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Transitional Report as at 1 March 2018
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")
Transitional report as at 1 March 2018
Analysing the effect of
IFRS 15: Revenue from Contracts with Customers
IFRS 9: Financial Instruments
Voluntary cancellation of the Executive Share Scheme
This document serves to provide information pertaining to IFRS 15 and IFRS 9, as the
Group has been severely affected by these changes in accounting standards that became
effective during Calgro M3's 2019 financial year commencing on 1 March 2018. The impact
of IFRS 15 is substantial and an in-depth analysis is provided across this report. The
application of IFRS 9 has also had a negative impact to retained earnings on adoption, but
is considered not to be as substantial as the IFRS 15 impact. As a result, limited impact
analysis of IFRS 9 has been provided in this report.
Important to note
The accounting change for revenue recognition based on the principles of IFRS 15 does not
have any impact on the underlying fundamentals of the business or any integrated projects:
- All project margins remain intact
- Cash flows and timing of cash flows associated with these projects have not changed
- The total profit per project remains consistent over the life of the project
Contents
Executive summary
Integrated residential property development
IFRS 9: Financial Instruments
Voluntary cancellation of Executive Share Scheme
Impact on the Statement of Financial Position as at 1 March 2018
Calgro M3 covenants
Statement of Responsibility by the Board of Directors relating to the transitional report as
at 1 March 2018
Executive summary
IFRS 15: Revenue from contracts with customers
The objective of IFRS 15 is to establish the principles which entities will apply to report
consistent and comparable information to users of financial statements about the nature,
amount, timing, and uncertainty of revenue and cash flows arising from a contract with a
customer. Application of the standard is mandatory for the annual reporting period starting
from 1 January 2018 onwards.
The application of the above core principles has resulted in a fundamental change in the
method and timing of revenue recognised on certain contracts. The summarised impact on
the three businesses within the Calgro M3 Group is as follows:
(1) Residential Property Development - Substantial impact on the method and timing of
revenue recognition. Primarily impacting on integrated residential property developments
which are the core revenue generators of this business.
(2) Memorial Parks - No impact.
(3) Residential Rental Investments - No IFRS 15 impact on revenue recognition in
the associate.
As permitted by IFRS 15 the Group has elected not to restate the comparative information.
Accordingly, the impact of IFRS 15 has been applied using the modified retrospective
restatement method allowed under the standard resulting in an adjustment to the Group's
opening retained earnings on 1 March 2018. Management deemed it impracticable to
determine the cumulative effect of retrospective application on some of its long running
projects for the units that were already fully completed, and therefore applied the guidance
allowed under IAS 8, to adjust the comparative information from the earliest practicable
date, namely to the units under construction and the future planned units. Therefore,
comparative period information in the annual financial statements will not be amended for
the impact of IFRS 15. The revenue for the current year will be presented in a manner that
is comparable with information in the prior period as part of the notes to the financial
statements.
The calculated increase/(decrease) on the Group's opening financial information is as
follows:
Investment in joint ventures and associates (R17 224 747)
Deferred income tax asset R2 041 501
Construction contracts (R416 442 514)
Retained income (R317 063 357)
Deferred income tax liability (R114 562 403)
IFRS 9: Financial Instruments
The objective of IFRS 9 is to establish principles for the reporting of financial assets and
financial liabilities, in particular relating to the classification and measurement of financial
assets, hedging and the introduction of the expected credit loss ("ECL") impairment
provisioning.
The most significant measurement impact of IFRS 9 on the Group therefore relates to the
ECL impairment model on the following:
- Loans to joint ventures and associates
- Trade and other receivables
- Contract assets
- Cash and cash equivalents
The calculated increase/(decrease) on the Group's opening financial information is as follows:
Deferred income tax asset R10 018 490
Retained earnings (R29 241 206)
Trade and other payables R39 259 696
Impact on covenants and gearing ability
The above adjustments to retained earnings resulting from the IFRS 15 and IFRS 9
implementation negatively impacted the Group's net debt/equity ratio which is one of the
Group's key debt covenants. The Group's debt service cover ratio ("DSCR") is unaffected
by the accounting changes.
