JSE-listed property investment company Calgro M3 has announced record headline earnings for the financial year ended February 28, with revenue having increased to R1.5-billion from R1.3-billion in the previous year, driven by increased unit registrations and additional investment in bulk and link infrastructure funded by government throughout the year.

Calgro specialises in the development of integrated residential housing developments and the development and management of memorial parks. The company reported that the residential property development business was the largest contributor to revenue and profit, with nine active projects in Gauteng and the Western Cape.

CEO Wikus Lategan told Engineering News that its margins were not achieved at the cost of the consumer, but that the consumer rather benefited from lowered living expenses thanks to various efficiencies incorporated into the design.

“These results are based on our sustainable, well-diversified project portfolio rollout, a robust balance sheet featuring the lowest liabilities in seven years, and a net debt-to-equity ratio at a ten-year low of 0.62,” he explained.

Lategan said the group’s focus on improving efficiencies and containing costs was responsible for the strong results.

“This performance was specifically driven by the development business’ persistent investment in innovative building designs, rethinking the efficiency of design layouts, and the continuous pursuit of margin improvement,” he said.

The restructuring and refocus of Calgro’s memorial parks business added to a positive financial performance. This, in addition to strategic capital and resource allocation between the business segments allowed the company to deliver a gross margin of 23.5%, Lategan said.

Calgro’s residential pipeline comprises more than 22 000 opportunities at an estimated revenue of R15.9-billion across nine projects, while the memorial parks pipeline offers more than 99 000 burial opportunities for an estimated revenue of R2.1-billion.

The residential property development business remains the largest contributor to revenue and profit, with nine active projects in Gauteng and the Western Cape. Lategan explained that the company has expanded its portfolio by targeting fully subsidised homes in addition to its more luxurious homes valued at R3-million or more.

He said this helped to ensure investment portfolio diversity amid the current economic and market challenges.

He explained that the company’s focus lay in offering homes in lifestyle estates while also catering to the unhoused market segment.

Lategan said that, to minimise the impact on consumers during the current cost-of-living crisis, Calgro had been exploring and testing lower price points that could still sustain the lifestyle offering and provide value.

During the financial year under review, Calgro reported that it had handed over 3 186 completed homes, with 2 719 still under construction. More than 3 100 units would be serviced in the 2024 financial year.

Lategan explained that the company aimed to manage cash flow more evenly by distributing handovers throughout the year.

“With revenue diversification between projects and provinces, along with a sustainable mix of customers, we expect more consistent handovers, and in turn, more consistent cash flow generation, over the next 6 to 12 months,” Lategan said.

Calgro’s strategy will focus on driving core project returns through town planning, improved designs, and product enhancements. The aim is to keep sales prices affordable and at a level where banks still approve 100% bonds.

“Calgro is encouraged by the appetite from all major banks and their continued support of the residential development industry, which is crucial not only for providing much-needed housing but also for significantly contributing to job creation and societal wellbeing, albeit in difficult market conditions,” Lategan commented.

He said that efficient design layouts allowed for the addition of more than 1 600 units to the pipeline at no additional capital cost.

During the year, Calgro funded R249-million of bulk and link infrastructure on its Jabulani, Fleurhof, South Hills and Belhar properties, with plans to spend an additional R150-million in the next financial year, all funded from cash generated through operations.

“We remain alert to the impact of current economic conditions, increasing interest rates and tightening of lending criteria by banks, but are confident that our deep understanding of our target market, combined with the strong demand for housing, provides us with a competitive advantage,” Lategan said.

He noted the company’s ambitions to develop Frankenwald, located next to Alexandra and the Marlboro Gautrain station, which is the last remaining large-scale property in the greater Sandton area. Calgro holds an option to acquire the parcel of land in partnership with a major third-party commercial property developer.

In terms of Calgro’s memorial parks business, he noted a significant shift in performance during the period.

“The decrease in total cash collected is attributed to lower burial volumes post the Covid-19 pandemic, a marketing division restructuring, and challenges with consumer affordability,” Lategan said.

He explained that the company had, therefore, introduced new payment mechanisms and a data-driven marketing strategy to combat these challenges.

To address consumer affordability challenges, a lay-by payment mechanism was introduced in July last year, giving customers up to 24 months to pay for the reservation of a grave, with 0% interest charged on the instalment plan.

The company reported that this lay-by offering resulted in an additional R12.4-million in sales. However, this had not yet been reflected in revenue. Of this amount, R8.9-million was receivable in the next 12 months. Revenue would only be recognised on these sales once the full purchase price had been received in cash.

Lategan said the offering was showing significant potential, while addressing the financial pressures that consumers were facing.

“Moreover, the acquisition of burial rights in the Bloemfontein Memorial Park post year-end is a great advance for this business, which enhances growth prospects,” he noted.

Over the year, administrative expenses increased by 14.1% to R102.4-million from R89.7-million, owing to increased marketing costs directly linked to revenue growth, along with a general inflationary increase in administrative costs. Employee costs also increased by 6%.

Earnings per share (EPS) increased to 153.37c, while headline earnings a share (HEPS) improved to 153.18c.

At the end of the financial year Calgro executed a registered share repurchase programme, repurchasing 13-million shares equating to 9.27% of the company’s issued share capital at an average price of R2.34.

Lategan said that, should this have occurred in the 2023 financial year instead, the effect would have improved EPS to 171.77c a share and HEPS to 171.55c.

The company reported an increase in current assets, excluding cash and cash equivalents, by R240-million, which it attributed to the increased investment in construction contracts in the current year, which went up to more than R1.16-billion.

“This will ensure consistent handovers and cashflow going forward,” Calgro FD Sayuri Naicker said.

He explained that the increased investment in bulk and link infrastructure, where R249-million was spent to ensure sustainability through serviced stands for the future as well as top structure construction – the value of which had yet to be extracted – contributed to the decrease in cash generated from operations to R89.6-million from R228.2-million a year ago.

Trade and other payables reduced to R360.5-million, of which R40.8-million related to deferred payment arrangements that were settled during the year, resulting in the Calgro achieving its lowest liabilities balance in the past seven years, Naicker said.

“In light of the strong financial performance, Calgro is actively exploring adopting a dividend policy within the next year,” Lategan said.

He added that, while the market continued to be affected by factors such as unemployment, limited credit access and high levels of household debt, the company was encouraged by the support received from banks, such as the granting of 100% mortgage bonds to clients.

“We recognise the importance of cost containment and will continue to focus on creating efficient building designs and layouts to improve margins,” he said.

Lategan added that the company remained confident in the strategy of the memorial parks business.

“It has taken effort to understand the market dynamics and build critical mass. The newly implemented lay-by offering is resonating well with the market,” he said.

Lategan explain that capital allocation remained key, as demonstrated by the recent share buyback.

He said the company would maintain its focus on the private sector, with nearly 90% of the homes built being sold through direct and bulk sales. In addition, the company was determined to expand its memorial parks business, while capitalising on product development and sales momentum achieved in the last financial quarter. This would be the key focus over the next six months.

“We will also ensure that a longer pipeline remains in place to ensure enough homes and burial opportunities into the market consistently,” Lategan said.