Ladies and gentlemen, good afternoon. Welcome to the 2013 annual results announcement analyst presentation from Greentown China. We have Executive Vice Chairman and CEO, Mr. Shou Bainian, CFO, Mr. Simon Fong. At today's presentation, our management will take you through 2013 annual results and also our prospects, and then we will take your questions. Mr. Shou, please.
Dear experts, welcome to today's presentation. I would like to report to you our 2013 results. I am very grateful that so many of you are here to express your concern. In 2013, I would first take you through some operational review, and then Mr. Fong will talk about financial highlights. We recognized revenue of CNY 28.991 billion, a decrease of 18.1% from 2012. This is due to the sellable GFA and also lower ASP. CNY 27 billion odd was recognized from property sales, and the rest are from renovation, et cetera.
Compared to 2012, a drop of 19.7%. The profit situation is more or less flat compared to 2012. It was CNY 4.851 billion in 2012, and in 2013, it was CNY 4.86 billion. Net profit margin increased from 17.1% in 2012 to 20.7%. Earnings per share, CNY 2.18, down 13.2% from 2012. This is due to some amortization effects. The core profit attributable to owners of the company, CNY 4.443 billion, representing an increase of 4.4% compared to 2012. Final dividend announced by the board of directors, CNY 0.43 per share. The financial position is very healthy at the end of the year. Bank balances and cash, CNY 11.281 billion. Net gearing ratio, 60.1%, which is a slight increase. It was 49.5% towards the end of 2012 because we have made another $300 million in terms of borrowing. Offshore financing.
There were four rounds of issuance, and they were all successful. We raised CNY 2 billion through our four offshore senior note issuance and three offshore club loans. Average interest rate, 5.96%. Our cost is relatively low. Pre-sale. We recorded total sellable area of 3.09 million square meters, up 9.2%. Total pre-sales amounted to CNY 65.1 billion, up 19.2% from 2012. Achieving 118.4% compared to our target set at the beginning. Land bank and projects under construction. Last year, we acquired 11 new land sites involving a number of mergers. Total GFA, 3.36 million square meters. At the end of the year, we had 104 projects in our land bank. Total GFA, 38.89 million square meters, among which 92 projects were under construction. Total GFA, 20 odd million square meters. That was the basic situation. Now, I would like to take you through the operational review.
I will ask Mr. Fong to take you through the operational review.
Thank you, Mr. Shou. Dear investors, good afternoon. Now, I will report to you our operational review and also financial analysis. First, the overall situation concerning pre-sale. We have reached a record high, CNY 65.1 billion. Including CNY 3 billion subscription sales. This is 19.2% increase compared to 2012, and this is also higher than our original target of CNY 55 billion. Approximately CNY 33.6 billion was attributable to the group. There were 107 projects available for sale. ASP was CNY 20,115 per sq m, slight increase from 2012, and overall sell-through rate 42%. On page seven, we continue to be very dedicated efforts, and we leveraged on our sales management experience and drove and deepened the new agency sales model, motivating our forces. Our market share is also number one in Zhejiang and also Hangzhou.
In Zhejiang Province, our market share was 6.3%, more or less the same compared to 2012, which was 6.9%. For Hangzhou, we grew from 9.4% to 11.6%. We move on to page eight, which concerns our scale of development. We had 16.57 million square meters under construction at the end of 2012, 6.185 million newly constructed, 2.27 million projects under construction, which were acquired projects. Completed GFA, 4.8 million. By the end of 2013, under construction GFA 20.2 million. Other than the expanding scale of development, I would also like to stress that we have very good control over our processes and quality of our products. Therefore, we do not just focus on quantity, we also focus on improvement of numbers and quality. Page nine, our newly added land bank. There were 11 new land sites acquired.
