JSE-listed Balwin Properties’ results for the six months ended August 31 have revealed a 33% growth in gross profit margin and a gross profit of R396-million, continuing the company’s recent margin growth trend, despite CE Steve Brookes saying it was “… arguably the toughest [year] in our 27-year history, as the impact of escalating interest rates, loadshedding as well as higher fuel and food prices impacted on demand”.

Released on October 26, the interim results showed that the company’s operating costs decreased by 4% year-on-year to R167-million, which resulted in a 20% operating profit margin being recorded, an increase from 15% in the prior period.

Headline earnings a share also increased by 4% to 37.93c.

“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 company profit by 3%,” Brookes said.

Balwin recognised 834 apartments in revenue for the year, down from 1 360 apartments in the prior comparative period. Coastal regions contributed 68% of revenue during the period, up from 53% reported in the first half of the 2023 calendar year, mainly as a result of semigration.

“For the first time in our history, the Western Cape has emerged as the company’s top revenue earner, contributing 42% of total company 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,” Brookes said.

Balwin’s relatively new annuities businesses continued to report strong growth on the back of 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 have been aimed at achieving Excellence in Design for Greater Efficiency (Edge) Advanced ratings, a green building certification system implemented by the International Finance Corporation (IFC) focused on making new residential and commercial buildings more resource-efficient. A total of about 23 000 apartments developed by Balwin have been registered as Edge-compliant with the IFC.

Moreover, Balwin has managed to get 15 000 apartments registered as Edge Advanced by demonstrating energy savings of 40% or more and water savings of 20% or more.

The company also reported that ten of its lifestyle centres had achieved six-star green ratings and were 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 line with this, Balwin secured 752 green bonds for home buyers during the period. These bonds provide financial benefits and also contribute to significant savings, amounting to a total of R33-million over a span of 20 years.

The company closed the year with a strong cash position of R442.6-million. Its loan-to-value was 42%, well within the minimum loan covenant requirements.

“We expect 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,” Brookes said.

He added that Balwin’s short-term focus would be to protect its existing margin levels, although he said the company anticipated margin contraction for the second half of the current financial year.

As such, the target gross margin of the company remains in the low- to mid-30% range.

“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,” Brookes concluded.