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CGR
CGR
CGR - Calgro M3 - Audited Condensed Financial Results For The Year Ended 28
February 2009
Calgro M3 Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number: 2005/027663/06)
("Calgro M3" or "the group" or "the company")
Share code: CGR & ISIN: ZAE000109203
AUDITED CONDENSED FINANCIAL RESULTS FOR THE YEAR ENDED 28 FEBRUARY 2009
CONDENSED CONSOLIDATED INCOME STATEMENT
Audited Audited
Year Year
Ended ended
28 Feb 29 Feb
R`000 2009 2008
Revenue 233 054 316 677
Cost of sales (182 205) (239 719)
Gross Profit 50 849 76 958
Other income 17 508 -
Other expenses (23 705) -
Net Administrative expenses (36 260) (29 433)
Operating profit 8 392 47 525
Net Finance cost (506) (2 393)
Profit before taxation 7 886 45 132
Taxation (1 864) (13 723)
Profit after taxation 6 022 31 409
Attributable to:
Equity holders of the company 6 022 31 409
Minority interest - -
Earnings per share - cents 4.74 30.33
Headline earnings per share - cents 16.32 30.40
Fully diluted earnings per share - cents 3.80 28.32
Fully diluted headline earnings per share - cents 15.57 27.55
CONDENSED CONSOLIDATED BALANCE SHEET
Audited Audited
Year Year
ended ended
28 Feb 29 Feb
R`000 2009 2008
ASSETS
Non-current assets
Property, plant and equipment 8 100 7 782
Other non-current assets 49 433 28 610
57 533 36 392
Current assets
Inventories 260 115 251 417
Construction contracts and receivables 64 389 91 000
Trade and other receivables 18 368 54 684
Other current assets 13 836 43 027
Cash and cash equivalents 30 594 3 111
387 302 443 239
Assets of disposal group clasified as
held for sale 126 301 -
513 603 443 239
Total assets 571 136 479 631
EQUITY AND LIABILITIES
Equity
Capital and reserves 138 231 133 171
Total equity 138 231 133 171
Non-current liabilities
Non-current borrowings 117 957 165 269
Other non-current liabilities 19 266 13 766
137 223 179 035
Current liabilities
Current borrowings 69 350 91 205
Other current liabilities 104 094 70 912
Bank overdraft 15 842 5 308
189 286 167 425
Liabilities of disposal group classified
as held for sale 106 396 -
Total liabilities 295 682 167 425
Total equity and liabilities 571 136 479 631
Net asset value per share - cents 108.8 104.8
EARNINGS RECONCILIATION
Audited Audited
Year Year
ended ended
28 Feb 29 Feb
R`000 2009 2008
Determination of headline earnings
Attributable profit 6 022 31 409
Loss/(profit) on disposal of property,
plant and equipment - 72
Impairment of goodwill 14 714 -
Headline earnings 20 736 31 481
Determination of diluted earnings
Attributable profit 6 022 31 409
Share option expense (963) 963
Diluted earnings 5 059 32 372
Number of ordinary shares (`000) 127 100 127 100
Weighted average shares (`000) 127 100 103 562
Fully diluted weighted average shares 133 208 114 299
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
Audited Audited
Year Year
ended ended
28 Feb 29 Feb
R`000 2009 2008
Net cash from operating activities 68 240 (289 327)
Net cash from investing activities (30 666) (12 728)
Net cash from financing activities (20 626) 300 372
Net (decrease)/increase in cash and cash
equivalents and bank overdraft 16 948 (1 683)
Cash and cash equivalents and bank
overdraft at the beginning of the year (2 197) (514)
Cash and cash equivalents and bank
overdraft at the end of the year 14 751 (2 197)
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Reserves for
own shares/
Share Share Share Retained Minority Total
capital premium purchase income interest equity
reserve
(Figures in Rands)
Balance at
01 March 2007 930 - - 4 776 791 206 926 4 984 647
Profit for the year - - - 31 409 444 - 31 409 444
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 36 186 235 -
133 171 097
Profit for the
period - - - 6 022 452 - 6 022 452
Share appreciation
scheme - - (963 141) - - (963 141)
Balance at 28 February 2009 1 271 96 020 450 - 42 208 687 - 138
230 408
CONDENSED SEGMENT REPORT FOR THE GROUP
Integrated
Figures in rands Clusters Housing Total
Feb 2009
Revenue 73 332 159 722 233 054
Depreciation and
amortisation 2 452 127 2 579
Impairment of goodwill - 14 713 14 713
Operating (loss)/profit (12 668) 21 060 8 392
Total assets 343 660 227 476 571 136
Total liabilities 250 053 182 853 432 906
Feb 2008
Revenue 72 629 244 048 316 677
Depreciation and
amortisation 895 90 985
Impairment of goodwill - - -
Operating profit (7 655) 55 180 47 525
Total assets 234 292 245 339 479 631
Total liabilities 140 615 205 845 346 460
Notes
1. Basis of preparation
These condensed consolidated 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 JSE
Listings Requirements. The accounting policies are consistent with those used in
the annual financial statements for the year ended 29 February 2008.These
condensed consolidated 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 condensed consolidated 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
1. Nature of the business
Calgro M3 is a mixed-use housing development company, established in 1995. Our
business model focuses on the acquisition of land, town planning, project
management of civil infrastructure, services installation, and the marketing and
construction of homes.
