Calgro M3

COMPANY PROFILE

2015

Calgro M3

+27 (0) 11 834 7693 | www.calgrom3.com

company profile

A R19 billion project pipeline Editorial: Ajuanne Payne

High-performing, affordable housing property developer, Calgro M3 has experienced five consecutive years of profit growth and has been providing for South Africa’s low-cost housing needs for two decades.

With record profits announced this year, a project pipeline worth a vast R19 billion, and continued demand for infrastructure investments nationally, the company is on an upwards trajectory that looks set to continue in the years to come.

Celebrating 20 years in business this year, Calgro M3 is a multi-disciplinary residential development company operating through its subsidiaries out of eight locations across South Africa.

Unlike some of Calgro’s counterparts in the industry, it is not involved in big-ticket developments such as retail sites, industrial sites, airports and civil construction, rather focusing on low to mid cost housing developments. There is a huge demand for affordable homes and lifestyles in South Africa and Calgro is one of the companies satisfying this need – a solid growth market for the company.

This focus has proven lucrative to the company over the years, with Calgro now entering its fifth consecutive year of revenue and profit growth.

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In a nutshell, the company purchases land at a competitive price and then covers all areas of development, from feasibility and environmental studies, infrastructure development, installation of services, town planning, marketing and ending with housing construction.

Projects for Calgro are split fairly evenly between public and privately funded developments and range across all areas of lower cost housing – from government funded housing right the way up to mid to high income private housing developments, with the primary area of business being in Reconstruction and Development Programme (RDP) housing.

A FLEXIBLE BUSINESS MODEL Due to the company’s focus on a full range of housing in the low-cost and middle market areas,

Calgro M3

it has buffered itself against fluctuations in the building and construction market. By focusing on different niches, Calgro is able to adapt its business model and move focus depending on where the demand is highest.

It is this adaptability that has been the key contributor to Calgro’s impressive and consistent growth story.

“Either you build fully subsidised units and social housing for government or you build for the financial institutions, the bonded market,” comments Ben Pierre Malherbe, CEO of Calgro.

“I think we are very fortunate that the market segment we are playing in has a lot of support from the public and the private sector with the new drive towards service delivery for the local elections coming up in 2016. There are a lot of things

happening in our market sector.”

In 2012, the South African Government launched its ambitious National Infrastructure Plan, aiming to ‘transform the economic landscape while simultaneously creating significant numbers of new jobs, and strengthen the delivery of basic services’ and included in this R827 billion commitment is a significant drive towards providing affordable housing.

Investment in low-cost housing by the South African Government also lends itself to alleviating employment issues for some of the communities the developments aim to service. Due to these types of projects being more labour-intensive, progress in this area of infrastructure has the potential to redress unemployment levels and also to provide workers from some disadvantaged communities with

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company profile

new skills, increasing future employment potential.

Calgro had been prepared to move focus slightly from the more affordable end of their development business as of 2014, predicting a deceleration in government investment in this area – however the opposite has proven the case.

“What did not happen that we expected after the 2014 election is that the focus on infrastructure would fall away,” commented Malherbe, “but you’ve seen it just continue. We expected there to be a period where there would be a lot more focus on just building top-structures and not the support [from government], but the support has just sustained and there’s still a lot of money spent on infrastructure guaranteed moving forward.”

The South African housing backlog, coupled with accelerating urban migration, means there is a pressing demand which won’t be alleviated for many years to come.

Aside from Calgro’s ability to shift focus between different sub-markets, the company has buffered itself against losses by certain risk mitigation factors within its business model. It will not build houses before they are sold, meaning Calgro’s management

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can pull a project relatively simply if economic issues make it necessary.

Also, wherever possible, Calgro likes to be the land-owner in a project and subsequently owns large amounts of land with the potential for development.

Malherbe explained: “What’s important here is that we are the land owner and we prefer to be the land owner - so we decide when we work with private sector and when we work with public sector.”

This decision is another factor lending flexibility to the company – and one that has also led the company to diversify into a new area; memorial parks.

SOUTH AFRICA’S FIRST OFF-GRID COMPANY “The idea for memorial parks originated when we looked at our business and we saw that we own vast tracks of land and it’s not all developable as residential opportunities. So we looked at alternatives – what do we do with those pieces of land that we sit on? Because if you don’t do anything with it, it becomes a dumping site for the community,” comments Malherbe.

Calgro M3

“What’s important here is that we are the land owner and we prefer to be the land owner” In the development of this new arm of the business, Calgro will also be achieving a first in South African business as it aims to make the new subsidiary a completely off-grid company.

At a time when Minister of Public Enterprises, Lynne Brown, has predicted that Eskom’s continued issues with supply shortfalls means the population can expect load shedding for at least another two years, Calgro saw an opportunity with the new subsidiary to combat power supply issues and set an example for others dealing with the same struggles daily.

The subsidiary will generate enough of its own electricity using renewable energy to run all areas of the business, including its physical office buildings.

“We believe that in this era of tight electricity supply, any move to generate one’s own power, to be independent of Eskom, is an important element of sustainability,” commented Wikus Lategan of Calgro. “It has been estimated that a lack of power has cost this country 10% of GDP and businesses need to take action now to limit the negative impact on their bottom line.”

Not only will this initiative combat power supply issues within Calgro, but will benefit the locality around it as well, alleviating demand on the already stretched local electricity grid.

“The offices have been designed to operate independently of South Africa’s electricity grid, using various forms of renewable energy with generator backup,” Lategan explained further.

“All of the memorial parks and all the facilities associated with this company will be entirely selfsufficient in power generation. We believe that this will be the first entirely off-the-grid company of

size in the country.”

The new venture, Calgro M3 Memorial Parks, is set to launch in the near future with the Nasrec Private Memorial Park. This first in what the company hopes to be a suite of parks will initially be able to accommodate around 25,000 grave sites, with the potential for expansion to another 14,500 sites.

Calgro will have the opportunity to apply the lessons it learns in alternative energy to future developments – of which there are a significant amount in the pipeline.

According to the company’s most recently released results, it has seen a 37.9% rise in profit after tax on last year – with earnings per share up by 31.9% and a project pipeline in excess of R19 billion, which has the very real potential to take Calgro over the R1 billion revenue mark in the near future.

Calgro has shown, time and again, that it has the diversity to grow steadily in what is not a steady market. With record profits for this year and further diversification within the company, it is a safe bet to assume that Calgro will continue to pave the way to its own success in the years to come and may well crest R1 billion in revenue by the end of this year alone

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