JSE-listed property development company Calgro M3 CEO Wikus Lategan attributes a 50.3% increase in group revenue to R1.32-billion for the financial year ended February 28, to demand for and sales of affordable housing units, as well as the company's focus on sustainable developments and its own sustainability.
"The results demonstrate tangibly that the business is able to withstand challenges by sticking to its 'Sustainable Actions' credo," he said on May 16.
Highlighting that the early morning commute by people employed in the formal sector from informal settlements to their places of work was proof of the obvious need for good-quality housing, he said Calgro M3 continued its focus on the R500 000 residential market, serving families with a combined income of R10 000 to R12 000 a month.
"Affordability is key in this market segment, although the market is large. We have focused on sustainability of our developments and our company, as helping clients to be more sustainable, such as through more efficient use of water and electricity at lower costs, makes our business model more sustainable," he said.
The average bond repayment on a R500 000 house is about R3 600 a month, which will increase by R313 should interest rates increase by one percentage point, he added.
Reducing household expenses provides residents with more funds to provide for their families and energy- and water-efficient residential properties make Calgro M3's business more sustainable, said Lategan.
"With 4 583 opportunities under construction, 2 685 opportunities completed and a pipeline of 24 563 opportunities owing to the disposal of Safdev Tanganani and the densification of various projects, the group is well positioned, sufficiently capitalised and has liquidity to address market demand," he pointed out.
Additionally, the company is planning to self-fund about R120-million of infrastructure investment during the 2023 financial year.
Calgro M3 views the self-funding of infrastructure as beneficial from a risk perspective.
It is beneficial for the company, which has the resources and can make such investments, as it enables the company to rely and focus on its own business, and it remains ready to address government and public sector opportunities when they arise, said Lategan.
He cautioned that, while the cash generated from operations is expected be more than sufficient to fund infrastructure investments, cash generation remains somewhat seasonal and net debt to equity might increase slightly for a brief period of time.
"Calgro is proud that we not only look at sustainability from the financial perspective, but across the whole of our business, which is Level 1 broad-based black economic empowerment rated and has 44% women employed throughout the group at all levels.
“We have also maintained our focus on sustainability, especially in terms of electricity and water sustainability of our developments to build legacies," he added.
Meanwhile, the 2022 financial year results marked the group’s third-highest revenue number in its history, with both revenue and gross profit having delivered a stronger performance in the second six months of the financial year.
The gross profit margin recovered to 21.3%, up from 12.3% during the 2021 financial year, owing to rigorous cost containment and the outsourcing of construction activities.
This, combined with enhancements made to the development process, resulted in the group strengthening its gross profit margin towards its target range of 20% to 25%, he said.
Further, cash and cash equivalents at the end of the year increased to R191.1-million, up from R154.6-million during the 2021 financial year.
"Additional liquidity in the form of a R100-million undrawn overdraft from Standard Bank, as well as a $20-million facility from the Development Finance Corporation, which is also undrawn, will enable the group to execute on short- to medium-term goals.
The group also continued to generate positive cash from operations of R228.2-million, up from R114.8-million during the prior financial year.
Additionally, basic earnings a share increased to 108.58c, compared with 14.88c in the prior year, while headline earnings a share improved to 105.63c, compared with a headline loss a share of 15.17c the year before.
Further, the group’s balance sheet is strong with a net debt to equity ratio of 0.71:1, which is below the communicated target of 0.9:1 and well below the regulated covenant of 1.5:1, Lategan said.
"The debt levels are expected to decrease in line with the targets as set by management; however, additional funding may be raised should short-term funding be required at any given stage due to the seasonal nature of the group’s cash flow.
“The group has settled debt of R107.4-million in the current financial year, which includes the first repayment of the Proparco facility that fell due in the current financial year," he said.
Current liabilities decreased by a further 11.83% to R1.26-billion, down from R1.43-billion during the 2021 financial year, and has substantially reduced from the R1.75-billion at February 2020.
The major achievements during the year under review included that gross margin is now well within the target range. There was also meticulous capital allocation to high-yielding projects, and the company enhanced its product and lifestyle offering while taking affordability into account.
"Ultimately, the revenue diversification between projects and provinces and our sustainable mix of customers are ensuring consistent handovers and cash flows," he said.
"While we will remain cautious, we will continue implementing initiatives to grow our businesses, while not forgetting our core values. It is exceedingly difficult to predict what the long-lasting effect of Covid-19 or a similar pandemic might be on South Africa.
"We will continue focusing on cash flow, driving both revenue and profit generation, while managing the level of debt. The optimal application of capital between risk capital, working capital, new opportunities and share buybacks will remain important strategic considerations," Lategan said.
Management would place emphasis on cash flow generation from projects by increasing sales, the sale of noncore assets and the preservation of cash for future use.
The group remains cautious in the current uncertain environment and careful consideration will be given to what the best use of cash is on each project, to ensure a sustainable long-term return and value for shareholders, he added.