Country Garden Holdings: loss of 45 billion to 55 billion in the first half of the year!

In August 10th, the Country Garden Holdings issued the latest profit warning announcement. The

announcement shows that as of June 30, 2023, compared with the net profit of about RMB 1.91 billion in the first half of June 30, 2022, it is expected that the net profit loss in the first half of the year will be about RMB 45 billion to RMB 55 billion by June 30, 2023. The estimated net loss was mainly due to the decrease in gross profit margin of the real estate business and the increase in impairment of property projects as a result of the decline in sales in the real estate industry, as well as the expected net foreign exchange loss due to foreign exchange fluctuations.

Country Garden Holdings said in the announcement: Since 2021, the industry has entered an unprecedented difficult period, with multiple adverse factors overlapping, resulting in severe difficulties and challenges for industry sales and public market financing. From January to July 2023, the Group achieved an equity sales amount of RMB140.8 billion, representing a year-on-year decrease of 35% and a decrease of 61% from 2021. In July, the Group achieved an equity sales amount of RMB12.1 billion, representing the fourth consecutive month-on-month decrease, a year-on-year decrease of 60% and a decrease of 78% from 2021.

In the face of the extremely difficult situation of the industry as a whole, the company has made every effort to carry out self-help:

First, make every effort to ensure the safety of the company's cash flow, with the goal of "minimum cost, maximum value", speed up the recovery of sales and receivables, and actively expand financing. Efforts should be made to revitalize large and difficult commercial precipitated assets.

Second, to minimize expenditure, the company determines production based on sales, strictly controls ineffective production capacity, reduces non-core and non-essential operating expenditure; strengthens cost control, except for rigid costs, other costs apply the principle of zero as far as possible; Streamlining the organizational structure, taking the lead in reducing the salary of senior executives, and strictly controlling the sales and management expenses, the proportion of sales and management expenses to revenue decreased for six consecutive years from 2017 to 2022.

Third, Ms. Yang Huiyan, the chairman and controlling shareholder of the board of directors ( "controlling shareholder"), has strongly supported the company by borrowing, increasing stock holdings, purchasing bonds and paying dividends on behalf of shares since its listing. Among them, interest-free and unsecured loans amounting to about HK $6.6 billion were provided to the company.

Fourth, we should make every effort to ensure delivery and credit. In 2022 and the first half of 2023, the Group, together with its joint ventures and associates, delivered nearly 700,000 and 278,000 housing units respectively, with a total expected delivery of nearly 700,000 housing units in 2023. Since 2022, the financing environment has been extremely difficult. In the case of continuous net outflow of the company's financing cash flow, the company still makes every effort to arrange the repayment of the principal and interest of domestic and foreign financing.

Although the company has spared no effort to save itself, the market as a whole has not yet recovered, the absolute scale of the industry has declined, the confidence of the capital market has yet to be restored, and the overall operating pressure of the company has increased, resulting in a large loss expected in the first half of 2023, especially due to the recent deterioration of sales and refinancing environment. The available funds on the company's books continued to decrease, and there was a periodic liquidity pressure. In this regard, the management of the company has made a profound reflection, although it has predicted the current market adjustment cycle, it has underestimated the depth, intensity and sustainability of the market downturn, failed to make more vigorous response measures as soon as possible, failed to see that the supply-demand relationship of the real estate market has undergone significant changes, and the real estate market has become the real estate market. The understanding of the potential risks such as the excessive proportion of investment in the third, fourth and lower-tier cities and the insufficient speed of debt ratio drop is not deep enough, and the action to resolve them is not timely and effective enough.