Deaths attributed to Covid-19 provided an unexpected revenue boost to JSE-listed property and private memorial parks developer Calgro M3 in the six months to end-August 2020.
Calgro M3 CEO Wikus Lategan said on Monday the group’s memorial parks business, which acts as a risk diversifier against the traditional lumpy and cash intensive residential property development business, illustrated its potential in the first half by increasing cash revenue by 65.7% to R25.8 million in the six months to August from R15.5 million.
The group’s interim results show that accounting revenue grew by 75% to R19.3 million from R11 million in the same period, he said.
“Confirmed Covid-19 burials represent R2.6 million of the total cash received in the period. From an internal assessment, the increase in sales is a combination of increased market share, as well as increased mortality over the period as a result of Covid-19.
“The fundamental function of being a stable and risk-mitigating business is clearly being demonstrated through these uncertain times,” he said.
Lategan added that the company’s Nasrec, Fourways and Durbanville memorial parks performed extremely well but Enokuthula in Brakpan is still in its infancy after only becoming fully operational in March.
“The national rollout and development of further land parcels within existing parks is a priority.
“The acquisition of new parks is only planned for the next financial year when the business has a better medium to long-term outlook,” he said.
Residential property developments
Calgro M3’s residential property development business remains the largest contributor to the group’s operations despite experiencing extremely challenging operating conditions during the past few years.
Two months of construction stoppages because of Covid-19 also resulted in this business suffering reduced revenue and incurring standing time costs.
Lategan said this was unprecedented and resulted in once-off costs incurred to ensure future sustainability and liquidity, with Covid-19 costs and the associated standing-time amounting to R35.8 million in the reporting period.
Lategan expects these delays to have an impact on the next six to nine months as handovers and transfers of units are delayed.
But he stressed that the group is well positioned, with 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.
“Calgro M3 will increase the development and construction of new units over the coming months, once clarity on the impact of Covid-19 becomes more evident, to enable this segment to return to profitability.
“With clientele becoming more discerning, the focus remains on enhancing the product offering, while keeping sales prices affordable and at a level where banks approve 100% bonds.
“The current low interest rate environment will further enhance housing sales,” he said.
“The group will remain cautious of the economic impact on the customer base and the potential tighter credit criteria from banks.”
The Centre for Affordable Housing Finance in Africa reports that the estimated backlog in South Africa is between 2.3 million and 3.7 million units and the annual delivery by government is clearly insufficient to meet demand.
Calgro M3 reported in May that it had retrenched about 150 of its employees following a decision to close its construction division.
Lategan said on Monday the costs associated with the closure of the construction division, a strategic decision that in future will result in a slight additional contribution to margin, amounted to R12.9 million.
Calgro on Monday reported a widening in the group’s after tax loss to R39.1 million for the six months to August from R2.8 million in the previous corresponding period.
The headline loss per share increased to 26.29 cents from 3.24 cents.
Group revenue dropped by 24% to R395.82 million from R520.78 million.
The group reported an operating loss of R27.19 million compared to the R25.78 million operating profit achieved in the prior period.
No dividend was declared.
Despite the difficult trading conditions, Calgro continued to generate positive cash from operations of R115.66 million, although this was 74% lower than the R449.46 million generated in the prior period.
Lategan said the group’s cash resources remain strong, with R246 million in cash on the balance sheet as at end-August.
He said liquidity was further enhanced in September by securing and drawing on a new six-year R215 million unsecured National Housing Finance Corporation facility.
Lategan said the group is also still in negotiation with the US International Development Finance Corporation for a six-year unsecured facility of $20 million, with the drawdown on this facility expected in the second half of the 2021 financial year.
In addition to the above cash resources and facilities, the group retains an undrawn R100 million Standard Bank overdraft facility while additional liquidity is expected from the sale of the retail, commercial and rental properties, as well as certain non-core development projects currently being sold, he said.
Lategan said Calgro M3’s management is confident the group is on the verge of leaving “the ugly” of the past three years and “the bad” of Covid-19 and returning to “the good” once the broader impact of Covid-19 on the economy and the consumer becomes clear.
He said the group’s return to profitability and growth will be driven by both segments where liquidity has been restored and projects are ready to start producing revenue, supported by a leaner, more cost-effective structure.
“The housing market in South Africa remains at a shortfall of a couple of million houses and funeral and funeral-related services are a multi-billion rand industry which continues to grow,” he said.
Shares in Calgro dropped 2.43% on Monday to close at R2.41.