The niche market for the group`s housing products comprises two specific market
segments; integrated housing and mid to high income developments.
Integrated housing comprises three components:
RDP homes - are valued at government subsidy scales which currently stand at R54
650 for "give away" houses. In addition to this, there is a subsidy of R22 418
per unit for the provision of municipal engineering services;
"GAP" homes - are valued between R180 000 and R340 000. This falls within the
requirements of the financial services sector charter of 2005.
Affordable homes - are valued between R240 000 and R600 000.
Our business strategy supports government`s proactive drive, which is expressed
in the `Breaking New Ground` initiative, aimed at ensuring the creation of
sustainable settlements. This is achieved through the integration of various
income groups, as well as the provision of socio-amenities such as schools and
hospitals, within a fully integrated community.
Mid to high income residential
These are homes valued at between R600 000 and R1.6m.
2. Financial overview
Group revenue for the year-ended February 2009 decreased by 26.41%, from R317m
to R233m. Whilst this decrease had a material impact on gross profit, which
declined by R26m, the gross profit margin stayed consistent with the previous
year. Close monitoring and tight control of the administrative overheads in the
last six months of the year contained these to R36.2m compared with R26.2m for
the first six months and R29.5m for 2008. This has helped to contain the overall
decreases of 82.34% in operating profit and 46.32% in headline earnings per
share.
The focus for the year under review was the restructuring of the balance sheet.
This means that the company is now better structured to handle added pressures
exerted by the global economy. Cash generated from operations improved from a
net negative R289m to net positive R68m with R20m of debt settled from
operations during the period under review.
Achievements in the year under review:-
New industry standards were set, by refining the integrated model as set out in
government`s "Breaking New Ground Policy" on our Pennyville Project;
Partnerships with significant role-players in the industry were secured;
The company was listed on the Yield X on 11 October 2008, and raised R45m;
Town planning was completed for 441ha of land for the Fleurhof Integrated
Development Project, which is located 12km south west of the Johannesburg CBD.
This development will consist of 6,500 homes. The estimated turnover from this
project is approximately R1.6bn;
On 1 October 2008, Calgro M3 acquired the 37.5% minority shares previously held
by Refihlile Consulting (Pty) Ltd in the Fleurhof Project (PZR) with loan
finance and cash; and
The first units in the Pennyville Project were officially handed over to
beneficiaries by the Mayor of Johannesburg and MEC for Housing on 2 October 2008
at a formal ceremony.
Review of performance
The mid to high income division of the group, taking into account the balance
sheet write-down of inventory of R6.5m, together with the added pressure of
generating sales in a depressed market, actually performed significantly better
than in 2008.
During the period under review, the mid to high income segment was under
pressure for new sales, however, the significant pre-sold book contributed to
the generation of construction profits.
In the integrated segment, some group projects were affected by unforeseen
difficulties that resulted in construction delays. These difficulties were
resolved and construction is currently on target to meet the contractual
completion dates. The emergence of a strong social housing component in this
segment of the market, spread risks over a wider spectrum. A significant number
of units were sold early in the financial year to social housing companies.
MS5 Projects (Pty) Ltd, our subsidiary focusing on the affordable housing
market, was heavily impacted by the introduction and enforcement of the
regulations of the National Credit Act as well as the changes in bank lending
criteria. However, towards the end of the financial year, the reduction in
interest rates saw a marked improvement in approved bonds. MS5 Projects (Pty)
Ltd has an added advantage in that the affordable housing market has an overall
shortage of houses, ensuring that the company should perform well in the future.
Building capacity contributed to a material increase in the overheads of the
Fleurhof and Midrand projects. This will have no major negative effects on
profits going forward, as all the infrastructure and feasibility studies have
been completed and expensed with no corresponding income recognition.
The availability of electricity returned to normal towards the second half of
the financial year after causing major delays on projects in the first half of
the year.
3. Change in the board of directors
Peter Waweru resigned in January 2009 as an executive director. John Gibbon,
Mmakgosi Petla Lekhethe and Noxolo Maninjwa were appointed as independent non-
executive directors during November 2008, replacing Quinton Woods and Eddie
Funde.
4. The "Green" Initiative
Calgro M3 has commissioned an ongoing study in the area of energy conservation
and the reduction of carbon emissions. Our policy is to support these
initiatives by promoting the use of natural resources with the installation of
electricity-saving devices. The enhanced appeal to the community will be reduced
electricity expenses; we expect the benefits of these initiatives to be felt
long-term.
