Balwin Properties has released a trading statement and business update for the period ended 31 August 2024, indicating a notable decrease in earnings.
Consolidated earnings per share (EPS) and headline earnings per share (HEPS) are expected to drop by between 54% and 59% compared to the prior corresponding period.
This decrease translates into a reduction from the previous financial period’s 37.93 cents per share to a range of between 15.55 and 17.45 cents per share.
The group said that residential property sector faced significant headwinds during the interim period, driven primarily by the persistently high-interest rate environment.
While there was a positive shift in market sentiment following the announcement of the Government of National Unity (GNU) and an improvement in macro-economic conditions, these factors did not translate into a meaningful uptick in the residential property market, it said.
Prospective buyers continued to face high borrowing costs, dampening demand.
A recent 25 basis points (bps) reduction in the prime interest rate, announced on 19 September 2024, marked a positive step towards recovery in the residential property market. However, this reduction occurred after the reporting period and, therefore, had no impact on the current results, it said.
The Balwin board anticipates that further reductions in the prime interest rate, expected in upcoming Monetary Policy Committee meetings, will improve demand in the residential housing market, provided macro-economic conditions remain stable.
In response to the challenging trading environment, Balwin said it adopted a conservative construction approach. The group expects to recognise revenue from approximately 640 apartments during the reporting period, down from 834 apartments in August 2023.
The company’s annuity business portfolio has shown robust performance, increasing its contribution to group revenue to around 8%, compared to 4.7% in the prior period.
The gross profit margin from apartment sales is expected to slightly decrease to 23% from 24% in February 2024. However, the group's overall gross profit margin is projected to rise to 32%, up from 28%, driven by the growing contributions from annuity businesses.
Balwin said it successfully managed its operating expenses, achieving another reduction in overhead costs. At the group level, overheads are expected to decrease by approximately 5% compared to the previous interim period.
Additionally, the contribution of the annuity businesses to the group’s operating profit is set to increase to 22%, up from 9.3% in August 2023. This growth is driven by an anticipated 15% rise in operating profit from the annuity businesses.
Forward sales of approximately 743 apartments have been secured beyond the year-end (February 2024), an improvement from 529 apartments in the previous period.
This strong forward sales position sets a solid foundation for the remainder of the financial year, where construction activity is expected to increase significantly, supported by improved trading conditions, it said.
Balwin closed the interim period with a healthy cash position, fully compliant with funding covenants and thresholds set by the board and lenders. The company’s debt levels remain comfortably within the thresholds outlined by both the board and its lenders.
As Balwin prepares for the rest of the financial year, the company said it remains optimistic about improved market conditions and a gradual recovery in the residential property sector.
Balwin plans to release its detailed results for this reporting period on or around 28 October 2024.
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