First Quarter Results Financial Statement And Related Announcement
Financials Archive
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Income Statement
Balance Sheet
Review of Performance
Key differences in the comprehensive income statement and balance sheet items of our Actual Consolidated Financial statements and our Proforma Consolidated Financial statements for 1Q 2012
Review based on unaudited Actual Consolidated Financial Statements
Income statement
Revenue
Our Group's revenue increased by RMB16.8 million, or 70%, from RMB24.0 million in 1Q2011 to RMB40.8 million in 1Q2012. The increase was mainly attributed to the increase in revenue from our Property Development Sales by RMB15.4 million, from RMB20.1 million in 1Q2011 to RMB35.5 million in 1Q2012. The increase in revenue from the property development sales was mainly due to a higher average selling price ("ASP") per square metre ("sqm")achieved as well as a higher gross floor area ("GFA") sold and recognised in 1Q2012 over the previous corresponding period. The GFA sold and recognised in 1Q2011 and 1Q2012 was 2,500 sqm and 2,700 sqm respectively, while the ASP per sqm had increased from approximately RMB9,400 per sqm in 1Q2011 to approximately RMB13,900 per sqm in 1Q2012. The higher GFA sold and recognised in 1Q2012 was achieved by sales contribution from Phase 1 of the Shanshui Longpan (山水龙盘) (a high-end villa and residential township project by the Group) (and in particular the Phase 1 Villas, consisting of bungalows, semidetached and triple-linked villas), which however, was also partially offset by lower sales from Jiangnan Mingju Phases 5 and 6 residential units, a completed project which had been handed over to purchasers since 3Q2010. The increase in ASP per sqm was due to the sales contribution of Shanshui Longpan's Phase 1 Villas which is a high-end residential development that generated a higher ASP per sqm compared to that generated by Jiangnan Minju Phases 5 and 6.
The increase in revenue was also contributed by an increase in revenue contribution from Property Rental Income and Property Management Service Income of RMB 2.0 million, which was the revenue contribution from the property management project of Jiangnan Mingju Phases 5 and 6.
However, the increase in revenue was partially offset by a decrease in revenue contribution from Construction Contracts of RMB0.6 million, which was mainly due to the decrease in construction contracts work done for our jointly controlled operations - Jin Long Garden, as the majority of the construction contract work for Jin Long Garden-South Zone (Phase 2) was completed in 2011.
Cost of Sales and Gross Profit
Our cost of sales increased by RMB7.2 million, or 44%, from RMB16.4million in 1Q2011 to RMB23.6 million in 1Q2012. This was mainly attributed to an increase in cost of Property Development Sales by RMB6.0 million and an increase in cost of Property Rental and Property Management Service by RMB 1.7 million, which was fairly in line with the increase of GFA recognised and increase of revenue from Property Rental and Property Management Service.
The increase was partially offset by a decrease in the cost of Construction Contracts of RMB0.5 million.
Included in the 1Q2012 cost of Property Development Sales of our Unaudited Actual Consolidated Financial Statements, was a fair value adjustment which increased the cost of Property Development Sales by RMB1.7 million. The fair value adjustment to the cost of Property Development Sales was mainly due to the application SFRS 103 for the acquisition of the PRC subsidiaries by our Group where, inter alia, the development properties and property held for sale held by the respective PRC subsidiary would need to be recorded at fair value at the respective dates of acquisition, which is higher than the historical costs. Accordingly, this resulted in a corresponding fair value adjustment to cost of Property Development Sales when the Group recorded sales for their sold properties during 1Q2012.
The quantum of the total fair value adjustments to our cost of property development sales over time would be limited to the aggregate of the excess of attributed fair values of these properties over the corresponding historical book values at the time of acquisition of approximately RMB488.7 million (excluding the offset against estimated deferred tax liability adjustment of approximately RMB122.2 million). As the cumulative fair value adjustments to our cost of property development sales amounted to RMB204.9 million as at end of 1Q2012, the aggregate of remaining fair value adjustments to our future cost of property development sales in the Actual Consolidated Financial Statements will only be up to RMB283.8 million (excluding the offset against estimated deferred tax liability adjustment of approximately RMB71.0 million, which will result in net future fair value adjustments of approximately RMB212.8 million only).
In terms of gross profit margin, our overall gross profit margin increased from 31% in 1Q2011 to 42% in 1Q2012, as a result of increase in gross profit margin from Property Development Sales due to a higher ASP per sqm derived from Shanshui Longpan (山水龙盘) Phase 1 villas in 1Q2012 over the previous corresponding year, and ASP per sqm achieved from Jiangnan Mingju Phases 5 and 6 residential units. The ASP per sqm was approximately RMB 13,900 per sqm and RMB 9,400 per sqm for 1Q2012 and 1Q2011 respectively.
