| Mon 13 Oct 2014, 7:05 | | CALGRO M3 HOLDINGS LIMITED - Unaudited Interim Results for the Six Months ended 31 August 2014 |
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CGR 201410130001A
Unaudited Interim Results for the Six Months ended 31 August 2014
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 2014
? Profit after tax up 39.20% to R71 million
? Headline earnings per share up 26.92% to 50.97 cents
? Cash on hand of R167 million
? Pipeline has been maintained in excess of R17 billion
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Unaudited Unaudited Audited
Six Months Six Months Year Ended
31 August 31 August 28 February
2014 2013 2014
R'000
Revenue 412 076 434638 784 943
Cost of sales (329 392) (372642) (671 954)
Gross profit 82 684 61996 112 989
Other income 7 119 1036 1 793
Other expenses - 437 (3 553)
Administrative expenses (32 593) (29 770) (58 378)
Operating Profit 57 209 33 699 52 851
Share of profit of
joint ventures (Net of tax) 29 943 27 638 66 161
Net finance Cost (4 958) (2 595) (3 797)
Profit before taxation 82 195 58 743 115 215
Taxation (11 144) (7 703) (9 519)
Profit after taxation 71 050 51 040 105 695
Other comprehensive income - - -
Total comprehensive income 71 050 51 040 105 695
Attributable to:
Equity holders of the company 71 050 51 040 105 695
Earnings per share - cents 55.90 40.16 83.16
Headline earnings
per share ? cents 50.97 40.16 83.16
Fully diluted earnings
per share ? cents 55.90 40.16 83.16
Fully diluted headline earnings
per share - cents 50.97 40.16 83.16
EARNINGS RECONCILIATION
Unaudited Unaudited Audited
Six Months Six Months Year Ended
31 August 31 August 28 February
2014 2013 2014
R'000
Determination of headline and diluted headline earnings
Attributable profit 71 050 51 040 105 695
(Profit)/Loss on disposal
of property, plant & equipment (41) - -
Gain on deemed disposal of
interest in joint venture (6 222) - -
Headline and diluted
headline earnings 64 787 51 040 105 695
Determination of earnings and diluted earnings
Attributable profit 71 050 51 040 105 695
Earnings and diluted earnings 71 050 51 040 105 695
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) 127 100 127 100 127 100
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited Audited
Six Months Year Ended
31 August 28 February
2014 2014
R?000
ASSETS
Non-current Assets
Property, plant and equipment 1 858 2 612
Deferred tax 19 812 18 639
Intangible assets 41 022 32 986
Investment in joint ventures 172 684 142 740
Investment property 5 743 5 743
241 119 202 720
Current Assets
Inventories 452 052 385 826
Construction contracts and work in progress 187 200 183 889
Trade and other receivables 123 320 220 045
Other current assets 21 886 42 164
Cash and cash equivalents 166 675 62 893
951 133 894 817
Total Assets 1 192 252 1 097 537
EQUITY AND LIABILITIES
Equity
Capital and reserves 504 103 433 053
Total equity 504 103 433 053
Non-current liabilities
Deferred income tax liability 44 773 37 128
44 773 37 128
Current liabilities
Borrowings 478 743 470 929
Other current liabilities 164 633 156 427
643 376 627 356
Total liabilities 688 148 664 484
Total equity and liabilities 1 192 252 1 097 537
Net asset value per share ? cents 396.62 340.72
Net tangible asset value per share ? cents 364.34 314.77
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
Unaudited Unaudited Audited
Six Months Six Months Year Ended
31 August 31 August 28 February
R'000 2014 2013 2014
Net cash from
operating activities 121 621 (167 500) (291 953)
Net cash from
investing activities (24 989) (17 865) (16 091)
Net cash from
financing activities 7 150 141 875 172 593
Net increase/(decrease) in
cash and cash equivalents 103 782 (43 490) (135 450)
Cash and cash equivalents
at the beginning of the period 62 893 198 343 198 343
