Balwin Properties Limited (BWN) Earnings Call Transcript & Summary

Welcome, ladies and gentlemen, to our results presentation. It's fantastic. It's been 26 years now. My wife keeps reminding me that we've gone from 25 to 26 years. It's my life's work in Balwin. But as you can see, I'm feeling younger, I'm feeling fitter, I'm here for a long time yet. So bear with me, we'll try and improve and improve as we go along. Notwithstanding increasing consumer pressure and a rising interest rate cycle, our customers have really rewarded us and keep buying our unique product offering, and we're very pleased by the strong set of results for the first half of the year in difficult circumstances. I strongly believe in Balwin's quest was 0 defect. It's a drive of mine. I don't believe we should ever change it. I have a totally committed directors and management and we really try and keep innovative designs and of course, our continued drive towards green energy and efficiency, which is my legacy that I don't leave on this earth, which really makes a difference to the differentiation of Balwin Properties. We'll unpack all of this in more detail in the presentation as well as the live Q&As to follow. With me is Jonathan Bigham, our CFO, who will run us through the numbers; and Raaziq Ismail, Head of Legal and Annuity, who will take us through the performance, which I'm very pleased about, of the new annuity businesses. Behind me on the image is Munyaka. I'm exceptionally proud of this development. We launched it with our dear President that attended the launch. It really is coming to fruition. We've moved in over 1,000 people into this development. We are now ready to open the lagoon. The lagoon is filling up rapidly. It will be full on the 28th of November, and we'll open the lagoon in early December. It's a phenomenal achievement. 40 million liters of water into this lagoon, and we're very proud of the fact that we've taken the water out of the Jukskei River, obviously, purified it, cleaned it, washed it, whatever we've had to do through our tremendous partnership with Crystal Lagoon. But that's another very innovative way of showing how green Balwin is. Also, we're very, very proud of the awards we've won for this development, and we're holding thumbs for the awards in London, which this development has been allocated in the category for best in the world, in Africa and the Middle East. Now let's unpack the operations for this period. Operational highlights. We will notice that 1,360 apartments were sold and recognized in revenue. That's 8% more than last year, which is a nice healthy growth. The strong performance enabled us to declare an interim dividend of ZAR 0.099 per ordinary share compared to ZAR 0.074 in the prior comparative period. In addition, we presold 1,551 apartments, which is pretty normal in our business. We're very pleased that we're keeping this up, which is not included in revenue, and it's a very healthy position for the group considering our sales on average of 3,000 apartments a year. Our annuity businesses are a brainchild of a very good friend of mine. He recommended that we do this. It took us a while to get the brand to the stage that we thought it could really make sure that our customers are continually looked at and continually get the benefit of our annuity business. I think that's absolutely critical. And we really have done well. The annuity expectations are growing. I've set them some tough targets for the next 3 years. And at the moment, as the contribution to the group has increased by 80%, but Raaziq Ismail will refine these operations and elaborate on it later. Our development pipeline is 45,411 apartments across 27 developments. It's very important to remember that in South Africa, particularly in the Western Cape, it takes 8 years to rezone a piece of land. So it is critical. We sometimes get criticized for our land bank, but I'm adamant we need a strong land bank to keep continuity in the business. We've got exceptionally high demand in the Western Cape. So we are looking at very prudent land acquisitions in the Western Cape. Obviously, as you all know, there's a strong semigration to the Western Cape. So the Gauteng region, we are focusing on our current pipeline. But remember, Gauteng is split between Joburg, Johannesburg and Tshwane, which is the old Pretoria. So we have a huge land holding in Tshwane, which we're not looking at anything else in Tshwane. But in Gauteng, the old Johannesburg, we will look at very focused, smaller pieces of property on a case-by-case basis. Sustainable building is a legacy of Balwin. As you get to go through your journey in life, it's very important. We really believe it makes a massive difference with our clients. We have set international records for all our EDGE Advanced buildings. We've got a large number of 6-star graded buildings. It makes a massive difference to our construction, long-term impact on the environment. Traditionally, developers do have a bad history. We want to change that. And really, as they say in the movies touch the earth lightly. We are very blessed with our international awards. We have now topped out 38 international awards and not to be taken lightly. Every time I go to these awards, I'm shocked. Now they've stepped their game up. There are [ 4 lords ] that do the due diligence on the developments, and they have 100 judges. It really is -- it sharpens us up. It's