Highlights:
- Revenue increased by 15,4% to R1,5 billion (2022: R1,3 billion)
- Headline earnings per share (“HEPS”) increased 45,01% to 153.18 cents per share (2022: 105.63 cents per share) which is the highest ever achieved
- Gross profit margin improved to 23.5% (2022: 21.3%), remaining within the target range of 20% to 25%
- Net debt to equity decreased to 0.62 from 0.71 which is the best achievement in the past 10 years
- Share buy-back of 9.27% at an average price of R2.34 (subsequent to year-end)
- Maintained committed focus on increasing female representation and achieved a 44.8% representation in an industry which historically lacked female participation. Ongoing goal is to achieve gender parity, with a 50% female participation target.
- Attained Level 1 B-BBEE rating, demonstrating commitment to broad-based black economic empowerment
Johannesburg, 15 May 2023 – JSE-listed Calgro M3, the property and property-related investment company specialising in the development of Integrated Residential Housing Developments and the development and management of Memorial Parks, announced the financial results for the year ending 28 February 2023, showcasing its most robust balance sheet to date. The results highlight the highest ever headline earnings, with revenue which increased to R1,5 billion, up from R1,3 billion in 2022.
Wikus Lategan, the CEO of Calgro M3, said that management was proud of this stellar performance, indicating that this is not only a satisfying set of results, but one that delivered the Group’s highest-ever profit after tax, earnings and headline earnings per share. “These results are based on our sustainable, well-diversified project portfolio rollout, a robust balance sheet featuring the lowest liabilities in seven years, and a net debt-to-equity ratio at an impressive 10-year low of 0.62,” Lategan said.
He went on to add that the Group continues to execute its strategic focus of driving efficiencies, containing costs, and delivering high-quality, affordable homes and memorial parks. “This performance was specifically driven by the development business’ persistent investment in innovative building designs, rethinking the efficiency of design layouts, and the continuous pursuit of margin improvement.”
Lategan explained that the above, coupled with the restructuring and refocus of the Memorial Parks business, added to a positive outcome for the Group this year, resulting in focused, controlled revenue and HEPS growth. Along with meticulous capital and resource allocation between the business segments, Calgro M3 delivered a gross margin of 23,5%.
The residential pipeline comprises more than 22 000 opportunities (approximate revenue of R15,9 billion) across nine projects and the Memorial Parks pipeline offers over 99 000 burial opportunities (approximate revenue of R2,1 billion).
The Group has maintained its previously reported female representation of 44,8% of total workforce and continues to target 50% representation at all reporting levels. The continued focus on the Group’s approved empowerment plan is evident through the increase of historically disadvantaged employment from 71% (2022) to 73% in the current period.
Financial review
Overall revenue increased by 15% to R1 525,3 million (2022: R1 321,6 million) driven by increased unit registrations and additional investment in bulk and link infrastructure funded by government throughout the year.
Administrative expenses increased by 14.1% to R102,4 million (2022: R89,7 million) due to increased marketing costs directly linked to revenue growth, along with a general inflationary increase in administrative costs. Employee costs increased by 6%.
Earnings per share (“EPS”) increased to 153.37 cents per share (2022: 108.58 cents per share), while HEPS improved to 153.18 cents per share (2022: 105.63 cents per share). At the end of the financial year the Group executed a registered share re-purchase programme, repurchasing 13 million shares equating to 9.27% of the companies issued share capital at an average price of R2.34 per share as at the date on which the General Authority was granted. Should this have occurred in the 2023 financial year the effect would have improved EPS to 171.77 cents per share and HEPS to 171.55 cents per share.
Current assets (excluding cash and cash equivalents) increased by R240 million primarily due to the increased investment in construction contracts in the current year to R1 162,4 million (2022: R909,3 million) this will ensure consistent handovers and cashflow going forward. The increased investment in bulk and link infrastructure, where R249 million was spent to ensure sustainability through serviced stands for the future as well as top structure construction, the value of which has yet to be extracted, contributed to the decrease in cash generated from operations to R89,6 million (2022: R228,2 million).
Trade and other payables reduced to R360,5 million (2022: R422,1 million), R40,8 million of which relates to deferred payment arrangements that were settled in the year, resulting in the Group achieving its lowest liabilities balance in the past seven years.
Cash and cash equivalents at the end of the year decreased to R172,6 million (2021: R191,1 million). Additional liquidity in the form of a R100 million undrawn overdraft and a R360 million facility from the Development Finance Corporation (DFC), which is also undrawn, will enable the Group to execute on short- to medium-term goals.
“In light of the strong financial performance Calgro M3 is actively exploring adopting a dividend policy within the next year, as we continue to prioritise delivering value to our shareholders,” Lategan indicated.
