Balwin Properties Limited (BWN) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, to a prerecorded presentation of our results for the 6 months ended 31st of August 2024. Before we start, please remember to send through your questions as we progress with the presentation as there will be a live question-and-answer session afterwards. With me is our CFO, Jonathan Bigham, who will run us through the numbers; and Raaziq Ismail, Head of Legal and Annuity, who will take us through the performance of the annuity businesses. Before we unpack our numbers, I think it's important to give some context to our operating environment for the first 6 months of the financial year. Sentiment is a key driver of the residential property market and we saw several positive catalysts materializing during the reporting period; high expectations of interest rate cuts, improved confidence following the formation of the government of National Unity, the continued availability of electricity and a series of fuel price cuts. Although these factors position us well for recovery in the second half of the financial year, it will take time to fully flow through to the bottom line as most households continue to battle with rising living cost and pedestrian economic growth. Having said that, we have seen an encouraging trend in buyers and investors, who were previously on the fence, move forward and commit to property transactions following the rate cuts as demonstrated by our healthy recovery in our forward sales. It is this context that we will discuss our results and, importantly, the way forward. The 6 months under review show an interesting reversal on the impact of semigration with Gauteng contributing the bulk of apartment sales. This province has traditionally been the mainstay of the business and it is encouraging to see a recovery. Demand in the Western Cape remains exceptionally strong with land contracted for 2 new developments during the period as replacement projects for Fynbos and De Aan-Zicht were totally sold out. Jonathan will elaborate more on this in his section. Our development pipeline remains significant at just over 42,000 apartments and I'm excited to share that we have registered more than 26,000 apartments as IFC EDGE Advanced certified. This is a significant milestone in my drive to make Balwin the best green developer in the world. It is an incredible vision of mine and I'm very blessed that our entire company and all our professionals follow suit. We really have made a huge effort for this and it benefits our clients. It makes the apartments more livable, keeps all our architects on their toes, cost the clients less on utilities and then on top of it, we have really done major, major work with all the financial institutions to lower the mortgage rate; we get a concession because of all our greening and that is a direct benefit to all our clients. And all our debt providers are really putting ESG hurdles in all our finance and we exceed those hurdles. As they say, we clear those hurdles very, very easily and as part of our whole green initiative. Also, as I've said before in a lot of my public speaking, we only have 1 world. Let's protect it, let's do some good and let's tread lightly. As developers, we know we do make a mess, we do create dust; but let's try and leave the place better than when we started. Water infrastructure is critical. As you know, South Africa is a very dry country. We need to conserve our water. We have done massive initiatives with rain water harvesting on all our projects and we will continue to do this. Also all our landscaping, we're trying very hard to remove most of our irrigation; in other words, to make the landscaping indigenous and more hardy so we use less and less water. It's a continued drive of ours and we must all make an effort. Water is going to be the next big problem in the entire world and more specifically in South Africa. And also remembering that there's a lot of people that don't have water in this country. So be blessed with what we've got and use it sparingly. To date I'm very proud of this fact, we've achieved 53 international awards at the prestigious Africa and Arabia Property Awards. That is a massive milestone for Balwin. We mustn't get arrogant or too big for our boots because we've won so many awards. I go every year -- well, I go only if invited, and it is very humbling for me to sit there against all our competitors. There's 102 judges that judge. They actually put them all up on the big screen this time and it was quite astounding to see 102 little blocks on the big screen, to see the magnitude of the judges. We'll continue doing this. It's good for our staff, it's good for our company, it's good to be measured, it's good for networking and we are very, very proud of this. We won some fantastic awards. I call it our presidential project, Mooikloof Eco Estate in Mooikloof. We won huge awards for that, which is a real, real accolade. Izinga in Umhlanga, as you know, Durban has had a very tough time for the last couple of years and we won a beautiful award for Izinga and we're also trying to help. We're trying very hard to help with the sewage and the water in Durban. It's a fantastic event. We now have got 3 nominations for the best in Africa. So we're back in London in February and it really is a fantastic accolade. This year at the awards I'm actually going to wear the bowtie made out of a piece of the South African flag because a lot of people commented on how well we are representing South Africa, which is a hell of an honor. We're still a small business, we're trying hard and it's great and be seen as honoring South Africa and I want to make a statement with that. The awards are not created by me. I have a fantastic team. I've said this time and time again, I know he gets embarrassed. I've got the best Managing Director of the business, Rodney Gray, my partner of 28 years and a very, very good team. He drives the team. I sat in a meeting yesterday, he's exceptional. He's really, really trying hard, listening to his team, very innovative, great ideas. And through these tough times, can't ask for a better team. As guided previously, our total number of apartments recognized in revenue contracted to 640 compared to 834 apartments a year ago. This impacted on revenue that declined 28% to ZAR 852.7 million for the 6 months to August. As mentioned earlier, we are seeing signs of recovery predominantly driven by the September interest rate cuts and improved consumer sentiment. 