JSE-listed property investment company Calgro M3, which specialises in the development of integrated residential developments and the development and management of memorial parks, has reported a year-on-year increase in revenue to R607-million for the six months ended August 31. 

The gross profit margin increased from 19.7% last year to 22.1% in the period under review, while headline earnings per share (HEPS) increasing to 57c, compared with 42.79c in the prior comparable interim period, and earnings a share to 67.04c from 39.56c in the prior comparable period. 

Calgro M3 CEO Wikus Lategan said management was pleased with the company's performance for the interim period.  

“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 the focused and controlled growth in both revenue and HEPS.” 

Lategan said careful capital and resource allocation across the group’s various projects, as well as significant industry knowledge tailored to the needs of the markets that Calgro M3 serves, had contributed to the margin being maintained within the target range of 20% to 25%. 

“As anticipated, cash resources decreased with cash used in operations, primarily to ensure serviced opportunities are in place for the latter part of the year,” Lategan said, adding that this disparity with profitability would return to be in line with after-tax profits for the full financial year.  

Revenue was also expected to increase in the second half of the current financial year, driven by the completion and 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,” Lategan said. 

OPERATIONS 

In terms of residential property development, the group had 3 965 units under construction at the end of the interim period, about half of which are expected to be completed and handed over before February. 

“Given this, we are expecting growth in revenue for the remaining six months of the year, and we are well positioned, sufficiently capitalised and have liquidity to address market demand and continued growth,” Lategan said. 

With regard to Frankenwald, he explained that the urban development framework was approved in August, which was a considerable milestone for the preplanning phase of the project. 

“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,” Lategan explained.  

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 planned yearly 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,” Lategan explained. 

The memorial parks business remains a key expansion area, he added, 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,” Lategan explained. 

When adjusting for excess Covid-19-related deaths, as reported by the South African Medical Research Council, between August 2019 and August this year, the current period performance was 5.6% lower than in August 2021.  

“It is our intention to maintain an enhanced market presence through strategic marketing and an improved and affordable product portfolio,” he said. 

OUTLOOK 

Lategan said the group remained cautious in the current political and economic climate but would continue to implement initiatives to grow both businesses. 

He said positive cash flow, driving both revenue and profit generation, while managing a sustainable level of debt, would remain a priority. 

“Our emphasis on cash flow generation from projects, not only by increasing sales, but also by improving and maintaining sales margins and the continued sale of noncore assets, will ensure we preserve cash for future use,” he said. 

With the next big project for the group, Frankenwald, which is expected to come on stream in mid-2023, the group is upbeat about plans to enhance the availability of affordable homes on the outskirts of Sandton, with Lategan saying that this, together with a strong pipeline, would provide sufficient diversification to mitigate concentration risk. 

He said current strategic considerations included ensuring focused, controlled revenue growth and the optimal application of capital between risk capital, working capital, new opportunities and share buybacks. 

“The current operating climate is not easy, but our knowledge of the industry, coupled with meticulous capital allocation to high-yielding projects, enhancing products and lifestyle offerings while taking affordability into account, will be at the forefront of management’s strategic objectives for the foreseeable future,” Lategan said.