fantastic to see the competition. I'm always very humbled by the fact that Balwin wins these awards, and I want to continue entering into these awards. It's a good test of what we're doing in the international arena. Balwin has 3 different product offerings. It's very important to remember that our green efforts and all our green sustainable products are across all 3 brands. So our customers get the advantage across all 3 brands. The more affordable brand is our Green brand, then we go to our classic brand and ending off with our signature. And the bulk of Balwin's business is in the green and the classic brand. Our ongoing strong sales, value engineering and controls resulted in a 20% increase in revenue to ZAR 1.6 billion for the period. I'll never forget my first development I ever did. I think our total sales for the first year were ZAR 5 million. We've come a long way. Demand for 1- and 2-bedroom apartments remained strong. However, not forgetting that our 3-bedroom apartments on the ground floor are still snapped up phenomenally fast. Yesterday, we released a phase, and all the 3 bedrooms are snapped up within a couple of hours. 80% of our apartments sold are 1 and 2 bedrooms, the same as in the prior comparative period. Balwin's ability to reconfigure apartment blocks is based on a very simple LEGO principle. So we have the 3-bedroom ground floor fixed on a block and then we can interchange between 1- and 2- and 3-bedroom apartments above it, depending on market demand and obviously linking into interest rates. So it's a very, very clever concept. And all our architects are extremely well geared up to make these changes. I just want to confirm our contribution of the annuity business. I'm very proud of this business. A whole lot of young guys in it, very enthusiastic. I've given them some really tough targets for the next couple of years, but we've increased by 80% to ZAR 37.9 million from ZAR 21 million previously. So the youngsters really are doing well with this fantastic annuity business. And just remembering, again, I always tell everybody that our customers come first. They must -- we must add value through our annuity business. Once again, just reminding everybody, we're very, very clear that we match our rate of sales to the rate of construction. You don't want to get ahead of yourself and build the whole project out and you haven't got sales. It will give us a cash flow nightmare. So we're very, very clear on making sure we match sales to construction. Over the past calendar year, we've averaged 262 apartment sales per month. As you know, marketing is not an exact science, but we really try to be very sophisticated with our marketing and keep very careful track of it. What drives these sales is a strong semigration to the Western Cape, strong demand in our unique product in KZN and also the absolute drive for quality. Customers demand that nowadays. We want to offer a fair offering, reasonably priced with very good facilities on the projects. Since August, we have implemented various sales initiatives. I'm very proud of the one that Jonathan Bigham came up with, which is a very good moral, extremely good moral fiber in it to help and assist first-time homebuyers, genuine first-time homebuyers. So I'm very proud of that, and I'll elaborate on that next. I started my CEO loyalty program, which is by invitation of myself for any of our clients that have bought more than one apartment, very, very important, you have to have bought more than one and then you go into a stage loyalty program. I've also combined this with a -- meet the CEO. I do 20 meet the CEOs around all our projects every year, and it really has kept me in tune with our customers. Obviously, some of our customers really come out the wood where they can give me a hard time. But generally, it's extremely well received by our customers, and I'm very proud of it. The first-time homebuyer incentive, this was borne by Jonathan Bigham, our left-hand, I quite tease him and call him our left-handed batman because he's left handed. So I think it's a fantastic initiative where we give a substantial discount to first-time homebuyers. They have to be real. We also work hand-in-hand with the financial institutions. And our marketing is fantastic. It's like a little guy running up a ladder, and I think the youngers of this country really need all the help they can get. The Western Cape is an extremely strong area for us, a very strong semigration. We are looking at some more land in the Western Cape, but we really will -- really be very cautious on our approach. In Gauteng, we're going to build out our current pipeline and only where we get really good smaller opportunities on a case by case where we consider it. Johannesburg pipeline is reducing as we complete our developments where Tshwane, we have substantial development opportunities, and we really want to make sure we do the best of the best in Tshwane. Our land acquisition or land bank as the accountant say, has to be very, very carefully managed. Zoning takes an ordinate time period, it really is taking longer and longer, longer up to 8 years in the Western Cape, which is pipe being organized as the longest. So we have to be very clear on our land bank, not to be too big, but we do need some land. Otherwise, the business will be a stop-start business. I'll now hand over to Jonathan Bigham to take us through the financial numbers.

