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BALWIN PROPERTIES LIMITED - Voluntary Business and Trading Statement for the year ended 28 February 2021

Release Date: 30/03/2021 08:44
Code(s): BWN     PDF:  
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Voluntary Business and Trading Statement for the year ended 28 February 2021

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”)


-   Approximately 2 550 apartments sold and recognised in revenue in the reporting period
    (2020: 2 715 apartments).
-   The gazetting of Mooikloof Mega City, Tshwane East and Greencreek, Tshwane East as
    Strategic Integrated Projects (SIPs) by government for an initial combined total of
    approximately 20 000 apartments.
-   Successful launch of nine new developments during the year with the initial phases of two
    of these developments included in revenue in the year under review.
-   Ground-breaking launch of Wedgewood (Sandton), the first of the newly introduced
    Lifestyle Collection set to revolutionise access to affordable, upmarket accommodation
    in prime locations close to transport nodes and work with R1 billion sales recorded in 45
    days from launch.
-   ISO Certification Audit for ISO 9001:2015, ISO 14001: 2015 and ISO 45001: 2018, Integrated
    Management System completed with audit recommendation for ISO Certification to be


The 2021 financial year was characterised by unprecedented socio-economic and market
conditions with unusual working and living environments. The ‘status quo’ of doing business
was challenged and necessitated a well-considered and pragmatic approach. Although the
macro-economic conditions of the past financial year and the devastating impact of Covid-
19 are reflected in the results of the group for the year ended 28 February 2021, the Board is
satisfied with the processes implemented to best mitigate the impact of the pandemic on the
group’s operational and financial performance. These measures included the launching of an
online sales platform and the implementation of several measures to increase the rate of
construction to match the continued strong sales demand for the Balwin product.

Shareholders are reminded that as a result of the Covid-19 outbreak and the response
implemented by the South African government to best contain the pandemic, 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 representing 25% of the year.

Despite this construction delay, Balwin delivered approximately 2 550 apartments to clients
which were recognised in revenue for the financial year under review (2020: 2 715
apartments). This is expected to result in an approximate 8% reduction in revenue when
compared to the prior financial year. Demand for one- and two-bedroom apartments
remained strong and comprised approximately 77% (2020: 74%) of the total apartments
recognised in revenue which continues to be complemented by the existing block

The gross margin of the group is expected to remain consistent with that of the prior
corresponding year at approximately 27%. The average selling price per apartment recorded
in the year is also expected to be consistent with that of the prior year, with the marginal selling
price growth achieved offset by the change in the mix of apartments sold together with a
continued increased contribution of sales recorded from the Green Collection model as
anticipated and previously communicated to shareholders.

Despite a welcome reduction in the prime lending rate of 275-basis points since the
commencement of the financial year, market conditions remain challenging for the
consumer. In response, Balwin continued its marketing campaigns through price incentives
and other sales related promotions offered to clients to continue to drive sales where
necessary. Although margin dilutive, these marketing campaigns have yielded the desired
results in promoting sales and 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 year.

Approximately 3 300 apartments have been pre-sold beyond the reporting period and have
accordingly not been recorded in revenue in the current financial year, representing an
approximate increase of 2 650 apartments forward-sold when compared to the prior
corresponding reporting period. This evidences the sustained demand for the product as well
as the market’s trust in the Balwin brand.

As previously communicated to shareholders, cost management remains a priority area.
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 body 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.

The business continues to prioritise the building quality of its apartments, with refined focus in
this regard being placed on the construction process in the upcoming year. Following the ISO
Certification audit, conducted in February 2021, the auditors recommended Balwin to be
certified for ISO 9001:2015, ISO 14001: 2015 and ISO 45001: 2018 certification, pending the
successful technical review and recommendation by the BSI Risk and Compliance team. The
achievement of the ISO certification will ensure consistency in the construction process to
internationally recognised levels of excellence.

In addition to cash management, the company continued its focus on capital allocation and
is pleased with the cash position at period end despite the reduction in cash on hand. The
reduction of the cash reserves available at year end is largely due to continued delays in
timeous registrations of apartments (a short-term cash timing deficit) as well as increased
investment in the groups pipeline during the year. Balwin took registration of Izinga Eco Estate
(Umhlanga) and Mooikloof Eco Estate (Tshwane East) during the year and invested significant
equity contributions for the pending registrations of Thaba Eco Village (Johannesburg South),
Greenbay (Gordons Bay) as well as the extension of the land for The Huntsman (Somerset
West). In total, approximately R220 million was invested in the pipeline of the business during
the year, approximately double the cash invested on land in the prior year. The group also
paid out full dividends during the year in accordance with the dividend policy of distribution
of 30% of profits. This included the final dividend for the 2020 financial year which was previously
deferred. 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.

Despite prevailing market conditions remaining challenging, pipeline investment opportunities
allowing Balwin to expand the group’s footprint or to replace completed projects materialised
during the year. The group contracted land at five new developments, namely Thaba Eco
Village and Mooikloof Eco Estate as noted above, as well as at De AanZicht (Western Cape),
Mooikloof Mega City (Tshwane East) and Wedgewood (Sandton). Certain conditions
precedent remain unfulfilled in the De AanZicht and Wedgewood transactions, however, both
projects have received extraordinary public support in terms of sales. We refer shareholders to
the previously released SENS announcements with respect to the acquisitions of Mooikloof Eco
Estate and Mooikloof Mega City respectively.

As previously advised by the Board, Mooikloof Mega City was designated as a SIP during the
year whereby the Department of Public Works and Infrastructure have committed to 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 continues to
actively engage with government in this regard. In addition to Mooikloof Mega 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 SIPs in
other nodes in the future.


Whilst remaining apprehensive over the prevailing macro-economic climate and fiscal policy
uncertainty, the Board is 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 launch of the online sales platform during the Covid-19
lockdown, as well as the extremely healthy pre-sales recorded for future years.

The Board remains 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.

The launch of Wedgewood as the first development within the Lifestyle Collection is an iconic
milestone for the group. The Board is excited by the product offering and the potential
contribution to the business and is comforted by the proposed funding structures to ensure the
mitigation of cash flow risk.

As consistently advised in recent communication to the shareholders, the Board will continue
to place an emphasis on appropriate cash management and cost containment while
remaining alert to prospects that could enhance its development pipeline in strategic nodes.
The investment in the pipeline of the business during the year has been achieved in a manner
that is both responsible and complementary to the group’s strategy. The Board remains
attentive to opportunities that may present themselves to continue to grow the pipeline that
allows for optimal management of cash resources and meets the strategic objectives of the

The Board continues to monitor the continued implications of the coronavirus pandemic
closely and carefully 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.

Any forward-looking statements are the responsibility of the board and have not been
reviewed nor reported on by the Company’s auditors.


The following disclosure is made in accordance with Section 3.4(b) of the JSE Limited’s Listings

   -   Consolidated earnings per share and headline earnings per share for the year ended
       28 February 2021 are expected to decrease by between 18% and 23% over the prior
       corresponding period, translating into a decrease from the prior financial year’s 88
       cents (HEPS: 88 cents) to a range of between 68 and 72 cents per share.

The financial information which this business and 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 year ended 28 February 2021 on or about
17 May 2021.

30 March 2021

Sponsor: Investec Bank Limited

Date: 30-03-2021 08:44:00
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