Net debt/equity ratio
This ratio is calculated as net debt divided by equity
Net debt is calculated as total interest-bearing borrowings less cash and cash equivalents.
Equity is calculated as the total equity per the statement of financial position (excluding
share-based payment reserve)
The maximum allowable net debt/equity ratio for the Group is 1.5:1
Voluntary cancellation of the Executive Share Scheme
In response to the negative impact that IFRS 15 and IFRS 9 has on the net debt/equity
ratio, and the impact that this increased ratio has on the Group's future gearing ability, the
participants of the executive share scheme have unanimously agreed to cancel the scheme
(even though it is deeply in the money) in the 2019 financial year to enhance the equity of
the Group through the reversal of the share-based payment reserve to retained earnings.
Participants in the executive share scheme have collectively sacrificed R50.4 million in
personal value due to this cancellation (calculation based on the difference between the
30-day VWAP on 31 August 2018 (R10.56 per share) when the scheme was cancelled and
the subscription price (R4.08 per share)).
The additional R74 056 311 of equity (share-based payment reserve) has consequently
reduced the net debt/equity ratio to 1:1, which ensures sufficient headroom and gearing
ability to the Group.
1 March 1 March Balance after
2018 2018 executive
(before IFRS (after IFRS share scheme
adjustments) adjustments) cancellation
Net debt
Borrowings 889 596 522 889 596 522 889 596 522
Other interest-bearing borrowings 88 408 189 88 408 189 88 408 189
Less: Cash and cash equivalents (156 722 935) (156 722 935) (156 722 935)
821 281 776 821 281 776 821 281 776
Equity
Stated capital 116 255 971 116 255 971 116 255 971
Retained income 977 014 965 630 710 403 704 766 714
1 093 270 936 746 966 374 821 022 685
Net debt/equity ratio 0.75 1.10 1.00
Note 1: The executive share scheme was only cancelled on 31 August 2018. The financial
effects illustrate the impact of the cancellation as if it occurred on 1 March 2018.
Note 2: The Group has raised an additional R164 million in borrowings since 1 March 2018.
The Board has resolved, to develop a new scheme for the executives who have cancelled
their executive share scheme benefits in the best interests of the sustainability of the
company, once the effects of IFRS 15 have normalised.
The executive share scheme was cancelled, effective 31 August 2018. The relevant share
trades back to the company will be finalised and the relevant announcements published
once the Group is out of its closed period.
Integrated residential property development
The application of IFRS 15 has a substantial impact/change to the method and timing of
revenue recognition on integrated residential developments.
Previous accounting of integrated residential developments under IAS 11
Objective of IAS 11
The objective of IAS 11 is to prescribe the accounting treatment of revenue and costs
associated with construction contracts.
What is a construction contract?
A construction contract is a contract specifically negotiated for the construction of an
asset or a group of interrelated assets.
Revenue for construction contracts in terms of IAS 11 is accounted for based on the
percentage (%) completion method.
Example
Estimated contract revenue R100
Estimated contract cost R70
Estimated contract profit R30
Year one actual cost R40
% completion (R40/R70) 57.14%
Revenue recognised R57.14 (57.14% x R100)
Cost of sales recognised (R40)
Gross profit R17.14
Under IAS 11, if a contract covers two or more assets, the construction of each asset
should be accounted for separately if (a) separate proposals were submitted for each
asset, (b) portions of the contract relating to each asset were negotiated separately, and
(c) costs and revenues of each asset can be measured. Otherwise, the contract should be
accounted for in its entirety. [IAS 11.8]
Two or more contracts should be accounted for as a single contract if they were
negotiated together and the work is interrelated. [IAS 11.9]
Example
Contracts
Contract 1 Contract 2 combined
Estimated project revenue R100 R400 R500
Estimated project cost R70 R200 R270
Estimated project profit R30 R200 R230
Year one actual cost R100
% completion (R100/R270) 37.04%
Revenue recognised R185.19
Cost of sales recognised (R100)
Gross profit R85.19
Integrated residential developments consist of many interrelated items (including various
unit typologies) that are all dependent on each other and co-exist in one eco system. A
Calgro M3 integrated property development integrates people from different financial
backgrounds within society into one property development (neighbourhood) where they
live and share amenities with each other. The cross-subsidisation across the various
elements within the projects are so substantial that isolating them into their individual
components will be both impractical and inaccurate due to the complexities of the
cross-subsidisation. One over-arching agreement with the public sector regulates the mix
of fully, partially and non-subsidised units to be built within any integrated development.