Good morning, everyone, and thank you very much, Steve. As an overview of Balwin's financial performance, we recorded a 20% growth in revenue for the period, up to ZAR 1.6 billion. Gross profit margin pleasingly improved by 2%, up to 26%, which, together with a module reduction in the overhead to revenue ratio, contributed to a total 48% bottom line growth with profit after tax of ZAR 173 million being recorded. This culminated in a 48% and 47% growth in earnings per share and headline earnings per share, respectively, with headline earnings of ZAR 0.3663 per share. The Board approved an interim gross dividend of ZAR 0.099 per share based on the interim results recorded. With respect to the group's financial position, we closed with ZAR 581 million cash on hand, significantly in excess of the lending covenants and treasury policy threshold. Debt ratios reflected a slight reduction from the prior period with a loan-to-cost ratio reducing from 41.2% to 39.7%. Group net asset value per share is measured at ZAR 7.71 per share, reflecting on the income statement of the group. As noted earlier, revenue recorded a ZAR 1.6 billion, a pleasing 20% increase from the prior comparative period. The GP margin increased to 26%, which is up from the prior period of 24%. As has been noted previously, margin growth is a significant focus point to the management team. And accordingly, the increase in this metric is positive to report, specifically in the context of the trading environment experienced. Operating costs grew by 15% to ZAR 174 million. Contextualization of that growth will be discussed in the slides that follow. There was a small growth in the net finance cost due to the continued deployment of the unsecured debt into the business, which results in that portion of the borrowing is being capitalized, together with a marginal improvement in the returns on the funds invested, an effective tax rate of 28.5%, which is in line with the business norm. This all resulted in profit after tax of ZAR 173 million being a pleasing 48% increase from the prior period. This increase materially flowed through to the earnings per share and headline earnings per share growth of 48% and 47%, respectively. Diving deeper into the revenue line item, to provide greater context of the 20% growth recorded, this was essentially driven by both volume growth as well as increase in sales price recorded. Additionally, there was a pleasing increase in revenue contribution from the annuity businesses, which Raaziq will impact a bit later. The theme of semigration was noted in the revenue recorded with the 2 coastal notes increasing their revenue contribution to 53%, up from 40% in the comparative period. The balance of 47% of revenue was recorded in the Gauteng node. Izinga Eco Estate in Umhlanga, KwaZulu-Natal, which contributed to the growth in the coastal regions, also drove the growth in the Signature Collection developments, which were responsible for 23% of the apartments recognized in revenue, up from 15% in the last year. The Classic Collection remains a major contributing brand. However, the growth in the Signature Collection reduced this contribution to 58% in the period, while the green brand remained largely steady at 19% contribution to revenue. Over the page, we note the detailed makeup of the apartments recognizing revenue and showing the contribution by brand and by region, with 1,360 apartments recognizing revenue for the period, as noted earlier by Steve. When analyzing the contribution of apartments by region and by brand, while similar to the rand value contribution to revenue just discussed, it is obviously impacted by the different selling prices of the brands with the premium pricing in the Signature Collection apartments and the more affordable apartments in the Green Collection. With respect to selling price growth, firstly, in the Green Collection, we noted a total 8% increase in selling prices, mostly led by the 2 and 3 bed apartments. Over the page reflects the 11% price growth in the Classic Collection, again, with particularly healthy growth in the 3-bed apartments. As already discussed, we are really pleased to record the 2% growth in the gross profit margin for the group. This improvement is even more pleasing on the back of the challenging macro factors experienced and results from focused cost containment measures, together with the robust pricing on earlier phases of developments, whereby the yield curve was flattened between the first and the final phases of the development. The continued focus on gross profit margins remains key to management as this leverages the return metrics of the business. When analyzing the total operating cost of the group, it's easiest done by referring to the current slide, which presents analysis of the total 15% increase in group operating costs. There was a 12% increase in OpEx of the development company with a fixed cost growing at an inflationary length increase of 6%, while variable costs, which are mostly driven by sales activity, increased substantially in line with the growth in the revenue recorded. The annuity businesses naturally increased their operating costs in line with the activity in those respective businesses. It is noted that 53% increase in cost was on the back of an 80% increase in the revenue recorded and accordingly, accretive to the group results. We expect this positive contribution from the annuity businesses to steadily increase over time. This translated to a 48% increase in profits for the period and accordingly, a 48% increase in the earnings per share to ZAR 0.3688 and a 47% increase in headline earnings per share to ZAR 0.3663. On the