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Calgro M3 suffers loss as it trims its business

Oct 21 2019 16:26
Carin Smith

Calgro M3 Holdings [JSE:CGR] suffered a headline loss of R4.1m in the six months ended August 31, from a R4m profit in the same period last year.

Calgro M3 is a property and property-related investment company involved in integrated residential developments, residential rental investments and the development and management of so-called "memorial parks".

Revenue decreased by 17.2% to R520.8m. But its net asset value decreased only marginally over the period by 0.3% to R804.1m.

This is according to the group's unaudited interim results, released on Monday. In a statement, Calgro M3 said its "intense focus on cash flow generation and cash preservation during the period under review paid off, with net cash generated from operating activities increasing to R375.5m".

"During these difficult economic times, the cash flow was stabilised to ensure sustainability of the group and to mitigate risks associated with unplanned delays and stoppages on major projects," the group said. Cash generated from operations over the interim period was R449.5m, while cash on hand increased by 67.5% to R205.4m.

Calgro M3 CEO Wikus Lategan told Fin24 on Monday afternoon that work was continuing on all project sites, although it is running at 60% to 70% capacity. In a more favourable construction environment, it will be increased.

He said the company has moved the business to a third party "turn-key specialist" contract basis, which it finds to be more efficient as it could then ramp up capacity quicker in future if need be.

Job cuts

Asked about job cuts, Lategan said no further job cuts are expected as the company has already gone through such a process over the past nine months. This involved about job losses at head office level, and a few hundred workers on construction sites.

"Our ultimate goal is to move away from construction and if, at the time, we see a need for further job cuts, we will try to merge those workers with whoever end up being our contractors," he explained.

He said, as anticipated, reducing operations to an extremely low level impacted gross profit, but the group believes these decisions will ensure its overall sustainability and mitigate any risks associated with unplanned delays and stoppages on major projects.

According to the group, its residential property development business is well positioned to recommence construction and increase capacity on a number of projects, with 7 837 fully serviced opportunities available for development as well as 3 317 units already under construction at various stages of completion.

"Based on the estimated timing for completion, we will have sufficient working capital available to start the additional units without raising additional working capital in the short term," says Lategan.

For the next six months, the group's key focus will be to continue to manage liquidity, by giving careful consideration to the best use of its cash on each project, and looking at any downside risks, "given the current instability and uncertainty of the South African economic and political climate, which is expected to remain protracted".

Despite the challenges being faced, the group says it remains confident in the long-term growth and potential in the South African market and that, once the economic climate recovers to a higher growth environment, the group will be able to capitalise on being a first mover to market.

calgro m3  |  property  |  earnings report
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