Highlights:
- Headline earnings per share (“HEPS”) increased to 57.00 cents per share (2021: 42.79 cents per share)
- Earnings per share (“EPS”) increased to 57.04 cents per share (2021: 39.56 cents per share)
- Revenue increased by 5% to R607 million (2021: R576 million)
- Gross profit margin remained within the 20% to 25% target range, increasing to 22% (2021: 19.7%)
- Net finance cost decreased by 76%
- Interest-bearing borrowings decreased by 3%
Johannesburg, 17 October 2022 – JSE-listed Calgro M3, the property and property-related investment company specialising 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 2022, reporting an increase in revenue to R607 million (August 2021: R576 million).
The gross profit margin increased to 22.1% (August 2021: 19.7%), with HEPS and EPS up to 57.00 cents (August 2021: 42.79 cents) and 57.04 cents (August 2021: 39.56 cents) respectively.
CEO of Calgro M3, Wikus Lategan, said that management was pleased with this solid performance. “We continued our strategic focus on driving efficiencies, containing costs and delivering high-quality affordable homes and memorial parks. This, combined with the investment in innovative building designs, challenging the efficiency of design layouts, and seeking margin improvement rather than focusing solely on increasing sales volumes, resulted in this focused and controlled growth in both revenue and HEPS.”
Lategan elaborated that meticulous capital and resource allocation across the Group’s various projects, as well as deep industry knowledge tailored to the needs of the markets that Calgro M3 serves, had added to the margin being maintained within the target range of 20% to 25%.
He said that the results had further been achieved in line with the Group’s entrenched #sustainableactions theme, in terms of which Calgro M3 has committed to ensuring that decisions and actions are taken to ensure long-term sustainability through increased market share and accessibility to capital to continue to secure a robust pipeline.
In line with this, the current pipeline comprises more than 24 000 opportunities, with an approximate revenue of R15.9 billion across nine projects, excluding the Frankenwald project, which aims to add a further 20 000 opportunities to the pipeline in mid-2023. This is when Calgro M3 expects to exercise the land acquisition option, bringing the total pipeline to more than 40 000 opportunities (R30 billion) for the Group.
“As anticipated, cash resources decreased with cash utilised in operations, primarily to ensure serviced opportunities are in place for the latter part of the year,” said Lategan, adding that this disparity with profitability would return to be in line with after-tax profits for the full financial year. Revenue is also expected to increase in the second six months, driven by the completion and/or transfer of at least half of the units currently under construction.
“This first half of the financial year was really a period during which we ensured that sufficient serviced opportunities and the necessary future infrastructure are in place to support sales and strong cash generation.”
Financial review
The Group utilised cash in operations of R60 million (February 2022: R228 million cash generated from operations) at the reporting date. Combined with the infrastructure spend, significant investments were made into sectional title open market units, at least half of which will yield returns in the second half of the year.
Debt of R77 million was settled as anticipated and previously communicated, with slight increases in net debt levels that were expected in the current period, resulting in an increase in the net debt to equity ratio to 0.76:1 (February 2022: 0.71:1).
The Group ended the period with a cash balance of R59 million (February 2022: R191 million). Additional liquidity in the form of a R100 million undrawn overdraft from Standard Bank, as well as a US$20 million facility from the Development Finance Corporation, which is also undrawn, will assist the Group to execute on short to medium-term goals should the cash be required.
Operational overview
The Residential Property Development performed well, with 3 965 units under construction at the end of the period, approximately half of which are expected to be completed and/or handed over before February 2023.
“Given this, we are expecting growth in revenue for the remaining six months of the year, and we are well positioned, sufficiently capitalised and have liquidity to address market demand and continued growth,” said Lategan.
With regards to Frankenwald, he explained that the Urban Development Framework was approved in August 2022, a considerable milestone for the preplanning phase of the project.
“We are committed to exercising the land option at the end of June 2023 and are confident in our ability to fund the option payment from internally generated cash resources, unlocking more than 20 000 additional residential units across eight distinct income groups.” Of benefit is the availability of electricity for the first
11 085 units, including bulk infrastructure, which means that the first phase capital requirements for the project are lower than a standard integrated project would generally require.
Calgro M3 self-funded R47 million of the annually planned infrastructure spend of R120 million, with the balance to be incurred in the second six months of the year.
“We remain confident that cash generated from operations for the full year remains sufficient to fund the balance, despite negative cash from operations in the current period.”
The Memorial Parks business remains a key expansion area, said Lategan, with the medium-term objective being to grow cash receipts to support all Group overheads and interest obligations. “This business experienced a slowdown in sales in the period under review, attributable to three factors – lower burial volumes, affordability, and the restructuring of the sales and marketing department.”
When adjusting for excess Covid-19-related deaths, as reported by the South African Medical Research Council, between the period August 2019 to August 2022, the current period performance was 5.6% lower than that in August 2021. “It is our intention to maintain an enhanced market presence through strategic marketing and an improved and affordable product portfolio.”
Outlook
According to Lategan, the Group will remain cautious in the current political and economic climate but will continue to implement initiatives to grow both businesses, always mindful of its core values and the immense need for housing and burial facilities in South Africa.
“We believe the strength of both the country and Calgro M3 lies in the ability to trade through stormy waters whilst continuously looking forward to a runway of opportunities.” He added that positive cash flow, driving both revenue and profit generation while managing a sustainable level of debt would remain priorities.
“Our emphasis on cash flow generation from projects, not only by increasing sales, but also by improving and maintaining sales margins and the continued sale of non-core assets, will ensure we preserve cash for future use.”
With the next big project for the Group, Frankenwald expected to come on stream in mid-2023, the Group is buoyant about plans to enhance the face of affordable homes on the doorstep of Sandton, with Lategan saying that this, together with a strong pipeline, provides sufficient diversification to mitigate concentration risk.
Lategan concluded by saying that current strategic considerations include ensuring focused, controlled revenue growth and the optimal application of capital between risk capital, working capital, new opportunities, and share buybacks.
“The current operating climate is not easy, but our knowledge of the industry, coupled with meticulous capital allocation to high-yielding projects, enhancing products and lifestyle offerings while taking affordability into account, will be at the forefront of management’s strategic objectives for the foreseeable future.”
