Wrap Text
Summarised audited consolidated financial results
for the year ended 28 February 2019
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")
Summarised audited consolidated financial results
for the year ended 28 February 2019
Highlights
- Cash on hand of R122.6 million (in addition to R100 million in undrawn facilities available)
- Cash generated from operations: R298 million
- Level 1 B-BBEE contributor
- 4 436 units sold - construction to commence (R1.7 billion (excluding VAT))
- Estimated management valuation of an additional R1.4 billion in tangible asset value locked in the
balance sheet (excluding JV interest and discounted by 30%) (refer to the integrated annual report
for more information)
Residential Property Development
- Completion of South Hills and Jabulani developments
Memorial Parks
- Memorial Parks revenue increased by 65.98%, while cash received increased by 93.29%
- Total pipeline R2.3 billion
- Two new Memorial Parks acquired (Durbanville and Bloemfontein)
Residential Rental Investments
- Occupation taken on the first 80 of 480 units from a third party
COMMENTARY
Nature of business
Calgro M3 is a property and property-related investment company that is a market leader in the
development of Integrated Residential Developments, development and management of Memorial Parks
and venturing into Residential Rental Investments .
Background to impacts on the business
The financial results for the year were impacted by several operational challenges and transactions,
coupled with changes in accounting standards (outlined in the transitional report published on
27 September 2018). This makes a direct comparison between periods extremely difficult.
The most prevalent items to impact the results include:
- Scottsdene land invasion security cost and damages of R27.9 million
- Fleurhof land invasion security cost and damages of R43.1 million
- Fleurhof electrification standing time cost of R23.3 million
- Cancellation of the Executive Share Scheme R43.9 million
- IFRS 15 and IFRS 9 impact R56.2 million
- La Vie Nouvelle net realisable value write-down of R54.0 million
Medium to long-term strategy
1. The Group is strategically aligned to ensure it remains committed to the targeted return on
equity ("ROE") of 30% over the medium to long term. The commitment is based on the
following targets:
- Residential Property Development - Targeted ROE 30%
- Memorial Parks - Targeted ROE > 30%
- Residential Rental Investments - Targeted ROE 20.5% (annual rental yield plus revaluation
growth on geared portfolio)
2. Equal profit contribution from each of the three businesses.
3. Securing an annuity income stream sufficient to cover all operating expenses for the Group.
Areas of focus over the medium term to achieve these goals:
- Greater brand awareness and the creation of an aspirational brand
- Continue to make an impact on people's lives, every day
- Ensure the Calgro M3 team is passionate about serving the people of South Africa by building
legacies and changing lives
- Growing each business to support the committed ROE targets
- Capital allocation: Please refer to the integrated report for more detail
The challenges experienced in the Residential Property Development business across the year, despite
geographical diversification benefits, highlight that risks surrounding relationships with
municipalities and local communities have increased. Given this, the Group has decided that the
property development business will strategically only focus on Gauteng, the Western Cape,
KwaZulu-Natal and the Free State in the short to medium term. This decision means that consideration
is being given to the sale of the Eastern Cape, KwaNobuhle project. Returns from this project will be
reinvested into new projects in Gauteng with an aim to providing investors with a pipeline visibility
of 10 to 15 years.
Operational review
Residential Property Development
The Residential Property Development business, which is the largest contributor to Group operations,
experienced an extremely tough year, exacerbated by a sluggish economy and political uncertainty.
The Group had 10 projects in the ground, contributing to revenue which made the impact of the
challenges more manageable.
The variable costing model, adopted across projects, was thoroughly tested during the year where
certain sites had to be temporarily closed as a result of the challenges faced. The temporary closure
of sites is accompanied by practical execution challenges such as securing a site that is
geographically widely spread out. The implementation of the required actions was more complex and
costlier than anticipated. Terminating sub-contractor employment in times when employment is scarce,
and unemployment is on the rise, was disconcerting and morally challenging to say the least. Even
though the scaling back of the variable costing model was not as efficient as management would have
liked, lessons were learnt which will ensure that similar actions will be more systematic and
efficient in future.
Some challenges faced by the development business and mitigation strategies include*:
Challenge/risk experienced Current status Mitigating actions taken
---------------------------------------------------------------------------------------------------
Scottsdene and Fleurhof - Fleurhof resolved - Increased security presence and continuous
illegal occupation of - Scottsdene illegal site surveillance
units occupation of - Minimal new construction and no new
adjacent council development projects begun in the past six
owned land ongoing months to reduce the risk of partially
completed units occupied or illegally
invaded in the build-up to the national
elections
- Community engagement to communicate and
entrench the positive impacts new
development will have on the area
---------------------------------------------------------------------------------------------------
Fleurhof - Budget made - Engagement with City Power to resolve
electrification available by dispute
challenge National Department - Alternative energy sources investigated
of Human Settlements to assist in electrification of units
- Final agreements - Engaging with the City of Johannesburg to
being negotiated assist with resolution
---------------------------------------------------------------------------------------------------
Water shortages in - Construction activity - Slowed down construction to preserve water
Western Cape to resume to normal - Use of borehole water only for development
- Strategic decision (with associated water-use licences)
taken not to increase - Water saving initiatives implemented
capacity and remain throughout design and all construction
cautious in the processes
build-up to national
election
---------------------------------------------------------------------------------------------------
Public sector - Ongoing management - Primary focus on private sector
spending decline - Working together with public sector on
innovative ways to assist in the
eradication of the housing shortfall
---------------------------------------------------------------------------------------------------
Working capital - Strict cash flow - Variable costing model tested. Some sites
constraints management temporarily closed to preserve capital
- Cash generated - Strict budget and cash flow monitoring
from operations - No new construction begun, with primary
R298 million focus on completing current units
- Capital raise started earlier to make
provision for any shortfalls
---------------------------------------------------------------------------------------------------
6 028 units were under construction during the period, while 2 807 units were handed over compared
to 3 426 units in the 2018 financial year.
Mid
2019 Subsidised GAP/FLISP Rental Affordable to high Total
Units handed over 1 542 140 908 121 96 2 807
Units under construction 788 1 525 748 107 53 3 221
Units sold - construction
to commence 2 050 656 1 059 665 6 4 436
Strategic approach
With 7 933 serviced opportunities, the Group remains well positioned to assist Government in the
eradication of the housing backlog in times when Governmental budget and cash flow is available.
During the past 12 months, the Group reassessed numerous bulk sale transactions concluded, to ensure
all remain sound from a delivery and profitability perspective. The following transactions were
subsequently cancelled without incurring penalties:
- Belhar student housing private institution sale - 2 200 beds - R411 million
- Belhar units to Afhco Calgro M3 Consortium - 1 000 rental units - R447.3 million
- Scottsdene units to Afhco Calgro M3 Consortium - 844 units - R317.1 million
- Fleurhof units to Afhco Calgro M3 Consortium - 828 units - R321.9 million
- Fleurhof shopping centre land to the value of R50 million
- Various open market sales to the value of approximately R100 million
* A detailed write up on the current status, where much progress has been made, and mitigating
actions taken is available in the Integrated Annual Report on the website at http://www.calgrom3.com.
New transactions structured pertaining to these cancellations:
Belhar
- Improved student housing transaction - densified to 2 700 beds with similar selling price per bed,
ensuring better profitability. Final agreements are being negotiated based on an upfront land
payment and monthly construction progress draws - R520 million
- Approximately 300 units originally sold to the Afhco Calgro M3 Consortium were sold on the open
market for a price 13% higher than the cancelled transaction - R156 million
Scottsdene
- Negotiations on various transactions are ongoing but hampered by the current land invasion
challenges
Fleurhof
- All 828 units originally sold to the Afhco Calgro M3 Consortium have been sold to Gauteng Department
of Human Settlements as war veteran and subsidised housing. The new transaction includes a deposit,
already received by Calgro M3, as well as monthly progress draws - R286 million (zero-rated)
- Negotiation under way on a shopping centre stand for a value of roughly 30% higher than the cancelled
transaction. Any transaction will, however, be conditional on final resolution of the electrification
challenge
The dispute surrounding the rehabilitation of the mine dump, located on the Fleurhof property, was
concluded during the year and the removal of the dump has commenced, with a third party carrying the
cost. The area under the dump will allow for an additional 6 000 to 8 000 units to be developed.
The process to determine the exact number of opportunities as well as the timeframes to remove the
dump has begun and further information will be provided once clarity is obtained. This property
carries no value on the Calgro M3 balance sheet currently and has not been included in the pipeline.
The Group disposed of the 32-on-Pine development during the year for R36.2 million (VAT included).
The proceeds of the sale were used as a deposit for the acquisition of additional new units by the
Residential Rental Investment business from a third-party developer.
The first phase of infrastructure on the Vista Park development commenced and was completed during
the year, together with the completion of the La Vie Nouvelle Lifestyle and Wellness Estate frail
care centre.
The primary focus of the Residential Property Development business remains the roll-out of the
existing pipeline, capitalising on the private sector sales drive and enhancing the product offering,
whilst at the same time remaining focused on improving efficiencies.Despite challenges, the Group
remains strategically positioned to ensure risk is optimally mitigated and managed in these
uncertain times, which creates a solid foundation for future growth.
Memorial Parks
Sales continued to grow in the Memorial Parks business with the total sales increasing to
R20.9 million (2018: R12.6 million) for the year under review mainly due to the increased sales prices
across the product range. An additional payment plan option, where clients can pay over several months
(at no interest, or fees) was introduced during the year. These sales and resultant revenue are only
recognised once the full purchase price is received from the customer. Accordingly, if a client
discontinues payment, all his/her instalments are refunded.
Total grave sales increased to 1 126 graves (2018: 915) with cash received (including graves and other
products excluding rental income and deferred sales) increasing to R28.8 million (2018: R14.9 million).
305 graves sold have not yet been accounted for due to being sold on deferred payment terms. A total
of R2.3 million has been received in cash on these sales.
The target of achieving 10% of the overall profitability of the Group for the 2019 financial year was
distorted due to the discontinuing of interest capitalisation together with other challenges
experienced in the Group.
Despite this, Calgro M3 remains excited about this business based on the prospects of growth over the
coming years. Emphasis is being placed on the acceleration of this business as well as the
implementation of a strict cost control environment to support this growth. Funeral policy sales will
remain a focus area until the correct product, structure and partner is found, as this will accelerate
growth further.
The rights for the Witpoortjie Memorial Park (estimated 16 000 graves) was received during the year
with the development to commence in the latter part of the 2020 financial year. The development of this
memorial park will mark a new era for the Memorial Parks business, as it will be the first park to open
on one of our residential development projects. The Group applied for rights at Fleurhof (estimated
22 000 graves) and at KwaNobuhle (estimated 48 000 graves) residential development projects, the outcome
of which is being awaited. The granting of these rights will unlock value for the Group from land that
is currently valued and carried at zero on the balance sheet.
The national roll-out plan is advancing rapidly, through the acquisition of the Durbanville Memorial
Park in Cape Town, effective 1 March 2018 and the Avalon Memorial Park in Bloemfontein, effective
1 June 2018. The Eastern Cape, Tshwane and KwaZulu-Natal are targeted for expansion, planned for the
2020 financial year.
Residential Rental Investments
In line with the medium to long-term strategy, the Group entered this rental sector to secure annuity
revenue for use as operating cash across the Group.
The strategy further aligns in assisting Government to eradicate the housing backlog through the
introduction of residential rental units, without exposing the Group to diminished public-sector spend.
Since as early as 2015, Calgro M3 began investigating participating in the residential rental market.