With the exclusion of the non-cash fair value adjustment on the cost of Property Development Sales due to the application of SFRS 103 (the "SFRS 103 Adjustment"), the Proforma gross profit margins attained are at 46% in 1Q2012 and 44% in 1Q2011 respectively. The variances are fairly in line with the Actual CFS gross profit margin variances, taking into consideration the said non-cash fair value adjustment on the cost of Property Development Sales.
Other Income
Other operating income, which mainly included interest income and other income, comprised mainly miscellaneous surcharge income from Property Management Services.
There were no significant movements on other income as compared to 1Q2011.
Selling and Distribution Expenses
Selling expenses primarily included staff cost, advertising and promotion expenses, sales commissions, sales offices rental expenses and maintenance costs.
Our selling and distribution expenses increased by RMB0.2 million in 1Q2012 as compared to 1Q2011. The higher selling and distribution expenses in 1Q2012 was mainly due to the marketing and selling expenses incurred for Shanshui Longpan Phase 1(ii) Villas project.
Administrative Expenses
Administrative expenses comprise various expenses such as salaries and staff-related expenses of general administrative staff, utilities, depreciation charges for building and office equipment, telecommunication expenses, entertainment expenses, professional fee, travelling expenses and other general office overheads expenses.
Our administrative expenses increased by RMB1.9 million, or 20%, from RMB9.3 million in 1Q2011 to RMB11.2 million in 1Q2012, which was mainly attributed to the increase in depreciation charges on plant and equipment of the newly completed Shanshui Longpan Hotel (July 2011).
Finance Costs
Finance cost, net of capitalised interest, recorded an increase of RMB5.8 million in 1Q2012 compared to 1Q2011 mainly due to the increase in bank loans and other loans raised by the construction, property holding and management subsidiaries (interest incurred on operating activities that not allowed for capitalisation) which were expensed off to the income statement directly coupled with higher effective interest rates.
Share of a Joint Controlled Operation Profit
The share of jointly controlled operation results relates to the 55% stake contribution from Jin Long Garden. Jin Long Garden is an integrated residential and commercial estate project jointly developed with an unrelated third party, Foshan Jing Fang, which holds the remaining 45% stake of the project.
Share of jointly controlled operation results incurred both a loss of RMB0.3 million in 1Q2012 and a loss of RMB1.5 million in 1Q2011, a decrease of RMB1.2 million in loss. The losses incurred for 1Q2012 and 1Q2011 were mainly due to minimal sales of completed properties in Jin Long Garden during the periods, as the development of Jin Long Garden - North Zone (Phase 1) was completed in 1Q2010 and the accumulated pre-sold saleable GFA had been recognised then.
On the other hand, Jin Long Garden - South Zone (Phase 2) has been launched by stages for pre-sales since mid of December 2010 and is expected to be completed in 2H2012. Pursuant to the adoption of the INT FRS 115, the pre-sold saleable GFA will be recognised upon completion and handover.
With the exclusion of the Notional Adjustment on the Jin Long Garden project cost of development, 1Q2012 Proforma CFS Share of jointly controlled operation profit was decreased by RMB1.2 million which is fairly in line with the Actual CFS variance.
Amortisation
Amortisation relates to the amortisation of prepaid land use rights for our new corporate office since 4Q2009 and the newly completed Shanshui Longpan Hotel building which is currently used as our sales gallery. The amortisation is based on 40 years of useful rights of the land.
Depreciation
Depreciation relates to the depreciation charge on our properties, plant and equipment.
Depreciation increased by RMB1.9 million in 1Q2012 as compared with the corresponding period of last year. This was mainly due to depreciation charges on the plant and equipment of the newly completed Shanshui Longpan Hotel since July 2011.
Income Tax Expenses
Income tax includes statutory enterprise income tax and land appreciation tax ("LAT"). Income tax increased by RMB2.0 million in 1Q2012 as compared with 1Q2011. The higher income tax expenses in 1Q2012 were mainly due to increase of provision of LAT and statutory enterprise income tax for Property Development Sales, in line with a higher profit contribution from Property Development Sales as aforesaid.
The Proforma CFS has a higher income tax expense compared to the Actual CFS, and was mainly due to the estimated deferred tax liability adjustment on the pertained fair value Notional Adjustment to the cost of property development.
