Author丨Wu Shuying.
Editor丨Luo Yifan.
Source丨Visual China.
Country Garden Services' large-scale impairment announcement is still coming.
Recently, Country Garden Service issued an announcement sayingProvision for impairment of receivables of related parties** amounted to approximately RMB1.8 billion to RMB2.3 billionProvision for impairment of goodwill and other intangible assets amounted to approximately $1.4 billion to $1.8 billion. As a result, its net profit in 2023 is expected to decrease by 3.2 billion to 4.1 billion yuan.
This announcement came very early, but it did not surprise the capital market. After Country Garden's accident, it is only a matter of time before the "alarm" of Country Garden's service will sound. ConsideredCountry Garden Services' net profit was about 2.3 billion yuan last year and about 2.4 billion yuan in the first half of this year, and this provision is likely to cause the first loss since Country Garden Services went public.
In response to this provision, Country Garden Services explained in the announcement that it has actively adjusted the relevant business strategies of related parties, and the business scale of related parties has decreased compared with 2022, and has maintained close communication with related parties to continue to promote the implementation of various ** receivables collection measures.
Country Garden Services and Country Garden have actually been cut off for a long time, and the actual controllers of the two are both Yang Huiyan's family, but they have no shareholding relationship with each other. Prior to Country Garden's accident, the Yang Huiyan family also donated about half of their shares in Country Garden's services to further distinguish the relationship between the two.
Yang Huiyan's family seems to have made proper arrangements, but Country Garden Service cannot stand alone, which is a shackle that property service companies cannot break free.
Expected accrual
Country Garden's service has been paved for a long time.
In the middle of this year, the accounts receivable problem of Country Garden's service related parties has been very prominent. According to the interim report, as of June 30, 2023, the net receivables of Country Garden Services** amounted to approximately RMB17.4 billion, an increase of approximately RMB2.1 billion from the end of last year. Country Garden Services explained that this was mainly due to the increase in total revenue, and the net other receivables decreased to about $4.9 billion from the end of last year due to the decrease in deposits and advances on behalf of owners.
In the midst of this,Country Garden Services' ** receivables from related parties are approximately 230.1 billion yuan, an increase of about 5700 million yuan, an increase of 329%。
The accounts receivable increased by 30%, and Country Garden had planned to roll over its debts at that time, which was naturally a hidden danger for Country Garden to serve at that time. The management of Country Garden Services responded at the results meeting, "We will deal with and protect our legitimate rights and interests in accordance with laws and regulations." It will also change the way of service, actively communicate, and even appropriately reduce some unnecessary related party transaction services when necessary. ”
At the end of the year, Country Garden Services still had to face the "mines" laid by the accounts of related parties, in the latest announcement, Country Garden Services said that based on the existing accounts, it has assessed the expected credit losses of the ** receivables of related parties in accordance with the Hong Kong Financial Reporting Standards and conducted impairment tests on goodwill, and according to the results of the evaluation and impairment tests, it is proposed to make corresponding asset impairment provisions for assets with signs of impairment, with a provision amount of about 1.8 billion yuan to 2.3 billion yuan.
In response to the provision, Country Garden Services explained that the relationship between supply and demand in China's real estate market has undergone significant changes, and its related party customers are engaged in real estate development and related businesses and are facing periodic liquidity pressure.
Out of prudence, a large amount of impairment provision was made for the receivables of related parties. According to the progress of related party receivables, the company has actively adjusted the relevant business strategies of related parties, and the business scale of related parties has decreased compared with 2022, and has maintained close communication with related parties, and made its best efforts to continue to promote the implementation of various ** receivables collection measures. Country Garden service emphasized.
In the eyes of market participants, this provision is only a matter of time.
An investor in Hong Kong property stocks analyzed the reporter of the 21st Century Business Herald, "Property companies have no investment value now, and there are special situations to promote it during the good period." Last year, many property companies were affected by related parties, and their performance declined sharply, and there were lawsuits that could not recover the money. To put it bluntly, this industry is still strongly related to real estate, and no matter how to isolate risks, (if) affiliated companies can't do it, property is not easy to do. The same is true for Country Garden services. ”
Aftermath of mergers and acquisitions
Not only did related parties make large provisions, but Country Garden Services also experienced a considerable proportion of goodwill impairment.
According to the announcement,Country Garden Services made a provision for the impairment of its goodwill and other intangible assets of approximately $1.4 billion to $1.8 billion. Country Garden Services explained that the above-mentioned impairment provision was mainly due to the failure of some subsidiaries acquired in previous years to expand their business and value-added business as expected, and the adjustment of some existing businesses, resulting in a decline in revenue and profit. At the same time, the payment cycle of some customers has become longer, resulting in unsatisfactory cash flow.
This problem of Country Garden's service is also expected by the market. At the time of the largest expansion, Country Garden Services invested heavily in conquering the city, and almost all the high-quality targets in the market were bagged. For verification, there are 3.3 billion yuan to acquire Vientiane Beauty Property under Color Life, 4.8 billion yuan to acquire Blu-ray Garbo, and 10 billion yuan to acquire R&F Property.
A senior executive of a property company told the 21st Century Business Herald reporter at the time, "The premium given by the acquisition of Bifu is very high, and they must first scale up and be the first." No other property company dared to do the same as him. ”
However, these acquisitions were already dissenting at the time.
Zhu Baoquan, chairman of Wanwuyun, has mentioned many times that it is necessary for the property management industry to reflect on whether the higher goodwill value is reasonable in the process of high-premium mergers and acquisitions. "In the past, property companies had a price-earnings ratio of 45 times, and there were 15 times to speculate with 30 times to mergers and acquisitions, but at the same time, in the process of being included in the **, the balance sheet must be heavy, and once the majority is included in the amortization, it will have an impact on the profit performance of the current period. ”
Looking back on the past experienced by Country Garden, all of what Zhu Baoquan said was fulfilled one by one in Country Garden. In fact, since the beginning of this year, the mergers and acquisitions of Country Garden Services have also been readjusted.
At the beginning of this year, the management of Country Garden said at the performance meeting that it had adopted "localized management" for M&A companies, set up a strict entry and exit mechanism, and established a mature mechanism in terms of satisfaction assessment and performance coaching. In 2023, Country Garden Services will further strengthen the principle of localized management, and each project and project team of the equity company will be integrated into the provinces and cities where they are located, and fully accept the management methods and corporate culture of Country Garden Services.
Under this strategic arrangement, Country Garden Services has withdrawn from a number of projects this year. "We voluntarily withdrew from the management area of more than 84 million square meters, which is equivalent to the scale of some small property management listed companies. Country Garden management said.
Even if the contraction is already underway, the provision that should come will not be less. J.P. Morgan pointed out in a recent research report that there is huge room for further goodwill impairment in the next few years, "even if the potential goodwill impairment described in the announcement is taken into account, the relevant goodwill balance is still large and may take several years to complete." ”
This is probably not a short-term pain for Country Garden Services. It will be difficult for the brother company Country Garden to contribute considerable management area in the future, and the mess of mergers and acquisitions is still to be cleaned up, and it is an indisputable fact that the performance of Country Garden Services will continue to be under pressure.
In response to the company's future development arrangements and other related situations after the accrual of Country Garden Services, the 21st Century Business Herald reporter inquired about the relevant people of Country Garden Services, and the other party said that the relevant news had been disclosed in the announcement and did not reply further for the time being.
sfc
Editor: Jiang Peipei, intern: Song Jiayao.
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