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BALWIN PROPERTIES LIMITED - Unaudited Interim Results for the six months ended 31 August 2015 and Renewal of Cautionary

Release Date: 25/11/2015 07:45
Code(s): BWN     PDF:  
Wrap Text
Unaudited Interim Results for the six months ended 31 August 2015 and Renewal of Cautionary

BALWIN PROPERTIES LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 2003/028851/06)
Share code: BWN ISIN: ZAE000209532
("Balwin" or "the Company")

Unaudited Interim Results for the six months ended 31 August 2015 and Renewal of Cautionary

HIGHLIGHTS

76% increase in
Earnings per share

100% increase in
Headline earnings per share

45% increase in
Net asset value per share

71% increase in
Revenue

81% increase in
Operating profit

66% increase in
Total comprehensive income


Corporate Overview

Nature of Business

Balwin is a specialist, niche, national large-scale, sectional title, residential property builder and developer targeting
high-density, high-growth metropolitan areas in South Africa. Balwin is committed to delivering exceptional and
sustainable returns on capital through the development of secure, affordable, high-quality, environmentally friendly
and strategically located sectional title residential units which range in size from 45m(2) – 120m(2) and in price from 
R599,999 – R1,699,000 per unit. The business primarily operates a build-to-sell model with the strategic objective of retaining 
certain residential units for rental ("rental portfolio").

Founded in 1996, the Company has successfully developed, marketed and sold over 70 residential estates.

Developed units are designed to appeal to a wide range of home buyers, including first-time, move-up, active adult,
young professional, young family, older family, retirees as well as buy-to-let. All larger estates have lifestyle centres
which include value-added services such as a spa, restaurant, gym, squash court, action sports
field, games room, movie theatre, heated swimming pools, playgrounds and free wi-fi within lifestyle centres.

Strategy

Balwin is focused on delivering sustainable long-term returns to investors through its unique business model which
benefits from economies of scale, in-house project management and construction. The business model focuses on
providing a quality product to the broad middle income population at an affordable price.

The Company will re-invest profit after tax in order to support the long-term growth of the business while
maintaining dividend distributions in line with the target dividend policy.

In addition to the build to sell model, Balwin is currently in the process of establishing a rental portfolio that will
allow Balwin to diversify revenue streams, and benefit from the capital appreciation of the rental units. Income
from the rental units will be used for the acquisition of land and the construction of developments which will
support the long-term growth of the business.

COMMENTARY

The board of directors presents the unaudited condensed consolidated interim results for the six months ended
31 August 2015.

Operational overview

Balwin is currently developing residential estates across Johannesburg, Pretoria and the Western Cape targeted 
at the growing middle income population with the aim of expanding into other metropolitan areas in South Africa such 
as Durban and Nelspruit.

Despite a challenging economic environment and recent increases in interest rates, the demand for residential units 
remained strong for the period under review. This is evidenced by an increase in the number of residential units sold 
in relation to the prior period. The increase in the number of residential units sold has been supported by under-supply 
of quality housing within the target price range and an increase in the urban population which has increased the demand 
for dense residential developments in target nodes. It is anticipated that due to increased urbanisation, further infrastructure 
development in South Africa's cities, combined with the unique quality lifestyle offering, the demand for affordable lifestyle 
residential units will increase sustainably over the long term.

Balwin has been successful in the period under review in its expansion into other key target nodes such as Pretoria, Cape Town 
and Somerset West. In the Western Cape, the De Velde development has proven to be highly successful. The De Velde development 
has won the prestigious Africa Property Award. The award is a symbol of excellence throughout the world. Winning this coveted 
award is undisputable evidence that Balwin is capable of outperforming strong contenders within the highly competitive African 
Property arena. Balwin has also launched the "The Sandown" in Cape Town and "Paardevlei" in Somerset West, on which construction 
is underway with units largely being sold out in phase 1, a few weeks after launch. Balwin has also made headway in expanding into 
the Pretoria area with the commencement of the construction of its first development in the area, "Grove Lane". The "Grove Lane" 
development has been largely sold out in phase 1 within a few weeks of launch. Balwin has also been successful in securing further 
land parcels in the Pretoria and Linbro Park areas.  Management plans on the development of the "The Clulee" and "The Reid" in 
Linbro Park and plans on the development of the "Riverwalk" in Pretoria East. These developments are included in the current projected 
pipeline as set out in the Balwin pre-listing statement dated 1 October 2015 ("PLS").

