Highlights:
- Positive cash generated from operations of R114.8 million to support the #sustainableactions strategy
- Profit after tax of R18.5 million
- Earnings per share (“EPS”) increased to 14.88 cents per share
- Liquidity of R155 million available
- Group net asset value (“NAV”) increased by 7.2% to R6.82 per share
- Memorial Parks revenue increased by 65.2%
- 4 654 units under construction compared to 2 393 a year ago
Strategic successes of the financial year:
- Disposed of the Ruimsig rental portfolio and of the non-core project, Vista Park
- Share buyback amounting to 4.6% of the issued share capital
- Debt restructured with only R70 million remaining in Debt Capital Market (“DCM”) maturities in the next 24 months
- Successful closure of the in-house construction division
Johannesburg, 17 May 2021 – JSE-listed Calgro M3, which is a market leader in the development of Integrated Residential Developments and the development and management of Memorial Parks, today released results for the year ended 28 February 2021. Revenue and gross profit recovered across the year, delivering much stronger results that assisted the Group returning to profitability.
Wikus Lategan, CEO of Calgro M3, said that this is a particularly pleasing set of results, given that the Group had faced enormous challenges during the financial years 2016 to 2018, following which hard decisions were made and executed on in 2019 and 2020. “Thanks to this, we’ve managed to reduce our debt and fixed costs substantially, sell non-core projects and the residential rental portfolio, and ultimately improve liquidity.”
The swift reaction by the Group to the challenges presented by the Covid-19 pandemic also helped, with Calgro M3 currently having 4 654 residential opportunities under construction, compared to 2 393 in 2020, and the Memorial Parks business continuing to grow, albeit from a low base to a point that it is supporting the Group with annuity income. Total cash received in the Memorial Parks businesses presents a Compound Annual Growth Rate (“CAGR”) of 53% from 2018 to 2021.
“We will continue driving balance sheet strength by reducing debt but will retain sufficient facilities to support operations and ensure sufficient cash flow and liquidity during challenging times,” added Lategan, saying that Calgro M3’s operating market continues to present huge opportunity for the Group.
“We must ensure that we are able to reap the benefits of the glaring gaps in the market, and so have come up with a theme for this ever-changing environment, which is #sustainableactions, where we endeavour to ensure decisions and actions are taken so that we remain sustainable while supporting ‘Building legacies, Changing lives”.
Other highlights for the year included retaining the United Nations Global Compact advanced level status, as well as the ISO 14001:2015 and ISO 45001:2018 certification. Calgro M3 also remains active in terms of its CSI programme, with a focus on Covid-19 initiatives in the communities in which it operates.
Financial review
The first six months were enveloped by Covid-related costs amounting to R35.8 million and the closure of the construction division, which accounted for R12.9 million. Overall revenue for the year decreased by 10.7% to R879.1 million (2020: R984.1 million), after being down 24.0% in August 2020 when construction ceased during the months of April and May 2020, with zero development activity taking place during this time as a result of Covid-19 lockdowns.
The gross profit margin recovered to 12.3% (2020: 10.2%) from a level of 7.9% at August 2020.
Basic earnings per share (“EPS”) increased to 14.88 cents per share (2020: 3.84 cents per share). Headline earnings per share (“HEPS”) decreased to a loss of 15.17 cents per share (2020: 1.77 cents profit per share) due to certain once-off costs.
The increase in other income is primarily attributable to the disposal of a non-core project, namely the Vista Park development, in February 2021 for a consideration of R49.2 million, resulting in a profit of R36.6 million.
The Group continued to generate positive cash from operations of R114.8 million for the year. Cash and cash equivalents at the end of the year decreased to R154.6 million (2020: R255.1 million). This balance, together with available overdraft facilities (R100 million), has positioned the Group well for robust delivery in the 2022 financial year.
Operational overview
Having faced two months of no construction and a slow start up after that, effectively losing three months’ production, the Residential Property Development business has made a swift recovery. Lategan attributed this to the meticulous capital allocation to high-yielding projects and the successful closure of the construction division, which reduced fixed overheads and increased cash flow. He believes there is also effectively no longer any need for investment in “long-term” infrastructure at this stage as the Group has sufficient serviced stands.
“Further successes in this business were the construction of the electricity substations at the Fleurhof and the South Hills projects, both nearing completion, and we are enhancing our product offering while keeping sales prices low, which is extremely beneficial to our clients.”
Lategan said that this was particularly important as clients are becoming more discerning. “We strive to deliver products and services that are superior in the market and which hold good value-for-money. Encouragingly, South African banks are still approving 100% bonds, which is allowing us to continue selling existing units, ensuring the business remains operational.”
The consistent monthly hand over of units has enhanced the stability of cash flows and reduced capital exposure. With 4 654 opportunities currently under construction, compared to 2 393 a year ago, and a pipeline of 32 590 opportunities at Belhar CBD, Fleurhof, Jabulani Precinct in Soweto (three projects), Scottsdene, South Hills, Tanganani and Witpoortjie, the Group is well positioned with sufficient capital and liquidity to return to activity levels within the next few years that were last seen five years ago.
“With 6 073 serviced opportunities available, the commencement of installation of new infrastructure should also be forthcoming once the required Government funding is made available, but no immediate capital pressures exist in this regard.”
The Memorial Parks business delivered an excellent performance, with revenue increasing by 65.2%. Total cash received increased by 57.0% to R53.6 million (2020: R34.1 million), with total confirmed Covid-19 sales amounting to R6.9 million.
With 1 769 burial opportunities sold in the year (compared to 1 057 a year ago), and a remaining pipeline of 59 366 burial opportunities, as well as other products at current parks, the Group is well positioned and remains bullish on growth opportunities in this business segment.
“Our ability to match the profitability of the property development business in the medium to long term remains a focused goal. The current strategies to achieve this goal, include establishing a national footprint and enhancing sales distribution through various channels,” said Lategan, adding that the current market share represents an estimated 1% in metro areas, representing strong potential growth.
Outlook
Looking to the future, Lategan said that the priority remains managing both the Residential Property Development and Memorial Park businesses carefully to ensure liquidity is sufficient to weather more Covid-19 woes and the current depressed economic climate.
“We will continue to demonstrate that the business is resilient and can withstand the challenges of a suppressed economy, policy uncertainty, Covid-19 or a similar global pandemic, and any other uncontrollable factors that might come our way. The Group has increased liquidity sufficiently over the last year to be able to weather further challenges, although we will continue focusing on cash flow generation without expensing same and in doing so, will remain dedicated to revenue and profit generation.”
He concluded by saying that the optimal application of capital between new opportunities, working capital, risk capital and share buybacks would remain an important strategic decision. “Management places emphasis on cash flow generation from projects by increasing sales, and sale of non-core assets, as well as the preservation thereof for future use. The Group remains 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.”