743 apartments have been presold and obviously not recognized in revenue compared to 688 in the previous year. So that is a nice improvement. As a management team, we continue to focus on delivering on the approximate 20 developments under construction and a lot more in planning. We see strong demand for 1- and 2-bedroom apartments. But please remember as the interest rates swing, then the demand will go back to more 3 bedrooms. So we've got to make sure that we have a very defensive model, which we have. Our contractors have been through a very hard time and our suppliers because obviously we've slowed down. We haven't stopped, but we did slow down. We spent a lot of time talking to them, making sure they get through this, showing them the glass half full or the green shoots coming through, giving them hope for next year. It's very important for me. This is because we have long-standing relationships with a lot of our suppliers and myself and Rodney Gray are spending an enormous amount of time getting back into the trenches and meeting with suppliers. And I'm adamant that in the next year or 2, we're going to be establishing 4 training centers to help train our artisans and new artisans for the construction industry. Our block configuration is very adaptable. But you must remember, we cannot just chop and change every 5 minutes because it creates chaos. So we try and create a defensible model where the fundamentals are 3 bedrooms on the ground floor and 1 and 2 bedrooms above it. We have a major focus on cost containment. We have had some phenomenal improvements. We have done a lot of innovation. It's not just a case of going to our suppliers and asking them to cut their margin. It's a case of big, big innovation and it is making a huge difference and simplifying a lot of things. Our cost engineering, I'm proud of this fact, I think it's one of the best in the business. We really make sure that we have got our cost engineering of a highest standard, but making sure always that the customer comes first. We had a fantastic meeting the other day where one of our QS came out with a way of making a 1-bedroom slightly bigger and instead of just lumping it on to the consumer and charging more, we're going to give them those 3 or 4 square meters. And I think that makes a huge difference in any market to make sure we understand our customers' needs and make sure we're doing the quality that our customers demand. We've also continued with marketing activities and sales incentives to stimulate demand for apartments and other services offered by the group. The continued reduction in overheads and costs, Jon will talk more about this regard, but they have made a huge difference to our bottom line and this will only really come through into next year's figures. One of my mentors was adamant about creating our annuity business and we're very, very proud of it. Raaziq Ismail heads up a big team and they've really done extremely well in this tough economic environment. So as the economy improves, this is one part of our business where we're going to predict quite large growth. The table on Slide 6 provides a breakdown of sales per region and by collection. In the Western Cape, our development at Fynbos sold out and was replaced by Suikerbos. But we also contracted land parcel De Buurt as a replacement project for the highly successful De Aan-Zicht. Both these developments form part of the classic collection. This performance was well supported by ongoing pleasing sales of the Huntsman and Munyaka at Waterfall Midrand, which remains the top contributor in Gauteng. In KwaZulu-Natal, delays in town planning at Izinga significantly restricted the delivery of apartments during the period. We have tried extremely hard with the council officials there and it looks like we are going to make a breakthrough. Although KwaZulu-Natal maintained its contribution to apartments handed over at 17%, these delays impacted revenue by 34%, which is very significant. This then brings us to our development pipeline. Currently, we have a high concentration in Tshwane with most opportunities represented by Mooikloof Smart City that will be developed in phases as well as in KwaZulu-Natal although the pipeline should be seen in the context of the number of developments under construction compared to the balance of the portfolio. The KZN pipeline includes the fantastic development, Shongweni Eco Estate in the iconic West Town development close to Hillcrest in the outer West Durban. Shongweni will comprise 1,260 apartments in 25 phases over the next 5 years collection and will be complementary to our Umhlanga Ballito estates. Construction will start in the new year and we will launch and we are anticipating an extremely strong sales in this area. The Western Cape currently represents our largest sales opportunity, but with the shortest development horizon of 5 years. Considering it could take up to 7 years to rezone land from agriculture to residential Western Cape, we will strategically expand our land bank in this province. In Gauteng, our focus will predominantly be on building out the current pipeline in Pretoria East. Smaller land opportunities with service and zone land in high growth nodes will be considered on a case-by-case basis. I will now hand over to Jonathan Bigham to run us through the financial overview.

