Balwin Properties Limited (BWN) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to a prerecording of Balwin's interim results presentation for the 6 months ending 31st of August 2025. As always, I encourage you to please send through questions during the presentation, which will then unpack in more detail during our live question-and-answer session following the presentation. I'm Steve Brookes, Chief Executive Officer, and I'm joined today by our Chief Financial Officer, Jonathan Bigham; as well as Raaziq Ismail, our Head of Legal and Annuity. The presentation will follow our usual format. We'll begin with an operational overview, followed by a review of our financial performance, annuity businesses and sustainability progress before closing with our outlook for the remainder of the financial year. The 2025 financial year will go on record as our toughest trading period since the business was founded in 1996. The numbers and progress we'll unpack today should therefore be seen in context of the base set during that period and against a macroeconomic backdrop of easing pressures and selective optimism despite persistent structural challenges. GDP growth remains subdued, constrained by global risk, energy insecurity and weak business confidence. However, targeted urban nodes continue to attract investment and migration. National house price growth remained modest with F&B reporting a 2.2% year-on-year increase in April 2025. The Western Cape outperformed, driven by semigration, lifestyle migration and infrastructure investment. KwaZulu-Natal rebounded strongly, supported by coastal demand and improved infrastructure delivery. Gauteng remained stable with Pretoria East and Midrand showing resilience in the mid-market segment. Notwithstanding the more buoyant market, we maintained our focus on aligning development activity with sales trends. Overall, the business benefited from these key measures implemented to align with market improvement, accelerated construction to match sales velocity while preserving cash flow, sensible cost engineering to manage construction costs without compromising on quality, limited use of sales incentives, reflecting stronger market conditions, leverage sport as a cost-effective brand marketing tool, tightened overheads and reduced operating expenditure wherever practical. These initiatives resulted in significant operational and financial improvements. We handed over 928 apartments during the period, a 45% increase year-on-year, supported by strong demand and improved market conditions. As a result, revenue grew by 44% to ZAR 1.2 billion. Our development pipeline remains robust with over 35,000 apartments in progress and 1,028 apartments presold for future periods, a considerable improvement on the 743 apartments presold in the prior comparative period. Our focus on building high-quality EDGE Advanced green apartments with innovative lifestyle offerings continues to be recognized internationally with 60 international awards to date at the Africa and Europe Property Awards. I am also exceptionally proud of our initiatives building green EDGE Advanced apartments. Balwin is recognized as the world's largest developer of EDGE Advanced apartments with almost 28,000 apartments EDGE Advanced Certified. This provides a significant reduction in bond and utility costs for our homeowners over the duration of their bonds. This benefit is also transferable to new purchases of an apartment if it gets sold. 1- and 2-bedroom apartments made up 74% of sales, consistent with prior periods. The Western Cape regained its spot as the top revenue contributor by province. As Raaziq will unpack in more detail, revenue from annuity businesses continued to track against expectations and was up 55% to ZAR 101.5 million for the period. Our classic collection remains the cornerstone of our portfolio with strong contributions from the Western Cape. De Aan-Zicht, The Huntsman and De Kuile in the Western Cape, all classic collection apartments led the way in apartments recognized in revenue, followed by Green Bay in Gordon's Bay, which is part of the Green Collection. Gauteng developments such as Munyaka, Thaba Eco Village and Greenlee also performed well, while KwaZulu-Natal saw steady handovers at Ballito Hills and Izinga Eco Estates. From a pipeline perspective, Gauteng remains well positioned with a development pipeline of approximately 10 years. As mentioned in our previous results, we are proactively working on decreasing this land bank through strategic land sales to counterparties that will improve the overall attractiveness of the node, as well as through rental-only developments on smaller land parcels. Raaziq will elaborate more on the rental component in his presentation. The pipeline in KwaZulu-Natal also remains robust at 9 years, where we launched sales at Shongweni Eco Park on the outskirts of Hillcrest. The first apartment handovers are planned for late in the 2026 financial year. The Western Cape pipeline is relatively short with a 3-year horizon. Considering the time that it takes to get rezoning pass, we will look at expanding the pipeline here with strategic zoned and serviced land opportunities. The market in the Western Cape has remained buoyant for a considerable period, driven by semigration, infrastructure upgrades and no doubt, the lower interest rate cycle, but as a word of caution, though, I don't expect this trajectory to continue for the long term. Any land bank acquisitions will therefore be appropriately aligned to projected future demand. Jonathan will now take us through the financial performance for the period.