If 66.67% of the units in the property development are fully and partially subsidised units,
the public sector subsidises bulk, link and internal infrastructure within the development.
Because of this relationship, the property development benefits from public transport
routes running through the development as well as various other benefits. In return, the
fully and partially subsidised unit specifications are increased to protect the value of
non-subsidised units. This is done at Calgro M3's cost. The integrated property
development model is an extremely interrelated and cross-subsidised model where costs
and revenues cannot be accurately disaggregated based on the above.
According to IAS 11, a group of contracts, whether with a single customer or with several
customers, shall be treated as a single construction contract when: (a) the group of
contracts is negotiated as a single package; (b) the contracts are so closely interrelated
that they are, in effect, part of a single project with an overall profit margin; and (c) the
contracts are performed concurrently or in a continuous sequence.
Calgro M3 historically accounted for integrated residential developments under IAS 11 as
one single contract, based on the total project revenue and costs. Revenue and related
profits were recognised based on the percentage completion of the project (IAS 11:
Accounting Principles). At each reporting period, management performed detailed analysis
on the feasibilities and reassessed the cost and revenue to completion.
Accounting for integrated residential developments under IFRS 15
The core principle of IFRS 15 is that an entity will recognise revenue to depict the transfer
of promised goods or services to customers in an amount that reflects the consideration
to which the entity expects to be entitled in exchange for those goods or services. This
core principle is delivered in a five-step model framework:
(1) Identify the contract(s) with a customer
(2) Identify the performance obligations in the contract
(3) Determine the transaction price
(4) Allocate the transaction price to the performance obligations in the contract
(5) Recognise revenue when (or as) the entity satisfies a performance obligation
Step 1: Identify the contract(s) with a customer
IFRS 15 determines that each integrated project must be broken up into its individual
contracts with customers as each of these contracts are with unique customers.
Furthermore, these contracts were not entered "in or around the same time", and as such
cannot be combined into a single contract.
The impact of this approach on integrated property developments is that each contract
with a customer will have to be measured independently based on the contract's
performance obligations. Each individual contract will be accounted for separately and will
not be combined into a single contract as was allowed under IAS 11.
Step 2: Identify the performance obligations in the contract
Each individual contract will be assessed for the performance obligations contained in the
contract and treated on a case by case basis. In the case of sectional title units sold to the
open market, there will only be one performance obligation (the delivery of a fully
completed unit). In the case of a non-subsidised/affordable housing unit, there will be two
performance obligations (the sale of the land and the construction of the house). This will
however be assessed and accounted for on a contract by contract basis.
Step 3: Determine the transaction price
Transaction price contained in the contract with the customer and will be determined on a
contract by contract basis.
Step 4: Allocate the transaction price to the performance obligations in the contract
Allocation based on each performance obligation stated within the contract.
Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation
IFRS 15 determines that an entity shall recognise revenue when (or as) the entity satisfies a
performance obligation by transferring a promised good or service (i.e. an asset) to a
customer. An asset is transferred when (or as) the customer obtains control of that asset.
For each performance obligation identified, an entity shall determine at contract inception
whether it satisfies the performance obligation over time or satisfies the performance
obligation at a point in time. If an entity does not satisfy a performance obligation over time,
the performance obligation is satisfied at a point in time.
Performance obligations satisfied over time
An entity transfers control of a good or service over time and, therefore, satisfies a
performance obligation and recognises revenue over time, if one of the following criteria
is met:
(1) the customer simultaneously receives and consumes the benefits provided by the
entity's performance as the entity performs;
(2) the entity's performance creates or enhances an asset that the customer controls as
the asset is created or enhanced; or
(3) the entity's performance does not create an asset with an alternative use to the entity
and the entity has an enforceable right to payment for performance completed to date.