Good morning, everyone, and thank you very much, Steve. From an overview perspective and introducing the financial performance of Balwin Properties for the 6 months ended 31 August 2024. Revenue decreased by 28% to ZAR 853 million with 640 apartments being recognized in revenue. At a group level, the gross profit margin remained stable from the prior interim period at 32% buoyed by the performance of the annuity stable as I'll unpack a bit later in the presentation. Management continued the discipline of cost containment as evidenced by the 7% reduction in operating costs. The group reported profit for the period of ZAR 76.9 million, a reduction of 57% from the prior interim period with the same percentage reduction flowing through to headline earnings and basic earnings per share, respectively, with earnings per share of ZAR 0.1634 and headline earnings per share of ZAR 0.1626 recorded. Looking at liquidity and gearing. The group closed with cash on hand of ZAR 243 million and a slightly improved LTV ratio at 40.2%, both measures within the required thresholds of the Board and the lenders. Net asset value per share increased 3% from the prior period with the current net asset value per share calculated at ZAR 8.58 when measured on the accounting shares in issue. Owing to the BEE transaction, the accounting measure and the total shares in issue differ. I'll unpack that in the upcoming slides. Looking at the statement of profit and loss and other comprehensive income of the group. Balwin recorded revenue of ZAR 852.7 million, as noted, a 28% reduction from the prior interim period. The gross profit margin remained materially consistent from the prior interim period at 32% with a gross profit of ZAR 271 million. Operating costs reduced by a further 7% to ZAR 155 million. This is the third consecutive reporting period where the group has recorded a reduction in its overhead costs. Net finance costs increased to ZAR 12.6 million resulting in a profit before tax of ZAR 104 million. The group's effective tax rate was 26%, slightly below the statutory tax rate owing to permanent deductions from within the annuity group. This resulted in a profit after tax of ZAR 77 million being a 57% decrease from the prior year with this movement flowing through to earnings per share and headline earnings per share, respectively. Revenue earned by the group was generated from the following sources: namely revenue from the sale of apartments, the major contributor at ZAR 741 million; revenue from the sale of a parcel of land of ZAR 46 million; and revenue from the annuity businesses of ZAR 66 million. The driver of the reduction in revenue resulted from the decline in apartments handed over with 640 apartments being recognized in revenue, 23% down from the 834 apartments handed over in the prior interim period. The group further experienced sales price pressure owing to economic headwinds and the necessary continued use of sales incentives to support demand, most notably noted within the cutting note. Contributing to revenue in the period was the sale of a small parcel of land at Mooikloof Smart City to a retail property specialist for the construction of an approximate 15,000 square meter convenience retail center. We believe the shopping center will uplift the value and the attraction of the neighboring residential development and forms part of the strategic intent to identify further land parcels for sale to similar complementary offerings, including schools, fuel stations and commercial offerings and assist in driving sales demand. As a reminder, in the interim prior period, revenue was recognized from the sale of the development rights for the construction of a hotel at Munyaka in Waterfall. Owing to nonperformance by the buyer, the sale was canceled by the group and subsequently not recorded in the results. The popularity of the 1- and 2-bedroom apartments remained steady and comprised the bulk of apartments recognized in revenue at 73%, materially consistent with the prior period. Looking at the detail of the revenue contribution on a regional basis, Gauteng returned as the largest contributor to revenue at 49%, just surpassing the Western Cape at 46% with the balance of 5% flowing from Kwazulu-Natal. Gauteng recorded 9% growth in revenue from the prior reporting period aided by the introduction of Greenkloof, the second green collection development in Tshwane and the fourth within the Gauteng node as well as the reintroduction of The Whisken following protracted town planning delays, which have been resolved. While the contribution of revenue from the Western Cape grew to 46%, the absolute rand value revenue decreased 24% to ZAR 339 million. This movement is certainly not a reflection of the sustained strong demand in the node, but rather owing to temporary delays, which have subsequently been overcome. Most notably, this negatively impacted De Aan-Zicht in Milnerton where the handover of apartments was restricted to a single fully sold-out phase of 56 apartments. Following the resolution of town planning delays at this project, we have planned 168 apartments for handover in the second half of the year at this development alone. The performance of the KwaZulu-Natal region was disappointing with only 19 apartments recognized in revenue to contribute 5% of the revenue from the sale of apartments. Again delays in municipality approvals continue to impact construction at Izinga Eco Estate in Umhlanga. With respect to the revenue contribution by collection, the Classic Collection maintained its dominant contribution to revenue recorded at 70%. The Green Collection increased its contribution to 18% of revenue on the back of the introduction of handovers at Greenkloof in Tshwane East as noted earlier in the presentation