Total GFA 3.36 million square meters, 1.35 million attributable to the group. Total land premium of new land sites, CNY 24.3 billion , of which CNY 7.2 billion was attributable to the group. Average land cost, CNY 6,689 per sq m. This is a higher level of cost, but because of the newly acquired sites, about half of them were in Hangzhou city center or Shanghai premium locations. For example, the Zhejiang project, the cost was CNY 12,000, and now we are selling at CNY 17,000. The overall land cost is a bit higher, but the quality is really outstanding. Page 10, total land bank overview. We have 104 project sites, including sites under construction and pending construction. Total planned GFA 38.9 billion square meters. I need to explain here. In the past, we would always have a figure over 40 million.
Our interest of about 10% has been excluded because the impact on our cash flow is not substantial, so we do not want to be misleading. If we include interest of less than 10%, those projects, if they are included, then it will become more or less the same as previous years when it comes to the total planned GFA. The actual number, 21.5 million square meters, was attributable to the group. Total sellable area, 25.13 million square meters, and 13.61 million attributable to the group. Average land cost, CNY 2,799 per sq m. We think among our peers, this is actually rather low. Page 11, we are talking about resident satisfaction. We have actually received praise from our users. China Real Estate Top 10 Research Team conducted this survey.
It is a team with representatives from Development Research Center of the State Council, Institute of Real Estate Studies at Tsinghua University, and China Index Academy. We were the only one obtaining top brand in customer satisfaction. Surveys were conducted in 17 cities. Greentown came first in 15 major cities. In terms of property services, quality of construction, project design, sales services, and corporate reputation, we enjoy a clear advantage. Page 12 is about our vision. We started this business in 2008. It is like hotel management. We do not make any investments. We just ask the investor to hand the management work to us. After three and a half years, we have more than 60 projects at hand and total GFA over 16 million square meters. Our revenue was CNY 315 million, which is basically management fee. We are talking about 5%-7% of the sales price.
We have taken you through our operational highlights. Now I would like to report to you some financial figures. Page 14. You can see revenue has dropped from CNY 35.3 billion to CNY 28.9 billion, a drop of 18.1%. We have sold nine projects to Sunac in the middle of 2012. That is the impact. If we compare apple with an apple, then our revenue will be about CNY 36 billion, and last year about CNY 7 billion. Basically, the figures would become fairly comparable. GP margin, not just for property sales. You can see it is the same for both years, but the gross profit represented a slight decrease. There will be another slide explaining this. The GP margin will be further explained in a later PowerPoint slide, but there is some contribution from equity pickup. Then you can see the major expenses.
Financing cost has been decreasing because we have done a lot of capitalization. We are talking about CNY 34.8 billion dropping to CNY 24.3 billion. Financing cost, 8.8% drop to 8.6%. Slight decrease. That is the weighted average for the year, but if we only look at the year-end figures, the drop will be more substantial, from 8.9% to 8.09%. These are the financing costs. We also have sales expenses increasing by 27%, increasing from CNY 665 million to CNY 849 million. We are talking about commission, revenue, sales activities, advertisements, all going up. In last year's environment, this growth is inevitable. Page 15. You can see net profit, et cetera. Net profit is more or less the same, CNY 6 billion compared to CNY 5.99 billion. Net profit margin. If we look at this, there is a growth from 17.1% to 20.7%, but actually, it is not reliable because a lot has not been calculated.
If we use the core profit attributable to owners, profit from acquisition, fair value changes on financial derivatives, and fair value changes on investment properties. If all these are excluded, it increased by 4.4%, from CNY 4.2 billion to CNY 4.4 billion. The core profit has increased. Earnings per share, the drop, as I have explained, is because of some initiatives we have taken in the middle of the year. Page 16, you can see our total borrowing has increased. Net assets also increased. Bank balances and cash also increased. Net gearing ratio increased from 49% to 60.1%. We have not acquired much land, only 11 sites, but we spent more than CNY 700 million. Most of this is going into the purchase of land. There is a flat trend representing the other elements.