Thanks very much, Steve, and good morning, everyone. As Steve mentioned, our results for the 6 months ended August 2025 show the ongoing recovery of the residential property market. We've seen solid growth across most of our financial metrics, albeit from a relatively low base compared to the same period last year. In summary, robust revenue growth of 44% was achieved, recording ZAR 1.2 billion of revenue. This performance was driven by stronger apartment sales, pleasing sales price growth and continued momentum in our Balwin Annuity business. Gross profit margin showed a small decline to 29%, compared to 32% in the prior period. This was mainly due to a once-off land sale in the previous period, and I'll explain that a bit later on in the presentation. On the cost side, operating expenses remained well controlled. The increase we saw was largely linked to sales-related costs, which naturally tracked the 44% rise in revenue and higher operating costs within Balwin Annuities as these businesses continued their expansion. Importantly, fixed costs were well-maintained, allowing us to achieve positive operating leverage further down the income statement. Overall, the group reported a 33% increase in profit for the period, taking profit to ZAR 102.4 million. This translated into a 28% rise in earnings per share and a 29% rise in headline earnings per share, respectively, reaching ZAR 0.2091 per share. We ended the period with a healthy ZAR 303 million in cash resources, and our loan-to-value ratio improved slightly to 39.3%, down from 40.4% at financial year-end, both measures comfortably within the Board and the lenders' thresholds. Finally, net asset value per share increased by 8% year-on-year, now sitting at ZAR 9.46 on an accounting basis. As I've mentioned in previous presentations, there's a technical difference in how NAV is calculated under accounting standards versus when calculated on the total shares and issue per the JSE, mainly resulting from the BEE scheme. I'll explain that a little bit later in the presentation, too. Turning now to the interim group income statement. Balwin recorded revenue of ZAR 1.2 billion, representing a 44% increase from the prior interim period. Our gross profit margin eased slightly to 29%, down from 32% in the previous period with the non-recurring land sale referred to earlier being the large contributor to this regression. In total, gross profit came in just under ZAR 350 million. Operating costs remained tightly managed. The increase we saw was primarily due to the sales-linked expenditure and higher costs within Balwin Annuity, reflecting its expanding operational footprint. Through committed cost containment, we delivered a 35% increase in operating profit from the prior period, a pleasing outcome that underscores our disciplined cost management. The group recorded net finance costs of ZAR 15.7 million, mainly related to funding within Balwin Annuity. This translates to a profit before tax of ZAR 140 million and a post-tax profit of ZAR 102 million, representing a 33% increase period-on-period. On a per share basis, earnings per share and headline earnings per share rose by 28% and 29%, respectively, to ZAR 0.2091 per share. Overall, this performance reflects a robust operational recovery, admittedly off a low base, but is supported by disciplined execution across the business. Total group revenue of ZAR 1.2 billion was generated from the following sources: Apartment sales remained the major contributor at ZAR 1.1 billion, up 51% from the prior period. This increase was driven by 928 apartments recognized in revenue, representing 45% volume growth with the remaining increase flowing from healthy price increases across the portfolio. As Steve mentioned, 1- and 2-bedroom apartments continue to dominate, contributing 74% of total revenue. Balwin Annuity contributed ZAR 101.5 million, up 55% and growing its contribution to the group revenue to 8.3% from 7.7% in the prior period. The Balwin Foundation received ZAR 600,000 in external donations. No land sales were recorded in the current period. As a reminder, last year's interim results included a ZAR 46 million land sale in Swane East for a shopping center development. The group remains committed to its strategy of partnering with complementary businesses such as educational institutions, fuel stations, retail operators and retirement living providers to enhance our developments and improve residents' overall lived experience. Looking at regional performance, the Western Cape reclaimed its position as a top contributor to the group, accounting for 51% of revenue with an impressive 70% growth in the region. Gauteng followed with 40% of revenue, also showing a solid 22% improvement from the prior period. KwaZulu-Natal contributed the remaining 9%, delivering significant growth off a lower base. We've seen a healthy arm wrestle between the Western Cape and Gauteng in recent periods, and we remain optimistic about the prospects of both regions. As Steve highlighted, Gauteng's pipeline is strong, approximately 24,000 apartments under the build-for-sale model, largely located within Mooikloof Smart City, the government-approved strategic integrated project. The Western Cape's pipeline, currently around 4,400 apartments is under review to meet robust demand with management actively exploring new, zoned and serviced land opportunities to expand capacity in this popular node. Analyzing the business by brand, the Classic Collection strengthened its dominance, accounting for a staggering 81% of revenue and returning 74% growth in revenue recorded from the prior period, driven by the strong presence in the Western Cape. The Green Collection recorded modest growth of 5% from the prior period, reducing its contribution to 12%, while the Signature Collection maintained its role as the niche high-end segment at 7% of revenue, in line with group strategy. Turning to average selling prices and focusing on the Green and Classic collections. Within the Classic Collection, we recorded 5% to 6% price growth across all apartment types, led primarily by strength in the Western Cape. The Green Collection followed suit, achieving 3% growth in 1-bedroom apartments and 8% to 9% growth in the 2- and 3-bedroom units. This pricing performance reflects our ability to limit sales incentives, which we previously used to stimulate market demand. Improved market conditions allowed us to pull back on those incentives, supporting healthy and sustainable price growth across the portfolio. Balwin Annuity delivered another strong performance, growing revenue 55% to ZAR 101.5 million and increasing its contribution to total group revenue to 8.3%. Rental of electronic communication and Internet services remains the largest contributor, accounting for 43% of annuity revenue, which grew 24% period-on-period. Rental income increased 53% to represent 23% of annuity revenue, driven by the Eastlake in Johannesburg East, our first bespoke rental development. Additional annuity offerings, including maintenance, digital advertising, cellular towers and paddle facilities contributed ZAR 15.6 million combined. Solar energy and bond origination