Good afternoon, ladies and gentlemen. Thank you for joining Guangzhou R&F Properties investor presentation webcast for its 2021 interim result announcement. Let me introduce the attending management. Chairman, Dr. Li Sze Lim.
Hello.
Mr. Adrian Chan.
Hello.
Managing Director, Mr. Michael Lee.
Hi.
Financial Controller, Ms. Christie Yao.
There will be management presentation, followed by Q and A session. You may enter your questions in the Q&A box at any time. Now, may I invite Michael to walk us through the PowerPoint presentation. Michael, please.
Okay. Good afternoon. I will go over the presentation, which highlights, I guess, the results that some people have gone through. I know there is questions that have come in, and some of these questions have been recurring, and some of that will be addressed in the presentation that I am going through. If we start with the results, obviously, the numbers that you have seen that has been announced, revenue is up and contract sales is up. In terms of gross profit and net profit, that was down from the same period of last year. That primarily relates to the margins or the profit margins in the first half. When we analyze the results, and when we look at the results, it is always a comparison on period to period.
I will try to highlight exactly what happened between last period and this period and give a sense of where the direction is, and hopefully, people can have a sense of where the market is, where the group is heading, and assess the results on a period-by-period basis. If we look at the margins here, you can notice that the comparison on the GP margin is down from last year, which explains the first half drop versus the 29.6% in the first half of 2020. But if you compare the full year, it is a slight down drop from the full year. But I would like to explain in terms of the trend first half to second half, both in terms of where we are last year and also this year. The recognized sales GFA is up in line with revenue. GFA is up 22%.
There was 4.1 million square meters that was delivered. ASP was largely flat versus the full year of last year. So, not much change there. But contract sales on the locking basis and also on a contract sales basis is up versus the actual recognized GFA. Dividend for the first half is CNY 0.10 per RMB. Contract sales, as I mentioned on this page, talks about an increase, and that is largely due to an increase in GFA that was sold. Contract ASP is up. Again, that reflects the ongoing trend on contract sales versus the recognition of GFA. In terms of the land banking, there was minimal land banking, only CNY 2 billion for the period, which versus the contract sales and also period by period has been down or very low compared to what we have been generating in contract sales. Land bank, 55 million square meters.
Sellable resources, close to CNY 800 billion. Average land cost, CNY 2,700. Renewal projects, they continue to be something that we are looking at and converting at the appropriate time. The land bank breakdown in terms of URP projects, mostly in T1, T2, mostly in GBA. On the Hotel investment, a small amount, but a very encouraging recovery, and that is just basically period on period and also a recovery in the economy and also the overall market to be a much more improved operating environment. Over the next seven, eight, and nine slides, next three slides on page seven, eight, and nine, I will go over exactly what the period-on-period change is, and it should be self-explanatory in terms of how or the rationale for the results. The revenue is up.
Revenue is up because you can see GFA is up 3.35 million square meters to 4.1 million square meters. But the biggest change from period to period is the completed inventory that was booked, in this case, booked and sold. Period from period, it has gone from 39% to 64% in the first half of this year. The component of two-thirds making up or the GFA delivered, essentially, is what is driving the margin for the period. If you recall on that first page I mentioned, the GP margin for the first half was 29%, close to 30%. At that point in time, the full year GP trend or the GP trend has not been fully factored into the first half.
On a period-by-period basis, on a first half by first half basis, essentially the change is on the product mix, is on the delivery mix, and is also on a de-stocking GFA in the first half of 2021. On the top chart, you can see the 64% from inventory. You can see 2.64 million square meters versus the remaining, which is 1.5 million square meters. That was new inventory. That is largely driving the breakdown of the GFA and largely driving the breakdown of the revenue and GP or profit and P&L for the first half of 2021. So it is a period-on-period comparison. Similarly for revenue, Hotel, and Properties, I will not go over that, but again, it is a period-on-period change, and so there is an improvement on a period-by-period profile.
GP margin is primarily what happened in the first half and how I would like to sort of elaborate on where the changes are. If I go back to the same numbers I used in the previous page, if you compare the first half on the column on the left-hand side, you can see first half in terms of square meters, there was 3.3 million square meters versus this period, 4.1 million square meters. If you compare the inventory, the stocking, or the amount, it was 39% with roughly 29% GP margin. So even on the stand-alone, if you look at the stocking last year, the GP margin was higher.
