CFO Waldi Joubert unpacks Calgro M3’s return to profitability after three challenging years
The group’s gross profit margin has recovered to 12.3 percent as a result of its new strategy aimed at sustainability.
Calgro M3 has reported that its gross profit margin for the year ended 28 February recovered to 12.3 percent. This recovery comes after the group faced enormous challenges during its 2016, 2017 and 2018 financial years, including the impact of Covid-19 in 2020.
CFO Waldi Joubert says that the company is well positioned for a sustainable future, and in a far healthier place than it has been for the past couple of years. “We are proud of achieving the strategic successes that we set out to achieve in order to ensure longer term sustainability and the health of the company.”
These actions are all aligned to the group’s “#sustainableactions” strategy, which has seen it make and execute some hard decisions over the past year, including exiting the residential rental business, exiting non-core projects, reducing debt, holding more cash or buying back shares.
Through this strategy, the company has managed to reduce its debt and cut its fixed costs substantially by 40 percent. Debt was restructured, and only R70 million remained in capital market maturities in the following 24 months.
Overall revenue for the year decreased by 10.7 percent to R879.1 million, after being down 24 percent in August last year.
Headline earnings per share decreased to a loss of 15.17 cents per share, compared to 1.77 cents per share in 2020, because of once-off costs. The first-half loss of R39 million turned around to a R18 million profit in the second half.
Cash and its cash equivalents were R154.6 million at year end, with available overdraft facilities of R100 million, positioning the group well for robust delivery in the 2022 financial year.
Waldi explains that executing the strategy was particularly challenging in the past year as the company navigated the pandemic. “Covid-19 impacted the development business quite severely. There was an effective three months of production lost during the hard lockdown and the subsequent easing of restrictions,” he says. “We took a cautious approach when returning in order to preserve working capital in case there was another set of hard lockdown restrictions.”
He adds that the business is heavily dependent on institutions like the Deeds Office and local municipalities, and with their offices closed for extended periods due to Covid-19, Calgro only returned to production on a staggered basis. This resulted in fairly slow revenue for the six months, but there was a notable acceleration in the second half with a 22.1 percent increase in revenue from the first half. “The main contributing factor is the fact that we currently have 4,654 units under construction, compared to 2,393 units a year ago,” Waldi says, adding that the increased production does not only contribute to revenue in the current year, but is positioning the group very well for robust growth in the 2022 financial year.
“We were extremely fortunate to have the Memorial Parks business in our stable as well, which operated at full capacity during the entire lockdown period and has continued to be an extremely valuable and robust business,” he says. “Memorial Park delivered consistent monthly cash flows and demonstrated that the business is not linked to economic cycles, thereby complementing the property development business, which can be quite lumpy at times.” This growth in Memorial Parks, which accounts for only five percent of the company’s total revenue for 2021, is providing Calgro M3 with annuity type revenue.
Waldi explains that the company currently has a more than sufficient pipeline of opportunities available to see it through the next couple of years without the need to make any new investments. “The property development business has 32,590 opportunities available, of which 6,073 are already serviced, which means that we have no pressure to spend on new projects or new infrastructure at the moment.”
From a Memorial Park perspective, the company has 59,336 burial opportunities still available across the parks, which should provide around 10 to 15 years’ worth of stock. “Our immediate goals are to reduce debt, retain higher cash valances for working capital and continue buying back our shares for as long as the shares remain undervalued.”
A team that delivers
Waldi says that, in order to deliver a set of robust results, especially in the property development space, you need to have a committed, multi-disciplinary team. “We have a team that puts their heart and soul into delivering quality houses, a great value for money, and making a tangible difference in the lives of so many people. To develop, design, sell and deliver houses of this quality at these prices, requires an immense amount of input from every person in our organisation.”