Debt of R194.8 million was settled in the current financial year, whilst an additional R203 million was raised to support the cyclical nature of working capital requirements.
Operational overview
The Residential Property Development business remains the largest contributor to revenue and profit, with nine active projects in Gauteng and the Western Cape. Its reach has expanded by targeting fully subsidised homes to homes in excess of R3 million, ensuring diversity amid current economic and market challenges. The focus lies in offering homes in lifestyle estates at the best possible price, benefiting consumers and catering to the “unhoused” market segment. In line with this, Calgro M3 continually explores and tests lower price points without compromising on lifestyle and value-for-money principles.
The Group handed over 3 186 completed opportunities in the current year and has 2 719 opportunities currently under construction, with just over 3 100 opportunities being serviced in the 2024 financial year. It aims to manage cash flow more evenly by distributing handovers throughout the year. With revenue diversification between projects and provinces, along with a sustainable mix of customers, the Group expects more consistent handovers, and in turn, more consistent cash flow generation over the next six to 12 months
Calgro M3 remains focused on maximising core project returns through town planning, improved designs, and product enhancements, catering to a discerning clientele while keeping sales prices affordable and at a level where banks still approve 100% bonds. In fact, Calgro M3 is encouraged by the appetite from all major banks and their continued support of the residential development industry, which is crucial not only for providing much-needed housing but also for significantly contributing to job creation and societal wellbeing, albeit in difficult market conditions.
Efficient design layouts added more than 1 600 units to the pipeline at no additional capital cost. Diligent cost management is evident from consistently maintaining a gross profit margin above 20%.
Calgro M3 funded R249 million of bulk and link infrastructure on Jabulani, Fleurhof, South Hills and Belhar and plans to spend an additional R150 million in the next financial year, all funded from cash generated through operations.
“We remain alert to the impact of current economic conditions, increasing interest rates and tightening of lending criteria by banks, but are confident that our deep understanding of our target market, combined with the strong demand for housing, provides us with the competitive advantage to succeed, ” said Lategan.
Frankenwald, located next to Alexandra and the Marlboro Gautrain station, is the last remaining large-scale property in the greater Sandton area. Calgro M3 holds an option to acquire the parcel of land in partnership with a major third-party commercial property developer.
The Memorial Parks business experienced a significant shift in performance during the financial year. The decrease in total cash collected is attributed to lower burial volumes post the Covid-19 pandemic, a marketing division restructuring, and challenges with consumer affordability. The segment has introduced new payment mechanisms and a data-driven marketing strategy to combat these challenges.
In an effort to address consumer affordability challenges, a lay-by payment mechanism was introduced in July 2022, allowing customers up to 24 months to pay for the reservation of a grave, with 0% interest charged on the instalment plan. The lay-by offering has resulted in an additional R12.4 million in sales, which is not yet reflected in revenue. Of this amount, R8,9 million will be received in the next 12 months. Revenue is only recognised on these sales once the full purchase price has been received in cash.
Lategan said that the offering is showing immense potential while addressing the financial pressure the consumer is under, while also to the strategic purpose of generating sustainable cash flows on a monthly basis to the Group. “Moreover, the acquisition of burial rights in the Bloemfontein Memorial Park post year-end is a great advance for this business, which enhances growth prospects.”
Outlook
“The time invested in understanding the needs of our target markets has benefited the Group by enabling us to establish sustainable sales and marketing initiatives that address the consumer’s lifestyle needs at an affordable price, which in turn drives consistent and targeted sales,” said Lategan.
He went on to say that while the market continues to be affected by factors such as unemployment, limited credit access, and high levels of household debt, we are encouraged by the support received from banks, as evidenced by the granting of 100% mortgage bonds to clients. “We recognise the importance of cost containment and will continue to focus on creating efficient building designs and layouts to improve margins.”
Lategan added that the Group remains confident in the strategy of the Memorial Parks business. “It has taken effort to understand the market dynamics and build critical mass. The newly implemented lay-by offering is resonating well with the market and ongoing strategic marketing and data processing will ensure the sales momentum continues.”
In addition to the Group’s strategic growth initiatives, capital allocation remains key as demonstrated by the recent share buyback. “Our strong financial position and expected positive cash flow, ensures sustainable debt management and sufficient liquidity to withstand challenges should these arise.”
In conclusion, Lategan said that maintaining the Group’s focus on the private sector, with nearly 90% of the homes built being sold through direct and bulk sales, expanding the Memorial Parks business, capitalising on product development and sales momentum achieved in the last financial quarter would be the key focus over the next six months. “We will also ensure that a longer pipeline remains in place to ensure enough homes and burial opportunities into the market consistently.”
