Following 12 to 18 months of rigorous restructuring initiatives, JSE-listed Calgro M3 has successfully closed its internal construction division.
Calgro M3 CEO Wikus Lategan reported on October 19, that the leaner business, together with little pressure to invest in capital intensive projects over the short term and enhanced levels of liquidity, had positioned the company extremely well to deliver much stronger results once trading conditions have normalised post Covid-19.
For the six months ended August 31, the group continued to generate positive cash from operations, despite the difficult trading conditions, resulting in a net debt to equity ratio of 1.04:1.
Cash resources remained strong, with R246-million in cash on the balance sheet at period end.
Liquidity was further enhanced in September by securing and drawing on a new six-year, R215-million unsecured National Housing Finance Corporation facility.
Moreover, the group is still in negotiations with the US International Development Finance Corporation for a six-year, unsecured facility of $20-million. The drawdown on this facility is expected to occur in the second half of the 2021 financial year.
The group retains the undrawn R100-million Standard Bank overdraft facility, in addition to the above cash resources and facilities. Additional liquidity is also expected from the sale of the retail, commercial and rental properties, as well as certain noncore development projects that are being sold.
Lategan said the sale of the Ruimsig rental units became unconditional on September 17, resulting in R104-million in debt being settled as part of the transaction, in addition to the settlement of a further R129-million in bond exchange debt that matured in September and October, thereby reducing the total outstanding bond exchange debt to R411-million.
“Of the remaining R411-million, R81-million, which was to have matured in the next 12 months, has already been refinanced into new three-year and four-year instruments. Further, the remaining bond exchange maturities up to January 2023 of R185-million, will be reduced to R85-million once all restructuring is complete,” he noted.
Revenue for the six-month period under review decreased by 24% to R395.8-million.
The gross profit margin for the period was flat, and remained under pressure when compared to historical levels of 20% to 25%. This is as a result of the low levels of activity, standing time related costs and the costs of closing the construction division, with the margin settling at 7.9%.
No construction in the residential property development segment took place for a period of two months owing to the pandemic. This was unprecedented and resulted in one-off costs incurred to ensure future sustainability and liquidity.
Covid-19-related costs and the associated standing time amounted to R35.8-million and the costs associated with the closure of the construction division amounted to R12.9-million. The latter is a strategic decision which, in future, will result in a slight additional contribution to margin, the group said.
No dividend has been declared for the period.
Lategan said Calgro M3's management is confident that the company is on the verge of leaving the bad behind and returning to the good once the broader impact of Covid-19 on the economy and the consumer becomes clearer.
“The return to profitability and growth will be driven by both segments where liquidity has been restored, projects are ready to start producing revenue and are being supported by a leaner, more cost-effective structure.
"The housing market in South Africa remains at a shortfall of a couple of million houses and funeral and funeral-related services are a multibillion-rand industry which continues to grow.
"Both of our businesses and their respective passionate and dedicated management teams are well geared to capitalise on the opportunities in the market,” he said.
Lategan noted that capital allocation would remain a key focus, with the group retaining higher cash balances and available facilities for the foreseeable future.
“This more conservative approach may result in a negative interest carry ratio and a lazier balance sheet but will also provide for a much more sustainable group that can weather the storms of unforeseeable events.”