Calgro M3, the property investment, integrated housing developments and memorial parks operator, lifted headline earnings a share 38.4% to 78.88 cents in the six months to August 31, the fifth consecutive reporting period of good results.
CEO Wikus Lategan said adaptability, consistent market evaluation and strategic foresight had enabled the group to increase revenue by 13.5% to R688.9 million and profits improved by 22.5% to R84.8m.
He said in an interview they would work on a “stringent” dividend policy by the financial year-end, and a dividend might be paid in the year thereafter.
Lategan said management was proud of the six-month performance, given the economic challenges in South Africa. He attributed the growth to their “deep understanding of the Living Standards Measure (LSM) markets we serve, the prioritisation of long-term sustainability, expanding market share and rolling out existing pipeline opportunities in a controlled but adaptable manner”.
He said they were getting five times more clients “through the door” who were interested in buying a house, but the conversion rate was lower, which he said was due in the main to the impact of high interest rates on the affordability levels of their clients.
“Some of them are seeing that it’s cheaper to rent again, but this will change once interest rates start to decline, we believe in the first quarter of next year,” Lategan said.
He said people earning perhaps R16 000 per month on a combined family salary did not deserve to live in much of the rental accommodation that was available to them, such as in Cape Town and Johannesburg, and Calgro M3 was selling new two-bedroom, one-bathroom units for under R500 000 south of Johannesburg, which offered its clients an opportunity to create wealth that could be passed on to their families.
Lategan said they had consistent good cash flows due to the focus on cash generation, resulting in cash from operations of R89.8m.
This prudent financial strategy saw an 11.2% increase in the cash flow balance with net debt to equity remaining steady, while still funding infrastructure of R94.3m to support the future pipeline, and repurchasing 18.6% of the issued share capital, he said.
The gross profit percentage was maintained at 22.2%, within the target range of 20% to 25%.
Administrative costs increased to R49.9m (August 2022: R41.1m) mainly due to increased professional and consulting fees, which were required to offset temporary capacity constraints, and increased advertising spend to achieve more open market sales and focus on additional brand awareness campaigns.
The increased advertising and related costs were introduced to counter the economic environment.
The Residential Property Development segment, which makes up 97% of revenue, operates in Gauteng and the Western Cape, with eight active projects.
“We handed over 949 opportunities, 2 118 opportunities are under construction, with more than half set for handover by February 2024. Currently, the group has 1 937 serviced opportunities whilst servicing a further 3 398 opportunities,” he said.
The revenue pipeline was worth more than R15 billion, representing 22 357 opportunities.
He said diversifying projects across different provinces and maintaining a balanced customer base were crucial to strategy.
This approach enabled stable handovers and positive cash flows. A primary objectives was maintaining a well-balanced mix of units ready for sale, units with granted bonds, units awaiting transfer, and units currently under construction, Lategan said.
In the Memorial Parks segment, there was a strong recovery in cash receipts, with a 33.8% increase to R33.9m. Revenue was flat at R19.9m.
Lategan said sales reservations had shifted to the lay-by offering, away from the traditional cash sales, highlighting the tightening consumer pocket.
“This lay-by offering has grown by R11.2m to R21.1m, which will translate into revenue as and when these sales are fully settled,” he said.
The Bloemfontein Memorial Park, a new addition, was slowly picking up. While the current performance was below expectations, an enhanced marketing plan had been implemented to boost visibility and sales growth.
The group repurchased 22.6 million shares at an average R2.63 per share, thereby decreasing the issued share capital from 121.4 million shares to 98.8 million shares.
“With a strong total revenue pipeline in excess of R17bn, encompassing over 22 000 residential (excluding the Frankenwald project) and 98 000 burial opportunities, we are set to have a significant impact in the affordable housing and burial sectors while ensuring meaningful returns to shareholders,” he said.
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