Cash and cash equivalents
at the end of the period 166 675 154 853 62 893
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Stated Retained Total
Capital Income Equity
(Figures in Rands)
Balance at 1 March 2013 96 021 721 231 335 823 327 357 544
Profit for the period - 51 039 752 51 039 752
Total comprehensive income
for period ended 31 August 2013 - 51 039 752 51 039 752
Balance at 1 March 2014 96 021 721 337 031 142 433 052 863
Profit for the period - 71 050 284 71 050 284
Total comprehensive income
for period ended 31 August 2014 - 71 050 284 71 050 284
Balance at 31 August 2014 96 021 721 408 081 426 504 103 147
CONDENSED SEGMENT REPORT FOR THE GROUP
Construction and Sale of Land Professional
Infrastructure and Development Services Total
Development
R'000
August 2014
Segment Revenue 328 433 70 855 12 788 412 076
Inter-segment revenue - - - -
Revenue from
external customers 328 433 70 855 12 788 412 076
Operating profit 26 020 20 437 12 076 58 534
Finance cost (8 371) - - (8 371)
Adjusted profit
before tax 17 650 20 437 12 076 50 163
August 2013
Segment Revenue 428 768 1 963 3 907 434 638
Inter-segment Revenue - - - -
Revenue from
External customers 428 768 1 963 3 907 434 638
Operating profit 30 041 1 415 3 327 34 783
Finance cost (6 581) (7) - (6 588)
Adjusted profit
before tax 23 460 1 409 3 327 28 195
August 2014
Assets:
Goodwill 36 550 - 4 155 40 705
Inventories 22 423 429 629 - 452 052
Construction contracts 174 275 - - 174 275
Liabilities:
Borrowings (472 951) (5 792) - (478 743)
February 2014
Assets:
Goodwill 28 515 - 4 155 32 670
Inventories 21 611 364 215 - 385 826
Construction contracts 179 487 - - 179 487
Liabilities:
Borrowings (470 929) - - (470 929)
A reconciliation of adjusted profit/(loss) before tax is provided as follows:
Unaudited Unaudited
Six Months Six Months
31 August 31 August
R'000 2014 2013
Adjusted profit before tax
for reportable segments 50 163 28 195
Group overhead cost (1 325) (1 083)
Share of profit of joint ventures ? Net of tax 29 943 27 638
Total Segments 78 782 54 750
Finance income ? net 3 413 3 993
Profit before tax 82 195 58 743
Reportable segment assets are reconciled to total assets as follows:
Unaudited Audited
Six Months Year Ended
31 August 28 February
R'000 2014 2014
Segment assets for reportable segments 667 032 597 983
Unallocated:
Deferred tax 19 812 18 639
Investment property 5 743 5 743
Property, plant and equipment 1 858 2 612
Intangible assets excluding goodwill 317 316
Investment in joint ventures 172 684 142 740
Work in progress 12 925 4 402
Loans to joint ventures 15 894 35 818
Loans and receivables 5 757 5 757
Current tax receivable 234 589
Trade and other receivables 123 320 220 045
Cash and cash equivalents 166 675 62 893
Total asset per the consolidated statement
of financial position 1 192 252 1 097 537
Reportable segment liabilities are reconciled to total liabilities
as follows:
Unaudited Audited
Six Months Year Ended
31 August 28 February
R'000 2014 2014
Segment liabilities for reportable segments 478 743 470 929
Unallocated:
Deferred tax 44 773 37 128
Current tax 78 154
Finance lease obligations 73 215
Trade and other payables 164 482 156 057
Total liabilities per the consolidated
statement of financial position 688 148 664 484
Related Party Transactions
Unaudited Unaudited
Six Months Year Ended
31 August 31 August
R'000 2014 2013
Compensation paid to key employees and personnel 8 008 9 303
Finance income from related parties 2 891 2 810
Contract revenue received from joint ventures 214 075 224 512
Services fees received from joint ventures 4 265 15 216
COMMENTARY
INTRODUCTION
The Directors present the condensed consolidated interim financial results for the six
months ended 31 August 2014 (?the period?).
