Balwin Properties has published its interim results for the six months ended August 2023, reporting a 33% growth in gross profit margin, continuing the recent margin growth trend with a gross profit of R396 million. The company’s operating costs decreased by 4% to R167 million which resulted in a 20% operating profit margin, an increase from 15% in the prior period. Its headline earnings per share increased 4% to 39.93 cents.
The company recognised 834 apartments in revenue for the year, down from 1 260 apartments in the prior comparative period.
“The past six months were arguably the toughest in our 27-year history as the impact of escalating interest rates, load shedding as well as higher fuel and food prices impacted on demand. Although revenue is down, our relentless focus on cost containment, innovative design efficiencies, and careful price adjustments to offset increased costs enabled us to increase group profit by 3%,” commented Balwin Chief Executive, Steve Brookes.
Coastal regions contributed 68% of revenue during the period under review, up from 53% reported in H12023, mainly as a result of semigration.
“For the first time in our history, the Western Cape has emerged as the group’s top revenue earner, contributing 42% of total group revenue, from 32% previously. We also noted an interesting trend in higher demand for our ground-floor, three-bedroom apartments, which contributed 40% of revenue compared to 28% in the first six months of the prior financial year … This is predominantly as a result of families downscaling to smaller homes in secure lifestyle estates with the added benefit of lifestyle features at no cost.”
The group’s relatively new annuities businesses continued to report strong growth on increased scalability, with an aggregate revenue of R56.3 million for the period – an increase of 42% on the prior comparative six months. The business segment further recorded an operating profit of R24.3 million. Balwin’s annuity businesses predominantly comprise of Balwin Fibre, with 8 614 active clients, Balwin Mortgages where 752 bonds were secured during the reporting period, and Balwin Rentals.
In line with its sustainability objectives, all new developments undertaken by Balwin Properties are aimed at achieving EDGE Advanced ratings, which recognize excellence in design for greater efficiency. A total of around 23 000 apartments developed by Balwin have been registered as EDGE (Excellence in Design for Greater Efficiency) with the International Finance Corporation.
Moreover, Balwin has achieved significant milestones with over 15 000 apartments registered as EDGE Advanced, demonstrating energy savings of 40% or more and water savings of 20% or more.
The company’s dedication to sustainable practices extends beyond individual apartments. 10 of Balwin’s lifestyle centres have achieved six-star green ratings and have been accredited with Net Zero Carbon ratings by the Green Building Council of South Africa, affirming their ability to generate and maintain a net zero carbon footprint.
In the pursuit of sustainable financing options for its clients, Balwin has secured 752 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 R33 million over a span of 20 years.
Balwin closed the year with a strong cash position of R442.6 million. Its loan-to-value (LTV) was 42%, well within the minimum loan covenant requirements.
Going forward, Brookes commented:
“We expect that the domestic economic outlook will remain challenging in the short- to medium term, especially given the South African Reserve Bank’s continued hawkish stance on interest rates. We expect that sales will gradually improve once interest rates have stabilised. Any reduction in interest rate should have a further catalytic effect on demand.
“Our short-term focus will be to protect our existing margin levels, although we do anticipate margin contraction for the second half of the year. The target gross margin of the group remains in the low-to-mid-30%.
“From an operational perspective, we’ll continue to focus on leveraging our existing land bank and pipeline of developments, with strategic acquisitions considered on an ad-hoc basis, especially in the Western Cape. The emphasis will however be on continued prudent cash management and responsible environmental management.”