This led to partnering with SA Corporate through their subsidiary Afhco, for the first phase of rental
investments, which led to the establishment of the Afhco Calgro M3 Consortium (a Real Estate Investment
Trust ("REIT")), to service the residential rental market in South Africa. Of the first tranche of
3 852 units, 1 556 units were completed and handed over to the consortium from November 2017.
During the current year, Calgro M3 and SA Corporate came to realise that the fundamental goals and
risk appetite of a property development company diversifying into long-term annuity income market,
and a pure yield driven REIT, were vastly different. The parties therefore entered discussions to
dissolve the joint initiative.
The strategy of this business remains sound, but development-related risk such as the Fleurhof
electrification challenge and the Scottsdene illegal invasions mean that Calgro M3 needs to consider
a lower initial yield during the rental take-up phase.
The dissolution of the joint initiative was concluded in March 2019 and will be accounted for in the
2020 financial results.
The Group remains firmly committed to its strategy of growing this business as a form of risk
diversification and a source of annuity income.
In line with this strategy, the first 80 of 480 units were acquired from a third-party developer and
is in the process of being tenanted. These units were acquired by a company in which the third-party
developer has a 20% equity stake together with Calgro M3 Real Estate, a wholly owned subsidiary of
Calgro M3 Holdings, owning the remaining 80%. These units are being managed by a third- party rental
management specialist.
Financial review
Statement of comprehensive income
As detailed in the transitional report dated 27 September 2019, IFRS 15 impacted the method and timing
of revenue recognition. Revenue comparison between periods should not be performed as the Group has
elected not to restate the comparative information as permitted by IFRS 15. Accordingly, the impact
of IFRS 15 was 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. Comparative
information on revenue will not be amended for the impact of IFRS 15.
Unrealised profit
The Group's financial performance was impacted by the construction of units for the Afhco
Calgro M3 Consortium ("REIT JV"), in which Calgro M3 has a 49% shareholding. This shareholding results
in 49% of the development profit (construction and other services) being eliminated on consolidation
as an unrealised profit, as prescribed by International Financial Reporting Standards ("IFRS").
This unrealised profit is carried on the balance sheet until realised in future financial years, once
the units are completed, tenanted and the portfolio is revalued.
Disclosure on the above metrics will be discontinued from the 2020 financial year as the REIT JV is
dissolved. Should any unrealised profits arise from development of units that Calgro M3 has a
shareholding in, the relevant disclosure of unrealised profits will be made as required by the
accounting standards, but with no reference to the above three metrics. Unrealised profits are
anticipated to disappear with the dissolution of the REIT JV and any current unrealised profits not
yet recognised on 28 February 2019, will only be realised once the units developed are sold to
third parties.
Revenue decreased by 42.78% to R997.1 million (2018: R1.7 billion) and combined revenue decreased by
44.82% to R1.3 billion (2018: R2.3 billion). If revenue was accounted for under the previous
accounting standards, revenue would have been R1.1 billion, resulting in a 38.74% decrease from the
R1.7 billion reported in the previous year. Combined revenue (under the previous accounting standards)
decreased by 41.78% to R1.4 billion (2018: R2.3 billion) due to the slowdown in operations as
outlined in the operational update above.
The main contributing projects to combined revenue were South Hills at 45.21% (2018: 41.88%), Belhar
at 11.04% (2018: 13.35%) and Fleurhof at 25.65% (2018: 22.86%).
The gross profit margin of 12.91% for the current year is affected by several extraordinary
items, namely:
- IFRS 15 impact of R49.2 million
- Additional security on Fleurhof and Scottsdene of R71 million
- Insurance and related claims were submitted to SASRIA and will be accounted for once confirmation
or approval on the amount and timing is received. Total claims submitted are R57.2 million
- Standing time cost on Fleurhof of R23.3 million
- Variation order received on Fleurhof of R92 million
- Net realisable value write-down on La Vie Nouvelle of R54 million
In response to the negative impact of the adoption of IFRS 15 and IFRS 9 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 Incentive Scheme unanimously agreed to forfeit the scheme, despite it being
"in the money" to enhance the equity of the Group through the reversal of the share-based payment
reserve to retained earnings.
The cancellation of the scheme resulted in the remaining expense on the scheme being fast-tracked
through profit and loss in the current year, increasing administrative expenses. This acceleration and
subsequent cancellation had no impact on equity.
The share-based payment reserve of R118 million (2018: R74.1 million), after the acceleration of the
expense was reversed to retained income after the cancellation of the scheme.
In response to the cancellation of the Executive Share Scheme, the Remuneration Committee and the
Board resolved to remunerate participants with a once-off payment. The total effective term that
participants were remunerated for, ranged from 4.5 years to 10.5 years, with the average being seven
years. A total cash amount of R25.3 million was awarded to participants. Please refer to the
Remuneration Report on the website for more details.
The additional increase in administrative expenses of 41.2% from the previous period is due to:
- Executive share scheme acceleration - R44 million (2018: 23.8 million)
- Once-off payment to executives for cancellation of long-term scheme - R25.3 million
- New long-term service for staff - R6.2 million
- Increase in staff in the form of additional senior management and health, safety and environmental
appointments - R3.2 million
Finance income continued to increase as a result of the increase in debtors and shareholder loan
balances (on which interest is being earned) on the South Hills, Witpoortjie and Tanganani projects,
which are all accounted for as joint ventures ("JVs") within the Group.
Returns on the REIT JV were earned through finance income instead of in the share of profits from
JV classification. This situation arose due to the equity investment being treated as loans, instead
of investments in joint ventures and associates. The increase in the loan balance by R149.8 million
to R252.1 million (2018: R102.3 million) represents the Group's investment contribution for units
that were completed and handed over. The loan balance will be settled through various dissolution
transactions. The financial and accounting impact of the dissolution of the REIT JV is anticipated
to be minimal.
The share of profit of JVs and associates is mainly attributable to the South Hills JV. This profit
recognition was impacted by IFRS 15 within the JV itself. The total equity accounted profit on
1 March 2018 (once IFRS 15 opening balance adjustments were made), was a mere R249 683. Total profit
after tax in South Hills at 28 February 2019 was R43.2 million, of which the Group accounted for
42.5%, being R15.1 million after the elimination of unrealised profit.
There were no outstanding debtor balances for South Hills at year-end.
The finance cost expense has increased largely due to increased working capital requirements and the
cessation of interest capitalisation on Memorial Parks.
Earnings per share
Basic earnings per share ("EPS") decreased by 97.31% to 2.53 cps (2018: 93.91 cps). Similarly,
headline earnings per share ("HEPS") decreased by 121.09% to (19.01) cps (2018: 90.12 cps). The new
metrics introduced in the prior financial year provide additional information on the Group's
performance. Core earnings per share ("Core EPS") decreased by 109.20% to (13.55) cps
(February 2018: 147.26 cps), and core headline earnings per share ("Core HEPS") decreased by 124.45%
to (35.08) cps (2018: 143.47 cps).
February February
2019 2018
Core earnings per share
Profit attributable to shareholders 3 240 735 120 350 383
Add: (Realised)/unrealised profit (net of tax and share
of profits of JVs) (20 600 005) 68 367 999
Core (loss)/profit attributable to owners of parent ("core earnings") (17 359 270) 188 718 382
Weighted average number of ordinary shares in issue 128 150 069 128 150 069
Core earnings per share (cents per share) (13.55) 147.26
Core headline earnings per share
(Loss)/profit used to determine headline earnings per share (24 359 642) 115 490 468
Add: (Realised)/unrealised profit (net of tax and share
of profits of JVs) (20 600 005) 68 367 999
Core headline (loss)/profit attributable to owners of parent
("core headline earnings") (44 959 647) 183 858 467
Weighted average number of ordinary shares in issue 128 150 069 128 150 069
Core headline earnings per share (cents per share) (35.08) 143.47
The earnings on the Residential Rental Investments business is split between the interest received
and equity accounting due to the shareholder loan not been converted to equity. Please refer to the
segment report contained in the financial statements document placed on the website for details on
the profits of each of the three businesses.
Statement of financial position
The increase in investment property, property, plant and equipment, investments (not for profit
company/restricted investments), inventories and trade and other payables is due to the acquisition
of the Durbanville and Avalon Memorial Parks.
The restricted investment is the cash investment in a fully registered non-profit organisation
("NPO"), specifically created to ensure the in-perpetuity maintenance of the Durbanville Memorial
Park. It is intended to be utilised for the other parks as well, once there is more clarity on the
effect of this change.
The Group acquired the remaining shareholding from the minority shareholder in Nasrec Memorial
Park (36.5% shareholding) for R63.6 million during the year. R15.9 million was paid and the
remaining balance, which carries no interest, will be settled over the next three years in equal
annual instalments.
The Group made an additional investment into the Calgro M3 JCO Holdings (Pty) Ltd joint venture of
R120 million for the purchase of the rental units in Ruimsig, Johannesburg. This represents the
full equity contribution for the Group and no additional funding is required for the purchase of
these units.
The loans to joint ventures and associates increased by R168 million and was attributable to the
additional funds advanced to the Afhco Calgro M3 Consortium (Pty) Ltd (REIT JV) for the purchase
of units. The total loan value at the end of February 2019 was R252.2 million
(2018: R102.3 million). This loan account balance was settled as part of the dissolution of the
REIT JV after year-end.
Construction contracts balance decreased by R541.9 million to R1.3 billion as a result of the
R417.7 million adjustment to the opening balance from the adoption of IFRS 15 together with the
completion of other units without starting new construction. Please refer to the transitional
report released on 26 September 2018 for more details around the IFRS 15 opening
balance adjustment.
Cash balances at year-end decreased by 21.75% to R122.6 million (2018: R156.7 million). Much
emphasis is placed on maintaining a continuous healthy cash balance and investment into annuity
income-based assets in these uncertain economic times. The dissolution of the REIT JV did not have
a negative impact on cash flow. Prior to the dissolution, the Group had R155 million outstanding
in deposits received from the REIT JV. After the dissolution, the outstanding debt was R104 million
that was converted into a three-year listed instrument on the Group's DMTN programme. The Group
issued R273 million of new instruments on the DMTN programme during the year and repaid R193 million.
Total instruments maturing in the next 12 months are R157 million and the Group is actively working
at refinancing these instruments into new three to five-year instruments.
The share-based payment reserve was reallocated to retained earnings in the year as a result of the
cancellation of the Executive Share Scheme. Please refer to page 61 in the Remuneration Report for
more details around the cancellation.
The Group's weighted average cost of debt is currently at 11.55%.
February February
2019 2018
Net debt to equity ratio 1.09 0.70*
Covenant 1.5 1.5
Debt service cover ratio ("DSCR") 1.47 1.57
Covenant 1.2 1.2
* Restated.
Cash flow
Although cash flow from operations was positive by R298 million (2018: (R206 million)), it
continued to be placed under pressure during the period due to challenges experienced on various
projects. These challenges include the slower than anticipated handover of units to the REIT JV,
the temporary slowdown/closure of the Fleurhof and Scottsdene projects and the associated security
and repair costs required due to illegal invasions together with substantial delays in installing
and registering water and electrical meters on units in Gauteng.
Cash flow was placed under further pressure through the ongoing investment into annuity-based
assets.
Most of the cash will be utilised as working capital for the Residential Property Development
business with a sizeable amount set aside as buffer if instruments maturing in the next six months
on the DMTN programme have to be repaid.
The dissolution of the REIT JV will not place additional pressure on cash resources. Any monies
owing to Afhco after the dissolution will be settled through the issue of an instrument on the
Group's DMTN programme and a small portion in cash.