This year, the stocking was much higher in terms of the actual percentage, but the GP margin on the stocking was lower, and that is related to, one, lower TCDs, and two, residual stock of old inventory. If you go to our financials and you look at the balance sheet and you look at the completed stock, you will see that come down. If you compare the GP margin for the new inventory, the new GFA that was booked at 1.5 million square meters in the first half of 2021, you can see that is closer to last year's GP margin of 29.9%. Effectively, what you can see in the breakdown is just a mathematical breakdown of the GP margin GFA. That explains why there is a drop in the GP margin.
If you note the first half delivery of 1.5 million square meters, the margin is higher than it was full year of last year. If I take that down further to the second half, 4.7 million square meters, you will notice in the right-hand column is the sold but undelivered portion that will be delivered in the second half. That portion was similar to the new inventory that was booked in the first half, which translates to roughly that sort of a higher 20% margin full year for the second-half delivery. Ending that with the right column and the final column, and assuming at this stage, no further de-stocking, then you are looking at a more smooth ratio of 30 and 70, and a blended weighted average of GP of 25%-29%.
Obviously, if there is more de-stocking and there is more inventory, obviously that would blend it down. But essentially, the trend from last year was a high GP to a low GP in the second half, and a blended GP for full year of roughly about 25%. This year it is probably going to be the reverse, where it is a low GP in the first half and essentially a pickup in GP in the second half, and a blended GP probably in a slightly improved GP versus the period of the full year in 2020. If you compare the lock-in revenue to the 4.7 million square meters I just mentioned, the lock-in revenue is roughly about 8.8 million square meters in the center column.
The 4.7 million square meters that is slated for delivery in the second half gives you a potential revenue, property revenue, including the delivery in the first half, should be comparable to where it was in 2019 and 2020 if you compare it to the table or the column on the left-hand side. ASP will be up. GP margin should improve on a full year basis. Then you have lock-in revenue for second half delivery and also for 2022. The ASPs, based on the contract sales or higher contract sales, you probably see an ASP recognition, an improvement on the first half, with a blended ASP of roughly CNY 10,400.
In the last three pages, essentially what we are trying to indicate in terms of the actual trend and the actual difference is when you compare period by period, in the first half to first half, obviously that will give you a change for the first half. But I think it is important to look at it on a full year basis and also a trend for the expected full year basis for 2022. That should normalize some of the effects for the first half from de-stocking and also from the timing for delivery in the second half. One second. There was a delay. To go over to where we are in the second focus of questions, obviously from different investors, is on where we are and how we are improving or changing the capital structure.
If you look at what we were trying to do in 2020, we made substantial progress in terms of reducing the total debt and also the absolute or the net debt. In the first half, essentially what we have done is continue that trend. Net debt has come down by about CNY 16.4 billion. Net gearing continues to trend down. If you look at the individual rows, whether it is bank loans, corporate bonds, other onshore borrowings, and even offshore borrowings, essentially you can bond offshore bonds. You can see essentially that every single component or every single breakdown of debt is coming down in absolute values. Largely, most of the activity that we have done, whether it is inventory de-stocking to raise the amount of cash, to raise the amount of cash receipts, essentially it has gone down to purely just reducing debt.
Obviously, there was a notable drop in cash on hand and we will go into where the cash has gone to and how that has been affected in the first half. But the ending cash balance for December 2021, that also was particularly high given that we were looking at reducing or paying down some debt and onshore bonds in the first week of 2021. The cash balance obviously was a high base. Normalized base, you are looking at probably somewhere between CNY 30 million to CNY 35 million, but obviously that cash on hand, TAG, did have a fluctuating effect as we had held a lot more cash at the end of last year to be in a position to start reducing or paying down the onshore bonds in the first week or the first month of this year.
Net gearing is down, bonds are down, and also financing continues to be trending down. If we look at essentially the liquidity or the cash position on a period-by-period basis, you can see operating cash flow has been positive in the full year of 2020. But even if you break down financial year 2020 in the first half, second half, and first half of 2021, each interim period has been generating positive cash flow. Which means, one, taking less debt than what is refinanced. Two, generating cash either through contract sales or asset sales. And three, essentially conserving expenditures both in terms of CapEx and land banking, such that we are generating excess cash in order to bring down the financial levels. Net total debt has dropped quite rapidly from CNY 197.1 billion at the end of 2019, beginning of 2020, to 2020's cash balance and now to CNY 143 billion.
CNY 16 billion is not a small amount. The gearing level is back to, despite concerns over what the policies are and lines, I think basically we are now back to pre-2015 in terms of levels. But we know that we need to do a lot more in terms of bringing it down further, purely from a long-term direction perspective. What I haven't included here, but you can see from the financial statements, is the short-term portion of total liabilities and total debt is coming down. It's come down from a high of CNY 72 billion or CNY 70 billion, sorry, in the beginning of 2020 to CNY 54 billion or CNY 55 billion, I believe, at the end of last year.
