Johannesburg - Calgro M3 Holdings, the affordable housing and private memorial parks developer, is positioning the group to be less reliant on the government despite its first priority being to contribute towards the eradication of the housing shortage in South Africa.

Wikus Lategan, the managing director of Calgro M3, said yesterday that the group had raised its focus on the private sector in the six months to August in anticipation of a slowdown in infrastructure spend by the government in the lead-up to the local municipal elections.

Lategan said group consumer sales increased 80 percent in the reporting period, but this was not reflected in its revenue because it only started construction after a sale.

He said when the government had a budget for housing, Calgro M3 would target this business, but it would be on top of the group’s other business.

Lategan stressed that housing was not a luxury but a necessity, banks were still giving consumers 100 percent mortgage bonds and they did not see consumers turning away from the purchase of big ticket items in the current economic environment.

Play both sides

However, Lategan said if consumers were unable to afford to buy a home, they would be able to rent a home from Afhco Calgro M3 Consortium, the new joint venture residential rental real estate investment trust established between Calgro M3 and SA Corporate Real Estate.

“This will enable us to play both sides of the property cycle and earn annuity income. It also creates an anchor client, which government was, and will enable us to continue servicing infrastructure on an ongoing basis,” he said.

The intention of the joint venture was to build a substantial residential rental portfolio in the next few years, with the goal of reaching property investments in the residential market in excess of R10 billion.

Lategan said the establishment of the joint venture had not yet been approved by the competition authorities, but he did not doubt it would get approval “any day now”.

The first phase of the transaction involves Afhco Calgro M3 acquiring new units developed by Calgro M3 in Johannesburg and Cape Town for a total consideration of R1.639bn. Lategan said it would take 18 months for the sales to come through, then also start generating annuity income.

Breakeven

He said Calgro M3 Memorial Parks was almost at breakeven and would be an equal profit contributor as the development business in five years. Calgro M3 reported yesterday a 1.69 percent decline in headline earnings a share to 65.13c in the six months to August from 66.25c in the previous corresponding period.

Group revenue increased by almost 26 percent to R720.2 million from R573.2m and was supported by Fleurhof being accounted for as a subsidiary.

Operating profit improved by 82.5 percent to R114.4m from R62.7m, largely because of the inclusion of Fleurhof as a subsidiary and not being equity accounted anymore.

Operating expenses increased by 23 percent to R67.65m from R54.9m.

Lategan said the increase in operating expenses was over inflated by non-recurring items, including a VAT penalty of R5.5m for a zero-rated item that was being disputed and expenditure on re-branding and marketing campaigns.

Cash generated from operations increased by 195 percent to R94.2m from R32.0m.

The group’s board decided to retain available cash in the group for growth rather than declaring an interim dividend.

Calgro shares fell 2.52 percent yesterday to R15.50.

BUSINESS REPORT