The year ahead
The focus for the year ahead is, foremost, to stabilise the Residential Property Development
business so that a consistent stream of cash flow and profits can be attained. Emphasis will be
placed on cash flow extraction from the various projects. Focus will be dedicated to revenue and
profit generation in a consistent manner. Should construction activity not improve to acceptable
levels after the 2019 National elections, further cost cutting measures will be implemented.
Memorial Parks and the Residential Rental Investments businesses are identified as areas with a
particularly high growth opportunity. Management is determined to accelerate the growth within
these businesses.
Our objective remains that the three businesses contribute evenly to profitability in the medium
to long term as well as the extraction of multiple sources of revenue and profits from business and
opportunities along the turnkey property development value chain, which will lead to an improved
operating margin blend and the creation of annuity income.
The optimal application of capital between new opportunities, working capital and risk capital will
remain an important strategic decision. Management places emphasis on cash flow generation from
projects, as well as the preservation thereof for future use. The Group is cautious in the current
uncertain environment and careful consideration will be given to what the best use of cash is on
each project to ensure sustainable long-term return and value for shareholders.
We acknowledge that the broader transformation of society cannot take place unless large companies
such as Calgro M3 play a major role therein. We are proud to be a level 1 B-BBEE contributor.
The Group will remain cautious in the current environment and expects construction activity to
increase post the elections. Sites will return to capacity towards the end of the 2019 calendar year
as uncertainty reduces and the economic environment stabilises. Belhar will be the first site where
capacity will increase, and it will be done in a staggered approach, with full capacity only reached
after four months.
Health, safety and environmental initiatives
The implementation of Health, Safety and Environmental ("HSE") systems which align with ISO 14001
and ISO 45001 have progressed well during the year and the Group is readying itself for certification
towards the end of the calendar year. The changes brought about by the adoption of this new system
had a significant impact on the way HSE matters are dealt with and the advantages of this far
outweigh the cost.
The protection of the environment, our staff, contractors and the communities we develop in, will
always remain of paramount importance.
Board of Directors
During the year under review George Hauptfleisch was appointed as an independent non-executive
director and chairperson of the Audit and Risk Committee, effective 6 June 2018. On 14 February 2019
Venete Klein resigned.
Wikus Lategan Waldi Joubert
Chief Executive Officer Financial Director
Johannesburg
10 May 2019
The following can be viewed on the Calgro M3 website http://www.calgrom3.com
- Annual Financial Statements 2019
- Sustainability Report 2019
- King IV Application register
Integrated Annual Report 2019 Corporate Governance Report 2019 Notice of Annual General Meeting
- Message from the CEO and FD - Board of Directors - Due to regulatory requirements
(recommended reading as this - Attendance register for the new 2019 long-term
contains a summary) - Company Secretary Executive Share Scheme, the
- Strategy - Board Committees Notice of AGM and relevant
- Risks and mitigation - Remuneration and documents will be distributed
strategies Nomination Committee in the last week of May with
- Operational matters - Audit and Risk Committee the Annual General Meeting
- Environmental, Social and - Investment Committee taking place on 28 June 2019.
Governance (ESG) - Social and Ethics
- Financial performance Committee
- The year ahead
- The operations of Calgro M3
- Chairperson's report
- Remuneration report
- Group value added statement
SUMMARISED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
2019 2018
Revenue 997 064 528 1 742 602 162
Cost of sales (868 374 481) (1 472 512 887)
Gross profit 128 690 047 270 089 275
Other income 36 538 480 12 921 627
Administrative expenses (186 013 859) (131 774 832)
Other expenses (929 221) (1 310 074)
Impairment losses on financial and contract assets (7 189 512) -
Operating (loss)/profit (28 904 065) 149 925 996
Finance income 50 005 032 28 956 566
Finance costs (59 365 719) (16 687 428)
Share of profit of joint ventures and associates - net of tax 14 188 053 9 560 505
(Loss)/profit before tax (24 076 699) 171 755 639
Taxation 25 304 411 (50 948 964)
Profit after taxation 1 227 712 120 806 675
Other comprehensive income - -
Total comprehensive income 1 227 712 120 806 675
Profit after taxation and other comprehensive income attributable to:
- Owners of the parent 3 240 735 120 350 383
- Non-controlling interests (2 013 023) 456 292
1 227 712 120 806 675
Profit after taxation attributable to:
Equity holders of the Company 3 240 735 120 350 383
Earnings per share - cents 2.53 93.91
Headline earnings per share - cents (19.01) 90.12
Fully diluted earnings per share - cents 2.48 92.00
Fully diluted headline earnings per share - cents (19.01) 88.29
SUMMARISED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
2019 2018
ASSETS
Non-current assets
Investment property 14 019 768 8 878 835
Property, plant and equipment 12 173 346 6 162 697
Intangible assets 159 676 781 159 663 860
Investments 11 089 608 -
Investment in joint ventures and associates 153 006 235 41 908 822
Deferred income tax asset 43 354 750 23 999 056
393 320 488 240 613 270
Current assets
Loans to joint ventures and associates 311 393 438 143 422 183
Inventories 568 498 000 554 397 497
Current tax receivable 2 538 268 16 599 506
Construction contracts 1 279 072 872 1 820 973 990
Trade and other receivables 233 818 424 293 739 145
Cash and cash equivalents 122 632 997 156 722 935
2 517 953 999 2 985 855 256
Total assets 2 911 274 487 3 226 468 526
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
Retained income 690 054 102 977 014 965
806 310 073 1 167 327 247
Non-controlling interests 277 638 355 011
Total equity 806 587 711 1 167 682 258
Liabilities
Non-current liabilities
Deferred income tax liability 214 300 153 354 283 263
214 300 153 354 283 263
Current liabilities
Borrowings 969 195 006 889 596 522
Loans from joint ventures and associates 23 000 000 -
Current income tax liabilities 1 912 518 22 652
Trade and other payables 896 279 099 814 883 831
1 890 386 623 1 704 503 005
Total liabilities 2 104 686 776 2 058 786 268
Total equity and liabilities 2 911 274 487 3 226 468 526
SUMMARISED CONSOLIDATED STATEMENT OF CASH FLOWS
2019 2018
Cash generated from/(utilised in) operating activities
Cash generated from/(utilised in) operations 298 290 312 (205 838 542)
Finance income received 10 647 074 6 686 410
Finance cost paid (115 459 090) (75 746 785)
Tax refunded/(paid) 8 604 779 (1 478 278)
Net cash generated from/(utilised in) operating activities 202 083 075 (276 377 195)
Cash flows invested in investing activities
Purchase of investment property (50 946) (2 360 135)
Purchase of property, plant and equipment (2 802 835) (1 579 093)
Purchase of intangible assets (38 760) (6 941)
Proceeds on disposals of property, plant and equipment - 242 748
Investments in joint venture and associates (119 793 746) (10 000 000)
Acquisition of business (25 500 000) (2 500 000)
Acquisition of subsidiary - 51 933
Loans advanced to joint ventures and associates (149 974 273) (113 381 108)
Net cash invested in investing activities (298 160 560) (129 532 596)
Cash flows from financing activities
Proceeds from borrowings 273 000 000 516 000 000
Repayment of borrowings (193 000 000) (192 000 000)
Loans received from joint ventures and associates 23 000 000 -
Equity paid back* (25 112 453) (2 132 431)
Transactions with non-controlling interest# (15 900 000) -
Net cash from financing activities 61 987 547 321 867 569
Net (decrease)/increase in cash and cash equivalents (34 089 938) (84 042 222)
Cash and cash equivalents at the beginning of the year 156 722 935 240 765 157
Cash and cash equivalents at the end of the year 122 632 997 156 722 935
* Cash paid back to participants for the subscription of shares issued under the Calgro M3
Executive Share Scheme.
# Cash paid for the purchase of the remaining portion of shares in Calgro M3 Memorial Parks Nasrec
(Pty) Ltd.
SUMMARISED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share-
based
Stated payment Retained
capital reserve income Total
Balance at 1 March 2017 116 255 971 60 847 268 846 079 473 1 023 182 712
Share-based payment expense - 23 794 152 - 23 794 152
Cancellation of executive share
scheme participant - (10 585 109) 10 585 109 -
Comprehensive income
Profit for the period - - 120 350 383 120 350 383
Other comprehensive income - - - -
Total comprehensive income - - 120 350 383 120 350 383
Balance at 28 February 2018 116 255 971 74 056 311 977 014 965 1 167 327 247
Balance at 1 March 2018 116 255 971 74 056 311 977 014 965 1 167 327 247
Investment in Calgro M3
Memorial Parks eliminated to equity - - (56 690 715) (56 690 715)
IFRS 15 opening balance
adjustment to equity - - (318 004 388) (318 004 388)
IFRS 9 opening balance
adjustment to equity - - (32 945 553) (32 945 553)
Share-based payment expense - 43 992 366 - 43 992 366
Share-based payment reserve
released to retained earnings - (118 048 677) 118 048 677 -
Dividend declared* - - (609 619) (609 619)
Comprehensive income
Profit for the year - - 3 240 735 3 240 735
Other comprehensive income - - - -
Total comprehensive income - - 3 240 735 3 240 735
Balance at 28 February 2019 116 255 971 - 690 054 102 806 310 073
Non-
controlling Total
interests equity
Balance at 1 March 2017 (101 281) 1 023 081 431
Share-based payment expense - 23 794 152
Cancellation of executive share
scheme participant - -
Comprehensive income
Profit for the period 456 292 120 806 675
Other comprehensive income - -
Total comprehensive income 456 292 120 806 675
Balance at 28 February 2018 355 011 1 167 682 258
Balance at 1 March 2018 355 011 1 167 682 258
Investment in Calgro M3
Memorial Parks eliminated to
equity 1 935 650 (54 755 065)
IFRS 15 opening balance
adjustment to equity - (318 004 388)
IFRS 9 opening balance
adjustment to equity - (32 945 553)
Share-based payment expense - 43 992 366
Share-based payment reserve
released to retained earnings - -
Dividend declared* - (609 619)
Comprehensive income
Profit for the year (2 013 023) 1 227 712
Other comprehensive income - -
Total comprehensive income (2 013 023) 1 227 712
Balance at 28 February 2019 277 638 806 587 711
* The dividend is payable to the Calgro M3 Educational Trust, which is not consolidated into the
Group as the Group does not have control of the Trust.
