Late Thursday evening, on August 10, Country Garden issued a profit warning on the Hong Kong Stock Exchange.
The company announced that based on current available data and a preliminary evaluation of unaudited accounts for the six months ending June 30, 2023, it anticipates a net loss of between CNY 450 billion to CNY 550 billion. This is in stark contrast to the CNY 19.1 billion net profit recorded for the same period in 2022. The expected loss primarily stems from the downturn in real estate sales which has lowered gross margins on real estate transactions, increased impairment charges on property projects, and anticipated net exchange rate losses due to foreign exchange fluctuations.
Since 2021, the industry has faced unprecedented challenges. Adverse factors have combined to severely impact industry sales and public market financing. From January to July 2023, the group achieved equity sales of CNY 1,408 billion, a drop of 35% compared to the previous year and 61% down from 2021. July alone saw equity sales of CNY 121 billion, marking the fourth consecutive month of decline, down 60% year-on-year and a 78% drop from 2021.
Country Garden highlighted four key "rescue measures" it has taken:
- Ensuring Cash Flow: The company is making every effort to safeguard its cash flow. It aims to speed up the collection of sales payments and account receivables, while aggressively seeking financing and optimizing major and challenging commercial assets.
- Cutting Expenditures: Efforts are being made to tightly control unproductive capacities and to reduce non-essential operating expenses. The company has simplified its organizational structure, with executives leading by example in accepting pay cuts.
- Chairman's Support: Ms. Yang Huiyan, the chairwoman and controlling shareholder, has been actively supporting the company, providing a total of approximately HKD 386 billion through loans, stock purchases, bond purchases, and other methods. Of this, she has granted interest-free and unsecured loans amounting to about HKD 66 billion.
- Prioritizing Delivery and Credibility: In 2022 and the first half of 2023, the group and its associated companies delivered nearly 700,000 and 278,000 housing units respectively. Despite the challenging financing environment, the company has gone to great lengths to arrange for domestic and overseas financing repayments.
Facing these challenges, Country Garden reaffirmed its commitment to take robust and effective actions to overcome the current situation. This includes ensuring delivery of projects, alleviating liquidity pressures, ensuring smooth business operations, and strengthening leadership during these difficult times.
However, despite the company's concerted rescue efforts, it acknowledged that the overall market has not yet warmed up. Capital market confidence remains shaky, leading to heightened business pressures and significant losses for the first half of 2023. The company's top management reflected deeply on their lack of foresight regarding the depth and duration of the market downturn.
In its announcement, Country Garden appealed for understanding and support during its challenging times. It remains confident in the long-term prospects of China's economy, believing the real estate industry will eventually return to a path of stable development. The company is committed to ensuring operational continuity in the short term, while strategically planning for long-term sustainable growth, always prioritizing its investors' interests.