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Calgro stabilises cash flow, doubles units under development

17th May 2021

By: Schalk Burger

Creamer Media Senior Deputy Editor

     

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JSE-listed residential property investment company Calgro M3 has restructured the process of handing over units to ensure a consistent number each month, which has stabilised cash flows and reduced the company's capital exposure.

The company has also restructured its debt with only R70-million in maturities in the next two years, ensuring no immediate capital pressures for the next two to three years, Calgro M3 CEO Wikus Lategan said on May 17.

The company aims to split its focus evenly between the affordable housing market and bulk projects that are typically handed over for rental and student housing as part of its goal to ensure profitability of the property development business in the medium- to long-term.

Revenue for the financial year ended February 28 decreased by 10.7% year-on-year to R879.1-million. The gross profit margin recovered to 12.3% from 10.2% in 2020.

Profit after tax was R18.5-million, up from R5.3-million in the prior financial year.

The group generated cash of R114.8-million for the year. Cash and cash equivalents at the end of the year decreased to R154.6-million from R255.1-million, and the company has available overdraft facilities of R100-million. It decreased total liabilities by 15.5% from R1.94-billion to R1.64-billion.

Basic earnings a share increased to 14.88c from 3.84c a share in the 2020 financial year.

Calgro M3, however, posted a headline loss a share of 15.17c owing to one-off costs.

The increase in other income is primarily attributable to the disposal of the noncore Vista Park development project in February 2021 for R49.2-million, resulting in a profit of R36.6-million.

“The group is well positioned with sufficient capital and liquidity to return to activity levels within the next few years that were last seen five years ago. We will also establish a national footprint and enhance sales distribution channels, while the current market share of about 1% in metro areas represents strong potential growth. The national roll-out and development of further land parcels will be a priority in the next two years,” Lategan said.

The company has doubled units under construction to 4 654 from 2 393 a year ago, and had 6 073 serviced opportunities available.

The group has facilities in excess of R500-million, about double its market capitalisation, available for its portfolio of projects over the next three years, and 70% of project finances are from commitments by development finance institutions and it does not use bank finance for its projects, Lategan said in an interview on May 17.

“Interest rates are low, and the market is strong for affordable housing, with people more able to afford buying a unit when compared to renting a unit, helping to build up long-term wealth. It is one of the big market drivers. South African banks are still approving 100% bonds, which is allowing us to continue selling existing units, ensuring the business remains operational,” he said.

The company predicts that the market will remain strong in the short- to medium-term, and building up to long-term value, Lategan added.

Calgro M3's memorial parks business increased revenue increasing by 65.2%. Total cash received by the business increased by 57% to R53.6-million from R34.1-million in the 2020 financial year. Total cash received from 2018 to 2021 in the memorial parks businesses represents a compound annual growth rate of 53%.

“The group is well positioned and remains bullish on growth opportunities in this business segment.”

“The company has come through three difficult years and we have now turned the corner on a tough period. Our focus on sustainability and we will continue driving balance sheet strength by reducing debt, but will retain sufficient facilities to support operations and ensure sufficient cash flow and liquidity during challenging times,” Lategan said.

The group has increased liquidity sufficiently over the last year to be able to weather further challenges, although we will continue focusing on cash flow generation without expensing same and in doing so, will remain dedicated to revenue and profit generation, he added.

Calgro M3’s operating market continues to present large opportunities for the group and it has a pipeline of 32 590 opportunities at Belhar CBD, Fleurhof, three projects in Jabulani Precinct in Soweto, Scottsdene, South Hills, Tanganani and Witpoortjie, he said.

Additionally, the company has reached an agreement for a development in Frankenwald, next to Alexandra and between the N1 and N3 highways, which is a prime location to provide affordable housing on the doorstep of Sandton, he said.

“Our focus is on rolling out our pipeline over the next year or two and to maintain our momentum before adding new projects. We will therefore not be forced to invest long-term capital, and all the houses we build will help to generate cash for returns over the next three to four years,” Lategan said.

Optimal application of capital between new opportunities, working capital, risk capital and share buybacks would remain an important strategic decision.

“Management places emphasis on cash flow generation from projects by increasing sales, and sale of non-core assets, as well as the preservation thereof for future use. The group remains cautious in the current uncertain environment and will careful consider the best use of cash on each project to ensure sustainable long-term return and value for shareholders,” he concluded.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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