Industry overview and prospects
The shortage of housing in South Africa is estimated to be approximately 2,6
million homes, of which 2 million are RDP and 600 000 are affordable houses.
There are excellent prospects for the group to contract for a sizable portion of
this shortage to assist government in its endeavours to fulfil its
constitutional obligation to the people of South Africa. Calgro M3`s solid
performance in the delivery of good quality houses has it well positioned to
unlock this opportunity. It is in this regard that we have formed excellent
working relationships with government in a private-public partnership to support
their goals. Government has set aside R73bn for housing projects over the next
four years and aims to deliver 250,000 houses a year. Government`s "Breaking New
Ground" principle, which focuses on integrated and mixed housing developments,
is in direct alignment with our business model.
As part of the Financial Sector Charter of 2005, the major banks are committed
to the provision of R65bn by 2011 for the "GAP" market. This further supports
government`s initiative for the development of integrated housing. Integrated
housing is the model for the future and Calgro M3 has the proven track record to
deliver.
In the mid to high income residential market, Calgro M3 expects the macro
economic 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 will see prices
soften. We do however, foresee a positive upturn in the residential property
market in the not too distant future.
The affordable housing market`s continued housing shortage translates to a
strong demand, even in the prevailing macroeconomic environment. This market
shows price elasticity as individuals continue to purchase the houses as they
become available. In the light of interest-rate movements, clients are
purchasing smaller houses due to the National Credit Act`s impact and
affordability.
We are currently investigating a number of viable projects being prioritised by
the government based on the "Breaking New Ground" principle.
Calgro M3 delivery
With delivery on the Pennyville project and with development of the new
integrated projects, namely Fleurhof and Midrand to commence in the near future,
a solid pipeline for the next seven to ten years has been established. This,
coupled with the remedial action in the mid to high income residential division
to a strategic fit of 20% mid to high segment and 80% integrated housing
business model, will ensure the group`s continuing viability and sustainable
earnings growth. Management is confident that Calgro M3 has the capability and
capacity to handle all its chosen projects. In addition to this, management
still maintains more than 51% shareholding in the company and this provides a
powerful incentive for the team members to create wealth for all shareholders.
The way forward remains focused on growing shareholder earnings through the
delivery of the group`s strategy as previously outlined.
5. Post balance sheet events
Sale of a 30 % share in the Fleurhof project
In the announcement released on SENS on 13 March 2009, shareholders were advised
that Calgro M3 Land had entered into a Sale of Shares Agreement, in which Calgro
M3 Land will dispose of 30% of its equity interest in Fleurhof, to the South
Africa Workforce Housing Fund for a total cash consideration of R30m. A further
amount of R50m in the form of a shareholders` loan will also be advanced for the
development of the Fleurhof Project.
Rationale for the transaction
In response to the current depressed and uncertain market conditions facing both
local and international businesses, and in light of ongoing commitments facing
Calgro M3 in connection with various upcoming development projects, management
considered it prudent and in the best interests of the company, to inject
capital into the business by partnering with a locally based equity funder. The
capital raised from the transaction will be used to partly satisfy the medium
term funding requirements of the Fleurhof project, but will also assist in de-
risking the wider Calgro M3 group by providing a source of easily accessible
capital funds and to some extent, reducing current debt levels. Furthermore,
management believes that the relationship with the South Africa Workforce
Housing Fund will not only provide capital resources, but also potential future
investment opportunities for the wider Calgro M3 Group, as well as access to the
research, risk assessment and technical advisory capabilities of the South
Africa Workforce Housing Fund.
The year ahead
The CEO reported that the company had established itself as a role-player in the
market with established relationships with other mayor role-players in the
industry. As developers of integrated projects, the Pennyville development set
new industry standards and the management team is looking forward to
implementing the lessons learned on the project and further refining the model
in order to stay ahead of the competition in this market segment.
Calgro M3 has restructured its administration, completed the transition from a
family-owned to a corporate business and is set to grow from its solid
foundation.
Annual report
The annual report containing notice of the annual general meeting will be posted
to shareholders by the end of May 2009.
A further announcement confirming the posting of the annual report and notice of
AGM will be published in due course.
Johannesburg
12 May 2009
Directors:
PF Radebe (Chairperson) *, PM Waweru (Chief executive officer (outgoing)), WJ
Lategan,
BP Malherbe (acting Chief executive officer), H Ntene*, FJ Steyn, J Gibbon#, MP
Lekhethe#, N Maninjwa#. (*Non-executive) (#Independent, 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: PSG Capital (Pty) Ltd
Auditors: PricewaterhouseCoopers Inc.
www.calgrom3.com
Date: 12/05/2009 10:33:01 Produced by the JSE SENS Department.
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