with a drop-off in the revenue derived from the Signature Collection, which reduced to 12% owing largely to the delays at Izinga Eco Estate as just discussed. With respect to the selling price analysis, as customary, I'll provide information on the Classic and Green Collection developments only. Owing to the differing nature of the respective developments in the Signature Collection, selling prices for this brand are reviewed at development level only and not reported on here. When presenting the sales price information, we performed the analysis both at a collection level and further broken down per apartment, namely 1, 2 or 3-bedroom apartments as the average selling price at a collection level is significantly influenced by the sales mix of apartments. Focusing on the sales price performance of the Classic Collection. The 1-bedroom apartments, which make up 43% of all apartment sales in this collection, recorded 1% sales price growth. These apartments continue to receive strong sales demand from homeowners and investors alike owing to their relative affordability, which is further enhanced by the first-time homeowner sales incentives as well as the CEO loyalty program to attract investors. These incentives naturally, however, limited the price growth recorded. A 5% decline was experienced in selling prices across both the 2- and 3-bedroom apartments. Across all apartments, a regional trend was noted whereby the Western Cape recorded moderate sales price growth while pricing at Gauteng and KZN was pressurized. The Green Collection apartments achieved moderate decreases in selling prices over the period impacted by the severe pricing pressure felt in recent times by this lower LSM consumer. The sales mix in the Green Collection has remained consistent and largely reflective of the block configuration with 45% of sales coming from 1-bedroom apartments and the 2- and 3-bed apartments contributing 41% and 14%, respectively. The annuity business portfolio continued to experience robust growth and increased its revenue by 17% to ZAR 66 million, contributing just short of 8% to the total group revenue. Revenue from the fiber and infrastructure services accounts for a bit more than half of the total annuity revenue. Other strong contributions to the revenue derived from annuity businesses pertaining to commercial and residential rental assets, mortgage bond origination and Green Living in the form of renewable energy. Raaziq will provide a bit more color on the performance of the annuity group later in the presentation. The gross profit margin of the group showed a marginal reduction to 32% from the 33% reported in the prior interim period. Pleasingly, this represents growth from the gross profit reported for the financial year-ended February 2024 of 28%. The gross profit margin was buoyed by the increased contributory performance of the annuity businesses as just discussed. Due to the nature of these businesses, minimal cost of sales is recognized as the cost structures are administrative in nature and thus recorded as operating expenses thereby providing gross margin support to the group. The gross profit margin from the sale of apartments experienced pressure in the period owing to the challenging trading environment and reduced to 23%. While this margin showed a decline from the 28% GP recorded in the prior interim period, it remained materially flat when compared to the margin recorded for the 2024 financial year of 24%. The Gauteng region was most impacted by pricing pressures and was the major contributor to margin contraction. The gross profit reported by the coastal nodes was largely in line with expectations with the Western Cape in particular recording healthy margin performance. The group's investment in sales incentives for both homebuyers and investors supported demand and included a CEO loyalty program, a referral fee campaign as well as a sales incentive for first-time homeowners. While successful in driving the volume of sales, these incentives contributed to the dilution in the gross margin. As the market eases through anticipated interest rate cuts, the group will remain focused on the key medium-term strategic drive of returning the gross margin on the sale of apartments back to 30%. Consolidated operating expenses amounted to ZAR 155.1 million being a 7% reduction from the prior period. As traditionally done, operating costs are disaggregated for reporting purposes between the company as well as the annuity businesses with a further disaggregation at a company level between fixed, variable and performance-linked costs as well as depreciation charges. Balwin Properties being the core residential development company decreased operating expenses by 7% as the business continued its focus on cost containment. The operating cost reduction was strongly supported by a 33% reduction in variable costs owing to the reduction in top line activity and further aided by various pullbacks in marketing spend. This is the third straight reporting period whereby the company has reduced its operating costs from the previous reported comparatives with a cumulative 27% reduction in operating costs from the interim results of August 2022 when measured at a company level. The annuity businesses also contained their operating costs, which reduced 8% to ZAR 39 million despite the 17% growth in revenue derived in the period. Group profit decreased by 57% to ZAR 77 million with the same percentage reduction flowing through to the earnings per share and headline earnings per share, which reduced to ZAR 0.1634 and ZAR 0.1626, respectively. Following due consideration, the Board has resolved not to declare a dividend for the period. This position will be reconsidered when reviewing the results at year-end. Looking