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Business and trading statement for the six month period ended 31 August 2020
Balwin Properties Limited
(Incorporated in the Republic of South Africa)
Registration number 2003/028851/06
Share code: BWN
ISIN: ZAE000209532
(“Balwin” or “the Company” or “the Group”)
Business and trading statement for the six month period ended 31 August 2020
HIGHLIGHTS
- Approximately 900 apartments sold and recognised in revenue in the current period
- R150 million increase in cash and cash equivalents with approximately R427 million cash
on hand at interim period close
- Successful introduction of online sales platform to complement the existing sales processes
with 2 466 sales recorded in the 6 month period
- Successful launches of Munyaka (Waterfall), Greencreek (Tshwane East), Greenbay
(Gordons Bay) and Izinga Eco Estate (Umhlanga) with strong sales recorded at all projects
- Expansion of the Company’s footprint in Tshwane through the successful contracting of
Mooikloof Eco Estate
- The gazetting of Greencreek, Tshwane East and Mooikloof Mega Residential City,
Tshwane East as Strategic Integrated Projects (SIPs) by government for an initial combined
total of approximately 20 000 apartments
BUSINESS UPDATE
Balwin’s results for the six month period ended 31 August 2020 reflect the unprecedented and
evolving market conditions as brought about by the coronavirus pandemic. Shareholders are
advised that as a result of the outbreak and the response implemented by the South African
government to best contain the Covid-19 virus, no construction activity took place from the
enforcement of the national lockdown on 26 March 2020 until the easing of the restrictions to
alert level 3 on 1 June 2020 (“lockdown” or “lockdown period”). The start-up of construction
was conducted on a phased basis in line with national regulations and accordingly it is
estimated that, in total, construction activity was adversely impacted by approximately 3
months.
In response to the national lockdown, an online sales platform was launched and 350 sales
were concluded during the 9-week construction lockdown period. Despite the welcome
interest rate relief through the 275 basis point reduction in lending rates since the
commencement of the financial year, market conditions remain challenging for the
consumer. In response, Balwin has continued its marketing campaigns to clients to continue to
drive sales where necessary.
Due to the inability of the business to complete construction as a direct result of the national
lockdown, revenue is expected to decrease by 35% when compared to the prior
corresponding period, with approximately 900 apartments recognised in revenue. Demand
for one- and two-bedroom apartments remained strong and comprised approximately 74%
(H12019: 71%) of the total apartments sold.
The gross margin of the Group is expected to remain consistent with that of the prior
corresponding period at 25%, but will reduce slightly when compared to the prior financial
year. The reduction from the prior financial year is largely due to the marketing campaigns
offered to clients in the form of price support and cost incentives which contributed to an
approximate 5% reduction in the average selling price of apartments when compared to the
prior period. The reduced selling prices were absorbed by the healthy margins generated by
the business. Although margin dilutive, the marketing campaigns have yielded the desired
results in ensuring the generation of cash flow to the business. The Signature collection
developments continue to derive a lower gross margin when compared to both the Green
collection and Classic collection apartments. Excluding the Signature collection
developments, the business recorded a 29% margin for the six month period.
Approximately 1 667 apartments have been pre-sold beyond the reporting period and have
accordingly not been recorded in revenue in the current financial period. This represents an
increase of 685 apartments forward-sold when compared to the prior corresponding reporting
period and evidences the sustained demand for the Balwin product. The Group is pleased
with its strong pre-sales position and has implemented several measures for the remainder of
the financial year that will increase its construction rate to match existing sales and continued
strong demand for its product.
As previously communicated to shareholders, cost management remains a priority area, with
overhead costs being carefully monitored and aggressively managed. Operating costs of the
Company are expected to record an inflationary based increase when compared to the prior
corresponding period, however, the Group operating costs are expected to increase by
approximately 12% as a result of the increased activity in Balwin Fibre. The Company has
continued to grow its management team during the period in an ongoing effort to strengthen
the leadership team. Focused cost containment in other areas of the business has, however,
largely offset these costs. A significant decrease is expected in “other income” when
compared to the prior corresponding period as a result of the loss of rental income that the
Company earned in the prior period on the Greenpark apartments. Rental income was
derived during the lease-up period prior to the sale of the apartments to Balwin Rentals
Proprietary Limited in the previous year.
