Image source@Vanke performance conference
On the evening of March 28, Vanke A announced its 2023 annual performance report, with both revenue and profit declining, which was reflected in the market: on March 29, most of Vanke's domestic bonds fell in early trading, with "200000000000000" and "21Vanke02" both falling by more than 4%, "2000000000" and "21Vanke04" falling by more than 3%;
On the morning of March 29, Vanke held a performance briefing to respond to the hot topics that the market has been concerned about recently.
The financial report shows that the deep adjustment of the industry has brought great pressure to the company's operation. In 2023, Vanke's operating income will be 465.74 billion yuan, down 7.6% year-on-year, and its net profit attributable to the parent company will be 12.16 billion yuan, down 46.4% year-on-year, and the growth rate will turn from rising to declining compared with 0.42% in 2022, and it is already very close to the threshold of -50% profit warning announcement. It is worth noting that the net profit attributable to the parent company in the fourth quarter of 2023 was -1.459 billion yuan, a year-on-year decrease of 126.2% in a single quarter, and a quarterly net profit loss appeared for the first time.
Data source: corporate financial report, charted by Titanium Media APP
Vanke pointed out that the main reason for the decline in net profit was the decline in the settlement scale and gross profit margin of the development business, and the impairment of some development projects. During the reporting period, the company added about 3.49 billion yuan of inventory price decline provisions, a significant increase of 3 billion yuan over the previous year, affecting the net profit attributable to shareholders of the parent company of about 2.95 billion yuan.
1. Affected by the development business, the main business revenue fell by 7.47%
From the perspective of business type, the operating income from real estate development and related asset management business was 429.75 billion yuan, accounting for 92.3%, the gross profit margin was 15.41%, a decrease of 4.4% from 2022, the operating income from property services was 29.43 billion yuan, accounting for 6.3%, and the gross profit margin was 14.96%, an increase of 0.54% from 2022.
Image source @ corporate financial report
(1) Development business: sales are sluggish, and investment focuses on first- and second-tier high-quality land plots
According to the financial report, Vanke's development business revenue in 2023 will be 401.6 billion yuan, a year-on-year decrease of 9.6%, and the settlement gross profit will be 15.7%, a year-on-year decrease of 4.7 percentage points. In 2023, the sales area will be 24.66 million square meters, and the sales amount will be 376.12 billion yuan, down 6.2% and 9.8% year-on-year, respectively, and real estate sales from January to February 2024 will fall by 43.03% year-on-year, and the overall sales will still be sluggish, but still rank second in the industry.
Data source: corporate financial report, charted by Titanium Media APP
At the results conference, Yu Liang, chairman of the board of directors of Vanke Group, said that the judgment on the continuous adjustment of the market has not changed, and there is still an overshoot in the short term. Although it is impossible for the industry to return to the high point of the past, the prospect of the industry is still broad, and the central value of future residential construction is 1 billion square meters. He further pointed out that a large number of current policies to support the real estate market have been introduced, including the recent adjustment of policies in cities such as Beijing, Shanghai, Guangzhou and Shenzhen, which are the largest since 2011. With the LPR cut and mortgage rates falling to the lowest level in nearly 10 years, it is expected that the policy effect will slowly emerge and the market will gradually recover.
In 2023, Vanke will continue to maintain a certain level of land acquisition as a whole, acquiring a total of 43 new projects throughout the year, with a total equity land price of 46.32 billion yuan, and an average land price of 13,899 yuan/㎡ for new projects, mainly residential land, distributed in Beijing, Shanghai, Hangzhou, Chengdu and other high-energy cities.
Industry insiders pointed out that focusing on investing in first- and second-tier high-quality land plots can theoretically increase gross profit margins, but the premise is that housing prices can at least maintain the status quo. While shouting "survive" in 2018, Vanke did not significantly reduce the scale of investment. According to statistics, from 2018 to 2023, Vanke's cumulative equity land acquisition amount reached 664.36 billion yuan, and from 2018 to 2021, the average annual land acquisition investment was 142.1 billion yuan, and this data will drop to 48 billion yuan in 2022-2023.