at the statement of financial position and from an overview perspective, there was no material movement in noncurrent assets with respect to the invested value or the composition thereof with total noncurrent assets of ZAR 642 million. Current assets of ZAR 7 billion comprised mostly the developments under construction of ZAR 6.5 billion, cash and cash equivalents of ZAR 243 million and trade receivables of ZAR 236 million. Equity reflected ZAR 4.1 billion working out to an accounting net asset value per share of ZAR 8.75 when measured at cost. It is noted, however, that the accounting shares and issue differs from the total shares in issue per the JSE mostly due to the technical accounting of the BEE transaction. When calculated based on the total shares in issue as per the JSE, the NAV per share is calculated at ZAR 7.88. Total liabilities amounted to ZAR 3.6 billion with the major contributor being the development loans and facilities, which aggregate to ZAR 3.1 billion when combining both the current and noncurrent portions. As noted, there was minimal movement in the value or makeup of the noncurrent assets with further investment in the solar and fiber infrastructure at an annuity level materially offset by the depreciation for the period. There was also no changes to the investment property with formal valuations to be performed at year-end. Developments under construction include the cost of land, infrastructure cost, development rights as well as construction costs of the top structure and increased by approximately ZAR 200 million to ZAR 6.5 billion at period end. The breakdown of developments under construction is as follows: 56% of the balance comprises construction costs increasing from 53% at prior period end, 7% reflects the development rights with the remaining 37% representing land and external infrastructure costs, a decrease from 39%. This allocation clearly demonstrates the group's focus on top structure development as opposed to incurring costs in land and infrastructure as Balwin continues to prioritize the execution of its existing pipeline of projects. The top structure costs incurred were necessitated in preparation of sites for busier handovers in the second half of the financial year. Owing to the operating environment, apartment handovers were muted in the first half of the year with a strong increase in handovers planned for the remainder of the financial year supported by both existing presales as well as forward sales forecasts. No land was registered to the group during the interim period. However, the group has contracted 2 parcels of land in the strong performing node of the Western Cape to replace projects either completed or nearing completion within this node. Neither of these land parcels is registered as yet, but both are expected to register in the second half of the financial year. In summary, the land parcels contracted are for Suikerbos located in Milnerton, a replacement project for the fully sold-out Fynbos development. At completion, this project will entail 1,046 apartments with the first handovers planned for the next financial year. The second land contracted is for the De Buurt project, the identified replacement for the highly successful De Aan-Zicht development, where just over 1,000 apartments are expected for delivery to the market. Trade receivables mostly consist of apartments handed over at period end, but not yet registered and is materially in line with the prior period at ZAR 236 million. Cash on hand at period-end closed with ZAR 242 million, exceeding the funding covenants of the lenders and the minimum cash threshold as set by the Board. The Treasury Committee has continued its active oversight of matters, including cash management, debt overview, forecasting and covenant compliance during the period. The group 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. Development loans and facilities were materially in line at ZAR 3.1 billion with a loan-to-value ratio marginally reducing to 40.2%. With respect to the LTV measure, it's noted that the only asset class that is fair valued pertains to investment property portfolio, which consists of 3% of the total asset base of the entire group. Accordingly, 97% of the group's assets, including the material developments under construction, are measured at cost with no fair value adjustments, in line with IFRS best practice guidelines. The group complied with all lender covenants at financial year-end. Debt reduction is a key medium-term objective of the Board as part of its focus on appropriate cash management and capital structure optimization. The breakdown of development loans and facilities is shown on the following slide and split between the nature of the funding. The group reported positive cash flows from operations of ZAR 133 million in the period, a significant improvement from the negative ZAR 311 million utilized in the prior comparative period. After settling tax and finance cost obligations, the group utilized ZAR 21 million in cash from operations, again a strong improvement from the ZAR 428 million reported from the prior period. Management are focused to return the net cash from operations to a positive return at financial year-end. There was no material cash lockup in investing activities for the period with the financing activities also remaining materially stagnant despite the increased investment in working capital as discussed earlier in the presentation. In closing, I'd like to express a huge token of appreciation to the Board and the Balwin executive team as well as to the finance department for their commitment to timely, accurate and quality reporting. I'd like to now hand over to Raaziq, who will take you through the annuity presentation. Thank you very much.

