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1Q2017 vs 1Q2016
he Group achieved revenue of RMB317.1 million for the quarter ended 31 March 2017 ("1Q2017"), a decrease of 61% or RMB501.3 million from RMB818.3 million in the same period in 2016, primarily due to the decrease in the number of property units handed over. As a result, the aggregate Gross Floor Area ("GFA") sold and recognised decreased by approximately 76% or 52,475 square metres ("sqm"), from 69,125 sqm for the quarter ended 31 March 2016 ("1Q2016") to 16,650 sqm for 1Q2017. Revenue for the projects sold and recognised was mainly attributable to the Suzhou Industrial Park Royal Mansion, which contributed RMB176.3 million, or approximately 56% of the total revenue generated for 1Q2017. However, the average selling price ("ASP") for all projects increased by 60% from RMB11,575 per sqm in 1Q2016 to RMB 18,540 per sqm 1Q2017.
Despite the lower revenue, the Group experienced an increase in its pre-sales activities for 1Q2017. The Group recorded pre-sales GFA of approximately 108,166 sqm with an aggregate consideration of approximately RMB1,614.7 million for the development properties projects in the People's Republic of China ("PRC") during 1Q2017. This represents an increase of 128% in aggregate consideration, or RMB907.2 million from RMB707.4 million, as well as an increase of 68% in GFA, or 43,929 sqm, as compared to 1Q2016. Overall, the average selling price ("ASP") of pre-sales increased from RMB 11,013 per sqm in 1Q2016 to RMB14,928 per sqm in 1Q2017 as a result of the higher mix of projects from second tier cities.
The Group also continued with its pre-sales activities for four of its property development projects in Australia. During 1Q2017, a total of 33 units from these property development projects – Illumina, Uptown, Marine's Hill and Stellar - were pre-sold and 1 unit from Vivir were sold with a total aggregate consideration of AUD25.8 million.
Cost of sales and gross profit margin
In tandem with the decrease in revenue, the Group's cost of sales, comprising land acquisition costs, construction costs, capitalised borrowing costs and indirect costs incurred on the development properties sold, decreased by 65% or RMB492.5 million from RMB755.0 million in 1Q2016 to RMB262.5 million in 1Q2017.
Gross profit decreased by 14% or RMB8.8 million, from RMB63.3 million in 1Q2016 to RMB54.6 million in 1Q2017, increased greater than revenue. Overall gross profit margin increased from 7.7% in 1Q2016 to 17.2% in 1Q2017. This was due mainly to a greater revenue contribution from the Suzhou Royal Palace and Suzhou Industrial Park Royal Mansion, which have higher gross profit margins compared to the projects of last year.
Other income, comprising gain on disposal of financial assets available-for-sale, foreign exchange gain, and gain on disposal of property, plant and equipment, increased by 382% or RMB11.1 million from RMB2.9 million in 1Q2016 to RMB14.0 million in 1Q2017. The other income mainly includes the foreign exchange gain of RMB12.9 million due to the downturn of USD exchange rate.
Selling and distribution expenses
Selling and distribution expenses comprising advertising and promotion expenses, sales commissions, sales offices rental expenses and maintenance costs, increased by 155% or RMB25.1 million from RMB16.3 million in 1Q2016 to RMB41.4 million in 1Q2017. This was due mainly to the increase in expenditure on sales and marketing activities for more new projects, compared to last year.
Administrative expenses comprising salaries and staff related expenses for general administrative staff, utilities expenses, telecommunication expenses, entertainment expenses, professional fees, travelling expenses and other general overheads expenses, increased by 6% or RMB2.5 million from RMB42.5 million in 1Q2016 to RMB44.9 million in 1Q2017. This was attributable to higher staff costs and other related staff expenses from higher headcount, which was in line with the increase in business activities for more new projects.
Net finance costs
Net finance costs were RMB16.4 million in 1Q2017, compared to of RMB8.2 million in 1Q2016. This was due to finance costs that could not be capitalised in development projects during the current quarter, which include the interest of loans and unquoted debt securities to the companies that have no projects under construction.
Share of results of joint ventures and associate, net of tax
Share of results of joint ventures and associate, net of tax was a loss of RMB1.2 million in 1Q2017, as compared to a profit of RMB6.1 in 1Q2016. The share of results of joint ventures and associate in 1Q2016 was from the handover of the Group's Vivir project in Australia, while the figure in 1Q2017 was mainly from UCCH, Suzhou Ruixin, Suzhou Xinglun and Shengeng Hongye which were at the beginning of construction.
Income tax expense
Income tax expenses include enterprise income tax and land appreciation tax ("LAT"). The Group incurred a tax expense of RMB1.8 million in 1Q2017, as compared to an income tax expense of RMB20.3 million in 1Q2016. The decrease was in line with the decrease in revenue, and lower LAT tax rate incurred by the completed projects.
Loss for the period
As a result of the foregoing, the Group reported a loss after tax of RMB37.2 million in 1Q2017, while the loss for the period in 1Q2016 was RMB15.1 million.
Statement of Financial Position
Non-current assets comprised property, plant and equipment, investment properties, interest in joint ventures, interest in associate and deferred tax assets. As at 31 March 2017, non-current assets amounted to RMB1,820.8 million as compared to RMB1,596.6 million as at 31 December 2016.