Balwin has also further expanded into the Johannesburg area with the launch of "The Cambridge" in Bryanston
Sandton, "Westlake" in Modderfontein, "Amsterdam" in Olivedale Randburg and "Balboa Park" in the south of
Johannesburg.

Financial overview

Balwin increased revenue by 71% to R823 million largely due to an increase in the number of units sold in line with increased 
demand and operating profit increased by 81% to R319 million for the six months ended 31 August 2015. Earnings per share increased 
by 76% to 58 cents per share. Headline earnings per share increased by 100% to 58 cents per share. Shares in issue as at the end of 
the reporting period were 400 million. If Balwin was listed on 31 August 2015, the basic and headline earnings per share would reflect 
at 49 cents respectively based on 472 million shares in issue. The increase in profitability from the prior period was due to Balwin 
being able to deliver focused project management, a product mix between sales of 1, 2 or 3 bedroom units, a larger scale of operations 
and economies of scale.

Balwin's financial position remains strong with total assets increasing by 69% to R1 484 million. Non-current
assets decreased by 49% to R36 million. This is due to the realisation of sectional title residential units in the
United Kingdom following a decision to divest of non-core assets in order to continue focusing on the local market
segment. Current assets increased by 79% to R1 448 million primarily due to an increase in developments
under construction. Developments under construction which includes land acquired for development increased by
71% to R1 153 million. The land acquired is in line with the current project pipeline. Total Liabilities increased by
114% due to the movement in other financial liabilities which includes development finance increasing
by 92% to R514 million. Development finance is obtained specifically for a development under construction and
is ring-fenced to the specific phase of development being financed.

Cash on hand for the period ending 31 August 2015 increased by 425% to R179 million. The increase in cash holding
is due to effective cash management and an increase in the financial performance in comparison to the prior period.

Prospects

Balwin has been successful in delivering on the continued demand for secure, value-for-money sectional title residential
lifestyle estates in preferred locations for home-buyers. The Company aims to continue with the roll-out of further large-scale 
sectional-title residential developments in its target nodes and plans on expanding its operations into additional new and growing 
residential nodes within South Africa's major cities.

It is anticipated that the business will be able to maintain and grow its current sales levels, with a secured project
pipeline and continues to identify land acquisitions which is expected to drive future growth.

Balwin is currently in negotiation for the acquisition of a land parcel in the Kyalami node on which an approximate
15 000 residential units may be developed, which is in addition to the current project pipeline as set out in the PLS. 
A cautionary announcement related to the negotiation has been issued on SENS dated 16 October 2015.

The Company will aim to maintain an attractive dividend yield in line with its target dividend policy.

Balwin is currently in the process of developing its first rental unit development, Malakite, in the Greenstone Johannesburg area. 
Construction is in line with expectation. This will support the vision of establishing an initial rental portfolio in the 2017 
financial year to diversify revenues. As set out in the PLS, the business model remains sufficiently flexible with inherent capacity 
in Balwin's operations and the careful phasing of construction linked to pre-sales, to provide operating flexibility and insulation to 
absorb unexpected adjustments in response to micro and macro-economic conditions.

In line with prior years and the season, management expects sales volumes to be higher in the second half of the financial year. 
Forecast sales of 1 857 units for the 2016 financial year were 83% secured as at 31 August 2015.

Management endeavours to continuously seek opportunities which will create sustainable long-term value for shareholders.

Renewal of Cautionary Announcement

Shareholders are referred to the cautionary announcement released on SENS on 16 October 2015 and are advised that Balwin remains in 
negotiations, which, if successfully concluded, may have an impact on the price of Balwin's shares.  Accordingly, shareholders are 
advised to continue exercising caution when dealing in Balwin's shares until a further announcement is made.

RECONCILIATION OF
HEADLINE EARNINGS
                                                                       Unaudited    Unaudited        Audited
                                                                        6 months     6 months      12 months
                                                                           ended        ended          ended
                                                                       31 August    31 August    28 February
                                                                            2015         2014           2015
                                                                           R'000        R'000          R'000
BASIC AND HEADLINE EARNINGS PER SHARE     
Basic                                                       (cents)           58           33             84
Headline                                                    (cents)           58           29             78
Tangible net asset value per share                          (cents)          209          144            174
Net asset value per share                                   (cents)          209          144            174
Shares in issue                                              ('000)      400 000      400 000        400 000
Net asset value                                                          834 842      575 649        694 826
Reconciliation of profit for the period to headline     
earnings:     
Profit for the period                                                    233 614      133 796        335 175
Adjusted for:     
– Profit on disposal of property, plant and equipment                          –     (18 652)       (23 678)
Headline earnings                                                        233 614      115 144        311 497

Net asset value per share and tangible net asset value per share is calculated based on 400 000 000 Balwin shares
in issue.