Based on the above requirements of IFRS 15, certain contracts will now be accounted for
using point in time revenue recognition as opposed to recognising revenue over time
(which is similar to the percentage completion method under the previous standards).
Impact of IFRS 15 on financial information
In summary, the result of the accounting for revenue on the disaggregated manner
determined by IFRS 15 will result in financial results fluctuating from one period to the next
based on the unit typologies that were constructed (and handed over/transferred to
customers). The unfortunate result of this accounting treatment is that the user of the
financial statements will no longer receive a holistic view of the project and company
performance but will be faced with results from individual units/contracts.
Below is a high-level summary of the differences in accounting treatments between
IAS 11/IAS 18 and IFRS 15. It is not intended to be an exhaustive list that contains all
variables but is merely intended to provide the reader with some guidance on the changes
in timing on revenue recognition.
Type of product
Fully subsidised - Reconstruction and Development Programme (RDP)/Breaking New Ground (BNG)
Treatment under IAS 11/IAS 18
Individual contract with revenue recognised based on % completion (IAS 11)*
New treatment under IFRS 15
Individual contract treatment with revenue recognised over time#
Type of product
Subsidised rental - Community Residential Units (CRU)
Treatment under IAS 11/IAS 18
Individual contract with revenue recognised based on % completion (IAS 11)*
New treatment under IFRS 15
Individual contract treatment with revenue recognised over time#
Type of product
Subsidised rental - Social housing
Treatment under IAS 11/IAS 18
Individual contract with revenue recognised based on % completion (IAS 11)*
New treatment under IFRS 15
Individual contract basis treatment revenue recognised over time#
Type of product
Bulk buyer/Real Estate Investment Trust (REIT)/Funds
Treatment under IAS 11/IAS 18
Individual contract with revenue recognised based on % completion (IAS 11)*
New treatment under IFRS 15
Individual contract treatment with revenue recognised either at a point in time or over time#
Type of product
Grassroots Affordable Peoples' homes (GAP)/Finance Linked Individual Subsidy Programme (FLISP)
Treatment under IAS 11/IAS 18
Individual contract per customer with revenue recognised on transfer of completed unit
(IAS 18)*
New treatment under IFRS 15
Individual contract per customer with revenue recognised on transfer of completed unit -
revenue recognised at a point in time
Type of product
Affordable housing
Treatment under IAS 11/IAS 18
Individual contract per customer with revenue recognised on transfer for the land to the
customer (IAS 18) and based on % completion for the construction of the unit (IAS 11)*
New treatment under IFRS 15
Individual contract per customer with two performance obligations. Revenue recognised
on transfer of the land to the customer at a point in time. Revenue on construction of the
unit to be recognised over time
Type of product
High-end units
Treatment under IAS 11/IAS 18
Individual contract per customer with revenue recognised on transfer for the land to the
customer (IAS 18) and based on % completion for the construction of the unit (IAS 11)*
New treatment under IFRS 15
Individual contract per customer with two performance obligations. Revenue recognised
on transfer of the land to the customer at a point in time. Revenue on construction of the
unit to be recognised over time
Type of product
Integrated residential developments (consisting of a mix of bulk, link and internal
infrastructure together with a mix in unit typologies as outlined above)
Treatment under IAS 11/IAS 18
Accounted for as a single, combined contract on % completion basis (IAS 11)
New treatment under IFRS 15
Every contract with a customer to be recognised and accounted for individually (as per
above) at a point in time or over time depending on the terms and conditions contained in
the contract with a customer
* Based on an individual contract basis as if treated as a separate engagement and not
part of an integrated development.
# Exact treatment will be assessed based on the individual contract with the customer and
the underlying terms and conditions that is unique to each contract. Revenue may in
certain cases be recognised at a point in time rather than over time and may have more
than one performance obligation as determined by IFRS 15. Each will be assessed on its
own set of underlying facts and recognised according to the guidance contained in IFRS 15.
A blended margin was realised on integrated projects under IAS 11. This will no longer be
the case as IFRS 15 contains more guidance about the identification of the customer,
resulting in separate margins for each contract.