Data source: corporate financial report, charted by Titanium Media APP
(2) Operating service business: The revenue of all segments of the business increased
According to the financial report, in 2023, the full-caliber revenue of Vanke's business service business will be 55.81 billion yuan, a year-on-year increase of 8.9%. Among them, the net profit growth of property services was higher than the growth of revenue, and the long-term rental apartment business achieved reported profit under the cost method for the first time.
In terms of property services, revenue and gross profit both increased: in 2023, Wanwuyun achieved operating income of RMB33.42 billion (including revenue from services provided to Vanke Group), a year-on-year increase of 10.2%, of which the revenue from residential consumption services in community space was RMB18.93 billion, accounting for 56.6%, a year-on-year increase of 13.0%, and the revenue from comprehensive services for commercial enterprises and urban spaces was RMB11.70 billion, accounting for 35.0%, up 4.6% year-on-year. AIoT and BPaaS solution service revenue was 2.79 billion yuan, accounting for 8.4%, a year-on-year increase of 16.9%. In addition, the Butterfly City strategy has achieved results, driving the gross profit margin of the overall residential property to increase by 3.5 percentage points, and the gross profit of the overall residential property has increased by 55.5% year-on-year.
In terms of residential leasing, revenue continued to grow, and the business achieved overall profitability: In 2023, the leasing residential business (including non-consolidated projects) achieved operating income of RMB3.46 billion, a year-on-year increase of 6.8%. By expanding the scale of openings, stabilizing high occupancy rates, and improving operational efficiency, the Boyu business will achieve overall profitability under the cost method in 2023.
According to the financial report data, by the end of 2023, Boyu has operated and managed a total of 233,300 rental housing units, with a total of 180,100 units opened, and its business layout is in 31 cities across the country, ranking among the top three in 24 cities including Beijing, Shenzhen, Guangzhou, Chengdu, and Wuhan. As of the end of 2023, the occupancy rate of the apartments remained high at 95.76%.
In terms of commercial development and operation, revenue maintained growth and occupancy rate increased: During the Reporting Period, the Group's commercial business revenue was RMB9.11 billion, representing a year-on-year increase of 4.6%. Among them, the operating income of commercial projects managed by SCPG was 5.70 billion yuan, a year-on-year increase of 4.1%, and the occupancy rate was 94.8%, an increase of 1.6 percentage points year-on-year.
In terms of logistics and warehousing, operating income grew steadily, and cold chain revenue maintained a high growth rate: In 2023, the logistics business (including non-consolidated items) achieved operating income of 4.18 billion yuan, a year-on-year increase of 17.2%, of which the operating income of high-standard warehouses was 2.30 billion yuan, a year-on-year increase of 6.3%, and the operating income of cold chain was 1.88 billion yuan, a year-on-year increase of 33.9%.
2. The ratio of capital stock and cash to short-term debt has declined, and the transformation to high-quality development is under pressure in the short term
(1) Operating cash flow has been dominated for 15 consecutive years, but cash on hand has fallen below the 100 billion cash mark
As of the end of 2023, Vanke's asset-liability ratio after excluding pre-received housing loans was 65.5%, a decrease of 2.1 percentage points from the beginning of the year and a decline for five consecutive years, but the net debt ratio was 54.66%, an increase of 11.05 percentage points from the end of the previous year. In the same period, Vanke held monetary funds of 99.81 billion yuan, a decrease of 31.4 billion yuan, or 27%, from 137.208 billion yuan at the end of the previous year, and fell below the 100 billion cash mark again after 6 years, in addition, the interest-bearing liabilities due within one year were 62.42 billion yuan, the cash short-term debt ratio was 1.6, and the cash short-term debt ratio at the end of the previous year was 2.13, which was a certain decline from the end of the previous year.
Data source: corporate financial report, charted by Titanium Media APP
However, it is worth mentioning that in 2023, Vanke's net operating cash flow will be 3.91 billion yuan, which has been positive for 15 consecutive years, an increase of 3.67 billion yuan from the third quarter, and an increase of 1.16 billion yuan or 42.2% from the same period in 2022.