Thank you, Jonathan. I will be providing an overview of our annuity business performance over the first 6 months of the financial year and highlight the key accomplishments, challenges and future prospects. We continue to remain resilient and adapt to consumer needs as we trade through a tough economic environment, which has reduced consumer spending and investment into property. Despite tough trading conditions, the Balwin Annuity Group performed relatively well in the first 6 months of the year achieving an operating profit of ZAR 26.9 million compared to the prior year of ZAR 24.3 million and a net profit after tax of ZAR 3.7 million compared to the prior year of ZAR 2.7 million. Our overall return on capital employed in Balwin Annuity is 15.2%. The overall EBITDA margin for the interim period is 46.4% compared to the prior year of 36.2% while the NPAT margin is 5% compared to prior year at 4%, which positively impacts the overall margin of the Balwin Group. Balwin Fibre, Balwin Head Office, Balwin Mortgages, Balwin Rentals and Balwin Green Living were the largest contributors to the ZAR 26.9 million operating profit while Balwin Approved, Balwin Financial Services, Balwin Lifestyle, Balwin Maintenance and Balwin Signage & Towers as well as Balwin Technik were responsible for the residual of the income statement. We introduced Balwin Maintenance, Balwin Padel and Balwin Approved into the annuity stable this year. Balwin Maintenance aims to protect our clients' investments and simultaneously protects Balwin's brand. This entity will assist all of our body corporates to achieve their maintenance goals and abide by the 10-year maintenance plan obligations. Balwin Approved assists our clients to trade in their existing Balwin apartment to acquire a new Balwin apartment and we have seen great response to this innovative concept. Balwin Padel continues to support the strengthening of Balwin's brand and growing our Balwin Sport footprint. We also launched a Balwin Padel e-commerce online shopping platform in April 2024, which has seen in excess of 200 sales to the value of ZAR 728,000. Balwin Fibre has increased its homes passed from 12,121 to 13,304 with active clients increasing from 8,614 to 9,599. The average rate per unit collected from Internet service providers increased from ZAR 511 to ZAR 535 per apartment per month since August 2023. The fiber business achieved an operating profit of ZAR 10.6 million, up by 13.9% when compared with the prior period and a net profit of ZAR 5.1 million, up by 20.8% year-on-year, which indicates the growth potential of this business. We have finalized the installation of redundant fiber infrastructure cables in 19 estates, which means that our clients have no downtime when there are unforeseen outages to Internet services. We continue to investigate alternative marketing strategies to further enhance the value of our offering to help support the increased uptake of Balwin Fibre. Balwin Connect, which is our own Internet service provider, operates on a closed access network basis in our new developments and on an open access network basis in our existing developments. We currently have 931 connected clients with 1,002 active services and we continue to remain competitive in order to try and attract new clients. All our new apartments come with a built-in router, allowing our clients to immediately gain access to fiber services at the click of a button. This has greatly assisted uptake due to the smooth and efficient onboarding process. This business continues to complement our fiber business. Balwin Mortgages has performed well with 699 mortgages secured between March and August 2024 at an aggregate value of ZAR 801 million. Total external mortgages were 42 at a value of ZAR 60 million. Over the past year, we have strengthened our competitive edge by leveraging our strong relationships with the banks to offer clients a 50% discount on transfer and bond costs. Our greatest challenge has been effectively informing customers that Balwin Mortgages provides mortgage origination services to anyone purchasing a home and not only for Balwin apartments. To address this, we enhanced our digital marketing and social media efforts resulting in 42 deals in the past 6 months compared to 25 in the previous period representing a 68% increase in transactions. The business achieved an operating profit of ZAR 2.1 million and a net profit after tax of ZAR 1.5 million for the 6-month period. While the numbers may be marginally down year-on-year, it is indicative of the current economic climate. The EBITDA margin for the 6 months ended under review is 42.8% while the NPAT margin is 29.8%, 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 individual interest rates ranging between 0.25% to 0.75%. In essence, this equates to a saving for our clients of approximately ZAR 45.6 million over a 20-year mortgage period based on the mortgages approved for the 6-month period. Our energy business continues to leverage off existing solar assets installed to meet sales requirements and is generating 4.8 megawatt of clean, sustainable and cheaper electricity for our clients. We are able to provide our clients with a 10% discount on the electricity bill. Solar installations are becoming increasingly popular worldwide and Balwin has been at the forefront of ensuring green development. We are constantly looking for ways to enhance the business through partnerships such as Discovery Green. This business achieved an operating profit of ZAR 4.4 million with an EBITDA margin of 67%. The rise in interest rates have been challenging as the business is heavily geared. However, this business will gain great traction in 3 to 5 years with a substantial upswing from year 10. Balwin Energy currently operates 11 development sites and has reduced emissions in the Balwin Group by 1,400 tonnes of carbon dioxide equivalent within the first 6 months of the year. We are very optimistic about the prospects of the energy business and firmly believe that it has the potential to yield excellent results in the long term. Our existing rental portfolio consisting of 215 apartments achieved an operating profit of ZAR 5.9 million and a net profit after tax of ZAR 313,000 for the 6-month period. The EBITDA margin for the period is 67.1% while the NPAT margin may seem negligible, this business was heavily impacted by the rising interest rates. Despite the interest rate hikes, we have managed to meet our financial obligations. We are actively working on reducing our debt levels and lowering our gearing in the rentals business. The rental portfolio achieved an operational yield on cost of 8.5% and an average occupancy rate of 97% throughout the period with a period low of 94% and a high of 100%, which is a massive achievement in the current economic climate. We will be launching our next rental development called East Lake in Modderfontein consisting of 154 apartments in December this year and we look forward to the continuous growth of the rental portfolio. The other businesses were in aggregate loss making to the extent of ZAR 4.7 million mainly due to the infancy and high interest rates. Balwin Lifestyle manages the Blyde Lifestyle Center in Lagoon, Blyde Hotel, Munyaka Lagoon and Thaba Lifestyle Center and Support Center and the main aim is to protect our clients' investments as well as our own investment by maintaining the assets in perpetuity. The Balwin head office is fully tenanted and we continue to closely manage the cost of funding and all associated operational costs. We have gained momentum on our advertising opportunities earning approximately ZAR 350,000 per month on advertising revenue as of September this year. I now hand you back to Steve, who will discuss Balwin's sustainability initiatives and open the floor for questions. Thank you.