CCTV talked about LAT in one of their stories, and it became a hit topic, and we are going to continue to follow the national requirements. The tax is actually charged in advance. Sometimes the final figure is not available within the same year. There is always a time lag involved. The tax authority will do a preliminary calculation and charge that in advance. But we do the calculation according to the actual level. Sometimes the figure is presented, but the amount is not yet collected. It is not us running away from our responsibility, but it is mainly due to the time lag. Page 17, revenue and cost structure. I already talked about gross profit margin of property sale, 28.4%, down from 29.2% in 2012. This is not representing the trend. GP margin very often is dragged down by our product mix.
If you look at the list of projects, which is on page 29, you will see that two projects have very low GP margin: Hefei Jade Lake Rose Garden and Qingdao Ideal City. ASP is also low for these projects. The Hefei project was sold while the market was rather sluggish. The Qingdao project, we were supposed to include that in our books. GP margin is very low because the ASP was also very low at only CNY 7,000 odd. Therefore, that diluted our profit. Page 18, debt and cash position. Debt due within one year, only CNY 6 billion odd. The total figure is CNY 30.5 billion. We also issued CNY 8.5 billion of senior notes. Cash position, CNY 11.2 billion. Total equity, CNY 32 billion. Net gearing ratio, 60.1%. Only CNY 6 billion due within one year. We have more than CNY 11 billion in our savings.
We have more than enough to pay off this loan. The debt structure is being improved. Offshore borrowing takes up CNY 10.9 billion, 35.8%, through offshore channels. We would like to optimize and lengthen the debt cycles. It really depends on the opportunities. I think we have really taken the best time to issue our debt in the past. We are going to continue to work very hard to identify the opportune time. Page 19, we got upgraded ratings from Moody's, improvement from Caa1 to Ba1. Standard & Poor's upgraded us from CCC+ to BB-. Other than these events, our credit facilities is about CNY 48 billion from commercial banks, CNY 15.7 billion drawn at the end of 2013. Now, very quickly, I'd like to take you through some prospects of the company.
Concerning national policy, so on and so forth, I think Mr. Shou will offer more details in a moment. Basically, the new term of government is not as rigid or stringent in terms of coming down at the property market. They are being more flexible in terms of land supply. They have proposed different measures. We would like to highlight six points. First of all, we need to enhance sales efforts, reinforce de-stocking, because gearing ratio will always be affected. We also need funds to acquire land. Secondly, we are reviewing our product positioning. We would like to enhance sell-through rate. In the past, I'm sure you understand, our inventory is rather high because we focus on luxury projects. Of course, it takes time to absorb such product. For the newer products, we have done a lot of diversification, but we're not doing only rigid demand-driven products.
We also provide products of different sizes. Our asset-light model is very effective. We'll continue on with this approach together with Wharf and other existing partners, including Haier, Shandong Gaosu. We'll continue to collaborate with them. As for the pending construction parts, we're going to rely more on our project managers. Pending construction can be divided into three areas. For example, someone else owns the land, or we erect security housing for the government. We don't provide any funding, and of course, the GP margin is very thin. But this is for the community's sake. The latest model is to collaborate with funds. Sometimes funds have the money, but they don't have the team, and we have a very good track record. Our products are very famous. Our brand is well-recognized. Therefore, they would approach us.
We will continue to cooperate with funds and other well-funded third-party institution funds in project development in the forms of equity, debt, or equity plus debt. All these are being explored. Other than the hardware, we also would like to focus on enhancement of services. Sometimes, when we reach a certain level, it will be more difficult to improve ourselves further. We must rely more on services. Ever since we started our business, we always attach great importance to services and also customer satisfaction. Other than focusing on providing good products, we also need to provide excellent services. We could also use e-commerce and groupons as our new opportunities.
Fifthly, we are going to step up internal control. These are the four important areas of streamlining the organizational structure, comply with 05-09 requirement, which means construction within five months and pre-sale within nine months of land acquisition. At the same time, we continue to focus on human resources. We will continue to motivate our employees because they are the core of the enterprise. We will promote employee training, and our compensation system will become performance-based to reward the outstanding performance. Finally, we do care about our financial strategy. We will continue to control high-quality development and maintain gearing ratio within a reasonable range. We are talking about below 70%. We will also actively identify financing channels. We will be more inclined towards long-term debt. We will try to use them to replace shorter-term debt. Finally, on page 25, sellable resources.
