JSE-listed property and property-related investment company Calgro M3 on Monday reported that its basic earnings a share for the year ended February 28 decreased by 97.31% to 2.53c.

It also posted a headline loss a share of 19.01c for the financial year – down 121% year-on-year.

The decreases follow on the back of an “exceptionally difficult” year for the company, which had to contend with a multitude of impacts. According to CEO Wikus Lategan, the company’s results were impacted by several operational challenges and transactions, coupled with changes in accounting standards.

Despite these difficulties, the group remains steadfast on its transformation goals, through which it intends to “create a truly transformed organisation where people are empowered to fulfil their purpose”.

Given this dedication, the group maintained a level 1 broad-based black economic empowerment contributor status.

The implementation of Health, Safety and Environmental systems, which align with ISO 14001 and ISO 45001, have progressed well during the year and the group is readying itself for certification towards the end of the current calendar year.

Lategan further indicated that much time has been spent on positioning focused return areas comprising a targeted return on equity of 30% over the medium to long term, equal profit contribution from each of the three businesses and securing an annuity income stream sufficient to cover all operating expenses for the group.

FINANCIAL REVIEW

Revenue for the period under review decreased by 42.78% to R997.1-million, while combined revenue decreased by 44.82% to R1.3-billion.

The projects that contributed the most to combined revenue were South Hills at 45.21%, Belhar at 11.04% and Fleurhof at 25.65%.

According to Calgro M3, the gross profit margin of 12.91% was affected by several extraordinary items, namely the impact of adjusting to International Financial Reporting Standard 5; additional security on Fleurhof and Scottsdene; standing time cost on Fleurhof; a variation order received on Fleurhof; and a net realisable value write-down on La Vie Nouvelle.

On an adjusted basis, this margin would have been 21.2%.

The increase in investment property, property, plant and equipment, investments, inventories and trade and other payables is due to the acquisition of the Durbanville and Avalon Memorial Parks. The group acquired the remaining shareholding from the minority shareholder in Nasrec Memorial Park, which had a 36.5% shareholding, for R63.6-million during the year.

The group made an additional investment into the Calgro M3 JCo Holdings joint venture (JV) of R120-million for the purchase of the rental units in Ruimsig, Johannesburg. Lategan indicated that this was to cement the annuity income contribution to the group.

Although cash flow from operations was positive at R298-million, it continued to be placed under pressure during the period owing to challenges experienced on various projects.

These challenges include the slower-than-anticipated handover of units to the real estate investment trust JV, the temporary slowdown/closure of the Fleurhof and Scottsdene projects and the associated security and repair costs required due to illegal invasions, together with substantial delays in installing and registering water and electrical meters on units in Gauteng.

The board resolved not to declare a dividend, opting to retain the available cash to fund growth within the group.

OPERATIONAL OVERVIEW

The group’s Residential Property Developments business, which is the largest contributor to group operations, experienced an extremely tough year, which was exacerbated by a sluggish economy and political uncertainty.

The group had ten projects contributing to revenue, which made the impact of the challenges more manageable. 4 436 units were sold with construction scheduled to start soon.

Sales continued to grow in the Memorial Parks business, with the total sales increasing to
R20.9-million, mainly owing to the increased sales prices across the product range. Total cash received increased to R28.8-million.

Post the dissolution of the partnership with SA Corporate through their subsidiary Afhco, and the establishment of the Afhco Calgro M3 Consortium, Calgro M3 managed to increase occupancy from 9% to 42% on the South Hills project, which it took over just two months.

“Tenanting in our Ruimsig project is also progressing well, with Scottsdene set to come on stream in the next few weeks, after the repair of units damaged by illegal invasions,” Lategan said.

The dissolution of the joint initiative was concluded in March.

Lategan explained that, despite this and in line with the medium to long-term strategy, the group remains committed to Residential Rental Investments to secure annuity revenue for use as operating cash across the group.

OUTLOOK

The focus for the year ahead is, foremost, to stabilise the Residential Property Development business so that a consistent stream of cash flow and profits can be attained.

Lategan stressed that, should construction activity not improve to acceptable levels after last week’s elections, further cost-cutting measures will be implemented.

The group is currently investigating memorial parks in Tshwane and KwaZulu-Natal, one new residential development project, as well as some potential properties to be acquired and developed for the Residential Rental Investment business.

The internal focus is on rolling out the current projects in the pipeline.

The optimal application of capital between new opportunities, working capital and risk capital will remain an important strategic decision, the group noted, adding that its management places emphasis on cash flow generation from projects, as well as the preservation thereof for future use.

The group, however, remains cautious in the current uncertain environment, highlighting that careful consideration will be given to what the best use of cash is on each project to ensure sustainable long-term returns and value for shareholders.

“The group remains cautious, though optimistic, given the current uncertain environment and careful consideration will always be given to the best use and timing of capital allocation,” Lategan said.