At this point in time, we're down to about CNY 38 billion, which is another improvement of about CNY 10 billion-CNY 15 billion from a short-term portion component, and that is in line with what we've done for the first, or what we've been doing in line with the first half of the year and last year, is continually just bringing down short-term as quick as we can and through various means, whether it's in the form of cash or asset sales or from cash collection. The debt profile. I think the second half will be focused on onshore, and the next 12 months will be a combination of onshore and offshore. We understand and we fully recognize that there's volatility in the market in terms of financing.
But in terms of what we can and what we can't do, I think the assumption is that the volatile markets means that we'll continually to do what we have been doing, and that's either through contract sales and cash collection or from other asset sales or other ways to generate cash outside of financing. We understand that there will be difficult times in terms of when financing will be available, and so the company will be needing to make allowance to that going into the next six months and 12 months. Cash flow-wise, I think people will obviously ask what are the changes and what actually happened in the first half and second half and expect in the second half. In the first half, we started with a cash balance of about CNY 40 billion.
We collected about CNY 42 billion from sales completed, from inventory restocking, from sales carryover from the previous year. That essentially was a large component of the financing or the cash inflow for the first half. Cash collection. Inventory stocking and also booking inventory, whilst there's an effect on margins, did have an immediate effect to provide cash and liquidity for us to lower the debt. Obviously, we'd have to take a balance between reducing financing at the rate we are and also compromising on potential margins and also taking into account other factors, which is markets. Financing, we did do a sizable financing, or enough financing to meet certain onshore and offshore liabilities. We paid down more than that, which brings down the net debt component in addition to financing, and that partly is from cash collection and that's partly from cash on hand.
Net debt, in addition, we paid down construction, minimal land banking, interest, and others. The final cash balance reflects a change in the first half, which is partly or mostly organic, and the rest through financing markets. Then the remainder just basically looking at what we can deliver in the first half. Going to the second half, as I mentioned, we understand that volatility in markets means that we need to continue what we've done in the first half or even 2020, and that's focused on pre-sales and also proportion of pre-sales that we expect to collect in the second half. Correct. The cash balance has come down, and that's partly through a refinancing exercise and a debt-lowering exercise. It's partly to reflect, obviously, volatility in the debt markets and capital markets to assume a lower refinancing. But that's also impossible to bringing down the total debt.
You can't bring down the total debt or absolute debt on net basis without either using organic cash or either generating from cash flows or collection from pre-sales. Asset sales will be coming into play, and I'll go into that in a minute. But obviously, asset sales is always subject to timing and markets. What we have in the second half, which I think people will closely monitor, is the pre-sales available for collection. Similarly, in the first half where we collected CNY 42 billion, that is sales that was completed, that is sales that we haven't collected. That is amount that is providing us with internal funding and cash funding. Second half, we'll continue to make sales. We'll continue to focus on contract sales.
As we deliver, that delivery will provide cash, and that will also obviously reduce some of the component of restricted cash, which is sitting in the bank balance because we haven't delivered the units. Back to the first half component, we only delivered one third of what we sold in the past that was sitting in the restricted cash or sitting in the cash balance. But as we deliver more, then hopefully that will release the cash, whether it's in the form of restricted or unrestricted or what type of cash, essentially that will provide us with additional cash sources.
I think the importance in the second half, you see financing is not a reliance that we need to factor in or assume, because essentially what we've assumed is, whether it's a more favorable market or whatever market is, I think the assumption is that the reliance on cash flow will come from pre-sales and contract sales. Second half, I think, the rest of the debt payment will be a bit lighter. We still hope to reduce net debt further in order to improve the ratio to focus on the policies. Then hopefully at the end of the period, we would have gone through that period where we've refinanced, have sufficient cash available to use, and then going into the next six months, post the year-end, trying to address what we can for both onshore and offshore.
The asset sales, obviously not as active as it was in the last year when going to market, we think that there was a lot more activity. Because of various reasons, obviously these activities can affect the timing. We did complete some offshore sales. We are looking at, we have also completed some office sales and some retail. So I think these transactions were some of the transactions that we could complete through onshore and offshore. Under negotiation or under discussions, we have a block sale that is still currently under discussion. We have further block sales that we are looking to discuss with various potential investors. Also, continue the same retail and JV project sales where we can close some of these transactions, in this market. I think we just need to be realistic and practical in terms of the timing that we can complete.
