Home builder Calgro M3 cuts back on production as land invasions bite
Home builder Calgro M3 has become the latest victim of social unrest, saying protests and land invasions had cost it the equivalent of about a quarter of its interim revenue and caused it to plunge into a loss.
The company, which develops housing and manages memorial parks, had to repair its sites and upgrade its security at a cost of R120m.
Calgro M3, which generated revenue of R520.8m in the six months to August, reported a headline loss of R4.1m compared with a R4m profit in the comparable six months.
“It’s been very frustrating,” CEO Wikus Lategan said.
“We should have been able to roll out housing profitably in a country where people are in such desperate need of it.
“Yet we have had to deal with riots amid uncertain political policy,” he said.
Land invasions in Scottsdene in the Western Cape and Fleurhof in Randburg had forced Calgro to cut back on rolling out affordable housing, decreasing its development costs as a result.
This is while SA faces an affordable housing crisis.
Calgro is not the only company to have to deal with protests. Construction group Aveng terminated its Mtentu bridge contract in the Eastern Cape earlier in 2019, citing community unrest as the main reason.
The SA Police Service said in April that violent land protests in the Western Cape were steadily on the rise.
The City of Cape Town disclosed that it had recorded 21 incidents of protest action in the first few days of April. This follows 76 recorded incidents in March, and 24 in February.
Community newspaper Randburg Sun reported in June that there had been land invasions and community protest action in Kya Sand, Zandspruit and other parts of the greater Randburg area.
Calgro M3, which has a market capitalisation of about R566m, was among the top 10 performing companies on the JSE each year from 2011-2016. Its share price climbed from R1.20 in September 2011 to R18 in August 2016.
But 2019 has been a bad year and Calgro’s share price has lost 63% of its value so far, closing at R3.85 on Monday, after it released disappointing results.
Lategan said Calgro’s operations should become profitable again in the 2021 financial year to February.
“Land invasions and protests around our sites have stopped for now and we have brought our large overhead costs down. We didn’t want to be like many other construction groups in SA who have fallen into crises so we have been prudent,” he said.
The company would continue to preserve cash and would dispose of projects that are capital intensive and yield lower-than-expected returns. It intends to settle debt early and will reduce staff and administrative expenses.
Lategan said the intense focus on cash-flow generation and preservation was paying off, with cash on hand increasing 67.5% to R204.5m. Cash generated from operations increased to R449.5m.
“We have chosen to hold on to cash and buy time. We are not trying to shoot the lights out on our income statement but would rather take our time to develop on a very cost-effective basis,” he said. “No, we are not returning at full capacity yet, but home sales are still very good.”
LATEGAN SAID CALGRO’S OPERATIONS SHOULD BECOME PROFITABLE AGAIN IN THE 2021 FINANCIAL YEAR TO FEBRUARY