Thank you, Raaziq. As I mentioned earlier, our continued commitment to reducing our environmental impact is not only a responsible thing to do, but it has an incredible effect on our finances. We are the first African company to have both a science-based target and net zero commitment approved by the international Science-Based Target initiative. These initiatives alongside our consistent quality and innovation will continue to differentiate us from our competitors in a tough market and should support our negotiations for more favorable funding. We were the first in the country to leverage our ability to build more sustainability with our green bonds. This qualifies homeowners for an additional 0.25% to 0.75% reduction over and above their normal bond rate over a 20-year period. If you really just take a moment to pause there, if you do take out your calculator or your cell phone; that is a massive, massive saving to our clients and I'm still pushing hard to get the financial institutions to agree to a 1% reduction on your best rate you get because I believe the youngsters of today especially in this country need all the help they can get. During the year, we registered 903 green bonds for clients providing a saving of almost ZAR 45 million to those clients over a 20-year bond. There's the numbers. That makes a massive difference. During the year under review, we launched our 10th 6-star graded lifestyle center. It always amuses me with our competitors. They get a 4-star grading and they're front page of the business day. We now have 10 and I think the other day we got our 11th one, a 6-star grading, which is the highest grading you could get; and thank you to all our professionals and all our staff that are committed to achieving this. The net zero carbon footprint of these centers as well as our corporate head office significantly saves on utility costs, but serve as an important educational tool for homeowners, staff and tenants on the transition to a greener world. We have numerous universities, technicon students coming around our building. I'm always having to be the one that has to be pulled out of the cupboard so they could all take selfies with me or photographs. It really is a hell of an honor to show these youngsters what difference we are making to the world. It's also worth noting that to-date we have 26,000 apartments certified as EDGE Advanced compliant. The Excellence in Design for Greater Efficiency initiative by the IFC requires a 20% saving in water and embodied energy during the construction phase compared to conventional methods. So far, we have certified almost 17,000 apartments as EDGE Advanced and this takes it to the next step with a 40% saving in energy and a 20% saving in water usage. All apartments currently nationwide are built according to the EDGE Advanced standards. Water remains a large focus. It's been very topical at the moment in addition to carbon emissions. We have in the interim period commissioned 4 wastewater treatment plants in operation. This basically takes the sewage water from the development and transforms it into nonpotable applications, further reducing the demand for potable water in developments. In the reporting period, over 170 megaliters of treated water was produced. Guys, that's a lot of water. Looking back on the past 6 months, it's been exceptionally tough. But as the saying goes, tough times don't last, tough people do and we shouldn't discount our resilience. Even after 28 years in business, economic cycles like these teaches you to be humble and to be innovative and to rely on some very, very good people that we do surround ourselves with. Our ethos has always been to put our clients first with family-orientated lifestyle developments. And we'll continue to make it easier, especially for first-time homeowners buying a own apartment especially in these tough times. The reduction in CPI, what does it mean to the property sector? Please remember I'm a property developer. I'm not an economist. So in case some of the lingo slightly wrong, please forgive me. Inflation fell for the fourth time easing it to below the target of 4% and we are hoping for a reduction in interest rates. The economists are all running around, it looks like almost a definite 0.25% and an outside chance of 0.5%. We're obviously hoping for 0.5% and this should make a massive difference to the housing market. A reduction in interest rates will definitely stimulate market demand and we are hoping, as I've said before, optimistically for 0.5%. However, we have to remain cautious and keep an eye on things because next year we believe is going to be in a declining interest rate, but we want to see it actually happening before we jump the gun. Our focus, therefore, remains on the factors within our control, which include growth opportunities in strategic areas by leveraging the existing land bank and pipeline development opportunities and importantly, ongoing cost reductions. Where there are opportunities for growth in strategic areas such as the Western Cape, we will be cautious to not impact liquidity and add debt pressure to our balance sheet. Although margin pressure is expected to relax towards the latter part of the financial year, we'll continue to manage costs prudently by leveraging our brand especially through Balwin Sport and Balwin Annuities and our environmentally responsible developments. In conclusion, ladies and gentlemen, our business has been tempered by the interest rate cycle and we've done a lot of work to rightsize the group and make it more efficient. These interventions position us well as the macro environment improves. This will then bring our presentation to conclusion and thank you for dialing in. I'll now open the floor for questions.