We are talking about CNY 130 billion brought over from last year, CNY 70 billion newly added, CNY 80 billion, but that is up for adjustment. They may seem very large figures. CNY 30 billion from M&A. CNY 17 billion from the newly added is also from M&A. So sellable in this segment is CNY 42.7 billion. On page 26, locked-up profit, CNY 80.9 billion and CNY 40.1 billion attributable to the group. CNY 31.7 billion in relation to M&A. But the profit is locked-up profit, and our sell-through rate is slowing down. So many of the projects have already been completed. They are ready for sale. We have another year that will be dedicated to selling such property. So basically, that is the situation. Let us move on to Q&A. Thank you.
We now move on to Q&A. Before you raise your question, please tell us who you are and who you represent.
Please only limit yourself to two questions.
So investors, perhaps you are taking some time to digest the information.
Thank you. I have two questions about sales. First, this year, what do you think about different regions? Towards the end of last year, early this year in Hangzhou, the ASP has been fluctuating, affecting some of our major projects. So what is your sales strategies? What about the timing? The second question, as Mr. Fong has said, you have some new sales tactics. Some special coupons or selling through online channels. Do you think sales efficiency will be enhanced? Do you think it will help you in terms of more accurate pricing? Thank you.
We must do de-stocking. That is the first priority. So sales is not easy. Our indicator, we do not want to set it too high.
We will just try our best. CNY 65 billion, which is also the figure from last year, will be this year's target. The mainland market involves different cities, and they all have different characteristics and differentiation. We mainly focus on Hangzhou. The inventory level will require sales of 15 months. We have 74,000 residential flats. According to our current progress, we see a slowing down of demand. Last year in Hangzhou, there was great growth compared to 2011. It was CNY 28.5 billion. Last year, our market share actually improved. Our projects are located in premier locations, and the supply is always limited in such places. The land premium represents a clear increase compared to some years ago. You talked about sales tactics. We will consider the situation surrounding each and every project. We had large inventory last year.
We obtained the land in Hangzhou in 2009, and the price was quite high. Last year, the residential land segment saw very good sales. We saw another CNY 5 billion -CNY 6 billion in Hangzhou last year. Through our sales team's dedication and efforts, and also motivation and performance-based review activities, sales price became more flexible. It is not a solution if we want to lower the selling price substantially. You talked about some flexible manners to deal with the situation. This will help us maintain loyalty from our customers.
Thank you.
Can we have a second question? At the back.
One question about sales. CNY 7 billion inventory from 2013, how much of that is already completed but not yet sold? Last year, and also the year before, what was the ratio for larger households? What about cash flow guidance for 2013 and 2014?
Already delivered CNY 7 billion odd. The majority is not yet delivered. Already delivered about CNY 7 billion. That is 10%.
For the larger households or larger flats?
30 odd%, and then above 180 sq m, 17 odd%. Sales was last year, the sales condition mainly focused on the smaller households. It was more difficult to sell villas of more than 500 sq m - 600 sq m.
This year's situation, Mr. Fong?
People stopped asking about this for a while. 2013 cash flow. Year-end, beginning of the year, CNY 7.898 billion. Flowback, CNY 22.81 billion. Newly added CNY 85.7 billion. Other revenue, CNY 8.59 billion. So total inflow CNY 59.54 billion. Expenses, land premium last year, CNY 13.81 billion. Construction, CNY 16.73 billion. Taxes, CNY 4.5 billion. Management, CNY 1.41 billion. Financing, CNY 2.8 billion. Sales, CNY 699 million. Repayment, CNY 15.687 billion. Outflow, CNY 36.157 billion. Net inflow, CNY 3.388 billion. Together with CNY 7.8 billion, CNY 11.28 billion.