Net Loss
With the above, we incurred a net loss of RMB7.0 million in 1Q2012, compared to a net loss of RMB7.9 million in 1Q2011. The Proforma CFS, which excludes the Notional Adjustment effects with a better comparability of the Group's performance, has presented a net loss of RMB5.7 million in 1Q2012 and RMB5.4 million in 1Q2011 respectively.
Statement of Financial Position
Current Assets
Current assets comprise mainly development properties, properties held for sale, cash and bank balances, trade and other receivables and amount due from customers for contract work. Our current assets as at the end of FY2011 and 1Q2012 amounted to approximately RMB1,937.3 million and RMB2,046.1 million respectively.
The largest component of our current assets was development properties, which amounted to approximately RMB1,252.7 million and RMB1,293.2 million as at end of FY2011 and 1Q2012 respectively. Development properties, which include the cost of land, interest capitalised, and related costs, accounted for approximately 65% and 63% of our current assets as at the end of FY2011 and 1Q2012 respectively. The RMB40.6 million or 3% increase in development properties was mainly due to (a) acquisition cost and relative expenses of taxation of RMB 14.1 million for the new land bank of Foshan City (please refer to our Corporate Announcements dated 22 November 2011); and (b) an addition of RMB26.5 million development cost for the Shanshui Longpan project.
Properties held for sales amounted to RMB 299.4 million and RMB 275.9 million as at end of FY2011 and 1Q2012 respectively, which include properties of Jiangnan Mingju Phases 5 and 6, and Shanshui Longpan Phase 1 Villas. The RMB 23.4 million or 8% decrease in properties held for sales was due to the recognition of cost of sales when properties held for sales were sold.
The Group's cash and bank balances as at 31 March 2012 increased by RMB54.3 million or 38% to RMB198.3 million as compared with 31 December 2011, which was primarily attributable to the net cash from financing activities of RM130.8 million, and investing activities and effect of exchange rate changes of RMB0.5 million in 1Q2012 respectively, and partially offset by net cash used in operating activities of RMB77.0 million.
In addition, restricted cash stood at RMB80.3 million and RMB21.4 million as at end of 1Q2012 and FY2011 respectively. The increase was due to the pledging of RMB60.0 million cash to the banks for securing newly short-term banking facilities to our Group as at 31 March 2012.
Trade and other receivables stood at approximately RMB210.0 million and RMB193.5 million at the end of FY2011 and 1Q2012 respectively. The RMB16.5 million decreases in trade and other receivables were mainly due to the transfer of RMB 13.7 million prepayment on the land cost of the Adjacent Land to the Shanshui Longpan Hotel to development properties upon the Group received the certificate of land use right.
Amount due from customers for contract works stood at RMB8.7 million and RMB3.5million as at end of FY2011 and 1Q2012 respectively. These amounts pertain to construction contracts that have yet to be billed to our construction contract customers. The decrease of the RMB5.2 million or 59% in amount due from customers for contract works was mainly due to the reduction of Construction Contracts revenue in 1Q2012 as aforesaid.
Non-current assets
Non-current assets comprised mainly investment properties, investment in jointly controlled operation and property, plant and equipment. As at end of FY2011 and 1Q2012, our noncurrent assets had an aggregate net book value of approximately RMB486.1 million and RMB483.5 million respectively.
The investment properties are held to earn rental income and/or for capital appreciation. Our investment properties comprised mainly our Debao Hotel Complex together with the adjacent land and underground carparks, and commercial premises located in Debao Garden and Jiangnan Mingju. The net book value of our investment properties was approximately RMB240.7 million as at the end of FY2011 and 1Q2012, which accounted for approximately 50% of our non-current assets as at the end of FY2011 and 1Q2012.
The investment in jointly controlled operation comprised of the investment in Jin Long Garden, of which 55% of the profits will be attributable to the Group. The decrease of RMB0.3 million in the investment in joint controlled operation was mainly due to the Group's share of RMB0.3million loss from the investment in jointly controlled operation in 1Q2012.
The prepaid land use right, and property, plant and equipment decreased by RMB2.8 million was mainly due to amortisation/depreciation charge of RMB2.8 million for 1Q2012.
Current liabilities
Trade and other payables, which mainly comprised of amounts payable to contractors and suppliers and advance receipts from property development sales, stood at approximately RMB317.7 million and RMB244.7 million at the end of FY2011 and 1Q2012 respectively. The decrease in trade and other payables was mainly due to (a) transfer of RMB35.4 million by recognition of Shanshui Longpan Phase 1 and Jiangnan Mingju Phase 5 and 6 pre-sales proceeds on those handed over in 1Q2012; (b) payment of RMB49.5 million to contractors by property development and construction subsidiaries in line with the progress of the projects, such as Sanshui Longpan Phase 1 Villas which is almost completed; (c) other tax payable decreased by RMB5.5 million for payments of land use charge and house duty for financial year 2011; (d) RMB 2.7 million paid for accrued 2011 year-end bonus; and the decrease was partially offset by (f) addition of RMB20.1 million from customers for pre-sales of properties that did not meet sales recognition criteria.
