- Revenue: Decreased by 29% to ZAR2.4 billion.
- Gross Profit Margin: Slight reduction to 28% from 29% in the prior year.
- Operating Costs: Reduced by 11% to ZAR351 million.
- Profit for the Period: Reduced by 50% to ZAR217 million.
- Earnings per Share (EPS): Decreased by 51% to ZAR46.18.
- Headline Earnings per Share (HEPS): Decreased by 48% to ZAR47.94.
- Total Assets: Increased to ZAR7.6 billion.
- Cash on Hand: ZAR290 million.
- Loan-to-Value Ratio: 40.5%.
- Net Asset Value per Share (NAV): Increased 4% to ZAR8.58.
- Number of Apartments Handed Over: 1,892 apartments, a 32% reduction from the prior year.
- Revenue from Annuity Businesses: Increased by 70% to ZAR132.5 million.
- Operating Profit from Annuity Businesses: ZAR55 million at a 41% operating profit margin.
- Development Pipeline: Over 41,500 apartments.
- Debt Levels: ZAR3.1 billion in development loans and facilities.
- Operating Profit Margin for Annuity Businesses: 41%.
- EBITDA Margin for Annuity Businesses: 49%.
- Net Profit After Tax (NPAT) for Annuity Businesses: ZAR19.8 million.
- Return on Capital Employed for Annuity Businesses: 14.5%.
- Fibre Business Operating Profit: ZAR19.3 million.
- Energy Business Operating Profit: ZAR8.5 million.
- Rental Portfolio Operating Profit: ZAR10.7 million.
- Hotel Operating Profit: ZAR1.1 million.
Release Date: May 20, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Balwin Properties Ltd (JSE:BWN, Financial) inaugurated its 10th six-star-rated lifestyle center with net-zero carbon emissions, showcasing its commitment to sustainability.
- The company has a significant development pipeline with over 41,500 apartments, indicating strong future growth potential.
- Revenue from the annuity businesses increased by 70% to ZAR132.5 million, demonstrating robust performance in this segment.
- Balwin Properties Ltd (JSE:BWN) received 45 international awards, including Best Apartment, Best Architecture, Best Leisure Development, and Best Sustainable Development, highlighting its industry recognition.
- The Western Cape region became the best performing region for the first time, contributing 46% of the company's revenue, reflecting successful regional diversification.
Negative Points
- Total number of apartments recognized in revenue contracted by almost a third, leading to a 29% decline in revenue to ZAR2.4 billion.
- Profit for the period reduced by 50% to ZAR217 million, significantly impacting earnings per share and headline earnings per share.
- The gross profit margin showed a slight reduction to 28% from 29% in the prior year, indicating margin pressure.
- Delays in town planning approval at the Izinga Eco Estate in KwaZulu-Natal restricted apartment deliveries, impacting revenue by 30%.
- The company decided not to declare a dividend for the 2024 financial year due to challenging trading conditions and market uncertainty.
Q & A Highlights
Q: Can we get more information on how the annuity business operates? Specifically, the cost structures for Fibre and Balwin Rentals, and the profit margins for 30,000 fibre clients?
A: The fixed costs for fibre are more than 50%, and with 30,000 fibre clients, profit margins would be around 56% to 60%. For Balwin Rentals, the operating yield on cost is 8.4%, with occupancy rates averaging 93%. We plan to expand the rental portfolio by developing smaller land parcels within Balwin that are not suitable for the build-to-sell model.
Q: Apart from the head office, what other end stock does Balwin have? What is the number of residential units, and does Balwin have a policy on putting development stock into the rental pool?
A: Currently, we have 215 rental apartments at Green Park. We are not converting rental stock within our current build-to-sell model but are looking at developing full rental developments where we fully control the development.
Q: Does it make sense to commit to rental units given the funding costs?
A: We acknowledge that the rental portfolio is heavily geared and are investigating ways to reduce this gearing. We are also assessing the feasibility of new rental developments before committing to them.
Q: Is there an opportunity for another Green development in the Western Cape? What are the key factors for effective cost engineering for emerging developers?
A: Yes, we have another project called Green Sprite and are looking at additional Green brand developments in the Western Cape. Effective cost engineering is fundamental in development; it involves robust meetings, a strong team of quantity surveyors, and suppliers to ensure development costs are managed prudently.
Q: How does Balwin plan to overcome the challenging period of high interest rates affecting end-user affordability?
A: We are working with financial institutions to secure interest rate reductions for our clients due to our green initiatives. Currently, we have achieved a reduction of 0.25% to 0.75%, and we aim to standardize this to 1% for Balwin clients.
Q: Could you provide additional insight into why the hotel development didn't proceed? Is the hotel or hospitality industry an avenue Balwin will be exploring?
A: The hotel development is delayed due to the buyer's financing issues. We are committed to the Radisson RED Hotel at Munyaka and are giving the buyer time to arrange financing. We remain interested in the hospitality industry as part of our strategic vision.
Q: What impacted cash flow from operations, and what measures are being put in place to improve cash flows?
A: The cash flow was impacted by investments in developments under construction and receivables from unregistered apartments. We aim to return to handing over and registering 3,000 apartments a year, improve profit margins, and reduce debt to alleviate cash flow pressures.
Q: How long do you think it will take for consumer sentiment to improve if interest rates start to decrease by year-end?
A: We expect a lag of about six months before consumer sentiment improves following interest rate cuts. This year will be tough, but we anticipate a return to normality and improved sales in the following year.
Q: What are the borrowing costs capitalized in developments under construction, and what is the projected growth of annuity income?
A: All funding used for construction is capitalized to the projects. We aim for the annuity income to contribute 20% of our bottom line, targeting ZAR100 million NPAT over the next five years.
Q: How many apartments does Balwin currently have on its balance sheet that are rented out, and what is the ambition for the rental portfolio?
A: We currently have 215 rental apartments at Green Park. We plan to grow the rental portfolio by developing specific rental developments, ensuring we own the entire development to provide the best service to our clients.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