back of the results, the Board has declared an interim gross dividend of ZAR 0.099 per share, payable in accordance with the timetable presented on the slide, with the share trading cum div until December 6, 2022 and payment date being on 12 December 2022. On to the balance sheet and from an overview perspective, non-current assets amounted ZAR 353 million, with the major contribution coming from property, plants and equipment. Current assets of ZAR 6.4 billion comprised mostly of developments under construction of ZAR 5.3 billion, cash and cash equivalents of ZAR 581 million and trade receivables of ZAR 383 million. To pause for a moment and focus on the developments under construction, the heart of Balwin's asset base. Stakeholders are reminded that the developments under construction are accounted for on an historic cost basis and not on any fair value model. Developments under construction increased by ZAR 527 million from February year-end, mostly driven by 2 factors. Firstly, we incurred costs in the Mooikloof node as we pursue the execution of this part of the development pipeline. This includes the registration of the second and final portion of the land that will become the iconic Mooikloof Smart City and the investment in the infrastructure necessary to service this node. We start handing over apartments at Mooikloof Eco Estate next month, which will begin to reduce the work in progress, with the first phases at Greenkloof, the initial development in the Mooikloof Smart City planned for next financial year. The second main contribution to the work in progress growth was a result of the ramped-up investments in Munyaka as we close out on the lagoon, the lifestyle center and the lifestyle center apartments at this flagship development for delivery to the market at the back end of this financial year. It is important to note that the 90 apartments that overlook the lagoon will recoup the full cost of the lifestyle center. Continuing on the balance sheet, equity reflected ZAR 3.6 billion, working out to a net asset value per share of ZAR 7.71, which is measured at cost. The major contributor to liabilities is the development loans and facilities, which aggregate to ZAR 2.7 billion when combining both the current and non-current portions. This comprises the lion's share of the total liabilities of ZAR 3.2 billion. On review of the developments under construction, where we show the breakdown of the assets, we note, 44% of the balance comprises land and land contribution costs, 10% reflects the development rights, and the balance of 46% represents the construction costs. As a reminder, the development rights pertain to the project at Waterfall cutting, which are held on a leasehold basis. On a regional and brand overview, we note that the majority of the balance is located in the Gauteng node at 73% and within the Classic Collection at 72%, with no material variance from the makeup of the balance from the previous year-end. Trade receivables mostly consist of apartments handed over at year-end, but not yet registered. As of today, I'm pleased to report that almost all of this has registered and has been converted to cash for the group. As communicated earlier, cash on hand at the period end closed with ZAR 581 million, with a further ZAR 51 million disclosed as restricted cash. Cash management continues to receive priority focus by the Board and the cash position recorded is a healthy one. The Treasury Committee has continued its active oversight of matters, including cash management, debt overview, forecasting and covenant compliance. Looking at equity, as noted earlier, the group records equity of ZAR 3.6 billion, working out to a net asset value per share of ZAR 7.71. The breakdown of development loans are shown on the following slide and split between the nature of the funding. We have continued the process to migrate the traditional development funding model to a term-based model and successfully converted the first traditional development loan into a term-based model in the period. Management continues to explore funding of avenues that are cost effective to the group. The group's long-term debt-to-equity ratio at the end of the reporting period was 30% and consistent with the year-end. As a reminder, long-term debt is measured by including all land and infrastructure debt only. The Board actively manages the debt exposure of the group against the debt covenants and the treasury policy. The group's debt position improved marginally during the period with a loan-to-cost ratio reducing to 39.7% as measured by the covenants. As noted earlier, the group's assets are measured at cost and there are no fair value adjustments included in this metric. The group reported a pleasing interest cover ratio of 4.9x, comfortably in excess of the requirements of 2x cover. Finally, with respect to the cash flow statement, Balwin generated cash from operations of ZAR 190 million for the period, a very pleasing operational performance. Net cash from operations recorded was ZAR 70 million after deducting net finance costs as well as the tax payments. Balwin invested ZAR 210 million in investing activities with a net ZAR 55 million generated from funding activities in the period to close with a cash position of ZAR 581 million. The cash on hand reflected comfortably exceeds both the debt covenants and the treasury policy thresholds. Looking forward, we will continue to closely and carefully manage the relationship between the rate of construction and the rate of sales, a dynamic that is fundamental to the appropriate cash management of the group. Thank you very much. And I'd like to hand back to Steve.

