VAT increase eats into Balwin Properties’ margins

SA’s largest seller of sectional title property, Balwin Properties, said on Wednesday that tough market conditions and a different product mix eroded its profit margins in its financial year to end-February.

A VAT increase from 14% to 15% during the period, an increase in the mix of apartments from the Western Cape, as well as a large number of new developments all weighed on the company’s profit margin, bringing it well below the target of 35% in the year to end-February.

Headline earnings per share (HEPS) fell 8% to R95.82 compared to the prior period, but the group’s net asset value per share rose 15% to 567.51c and revenue rose 6% to R2.6bn.

The company increased the number of apartments sold during  the period but the average selling price fell to R1,069,492 from R1,177,848 in the previous financial year. This was in line with expectations, with the lower selling price due to the difference in its product mix, the company said.

The company’s gross profit margin for the year to end-February was 30.1%. Although this represents an increase from the 27.3% reported for the interim period, the margin has decreased from 32.8% in the previous financial year.

Although management is confident its gross profit margin will improve as the various early-stage developments mature, the company warned on Wednesday that the inclusion of revenue from apartment sales may dilute this.

“Balwin continued to experience strong demand for its lifestyle apartments for the the year to end-February, despite ongoing economic headwinds and sustained consumer pressure,” the company said.

In the current financial year, the company will focus on cost-containment and continuing with existing developments, adding that “pleasing results” are being achieved.

The company declared a dividend of 14.51c per share.

At 10am, Balwin’s share price had risen 6.9% to R3.10, although the company is up only 0.33% this year, which is higher than the 0.17% loss of the JSE’s property index.