Basis of preparation and overview of IFRS 15
This report is based on the Group's accounting policies which have been revised based on
the requirements of IFRS 15. The Group adopted IFRS 15 on 1 March 2018. The Group
opted to apply IFRS 15 using the modified retrospective restatement method allowed under
the standard. Accordingly, the impact of adopting IFRS 15 has resulted in an adjustment to
the Group's opening retained earnings at 1 March 2018, and the comparative numbers
have not been adjusted as per the fully retrospective model.
The negative impact on retained earnings is summarised on a project by project basis below:
Fleurhof (R192 617 822)
Scottsdene (R32 425 782)
South Hills (R17 224 747)
Jabulani (R5 249 574)
Belhar (R69 545 432)
Total impact on opening retained earnings (R317 063 357)
Please note: The above reversals are profits that will be recognised in future years as the
remaining units in the development are completed/transferred to the owners over the
remaining lifespan of the respective projects.
Management is of the view that the current treatment of integrated residential development
projects under IFRS 15 is not consistent with the intention of IFRS 15 to provide users with
more clarity on the revenue streams within a company. Management has, however, applied
IFRS 15 to the accounting for integrated residential development projects based on the
rules contained in IFRS 15 to ensure compliance with regulations. Management is, however,
concerned that the results under IFRS 15 will not allow the user of the financial statements
to draw an accurate conclusion on the financial performance and financial position of the
company until a history of results under this method is built up over several years.
Management will therefore endeavour to provide as much clarity as possible in the
segmental and cash flow statement to enable readers to draw some conclusion and comparison.
IFRS 9: Financial Instruments
IFRS 9 replaces IAS 39 and contains three main topics: classification and measurement of
financial instruments, impairment of financial assets and hedge accounting. IFRS 9 also
removes the volatility in profit or loss that was caused by changes in the credit risk of
liabilities elected to be measured at fair value.
In terms of IAS 39, financial assets measured at amortised cost were impaired and
impairment losses were recognised when there was objective evidence of default as a
result of one or more events that occurred after the initial recognition of the financial assets.
IFRS 9 introduces an expected credit loss ("ECL") model. At a minimum, an impairment
provision is required to be measured at an amount equal to the 12-month ECL for financial
assets carried at amortised cost. Where there has been a significant increase in credit risk
("SICR") since initial recognition, an impairment provision is measured at an amount equal
to the lifetime ECL of the financial assets carried at amortised cost.
The company has applied IFRS 9: Financial Instruments as at the effective date, without
restatement of the comparative information for the previous financial year. Consequently,
the disclosures for the comparative periods follow the classification and measurement
requirements under IAS 39. The company performed an impact assessment and concluded
on the impact of IFRS 9: Financial Instruments on its financial position as at 1 March 2018.
As permitted by IFRS 9 the Group has elected not to restate the comparative information.
Accordingly, the impact of IFRS 9 has been applied using the modified retrospective
restatement method allowed under the standard resulting in an adjustment to the Group's
opening retained earnings on 1 March 2018. The financial assets that should be analysed
for expected credit losses are:
- Loans to joint ventures and associates
- Contract assets
- Trade and other receivables
- Cash and cash equivalents
Voluntary cancellation of Executive Share Scheme
In response to the adjustments to opening retained earnings resulting from the IFRS 15
and IFRS 9 implementation, the participants of the executive share scheme unanimously
agreed to cancel the current share scheme to unlock the current share-based payment
reserve and reverse the reserve to retained earnings in order to enhance equity. This was
decided as a key covenant to the Group's debt providers is the net debt/equity ratio that
has a maximum level of 1.5:1 and this ratio was negatively impacted by these IFRS
adjustments.
The cancellation of the scheme will be accounted for in the 2019 financial year and will not
form part of any opening balance adjustments. The remaining expense on the scheme will
be accelerated to the income statement in the 2019 financial year as determined by IFRS 2.
The corresponding share-based payment reserve will be reversed to retained earnings in
the 2019 financial year, resulting in a net zero impact on retained earnings.
Calgro M3 executive share scheme
The executive share scheme was approved by shareholders in July 2015. 10 215 572
shares were made available to participants of the scheme at a subscription price of R4.08.
