greatly improve the gearing ratios and release
capacity to leverage and originate projects in the booming
integrated housing division of the company when opportunities arise.
2. Fast tracking construction of current cluster projects. The company will
reallocate the skills that were to be utilised in the projects that are being
disposed of in order to accelerate the completion of those developments
currently under construction.
3. Tight cost containment - The company has implemented stringent controls that
are aimed at ensuring cost containment, from construction materials orders that
are now centralised, to operational costs that are monitored closely by the
group`s executive committee.
Margins
There has been a positive improvement in the margins from the forecast 21% to
the current 24.3%, resulting from cost containment as well as optimisation of
the value chain.
Overheads
Overheads of R29.4m have been well managed to within forecast expectations of
R30.5m.
Operating profits
Operating profits for the current year are 46% below forecast due to the reduced
turnover from the cluster division. However, we have also seen a soundly
enhanced performance of the integrated housing division, which has delivered
operating profits of 13% ahead of forecast.
Interest
For the current financial year an interest expense of R36.3m had been forecast.
The majority portion of this interest expense relates to the holding costs of
cluster development land. A portion of this forecast interest charge was settled
during the year either out of the funds raised on listing or through direct
allocation of shares to settle such debt. A further contributing factor to the
lower than expected interest charge is the under-performance of clusters. With
the lack of transfer of cluster land to clients, the interest cost has not been
realised in the income statement and remains capitalised in inventories at year-
end. This expense will be released as and when cluster land is sold and
transferred to clients. All cluster project feasibilities with extended
timelines for delays in finalisation of projects for reasons stated above, still
remain profitable.
Profit before tax
Profit before tax of R45.1m has been achieved during the year which is 13.6%
below the forecast R52.2m.
PROSPECTS
Industry overview
With a shortage of housing in South Africa, estimated to be at 3 million homes,
comprising 2.4 million RDP and 600,000 affordable homes, coupled with
government`s commitment to discharging the constitutional obligation contained
in Section 26 of the constitution, to provide homes for all South Africans, the
prospects for the company are extremely exciting. By leveraging off a solid
performance, Calgro is well positioned to unlock the opportunity and has in this
regard formed a well tested working relationship in a private-public partnership
with the state to support this end result.
Government has set aside R44bn for housing projects over the next four years and
aims to deliver 250,000 houses a year. This, together with government`s concept
of "Breaking New Ground" which focuses on integrated housing, supports Calgro`s
business model.
As part of the Financial Sector Charter, 2005, the major banks committed to the
provision of R65bn, by 2012 for the GAP market, which further supports
government`s drive for the development of integrated housing.
Integrated housing is the model for the future and Calgro has the proven ability
to support this outcome. In the affordable market, the continued supply shortage
supports strong demand, even with the prevailing macroeconomic environment. This
market shows price elasticity as individuals continue to purchase homes as they
become available. As interest rates rise, individuals purchase smaller homes
relative to their income and affordability in light of interest-rate movements.
In the cluster market, Calgro expects the macroeconomic environment to continue
to play a significant role. The impact will continue to be one of a slowdown for
the next year in sales and declining prices.
Calgro delivery
With the delivery on the PZR project and the new Fleurhoff and Midrand projects
finalised, a solid pipeline in integrated housing for the next 7 to 10 years has
been established. This coupled with the remedial actions in the cluster division
to a strategic fit of 20% cluster and 80% integrated business model, will
underpin the group`s ability to deliver profits andsustainability of earnings
growth. Management is confident that it has the capability and capacity to
handle all its chosen projects particularly through the now proven roll out of
the successful PZR model. In addition, management still retains over 51% of the
shares in the company and this provides a powerful incentive for all of the team
members to create wealth through earnings growth for all shareholders. Going
forward management remains focused on growing shareholder earnings through the
delivery of the group`s strategy highlighted above.
The year ahead
The PZR project will complete during the 2009 year, according to expectations.
Fleurhoff is also expected to contribute in the new year.
This is expected to deliver positive growth in the business including the
achievement of the forecast profits in terms of the prospectus.
Johannesburg 22 May 2008
Directors:
PF Radebe (Chairperson) *, PM Waweru (Chief executive officer), CT Daly,
SE Funde*, BP Malherbe, H Ntene*, FJ Steyn, QE Woods*
(*Non-executive)
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: Bridge Capital Advisors (Pty) Ltd.
Auditors: PricewaterhouseCoopers Inc.
www.calgrom3.com
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