SUMMARISED SEGMENT REPORT OF THE GROUP
Residential Residential
Property Memorial Rental
2019 Development Parks Investments
Total segment revenue 976 144 785 20 919 743 -
Fleurhof Project 328 778 231 - -
Jabulani Project 51 182 450 - -
Witpoortjie Calgro M3 Development
Company (Pty) Ltd 30 813 037 - -
South Hills Development Company
(Pty) Ltd 311 934 682 - -
Belhar Project 141 432 832 - -
Third parties 112 003 553 20 919 743 -
Combined revenue1 1 260 672 163 20 919 743 -
Total segment revenue 976 144 785 20 919 743 -
Revenue of joint ventures and associates 284 527 378 - -
Witpoortjie Calgro M3 Development
Company (Pty) Ltd 17 087 540 - -
South Hills Development Company
(Pty) Ltd 267 439 838 - -
Gross revenue 976 144 785 20 919 743 -
Point in time 95 137 962 18 875 119 -
Over time 881 006 823 2 044 624 -
Revenue 976 144 785 20 919 743 -
Gross revenue 943 037 634 20 919 743 -
Reversal of unrealised profit realised
adjustment2 41 956 195 - -
Reversal of unrealised profit adjustment2 (8 849 044) - -
Cost of sales (861 396 493) (6 977 988) -
Gross profit 114 748 292 13 941 755 -
Other income 2 750 425 6 187 178 -
Administrative expenses (126 102 802) (11 312 357) (17 500)
Net impairment losses on financial and
contract assets (7 189 512) - -
Other expenses (929 221) - -
Operating (loss)/profit (16 722 818) 8 816 576 (17 500)
Finance income 28 972 737 98 850 19 491 030
Finance costs3 (30 712 278) (10 215 694) (18 437 745)
Share of profit/(loss) of
associates/joint venture
- net of tax 14 696 464 - (508 411)
(Loss)/profit before tax (3 765 895) (1 300 268) 527 374
Taxation 8 298 343 3 021 533 1 140 271
Profit/(loss) after taxation 4 532 448 1 721 265 1 667 645
Other comprehensive income - - -
Total comprehensive income/(expense) 4 532 448 1 721 265 1 667 645
Holding
Company
2019 unallocated* Total
Total segment revenue - 997 064 528
Fleurhof Project - 328 778 231
Jabulani Project - 51 182 450
Witpoortjie Calgro M3 Development
Company (Pty) Ltd - 30 813 037
South Hills Development Company
(Pty) Ltd - 311 934 682
Belhar Project - 141 432 832
Third parties - 132 923 296
Combined revenue1 - 1 281 591 906
Total segment revenue - 997 064 528
Revenue of joint ventures and associates - 284 527 378
Witpoortjie Calgro M3 Development
Company (Pty) Ltd - 17 087 540
South Hills Development Company
(Pty) Ltd - 267 439 838
Gross revenue - 997 064 528
Point in time - 114 013 081
Over time - 883 051 447
Revenue - 997 064 528
Gross revenue - 963 957 377
Reversal of unrealised profit realised
adjustment2 - 41 956 195
Reversal of unrealised profit adjustment2 - (8 849 044)
Cost of sales - (868 374 480)
Gross profit - 128 690 047
Other income 27 600 877 36 538 480
Administrative expenses (48 581 200) (186 013 859)
Net impairment losses on financial and
contract assets - (7 189 512)
Other expenses - (929 221)
Operating (loss)/profit (20 980 323) (28 904 065)
Finance income 1 442 415 50 005 032
Finance costs3 (2) (59 365 719)
Share of profit/(loss) of
associates/joint venture
- net of tax - 14 188 053
(Loss)/profit before tax (19 537 910) (24 076 699)
Taxation 12 844 264 25 304 411
Profit/(loss) after taxation (6 693 646) 1 227 712
Other comprehensive income - -
Total comprehensive income/(expense) (6 693 646) 1 227 712
Residential Residential
Property Memorial Rental
2019 Development Parks Investments
Profit after taxation and
other comprehensive income
attributable to:
- Owners of the parent 6 545 471 1 721 265 1 667 645
- Non-controlling interests (2 013 023) - -
4 532 448 1 721 265 1 667 645
Statement of financial position
Non-current assets
Investment property - 14 019 768 -
Property, plant and equipment 3 272 952 8 900 394 -
Intangible assets 158 981 977 694 804 -
Investments - 11 089 608 -
Investment in joint ventures
and associates 33 212 488 - 119 793 747
Deferred income tax asset 21 430 173 2 014 813 1 942 495
216 897 590 36 719 387 121 736 242
Current assets
Loans to joint ventures and associates 39 194 324 - 272 199 114
Inventories 398 577 530 169 920 470 -
Current tax receivable 1 590 935 - 671 022
Construction contracts 1 279 072 872 - -
Trade and other receivables 228 439 992 5 351 403 2 625
Cash and cash equivalents 115 572 312 6 488 209 -
2 062 447 965 181 760 082 272 872 761
Total assets 2 279 345 555 218 479 469 394 609 003
Liabilities
Non-current liabilities
Deferred income tax liability 219 836 955 3 320 314 -
219 836 955 3 320 314 -
Current liabilities
Borrowings3 764 732 071 72 896 337 131 566 596
Loans from joint ventures and associates 23 000 000 - -
Current income tax liabilities 1 593 322 341 696 -
Trade and other payables 820 915 583 73 971 779 -
1 610 240 976 147 209 812 131 566 596
Total liabilities 1 830 077 931 150 530 126 131 566 596
Holding
Company
2019 unallocated* Total
Profit after taxation and
other comprehensive income
attributable to:
- Owners of the parent (6 693 646) 3 240 735
- Non-controlling interests - (2 013 023)
(6 693 646) 1 227 712
Statement of financial position
Non-current assets
Investment property - 14 019 768
Property, plant and equipment - 12 173 346
Intangible assets - 159 676 781
Investments - 11 089 608
Investment in joint ventures
and associates - 153 006 235
Deferred income tax asset 17 967 269 43 354 750
17 967 269 393 320 488
Current assets
Loans to joint ventures and associates - 311 393 438
Inventories - 568 498 000
Current tax receivable 276 311 2 538 268
Construction contracts - 1 279 072 872
Trade and other receivables 24 404 233 818 424
Cash and cash equivalents 572 476 122 632 997
873 191 2 517 953 999
Total assets 18 840 460 2 911 274 487
Liabilities
Non-current liabilities
Deferred income tax liability (8 857 116) 214 300 153
(8 857 116) 214 300 153
Current liabilities
Borrowings3 - 969 195 004
Loans from joint ventures and associate - 23 000 000
Current income tax liabilities (22 500) 1 912 518
Trade and other payables 1 391 736 896 279 098
1 369 236 1 890 386 620
Total liabilities (7 487 880) 2 104 686 773
1. Combined revenue is the total segment revenue plus the total revenue of joint ventures and
associates. The revenue included represents the gross revenue of each joint venture and does not
include any inter-group eliminations.
2. The unrealised profit adjustment consists of profits that are generated on the
development/construction of units to the Afhco Calgro M3 Consortium (Pty) Ltd (REIT JV), in which
Calgro M3 has a 49% shareholding that is eliminated on consolidation.
3. The Group allocated borrowings proportionally to each segment based on the total assets per segment
in the current year.
* Any items that cannot be allocated to specific segments are indicated as Holding
Company/unallocated.
Residential Residential
Property Memorial Rental
2018 Development Parks Investments
Total segment revenue 1 729 998 215 12 603 947 -
Fleurhof Project 530 838 879 - -
Jabulani Project 167 150 653 - -
Witpoortjie Calgro M3 Development
Company (Pty) Ltd 47 342 527 - -
South Hills Development Company (Pty) Ltd 433 560 555 - -
Belhar Project 310 020 058 - -
Third parties 241 085 542 12 603 947 -
Combined revenue1 2 309 890 477 12 603 947 -
Total segment revenue 1 729 998 215 12 603 947 -
Revenue of joint ventures and associates 579 892 262 - -
Witpoortjie Calgro M3 Development
Company (Pty) Ltd 39 314 391 - -
South Hills Development Company (Pty) Ltd 540 577 871 - -
Gross revenue 1 729 998 215 12 603 947 -
Point in time 4 866 583 11 461 877 -
Over time 1 725 131 632 1 142 070 -
Revenue 1 729 998 215 12 603 947 -
Gross revenue 1 818 010 401 12 603 947 -
Reversal of unrealised profit adjustment2 (88 012 186) - -
Cost of sales (1 465 064 495) (7 448 392) -
Gross profit 264 933 720 5 155 555 -
Other income 11 178 583 1 743 044 -
Administrative expenses (126 248 289) (1 186 892) -
Other expenses (1 310 074) - -
Operating profit/(loss) 148 553 940 5 711 707 -
Finance income 28 922 307 27 960 -
Finance costs3 (15 587 290) (1 100 136) -
Share of profit/(loss) of associates/joint
venture - net of tax 9 052 094 - 508 411
Profit/(loss) before tax 170 941 051 4 639 531 508 411
Taxation (52 264 429) 1 575 310 -
Profit/(loss) after taxation 118 676 622 6 214 841 508 411
Other comprehensive income
Total comprehensive income 118 676 622 6 214 841 508 411
Holding
Company/
2018 unallocated* Total
Total segment revenue - 1 742 602 162
Fleurhof Project - 530 838 879
Jabulani Project - 167 150 653
Witpoortjie Calgro M3 Development
Company (Pty) Ltd - 47 342 527
South Hills Development Company (Pty) Ltd - 433 560 555
Belhar Project - 310 020 058
Third parties - 253 689 489
Combined revenue1 - 2 322 494 424
Total segment revenue - 1 742 602 162
Revenue of joint ventures and associates - 579 892 262
Witpoortjie Calgro M3 Development
Company (Pty) Ltd - 39 314 391
South Hills Development Company (Pty) Ltd - 540 577 871
Gross revenue - 1 742 602 162
Point in time - 16 328 460
Over time - 1 726 273 702
Revenue - 1 742 602 162
Gross revenue - 1 830 614 348
Reversal of unrealised profit adjustment2 - (88 012 186)
Cost of sales - (1 472 512 887)
Gross profit - 270 089 275
Other income - 12 921 627
Administrative expenses (4 339 651) (131 774 832)
Other expenses - (1 310 074)
Operating profit/(loss) (4 339 651) 149 925 996
Finance income 6 299 28 956 566
Finance costs3 (2) (16 687 428)
Share of profit/(loss) of associates/joint venture - net of tax - 9 560 505
Profit/(loss) before tax (4 333 354) 171 755 639
Taxation (259 845) (50 948 964)
Profit/(loss) after taxation (4 593 199) 120 806 675
Other comprehensive income
Total comprehensive income (4 593 199) 120 806 675
Residential Residential
Property Memorial Rental
2018 Development Parks Investments
Profit after taxation and other
comprehensive income attributable to:
- Owners of the parent 117 880 609 6 554 562 508 411
- Non-controlling interests 796 013 (339 721) -
118 676 622 6 214 841 508 411
Statement of financial position
Non-current assets
Investment property - 8 878 835 -
Property, plant and equipment 3 608 015 2 554 682 -
Intangible assets 158 969 056 694 804 -
Investment in joint ventures and associates 41 400 411 - 508 411
Deferred income tax asset 22 042 141 1 290 580 666 335
226 019 623 13 418 901 1 174 746
Current assets
Loans to joint ventures and associates 41 092 059 - 102 330 124
Inventories 423 642 093 130 755 404 -
Current tax receivable 16 484 054 32 241 -
Construction contracts 1 820 973 990 - -
Trade and other receivables 287 782 932 5 482 035 450 685
Cash and cash equivalents 152 897 545 2 825 185 -
2 742 872 673 139 094 865 102 780 809
Total assets 2 968 892 296 152 513 766 103 955 555
Liabilities
Non-current liabilities
Deferred income tax liability 354 283 263 - -
354 283 263 - -
Current liabilities
Borrowings3 271 426 074 - -
Current income tax liabilities 22 652 - -
Trade and other payables 787 199 020 25 946 826 -
1 058 647 746 25 946 826 -
Total liabilities 1 412 931 009 25 946 826 -
Holding
Company/
2018 unallocated* Total
Profit after taxation and other
comprehensive income attributable to:
- Owners of the parent (4 593 199) 120 350 383
- Non-controlling interests - 456 292
(4 593 199) 120 806 675
Statement of financial position
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
Deferred income tax asset - 23 999 056
- 240 613 270
Current assets
Loans to joint ventures and associates - 143 422 183
Inventories - 554 397 497
Current tax receivable 83 211 16 599 506
Construction contracts - 1 820 973 990
Trade and other receivables 23 493 293 739 145
Cash and cash equivalents 1 000 205 156 722 935
1 106 909 2 985 855 256
Total assets 1 106 909 3 226 468 526
Liabilities
Non-current liabilities
Deferred income tax liability - 354 283 263
- 354 283 263
Current liabilities
Borrowings3 618 170 448 889 596 522
Current income tax liabilities - 22 652
Trade and other payables 1 737 985 814 883 831
619 908 433 1 704 503 005
Total liabilities 619 908 433 2 058 786 268
1. Combined revenue is the total segment revenue plus the total revenue of joint ventures and
associates. The revenue included represents the gross revenue of each joint venture and does not
include any inter-group eliminations.