revenue grew by roughly 60% to ZAR 18.7 million, comprising roughly 18% of total annuity revenue. The group's gross margin decreased slightly to 29% from the 32% recorded in the prior interim period. As mentioned earlier, this is mainly due to the once-off land sale last year. Excluding that once-off transaction, margin performance was broadly consistent with the prior period. Gross profit from apartment sales remained stable at 23%, delivering ZAR 250 million in profit. The Western Cape continues to deliver strong margins, while Gauteng and KwaZulu-Natal face ongoing margin pressure. Our medium-term objective remains to return apartment margins to 30% with a macro recovery in the Gauteng node key to this vision. Balwin Annuity recorded a gross profit of ZAR 97 million. Given its administrative cost structure, most expenses are recorded below gross profit, providing margin support to the group. Consolidated operating expenditure increased 24% to ZAR 193 million, but the underlying analysis continues to highlight strong cost disciplines. Fixed costs at a company level declined 1%, thanks to continued focused expenditure oversight. Performance-linked incentives for all staff have been allowed for in recognition of the interim performance and relative to the preapproved company scorecard. Variable expenditure, largely sales related in nature, increased slightly below the 44% growth in revenue, a positive sign of leverage. Balwin Annuities operating costs rose ZAR 69 million, in line with expanded activity across the respective businesses. Group profit increased 33% to ZAR 102 million with earnings per share and headline earnings per share up 28% and 29%, respectively, to ZAR 0.2091 per share. After due consideration of the interim trading conditions, the Board has elected not to declare an interim dividend. Dividend considerations will be revisited at year-end in line with the full year performance. Looking at the balance sheet. Non-current assets totaled ZAR 847 million, primarily comprising property, plant and equipment and investment property. Current assets stand at ZAR 7.4 billion, including developments under construction of ZAR 6.9 billion, cash of ZAR 303 million and trade receivables of ZAR 213 million. Equity increased to ZAR 4.4 billion, translating to an NAV per share of ZAR 9.46 on an accounting basis. Adjusted for the total shares in issue per the JSE, this equates to ZAR 8.53, reflecting the technical accounting considerations for the BEE shares, which are treated as an in-substance option. Total liabilities are ZAR 3.9 billion with development loans and facilities comprising ZAR 3.2 billion of this balance across the current and non-current portions, respectively. Property, plant and equipment increased by ZAR 21 million to ZAR 443 million, with the increase driven by ongoing investment in solar assets and the fiber infrastructure within Balwin Annuity. Investment property stands at ZAR 375 million, with the increase reflecting the progress in development of the Eastlake as already communicated. There were no fair value adjustments recorded in the period with the valuation scheduled for year-end. Developments under construction, which include land, infrastructure costs, the development rights and construction costs rose ZAR 230 million to ZAR 6.9 billion. Of the developments under construction, 58% of this balance represents construction costs, 6% relates to development rights and the remaining 36% to land and external infrastructure costs. This mix is broadly consistent with the prior year. The group continues to carefully manage its development pipeline with no new land registered during the first 6 months of the year, in line with our strategy of focusing on our existing projects. As discussed earlier, owing to the sustained demand relative to the existing pipeline, the group remains alert to opportunities in the Western Cape. The increase in developments under construction mainly reflects site preparation costs for busier handovers in the second half of the year, supported by strong presales and forward sales projections. We have also commenced the next phase of infrastructure for Mooikloof Smart City, including approximately ZAR 70 million in investment towards roads, storm water, water capacity and electrical infrastructure. Engagement with government stakeholders continues with a view to solution their commitment to provide the necessary public infrastructure in this catalytic node. Cash on hand at period end was ZAR 303 million, exceeding the funding covenants and internal thresholds. The Treasury Committee continued its role in the period of its active oversight of cash management, debt monitoring, forecasting and covenant compliance. Looking ahead, the group will continue to manage the balance between the rate of construction and the rate of sale, a key driver of effective cash management. The upcoming cash flow statement that I'll talk to a little bit later will illustrate the movement in cash in greater detail. Development loans and facilities remained stable at ZAR 3.2 billion, with the loan-to-value ratio improving slightly to 39.3%, a 1% reduction from year-end. With respect to the loan-to-value measure, it's noted that the only asset class that is fair valued on the Balwin's balance sheet pertains to the investment property, which constitutes 5% of the total asset base of the group. Accordingly, 95% of the group's assets are measured at cost with no fair value adjustments. While total debt levels were steady, the debt profile improved with approximately ZAR 200 million of long-term land and infrastructure debt settled and replaced with short-term development funding aligned to the upcoming handovers. Importantly, despite significant infrastructure spend in the Swane East, we did not draw on the IFC facility. At period end, the group-maintained access to ZAR 322 million under this facility. The group met all lender covenants at period end. With respect to debt, the reduction of debt remains a key medium-term priority as part of our focus on cash discipline and capital optimization. The group generated just short of ZAR 130 million cash from operations, a pleasing turnaround from the previous financial period. The continued investment in developments under construction was offset by working capital management of debtors and creditors, respectively, and supported by the enhanced profitability of the group. The group invested ZAR 75 million in investing activities, most notably through the continued development of the Eastlake in Johannesburg East as well as the rollout of fiber infrastructure and solar assets as previously communicated. The group settled ZAR 5 million net in financing activities with this discipline anticipated to be increased on the back of forecasted improvement in sales volumes in the years to come. In closing, I'd like to express a huge token of appreciation to the Board and the Balwin executive team for their continued guidance and to the finance department for their pursuit of excellence in financial reporting. Thank you very much, and I'll hand over to Raaziq, who will take us through the annuity business performance.