In addition to cash management, the Company continued its focus on capital allocation and
is pleased to report that cash on hand for the Group is expected to improve to R427 million at
interim period end, an increase of approximately R150 million from the prior corresponding
period. It is noted that the deferral of the final dividend for the year ended 29 February 2020
(dividend of R68.5 million paid for year ended 28 February 2019) contributed to the increased
cash on hand at period end. Cash management and cash utilisation will continue to remain
a priority focus area for the Group and Balwin continues to engage with its funding partners to
ensure that appropriate facilities and financial support remain in place.
As per prior communication to shareholders, while the Company’s immediate focus remains
on the execution of its existing pipeline, it has remained alert to strategic opportunities in
identified nodes. During the interim period, Balwin has successfully contracted land at
Mooikloof Eco Estate in Mooikloof in order to expand its footprint in the Tshwane node. The
land was contracted for an initial deposit of R94 million (funded 60% by Investec Bank Limited)
with the remainder of the purchase price being paid out of realised profits on registration of
the apartments over the next 7 years to optimally manage cash resources.
Additionally, the Board recently advised shareholders of the designation of Mooikloof Mega
Residential City as a SIP whereby the Department of Public Works and Infrastructure fund the
external bulk services installations in an effort by government to boost the economy post
Covid-19 and to create employment through infrastructure development. Balwin is in
advanced negotiations regarding the creation of a Special Purpose Entity to undertake the
project for an initial 16 000 apartments with the potential to expand the development to
approximately 50 000 apartments. In addition to Mooikloof Mega Residential City, Greencreek,
Tshwane East which comprises approximately 3 800 apartments, was also announced as a SIP
in the Gazette with the potential for the introduction of additional SIP’s in other nodes in the
future.
ANNUITY INCOME
The Group remains committed to delivering annuity income through relationships that
enhance the lifestyle offering to Balwin’s customers. Contributions from annuity income
initiatives currently constitute a negligible portion of the total profits of the Group, with the most
significant contributor being Balwin Fibre Pty Limited which has experienced pleasing growth
during the period as a result of the increase in the apartments connected during lockdown.
OUTLOOK
Whilst remaining apprehensive over the prevailing macro-economic climate and fiscal policy
uncertainty, the Board remains positive on the resilience of the Balwin product as
demonstrated by the sustained demand by its customers. This is evidenced through continued
strong sales, enhanced by the highly successful recent launch of the online sales platform.
The Board is optimistic with respect to the opportunities presented through the recently
gazetted SIPs. The Company is cautiously and actively engaging with government to best
position the business to roll out these projects to the benefit of Balwin’s shareholders,
prospective customers and the South African economy. In this regard, the required capital
outlay and funding of the project is being given priority consideration.
As consistently advised in recent communication to the shareholders, the Board continues to
place an emphasis on appropriate cash management and cost containment. The growth in
the Company’s cash resources enables the Board to remain alert to prospects that could
enhance its development pipeline in strategic nodes.
The Board continues to closely and carefully monitor the continued implications of the
coronavirus on the business and management continues to prioritise the well-being of its
people in this regard. The Board would like to compliment management on its exceptional
response to the pandemic with no site disruptions noted to date outside of the national
lockdown period.
TRADING STATEMENT
The following disclosure is made in accordance with Section 3.4(b) of the JSE Limited’s Listings
Requirements:
- Consolidated earnings per share and headline earnings per share for the six month
period ended 31 August 2020 are expected to decrease by between 55% and 60%
over the prior corresponding period, translating into a decrease from the prior financial
year’s 40 cents (HEPS: 40 cents) to a range of between 16 and 18 cents per share.
The financial information which this trading statement is based on has not been reviewed and
reported on by the Company’s external auditors.
It is expected that Balwin will release its results for the six month period ended 31 August 2020
on or about 12 October 2020.
Bedfordview
10 September 2020
Sponsor: Investec Bank Limited
Date: 10-09-2020 11:01:00
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