2. The unrealised profit adjustment consists of profits that are generated on the
development/construction of units to the Afhco Calgro M3 Consortium (Pty) Ltd (REIT JV), in which
Calgro M3 has a 49% shareholding that is eliminated on consolidation.
3. The Group only allocated specific borrowings to segments.
* Any items that cannot be allocated to specific segments are indicated as Holding
Company/unallocated.
NOTES TO THE SUMMARISED CONSOLIDATED ANNUAL FINANCIAL STATEMENTS
1. Basis of preparation
1.1 Statement of compliance
The summary consolidated financial statements are prepared in accordance with the
requirements of the JSE Limited Listings Requirements for abridged reports, and the
requirements of the Companies Act applicable to summary financial statements. The Listings
Requirements require abridged reports to be prepared in accordance with the framework
concepts and the measurement and recognition requirements of International Financial
Reporting Standards ("IFRS") and the SAICA Financial Reporting Guides as issued by the
Accounting Practices Committee and Financial Pronouncements as issued by the Financial
Reporting Standards Council and to also, as a minimum, contain the information required by
IAS 34: Interim Financial Reporting.
The summary consolidated annual financial statements should be read in conjunction with
the group annual financial statements as at and for the year ended 28 February 2019, which
have been prepared in accordance with IFRS as issued by the IASB. The summary consolidated
annual financial statements have been prepared on the historical cost basis, excluding
investment property and financial assets held at fair value, that are measured at fair
value. This is the first set of condensed annual financial statements where IFRS 9:
Financial Instruments (IFRS 9) and IFRS 15: Revenue from Contracts with Customers (IFRS 15)
have been applied. The changes to the accounting policies impacted by these new standards
are described in note 3.
The consolidated financial statements were internally compiled by M Esterhuizen CA(SA)
under the supervision of WA Joubert CA(SA). The summary consolidated annual financial
statements were authorised for issue by the Board of Directors on 10 May 2019.
This summarised report is extracted from audited information, but is not itself audited.
The consolidated annual financial statements were audited by PricewaterhouseCoopers Inc.,
who expressed an unmodified opinion thereon. The audited consolidated annual financial
statements and the auditor's report thereon are available for inspection at the Company's
registered office. The directors take full responsibility for the preparation of the
abridged report and that the financial information has been correctly extracted from the
underlying annual financial statements.
1.2 Judgements and estimates
Management made judgements, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets, liabilities, income and expense.
Actual results may differ from these estimates. The significant judgements made by
management in applying the Group's accounting policies and the key source of estimation
uncertainty were similar to those applied to the Group annual financial statements as at
and for the year ended 28 February 2018, updated for the impact of IFRS 9 and IFRS 15.
2. Accounting policies
Note 3 explains the impact of the adoption of IFRS 9 and IFRS 15 on the summarised consolidated
annual financial statements. This note also discloses the new accounting policies that have
been applied from 1 March 2018, where they are different to those applied in prior periods.
3. Changes in accounting policies
Impact of the adoption of IFRS 9 and IFRS 15 on the financial statements.
3.1 Impact on the financial statements
Prior year financial statements were not restated as a result of the changes in the
Group's accounting policies due to the adoption of IFRS 9 and IFRS 15. As explained in
note 3.2 and 3.4 below, IFRS 15 and IFRS 9 were adopted without restating comparative
information.
The impact on the consolidated statement of financial position as at 1 March 2018 is
illustrated below:
As reported Opening balance adjustments Adjusted
1 March Adoption Adoption 1 March
2018 of IFRS 15 of IFRS 9 2018
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 41 908 822 (17 224 746) (2 244 953) 22 439 123
Deferred income tax asset 23 999 056 - - 23 999 056
240 613 270 (17 224 746) (2 244 953) 221 143 571
Current assets
Inventories 554 397 497 - - 554 397 497
Loans to joint ventures
and associates 143 422 183 - (3 322 651) 140 099 532
Current tax receivable 16 599 506 - - 16 599 506
Construction contracts 1 820 973 990 (417 749 503) (34 470 843) 1 368 753 644
Trade and other receivables 293 739 145 - (3 554 086) 290 185 059
Cash and cash equivalents 156 722 935 - - 156 722 935
2 985 855 256 (417 749 503) (41 347 580) 2 526 758 173
Total assets 3 226 468 526 (434 974 249) (43 592 533) 2 747 901 744
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 977 014 965 (318 004 388) (32 945 553) 626 065 024
1 167 327 247 (318 004 388) (32 945 553) 816 377 306
Non-controlling interests 355 011 - - 355 011
Total equity 1 167 682 258 (318 004 388) (32 945 553) 816 732 317
Liabilities
Non-current liabilities
Deferred income tax liability 354 283 263 (116 969 861) (10 646 980) 226 666 422
354 283 263 (116 969 861) (10 646 980) 226 666 422
Current liabilities
Borrowings 889 596 522 - - 889 596 522
Current income tax liabilities 22 652 - - 22 652
Trade and other payables 814 883 831 - - 814 883 831
1 704 503 005 - - 1 704 503 005
Total liabilities 2 058 786 268 (116 969 861) (10 646 980) 1 931 169 427
Total equity and liabilities 3 226 468 526 (434 974 249) (43 592 533) 2 747 901 744
The impact on the consolidated statement of comprehensive income and consolidated statement
of financial position for the current year is illustrated below:
Consolidated statement of comprehensive income impact analysis:
As reported Adjustments Adjusted
February Adoption Adoption February
2019 of IFRS 15 of IFRS 9 2019
Revenue 997 064 528 70 489 999 - 1 067 554 527
Cost of sales (868 374 481) (15 034 596) - (883 409 077)
Gross profit 128 690 047 55 455 403 - 184 145 450
Other income 36 538 480 - - 36 538 480
Administrative expenses (186 013 859) - - (186 013 859)
Other expenses (929 221) - - (929 221)
Net impairment losses on financial
and contract assets (7 189 512) - 7 189 512 -
Operating (loss)/profit (28 904 065) 55 455 403 7 189 512 33 740 850
Finance income 50 005 032 - - 50 005 032
Finance costs (59 365 719) - - (59 365 719)
Share of profit of joint ventures
and associates - net of tax 14 188 053 (6 277 709) (199 618) 7 710 726
(Loss)/profit before tax (24 076 699) 49 177 694 6 989 894 32 090 889
Taxation 25 304 411 (15 527 513) (2 013 063) 7 763 835
Profit after taxation 1 227 712 33 650 181 4 976 831 39 854 724
Other comprehensive income - - - -
Total comprehensive income 1 227 712 33 650 181 4 976 831 39 854 724
Profit after taxation and
other comprehensive
income attributable to:
- Owners of the parent 3 240 735 33 650 181 4 976 831 41 867 747
- Non-controlling interests (2 013 023) - - (2 013 023)
1 227 712 33 650 181 4 976 831 39 854 724
Earnings per share for profit
attributable to the equity holders
of the Company
during the year (cps)
Basic earnings per share (cps) 2.53 26.26 3.88 32.67
Headline earnings per
share (cps) (19.01) 26.26 3.88 11.13
Fully diluted earnings per
share (cps) 2.48 25.80 3.82 32.10
Fully diluted headline earnings
per share (cps) (19.01) 26.26 3.88 11.13
cps - cents per share.
Consolidated statement of financial position impact analysis:
Opening
As reported balance
Adjustments
from the
adoption
February of IFRS
2019 15 and 9
ASSETS
Non-current assets
Investment property 14 019 768 -
Property, plant and equipment 12 173 346 -
Intangible assets 159 676 781 -
Investments 11 089 608 -
Investment in joint ventures and associates 153 006 235 19 469 699
Deferred income tax asset 43 354 750 -
393 320 488 19 469 699
Current assets
Loans to joint ventures and associates 311 393 438 3 322 651
Inventories 568 498 000 -
Current tax receivable 2 538 268 -
Construction contracts 1 279 072 872 452 220 346
Trade and other receivables 233 818 424 3 554 086
Cash and cash equivalents 122 632 997 -
2 517 953 999 459 097 082
Total assets 2 911 274 487 478 566 782
EQUITY AND LIABILITIES
Equity
Equity attributable to owners
of the parent
Stated capital 116 255 971 -
Retained income 690 054 102 350 949 941
806 310 073 350 949 941
Non-controlling interests 277 638 -
Total equity 806 587 711 350 949 941
Liabilities
Non-current liabilities
Deferred income tax liability 214 300 153 127 616 841
214 300 153 127 616 841
Current liabilities
Borrowings 969 195 006 -
Loans from joint ventures and
associates 23 000 000 -
Current income tax liabilities 1 912 518 -
Trade and other payables 896 279 099 -
1 890 386 623 -
Total liabilities 2 104 686 776 127 616 841
Total equity and liabilities 2 911 274 487 478 566 782
Current year
adjustments Adjusted
Adjustments Adjustments
from the from the February
adoption adoption of 2019 before
of IFRS 15 IFRS 9 adoption
ASSETS
Non-current assets
Investment property - - 14 019 768
Property, plant and equipment - - 12 173 346
Intangible assets - - 159 676 781
Investments - - 11 089 608
Investment in joint ventures
and associates (6 277 709) (199 618) 165 998 607
Deferred income tax asset - - 43 354 750
(6 277 709) (199 618) 406 312 860
Current assets
Loans to joint ventures and
associates - 2 989 945 317 706 034
Inventories - - 568 498 000
Current tax receivable - - 2 538 268
Construction contracts 55 455 403 962 077 1 787 710 698
Trade and other receivables - 3 237 489 240 609 999
Cash and cash equivalents - - 122 632 997
55 455 403 7 189 511 3 039 695 996
Total assets 49 177 694 6 989 893 3 446 008 856
EQUITY AND LIABILITIES
Equity
Equity attributable to owners
of the parent
Stated capital - - 116 255 971
Retained income 33 650 181 4 976 831 1 079 631 055
33 650 181 4 976 831 1 195 887 026
Non-controlling interests - - 277 638
Total equity 33 650 181 4 976 831 1 196 164 664
Liabilities
Non-current liabilities
Deferred income tax liability 15 527 513 2 013 062 359 457 569
15 527 513 2 013 062 359 457 569
Current liabilities
Borrowings - - 969 195 006
Loans from joint ventures and
associates - - 23 000 000
Current income tax liabilities - - 1 912 518
Trade and other payables - - 896 279 099
- - 1 890 386 623
Total liabilities 15 527 513 2 013 062 2 250 681 378
Total equity and liabilities 49 177 694 6 989 893 3 446 008 856
3.2 Impact of adopting of IFRS 15: Revenue from Contracts with Customers
The revenue accounting policy has changed with effect from 1 March 2018 as a result of the
Group adopting IFRS 15.
IFRS 15 supersedes IAS 18 (Revenue), IAS 11 (Construction Contracts) and related
interpretations for financial years beginning on or after 1 January 2018. IFRS 15 applies
to all revenue arising from contracts with customers, unless those contracts are in the
scope of other standards.