Thank you, Jonathan. Balwin Annuity continues to deliver consistent growth and stable earnings, reinforcing the strength and resilience of Balwin's diversified income model. For the interim period ended 31, August 2025, annuity-based businesses collectively generated revenue of ZAR 105 million and operating profit of ZAR 34 million, underpinned by disciplined execution across all operating clusters. At ZAR 1 billion in assets under management, the annuity portfolio remains a significant pillar of the group's value creation strategy, providing predictable recurring income streams that complement the core development business. From a sustainability perspective, 1,762 tons of carbon dioxide emissions were prevented through Balwin Energy initiatives, while 10,888 clients are now active on the Balwin Fiber network. Additionally, ZAR 58.6 million in savings was realized by clients through Balwin mortgages, reflecting the group's commitment to affordability and financial empowerment. On to our financial overview. Group revenue increased by over 40% to ZAR 105 million, a substantial improvement from ZAR 74.9 million in the prior period, driven primarily by solid growth in the ICT and real estate clusters. Gross profit rose by 39% to ZAR 96.3 million from ZAR 69.4 million in 2024, reflecting enhanced scale and improved operational efficiencies, particularly within technology and infrastructure-based services. Operating expenses of ZAR 66.5 million reflect ongoing investment in the expansion of our annuities base. Despite this planned increase, strong top line growth and margin discipline resulted in a 23.8% uplift in operating profit to ZAR 34 million, compared to ZAR 27.6 million in the prior year. The Annuities Group achieved a net profit before tax of ZAR 11 million, nearly doubling from ZAR 5.4 million in the prior year. Following taxation of ZAR 2.7 million, net profit after tax increased to ZAR 8.3 million, compared to ZAR 5.4 million in the prior year, highlighting the continued strengthening of annuity income streams and the efficiency of the group's operating model. Let us now take a closer look at the annuity businesses. Balwin ICT, effective 1, March 2025, Balwin Fiber, Balwin Connect and Balwin Technik were consolidated into Balwin Information and Communication Technology, creating a unified entity with enhanced operational synergies and a broader technology offering. For the interim period ended 31, August 2025, this cluster delivered strong top-line and bottom-line results, reinforcing its strategic importance in supporting Balwin's integrated lifestyle communities and recurring income base. Revenue increased to ZAR 48.3 million, representing a 21% growth from the prior period. This was driven primarily by the continued expansion of the fiber network and increasing uptake among residents within Balwin's developments. Gross profit rose to ZAR 43.5 million, reflecting effective cost control and improved network efficiency. Operating expenses increased moderately to ZAR 30.8 million attributable to network expansion and the integration of Balwin Connect and Balwin Technik into a single operational structure. Despite these investments, operating profit grew to ZAR 14.1 million, a 52% increase year-on-year, underlining the scalability of the ICT business. After finance cost and taxation, net profit after tax improved to ZAR 6.5 million, reflecting enhanced margins and continued strong cash generation. Balwin ICT remains a critical enabler of the annuity Group's value proposition and a cornerstone of its annuity income portfolio. The business is well positioned to leverage technological innovation and scale efficiencies to enhance profitability and deliver continued value to both residents and shareholders. Moving on to Balwin Real Estate. Effective 1, March 2025, Balwin Lifestyle Operations and Balwin Maintenance were merged with Balwin Head Office to form Balwin Real Estate. This restructuring aligns the group's asset management, lifestyle and maintenance functions under one entity, streamlining operations and enhancing strategic oversight. Balwin Real Estate now serves as the hub for managing the annuity Group's real estate assets, lifestyle centers and related services. Gross profit for the period increased by 51% to ZAR 19.7 million, while other income grew to ZAR 2.7 million, supported by maintenance contracts and ancillary service revenue. Operating expenses increased to ZAR 10.1 million, driven primarily by higher utility and maintenance costs associated with expanded operations. Despite this, the division achieved a healthy operating profit of ZAR 12.3 million, compared to ZAR 8.6 million in the prior year, reflecting an improvement of 43% year-on-year. After reduced finance costs of ZAR 9.7 million, net profit before tax increased to ZAR 2.6 million, a notable turnaround from a loss of ZAR 2.4 million in the prior period. Following taxation, the division reported a net profit after tax of ZAR 2.3 million, compared to a loss of ZAR 2.5 million last year, marking a significant return to profitability. With planned expansion across key lifestyle nodes and continued operational optimization, this cluster is well positioned for sustained growth in the coming financial periods. Moving to Balwin Rentals. Balwin Rentals plays an increasingly important role in the group's annuity income model, providing a stable, predictable revenue stream that complements development-driven earnings. The division's focus on rental asset rollout positions it well for long-term growth as the demand for flexible living solutions continues to rise across South Africa's urban centers. The Balwin Rentals division continued to deliver resilient performance for the interim period, supported by consistently high occupancy levels and the sustained demand for quality, professionally managed rental accommodation. Revenue for the period increased by 45% to ZAR 12.8 million, reflecting the impact of continued portfolio expansion and high rental demand. The division generated a gross profit of ZAR 12.8 million, underscoring effective portfolio management and a strong tenant base. Operating expenses increased to ZAR 8.5 million, primarily due to the scaling of operational teams, system enhancements and increased maintenance associated with a growing rental footprint. Nonetheless, operating profit improved by 18% year-on-year to ZAR 4.7 million, demonstrating disciplined expense control amid expansion. After finance cost of ZAR 5 