Thanks, Jonathan. As usual, very competent. I'd like to expand on our green living. As part of my living legacy, as you go through your journey of life, you want to realize, you want to leave something behind on this beautiful planet of ours. We've only got one. We've got to look after it. We really have decided to drive Balwin to the highest level that we can get to. We have a fantastic manager in Matthew Whalley, he's at the moment in Washington at the IFC at the International Conference. So we really are making waves in the international community. It creates a fantastic culture of environmental consciousness with all our staff to make sure that we really look after the basics, which is water, electricity, the environment, vegetable gardens, water harvesting, it makes a massive difference. We have a science-based target, which is basically reducing our carbon footprint in line with science-based models to limit global warming. I think as Greta said, a lot of the politicians go blah, blah, blah. We are not like that. We are making a difference. It is real. It's making a difference. Our customers appreciate it, and we will continue driving that. We're the first South African-based company to have a science-based target and net 0 commitment approved, which is fantastic. What does it mean to me as the CEO? It really does bring tears to my eyes because it is a fantastic legacy and seeing our management so committed to this and making sure that our clients have a better lifestyle and our developments are better. What does all this mean to the business and the environment? We've started a new thing. It's my passion for birds. If we see and hear birds on our developments because of our indigenous trees, it really is fantastic. Birds don't give a tweet about all the indices and all the jargon, they only come if it is really the right environment. And my site management know, I'm always saying to them, can I hear them? And if you can hear the birds, I think then it's a good yardstick to mention. We've previously mentioned, we're part of the IFC's drive to greener developments at the United Nations Climate Change Conference or COP27 in Egypt later this year. And as we said, Matthews at the moment in Washington. So we really are making a difference. What does it mean to have 6 lifestyle centers, 0 carbon footprint? Guys, it means everything. We're on a drive to get 6-star graded, not to mix the 2 up, lifestyle centers, we've now got approximately 9 and 2 more to come. And this is our new way of looking at it. We want all of them to be 6-star-graded and 0 carbon footprint. It does make a difference. Our green bond initiative is something I came up with. We worked damn hard, Amber worked with me, and we took us 2 years to get the initiative right. We started with humble beginnings with the gas from Washington for the IFC. We really have got it right. I'm continually working with our financial institutions. My vision, my dream is to get every single client a green bond and to everybody have a 1% concession on their mortgages because of all our greening. It is real. I'm going to continue striving for it. It's good for our clients. It's good for our business. And it's fantastic to see a brilliant number that we've saved our clients. We've saved them ZAR 389 million since inception, which is a fantastic saving for our client and obviously, giving them the benefit of all the green initiatives. Our future initiatives are huge. We're trying hard to get our developments as close as possible to off the grid with both water and electricity. It is obviously Utopia and a dream, but we constantly strive for it. We've got our first project, The Reid, that we're doing battery backup and that will allow 2 hours of load shedding contingency. And I think we could probably stretch that to 4 hours, if she'll take care of Level 4 of load shedding. Very, very proud of that. We're also sponsoring the GBCSA with a new green star tool. It really is fantastic that we're getting involved in this. And Matthew Whalley will really dig in to help them. We really need to help people. I'm on the Board of the GBCSA, and I made a total commitment that whatever Balwin does, we're prepared to share to all the other developers in South Africa, 2 developers in Africa and without being too arrogant to the rest of the world. Water is the future. As we know, South Africa is very, very dry and has a water problem. Our black water harvesting and reticulation is a future concept that we're exploring, and we're going to get this right where we can really harvest our water. As reiterated earlier, we'll focus on building out our existing pipeline in Gauteng and KZN. We've got to be very prudent with our land acquisitions in the Western Cape and in general. We expect rising interest rates and general economic pressure to temper the rate of which sales volumes have increased post COVID. However, we have got a large amount of presales and we will continue being nimble and coming up with initiatives to benefit our clients and keep the sales ticking on. Our focus, this is a very technical point, which our Managing Director, Rodney Gray, focuses