The increase in non-current assets of RMB224.2 million was due mainly to an increase in joint ventures from RMB98.8 million as at 31 December 2016 to RMB295.2 million as at 31 March 2017 due to the purchase of Suzhou Xinglun, as well as an increase in investment properties of RMB23.2 million due to the costs incurred for investment properties under development.
Current assets as at 31 March 2017 and 31 December 2016 amounted to RMB14,103.5 million and RMB13,720.7 million, respectively. The increase in current assets of RMB382.8 million during the financial period was due mainly to:
Contract work-in-progress refers to a contract that the Group has entered into with the Suzhou Municipal Government to develop an education park, with an approximate land area of 3,500,000 sqm, on behalf of the local government. The construction costs incurred were funded by advances from the Suzhou Municipal Government.
Contract work-in-progress is stated at the construction costs incurred on behalf of the local educational authorities. It is not intended for the Group to derive a profit from the development of the education park.
As at 31 March 2017, non-current liabilities were RMB2,740.2 million as compared to RMB5,738.4 million as at 31 December 2016. The decrease in non-current liabilities of RMB2,998.2 million was due mainly to the decrease of RMB2,998.5 million in loans and borrowings, most of which were reclassified into current liabilities as their repayment due date is less than a year.
Current liabilities as at 31 March 2017 amounted to RMB11,728.1 million as compared to RMB8,091.4 million as at 31 December 2016. The increase in current liabilities of RMB3,636.7 million was due mainly to the increase in loans and borrowings of RMB2,203.5 million, and the increase in trade payables, other payables and advance receipts of RMB1,474.4 million.
Advance receipts from government amounted to RMB442.5 million as at 31 March 2017 and RMB439.9 million as at 31 December 2016. The amount was provided by the government to fund the contract work-in-progress as aforementioned in the paragraph above entitled "Current assets".
As at 31 March 2017, total equity was RMB1,455.9 million as compared to RMB1,487.4 million as at 31 December 2016.
Cash flow statement
1Q2017 vs 1Q2016
During 1Q2017, the Group had a net cash inflow from operating activities of RMB725.0 million comprising operating cash outflows before movements in working capital of RMB38.5 million, net working capital inflows of RMB845.9 million and income tax payment of RMB82.4 million. The net working capital inflows were mainly due to the increase in trade payables, other payables and advance receipt of RMB1,394.9 million, partially offset by the increase in development properties of RMB856.0 million.
The Group recorded a net cash outflow from investing activities of RMB406.3 million due mainly to the increase of RMB255.7 million in amount due from joint ventures, and an increase of RMB197.3 million in investment in joint ventures during 1Q2017.
The Group recorded a net cash outflow from financing activities of RMB874.2 million during 1Q2017. This was due mainly to the repayment of borrowings from financial institutions of RMB747.8 million and repayment of borrowings from non-controlling shareholders of RMB370.0 million. This was partially offset by proceeds of borrowings from financial institutions of RMB301.2 million.
The Group recorded RMB 1.8 billion in pre-sales receipts for 1QFY2017, and is on track towards its internal target to achieve RMB10.0 billion in pre-sale receipts for FY2017.
With another 10 projects slated for launch in the remaining of 2017, comprising two projects in Sydney, six projects in Suzhou and two projects in the Rest of China market – one project in Xuancheng and one project in Wuhan, the Group is confident of achieving its RMB10.0 billion presales receipts target.
In addition, the Group is expected to deliver five projects in the remaining of 2017 comprising one project in Sydney, two projects in Suzhou, and the remainder in the Rest of China market -, one project in Xuzhou and one project in Xuancheng. Overall, the Group is positive about its growth prospects in its key operating markets, China, Australia and the U.S.
In China despite the cooling measures introduced in October 2016 and additional measures since then, home prices in many cities continue to record higher growth in March, indicating that the underlying demand remains positive. This is also collaborated by the Group's strong pre-sales in China RMB1.6 billion in 1QFY2017.
The Group remains focused to scale in China and has identified new cities, such as Changsha and Chengdu, to diversify its exposure. In line with its disciplined and steady approach to land acquisitions, the Group will exercise prudence when participating in land bids, amid the strong competition for land. The main effort to secure new projects, is to joint-venture with other established developers and collaborate with state-owned enterprises that have existing land banks.
The Group's property projects in Sydney are on track with the Group set to deliver its Uptown project by end of FY2017. The Group's projects in Sydney also recorded strong pre-sales during 1QFY2017, reflecting resilience in the Sydney market. Projects in Brisbane are mostly sold, with no planned new projects currently as the real estate market in Brisbane is assessed to be soft.
In the U.S., the uptrend of the housing in its major cities is expected to hold as the US economy continues to see sustained growth. The Group continues to prospect for projects in Dallas, a region with competitive tax regime, as well as Los Angeles and intends to develop projects with external funds raised through its fund management subsidiary, Richmont Capital.
To strengthen its balance sheet, the Group is also actively exploring various options to reduce its debt financing costs and to optimise its capital structure.
Beyond property development, the Group also seeks to generate higher recurrent income to provide earnings stability by undertaking more investment property projects in relation to the education field.
The Group intends to scale its fund management business beyond China so as to seek growth opportunities beyond the residential property development segment. The circular for the purpose of obtaining shareholders' approval to expand the Group's fund and asset management business has been approved by the Singapore Exchange on the 21 April 2017. The Company will seek shareholder's approval at an Extraordinary General Meeting to be convened at a later date.