Results of the Group's operations showed improvement in the period under review,
despite the tough trading environment in the development and construction sectors.
During this period the industry was affected by the metal workers strike that caused
unprecedented delays.
When the Group commences with a predominantly infrastructure installation based phase
of the development cycle, the Group turnover will be higher with a lower profit margin
being experienced. When a predominantly top-structure construction based phase
commences, the turnover will be lower with a higher profit margin being experienced.
During the period under review, the Group experienced a predominantly top-structure
construction based phase.
The Group's most significant achievements/events during the period:
- The Fleurhof project was awarded the Best Integrated Project, Best Informal
Settlement Upgrade and the Best Finance Linked Individual Subsidy Programme
(FLISP) project at the Govan Mbeki awards;
- The Jabulani project was awarded the Best Social Housing Project at the Govan
Mbeki awards;
- Commenced construction on the first phase of the Otjomuise project in Windhoek,
Namibia;
- Infrastructure for the third phase of the Fleurhof project completed. Commenced
construction of 1305 units that will continue to contribute revenue for the next
six to eighteen months. Infrastructure for the fourth phase of the project
commenced with the award of tenders for the construction of the bulk and link
infrastructure, thereby unlocking the next 1400 opportunities;
- Construction activity in the Scottsdene project increased with the construction
of 500 Social Housing units. Town Planning issues delaying the construction of
units aimed at the bonded market were resolved and another project will start to
contribute revenue during the second half of the financial year;
- The Jabulani CBD project is not expected to contribute revenue during the
February 2015 financial year. Delays experienced during the previous reporting
period have been resolved and losses previously experienced will not be repeated;
- The installation of infrastructure for the Witpoortjie project continued during
the period under review. The project has however not contributed revenue as yet
and is not expected to be a significant revenue contributor during the second
half of the financial year;
- Construction on the last phase of the Brandwag project in Bloemfontein has not
commenced as the Group?s risk has not been sufficiently mitigated. ?Financial
closure? between contracting parties could still not be achieved and construction
will not commence until the Group?s payment risks have been mitigated; and
- Construction of units in the first phase of the La Vie Nouvelle project
(retirement village) was completed and enabled the Group to start unlocking
capital invested in the installation of infrastructure in the project.
FINANCIAL RESULTS
Although revenue at Group level decreased to R412 million (August 2013 : R435 million)
gross profit margins increased to 20.07% (August 2013 : 14.26%), as a result of the
focus on top structure construction on stands previously serviced. Gross profit margins
increased as margins are lower during the infrastructure installation cycle of the
project and increase during the top structure construction cycle of the project,
resulting in a much higher cumulative margin.
Profit after tax was R71 million (August 2013 : R51 million). Headline earnings per
share (HEPS) increased by 26.92% to 50.97 cents (August 2013 : 40.16 cents). Earnings
per share (EPS) increased by 39.19% to 55.90 cents (August 2013 : 40.16 cents). The
difference between HEPS and EPS is due to a gain, the calculation of which is set out
in Note 3 below, on the deemed disposal as a result of the buyout 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 (JV's) increased to R29.9 million (August 2013 : R27.6
million). These are essentially financing JV's and Calgro M3 takes responsibility for
operational matters and related operating cost of these JV's.
The Group?s cash position remains strong at R166.7 million(February 2014 : R62.9
million). Working capital continues to be closely monitored by focusing on the timeous
receipt of debtors and the transfer of properties to clients, thereby ensuring that
money becomes due and payable.
Total net debt decreased to R312 million (February 2014: R408 million), as a result of
the Group entering a more cash positive cycle. Cash/Capital in a project is invested
to:
- acquire land;
- pay professional fees;
- install bulk and link infrastructure;
- install internal infrastructure; and
- construct top structures.