It is further noted that as at 31 August 2015, Balwin's share structure comprised of 10 000 A class, 4 000 B class,
4 000 C class, 40 000 D class and 40 000 E class shares. The share capital was restructured prior to listing, with the
effect that 400 000 000 ordinary shares were in issue prior to listing. The figures calculated above have been based
on these numbers. They represent the best approximator of the share capital in issue at Balwin prior to listing.

                                                                       Unaudited    Unaudited        Audited
                                                                        6 months     6 months      12 months
                                                                           ended        ended          ended
                                                                       31 August    31 August    28 February
                                                                            2015         2014           2015
If Balwin Properties Proprietary Limited was listed at  
31 August 2015 the basic and headline earnings would  
reflect as:  
Basic                                                        (cents)          49            –              –
Headline                                                     (cents)          49            –              –
Shares in issue                                               ('000)     472 193            –              –

CONDENSED CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
                                                                       Unaudited    Unaudited        Audited
                                                                        6 months     6 months      12 months
                                                                           ended        ended          ended
                                                                       31 August    31 August    28 February
                                                                            2015         2014           2015
                                                                           R'000        R'000          R'000

Revenue                                                                  823 405      480 438      1 354 929
Cost of sales                                                          (467 068)    (302 715)      (868 037)
Gross profit                                                             356 337      177 723        486 892
Other income                                                               6 315       38 730         47 092
Operating expenses                                                      (43 870)     (39 876)       (80 042)
Operating profit                                                         318 782      176 577        453 942
Investment revenue                                                         3 499        1 801          5 490
Finance costs                                                              (191)      (2 800)        (4 283)
Profit before taxation                                                   320 090      175 578        455 149
Taxation                                                                (88 476)     (41 782)      (119 974)
Profit for the period                                                    233 614      133 796        335 175

Other comprehensive income:
Items that may be reclassified to profit or loss:
Exchange differences on translating foreign operations                       520        7 008          7 160
Total comprehensive income for the period                                234 134      140 804        342 335

CONDENSED CONSOLIDATED STATEMENT
FINANCIAL POSITION
                                                                       Unaudited    Unaudited        Audited
                                                                        6 months     6 months      12 months
                                                                           ended        ended          ended
                                                                       31 August    31 August    28 February
                                                                            2015         2014           2015
                                                                           R'000        R'000          R'000
Assets
Non-current assets
Property, plant and equipment                                             31 408       30 567         30 697
Investment property                                                        2 739       39 396          2 392
Deferred tax                                                               1 900          478          1 900
Total non-current assets                                                  36 047       70 441         34 989
Current assets
Developments under construction                                        1 153 479      675 134        687 450
Loans to shareholders                                                        409        5 082            480
Trade and other receivables                                               81 369       36 235        143 193
Other financial assets                                                    33 753       58 451         33 672
Cash and cash equivalents                                                178 674       34 034        129 928
Total current assets                                                   1 447 684      808 936        994 723
Total assets                                                           1 483 731      879 377      1 029 712
Equity and liabilities
Share capital                                                                  6            6              6
Reserves                                                                   (917)      (1 588)        (1 437)
Retained income                                                          835 753      577 231        696 257
Total equity                                                             834 842      575 649        694 826
Liabilities
Non-current liabilities
Other financial liabilities                                                    –            –         51 529
Total non-current liabilities                                                  –            –         51 529
Current liabilities
Trade and other payables                                                  52 194        4 173         67 125
Loans from shareholders                                                      185            -            230
Other financial liabilities                                              513 879      267 468        195 952
Current tax payable                                                       77 981       30 357         13 264
Provisions                                                                 4 650        1 730          6 786
Total current liabilities                                                648 889      303 728        283 357
Total equity and liabilities                                           1 483 731      879 377      1 029 712

