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Calgro M3 HEPS up almost 30%

Interims to end-August 2015. ‘We’ve got 12 projects all contributing towards revenue – Ben Pierre Malherbe – CEO, Calgro M3

SIKI MGABADELI: Hybrid property developer and construction company Calgro M3 reports strong interim results despite the tough trading environment in the six months to end-August. Calgro reported a 29.98% rise in headline earnings per share to 66.25c. That’s compared with the year earlier period. And the board said its main focus during the period under review was the implementation of its R19bn project pipeline.

Ben Pierre Malherbe is CEO and joins us now. Ben Pierre, thanks so much for your time this evening. Where do things stand with that R19bn pipeline?

BEN PIERRE MALHERBE: Our pipeline is still R19bn, and I think the focus of the six months was just to say there’s not need to grow this pipeline. The pipeline is big enough. We need to implement what we’ve secured in the past. So the focus in the last six months was just to say get the project in the ground. And we are happy to say that we didn’t bring anything new to book. Although we didn’t start working on new opportunities, we’ve got 12 projects all contributing towards revenue, which is a nice position to be in.

SIKI MGABADELI: And they’ve all started generating revenue?

BEN PIERRE MALHERBE: Slow. Some of them are generating revenue, yes, but we are in the ground. So for the next six months at least we know they will be contributing. They are not just plans any more.

SIKI MGABADELI: And at which stage in a project’s development does it start breaking even and then making the profit for you?

BEN PIERRE MALHERBE: Breaking even is late in the project. Traditionally about 50% of the project is done before you start breaking even because obviously your big investment on the infrastructure and the purchasing of the land goes up front. But we were fortunate that something like Fleurhof broke even quite a bit earlier and even the Scottsdene project down in Cape Town.

SIKI MGABADELI: You prefer to own the land that you develop, and that way also control costs by employing your own town planners, your own architects and so on. In what ways do you think that has given you an advantage, particularly in this tough trading environment?

BEN PIERRE MALHERBE: I think the biggest single advantage is by owning the land is you’ve got flexibility. We are in a position where we work with the public and the private sectors, and the type of work is not always exactly the same. When you in a position of working on someone else’s land, someone else makes the rules. So as landowner we’ve got opportunities to say guys, in this six months or in this specific period we prefer to work with the public sector or private sector, depending on their appetite.

SIKI MGABADELI: And what’s your split right now between public and private sector?

BEN PIERRE MALHERBE: I think our exposure to private sector is a lot smaller, but it all depends. If we look at numbers, we are very close to a 30% exposure of the number of units constructed in the public sector. But if you look at it by revenue, because they are so much cheaper, it’s close to a 15% exposure by revenue.

SIKI MGABADELI: So you also managed to reduce your net debt and increase your cash on hand. What has been your debt-reduction strategy?

BEN PIERRE MALHERBE: Our debt/equity is currently at a 0.48, which I don’t want to say is unsustainably low, but we raise debt as we need it and we are sitting with debt that we can’t utilise. We prefer to rather repay and re-gear ourselves when the opportunities arise. So we are not raising debt now…. For the future we need to be able to use it otherwise the interest cover just runs away with us.

SIKI MGABADELI: You entered Namibia’s housing market through a joint venture last year. How is that partnership going, first of all, and are you then looking at other countries on the continent at all?

BEN PIERRE MALHERBE: Currently we are not looking at anything else. We said let’s make Namibia work and working in Namibia proved not a lot easier than working in South Africa. We just said we would like to get the exposure working outside the South African borders. We did that. And whether we’ll be involved in future phases of new development all depends on the success of the current venture. We are happy where we are currently, but there is no need to start looking at new work in Africa. We see the opportunities in South Africa as more than enough.

SIKI MGABADELI: Talking about opportunities in South Africa, then, are you seeing new pipelines from the Department of Human Settlements? Is there anything new coming through from there, because we’ve spoken to quite a few construction companies who say they are not really seeing, in terms of the overall infrastructure build, projects coming through?

BEN PIERRE MALHERBE: The Department of Human Settlements – the one thing they did say is, in order to roll out the 1.5 million households that the minister promised to be rolled out in the near term, they need to go megaprojects, Catalytic projects. So I think for the first time the national department is saying, let’s look at where we want to do these projects, make sure there is water available, make sure there is electricity available, job opportunities. So I think they are a lot more specific on where they want to do it. But the rollout is slow.

SIKI MGABADELI: Your first memorial park has been launched. Tell us about that.

BEN PIERRE MALHERBE: Ja, we ventured into the space…. We started to look at what we could do with land we couldn’t use for eventual development and we decided the sustainable park is a solution. The business is not a year old as yet, so it’s not contributing towards overheads. We are happy with the space where we are currently. We will not take on anything else before this one is working the way we expect it to work. So its early days still.

SIKI MGABADELI: Thanks, Ben Pierre.