Your first question is from Peter Lord from Lord Trust. Why are directors' salaries omitted from the results? Why are you paying Jiva plus 6.9% for the German loan when all the other loans are 3.5% cheaper?

Thanks for some astute questions, Peter. So the directors' salaries -- Jon, sorry, I need a bit of help there.

So Mr. Lord, that's not a reporting requirement for the interims. At year-end like we always do with the annual financial statements as well as in the integrated annual report in the remuneration section, there will be full disclosure of all the granular detail of directors' remuneration. But simply put, it's not a reporting requirement for interims other than the related party note where you'll see the total earnings at an aggregate level for the directors.

But did I get an increase?

It's disclosed in the remuneration report.

So the second one, the German loan was a mistake. I tried very hard with the Germans. Fortunately, I have a German culture and a German heritage and we started off absolutely fantastically with the Germans. I met the entire Board from Cologne. They made promises that were fantastic, they never delivered on them and when it came down to the final arm wrestling on the interest rates, we had a war with them. So we unfortunately decided to continue with it again because they promised that the next that they would make it up to us, this that. And then we quickly realized that, unfortunately, the cultures were not gelling, it wasn't worth our while and we exited it. And yes, Peter, you are right, I shouldn't have done it and it did cost us money. So it was an error, but we did exit it.

I think that's important from that side, Steve. And just to Mr. Lord just to close out. From a timing perspective, that loan was disclosed in last year's August 2023 results. Shortly after that in the second half of last financial year, as Steve said, we exited that position. We refinanced that and we refinanced it on terms which were a little bit more than 350 basis points cheaper than what the existing loan is. So that loan is, if anything, slightly cheaper than what the comparative funding is for a similar land and infrastructure-based facility.

Second question is for Steve from Peter Lord. Has the BEE shareholder contributed anything to Balwin?

Peter or as Jon says Mr. Lord, this country is a very diverse country. We have a lot of different cultures. I have worked extremely hard at a whole lot of different things; some have done well, some haven't done well. I don't agree with the concept of BEE. I agree with if a man is right for the job. And we should also take cognizance of the fact that we have had this legacy of apartheid. So if you walk around our offices and see, which I'm very, very proud of, the amount of staff we've got in our offices; we've got 2 ladies that started with me cleaning toilets who are now admin clerks who have done extremely well for themselves and there's been a great disappointment my BEE partner. He's a great guy. He has contributed absolutely nothing to the business. It's been really disappointing because I targeted him. He was a Nelson Mandela student, a cum laude all the way. And if I look at some of our other people that we've targeted of the highest caliber, they've contributed phenomenal amount to this business. One of them is sitting right here in Raaziq, but he's not our BEE partner. So it has been a great disappointment for me. And that's why we have done the very I think fair and structured exit partner with him where he will only end up, Jon, if I'm correct with the wording, with his initial investment of ZAR 20 million in shares in Balwin and all the other parts of the deal is canceled and the shareholders will get back their shares, of which I'm one of them. And we've done it amicably with Reggie because that's also quite important. So I think we've treated him fairly, but it has been a bit of a disappointment, I'll be honest with you.

We have a question for Jonathan from Talya Ginsberg from Umthombo Wealth. In terms of your leasing ambitions, would you have a rental offering not drag out your cash conversion cycle too much?

Thanks so much, Ty, for the question. Yes, I think that question certainly is very topical from management and the Board's perspective. We see a very, very bright future in terms of the rollout of the rental portfolio, but that rollout will be done very, very cautiously; front of mind being the capital structure implications of the group. So we won't do anything to roll it out in a manner that's irresponsible or overly aggressive from a capital structure perspective. The first development is going live at this point in time, but a very small development in total of 154 apartments. We'll cut our teeth on that and then look to execute on the remaining approximate 6,000 opportunities that present themselves. But as I say, we will be very mindful from a capital structure perspective.