million, the division reported a small net loss after tax of ZAR 400,000, a meaningful improvement from a ZAR 1.1 million loss in the prior year. Occupancy remained exceptionally strong, averaging 97.4% for the interim period. This consistency underscores the enduring appeal of Balwin's Rental offering and the effectiveness of its tenant management model. This business continues to leverage technology and data-driven management to optimize tenant retention, improve service efficiency and maintain strong collections performance. With the current rental portfolio approaching full capacity and additional stock set to come online through our other pipeline projects, Balwin Rentals is well positioned to deliver sustained growth in occupancy, rental income and operational profitability in the coming years. On to Balwin Customer Services. Effective 1, March 2025, Balwin Mortgages and Balwin Insurance were merged to form Balwin Customer Services, simplifying the structure and enhancing operational synergy across client-facing functions. Balwin Realty, operating as a separate legal entity within this cluster continues to enhance customer retention through trade-ins and resales of Balwin apartments. The Balwin Customer Services cluster delivered a strong performance for the interim period, reflecting continued growth in client support services and the deepening integration of financial facilitation within Balwin's ecosystem. Revenue for the year increased by 72% to ZAR 10.5 million, driven by robust mortgage origination volumes, increased bond approvals and expanding customer engagement. The division reported a gross profit of ZAR 7.9 million, up from ZAR 5.2 million in the prior period, reflecting higher transaction volumes and improved efficiencies in the bond facilitation process. Operating expenses increased to ZAR 4.6 million, in line with business growth and the integration of additional services following the merger of Balwin Mortgages and Balwin Insurance. Despite these cost increases, operating profit rose by 73% to ZAR 3.3 million, while net profit after tax more than doubled to ZAR 2.6 million, demonstrating strong operational leverage and disciplined management. Balwin Customer Services is well positioned to continue scaling its operations as homeownership demand grows within Balwin developments. The combination of mortgage facilitation, insurance solutions and resale services offers an integrated platform that enhances client value while contributing to the group's annuity income and long-term shareholder returns. Moving over to Balwin Green Living. Balwin Green Living continues to evolve as a key enabler of the group's environmental, social and governance objectives. The division's growing solar generation capacity not only mitigates the impact of rising utility costs, but also enhances the environmental credentials of Balwin's developments, supporting the group's leadership in sustainable community development. The Balwin Green Living division remains at the forefront of the group's sustainability and energy efficiency strategy. Its core mandate is to provide renewable energy, green technology and metering solutions across Balwin's developments. This continues to drive both environmental impact and long-term value creation. For the interim period, the division generated revenue of ZAR 8.3 million, an increase of 29% from the prior period, reflecting the expansion of solar and metering installations across the portfolio. Despite strong top line growth, the division reported an operating loss of ZAR 1.5 million, primarily due to the depreciation of solar infrastructure and the Plentify service fees payable on geyser controllers. After finance costs of ZAR 3.9 million, the division recorded a net loss before tax of ZAR 5.4 million, compared to a profit of ZAR 1.8 million in the prior year. Following taxation of ZAR 1.5 million, net loss after tax was ZAR 3.9 million. While short-term profitability was impacted by front-loaded investment depreciation as well as higher bulk tariffs during the winter periods, Balwin Green Living is positioned for meaningful growth and enhanced recurring income generation in future periods. Looking ahead, Balwin Green Living will continue to focus on expanding renewable capacity, broadening metering adoption and integrating advanced energy management technologies across new and existing developments. These initiatives are expected to deliver long-term operational savings, improve sustainability outcomes and strengthen the group's position as a leader in green residential development in South Africa. Lastly, our other businesses. The other annuity businesses continue to deliver encouraging growth, underpinned by the expansion of diversified revenue streams that complement the group's broader annuity strategy. This segment includes Signage and Towers, Pedal Enterprises, Pedal E-commerce and LeaseLogic, each contributing to a growing base of sustainable non-development income. The first indoor pedal facility at Munyaka officially opened on 1, September 2025 and is expected to support further revenue growth going forward, strengthening Balwin's position in the fast-growing leisure and wellness segment. Revenue for the period increased sharply to ZAR 5.7 million, compared to ZAR 700,000 in the prior year. The increase reflects the successful monetization of previously underutilized assets and the continued scaling of Balwin's lifestyle ecosystem. Gross profit improved significantly to ZAR 4.1 million, while operating expenses rose to ZAR 2.8 million in line with the expansion of these new ventures. The division reported an operating profit of ZAR 1.3 million, a major turnaround from ZAR 32,000 in the prior year. After taxation, net profit after tax totaled ZAR 1.2 million, highlighting strong early-stage profitability from these emerging income streams. The strong initial performance of these ventures reinforces the scalability of Balwin's Annuity model. As pedal operations mature, digital platforms gain traction and the Signage and Tower portfolio expands, these divisions are expected to deliver accelerating growth and incremental returns to shareholders over the medium term. Across all annuity clusters and divisions, Balwin Annuity has demonstrated consistent execution, operational excellence and a clear focus on sustainable value creation for the group. I now hand you back to Steve, who will take us through the group's environmental focus and conclude the presentation. Thank you.