Only individuals who were allocated share appreciation rights ("SARs"), in the previous
cash-settled scheme, and elected to convert at least 75% of their unvested SARs into the
new scheme were eligible to participate in the new scheme. 9 518 700 shares were granted
to individuals and 696 872 shares were not taken up. The Calgro M3 executive share
scheme was considered to be a modification of the SAR scheme.
Under the executive scheme, participants are allocated shares in line with the scheme rules
and are required to subscribe for these shares at R4.08 per share. There are no performance
conditions related to this scheme other than the service periods as outlined below. Shares
issued under the scheme may not be sold by participants until the completion of service
periods and release dates stipulated in the scheme rules as outlined below. Should the
scheme be cancelled or forfeited by the individual, the company would buy the shares
back from the individual at R4.08 plus interest at prime % that the individual incurred on
the funding to acquire the shares.
The shares were deeply in the money, resulting in the equity-settled shares being valued at
intrinsic value based on the 30-day volume weighted average market price of R19.27 at
the grant date of 29 July 2015.
Total shares made available under the scheme 10 215 572
Shares not taken up initially (696 872)
Shares vested (1 050 070)
Shares forfeited (696 872)
Total shares remaining before cancellation 7 771 758
Details pertaining to this scheme is presented in the Group's latest annual report (note 30)
and is available on the website (http://www.calgrom3.com)
The total number of shares cancelled by participants on 31 August 2018 amounts to
7 771 758 shares. The total subscription price on these shares will be paid back to
individuals at R4.08 per share plus interest at prime %.
The shares issued to participants under the scheme will be traded back the company once
the closed period ends on or about 22 October 2018.
Impact on the Statement of Financial Position as at 1 March 2018
The table below summarises the IFRS 15 and IFRS 9 and Executive Share Scheme impact
on the Group's Statement of Financial Position as at 1 March 2018 by Statement of
Financial Position line item.
1 March
2018 (before IFRS 15 IFRS 9
R adjustments) adjustment adjustment
Assets
Non-current assets
Investment property 8 878 835 - -
Property, plant and equipment 6 162 697 - -
Intangible assets 159 663 860 - -
Investment in joint ventures
and associates 41 908 822 (17 224 747) -
Deferred income tax asset 23 999 056 2 041 501 10 018 490
240 613 270 (15 183 245) 10 018 490
Current assets
Loans to joint ventures
and associates 143 422 183 - -
Inventories 554 397 497 - -
Current tax receivable 16 599 506 - -
Construction contracts 1 820 973 990 (416 442 514) -
Trade and other receivables 293 739 145 - -
Cash and cash equivalents 156 722 935 - -
2 985 855 256 (416 442 514) -
Total assets 3 226 468 526 (431 625 760) 10 018 490
Equity and liabilities
Equity
Equity attributable to owners of
the parent
Stated capital 116 255 971 - -
Share based payment reserve 74 056 311 - -
Retained income 977 014 965 (317 063 357) (29 241 206)
1 167 327 247 (317 063 357) (29 241 206)
Non-controlling interests 355 011 - -
Total equity 1 167 682 258 (317 063 357) (29 241 206)
Liabilities
Non-current liabilities
Deferred income tax liability 354 283 263 (114 562 403) -
354 283 263 (114 562 403) -
Current liabilities
Borrowings 889 596 522 - -
Current income tax liabilities 22 652 - -
Trade and other payables 814 883 831 - 39 259 696
Total liabilities 2 058 786 268 (114 562 403) 39 259 696
Total equity and liabilities 3 226 468 526 (431 625 760) 10 018 490
Executive
share Balance after
1 March scheme executive
2018 (after cancellation share scheme
R adjustments) (2019 FY) cancellation
Assets
Non-current assets
Investment property 8 878 835 - 8 878 835
Property, plant and equipment 6 162 697 - 6 162 697
Intangible assets 159 663 860 - 159 663 860
Investment in joint ventures
and associates 24 684 075 - 24 684 075
Deferred income tax asset 36 059 047 - 36 059 047
235 448 515 - 235 448 515
Current assets
Loans to joint ventures
and associates 143 422 183 - 143 422 183
Inventories 554 397 497 - 554 397 497
Current tax receivable 16 599 506 - 16 599 506
Construction contracts 1 404 531 476 - 1 404 531 476
Trade and other receivables 293 739 145 - 293 739 145
