Property investment company Calgro M3 CEO Wikus Lategan says the company has made good progress on turning the business around, with cash generated from operations having increasing by 55.6% year-on-year to R464-million in the year ended February 29.

This helped the company settle R52-million of debt, while still leaving it with cash on hand of R255-million.

Headline earnings a share increased by 108% in the year under review to 1.77c apiece, compared with a 20.30c loss a share reported in the prior financial year.

“Through the timeous implementation of deliberate business improvement initiatives, we also are pleased to have created sufficient room for a stronger performance, enabling the group to withstand the current challenging economic climate,” explains Lategan.

He adds that Calgro M3 is positioned to generate sufficient cash flow from operations to settle any debt maturities that fall due.

However, the company does not plan to invest in capital intensive projects while the environment or business is constrained.

Lategan is confident that the company has reached a stage where management has the opportunity to make beneficial long-term decisions in the interest of a long-term strategy, rather than short-term crisis-related decisions.

One such decision the company made were changes to its Residential Property Development business model during the year, with the company undergoing a major restructuring process, aimed at realising an improved risk-based, but profitable, structure.

The Residential Property Development business remains the largest contributor to Calgro M3’s operations, despite this business experiencing challenges over the last three years.

The challenges led to a conscious decision to preserve liquidity through the suspension of operations on various sites, the implementation of various cost-cutting measures, a reassessment of internal structures and implementation strategies, as well as the restructuring of transactions.

This while the company decided to outsource future construction on all of its sites.

“The in-house construction division will be closed over a 6-month to 18-month period through a staggered approach, with affected employees being provided the opportunity of being absorbed by the group’s newly-appointed external contractors, thereby limiting job losses.

“This process should be fully concluded by October.”

Lategan explains that, with a pipeline of 36 686 opportunities, of which 7 326 are fully serviced, and 2 393 – including units where construction was previously suspended – are under construction in various stages across seven projects, the group is now well positioned with enough working capital to recommence sales and continue with construction.

Lategan notes that a similar process of cost reduction was followed with professional departments, closure of all secondary offices, and streamlining of the Memorial Park processes.

Calgro M3 remains bullish on growth opportunities in its Memorial Parks business and its ability to match the profitability of the property development business in the medium- to long-term.

The current areas of focus, to achieve this goal, are establishing a national footprint and enhancing sales distribution through various channels.

The challenging economic environment is continuing to have an impact on sales performance. The group is, however, placing emphasis on sales distribution channels to ensure that increased sales momentum is maintained and that potential customers are actively targeted.

In terms of the company’s Residential Rental Investments, the short-term focus is to dispose of all existing rental units and use proceeds from the disposals to settle debt and have cash available for future opportunities.

Once the disposals are complete, Calgro M3 will no longer have a residential rental property portfolio, however, once liquidity returns to a satisfactory level, the portfolio will be re-established.

BEYOND 2020

Lategan says that although statisticians are running numbers and forecasts, the reality is that no one knows what the remainder of this year and even beyond will look like.

“It is one thing receiving the green light that lockdown is over, but a completely different situation to face the reality of the long-lasting effect this will have on South Africa.

“The challenges are not only Covid-19 related but extend to downgrades to sub-investment grade by rating agencies, paving the way for an almost certain prolonged poor to negative economic growth period,” he points out.

In light of this, the company has increased liquidity sufficiently over the past months to ensure it weathers the storm.