Stellar 2023 performance
SA leader in sustainable buildings increases profit after tax 20% to R437m in tough trading climate
JSE-listed Balwin Properties recently posted an impressive set of results for the 2023 financial year, growing revenue despite a 6% drop in unit sales.
Revenue increased 6% for the year to R3.3bn, with profit after tax jumping 20% to R437m. This culminated in 21% growth in earnings per share to 91.49c.
Despite macroeconomic constraints and interest rate increases during the year, the group managed to grow its gross profit margin to 29% from the previous year’s 27%.
Balwin closed the financial year in a strong cash position, with R607m in cash and cash equivalents, with debt ratios well managed at a loan-tovalue ratio of 40.7%. It declared a total dividend of 24c a share.
Balwin shares are trading at R2.85 at the time of writing, a deep discount to the net asset value of R7.39 per share.
Revenue growth was achieved through a change in the mix of apartments sold in the year; a general increase in average selling prices; growth in the annuity side of the business; and a consistent focus on cost containment, says CFO Jonathan Bigham.
The property developer has been designing, building, marketing and selling sectional title residential apartments since its establishment in 1996, and has completed about 100 developments.
Balwin’s portfolio includes 18 active developments in
Gauteng, the Western Cape and KwaZulu-Natal. The development pipeline comprises 43,781 apartments across 26 developments to be built out over the next 16-18 years.
The company’s three brands Green, Classic and Signature are targeted at different demographic sectors of the market. Founder and CEO Steve Brookes says this has been a hugely successful model for the business.
Renowned for being a straight talker, Brookes has been instrumental in growing Balwin from a start-up to a successful listed company.
He attributes much of Balwin’s success to his ability to retain a skilled and experienced management team. Nearly 28 years after founding the company, the original partners are still there.
“Underpinning the business culture“, he says, “is a strong moral compass, zero tolerance for defects, and always putting clients first.”
A leader when it comes to sustainable sectional title developments and green buildings, Balwin’s building designs have received global recognition, with more apartments registered for Excellence in Design for Greater Efficiency (Edge) certification than any other property developer in the world.
The property company has developed 3.5% of all Edge-certified properties globally, a significant amount of which is certified as Edge Advanced, which means it has achieved a 40% energy reduction.
An initiative of the International Finance Corporation, part of the World Bank, Edge is an international green building certification system.
Being Edge-certified means that its apartments use 20% less energy, water and embodied energy in the materials used in construction. A number of Balwin’s developments have received six-star Green Star and net zero carbon rating from the Green Building Council of South Africa.
“There is a common misperception that green building designs are more expensive than conventional designs,” says Bigham. “Through proper planning and adopting appropriate processes, it is possible to build more sustainably in a cost-efficient way.”
The green building trend has been gaining momentum globally in recent years. In Europe, it is now a regulatory requirement to build more sustainably. In Africa, the trend is being driven by a lack of infrastructure to support new buildings that are not built sustainably, says Matthew Whalley, MD of Balwin Energy.
Whalley has been leading the drive to position Balwin as the leading sustainable residential developer in South Africa. A focus on sustainable developments became a company-wide policy in 2019.
“Building sustainably is not just about putting PV panels on the roof of a building,” he says. “It starts with design that correctly positions a building to reduce energy consumption and allows for cross-ventila
Underpinning the business culture is a strong moral compass, zero tolerance for defects, and always putting clients first
Balwin Properties CEO Steve Brookes
tion. It uses sustainable materials in the construction of the building, providing energy and water-efficient appliances and smart metering so that residents can easily see how much energy and water they are using and to encourage responsible behaviour.”
How Balwin designs and builds is guided by Edge design guidelines, says Whalley. “Buildings designed with sustainability in mind from the outset are more efficient by all metrics compared with those that are not. We also provide amenities close to our buildings so residents don’t have to travel significant distances. Ultimately, sustainability is about so much more than just water and energy usage.”
