Calgro M3 hampered by social unrest and drought


Calgro M3 hampered by social unrest and drought

Published Date: 2017-10-17 | Source: Stephen Gunnion | Author: Stephen Gunnion

Calgro M3 hampered by social unrest and drought

The group plans to split its operations into three separate business units

Social unrest in Gauteng and drought in the Western Cape have hampered progress in Calgro's Integrated Residential Development business. The housing developer says while its focus in the first six months of its financial year was on increasing production on the AFHCO Calgro M3 joint venture with SA Corporate Real Estate, it experienced difficult trading conditions.

Overall growth for the development business was subdued as a result of delays in capital debt raising, which took longer to conclude than expected due to the tough economy. It says social unrest, particularly in Gauteng, also affected its performance, with delays, standing time and vandalism being experienced at almost all its Gauteng sites. In the Western Cape, it had to scale back its construction due to the water crisis in the province. However, with 13 projects on the ground, it said it managed to reduce the impact of the delays. Cargo says grave sales in its Memorial Parks business improved, increasing by 41% from the previous six month period.

For the six months to end August, Calgro says its financial performance was also impacted by the construction of houses for the AFHCO Calgro M3 Consortium, in which it has a 49% shareholding. According to International Financial Reporting Standards, its share of the development profit remains unrealised profit on the balance sheet until it realises in future financial years, once the units are complete, tenanted and the portfolio has been revalued.

Revenue for the six months to end August rose 40% to R1.01 billion, but net profit fell 26% to R61 million and headline earnings per share declined by 27% to 47.71c. Core headline earnings per share, which strip out the elimination of unrealised profits from the development of units for the joint venture, rose 18% to 77.1c. It's not paying a dividend as it wants to retain cash to fund growth across the group.s

The company says it now plans to split its operations into three different business units, each with its own senior management team. It's already hived off the Integrated Residential Development business, with real estate investments and Memorial Parks to follow.

It has also secured its first international funding of €25 million, but will price the loan in rand so that it doesn't expose itself to foreign exchange risk on the facility. It says although the economy remains challenging, it's confident its business is in a strong position to continue selling housing units, while growing its rental business.

Calgro's shares declined 0.2% yesterday to close at R12.62.

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