heavily on is to flatten the yield curve between the first and last phase of each development and gaining traction as we work towards increasing our gross profit margin to 30%. We're very committed to this, and we will continue driving this. Balwin is a brand that has been going for 26 years, highly recognized, it's great for our clients to buy into a brand. We want to continue enhancing with all our green initiatives, which I think is absolutely critical and our lifestyle brand that we do. We really want to make sure our clients have a great, safe environment to live in. And we believe through tough times are we going through now, that will be the strength of our business. We're continually focused on funding and cash management. We're always looking at new initiatives to reduce our interest, and we're very, very soon going to announce a new change, and we're very excited about this. What concerns me about the next 6 months? I'd like to obviously see stability in the world and stability in our government, which will flow down to stability in local government, so we can get on with it. We're a company of builders, we want to build. We don't want to get caught up in all the politics. We want to build, make sure we're doing good work for our clients. That's what worries me is, can we have that stability. What excites me about the next 6 months? We live in a fantastic country guys. South Africa, I'm proud to be South African. I'm not going anywhere. I love it here. We've got fantastic people in this country. We need to improve the skills, and I think we can really do some -- make a big difference in this country. Thank you. And Raaziq Ismail, Head of Legal and Annuity, who will take us through the performance of the new annuity businesses.

Good day. So Steve has just given you a glimpse of the future and that includes the annuity group, which I will now take you through. The Balwin annuity group is starting to take shape. And as a team, we are staying focused on our vision to enhance our clients' experience and enhance shareholder value in the Balwin Group. At the heart of Balwin annuity is the Balwin client, and we firmly believe that if we continue to work towards establishing businesses that benefit our clients, we will have successful and sustainable businesses that can grow independent of Balwin Properties rate of construction. The Balwin annuity group performed well for the first 6 months, achieving an operating profit of ZAR 13.4 million and a net profit after tax of ZAR 8.1 million. The overall EBITDA margin for the interim period is a healthy 40% while the net profit after tax margin is 24%. Balwin Fibre, Balwin mortgages and Balwin energy were the largest contributors to the ZAR 8.1 million net profit, while Balwin property management was the largest contributor to the ZAR 2 million loss. We are reassessing the viability of the property management business over the next 6 months. Balwin Fibre is the exclusive supplier of fiber infrastructure to Balwin developments and has increased its homes passed from 9,200 to 10,261 with active clients increasing from 6,900 to 7,131. The average rate per unit or line rental collected from ISPs is ZAR 501 per month per apartment. The fiber business achieved an operating profit of ZAR 7.8 million, up by 85% on the prior year comparative period and a net profit of ZAR 5.6 million, up by 112% compared to the prior year's interim period, which indicates the growth potential of this business year-on-year. We have commenced installing redundant fiber infrastructure cables in multiple estates, which means that our clients have no downtime when there is a faulty fiber cable. Our 3-month free fiber campaign has assisted to increase the value proposition to our clients, and we are also investigating different marketing strategies to further increase our value offering as well as the uptake. We have been working on reducing backhaul costs and focusing on the use of technology to reduce the resources required to operate efficiently. Currently, 3 employees manage more than 9,000 clients. Balwin mortgages, which has historically been a department within Balwin Properties, has performed well with 1,399 mortgages secured between March and August. The business achieved an operating profit of ZAR 6.4 million and a net profit after tax of ZAR 4.6 million. The EBITDA margin for interims is 60%, while the net profit after tax margin is 43%, indicating the strong profitability of this business. As a result of our green initiatives within the Balwin Group and our EDGE certified apartments, the mortgage team has managed to secure our clients' discounts on the interest rate ranging between 0.25% to 0.75%. In essence, this equates to a saving for our clients of approximately ZAR 64 million over a 20-year mortgage period based on the mortgages approved for the period under review. There has been a focus on gearing up to commence with external mortgages and assisting the public with their bond application journey. We are in the process of launching an online platform that will allow external clients to benefit from the Balwin mortgages offering. Balwin mortgages is leveraging