Thank you, Raaziq. We now move on to sustainability. As I mentioned at the beginning of this presentation, Balwin is recognized as the world's largest developer of EDGE-certified sectional title apartments. To me, what's more important is how we leverage this to the benefit of our homeowners. The launch of Balwin's Green Bonds in 2020 has resulted in significant savings for owners of our apartments. During this past 6 months period alone, 856 green bonds were registered, resulting in a total saving for our clients of ZAR 58.1 million over a period of 20 years. Overall, our green bond initiative provides 5 unique benefits to our customers: a 0.25% interest rate reduction over the bond term. This could amount to saving 1 year of payments on a 20-year bond. A 3% rebate on the value of the bond to a maximum of ZAR 55,000 as part of the International Finance Corporation's MAGC concession finance plans. Based on a study by the University of Cape Town, Balwin apartment owners can save up to ZAR 8,214 on a 3-bedroom apartment annually through our EDGE and solar initiatives. The EDGE Advance certificates are transferable should owners wish to sell their apartment, provided the next bond is through Balwin Green Mortgages. Potential further rate reductions as a result of the EDGE certification with the Ekurhuleni Municipality willing to reduce property rates by 35% based on the certification. I am now going to go on an exceptional mission to try and get other municipalities in the entire South Africa to follow this forward-thinking municipality. In conclusion, despite the current protracted cycle of global and domestic economic uncertainty, I believe that our core business remains strong with sustained demand for residential apartments as reflected in the much improved numbers. We have a strong brand and we will never stop innovating, which allows us to also grow alternative annuity-based income streams. Balwin has emerged leaner and more focused from this cycle with significant strides made in optimizing operational and development-related costs, which will over time, reflect an increased gross and operating profit margins. This, in turn, will support a higher return on capital investment. It should be appreciated that this set of results comes off a very low base with the group having negotiated what was the toughest period in its history. Therefore, our capital structure remains a key focus area with emphasis on appropriate cash management and the reduction in the quantum and cost of debt. In conclusion, ladies and gentlemen, our business has been tempered by the interest rate cycle, and we are cautiously emerging in a much stronger position, provided that the macroeconomic environment and especially interest rates remain stable. This then brings our presentation to a conclusion. Thank you all for dialing in. I will now open the floor for questions.

