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• First half performance impacted by low demand as a result of higher for longer interest rates and macro-economic pressures
• Revenue down 28% to R852.7 million reflecting challenging housing market
• Profit for the period down 57% to R76.9 million
• Headline earnings per share down 57% to 16.26 cents
• Number of apartments recognised in revenue down to 640 (August 2023: 834)
• Improved consumer sentiment towards latter part of reporting period points to better second half
• September rate cuts and improved business confidence following formation of Government of National Unity not reflected in the numbers
• 734 apartments pre-sold for future financial periods (August 2023: 688 apartments)
• Gauteng returns as top revenue contributor at 49% while strong demand in Western Cape remains
• Operating costs reduced for the third straight reporting period, down 7% to R155.1 million
• Gross profit margin flat at 32% (August 2023: 33%)  
• Annuities business revenue up 17% to R65.8 million (August 2024: R56.3 million), contributing 7.7% to group revenue
• 903 green bonds secured for clients during the period, amounting to a total savings of
  
  
• R44.5 million over a span of 20 years

JSE listed Balwin Properties (“Balwin” or “the Group”), a developer that cares about environmentally responsible building practices and the delivery of high-quality apartments to its valued clients, today released its interim financial results for the six months to end August 2024.  

Balwin Chief Executive, Steve Brookes commented:“As guided previously, this past six months was characterised by higher for longer interest rates and a stagnant economy which continued to impact the housing market. 

“Sentiment is however a key driver of the residential property market, and we saw several positive catalysts materialise during the reporting period, including expectations of a lower interest rate cycle and improved confidence following the formation of the Government of National Unity, the continued availability of electricity and a series of petrol price cuts.

“Although these factors did not impact on the results we are reporting on today, they position us well for a recovery in the second half of the financial year, however, it will take time for additional interest rate cuts to fully flow through to the bottom line, as most households continue to battle with rising living costs and pedestrian economy growth.”

Brookes added that buyers and investors who were previously on the fence, are increasingly committing to property transactions following the September interest rate cuts, as demonstrated by a healthy recovery in the group’s forward sales to 743 apartments, up from 688 apartments in August 2023.

These apartments are not recognised in the reporting period’s revenue but have been pre-sold for future financial periods.

Balwin reported a contraction in the average selling price of its Classic and Green Collections during the period, as a result of economic headwinds and incentives to stimulate sales.

Two- and three-bedroom apartments reduced on average by 5% in selling price during the period, although the popularity of 1-bedroom apartments supported a 1% increase in the average selling price.

In the Green Collection, average selling prices for 1-bedroom apartments reduced by 4% and for two- and three-bedroom apartments by 2% respectively, mainly due to the severe pricing pressure felt in recent times by this lower LSM consumer.

Revenue of R852.7 million was reported for the six months to 31 August 2024, down 28% year-on-year. Profit for the period was commensurately lower by 57% at R76.9 million, with headline earnings per share decreasing 57% to 16.26 cents per share. 

The six months under review showed an interesting reversal in the impact of semigration, with Gauteng regaining its position at top revenue contributor by region at 49%, followed by the Western Cape at 46%. Delays in municipal approvals hamstrung handovers in KwaZulu-Natal which contributed 5% of total revenue. 

The group reported that demand in the Western Cape remains exceptionally strong, with land contracted for two new developments during the period as replacement projects for Fynbos (which was sold out) and De Aan-Zicht.

Developments under construction, which include the value of land and infrastructure costs, development rights and construction costs, increased by approximately R200 million to R6.5 billion.

This increase was driven predominantly by construction and development costs as opposed to additional investment in land, reflecting Balwin’s focus on top-structure development as the group executes on its existing pipeline of projects. 

A significant component of the costs incurred in Tshwane related to investment in infrastructure costs. These costs were necessary to secure council approval for the registration of the initial phases of apartments at Greenkloof, the first development within the Mooikloof Smart City node (Tshwane East).

44 apartments at Greenkloof were handed over and recorded in revenue during the six months under review.

Operating costs for the period were reduced by a further 7% to R155.1 million. This is the third straight reporting period where operating costs were reduced at company level, representing a cumulative 27% reduction in operating costs since the August 2022 interim results.

The gross profit margin of the group remained flat at 32% (August 2023: 33%) but improved from the 28% reported for the financial year ended February 2024, mainly due to the increased performance of the annuity businesses.

The Group’s annuities businesses continued to report robust growth on increased scalability, with an aggregate revenue of R66 million for the period – a year-on-year increase of 17%.

  The business segment further recorded an operating profit of R26.9 million before intergroup eliminations.  Just over half of the total annuity revenue was derived from fibre and infrastructure services, which increased its active clients to 9 599.  

In line with its sustainability objectives, all new developments undertaken by Balwin Properties are aimed at achieving EDGE (Excellence in Design for Greater Efficiency) Advanced ratings.

An initiative by the International Finance Corporation, the group has to date certified a total of 26 404 apartments with the IFC’s EDGE tool.

Moreover, Balwin has achieved significant milestones with 16 848 apartments certified EDGE Advanced, demonstrating energy savings of 40% or more and water savings of 20% or more and reduction in embodied energy of 20% or mare.

The company's dedication to sustainable practices extends beyond individual apartments. 10 of Balwin's lifestyle centres have achieved six-star Green Star ratings by the Green Building Council of South Africa, all of which have been accredited with Net Zero Carbon ratings, affirming their ability to generate and maintain a net zero carbon footprint. Balwin’s head office at 105 Corlett Drive has also received a 6-star Green Star rating, Net Zero Carbon and Net Zero waste rating. Bringing the total Net-Zero certifications to 12. 

In the pursuit of sustainable financing options for its clients, Balwin has secured 903 green bonds for home buyers during the period. These bonds not only provide financial benefits but also contribute to significant savings, amounting to a total of R44.5 million over 20 years.

The Group closed the year with a strong cash position of R242.8 million. Its loan-to-value reduced marginally to 40.2% well within covenant requirements.

Going forward, Brookes commented:

“Our business has been tempered by the interest rate cycle and we have done a lot of work to right size the Group and make it much more efficient. These interventions position us well as the macro environment improves.

“Although we remain cautiously optimistic about a recovery in the second half of the financial year, I want to warn against over optimistic expectations as any further rate cuts will only trickle through over time, and at best only for three months of the financial year.

“Our focus therefore remains on the factors within our control, which include growth opportunities in strategic areas by leveraging the existing land bank and pipeline development opportunities and importantly, ongoing cost reductions.

“Where there are opportunities for growth in strategic areas, such as the Western Cape, we will be cautious to not impact liquidity and add debt pressure to the balance sheet.

“Although margin pressure is expected to relax towards the latter part of the financial year, we will continue to manage costs prudently by leveraging our brand, especially through Balwin Sport, Balwin Annuities, and our environmentally responsible developments.