For 2014, CNY 11.2 billion at the beginning, and then sales revenue CNY 22.8 billion, which is 80% of recovery. Subsidiaries, 52% already sold, but not yet flowed back, CNY 3 billion of cash. Newly added loans, CNY 12.7 billion. Other revenue, CNY 4.1 odd billion. Land premium. It is not paid by us 100% because we have partners. Sometimes we have to calculate the equity or interest level. CNY 4.41 billion. Then beginning of the year, $500 million bond. We raised $300 million. So inflow CNY 48.71 billion. Expenses, land premium, CNY 7.6 billion. CNY 6 billion is outstanding land premium. CNY 1.6 billion is representing intention. Construction, CNY 17 billion. Taxes, CNY 5 billion. Management, CNY 1.5 billion. Sales, CNY 700 million. Basically, it is a flat trend. Newly added borrowings, CNY 12.7 billion. Dividend, and then also repaying Wharf. That amount has already been paid, which is CNY 2.2 billion. The outflow, CNY 48.3 billion. Net inflow, CNY 411 million.
In the third row.
I have three questions. First, total sellable, CNY 130 billion, including some old projects. Last year, CNY 60 billion and the sell-through rate was only 42%. Something must be wrong because I do not see that the figures actually tally. Which one is wrong? CNY 130 billion, and this year, do you think the sales volume will be the same, or the value will be the same? This year's sell-through rate will have to be 50%. Economy in Zhejiang is rather poor. What is the variation? We are talking about more or less the same thing because they are existing stock. What is different? Why do you think that the sell-through rate will become better than last year? About gross profit last year, 30% has been handled. How much was the GP level? What about collaboration with Wharf?
Are you going to step up collaboration? I do not see too many collaborations towards the end of the period. Is there any further collaboration? Perhaps the development speed is lower. Is it difficult? Is the situation too difficult, or are there different reasons?
Oscar, very impressive. You have calculated the figures in such a short time, but I have also prepared my answer. Something was included in the past but now no longer included. That is why there is a difference. GP margin and collaboration with Wharf, and what about the sell-through rate? 42% and then 50% this year. 40% of CNY 135 billion is more or less the same. The sales condition for this year, another newly added CNY 60 billion. 60% will be our target. So CNY 36 billion odd. This is for the newly added projects. For the existing stock, CNY 28 billion. The total figure will be CNY 64 billion.
That is calculated according to the 40% sell-through rate. Sales situation was not satisfactory last year. We have done a review this year on our sales targets and tactics. We have become more flexible. Our sales team has worked very hard, but of course, we also need flexibility. This year, we will continue to enhance our level of flexibility. CNY 65 billion will be the final figure. We are more than happy to collaborate with Wharf. The key is we must find the right projects. Basically, we have already formed this system. Basically, the situation is financing will be done by them. We are talking about 50% of the land premium will be taken up by them. We have 70% interest in the Dalian project. Another project we acquired last year, 60%. They are the guarantor. Their cost advantage is smaller.
In Q4 last year, how much was it?
LIBOR + 1.4%. Dalian, about 2%. I think for the rest, about 1.7%. We will take the lead in terms of management. We have negotiation from time to time. In Dalian, Hangzhou, Shanghai, Guangdong, Beijing, they would like to have extensive collaboration with us. We already have Dalian, Guangzhou projects in Shanghai. Well, one project in Pudong with three parties. In Shanghai, in Guangdong, we are looking for the sites. It is not easy. Shanghai, Beijing land premium last year was too high, which simply could not purchase anything.
Sometimes they can pay CNY 10 billion, but we cannot afford CNY 10 billion, so we have to rely on bank facilities, and sometimes we have to make sure the level of investment is compatible with our risk appetite. We are all very proactive, and we are willing to collaborate with them.
It shouldn't be a major problem. Because of tendering reasons, sometimes at the end, we do not obtain the project. Hopefully, there will be a new project for collaboration. Profit trends, we won't be too high. Our GP margin, sometimes it can be 29% or 30%. GP margin trend may be a downward trend. Because most important thing is sell-through rate and also liquidity. We must also have high GP margin at the same time. In the coming years, between 23%-27%, I believe. The level for 2014 will more or less be the same. It's around 27%. It is not important. More important is to be able to turn things around and have a high sell-through rate.
