Calgro shuts down construction arm

TRYING TIMES: GROUP RETRENCHES 150 EMPLOYEES

Shares down more than 50% despite company achieving a turnaround to profit.

Calgro M3’s strategic decision to right-size the business and focus on cash generation resulted in revenue for the year decreasing by 1.3% to R984.1 million from R997.1 million in the previous year.

The costs associated with these low levels of activity resulted in the gross profit margin being put under pressure and decreasing to 10.2% from 12.9%. However, the operating loss of R29 million in 2019 was turned around to an operating profit of R48 million.

Headline earnings per share increased by 108.7% to 1.77 cents from the restated 20.30 cents headline loss a share in the previous year.

Calgro M3 CEO Wikus Lategan said on Monday cash and cash equivalents at the end of the year increased 108% to R255.1 million from R122.6 million in 2019, which placed the group in a strong liquidity position at the start of the new financial year.

Lategan added that closing the construction division, rightsizing the business and closing offices had probably cost the company between R20 million and R30 million.

He said this has resulted in the group’s fixed overheads or running costs declining from about

R25 million in February last year to R19 million in October last year and R14 million currently.

Lategan said this decision was largely driven by fixed cost reduction to enable the group to support itself much better in challenging times and it had “almost set ourselves up for Covid-19 in this respect”.

Hard truth emerged

We’re going back to what we are

He said the decision to close the construction arm followed analysis of the risk versus cost benefits.

“To our great discomfort we found that although we thought we were generating an additional 3% on the total package, we were, in effect, only making an additional 1.5% on the total package at optimal construction capacity.

“Then you start deducting all the overheads associated with that and you are actually making losses or effective negative margins in some cases. “There are contractors that build way more efficiently than us and specialise in that,” he said.

“We’re going back to what we are – a residential property developer and memorial parks developer, and not the biggest contractor in town.”

Picture: Moneyweb OUTLOOK. Calgro M3 CEO Wikus Lategan says once liquidity returns to a satisfactory level, the residential rental property portfolio will be re-established.