Vanke directly pointed out in the financial report that the company's profits are under pressure, and indicators such as capital stock and cash short-term debt ratio have declined, and the short-term pressure on the transformation to high-quality development still exists. First, during the period of rapid expansion, some investment judgments are too optimistic, and it will take some time for these projects to be digested. Second, although the company's ability to operate service business has made great progress, there are naturally difficulties in operating real estate with a long capital recovery cycle and large pressure, which can only be completely solved after the relevant financing mechanism is mature.
(2) The debt structure was further optimized, and the short-term debt ratio fell to a historical low
As of the end of 2023, Vanke's interest-bearing liabilities totaled RMB320.05 billion, with bank borrowings amounting to RMB197.3 billion, accounting for 61.7%, bonds payable amounting to RMB79.2 billion, accounting for 24.8%, and other borrowings amounting to RMB43.5 billion, accounting for 13.5%.
In 2023, Vanke's debt structure will be further optimized, with the proportion of overseas debt falling to less than 20%, short-term debt accounting for 19.5%, down 1 percentage point from the beginning of the year, the debt maturity extended from 4.79 years at the end of 2022 to 5.14 years, and the comprehensive cost of new domestic financing reaching a record low of 3.61%.
Data source: corporate financial report, charted by Titanium Media APP
(3) With 89.7 billion yuan of new financing, REITs will become a key financing channel
According to the financial report, in 2023, Vanke will receive about 89.7 billion yuan in new financing, of which about 76.6 billion yuan will be newly financed in China, 3.61% of the comprehensive cost of new financing, and about 13.1 billion yuan will be newly financed overseas. In domestic financing, in 2023, Vanke will issue a total of 10 billion yuan of credit bonds, of which 2 billion yuan of corporate bonds will be issued, and a total of 8 billion yuan of medium-term notes will be issued in four parts.
In addition, Vanke closely follows the guidance of national real estate financial support policies, and has stepped up efforts to promote financing varieties such as operating property loans, rental housing and urban village renovation. Since 2024, 10.89 billion yuan of new operating property mortgages have been added.
At the results conference, Zhu Jiusheng, president of Vanke Group, said frankly that "there is pressure, but it can be passed". He further pointed out three challenges related to financing: first, the challenge caused by the imbalance of income and expenditure of the development business; second, the challenge brought about by the change of financing model, which used to be able to withdraw a large amount of money, but now it can be transferred to project financing and can only be withdrawn according to the progress of the project; third, the layout of the operating business, the rate of return is not enough to cover the state of interest climbing.
In response to the first and third challenges, Zhu Jiusheng gave a solution, he said: "The decline in sales of 100 billion yuan should be balanced by the EBITDA of 5 billion operating business." In response to the second point, he revealed that since the implementation of the urban real estate financing coordination mechanism, the bank has given Vanke a three-year transition period, and the company has actively transformed to a new financing model. As of the end of March 2024, Vanke has reported 42 "whitelist" projects in 22 cities, involving new financing of 16.95 billion yuan, and will organize cities to actively apply in accordance with the requirements.
Judging from the statements of many senior managers at the results conference, one of the most critical financing channels for Vanke is asset securitization financing. A number of executives said that Vanke is expected to become the only company in the industry to achieve a breakthrough in three types of operating REITs. Up to now, the CICC SCPG REIT released by Vanke's SCPG Group has officially entered the inquiry stage, Wanwei Logistics REIT has been officially released on the exchange, and the long-term rental apartment REIT is currently actively declared.
Previously, Shenzhen Railway Group planned to subscribe to CICC SCPG Consumer REIT through strategic placement, with a subscription share of 29.8% of the total shares raised by the fund, with a subscription amount of about 1 billion yuan.
At the results conference, Zhu Xu, secretary of the board of directors of Vanke, pointed out that in addition to subscribing to Vanke's consumer REITs under SCPG in a market-oriented manner, Shenzhen state-owned assets have three other measures to support Vanke: first, to help Vanke dispose of low-liquidity real estate and long-term equity investment, second, to promote the cooperation of multiple projects through industrial synergy between Shenzhen state-owned enterprises and Vanke, and third, Shenzhen state-owned assets to actively coordinate financial resources to support Vanke.