Once transfer of completed units commence, cash flow is generated. A project generally
becomes net cash positive as a rule when 50% completion is achieved.
Receivables from JV's decreased by R100 million to R99 million (February 2014 : R199
million) mostly due to the Fleurhof project that entered its cash positive cycle.
The statement of financial position remains healthy with total assets growing to R1.2
billion (February 2014 : R1.1 billion). Investment in infrastructure on our Witpoortjie
project, final payment for the Belhar land acquisition and the buyout of our JV partner
in the Summerset project saw significant additions during the period under review.
Management is of the opinion that the Group is appropriately structured to support the
implementation of the secured pipeline and future growth.
Contract revenue from related parties decreased to R214 million (August 2013 : R225
million).
Land for development remained at similar levels as at the end of February 2014 with a
market value in excess of R1.3 billion and carried at a cost of R550 million. This
excess should flow through as profits over the next few years. The aforesaid valuation
takes into account a reduction of JV partner interest.
SHARE APPRECIATION RIGHTS SCHEME
In terms of the Share Appreciation Rights Scheme introduced on 1 March 2012,
9,178,172 share appreciation rights (SAR?s)(with a vesting period of 2, 3, 4 and
5 years if a hurdle growth rate linked to the Consumer Price Index (CPI) is
exceeded) were issued to directors and senior management. This has resulted in an
amount of R5,377,927 being recognised as an expense in the Statement of
Comprehensive Income for the period ended 31 August 2014. In terms of the Scheme,
1,666,666 of the SAR?s were exercised on 1 March 2014 and replaced with 1,744,838
new SAR?s on the same date.
OPERATIONAL REVIEW
The secured pipeline has been maintained in excess of R17 billion. With the
installation of bulk infrastructure commencing on four new projects during the second
half of the February 2015 financial year, thereby converting more of the pipeline into
construction projects, the Group is well placed to secure new opportunities to grow the
secured pipeline.
The Group experienced a renewed commitment from Government to increase investment in
infrastructure, allowing the Group to deliver on infrastructure for integrated
developments.
The Group benefitted from its exposure to subsidised housing in the form of Social
Housing and units aimed at the FLISP market which is currently gaining traction. With
the FLISP pilot project successfully completed, more units are currently under
construction on both the Fleurhof and Jabulani projects.
As projected, construction capacity has reached a stage where the use of external
contractors was increased to meet demand. The Group's commitment to partner with local
and emerging contractors is also gaining momentum.
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 will be maintained to sustaining its target level of zero harm.
PROSPECTS
During the next six months, margins are expected to come under pressure as exposure to
the installation of infrastructure increases primarily as a result of the planned
installation of infrastructure on the Belhar, South Hills, Jabulani Hostels and Vista
Park projects.
Trading conditions in the construction and development sector remain challenging, but
renewed support from the National Department of Human Settlements is encouraging. The
construction of units for Public Sector and strong end-user sales in the FLISP, GAP and
Affordable markets are all contributing in making integrated developments, based on
Private Public Partnerships, successful.
The Group is well positioned to capitalise on numerous opportunities and will aim to
continuously grow the secured pipeline in the next six months under review.
Any reference made to prospects in this announcement has not been reviewed by the
Group's external auditors.
CORPORATE GOVERNANCE
The directors and senior management of the Group endorse the Code of Governance
Principles and Report on Governance, together referred to as King III. Having regard to
the size of the Group, the Board is of the opinion that the Group substantially
complies with King III and with the Listings Requirements of the JSE Limited. The Group
performs regular reviews of its corporate governance policies and practices and strives
for continuous improvement in this regard.
APPRECIATION
Our management team have been instrumental in ensuring that growth could be sustained.
We thank them and look forward to continuing on this successful path of creating value
for our shareholders. We would also like thank our partners, clients and shareholders
for maintaining confidence in us.
