Calgro M3 has published its interim results for the period ending August 2023, reporting improved revenue growth of 13.5% to R688.9 million and an improvement in profits of 22.5% to R84.8 million.
The property and property-related investment company specialises in the development of Integrated Residential Housing Developments and the development (and management of) Memorial Parks.
“We find ourselves in a strong financial position with consistent cash flows due to the continued focus on the Group’s cash generation resulting in cash from operations of R89.8 million, which is closely aligned to profit generation of R84.8 million. This prudent financial strategy saw an 11.2% increase in our cash flow balance with net debt to equity remaining steady at 0.61, while still funding infrastructure of R94.3 million in support of the future pipeline, and repurchasing 18.6% of the Group’s issued share capital,” commented Calgro M3 CEO, Wikus Lategan.
The company’s residential property development segment, which remains its largest revenue source (97%) which operates in Gauteng and the Western Cape with eight active projects, handed over 949 opportunities during the period (August 2022: 1 193 opportunities), 2 118 opportunities are under construction, with more than half set for hand-over by February 2024. Currently, Calgro M3 has 1 937 serviced opportunities whilst servicing a further 3 398 opportunities. The revenue pipeline is in excess of R15 billion, representing 22 357 opportunities.
Lategan says that capital allocation remains a top priority and in the last six months, an investment of R250 million in infrastructure occurred in Fleurhof, Jabulani, and Belhar.
“Diversifying our projects across different provinces and maintaining a balanced customer base are crucial to achieving our strategic objectives,” he added. “One of our primary strategic objectives is maintaining a well-balanced mix of units ready for sale, units with granted bonds, units awaiting transfer, and units currently under construction.”
In the Memorial Parks segment, the current period showed a strong recovery in cash receipts, with a 33.8% increase to R33.9 million. Revenue for the period remained flat at R19.9 million, representing 3% of Group revenue.
Lategan explained this by saying that sales reservations have shifted to the lay-by offering, away from the traditional cash sales, highlighting the tightening consumer pocket. “This lay-by offering has grown by R11.2 million to R21.1 million, which will translate into revenue as and when these sales are fully settled.”
The Bloemfontein Memorial Park, a new addition, is slowly picking up. While the current performance is below expectations, an enhanced marketing plan has been implemented to boost visibility and sales growth. Lategan said, “The business has performed well during this period, but we remain cautious. Our commitment is to continuously improve our offerings, keeping affordability and quality at the forefront thereof.”
Financial review
The financial growth with increasing revenue was aligned with maintaining the gross profit percentage at 22.2% (August 2022: 22.1%), within the target range of 20% to 25%.
Administrative costs increased to R49.9 million (August 2022: R41.1 million) mainly due to increased professional and consulting fees, which were required to offset temporary capacity constraints, and increased advertising spend to achieve more open market sales and focus on additional brand awareness campaigns. This increased advertising and related costs were introduced to counter the current economic environment.
Net finance income increased to R4.3 million (August 2022: net finance cost R4.4 million). The increase is attributable to the increase in finance income on receivable balances which remain outstanding at the end of the period.
Calgro M3 repurchased 22.6 million of issued share capital at an average price of R2.63 per share, thereby decreasing the issued share capital from 121.4 million shares to 98.8 million shares, net of treasury shares.
Earnings per share (EPS) increased to 78.88 cents per share (August 2022: 57.04 cents per share) with headline earnings per share (HEPS) increasing to 78.88 cents per share (August 2022: 57.00 cents per share). Both the EPS and HEPS have been calculated based on the weighted average number of shares of 107.5 million shares during the period rather than the closing shares in issue of 98.8 million, as required by reporting standards.
Net asset value per share (NAV) increased by 26.1% to 1 198.87 cents per share (February 2023: 950.61 cents per share).
Management believes that, for the current reporting period cash should be retained to fund growth across the company. Cash retention is important to ensure investment in future projects and the reduction of debt and interest. In view hereof, the Board has resolved not to declare a dividend for the current reporting period.
“As we previously communicated, the Group remains committed to adopting a dividend policy within the current financial year which will serve as a guideline for considering and declaring dividends in future,” said Lategan.
He went on to indicate that looking ahead, the Group is enthusiastic about prospects and confident in tackling challenges. “With a strong total Group revenue pipeline in excess of R17 billion, encompassing over 22 000 residential (excluding the Frankenwald project) and 98 000 burial opportunities, we are set to have a significant impact in the affordable housing and burial sectors while ensuring meaningful returns to shareholders.”
The inclusion of Frankenwald, where Calgro M3 plans to exercise the land option before March 2024, will unlock between 20 000 and 30 000 opportunities. The already available electricity supply and infrastructure for the commencement phases reduce initial capital needs, easing the Frankenwald project’s cash flow strain which will result in improved margins. “This project will bring Calgro M3’s lifestyle offerings and value for money to the doorstep of Sandton on a significant scale”, he indicated.
“Our commitment to developing high-quality and best-in-class value for money homes and memorial parks at an affordable price resonates deeply with the communities we serve. Calgro M3’s dedication to understanding the lower LSM consumer lifestyle will continue to stimulate sales, even amidst challenges such as rising unemployment, household debt and the current high interest and inflation rate environment. The support we have garnered from banks, exemplified by the continued granting of 100% mortgage bonds, is a testament to our solid standing. In line with the goal of having a wider memorial parks presence we intend to expand its footprint into a new province within the current financial year. We have sufficient liquidity to fund market growth and satisfy demand in both business segments,” he concluded.