3. Future focus: ensure the bottom line of safety, respond to uncertainty, and firmly reduce leverage
Vanke said in the financial report that at present, the real estate market is facing multiple changes such as the transformation of supply and demand, the transformation of industry models and the adjustment of financing methods. In 2024, we will focus on the following areas:
(1) Ensure the bottom line of safety
Vanke said that on the sales side, it will stick to the goal of outperforming the general trend and maintain positive cash flow at the operating level. The uncertainty that may arise in the future is more fully predicted, and the "reservoir" is cashed out through bulk assets and equity transactions, and the safety cushion is thickened on a large scale. In 2024, the transaction collection will not be less than 30 billion yuan.
(2) Firmly reduce leverage
Vanke said that in 2024, the group will firmly reduce leverage, reduce interest-paying debt by 100 billion yuan in the next two years, fully and actively integrate into the urban real estate financing coordination mechanism, and actively promote the transformation of financing models.
(3) Streamlined, efficient, thrifty
Vanke said that it will promote the streamlining and efficiency of the organization, maintain the stability of key employees, and support business development. Cut down on food and clothing, and reduce management costs. In fact, Vanke has already begun to make some moves:
First, adjust the organizational structure: Since 2024, Vanke has successively completed the organizational setup of city companies in the southern region and Shanghai region to further promote the efficient allocation and integration of resources between cities and the flexible allocation of talents.
Second, senior executives will reduce their salaries: In the case of a significant reduction in profits, the management of Vanke Group will collectively choose to reduce their salaries in 2023: 8 directors, supervisors and senior managers who will work full-time in Vanke Group in 2023 will voluntarily give up their 2023 bonuses, and the total pre-tax remuneration they will receive from Vanke Group during their tenure in 2023 will be 7.661 million yuan, and the 4 independent directors will receive a total of 1.5 million yuan in pre-tax remuneration from Vanke Group during their tenure as directors in 2023. So far, the total pre-tax remuneration of Vanke Group's management in 2023 has dropped to 9.16 million yuan, a decrease of 73.6% from 34.66 million yuan in 2022.
In addition, the financial report shows that since the date of disclosure of the report, Yu Liang, chairman of the board of directors of Vanke, Zhu Jiusheng, president, and chairman of the board of supervisors have unfrozen and voluntarily received a monthly salary of 10,000 yuan before tax.
It is worth noting that this is not the first time that Vanke Group's management has cut salaries. Previously, Yu Liang's total pre-tax remuneration in 2019 and 2020 exceeded 12 million yuan, and the total pre-tax remuneration of Zhu Jiusheng exceeded 11 million yuan in the same period, and the total pre-tax remuneration of unfreezing exceeded 8 million yuan. In 2021, Vanke's net profit attributable to the parent company will be nearly halved, and Yu Liang will voluntarily give up the annual bonus, and the actual annual immediate cash salary (before tax) will be 1.449 million yuan.
Third, no dividends and no dividends, corresponding to the uncertainty of special periods and ensuring operational safety: In the financial report, Vanke did not propose to pay cash or stock dividends in 2023, which is also the first time that the company has not paid dividends for the whole year since its listing in 1991.
At the performance briefing, Zhu Xu, secretary of the board of directors of Vanke, responded: "Vanke has always attached great importance to cash dividends to give back to shareholders, and has paid dividends of 103 billion yuan for 31 consecutive years, with a historical average dividend rate of 33.3%, which is also 2.8 times of Vanke's equity financing over the years, which is also something we have always been proud of." ”
She further said that the current industry is still in deep adjustment, the sales performance of the top 100 real estate companies fell by more than 50% from January to February, and Vanke's sales fell by 43.03%, and the confidence of the entire market is still recovering, and the uncertainty of operation still exists. Based on this, based on the opinions of bond investors and equity investors, it was decided to cancel dividends in 2023 to help the company better cope with the uncertainty of the special period and ensure the safety of operation. (This article was first published in Titanium Media APP, author|Wang Jian, editor|Liu Yangxue)
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