Vanke's net profit decreased by 10.5 billion last year, and for the first time,

On the evening of March 28, Vanke Group (000002.SZ) released its annual performance announcement for the year 2023. In order to help the company navigate through the transition period smoothly, Vanke Group proposed for the first time a target to reduce leverage—reducing interest-bearing debt by more than 100 billion yuan over the next two years, with the debt reduction amount accounting for one-third of the current interest-bearing debt.

The announcement shows that in 2023, Vanke Group's operating income was 465.74 billion yuan, a year-on-year decrease of 7.6%; the net profit attributable to the shareholders of the listed company was 12.16 billion yuan, a decrease of 10.53 billion yuan from 22.69 billion yuan in 2022, a decline of 46.4%.

"The deep adjustment of the industry has brought tremendous pressure to the company's operations," Vanke Group explained in the annual report regarding the decline in profits, mainly due to the decrease in the scale of development business settlement and the settlement gross margin, and impairment provisions were made for some development projects.

Based on the above performance, Vanke Group stated that after comprehensive consideration, the company will not distribute dividends, bonus shares, or carry out capital reserve fund conversion to share capital for the year 2023. It is worth noting that since 1992, Vanke Group has maintained a dividend tradition for 31 years, and the decision not to distribute dividends in 2023 may also reflect the group's current cash needs from the side.

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In the "To Shareholders" section of the annual report, Vanke Group stated that in 2023, facing the continued downward trend of the market, the company actively adapted, but the company's profits were under pressure, and indicators such as capital reserves and cash-to-short-term debt ratio showed a downward trend, and the short-term pressure of transforming to high-quality development still exists. Specifically, during the period of rapid expansion, some investment judgments were overly optimistic, and it will take some time to digest these projects. In addition, although the company's operational service business capabilities have made significant progress, the inherent difficulties of long capital recovery cycles and large capital occupation in operational real estate can only be completely solved after the maturity of the financing mechanism.

Looking at the business types, in terms of operating income, Vanke Group's operating income from real estate development and related asset management business was 429.75 billion yuan, accounting for 92.3%; the operating income from property services was 29.43 billion yuan, accounting for 6.3%. In 2023, Vanke Group achieved a contract sales area of 24.66 million square meters and a contract sales amount of 376.12 billion yuan, respectively, a year-on-year decrease of 6.2% and 9.8%.

For the capital market, Vanke Group's debt repayment ability is a key focus.

The announcement shows that as of December 31, 2023, Vanke Group's total interest-bearing debt was 320.05 billion yuan, a slight year-on-year increase, accounting for 21.3% of total assets.

Looking at the repayment time of interest-bearing debt, the interest-bearing debt due within one year was 62.42 billion yuan, which was reduced compared to the same period in 2022, accounting for 19.5%. The interest-bearing debt due after one year was 257.63 billion yuan, accounting for 80.5%. In terms of financing objects, among the interest-bearing debt, bank loans were 197.3 billion yuan, accounting for 61.7%; payable bonds were 79.2 billion yuan, accounting for 24.8%; other loans were 43.5 billion yuan, accounting for 13.5%.

As of the end of 2023, Vanke Group held 99.81 billion yuan in cash and cash equivalents, a 27% reduction from the same period in 2022, but still higher than the total amount of interest-bearing debt due within one year, which was 62.42 billion yuan.Vanke Group also disclosed that in the whole year of 2023, it newly obtained financing of 89.7 billion yuan, of which 76.6 billion yuan was newly obtained domestic financing, with a comprehensive financing cost of 3.61%, and 13.1 billion yuan was newly obtained overseas financing. The asset-liability ratio excluding advance sales accounts was 65.5%, which was 2.1 percentage points lower than the end of 2022.

In domestic financing, Vanke Group issued a total of 10 billion yuan in credit bonds in 2023, including the completion of a 2 billion yuan corporate bond issuance and four issuances of medium-term notes totaling 8 billion yuan. In addition, as of March 28, Vanke Group has reported 42 projects on the white list of the housing finance coordination mechanism in 22 cities including Beijing, Guangzhou, Hangzhou, Chengdu, Chongqing, Nanchang, and Kunming.

In the performance report, Vanke Group also responded to the international rating agencies' downgrade of its credit rating, stating that the main reason was the rating agencies' increasingly pessimistic view of the domestic real estate industry.

In order to help the company smoothly navigate the model transformation, Vanke Group stated in the performance report that on the one hand, it must ensure the safety bottom line, adhere to the goal of outperforming the overall trend in sales, and maintain a positive cash flow on the operational level. It will estimate more fully the uncertainties that may arise in the future, and realize a "reservoir" through large asset and equity transactions, aiming to achieve transaction collections of no less than 30 billion yuan in 2024. On the other hand, it is determined to reduce leverage, cutting interest-bearing debt by more than 100 billion yuan in the next two years, with the debt reduction amount accounting for one-third of the current interest-bearing debt. So far, since the 2018 call to "survive," Vanke has publicly proposed a leverage reduction target for the first time.