Calgro M3 ahead of years-long net debt reduction targets

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Property developer and investor Calgro M3 says it has come a long way since its portfolio streamlining and transformation efforts started in 2016, particularly as the company is also coming out of what has been heavy Covid-19 impacts.

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The group posted a 262% increase in headline earnings a share to 42.79c for the six months ended August 31, compared with a headline loss a share of 26.29c posted for the corresponding period of 2020.

“This performance definitely reflects our continued sales efforts and increased focus on brand awareness across the integrated residential developments and [the] development of memorial parks segments of the business,” says CEO Wikus Lategan

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The company has reduced its overhead costs by 23% in the period under review, which is testament to its ability to manage costs and efficiencies in the current economic environment.

Lategan expects Calgro’s overhead costs to increase going forward as more units are built and private sector marketing is undertaken.

Meanwhile, Calgro’s liquidity management over the last few years, coupled with strong cash generation of R133-million in the period under review, resulted in a reduction in its net debt to equity ratio to 0.84:1, well ahead of its February 2022 target ratio of 0.9:1.

Lategan says the company’s liquidity will be further enhanced with the sale of certain retail, commercial and remaining rental properties, as well as certain non-strategic projects, some of which are close to finalisation.

The company has cash on hand of R215-million, while its liquidity stands at R615-million.

Calgro’s gross margin reached a four-year high of 19.7%, justifying the decision to close and outsource the construction element of the business.

In the group’s residential property development business, nine projects are under construction, of which seven are cash generative. These include properties in the Western Cape and Gauteng and amount to 5 000 units.

The projects are diversified across markets, with some being bulk transactions and others rental-based. About 12% of them are public-sector-driven.

Lategan says the company has sufficient serviced and unserviced opportunities available across its projects to fuel growth for the foreseeable future, without having to take excessive risks in acquiring new projects.

He expects the low interest rate environment to enhance housing sales for at least the next half of the financial year.

Calgro’s memorial parks segment posted an increase in total cash receipts during the reporting period of 52.7% to just under R40-million.

The company is introducing a new entry-level product at the Nasrec Memorial Park, offering a grave for immediate burial for R13 000. This diversification in the product offering has attracted a new market that could previously not afford a grave at this park and resulted in market share gains in Gauteng for the company.

Calgro is also soon offering a loan facility, in partnership with Nedbank, for clients to buy a grave, which makes the memorial parks even more accessible.

DIVIDEND

Discussing whether a dividend is on the cards any time soon, Lategan tells Engineering News that 2016 to 2019 was a period of challenges and restructuring.

“There are specific goals we set ourselves, including getting our net debt to equity ratio down to 0.9:1, the year thereafter to 0.8:1 and further to 0.75:1. Although we are ahead of target for this year, we are not at our ultimate level yet.

“We came from a net debt to equity ratio of 1.36:1, showing the substantial improvement in the ratio so far.”

Then, looking from a capital allocation perspective, Lategan says the company has been considering various risks and driving revenues, all while decreasing overheads.

Calgro is aiming for a low cost base, having sufficient operating capital in a growth stage of the business and keeping sufficient liquidity levels.

The company plans to undertake share buybacks rather than dividends in the short-to-medium term.

Lategan says the group is well positioned to capitalise on market demand with cash generation and careful capital allocation remaining areas of focus. Calgro will also continue to retain higher cash balances and available facilities for the foreseeable future.

The company has made a point of becoming more resilient to economic conditions and impacts imposed by unforeseeable events, such as Covid-19.

In conclusion, Lategan laments that the provision of affordable housing is a vital component of the social transformation and empowerment efforts of national and local government; affordable housing is not just about providing shelter, but also about enhancing quality of life, providing opportunities and supporting dignity. 

He adds that the company endeavours to do as much as possible to make the running cost of houses as affordable as possible for residents, with less water and electricity use by implementing gas, solar and solar farming, heat pumps, induction geysers, energy-saving lights and prepaid meters, as well as rainwater harvesting.

The environmental and social impact that drives Calgro to build responsible integrated developments, continues to make for a viable solution to the housing crisis in the country.

  

EDITED BY: CHANEL DE BRUYN
CREAMER MEDIA SENIOR DEPUTY EDITOR ONLINE

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