It will be a question that continually will be asked, what is your sale? When is that taking place? I think that obviously will be something that we will need to monitor in terms of the second half and try to capture as much as we can in terms of what we can do for the asset sales. Other disposals, whether it is URP projects , hotel potential sales, monetization, IPs. I think essentially everything is subject to discussion and timing. I think asset sales, we do recognize that that is part of the contribution that, it is not just reliant on contract sales and collection of pre-sales, but obviously these monetizations will take place. Now, whether these require us to have to take a compromise on pricing, whether it takes a compromise on profit, obviously that comes back to the P&L question.
After 2021, when we report 2021, there is always going to be questions about, oh, so what were the margins and what were the price and what was the cash flow and what was the contribution? I think, obviously all of those objectives need to be taken into account depending on markets and also the circumstances. Cost of financing has gone up, just a blended rate. We could be financing, and essentially, cost of financing, based on the market volatility, we expect that to increase slightly. Land acquisitions has been quite small, CNY 2 billion land commitment. Some of this land commitment is paid according to schedule, some of that we can delay. Some of that requires us to complete certain conditions. But new land bank for the first half is roughly about CNY 2 billion. So we are just keeping that quite low at the moment.
Obviously, some of the land banking that we have historically, we can always delay the payment depending on how we can stretch out the payment, and that is a discussion that we usually have. Again, land acquisition is not the key focus at the moment. Sorry, slight delay in the PPT. Land acquisition, we are looking at potential contract sales, roughly about 4%. Again, quite small in terms of historical. I think that is just a fact in terms of the acquisition and also percentage of the acquisition. Land bank by city and breakdown. The largest component is from T1 and T2 cities, which is about 53%. The component of tier three and other cities continue to reduce as we start to focus on the higher tier cities. Breakdown by region, not much change from cycle. Close to CNY 800 billion of sales value. Hotel Operations.
Hotel Operations, period by period, you can see there's a recovery. Net operating profit has improved. As of July, revenue and NOP is starting to catch up to pre-COVID levels. Depending on fluctuations in cases of COVID, in certain cities, obviously that will have individual effects on certain regions. But overall Operations is trending to similar levels to 2019. There's an improvement in the portfolio. Slight delay on my side. Let me talk over this next couple of slides whilst the PPT is updating. The investment portfolio, again, there was a recovery. Essentially, the IP portfolio continues to improve. Cash flow slide. On the cash flow slide, in terms of the forecast, we have the full year financials and the full year cash flow. You can speak to further IR team to get a breakdown of the cash flow.
On slide 23, the 2021 cash flow largely ties into the period-by-period cash flow that I highlighted earlier in the presentation. On slide 25, in terms of the outlook contract sales, we continue to stay consistent with our contract sales level. The GFA delivery, we're looking at 8.5 million square meters in terms of the booking. 4.1 million square meters was delivered in the first half. Some of the GFA is to be delivered, so it may or may not include some of the de-stocking that we sold in the first half. Second half again, we hope to complete some of the pre-sales that we sold prior to the period. Cash flow second half focus, debt and reduction in liabilities will continue. Overall, I think we expect to focus on that trend. The next couple of pages looks at contract sales trend.
So far, we're averaging about CNY 10 billion, CNY 11 billion of contract sales. We expect to ramp that up higher in the last few months due to more sales inventory and also pre-sales available. On slide 28 is the delivery for first half and second half, which again, second half should provide a larger contribution in terms of delivery, to normalize the profitability trends for the full year. Page 29 is just under development GFA, nothing too much there. I think in summary, I think the first half or the first part of the presentation is focused on period-by-period changes. As I mentioned, the period-by-period changes will be based on the timing for recognition, the GP.
The second part of the presentation, the focus really is on what we've done in terms of improvements on leverage, what we're doing in terms of the cash flow for the first half and second half, and what we can do, as much as we can do in this current market to address what we have potentially coming up for the second half. All in all, it's essentially reflected in the financial statements. Essentially what we've been focusing on, both in terms of outflow and inflow in operations. With that, I will stop there.
Thank you, Michael Lee. Now is Q and A session. Please be reminded to enter your questions in the Q&A box. [Non-English content]
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The next question is, what is the other financial assets of CNY 3 million? Management, please.
Yeah, I think there is other financial net assets of CNY 3.2 billion on the asset side. The company obviously had a higher cost in the first half of this year. Some of the cash was used to offset that with some investments in the fund. Hopefully we could get some higher costs from the market to offset the financial cost. It is just purely an investment, just a holding of the assets in a separate investment.