off its strong relationships with the banks and conveyances to give itself a competitive advantage. Clients will be granted substantial discounts on their bond registration costs as well as a concession on the interest rate because of our negotiated green mortgage concession with the major banks. Balwin energy is the sustainable infrastructure management entity focusing on researching sustainable energy and water solutions for our developments. This entity currently leverages off existing solar assets, which Balwin installed to meet [indiscernible] requirements in order to provide clean, sustainable and cheaper energy to our clients. Given the current world energy crisis, solar installations are becoming increasingly popular, and Balwin has been at the forefront of ensuring green development. We provide all our clients with a 10% discount on the electricity consumption, and we manage and maintain the solar PV to ensure optimal functionality. While this business has only been operating for 6 months, it has achieved an operating profit of ZAR 2 million and a net profit after tax of ZAR 1.4 million for the period under review. Balwin energy is currently operating on 8 development sites and has reduced emissions in the Balwin Group by 2,235 tonnes of carbon dioxide equivalent. The first water treatment plants are expected to start operating in the final quarter of this financial year, which will provide an additional savings to clients on the water bill. We are very optimistic about the prospects of the energy business and firmly believe that it has the potential to yield great returns over the next 3 to 5 years. With regards to the other businesses, these entities are not material contributors to the interim results, and more granular information will be provided as these businesses mature. As previously stated, the main reason for the losses in the annuity group was due to property management, which is being reassessed as a business. Balwin commercial to transform the new head office in Melrose Arch during August and is currently 76% tenanted with no losses to report to date. We are in advanced negotiations with potential new tenants and agents to increase the occupancy rate to at least 90%. With regards to the digital signage, we have experienced delays due to the floods in KZN, which caused damage to the screens while in storage, but we are working around the clock to ensure the screens are installed by calendar year-end. Balwin Financial Services, which has partnered with Telesure Investment Holdings has signed up approximately 90 policies to date. It must be noted that Balwin is not acting as a broker and Telesure carries out all compliance-related obligations. Telesure pays Balwin a recurring percentage of commission for the lead referral. Balwin technique, which is providing access control systems to our estates, commenced operations on 3 sites as of September this year and plans to roll out to the remaining 13 estates over the course of the next financial year. Except for Balwin property management, all these businesses show great growth potential, and the annuity team is committed to have each business show a meaningful contribution to the Balwin Group. We are very excited and committed to the future prospects of the annuity group, and we look forward to its continuous growth. I now hand you back to Steve, who will open the floor for questions. Thank you.

Good morning, everybody out there. Morne, I'm here to answer any questions. Morne, if you want to fire away with the questions, please.

Perfect. First question is from Rudi van Niekerk like of Desert Lion Capital. He says congratulations on navigating a challenging economic environment. On Page 11 of the published results, detailing the dividend payment, it is stated that the company has 519 million shares in issue. Can you please explain why you use 468 million shares when calculating the reported earnings per share and net asset value per share.

I'll take that question. Really effectively, it just comes down to accounting principles in terms of how we treat the earnings per share and the net asset value per share. The big difference between those numbers is the shares that we issued to the BEE partner. From an accounting perspective, they're not technically issued shares. They were treated as in-substance options. They've -- over the life of the lock-in period, they get released through another equity class. And after the 10-year lock-in period, it will be then transferred to share capital. We did have quite nice and detailed disclosure of that in our year-end financials at the same time that I can refer you to.

Thank you, Jonathan. The next question is from [ Junia Smith ] at [indiscernible]. Steve, thank you for the great update on results. Could you please elaborate on the plan to reduce the share price discount?

I don't think there's any magic or anything I can really do other than share hard work, keeping the company growing in the right direction. We've got a valuation of ZAR 771 million. So we're trading at a deep debt discount to NAV. And we're hoping in time that, that will -- the discount will be alleviated.