CONDENSED CONSOLIDATED STATEMENT OF
CHANGES IN EQUITY
                                                                          Foreign
                                                                         currency
                                                                      translation    Retained
                                                     Share capital        reserve      income   Total equity
                                                             R'000          R'000       R'000          R'000

Balance at 1 March 2014 (Audited)                                6        (8 597)     455 200        446 609
Total comprehensive income                                       –          7 008     133 796        140 804
Profit for the period                                                                 133 796        133 796
Other comprehensive income                                                  7 008                      7 008
Dividends                                                        –              –    (11 764)       (11 764)
Balance at 31 August 2014 (Unaudited)                            6        (1 588)     577 231        575 649
Total comprehensive income                                       –            152     201 379        201 531
Profit for the period                                                                 201 379        201 379
Other comprehensive income                                                    152                        152
Dividends                                                        –              –    (82 354)       (82 354)
Balance at 28 February 2015 (Audited)                            6        (1 437)     696 257        694 826
Total comprehensive income                                       –            520     233 614        234 134
Profit for the period                                                                 233 614        233 614
Other comprehensive income                                                    520                        520
Dividends                                                        –                   (94 118)       (94 118)
Balance at 31 August 2015 (Unaudited)                            6          (917)     835 753        834 842
              
CONDENSED CONSOLIDATED STATEMENT OF
CASH FLOWS
                                                                     Unaudited     Unaudited        Audited
                                                                      6 months      6 months      12 months
                                                                         ended         ended          ended
                                                                     31 August     31 August    28 February
                                                                          2015          2014           2015
                                                                         R'000         R'000          R'000
Cash flows (used in)/from operating activities
Cash generated (used in)/from operations                             (100 012)     (129 984)         94 022
Interest income                                                          3 499         1 801          5 490
Finance costs                                                            (191)       (2 800)        (4 283)
Tax paid                                                              (23 760)      (25 057)      (121 764)
Net cash (used in)/from operating activities                         (120 464)     (156 040)       (26 535)
Cash flows (used in)/from investing activities
Purchase of property, plant and equipment                              (2 707)       (8 231)       (11 184)
Sale of property, plant and equipment                                       42         4 227         28 350
Sale of investment property                                              (350)       164 462        182 543
Net movement of financial assets                                          (81)       (3 150)         21 629
Net cash (used in)/from investing activities                           (3 096)       157 308        221 338
Cash flows (used in)/from financing activities
Proceeds on share issue
Net movement of other financial liabilities                            266 398        41 070         20 951
Net movement of shareholders loan                                           26       (8 384)        (3 552)
Net movement of finance leases                                               –         (842)          (842)
Dividends paid                                                        (94 118)      (11 764)       (94 118)
Net cash (used in)/from financing activities                           172 306        20 080       (77 561)
Total cash movement for the period                                      48 746        21 348        117 242
Cash at the beginning of the period                                    129 928        12 686         12 686
Total cash at the end of the period                                    178 674        34 034        129 928

CONDENSED SEGMENTAL REPORTING
                                                                       Unaudited   Unaudited        Audited
                                                                        6 months    6 months      12 months
                                                                           ended       ended          ended
                                                                       31 August   31 August    28 February
                                                                            2015        2014           2015
                                                                           R'000       R'000          R'000
UNITED KINGDOM
Segmental statement of financial position
Assets
Property, plant and equipment                                                809       1 224            707
Investment property                                                        2 739      39 396          2 392
Developments under construction                                                –           –              –
Trade and other receivables                                                    –           –              –
Other financial assets                                                         –           –              –
Cash and cash equivalents                                                  1 064         976          1 633
Investments                                                                    –           –              –
Liabilities
Trade and other payables                                                     176          73            131
Other financial liabilities                                                    –           –              –
Loans from shareholders                                                        –           –              –
Segmental statement of comprehensive income
Revenue                                                                        –       2 309          2 490
Cost of sales                                                                  2         123            148
Operating expenses                                                           521       7 626          6 723
SOUTH AFRICA
Segmental statement of financial position
Assets
Property, plant and equipment                                             30 599      29 343         29 990
Investment property                                                            –           –              –
Developments under construction                                        1 153 479     675 134        687 450
Trade and other receivables                                               81 398      36 235        143 193
Other financial assets                                                    33 753      58 451         33 672
Cash and cash equivalents                                                177 610      33 058        128 295
Investments                                                                    1           1              1
Liabilities
Trade and other payables                                                  52 019       4 100         66 995
Other financial liabilities                                                    –     267 468        247 481
Loans from shareholders                                                      185           –            230
Segmental statement of comprehensive income
Revenue                                                                  823 405     478 129      1 352 439
Cost of sales                                                            467 066     302 592        867 889
Operating expenses                                                        43 348      32 250         73 319