Thank you, management. The next question is, first half of 2021 cash collection is CNY 42 billion, which represent only 64% of the first half contract sales. Could you explain why the ratio is low?
The cash collection actually was much higher, if you assume that some of the first half. First of all, the contract sales amount is based on roughly about 100% of the contract sales from the property. A triple proportion is roughly about 90%, so that obviously explains part of the difference. The other part is some of the cash collection from the June cash contract sales hasn't been fully reflected in the first half. That cash collection, obviously in June, takes time to reflect in the second half. But overall, as a general guide, cash collection is in the range of 75%-80%. If in the first half, a lot of the inventory that we sold essentially is cash on delivery, so that actually is much higher. Overall blended rate, you're looking at cash collection somewhere in the range of 75%-80%.
Thank you, management. The next question is, has the company received cash from recent excess sales, including from Blackstone? If not, what is the timing of the receipt?
The remaining portion has not been received. The timing was always going to be one year or roughly one year from the completion, so we probably expect that to be closer to the end of the year when we complete the rest of the Blackstone transaction. Just to add on to one of the questions I just responded to, or the PPT in terms of targets, I think second half, we continue to reduce the total debt. Just to clarify the question on the total debt, that obviously is focused on trying to address some of the policy for the full year.
Some of the questions I think have been surrounding how we improve on that next second half, and I think cash collection is part of that, asset sale will be part of that, and obviously trying to minimize any sort of unnecessary or large outflows obviously would help to reduce the amount of outflow for the full year. I think the leveraging plan to improve the Three Red Lines is obviously the target to remove one of those lines, if not two, by the end of the year, and then the remaining lines will be focused on the 2022 for next year. I think one of the things that I highlighted earlier in terms of the short-term portion of debt is that the short-term portion of debt has come from a high of CNY 70 billion, CNY 72 billion, to I think it's CNY 38 billion for current portion of short-term debt.
If we go into the next six months, the current portion of short-term debt would also continue to drop as we refinance the short-term debt component. All of that will again help to improve the full-year financials or the ratios that are highlighted in the policies.
The next question is, can you please talk about Seedland and the continued issues with that company affecting your bond or equity price?
I would respond firstly, and then maybe Chairman can add to any comments he has on that. But we've issued a clarification announcement on Seedland. I think people can refer to that. There is no sort of financial relationship on the balance sheet that affects our balance sheet. We've clarified that in the statements. To be frank, I cannot comment on another company's financial situation or how they resolve it. That's not something that we can comment.
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The next question is: Can the company explain the 50% drop in unrestricted cash and 12% increase in the restricted cash? Does this signal losing confidence from financial institutions?
I think people just need to understand the changes in restricted and unrestricted is brought on by just normal operating changes. As you make pre-sales and as you sell and you haven't completed, then obviously some of that sits into the pre-sale and unrestricted. As we repay financing and as we use cash to repay, then that comes from unrestricted. There will be a change from the two buckets as you move along. As you deliver, unrestricted becomes unrestricted. As you start to pre-sale, then you obviously would increase that change. From our perspective, obviously we look at the total cash balance as an important metric, but then figure out in terms of the delivery of targets or delivery of GFA to figure out what is usable and not usable. It doesn't signify a confidence in terms of financial institutions.
It just basically assumes that we need to rely on cash collection, which is not on the cash balance. It's something that is to come. We have to rely on cash collection from our pre-sales, which has not been collected. When we look at the financial balance sheet in terms of debt, in terms of cash, it's everything that we've done in the last six months. What hasn't been reflected in the next six months or today is what hasn't been completed, which is either completion of sales, which is either completion of delivery of contract sales or collection of cash in the next six months. I think as I highlighted in one of the slides, essentially the source of funding or the source of financing to come will be from cash collection.
Whether it's from cash collection of sales completed but to be collected, or whether it's from pre-sales to be occurred in the second half, where generally it's much higher. I think we understand there's obviously market questions and questions about how much we can use and how much we can't use and what is available. But I think it's more so important to look ahead and to see what we can generate and what we can collect to make that buffer. In terms of whether the financial institutions have a view, whether the financial institutions have a stance, it's not something that we can control. But I think if the intention is to reduce debt, then you need to generate more cash than you refinance, and that's something that we need to work on in the next 12 months.
I'm just conscious of time here, so I'm just trying to figure out whether there's questions that haven't been repeated. I don't think there's anything that the questions seem to be coming in that are being the same question, so I've been trying to address some of that already. I think that's probably most of it. I don't know if-