I have a question. You talked about the liquidity level. For the entire sector, can we maintain more or less the same level of turnover?
Because our GP margin continues to drop, turnover rate is the key now.
You also talk about managing services. I would like to ask about the progress. Last year, in Q2, there was a special policy launched. Turnover rate, Q1 this year, the transaction level has been dropping in cities. The transfer turnover rate, I believe, is also slowing down.
If you can achieve 60% of sales for a new project, it is already very satisfactory. You can already obtain the capital. In the past, we were able to sell up to 80% or 90% of our stock. But the situation has changed. Things are slowing down. Every company will have different policy. What do you really want? You have to balance turnover and profit. You also need to consider royalty level and also how that balances with the sell-through rate.
I have seen some newly launched projects with very poor conditions inside, according to some newspaper reports. That is also happening in Mainland China. Greentown insists on high prices because by paying so much, you have good quality. Of course, we need to think about turnover. It is about finding the right balance. If you want fast turnover, it's easy, but it is up to your choice. To every company, they may have different strategies. For Greentown, we refused to lower our prices. We simply add on to our quality, and we are doing the same today. Of course, we need to be flexible. We have more than 100 projects located in different cities. Perhaps in different cities, we need to adopt different tactics. Some reasonable measures have to be adopted.
We will organize some activities, find ways that are acceptable to everyone to promote sales. CNY 70 billion is our sales target. I'm confident that we can go beyond this. I think it is more assuring if we set the target at CNY 65 billion, but that CNY 5 billion difference is not that important. We just have to be stable. You also talked about services. In recent years, we have been moving towards service-oriented. We would like to enhance the content of our products so that the buyers can purchase good hardware, and at the same time in the future, they can enjoy convenience and very refined services. In 2004 and 2005, we launched some new initiatives. We are relying on internet channels as well. I believe we'll be able to enjoy greater benefits because we have already established a very good foundation network. Thank.
Our sales figure is more than CNY 100 billion a year, but we would like to focus more on our services, because this is how you will get the heart of the users, and you enhance the level of loyalty. Otherwise, people will have many complaints, and you cannot discharge your duties. We are connecting the traditional sales channels with online sales. That is a new direction. Secondly, our third-party management. Beginning from 2010, we have been doing this for three years. We have signed many contracts, more than 60. The value other than our salaries of our team and then fees, CNY 6.5 billion. The GP margin is actually quite high. Sales figure at CNY 20 billion, we would obtain management fee of CNY 500 million. This is about transformation of Greentown. In terms of scale, we are Top 10. We have actually included our JV partners.
We are not just focusing on scale. We only have core profit of CNY 1 billion. We cannot rely simply on profit to propel further development. Otherwise, our scale will become smaller and smaller. We have also relied on issuing debt. Again, that does not work. We have already tried. That does not work. It is too risky. Is it possible for us to make use of management and brand building? Can we identify a new pathway? I think that is possible. Top 50 companies, they take up less than 20% of the market share. There are many small to medium-sized companies in the market. If we do better in terms of brand management, I think perhaps we can identify some room for further development. We adopt the asset-light model. Perhaps that is the right direction for us. Of course, P/E ratio is not going to be 3 x.
Because you have to restrict the level of debt, and you have to consider healthy growth of your scale, and also maintain high level of sales figures every year. It is impossible. We have to turn over to the asset-light model so that we have to launch the best product and also excellent services. We are very dedicated, and we continue to hope that this is the right direction for us. Actually, people do not have much expectation of us sometimes. They know our GP margin is not going to be very high anyway, so we sometimes feel more relaxed. We have to maintain a reasonable de-stocking rate and maintain healthy development. Sometimes the profit is very high this year, and then the next year, we cannot sustain the same level. Sometimes people will say the profit level is too high. We are not going to increase the profit level.
The target is to have an asset-light model, and this model has room for further development in the mainland market. I have spent many years on improving our internal management.