Good morning, ladies and gentlemen. Thank you very much for joining us for the live question-and-answer session on Balwin's interim results for the period ended 31, August 2025. Our first question is from John Arron from SBG Securities. John said, thank you for the presentation. Please comment on the overall consumer sentiment in both Gauteng and KwaZulu-Natal. Do we expect demand in the Western Cape to start declining with migration back to Gauteng? It was my understanding that sales incentives related to apartment sales would be stopped. If this was so, was there no improvement -- why was there no improvement in gross profit margin on apartment sales? I'll pause there to answer because there are a couple of more questions from John.

Okay. Marketing is not an exact science. You've got a proper property market, you've got to ride the wild horse. Gauteng is always going to be the strong player in the country. It's the financial hub of Africa. It's always going to be good. We're finding recently, and I mean very recently, that sales in Johannesburg are creeping up almost to Cape Town levels. What does that mean? Not 100% sure. There's only a limited amount of jobs in Cape Town, the mass migration or semigration or whatever great words that journalists have come up with, it does happen. Cape Town is a fantastic place with brilliant infrastructure, getting a lot of investors buying there for the stability. You're getting a lot of foreign buyers. So yes, we think we've got a pretty balanced approach. The market changes, and we've got to be fluid. We've got to move with the times as best we can.

Jonathan, any comment on the gross profit margin and also what you see in 2026?

Thanks for the question, John. I think certainly, we had some headwinds from a costing perspective, which offset some of the price performance that we're able to achieve in the first 6 months. Also remember, because we have -- and we have a much healthier forward sales ratio this year, but because we carry over, I think it was about 750-odd apartments from a forward sales perspective, as much as we reduced and effectively stopped the discounting on the sales incentive campaign during the first 6 months, it's not quite mirrored in terms of what flows through the income statement because of the fact that we've sold in advance. We have certainly pulled back quite aggressively on the incentivization side of things, but as I said, it doesn't quite mirror from income statement performance. From a forecasting perspective in the second 6 months of the year, we are forecasting some margin improvement to financial year-end.

Given the improved outlook for Balwin, why is the Board being very conservative by not declaring a dividend?

Yes. The Board and our executive are very clear that our debt levels are too high. We want to reduce our debt levels, which is difficult because there are certain areas that we unfortunately still have to buy more land because we're running out of runway. We've decided not to pay a dividend and preserve the cash that we've got, which is very important. We are really trying hard to reduce our debt levels.

A couple of questions from Charles Boles from Titanium Capital. I'll read the first question. His question is, Raaziq, to yourself, rental apartments. This is to help consume the land bank and keep construction teams active, but is it attractive to invest significantly in this area? In the absence of strong rental or capital growth, it doesn't seem clear what the relevant -- it doesn't seem clear that this will deliver significant value. Does Balwin have a view on how long these units are likely to be held before being sold?

We obviously believe and have taken a view that our -- the rental developments help us eat through our land bank. There is significant value to be derived from the land rather than having the land sit stagnant given our land holdings. Regarding the last part of how long we will hold the apartments before it is sold, we've not taken a firm view on this, but probably 5 to 7 years before we offload the apartments.

Then a follow-up question from Charles is on Balwin Rentals. The operating cost of ZAR 8.5 million, excluding interest seems very high relative to the rent of ZAR 12.8 million. Could you provide some clarity on this, please?

Yes. Well, the operating cost does look high relative to the rental income. We have spent quite a bit of money on bolstering the rentals team to gear for the rollout of the rental portfolio. We do plan to build out our rental portfolio quite aggressively, so we have had to bolster the team. The operating costs are also higher due to management fees that are passed through all of the annuity entities, and it's shared on a revenue basis. The rentals and the real estate cluster do get majority of those management fees, so that would be why the operating costs look higher, but as we diversify the rental portfolio and bring online more rental developments, the rental will grow relative to the operating cost.

