Balwin, South Africa’s largest homebuilder focusing on large scale sectional-title residential estates in high-growth, high-density metropolitan nodes in South Africa’s major cities, released its interim results for the six months ended 31 August 2017.
Balwin launched four new developments in the first half of the year with 14 developments now underway. The average selling price of R1,218,088 per unit was higher during the period and supported by the transfer of apartments at The Polo Fields and Paardevlei Square, which are flagship developments that have experienced good sales levels.
Demand for our product remains strong and sales are tracking our expectations with 1015 apartments already pre-sold for the second half of the year.
– Steve Brookes, Chief Executive Officer and founder of Balwin
Four developments experienced delays in obtaining certain council approvals and this impacted our performance negatively as fewer developments came to market for sales. Good progress has been made since the period end regarding the approvals and construction is on-track.
Revenue increased 19% to R894 million driven by good sales volumes which were in line with forecasts. However, delays were experienced in obtaining certain council approvals at four new developments (The Blyde, The Whisken, The Reid and Ballito Hills) which which resulted in construction delays and therefore the handing over of an anticipated 300 apartments to clients. The Company also invested extensively on major civils and infrastructure works ahead of the construction of apartments starting across three large new developments.
These factors resulted in a lower gross margin of 32.4% and profit declining 6% to R163 million. Balwin continues to target a gross profit margin of between 35-40% through the entire lifecycle of a development. The Company has centralised its procurement processes with the establishment of a new procurement department which has already unlocked significant cost savings.
We remain highly innovative and continuously drive initiatives to differentiate our product. A new business segment was launched to generate annuity income, including through partnerships to implement solar energy solutions, the leasing of education facilities to experienced and robust operators, storage solutions and fibre infrastructure within the Balwin estates
The fibre infrastructure model is being run through Balwin Fibre, a new subsidiary of Balwin Properties Limited, that will own all Fibre infrastructure across Balwin estates going forward with the aim of becoming a large fibre network operator in South Africa.
Balwin operates in diverse locations across high density urban nodes. During the period, Balwin established its office in Umhlanga which earmarks the penetration of Balwin into Kwa-Zulu Natal. Ballito Hills is the first development in the region. The development launched for sales with more than 150 sales achieved to date and the first phase expected to be registered early in the 2019 financial year.
Significant progress was made on the Waterfall properties with all regulatory approvals obtained for The Polo Fields development on which phase 1 and 2 were handed over in July 2017. Sales at the Kikuyu development have also been outstanding with the first two phases handing over in November 2017. A total of 643 sales were achieved across our Waterfall developments. The Cambridge in Johannesburg north was sold out.
We are mindful of the challenging economic conditions and have been agile in responding to market dynamics. A number of initiatives are under our control to adjust our model effectively including the configuration of our apartment blocks, the pace of development and pricing points to maintain healthy sales levels. Careful capital allocation and cautious cash flow management also remain priorities to ensure optimal execution across all developments
Balwin declared an interim dividend of 10 cents per share, in line with its policy to distribute 30% of after-tax profit to shareholders.
Looking ahead, the increased scale brought about by the new developments, the delayed projects coming onstream, costs controls, operational efficiencies and the benefit of new annuity income initiatives such as fibre, solar energy solutions, storage and education will support the company’s performance. We will also continue to focus on delivering on our rental model through strategic alliances such as the one announced with Transcend in August