IFRS 15 establishes a comprehensive framework for determining whether, how much and when
revenue is recognised, providing additional guidance in many areas not covered in detail
under the previous revenue standards and interpretations. The standard requires entities to
exercise judgement, taking into consideration all of the relevant facts and circumstances
when applying the framework to the contracts with customers. The standard also specifies
the accounting treatment for the incremental costs of obtaining a contract and the costs
directly related to fulfilling a contract. IFRS 15 further includes extensive new
disclosure requirements.
Refer to the Group's revised revenue accounting policy, revenue treatment of each product
type as well as the disaggregated revenue disclosure required by IFRS 15.
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. The comparative information presented for 2018
is therefore presented as previously reported applying the previous revenue standards and
interpretations which has an impact on the comparability thereof.
The most significant impact of the newly adopted IFRS 15: Revenue standard is the
combination of contracts for integrated projects where revenue was accounted for over time
based on the project as a whole versus the new method of accounting for each contract per
customer individually. Individual contracts can now be accounted for over time or at a
point in time based on the terms of each individual contract.
The cumulative effect of the retrospective application on the Group's retained earnings as
at 1 March 2018 is as follows:
2019
Closing balance at 28 February 2018 (IAS 39/IAS 11/IAS 18) 977 014 965
IFRS 15 adjustment to equity (318 004 388)
Opening retained earnings at 1 March 2018 (after IFRS 15 restatement,
before IFRS 9 restatement) 659 010 577
3.3 Financial results for the year ended 28 February 2019 had IAS 11 and 18 been applied
IAS 11 and 18
Adjustments Adjusted
As reported from the before As reported
February adoption of adoption February
2019 IFRS 15 2019 2018
Sale of completed units 4 866 583 - 4 866 583 9 505 586
Construction contracts 939 778 202 70 489 999 1 010 268 201 1 720 492 629
Sale of developed land 31 500 000 - 31 500 000 -
Memorial parks burial rights 16 325 193 - 16 325 193 9 783 805
Memorial parks maintenance 2 044 624 - 2 044 624 1 142 070
Memorial parks burial services 2 549 926 - 2 549 926 1 678 072
997 064 528 70 489 999 1 067 554 527 1 742 602 162
The impact of the IFRS 15 adoption in the current year is illustrated for the consolidated
statement of comprehensive income and statement of financial position in note 3.2.
3.4 Impact of adopting IFRS 9: Financial instruments
IFRS 9 replaces IAS 39: Financial Instruments: Recognition and Measurement (IAS 39) for
financial years beginning on or after 1 January 2018. IFRS 9 brings together all aspects
of accounting for financial instruments that relate to the recognition, classification and
measurement, derecognition, impairment and hedge accounting.
The adoption of IFRS 9 from 1 March 2018 resulted in changes in accounting policies and
adjustments to the amounts recognised in the financial statements. The new accounting
policies are set out in note 3.5 below. Comparative information has not been restated in
accordance with the transitional requirements of IFRS 9 which requires comparative
information not to be restated (with an exception where it is possible to restate without
the use of hindsight) but for disclosures to be made concerning the reclassifications and
measurements as set out below.
The adoption of IFRS 9 has had the following effect on the Group:
- Change from the IAS 39 incurred loss model to the expected credit loss ("ECL") model to
calculate impairments of financial instruments
- Change in classification of the measurement categories for financial instruments
The Group has adopted the simplified expected credit loss model for its trade receivables
and contract assets which uses a lifetime expected loss allowance, as required by IFRS 9,
paragraph 5.5.15, and the general expected credit loss model for loans to companies
outside of the Group held at amortised cost.
Under IFRS 9 the Group calculates the allowance for credit losses as ECLs for financial
assets measured at amortised cost, debt investments at fair value through profit and loss
("FVPL") and contract assets. ECLs are a probability weighted estimate of credit losses.
Credit losses are measured as the present value of all cash shortfalls (ie the difference
between the cash flows due to the entity in accordance with the contract and the cash
flows that the Group expects to receive). ECLs are discounted at the original effective
interest rate ("EIR") of the financial asset.
Due to the trade receivables, contract assets and loans being linked to long-term
projects, judgemental methodology had to be applied, the results of which would be
similar under both the simplified and general approach to determine lifetime expected
credit losses. This took into account the probability of each of the projects achieving
its budget and the probability of mis-estimating the outcome of a project and thus have
a negative effect on the project results. A slightly higher probability to outcomes with
greater degrees of inaccuracy were assigned to later periods in the projects due to
the change in the economic outlook for the country. Further to this the general state of
the economy as well the housing shortfall for the market in which the Group operates and
the dependence on Government subsidies and fiscal pressures being faced by Government in
addition to the budget allocations for affordable housing as per the February 2019
national budget has been taken into consideration for these long-term projects. The
judgemental approach (non-statistical) was adopted with the use of established credit
techniques being applied and calculated by financial experts with substantial experience
and expertise.
The expected credit losses calculations took into consideration various scenarios and
were weighted against stage of completion of a relevant project and taking into
consideration the progress against budget. The expected credit losses were benchmarked
against the high volatility commercial real estate portfolios of a financial institution
to determine the suitability of the ECLs being applied.
The total impact on the Group's retained earnings as at 1 March 2018 is as follows:
2019
Opening balance at 1 March 2018 (after IFRS 15 before
IFRS 9 restatement) (refer to note 3.2) 659 010 577
Adjustments from the adoption of IFRS 9 (ECL adjustments) (32 945 553)
Trade receivables (net of tax) (2 558 942)
Contract assets (net of tax) (24 819 007)
Loans to joint ventures (3 322 651)
Investment in joint venture (2 244 953)
Opening retained earnings at 1 March 2018 (after IFRS 9
and IFRS 15 restatement) 626 065 024
3.5 IFRS 9: Accounting policies applied from 1 March 2018
3.5.1 Classification and measurement
(i) Classification
IFRS 9 largely retains the existing requirements in IAS 39 for the
classification and measurement of financial liabilities. However, IFRS 9
eliminates the previous IAS 39 categories of held to maturity, loans and
receivables and available-for-sale financial assets.
The accounting for the Group's financial liabilities remains largely the
same as it was under IAS 39.
Under IFRS 9, on initial recognition, a financial asset is classified as
measured at:
- Amortised cost;
- Fair value through other comprehensive income ("FVOCI");
- FVOCI equity investment; or
- Fair value through profit or loss ("FVPL")
The classification of financial assets under IFRS 9 is generally based on the
business model in which a financial asset is managed and its contractual cash
flow characteristics.
There are no changes in classification on the opening balances of financial
assets measured at amortised cost.
(ii) Measurement
Financial assets
At initial recognition, the Group measures a financial asset at its fair
value plus, in the case of financial asset not at FVPL, transaction cost
that is directly attributable to the acquisition of the financial asset.
Transaction cost of financial assets carried at FVPL is expensed in profit
or loss.
Interest income from these financial assets are included in finance income
using the effective interest rate method.
Any gain or loss arising on the derecognition is recognised directly in
profit or loss and presented in operating expenses.
Financial liabilities
At initial recognition the Group measures a financial liability at fair
value less any transaction cost capitalised to the financial liability at
initial recognition.
All of the Group's financial liabilities are classified as "financial
liabilities at amortised cost" and are therefore subsequently measured
at amortised cost.
Equity instruments
Equity instruments are subsequently measured at fair value, where the
Group's management has elected to present fair value gains and losses
through other comprehensive income ("OCI"), there is no subsequent
reclassification of fair value gains and losses to profit or loss following
derecognition of the investment. Dividends from such investments continue
to be recognised in profit or loss as income from financial assets when the
Group's right to receive payments is established.
(iii) Impairment
From 1 March 2018, the Group assesses on a forward looking basis the
expected credit losses ("ECLs") associated with its financial asset
instruments carried at amortised cost. The impairment methodology applied
depends on whether there has been a significant increase in credit risk.
Credit losses are measured as the present value of all cash shortfalls
(ie the difference between the cash flows due to the entity in accordance
with the contract and the cash flows that the Group expects to receive).
ECLs are discounted at the original effective interest rate ("EIR") of the
financial asset.
The Group has three types of financial and contract assets that are subject
to the expected credit loss model:
- Trade receivables
- Contract assets relating to construction contracts
- Loans to joint venture
While cash and cash equivalents are also subject to the impairment
requirements of IFRS 9, the identified impairment loss was immaterial.
All gains and losses relating to ECLs are recognised through profit and loss.
For each of the categories, the ECL is applied to each individual debtor,
each individual contract with a customer and each individual loan dependent
on the type of credit risk exposure for the relevant financial or contract
asset. Risk exposure on financial and contract assets can be classified within
three distinct categories.
- Government institution exposure. The exposure to Government is based on the
type of project and units being constructed for Government institutions
within the geographic of South Africa
- Normal business risk exposure. The exposure to other corporate customers and
businesses within the geographic of South Africa
- Financial institution risk exposure - The exposure to local financial
institutions within the geographic of South Africa
Based on the relevant exposures as described above, the following expected
credit loss rates have been applied:
Government Normal Financial
institution business risk institution risk
exposure exposure exposure
% % %
Expected loss rate 7.76 2.50 1.11
Concentration of credit
risk in the Group 31.45 11.79 56.76
The rates utilised for the ECL calculations on contract assets, loans and
debtors were adjusted accordingly to take into account the specific exposure
based on the three categories listed above.
Financial assets which are not exposed to the same credit risks are provided
or based on their individual specific credit risk, which has the potential to
be different to the expected loss rates as above.
4. Revenue
Accounting policy applied from 1 March 2018
The Group derives revenue from contracts with customers for the supply of goods (infrastructure,
fully and partially subsidised units, non-subsidised units, serviced land and memorial park
burial rights) and services (memorial park burial services and memorial park maintenance).
The Group measures and accounts for revenue based on the specifications of each individual
contract with a customer, excluding any amounts received on behalf of third parties, and based
on the contractual obligations either accounts for the revenue at a specific point in time or
over time as control of the goods or services is transferred to the customer.
The Group recognises revenue over time if one of the following criteria is met:
- The Group creates or enhances an asset which the customer controls as the asset is created;
- The Group does not create an asset with an alternative use to the Group and has an enforceable
right to payment for the work completed to date; or
- The customer simultaneously receives and consumes all of the benefits provided by the Group
The Group recognises revenue at a point in time if the over-time criteria is not met. Revenue is
recognised when control is transferred to the customer which is usually when legal title passed
to the customer and the business has the right to payment.
Refer below for further explanation of the different products and when control is transferred to
the customer and when the Group has right to payment.
The cost incurred to obtain a contract is expensed to profit and loss as and when the cost is
incurred as the Group considers the cost not to be recoverable until an agreement has been
reached to recover the cost.
Significant judgement and source of estimation uncertainty
Property Development Segment
The Group uses the "percentage-of-completion" method (also known as input method) in accounting
for its "over-time" construction contracts where control is transferred to a customer over a
period of time. Use of the "percentage-of-completion" method requires the Group to estimate the
construction services and activities performed to date as a proportion of the total services
and activities to be performed. The Group performs this by comparing actual cost incurred on a
unit/dwelling/project compared to the forecasted cost of the unit/dwelling/project which equals
the percentage of work completed ("percentage of completion"). The Group has determined that
his method faithfully depicts the Group's performance in transferring control of the goods and
services to the customer.
The Group uses approved feasibilities to determine the overall expected cost and attributable
margin to determine the transaction price on over-time construction contracts and for services
to be rendered on infrastructure projects where the Group is remunerated on a cost plus basis.
The relevant costs are determined by qualified industry experts, where applicable, and are based
on the overall infrastructure requirements as per the contract.
