Highlights:
- Revenue increased by 50.3% to R1.322 billion
- Headline earnings of 105.63 cents per share (2021: Headline loss of 15.17 cents per share)
- Group net asset value (“NAV”) increased by 16.4% to R7.93 per share
- Net debt to equity decreased to 0.71 from 0.99 at February 2021
- Gross profit margin returned to its target range of 21.3%
- Return on equity increased to 14.7%
- Net cash generated from operations of R129.9 million
- Liquidity – a total of R591 million available
- Retained level 1 B-BBEE accreditation
Johannesburg, 16 May 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 year ended 28 February 2022.
This marked the Group’s third highest revenue number in its history, with both revenue and gross profit delivering a stronger performance in the second six months of the year. Overall revenue increased by 50.3% to R1.322 billion (2021: R879.1 million), with the improved performance in the second six months the result of increased unit registrations.
The gross profit margin recovered to 21.3% (2021: 12.3%) from a level of 19.7% at August 2021 due to rigorous cost containment and the outsourcing of construction activities. This, combined with enhancements made to the development process, resulted in the Group strengthening its gross profit margin towards its target range of 20% to 25%.
Moreover, the combined pipeline for the Residential Property Development and Memorial Parks now stands at an impressive R17.4 billion.
Calgro M3 CEO, Wikus Lategan said that in delivering these results, the Group had demonstrated tangibly that it was a business able to withstand challenges by sticking to its #sustainableactions credo. “More than that, we certainly now have a team in place that can get the job done.”
Financial review
Basic earnings per share (“EPS”) increased to 108.58 cents per share (2021: 14.88 cents per share), with headline earnings per share (“HEPS”) improving to 105.63 cents per share (2021: 15.17 cents loss per share).
Cash and cash equivalents at the end of the year increased to R191.1 million (2021: R154.6 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 enable the Group to execute on short to medium-term goals. The Group also continued to generate positive cash from operations of R228.2 million (2021: R114.8 million) for the year.
Lategan said that the Group’s balance sheet is strong, with a net debt to equity ratio of 0.71:1. “This is below the communicated target of 0.9:1 and well below the regulated covenant of 1.5:1. The debt levels are expected to decrease in line with the targets as set by management, however additional funding may be raised should short-term funding be required at any given stage due to the seasonal nature of the Group’s cash flow. The Group has settled debt of R107.4 million in the current financial year, which includes the first repayment of the Proparco facility which fell due in the current financial year.”
Current liabilities decreased by a further 11.83% to R1.262 billion (2021: R1.431 billion) and has substantially reduced from R1.75 billion at February 2020.
Operational overview
The Residential Property Development business remains the largest contributor to revenue, operating primarily in Gauteng and the Western Cape, while trading out of KwaZulu-Natal, with a total of nine projects in the ground. This business targets six distinct income groups that ensures that it is well diversified to better face economic challenges or challenging market conditions. The revenue pipeline for Residential Property Development is R15.3 billion, excluding the potential contribution of the Frankenwald property.
Lategan points out that the major achievements in this business during the year under review included that gross margin is now well within the target range. “In addition, there was meticulous capital allocation to high yielding projects, plus we enhanced our product and lifestyle offering while taking affordability into account. Ultimately, the revenue diversification between projects and provinces and our sustainable mix of customers are ensuring consistent handovers and cash flows.”
With 4 583 opportunities under construction (compared to 4 654 a year ago), 2 685 opportunities completed and a pipeline of 24 563 opportunities due to the subsequent disposal of Safdev Tanganani (Pty) Ltd and the densification of various projects, Lategan says the Group is well positioned, sufficiently capitalised and has liquidity to address market demand.
While limited infrastructure investment took place during the year, the Group is planning on self-funding approximately R120 million of infrastructure investment during the 2023 financial year. “Although we are confident that the cash generated from operations will be more than sufficient to fund this, cash generation remains somewhat seasonal and net debt to equity might increase slightly for a brief period of time.”
Lategan cautioned that given predicted interest rate increases, the Group remains watchful of the economic impact on its customers and the potential tightening of lending criteria from banks. “We remain confident though that we have made major strides in containing costs and will continue working on making building design and layouts more efficient, to contain building costs that impact margins.”
In the Memorial Parks business, the year under review ensured further tightening of the strategic objectives of this segment of the Group. As previously communicated, Waldi Joubert has taken the reigns as managing director of Memorial Parks, to ensure a dedicated leader and strategist is in place to grow this business.
Lategan said that Memorial Parks remains a key expansion area for the Group, with the medium-term objective being to grow cash receipts from Memorial Parks to support all Group overheads and interest obligations.
With 2 324 burial opportunities sold in the year (2021: 1 769), and a remaining total pipeline of 101 545 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. The national roll-out and development of further land parcels within existing parks remains a priority with investigations ongoing. The acquisition of new parks in strategic locations are also being investigated.”
The business currently has an anticipated project turnover of R2.1 billion.
Outlook
In looking forward, Lategan said that with the end of the state of disaster in South Africa, the Group believes the country is ready for its next chapter. “While we will remain cautious, we will continue implementing initiatives to grow our businesses while not forgetting our core values. Although many statisticians and economists are making forecasts and predictions, it is exceedingly difficult to predict what the long-lasting effect of Covid-19 or a similar pandemic might be on South Africa.
“However, we believe the challenge for South Africa and Calgro M3 is not Covid-19, but the ability to continue trading through stormy waters, ensuring we get to the other side, and then look forward to our runway of opportunity. We will continue focusing on cash flow, driving both revenue and profit generation while managing the level of debt. The optimal application of capital between risk capital, working capital, new opportunities, and share buybacks will remain important strategic considerations.”
He continued by saying that management would place emphasis on cash flow generation from projects by increasing sales, the sale of non-core assets and the preservation of cash for future use. “The highly anticipated Frankenwald integrated development should come on stream in less than two years from now and we are excited about new plans to enhance the face of affordable, value for money homes it will bring to the doorstep of Sandton. We are confident that we will be able to fund this development from cash generated from our current projects and that it will be the next phase of Calgro M3’s legacy.
“In addition, we are exploring the expansion of some of our current projects by accessing neighbouring land and opportunities in the Western Cape, to remain well diversified between projects and provinces.”
Lategan concluded by saying that 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 a sustainable long-term return and value for shareholders.
“Memorial Parks is set to benefit from greater market share with our value offering now entrenched at a level above that of other cemeteries in South Africa and with Waldi appointed as the managing director on a full-time basis, we are confident that his entrepreneurial flair and full-time commitment to this business will show great returns in future. We will continue investigating the best land use allocation and product mix within our residential development projects and consider and capitalise on any better cash and profit allocation opportunities.
“In short, Calgro M3 will continue to strive to support South Africa as we consistently abide by our promise of ‘Building legacies, Changing lives’.”