Cash and cash equivalents 156 722 935 - 156 722 935
2 569 412 742 - 2 569 412 742
Total assets 2 804 861 256 - 2 804 861 256
Equity and liabilities
Equity
Equity attributable to owners of
the parent
Stated capital 116 255 971 - 116 255 971
Share based payment reserve 74 056 311 (74 056 311) -
Retained income 630 710 403 74 056 311 704 766 714
821 022 685 - 821 022 685
Non-controlling interests 355 011 - 355 011
Total equity 821 377 696 - 821 377 696
Liabilities
Non-current liabilities
Deferred income tax liability 239 720 860 - 239 720 860
239 720 860 - 239 720 860
Current liabilities
Borrowings 889 596 522 - 889 596 522
Current income tax liabilities 22 652 - 22 652
Trade and other payables 854 143 527 - 854 143 527
1 743 762 701 - 1 743 762 701
Total liabilities 1 983 483 561 - 1 983 483 561
Total equity and liabilities 2 804 861 256 - 2 804 861 256
Note 1: The executive share scheme was only cancelled on 31 August 2018. The financial effects
illustrate the impact of the cancellation as if it occurred on 1 March 2018.
Calgro M3 covenants
Debt service cover ratio ("DSCR")
This ratio is calculated as available cash flow divided by debt service requirement. Available
cash flow is calculated as net cash generated from operating activities plus new financial
indebtedness incurred plus cash and cash equivalent at the beginning of the year plus the
aggregate amount spent on the purchase of property, plant and equipment, purchase of
intangible assets, acquisition of business, acquisition of subsidiaries, and loans advanced
to joint ventures and associates for investment purposes (CAPEX). Debt service
requirement is calculated as interest and fees plus principal repayments.
The Group monitors capital repayments and interest serviceability on the basis of its debt
service cover ratio ("DSCR"). In terms of the Group's covenants, the minimum allowed
DSCR ratio for the Group is 1.2:1.
Net debt/equity ratio
This ratio is calculated as net debt divided by equity. Net debt is calculated as total
interest-bearing borrowings less cash and cash equivalents. Equity is calculated as the total
equity per the statement of financial position (excluding share-based payment reserve).
The Group monitors capital on the basis of its net debt/equity ratio. The maximum allowed
net debt/equity ratio for the Group is 1.5:1.
Important
The financial information contained in the report was prepared to illustrate to the user the
effects of IFRS 15, IFRS 9 and the cancellation of the executive share scheme adjustments on
the financial position of the Group. The information is prepared for illustrative purposes
only and may, because of its nature, not fairly present the issuer’s financial position or
changes in equity.
The adjustments contained in the report are unaudited and based on management's
calculations with the help of technical accounting and valuation experts. The adjustments
have not been audited by the external auditors. An assurance opinion is not expressed by
the external auditors on the adjustments on the date of issue.
Statement of responsibility by the board of directors relating to the transitional report as at
1 March 2018
The directors of Calgro M3 Holdings Limited and its subsidiaries ("the Group") are
responsible for the preparation, integrity and fair presentation of the financial information
set out in the report.
The report is based on appropriate accounting policies and is supported by reasonable and
prudent judgement and estimates.
The directors' responsibility includes maintaining adequate accounting records. The
accounting records should disclose, with reasonable accuracy, the position presented in
the transitional report.
The Group operates in a well-established control environment, which is documented and
regularly reviewed. The control environment incorporates risk management and internal
control procedures, which are designed to provide reasonable, but not absolute, assurance
that assets are safeguarded and that the risks facing the business are controlled.
The transitional report as set out on pages 3 to 14 has been approved by the directors on
27 September 2018 and are signed on its behalf by:
WJ Lategan
Chief Executive Officer
WA Joubert
Financial Director
Johannesburg
27 September 2018
Date: 27/09/2018 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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