The Group allocates non-unit specific cost which includes land, infrastructure, town planning
and other project-related cost based on approved feasibilities.
Estimates are made by management to calculate the forecasted cost of a project which includes
non-unit specific cost to be allocated to units as and when they are constructed. The estimates
used are in terms of an approved feasibility study. Management forecasts are approved by the
Board of Directors and if third parties are involved, their approval is also obtained.
The Group applies judgement in determining whether contract for the sale of land and the
construction of residential housing include separately identifiable performance obligations
or whether they should be grouped together. The Group applies this judgement based on transfer
requirements for the property, if the land can be transferred without construction of the
relevant unit then the transfer of land and construction of unit is determined to be two
separately identifiable performance obligations.
Variations on original contract prices are agreed with a customer and are accounted for as a
contract modification where the original prices are modified to include the approved variation
to the original contract. A cumulative catch up of revenue is performed when the variation is
included for a contract where the revenue is accounted for over a period of time. The revenue
on variations for a point in time contract is only accounted for upon transfer of control of
the relevant services and goods to the customer.
The type of products within the Group for the Residential Development Segment is set out below:
Fully subsidised (Reconstruction and Development Programme ("RDP")/Breaking New Ground ("BNG"))
- Overall agreement between parties to construct a specified number of RDP units
- Purchase order received from Government based on approved budget within the relevant
department, based on gazetted prices for RDP units at the time of contracting
- Payment for work completed determined on a monthly basis ("progress draws")
- Specification is based on current Government gazetted specifications for the units
Community Residential Units ("CRU")
- Overall agreement between parties to construct a specified number of CRU units
- Purchase order received from Government based on approved budget within the relevant
department, based gazetted prices for CRU units at the time of contracting
- Payment for work completed determined on a monthly basis ("progress draws")
- Specification is based on current Government gazetted specifications for the units
Social Housing
- Overall agreement between third party social housing company to construct a specified number
of social housing units
- Units specification is agreed upon between the parties within the contract
- Payment for work completed is determined on a monthly basis or upon transfer of the units
Bulk Purchaser
- Overall agreement between third parties to construct a specified number of units
- Units specification is agreed upon between the parties within the contract
- Payment terms differ based on specified conditions of the agreement and relevant
funding arrangements
Grassroots Affordable Peoples' Homes ("GAP")/Finance Linked Individual Subsidy
Programme ("FLISP")
- Agreement between parties to purchase a single unit within a sectional title development
- Payment to take place upon transfer of the unit to the customer
- Specification of the units are standard across the development
Affordable Housing
- Agreement entered into with parties for the purchase of property and the construction of a
freestanding dwelling
- Specification of dwelling agreed upon between parties
- Payment upon transfer of the property
- Payment for construction of freestanding unit based on terms of bond obtained by customer
from the relevant financial institution
High-end units
- Agreement entered into with parties for the purchase of property and the construction of a
freestanding dwelling or sectional title units
- Specifications of unit agreed upon between parties
- Payment upon transfer of the property or unit
- Payment for construction of freestanding unit based on terms of bond obtained by customer
from the relevant financial institution
Integrated residential developments (consisting of a mix of bulk, link and internal
infrastructure together with a mix in unit typologies)
- Overarching agreement with Government to perform an integrated development for the upliftment
and integration of communities
- Bulk and link services subsidised based on the integration of subsidised and non- subsidised
units and mix of unit typologies
- Mixture of unit typologies to be constructed as per the agreement
- Payment for services rendered determined on a monthly basis
Memorial Parks Segment
The Group determines the selling price for the burial rights by determining the required
maintenance at a reasonable margin and standalone selling price of the burial service, which is
then deducted from the total transaction price. The remaining balance is the value of the
burial right.
In order for management to determine the relevant maintenance revenue the following assumptions
are used; life expectancy, period the service will be rendered and the cost to be incurred for
maintenance over the period the service is rendered. Management assesses these assumptions on
an annual basis based on approved feasibilities for each of the memorial parks.
As a cash payment for the memorial parks maintenance service is received in advance of the
entity performing the maintenance service, a significant financing component exists in
the contract.
The amount of revenue recognised will exceed the cash received because interest expense will be
recorded and will increase the amount of revenue recognised.
The type of products within the Group for the Memorial Parks Segment is set out below:
Memorial Parks burial rights
- Agreement with a customer to reserve the right to utilise a grave site
- A customer can utilise the grave site as soon as the right has been issued to the customer
- Payment is received before burial right is issued to customer
Memorial Parks burial services
- Agreement with the customer to provide internment services with the purchase of a burial
right upon utilisation of the burial right
- The service is rendered to the customer once the burial right is enforced by the customer
for the first internment on the burial site
- Payment is received with the payment of the burial right
- Payment for subsequent internment services is received before interment service is rendered
to customer
Memorial Parks maintenance services
- Agreement with customer to render maintenance services on reserved grave sites
- Services are rendered to the customer over the period the maintenance is performed for the
reserved site
- Payment is received with the payment of the burial right
Revenue Recognised for each type of contract is set out below:
-------------------------------------------------------------------------------------------------
Treatment under IAS 11/IAS 18 Accounting policy under IFRS 15
-------------------------------------------------------------------------------------------------
Fully subsidised (Reconstruction and Development Programme ("RDP")/Breaking New Ground ("BNG"))
-------------------------------------------------------------------------------------------------
Individual contract with revenue recognised Individual contract treatment with revenue
based on % completion (IAS 11)* recognised over time#
Estimated revenue is determined on the Estimated revenue is determined on the gazetted
gazetted price per unit and the number of price per unit and the number of units ordered
units ordered by Government. by Government.
Revenue is recognised on a "percentage of Revenue is recognised over time on a percentage
completion" of the units based on the of completion method for the units based on the
estimated cost to construct the units vs the estimated cost to construct the units vs the
cost incurred on the units. All costs incurred cost incurred on the units. All costs incurred
are expensed to cost of sales when incurred. are expensed to cost of sales when incurred.
-------------------------------------------------------------------------------------------------
Community Residential Units ("CRU")
-------------------------------------------------------------------------------------------------
Individual contract with revenue recognised Individual contract treatment with revenue
based on % completion (IAS 11)* recognised over time#
Estimated revenue is determined on the
gazetted price per unit and the number of Estimated revenue is determined on the gazetted
units ordered by Government. price per unit and the number of units ordered
by Government.
Revenue is recognised on a "percentage of
completion" of the units based on the Revenue is recognised over time on a percentage
estimated cost to construct the units vs the of completion method for the units based on the
cost incurred on the units. All costs incurred estimated cost to construct the units vs the
are expensed to cost of sales when incurred. cost incurred on the units. All costs incurred
are expensed to cost of sales when incurred.
-------------------------------------------------------------------------------------------------
Social Housing
-------------------------------------------------------------------------------------------------
Individual contract with revenue recognised Individual contract treatment with revenue
based on % completion (IAS 11)* recognised either at a point in time or
over time#
Estimated revenue determined on the contract
price per unit. Estimated revenue determined on the contract
price per unit.
Revenue is recognised on a "percentage of
completion" of the units based on the Revenue is recognised either over time on a
estimated cost to construct the units vs the percentage of completion method basis if control
cost incurred on the units. All costs incurred is transferred during the development and
are expensed to cost of sales when incurred. handover of units; or revenue is recognised at
a point in time basis if control is determined
to transfer only upon completion of the units
and there is no right to payment for work
completed.
Should revenue be accounted for over time, cost
incurred is expensed to cost of sales as
incurred. Should revenue be accounted for at a
point in time, cost is capitalised to contract
assets and recognised in cost of sales upon
transfer of the units.
-------------------------------------------------------------------------------------------------
Bulk Purchaser
-------------------------------------------------------------------------------------------------
Individual contract with revenue recognised Individual contract treatment with revenue
based on % completion (IAS 11)* recognised either at a point in time or over
time#
Estimated revenue determined on the
contract price per unit. Estimated revenue determined on the contract
price per unit.
Revenue is recognised on a "percentage of
completion" of the units based on the Revenue is recognised either over time on a
estimated cost to construct the units vs the percentage of completion method basis if control
cost incurred on the units. All costs incurred is transferred during the development and
are expensed to cost of sales when incurred. handover of units; or revenue is recognised at a
point in time basis if control is determined to
transfer only upon completion of the units and
there is no right to payment for work completed.
Should revenue be accounted for over time, cost
incurred is expensed to cost of sales as
incurred. Should revenue be accounted for at a
point in time, cost is capitalised to contract
assets and recognised in cost of sales upon
transfer of the units.
-------------------------------------------------------------------------------------------------
Grassroots Affordable Peoples' Homes ("GAP")/Finance Linked Individual Subsidy Programme ("FLISP")
-------------------------------------------------------------------------------------------------
Individual contract per customer with Individual contract per customer with revenue
revenue recognised on transfer of completed recognised on transfer of completed unit
unit (IAS 18)* - revenue recognised at a point in time
Sales price determined based on the Sales price determined based on the agreement
agreement between parties. between parties.
Revenue recognised upon transfer of the unit Revenue recognised at a point in time upon
to the client. transfer of the unit to the customer.
Cost incurred is capitalised to inventory and Cost incurred is capitalised to inventory and
expensed to cost of sales upon transfer of expensed to cost of sales upon transfer of
the unit. the unit.
-------------------------------------------------------------------------------------------------
Affordable Housing
-------------------------------------------------------------------------------------------------
Individual contract per customer with Individual contract per customer with two
revenue recognised on transfer for the performance obligations.
land to the customer (IAS 18) and based
on % completion for the construction of Revenue recognised on transfer of the land to
the unit (IAS 11)* the customer at a point in time. Revenue on
construction of the unit to be recognised
Sale of land over time.
Sales price of property/land determined
based on the agreement between parties. Sale of land - First performance obligation
Sales price of property/land determined based
Revenue recognised upon transfer of the on the agreement between parties.
property/land to the customer.
Revenue is recognised at a point in time upon
Cost incurred is capitalised to inventory and transfer of the property/land to the customer.
expensed to cost of sales upon transfer of the
property. Cost incurred is capitalised to inventory and
expensed to cost of sales upon transfer of the
property/land.
Construction of unit Construction of unit - Second performance
Estimated revenue for the construction of the obligation
dwelling based on the agreement between
the parties. Estimated revenue for the construction of the
the parties.
Revenue is recognised on a percentage of
completion based on the estimated cost to Revenue of the dwelling is recognised over
construct the dwelling vs the cost incurred on time on a percentage of completion method
the dwelling. All cost incurred is expensed to basis if control is handed over during the
cost of sales when incurred. construction phase based on the estimated
cost to construct the dwelling vs the cost
incurred on the dwelling. or at a point in
time if the property and dwelling transfers
as a completed unit.
Single performance obligation
Revenue is recognised at a point in time if
control is determined to transfer upon
completion of the unit/dwelling when the
property/land and dwelling is transferred as
a completed unit. This is applicable if the
customer can only except transfer due to their
funding arrangement with a financial
institution or requirements of the contract.
All cost incurred is either expensed to cost of
sales if revenue is accounted for over time or
capitalised to contract assets and expensed to
cost of sales upon transfer of the property.
-------------------------------------------------------------------------------------------------
High-end units
-------------------------------------------------------------------------------------------------
Individual contract per customer with Individual contract per customer with two
performance obligations.
revenue recognised on transfer for the
land to the customer (IAS 18) and based Revenue recognised on transfer of the land to
on % completion for the construction of the customer at a point in time. Revenue on
the unit (IAS 11)* construction of the unit recognised over time
Sale of land Sale of land - First performance obligation
Sales price of property determined based on Sales price of property/land determined based
on the agreement between parties.
the agreement between parties.