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, SAICA financial reporting guides as issued by the Accounting Practices Committee
and Financial Pronouncements as issued by Financial Reporting Standards Council, 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 2014.
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 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 10 October 2014.
2. Independent audit
These consolidated condensed interim financial statements have not been audited or
reviewed by the Group?s external auditors.
3. Buyout of JV partner
On 31 March 2014 (effective acquisition date), the group acquired the remaining 24.0%
of the share capital and 50% of the voting rights of Clidet No 1014 (Pty) Ltd, an
unlisted South African property development company. The total consideration for the
acquisition was R24.9 million. As a result of the acquisition, the group increased its
stake to 100% in the Summerset Project, located in Midrand, South Africa. None of the
goodwill is expected to be deductible for tax purposes.
In line with the applicable guidance under IFRS this transaction has been accounted for
in two steps: (a) accounting for the disposal of the JV and (b) the subsequent
acquisition of the subsidiary. A gain on disposal of the JV amounting to R6.2 million
and goodwill arising on the acquisition of the subsidiary amounting R8.0 million was
recorded.
The following table summarises the consideration paid for Clidet No 1014 (Pty) Ltd, and
the assets acquired and liabilities assumed at the acquisition date.
Consideration at 31 March 2014 (Figures in Rands)
Fair value of previous shareholding 6 221 717
Cash purchase consideration 24 906 089
Existing loan to JV extinguished 22 611 493
Total Consideration 53 739 299
Identifiable assets acquired and liabilities assumed at fair value
Cash and cash equivalents 116
Inventories 53 465 000
Trade and other receivables 236 510
Trade and other payables (2 148 909)
Borrowings (5 790 067)
Net deferred tax assets/(liabilities ) (58 722)
Total identifiable net assets 45 703 928
Goodwill 8 035 371
Total Consideration 53 739 299
The fair values of all identifiable assets acquired and liabilities assumed
approximated their carrying value on acquisition date with the exception of
inventories.
The fair value of inventory is based on a valuation by an independent valuer who holds
a recognised and relevant professional qualification and has recent experience in the
location and category of the inventory being valued.
In assessing the fair value of inventories, the valuator considers title deed
information, town planning conditions, locality and improvements made to the property.
Property vacancy rates in surrounding areas, realised yields on comparative sales as
well as micro- and macro-economic conditions pertaining to land development are
considered. The fair value is classified as level 3 in the fair value hierarchy.
No revenue was included in the consolidated statement of comprehensive income from 1
April 2014 to 31 August 2014 by Clidet No 1014 (Pty) Ltd. Clidet No 1014 (Pty) Ltd did
not contribute any profit over the same period. The group is also of the opinion that
there are no contingent assets or liabilities which may arise as a result of this
transaction.
4. Bond exchange borrowings
On 22 July 2014 one of the Group?s R22.5 million 36 month floating rate notes (CGR 7)
matured and was repaid. On the same day the Group issued R24 million in new 36 month
floating rate notes (CGR 15) expiring on 21 July 2017. On 23 September 2014, subsequent
to the end of the six months under review, the Group bought back R49 million of CGR 9
expiring 12 November 2014 and replaced it with 36 month floating rate notes (CGR 16) to
the value of R49 million, expiring on 22 September 2017.
5. Dividends
No dividends have been declared for the period. The Board is of the opinion that the
Group must continue to conserve cash to maintain the present growth and create
shareholder value.
BP Malherbe (Chief executive officer) WJ Lategan (Financial director)
Johannesburg 13 October 2014
Directors:
PF Radebe (Chairperson)*#, BP Malherbe (Chief executive officer), WJ Lategan (Financial
director), FJ Steyn, DN Steyn, JB Gibbon*#, H Ntene*#, R Patmore*#, ME Gama*#
(*Non-executive)
(#Independent)
Registered office: Cedarwood House, 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.
www.calgrom3.com
Date: 13/10/2014 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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