Another question by Charles is on Western Cape and then one on Mooikloof. He's asking, all the management seems to be cautious of building the Western Cape land pipeline. Is this a view that growth may not be sustainable? Or are there other factors at play?

No, look, we've still got a very good pipeline in the Western Cape. I think we've still got another 3 years to go. I'm actually flying down to the Cape tonight, and I've got quite a few opportunities to look at. We believe in the Western Cape. For the simple reason, the infrastructure is really, really doing well in the outlying areas, so we're confident about the Western Cape. We've got to be obviously cautious because we've got to watch also the job -- how much job creation there is in the Western Cape, but we believe there's a great runway, and we will be looking for more property.

On Mooikloof, Charles is asking, Baldwin has struggled for a long time to get government to deliver on their commitments in terms of infrastructure. This has impacted this development and the debt in Baldwin. Could you give us some insight into the issue here? Maybe I should read a private investor question as well. He's asking, could management provide an update on the status of the anticipated ZAR 1.4 billion government funding contribution? What is the progress regarding the infrastructure funding for the Mooikloof SIP? Have any provisions been made in the financials for the potential recruitment of costs incurred by Baldwin? What is the likelihood of recovering this? Is Baldwin currently still shouldering most of the infrastructure spending that was anticipated to be covered by government?

It does keep me awake at night. I think I sometimes dream about this. It is not ZAR 1.4 billion. It is now escalated to ZAR 2.1 billion. I have a proper government gazette. Legally, we have the correct obligation to force government to pay us. We have taken a more prudent viewpoint. I brought in a phenomenally well and highly educated consultant in YW Capital. We're working diligently with the DBSA and BRICS Bank in order to do a tripartite agreement between Swane, BRICS, DBSA and Balwin, so that sounds like 4 people, but it's actually a tripartite, where BRICS and DBSA are joined, where the DBSA and BRICS will pay us and recoup the money in time back from Swane. It is progressing well. You asked the same question that my Managing Director, Rodney Gray, asked me, when? I'm confident we will get it. In the interim, we borrowed ZAR 1 billion from the IFC in Washington to facilitate the construction of these services. They're going well. I was on site the other day and I was extremely proud of what we're doing, incredibly good quality, really good effort. So yes, to answer your question bluntly, I believe we will get the funds.

I elaborate on the performance side of things. In terms of the feasibilities, we've taken a prudent approach and the feasibilities carry all the infrastructure costs. You'll recall when we presented the transaction to our transaction committee and ultimately to the Board, we presented the transaction on 2 cases on a case base of the infrastructure not coming through from government and on the case of the infrastructure obviously coming through naturally the second feasibility being a lot better than the first feasibility from a financial return perspective, but the first feasibility still met the minimum hurdles of what our transaction committee and what our Board required from a return perspective. That's really what's flowing through. So should and when we receive the ZAR 2.1 billion anyone, I think, to any horse I could back in that race, certainly would be Steve in terms of executing on that. I also share the optimism and the confidence that we will get it. The timing is the question, but I think the solution will come through. That will just be an immediate margin uplift in terms of all those projects that are impacted by that infrastructure.

Another question from [inaudible] is, does the more modest recent 3.4% increase in developments under construction signal a stabilization? Or does management project an acceleration of capital being tied up in developments under construction in the near to medium term?

I think the developments under construction is almost cyclical per se in terms of how the accounting works. As Steve has spoken to and we spoke to both of us spoke to in terms of the presentation, there is a need and a desire from a Western Cape perspective to grow that footprint from the developments under construction. With that land, particularly the service land coming on, it comes on day 1 and obviously works through the balance sheet over the entire course of the project. Certainly, our focus is from a development cost perspective to really recycle that more aggressively through the balance sheet, but where we take a new project on, there's almost a bit of a regression, if I can say that from a working capital lockup perspective.

Then last question from Charles Boles is, could you please clarify the relationship with Mint Hotels, whether it forms part of Baldwin? You seem to think that there's a relationship between the 2 entities.

The Mint Hotel is a very small hotel in the Bed, which the Mint Hotel is managed as you know, these hotels, we own the property and Mint manages it for us. Very, very capable management. The project, it's not our best investment, I'll be honest with you. We are looking at selling it. In the near future, we have got an interested party at the moment, and we will be exiting it, but it is very much an arm's length agreement with Mint Hotels.

Thank you very much, Steve. Thank you, Jonathan, and thank you, Raaziq. There are no more questions on the platform. Ladies and gentlemen, thank you very much for joining us today. Just a reminder that there will be a recording of the presentation and the Q&A on the same link that you used to register for the presentation later on today. Many thanks for joining us.