Revenue recognised at a point in time upon Revenue recognised at a point in time upon
transfer of the property/land to the customer. transfer of the property/land to the customer.
Cost incurred is capitalised to inventory and Cost incurred is capitalised to inventory and
expensed to cost of sales upon transfer of the expensed to cost of sales upon transfer of
property/unit. the property/land.
Construction of unit Construction of unit - Second performance
Estimated revenue for the construction of the obligation
dwelling based on the agreement between Estimated revenue for the construction of the
the parties. dwelling based on the agreement between
the parties.
Revenue is recognised on a percentage of
completion based on the estimated cost to Revenue for the construction of the dwelling
construct the dwelling vs the cost incurred is recognised over time on a percentage of
on the dwelling. completion method basis if control is handed
over during the construction phase based
All cost incurred is expensed to cost of on the estimated cost to construct the
sales when incurred. dwelling vs the cost incurred on the dwelling
or at a point in time if the property and
dwelling transfers as a completed unit.
Revenue is recognised at a point in time if
control is determined to transfer upon
completion of the unit/dwelling when the
property/land and dwelling is transferred as
a completed unit. This is applicable if the
customer can only except transfer due to
their funding arrangement with a financial
institution or requirements of the contract.
All cost incurred is either expensed to cost
of sales if revenue is accounted for over time
or capitalised to contract assets and expensed
to cost of sales upon transfer of the
property/unit.
-------------------------------------------------------------------------------------------------
Integrated residential developments (consisting of a mix of bulk, link and internal
infrastructure together with a mix in unit typologies)
-------------------------------------------------------------------------------------------------
Accounted for as a single, combined Every contract with a customer to be recognised
contract on % completion basis (IAS 11) and accounted for individually (as per above)#
The revenue is based on the percentage of Revenue is recognised at a point in time or over
completion for the total project as a whole. time depending on the terms and conditions
contained in each of the contracts with each
All cost incurred on the project is expensed individual customer.
as cost of sales when incurred.
Non-unit specific costs are allocated to each
Project estimates for revenue and cost of unit as and when the Group enters into a
sales is based on the overall project contract with the customer. The relevant cost
feasibility. incurred is expensed or capitalised based on the
revenue recognition which is either at a
specific point in time or over time.
Subsidised infrastructure revenue is based on
the estimated revenue for the work to be
completed on the project.
Cost incurred on subsidised infrastructure is
expensed to cost of sales when incurred.
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Memorial Parks burial rights
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The sale of burial rights relates to revenue Individual contract treatment with revenue
generated from the reservation of a grave site. recognised at a point in time when control of
Individual contract per customer with revenue burial right has transferred to the customer.
recognised on transfer of burial right to the
customer once full payment has been
received (IAS 18).
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Memorial Parks burial services
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The burial services relates to the revenue Individual contract treatment with revenue
generated from the interment services recognised at a point in time when control of
provided by the Group. Individual contract burial service has rendered to the customer.
per customer with revenue recognised on
transfer of burial services rendered to the
customer (IAS 18)
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Memorial Parks maintenance services
-------------------------------------------------------------------------------------------------
The maintenance services relate to the revenue Individual contract treatment with revenue
generated from the memorial park recognised over time as the maintenance services
maintenance provided by the Group for the are being rendered for the customer.
reserved graves. Individual contract per
customer with revenue recognised over the
year of maintenance being provided (IAS 18)
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* 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 are 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.
2019 2018
Sale of completed units 4 866 583 9 505 586
Construction contracts 939 778 202 1 720 492 629
Sale of developed land 31 500 000 -
Memorial parks burial rights 16 325 193 9 783 805
Memorial parks maintenance 2 044 624 1 142 070
Memorial parks burial services 2 549 926 1 678 072
997 064 528 1 742 602 162
Disaggregated revenue
Residential Property Development Segment
Infrastructure 440 224 268 -
Fully and partially subsidised units 452 065 209 -
Non-subsidised units 33 621 990 -
Serviced land sales 50 233 318 -
976 144 785 -
Memorial Parks Segment
Memorial parks burial rights 16 325 193 -
Memorial parks maintenance 2 044 624 -
Memorial parks burial services 2 549 926 -
20 919 743 -
Total revenue 997 064 528 -
5. Earnings reconciliation
2019 2018
Earnings reconciliation
Determination of headline and diluted earnings:
Profit attributable to shareholders 3 240 735 120 350 383
(Profit)/loss on disposal of property, plant and equipment
and computer software - (170 024)
Gain on deemed disposal of interest in joint venture - (5 999 965)
Impairment of goodwill 1 310 074
Gain on bargain purchase (27 600 377) -
Headline and diluted headline earnings (24 359 642) 115 490 468
Determination of earnings and diluted earnings:
Attributable profit 3 240 735 120 350 383
Earnings and diluted earnings 3 240 735 120 350 383
Number of ordinary shares 128 150 069 128 150 069
Weighted average shares 128 150 069 128 150 069
Fully diluted weighted average shares 128 150 069 130 813 250
6. Inventories
2019 2018
Opening balance 554 397 497 595 989 480
Additions (net of transfers to construction contracts) 91 327 959 (49 626 819)
Borrowing costs capitalised 22 165 556 24 567 250
Net realisable value adjustments (54 452 744) -
Disposals (44 940 268) (16 532 414)
Closing balance 568 498 000 554 397 497
7. Construction contracts
2019 2018
The aggregate costs incurred and recognised profits to date 4 172 437 264 9 786 723 770
Less: Progress billings (3 061 010 070) (7 970 168 934)
Net statement of financial position balance for
ongoing contracts 1 111 427 194 1 816 554 836
Excess billings over work done classified under trade and
other payables 198 231 245 4 419 154
Provision for loss making contracts classified under trade
and other payables 4 847 353 -
Gross statement of financial position balance for
ongoing contracts 1 314 505 792 1 820 973 990
Construction contracts to be realised within 12 months 671 469 797 1 052 697 082
Construction contracts to be realised after 12 months 643 035 995 768 276 908
1 314 505 792 1 820 973 990
The previous year's contract liabilities have been recognised in revenue in full during the
current reporting period.
2019
Disaggregated construction contracts in terms of
IFRS 15: Pre-expected credit loss provisions
Infrastructure - contract assets 315 881 180
Fully and partially subsidised units - contract assets 505 700 429
Non-subsidised units - contract assets 10 871 906
Serviced land - contract assets 47 342 897
Contract assets 879 796 412
Future contract asset costs
Development cost for future contract assets 434 709 380
1 314 505 792
Reconciliation of construction contracts
Gross statement of financial position balance for
ongoing contracts 879 796 412
Provisions for expected credit losses on contract assets (35 432 920)
Development cost for future contract assets 434 709 380
Statement of financial position balance for
construction contracts 1 279 072 872
The expected aggregate revenue still to be recognised on the current contract asset balances
amount to R1 935 650 160 and will be recognised within the normal operating cycle of
the business.
8. Related-party transactions
2019 2018
Compensation paid to key employees and personnel 47 258 856 34 409 378
Finance income from related parties 40 656 735 15 791 302
Contract revenue received from joint ventures 342 747 719 485 166 377
9. Financial instruments
The carrying value of all financial instruments are equal to the fair value of those instruments
at 28 February 2019 with the exception of borrowings. The carrying value of Bond Exchange
borrowings at 28 February 2019 was R589.2 million, with a corresponding fair value of
R601.1 million on the Bond Exchange. The difference is attributable to the bonds trading in an
active market and are classified as level 2 in the IFRS 13 fair value hierarchy.
10. Bond exchange
During the year ended 28 February 2019, the Group repaid R193 million in borrowings that matured,
as well as raised a total of R273 million in a combination of three and five-year notes.
Total finance cost incurred for the period amounted to R135.8 million (February 2018:
R83.3 million) of which R76.5 million (February 2018: R66.6 million) was capitalised to
inventory and construction contracts.
11. Dividends
Management believes that cash should be retained to fund growth across the Group. Cash retention
is important to ensure investment in future projects, as well as reduced reliance on debt
finance. The Board has therefore resolved not to declare a dividend for this reporting period.
12. Going concern
Based on the latest results for the year ended 28 February 2019, the latest board approved budget
for the 2020 financial year, as well as the available bank facilities and cash generating
capability, Calgro M3 satisfies the criteria of a going concern.
13. Corporate governance
Corporate governance forms one of the foundational layers of the Calgro M3 strategy as we
understand that transparency, integrity and accountability need to permeate everything that we
do. The Board of Directors endorse the principles contained in King IVTM. Calgro M3's
application of these principles is set out in the 2019 corporate governance report as well as the
King IV application register, and is, in accordance with the JSE Listings Requirements, available
on the Company's website. Please contact Ms I April, Group company secretary, for any
additional information.
14. Ratio calculations
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).
Restated
2019 2018
Net debt
Borrowings 969 195 006 889 596 522
Other interest-bearing borrowings* 29 293 118 27 392 556
Less: Cash and cash equivalents (122 632 997) (156 722 935)
875 855 127 760 266 143
Equity
Stated capital 116 255 971 116 255 971
Retained income 690 054 102 977 014 965
806 310 073 1 093 270 936
Net debt/equity ratio 1.09 0.70
* The other interest-bearing borrowings amount has been restated from R88 408 189 to R27 392 556
to take into account borrowings with actual interest being applied and excluding borrowings
with accounting IFRS interest (implied interest).
The maximum allowed net debt/equity ratio for the Group is 1.5:1.
Debt service cover ratio ("DSCR")
This ratio is calculated as available cash flow divided by debt service requirement. Available
cash flow is calculated as cash generated from/(utilised in) 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.
2019 2018
Available cash flow
Cash generated from/(utilised in) operating activities 298 290 312 (205 838 542)
New financial indebtedness incurred 296 000 000 516 000 000
Cash and cash equivalent at the beginning of the year 156 722 935 240 765 157
Capex (298 160 560) (129 532 596)
452 852 687 421 394 019
Debt service requirement
Interests and fees (115 459 090) (75 746 785)
Principal repayments (193 000 000) (192 000 000)
(308 459 090) (267 746 785)
Debt service cover ratio ("DSCR") 1.47 1.57
The minimum allowed DSCR ratio for the Group is 1.2.
Proparco requirements
The Group monitors capital from Proparco on the basis of its debt service cover ratio and its net
debt/equity ratio (as above). The minimum allowed debt service cover ratio for the Group is 1.2
and the maximum net debt/equity ratio of 1.5:1.
Directors Transfer secretaries
FJ Steyn Computershare Investor Services (Pty) Ltd
MN Nkuhlu Rosebank Towers
W Williams 15 Biermann Avenue
WA Joubert (Financial Director) Rosebank
WJ Lategan (Chief Executive Officer) 2196
BP Malherbe* PO Box 61051, Marshalltown, 2107
GS Hauptfleisch*#
H Ntene*# Sponsor
ME Gama*# Grindrod Bank Limited
PF Radebe (Chairperson)*#
RB Patmore*# Company secretary
VJ Klein## I April
* Non-executive
# Independent Auditors
## Resigned on 14 February 2019 PricewaterhouseCoopers Inc.
Registered office Website
Calgro M3 building http://www.calgrom3.com
Ballywoods Office Park
33 Ballyclare Drive Date of announcement
Bryanston 13 May 2019
2196
Private Bag X33, Craighall, 2024
Disclaimer: Statements contained in this announcement, regarding the prospects of the Group, have not
been reviewed or audited by the Group's external auditors.
Date: 13/05/2019 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
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