NOTES

1. Basis of preparation

   The unaudited condensed consolidated interim financial results have been prepared in accordance with and
   containing the information required by IAS 34: Interim Financial Reporting as well as the SAICA Financial
   Reporting Guides as issued by the Accounting Practices Committee and financial pronouncements as issued by
   the Financial Reporting Standards Council, the JSE Listing Requirements and the Companies Act, 2008 (No 71
   of 2008) as amended. It has been prepared on the historical cost basis, except for certain financial instruments
   which are measured at fair value, and are presented in South African Rand, which is the Group's functional
   and presentation currency.

   The accounting policies are in terms of International Financial Reporting Standards ("IFRS") and are consistent
   with those of the consolidated Financial Statements as at 28 February 2015.

   The unaudited condensed consolidated interim financial results have been externally prepared under the
   supervision of J Weltman CA(SA), in his capacity as Chief Financial Officer and were approved by the board on
   23 November 2015.

   The unaudited condensed consolidated interim financial results have not been reviewed or audited by the
   Group's external auditors.

2. Subsequent events

   Balwin listed in the real estate holding and development sector on the main board of the JSE on 15 October 2015.

3. Dividends

   An interim dividend of R94 117 647 has been declared for the period ended 31 August 2015. The interim
   dividend was paid to shareholders as at the end of the reporting period. Balwin will aim to declare a final
   dividend in line with the target dividend policy.

4. Board of directors

   The following changes to the board of directors were effected subsequent to the end of the reporting period:

   - Ms Basani Maluleke was appointed as an independent non-executive director with effect from 25 September
     2015;
   - Mr Hilton Saven was appointed as an independent non-executive director with effect from 21 September
     2015;
   - Ms Kholeka Winifred Mzondeki was appointed as an independent non-executive director with effect from
     25 September 2015;
   - Mr Rex Tomlinson was appointed as an independent non-executive director with effect from 21 September
     2015;
   - Mr Ronen Zekry was appointed as a non-executive director with effect from 21 September 2015;
   - Mr Rodney Norman Gray resigned as a director with effect from 20 September 2015;
   - Mr Ulrich Gschnaidtner resigned as a director with effect from 20 September 2015.

Directors:
H Saven (Chairperson of the board)*^, SV Brookes (Chief Executive Officer), J Weltman (Chief Financial Officer),
B Maluleke*^, KW Mzondeki*^, R Tomlinson*^, R Zekry^
* Independent
^ Non-executive

Company Secretary:
CIS Company Secretaries

Registered Office:
Block 1, Townsend Office Park
1 Townsend Avenue
Bedfordview
Private Bag X4, Gardenview, 2047
Telephone: 011 450 2818

Sponsor
Investec Bank Limited

Transfer secretary
Computershare Investor Services Proprietary Limited
(Registration number 2004/003647/07),
70 Marshall Street, Johannesburg, 2001. (PO Box 61051, Marshalltown, 2107)

www.balwin.co.za

Johannesburg, 25 November 2015

Disclaimer

We may make statements that are not historical facts and relate to analyses and other information based on forecasts
of future results and estimates of amounts not yet determinable, such as "prospects", "believe", "anticipate",
"expect", "intend", "seek", "will", "plan", "indicate", "could", "may", "endeavour" and "project" and similar
expressions are intended to identify such forward-looking statements, but are not the exclusive means of identifying
such statements. By their very nature, forward-looking statements involve inherent risks and uncertainties,
both general and specific, and there are risks that predictions, forecasts, projections and other forward-looking
statements will not be achieved. If one or more of these risks materialise, or should underlying assumptions prove
incorrect, actual results may be very different from those anticipated. The factors that could cause our actual results
to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-
looking statements are discussed in each year's annual report. Forward-looking statements apply only as of the
date on which they are made, and we do not undertake, other than in terms of the Listings Requirements of the
JSE Limited, any obligation to update or revise any of them, whether as a result of new information, future events
or otherwise. All profit forecasts published in this report are unaudited.
Date: 25/11/2015 07:45:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
 the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, 
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
 information disseminated through SENS.

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