Highlights:
- Revenue increased by 45.6% to R576.2 million (August 2020: R395.8 million)
- Gross profit margin increased to 19.7% (August 2020: 7.9%)
- Headline earnings per share increased by 262.8% to 42.79 cents per share (August 2020: 26.29 cents loss per share)
- Net asset value (“NAV”) increased to R7.23 per share
- Cash generated from operating activities amounted to R133.2 million (August 2020: R115,7 million)
- 771 opportunities handed over with 5 091 opportunities currently under development
Johannesburg, 18 October 2021 – JSE-listed Calgro M3, a market leader in the development of Integrated Residential Developments and the development and management of Memorial Parks, today released results for the six months ended 31 August 2021, reporting an improvement across all financial and operational indicators.
Calgro M3 CEO, Wikus Lategan, commented that the continued successful implementation of the strategic decisions that were taken previously to refocus, restructure and return the business to sustainable profitability, had produced the desired results. “This performance definitely reflects our continued sales efforts and increased focus on brand awareness across both segments of the business, with the Property Development business contributing R545.7 million of total revenue.”
He added that with gross margin having reached a four-year high of 19.7% (August 2020: 7.9%, and February 2021: 12.3%) this justified the earlier strategic decision to close and outsource the construction element of the business. The gross profit margin is expected to continue strengthening to the historical range of 20% to 25% as even better operational efficiencies are achieved and higher margin units are delivered to customers.
Overhead costs decreased by 23%, further demonstrating the Group’s ability to manage costs and efficiencies in the current economic environment. This cost is expected to increase slightly as more units are built and private sector marketing and brand building is undertaken.
Headline earnings per share (“HEPS”) increased to 42.79 cents per share (August 2020: 26.29 cents loss per share). Similarly, basic earnings per share (“EPS”) increased to 39.56 cents per share (August 2020: 30.46 cents loss per share ).
“Memorial Parks certainly played its part in these results, producing an increase of 52.7% in cash receipts. This demonstrated a further increase in market share and stable diversification in cash generation.”
Lategan said that it was important to note that the Memorial Parks business acts as an effective hedge against economic cycles and unforeseen events such as the pandemic, and what was particularly pleasing for this period is that total cash receipts generated from this business was sufficient to cover the Group’s administrative expenses. “The benefit of this over the long-term is that cash receipts from Memorial Parks should increase to such a level that it supports all Group overheads and interest obligations.”
“The continuous focus on liquidity management, resulting in strong cash generation, allowed us to execute on our short to medium-term strategic goal of reducing debt. This in turn led to lower interest repayments and which further bolstered earnings.”
“This, coupled with the cash on hand of R215 million, resulted in a reduction in the net debt to equity ratio to 0.84:1, well ahead of our February 2022 target of 0.9:1.”
“Our liquidity will be further enhanced with the sale of certain retail, commercial and remaining rental properties as well as certain non-strategic projects, some of which are close to finalisation.” In line with this, debt was reduced by R20 million with the proceeds from the disposal of the Tanganani project.
In regard to the civil unrest experience in South Africa earlier this year, Lategan mentioned that increased efforts to generally minimise disruptions on projects by engaging the communities the Group services and developing good community and labour relations, had held Calgro M3 in good stead, with no units being invaded or damaged.
“Given the recent announcement on the ban of the use of imported cement on state contracts, I’d also just like to say that we don’t make use of imported cement in our integrated developments, and the fixed-price contracts our main contractors have in place are long term, being up to 18-months in length, so this is a non-issue as far as we’re concerned.”
Operational overview
Lategan said that both businesses had continued to deliver outstanding service and product ranges to customers.
The Residential Property Development business now operates mainly in two provinces – Gauteng and Western Cape –although it continues to trade out of KwaZulu-Natal, and has a total of nine projects in the ground. The business targets six distinct income groups that ensures that it is well diversified to better face economic challenges or challenging market conditions.
Revenue in this business grew 44.9% to R545.7 million and the gross profit margin increased to 17.5%. “This is the highest margin achieved since 2017 and an indication of our refocus on our core business, which included a move to outsourced construction,” said Lategan.
“Around 5 000 opportunities are currently under construction and this, together with meticulous capital allocation and a lower overhead structure, means that the Group remains well positioned to capitalise on the strong housing market and has sufficient working capital and pipeline opportunities.”
He said that non-core projects and remaining rental units in South Hills and Scottsdene would continue to be sold, while core project returns are being maximised through town planning, better designs and product enhancements catering for the more discerning clientele. “We’re doing this while keeping sales prices affordable and at a level where banks approve mostly 100% bonds.”
With improved designs and layouts, Lategan said that Calgro M3 had increased the number of opportunities in the Fleurhof, South Hills and Witpoortjie developments by more than 3 900 opportunities. “No additional capital costs other than professional fees were incurred to achieve this. Future internal infrastructure costs were substantially reduced, and this will enhance the gross profit margin over the next 18 to 36 months.”
“The Group has sufficient serviced and unserviced opportunities available across its projects to fuel growth for the foreseeable future, without having to take excessive risks in acquiring new projects, and the current low interest rate environment will further enhance housing sales. We remain cautious of the economic impact on our customer base and the potential tighter credit criteria from banks.”
The Memorial Parks business continues to demonstrate substantial growth opportunities supported by an increase in total cash receipts during the period of 52.7% to R39.4 million (August 2020: R25.8 million).
“We introduced a new entry level product at the Nasrec Memorial Park, offering a grave for immediate burial for as low as R13 000. This diversification in the product offering has attracted a new market that could previously not afford a grave in this park and has resulted in an increase in the Gauteng market share during the period.”
Lategan added that the Group is pleased to have concluded a partnership with Nedbank whereby qualifying clients can secure a loan from Nedbank to purchase a grave. “The national rollout and development of further land parcels within existing parks remains a priority with investigations ongoing. The acquisition of new parks is, however, only planned for the next financial year.”
Outlook
Lategan said the Group is now solidly positioned to capitalise on market demand with cash generation and careful capital allocation remaining areas of focus. “We will also continue to retain higher cash balances and available facilities. This more conservative approach will provide for a much more sustainable Group that can weather economic conditions and unforeseeable events.”
Lategan added that skills development, training and education remain an imperative on the human capital agenda, with additional initiatives underway to support what is currently in place.
He mentioned that debt reduction remains a priority without placing the operational business under too much pressure and would mostly be done from the disposal of rental units or non-core projects, to continue de-risking the Group.
“We see growth in the short to medium-term coming from increased market share in both of the businesses, with operational efficiency initiatives aimed at expanding volumes, reducing costs and developing the required skills across all employee levels, remaining key focus areas across all operations,” Lategan concluded.