Balwin was the first local company to commit to both a net zero target by 2050 and to set itself a carbon emissions reduction target with the Science Based Targets initiative.
“We are aware of the risks around climate change, which is why we try to ensure that every element of our operations is sustainable. Beyond ensuring that all our buildings are green certified, we even track the performance of each building and try to educate contractors, suppliers and our clients about the need to operate more sustainably,” says Whalley.
He predicts that, in time, the government will introduce regulation and legislation to encourage green and sustainable building. “Certain municipalities have already put incentives in place to encourage green buildings. Irrespective of the legislation, we will always try to exceed requirements.”
Balwin was the first property development company to launch a green home loan in South Africa with local commercial banks. These help homeowners save money through reduced interest rates and lower utility costs. In this financial year alone, 1,411 green home loans were awarded, providing clients with savings valued at R98m, says Bigham.
This ability to develop certified green buildings cost-effectively means that Balwin’s properties are not priced at a premium. In fact, says Whalley, clients are able to acquire them at a discount because of the reduced bond premium.
He believes banks could be doing more to encourage prospective homeowners to choose sustainable and green residential developments.
“For consumers, the appeal of a green home is paying less in utilities. While the current incentives are great, if more banks offered deeper discounted interest rates it would broaden the appeal by providing customers with cheaper finance,” says Whalley.
Another key benefit to sustainable development is broader access to capital. Balwin concluded a sustainabilitylinked loan in partnership with Ninety One in 2022. The loan offers a tangible reduction in the interest rate contingent on meeting sustainability targets, through energy and water efficiencies and emphasising financial savings to clients.
The company’s annuityearning business, which focuses on adding value to clients, has been phenomenally successful.
The business was launched to complement the Balwin Property’s existing offering, provide value-added products and services to clients, contribute to the protection of Balwin’s brand and reputation, and provide a more sustained income to shareholders.
Raaziq Ismail, head of Balwin’s annuity business, says the company has 10 annuity streams that it’s actively pursuing. The biggest contributors for this financial year were Balwin Fibre, which has installed fibre-optic infrastructure for more than 12,000 clients; Balwin Energy, which installs, manages and maintains the solar PV and black water treatment plants in most of Balwin’s developments; and Balwin Mortgages, which focuses on mortgage origination and offers a competitive advantage due to its long-standing relationship with major banks and conveyancers.
Businesses in the pipeline include Balwin Towers (cell tower installers), Balwin Signage (digital advertising), and Balwin Fuel (a business which leases land to fuel franchises).
“The annuity side of the business has delivered about R20m net to the company’s bottom line for the financial year,” says Ismail. “Despite a tough economic environment, we expect good growth in this area of the business.”
According to Brookes, the key to successfully navigating the current climate is remaining alert to opportunities.
“A difficult environment typically comes with opportunities, which we are well positioned to capitalise on.”
The rising interest rate cycle has had an impact on the business, with hikes typically correlating with a marginal decline in sales. To counter this, Balwin has implemented initiatives to encourage sales.
All first-time homeowners qualify for an automatic 10% discount, while a tiered discount structure rewards investors who have supported the business by buying multiple properties over the years. A rental guarantee scheme provides investors with the assurance of a guaranteed gross yield for a 24-month period.
Despite the challenges facing South Africa, Brookes remains optimistic about its prospects. “Yes, we have problems, but which country doesn’t? Encouragingly, there are many people who want to turn the economy around and make this country work.”
Long-term, his vision is to grow the number of apartments developed to 5,000 a year and to pursue growth opportunities outside South Africa, including in Mauritius.
Another goal is to raise the company’s profile through Balwin Sport, which focuses on healthy living. It has concluded strategic partnerships to expand its marketing reach.
Plans are in place to run its own sports events, sponsor and participate in four marathons around the country, while a sponsorship of the annual Cycling South Africa mountain bike championship event will further promote the brand.