CAPE TOWN - JSE-listed Calgro M3, developer of integrated residential developments and of memorial parks, is targeting a return to profitability in 12 to 18 months as it reaps the benefits of significant restructuring, chief executive Wikus Lategan said yesterday.
The headline loss per share increased to 26.29 cents compared with a 3.24c per share loss at the same time last year in the six months to August 31, after the group was severely impacted by the Covid-19 related lockdown. The share price fell 9.7 percent to R2.23 in intraday trade before closing the day at R2.41.
However, there were about 2900 residential units under construction, Lategan said.
The group closed its internal construction operations by the end of the period through the restructuring, as part of its strategy of not trying to be “everything for everyone” and after realising that construction is what the larger contractors specialise in. Overhead costs and interest payments had fallen by more than 40percent compared with 18 months ago, he said.
“We believe the leaner business, together with little pressure to invest in capital intensive projects over the short term and enhanced levels of liquidity, has positioned us extremely well to deliver much stronger results once trading conditions have normalised post Covid-19,” Lategan said.
The group had generated positive cash from operations, despite the difficult trading conditions, resulting in the net debt to equity ratio of 1.04 to 1, in line with the position at February 29, 2020.
Cash resources remained strong, with R246million in cash on the balance sheet at August 31. In September liquidity was enhanced with a new six-year, R215m unsecured NHFC facility.
In addition, the group was still in negotiation with the US International Development Finance Corporation for a six-year, unsecured facility of $20m (R331m).
The draw-down on this facility was expected in the second half of the 2021 financial year. The group retains an undrawn R100m Standard Bank overdraft facility.
Additional liquidity was also expected from the sale of the retail, commercial and rental properties, as well as certain non-core development projects currently being sold.
Lategan said that the sale of the Ruimsig rental units became unconditional on September 17, resulting in R104m in debt being settled, in addition to a further R129m being settled in Bond Exchange debt that matured in September and October 2020, thereby reducing the total outstanding Bond Exchange debt to R411m.
“Of the remaining R411m, R81m which was to have matured in the next 12 months, has already been refinanced into new three-year and four-year instruments.
Furthermore, the remaining Bond Exchange maturities up to January 2023 of R185m would be reduced to R85m once all restructuring was complete.
Revenue decreased by 24 percent to R395.8m and the gross profit margin was under flat, due to low levels of activity, standing-time related costs as well as the costs of closing the construction division.
The memorial parks business, seen as a risk diversifier against the traditional lumpy and cash intensive residential property development business, increased cash revenue by 65.7percent to R25.8m and accounting revenue by 75percent to R19.3m.
He said the Nasrec, Fourways and Durbanville parks performed well, while Enokuthula was still in its infancy, only becoming fully operational in March 2020.
The residential property development segment saw two months of construction stoppages due to Covid-19, and the segment suffered reduced revenue and incurred standing time costs.
“We expect these delays to have an impact on the next six to nine months as hand-overs and transfers of units are delayed.”
However, despite this, he said the group had sufficient working capital and pipeline opportunities to capitalise on the strong housing market, without the need to take excessive risks in securing additional projects or increasing operations too aggressively.
“We are positive. We will increase the development and construction of new units over the coming months, once clarity on the impact of Covid-19 becomes clearer, to enable this segment to return to profitability,” said Lategan, adding that scrupulous capital allocation was in place to ensure that working capital was not unnecessarily tied to projects and also to guard against liquidity pressure.
“The return to profitability and growth will be driven by both segments where liquidity has been restored, projects are ready to start producing revenue and are being supported by a leaner, more cost-effective structure,” he said.
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