Calgro M3 has published its results for the six months ended August 2022, reporting an increase in revenue to R607 million (August 2021: R576 million).
The group’s gross profit margin increased to 22.1% (August 2021: 19.7%), with headline earnings per share (HEPS) and earnings per share (EPS) having increased to 57 cents per share (2021: 42.79 cents per share) and 57.04 cents per share (2021: 39.56 cents per share) respectively.
“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,” commented CEO of Calgro M3, Wikus Lategan.
The group’s current development 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).
“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
Calgro M3 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) with additional liquidity in the form of a R100 million undrawn overdraft from Standard Bank, as well as an undrawn US$20 million facility from the Development Finance Corporation.
Operational overview
Calgro M3’s residential developments 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.
The Urban Development Framework for Frankenwald was approved in August 2022, a considerable milestone for the preplanning phase of the project. Frankenwald is the last remaining large-scale property in the greater Sandton area and is situated next to Alexandra and the Marlboro Gautrain station. It is expected to come on stream in mid-2023 and Calgro M3 aims to change the face of affordable homes on the doorstep of Sandton.
“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,” he said.
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,” he concluded.