Shareholders' equity
Equity comprised of share capital, translation reserve, non-controlling interest and retained earnings. The non-controlling interest pertains to the 5% shareholding held by the minority interest in the subsidiary, Sihui Debao Jiangnan Minju Property Development Co., Ltd (please refer to our Corporate Announcement dated 27 June 2011).
At the end of FY2011 and 1Q2012, shareholders' equity amounted to RMB1,231.2 million and RMB1,227.3 million respectively. The decrease in equity was mainly due to the current period loss incurred.
Cash flow statement
Our Group has a net cash outflow from operating activities of RMB76.9 million during 1Q2012, which comprised of operating cash inflows before movements in working capital of RMB8.5million, adjusted for net working capital used in operations of RMB56.7 million and net of finance cost and interest received as well as income tax paid of RMB18.3million and RMB10.4 million respectively. The net working capital outflows were mainly due to the increase in development properties and decrease in trade and other payables as explained above, partially offset by the decrease in property held for sales and trade and other receivables (also as explained above), during the current reporting period.
The net cash inflows from investing activities of RMB0.1 million mainly pertained to interest received of RMB0.1 million.
The Group recorded a net cash inflow from financing activities of RMB130.8 million during 1Q2012. This was mainly due to drawdown of new loans raised of RMB191.2 million, partially offset by repayment of RMB1.5 million bank and other loans and the pledging of additional RMB58.8 million restricted cash.
With the above, the Group has a net increase in cash and cash equivalents of RMB54.0 million for 1Q2012.
Commentary
Market Outlook
Despite these tight macro control policies, we have seen that the transacted property average selling prices per square metre ("sq m") in Foshan has been holding steadily with just a marginal decrease (0.86%) during the current reporting period, from RMB8,204 per sq m in 1Q2011 to RMB8,133 per sq m in 1Q2012. This however resulted in a decrease in transaction volumes from 2.6269 million sq m in 1Q2011 to 1.0281 million(1) in 1Q2012, a decrease of 60.86%.
The Board of Directors believe that the outlook of the property sector remains tough in the short term due to the current weak outlook of the global economy, coupled with no relaxation of the property buying restrictions and lending controls.
Project Updates
As at 31 March 2012, the Group has two development projects with a gross floor area ("GFA") of approximately 0.95 million sq m under development and approximately 0.48 million sq m GFA of land held for future development in the Pearl River Delta area. These are expected to be separately completed in various phases up to 2017, providing us with secure and visible business growth opportunities in the foreseeable future. At the same time, the Group will continue to source for quality and commercially viable new land bank, including retail mall development, redevelopment of industrial land as well as tourism development projects that will be of merit to the Group. The Group is hoping to secure a few suitable land parcels or projects in 2012 to enhance the prospect outlook of the Group.
The Shanshui Longpan, Phase 1 and Phase 1(ii) Villas have a saleable GFA of approximately 68,800 sq m (revised) and 36,200 sq m (revised) respectively, of which approximately 58,400 sqm and 36,200 sqm have been launched for pre-sale. Starting from October 2011, the Group has handed over those completed units of Phase 1 villas to the buyers in batches.
The total saleable GFA of Jin Long Garden - South Zone (Phase 2) is approximately 92,500 sq m (revised), of which approximately 58,700 sq m have been launched for pre-sales (in stages) as at 31 March 2012.
The accumulated sales/pre-sales status of our projects as at 31 March 2012 are as follows :
The sales/pre-sales of our projects for 1Q 2012 are as follows:
Pursuant to the effect of INT FRS 115, the sales for Jiangnan Minju Phases 5 and 6, and Shanshui Longpan Phase 1 Villas in 1Q2012 have been recognised as revenue in the current reporting periods/year. The accumulated sales/pre-sales for Phase 1(ii) Villas will be recognised as revenue upon its completion, which will be in 2H2012. The completion date for Jin Long Garden - South Zone (Phase 2) (a 55% joint-ventured project) is estimated to be in early of 2H2012. This means we will have a fairly secured project revenue and profit to be recognised in FY2012.
Baring unforeseen circumstances, the Board of Directors is cautiously optimistic of the Group's performance in 2012, based on the continued sales activities of Shanshui Longpan, Jin Long Garden South Zone (Phase 2) and Jiangnan Mingju Phases 5 and 6.