Management Discussion and Analysis This section provides an overview of the Group's operations, financial performance, and future strategies for the reporting period OVERVIEW The Group is a city services and property management provider deeply rooted in the Yangtze River Delta region, particularly Suzhou, focusing on urban services, commercial and residential property management, and property leasing - The Group is a city services and property management provider deeply rooted in the Yangtze River Delta region, especially Suzhou, with its H shares listed on the Main Board of the Stock Exchange on August 24, 2022373376 - The Group has been ranked among China's Top 100 Property Service Enterprises by China Index Academy for eight consecutive years since 2016, ranking 41st in 2023, and was awarded "2023 China Leading Smart City Service Enterprise"34375 BUSINESS REVIEW As of June 30, 2023, the Group's business scale significantly expanded, with total contracted GFA increasing by 82.6% to 15.7 million square meters, driven by four main segments: city services, commercial property management, residential property management, and property leasing - As of June 30, 2023, the Group's total contracted GFA was approximately 15.7 million square meters, an 82.6% increase from the same period in 2022, primarily due to the newly signed Shushan Village Scenic Area project333 In-Management Property Portfolio (by Business Line) | Business Line | June 30, 2023 | June 30, 2022 | | :--- | :--- | :--- | | Number of Projects | 111 | 77 | | Total GFA Under Management (thousand sq.m.) | 14,722.3 | 6,904.8 | City Services City services encompass municipal infrastructure, public building management, and waste transfer center operations, with significant daily processing capacity for household and bulky waste - The Group's city services include municipal infrastructure services, public building management services, and the operation of waste transfer centers98102 - As of June 30, 2023, the Group operated three waste transfer centers with a combined maximum daily processing capacity of 1,200 tons of household waste and 50 tons of bulky waste683685 Commercial and Residential Property Management Services The Group provides basic and value-added services for commercial and residential properties, managing approximately 7.9 million square meters of commercial GFA and 3.3 million square meters of residential GFA as of June 30, 2023 - As of June 30, 2023, the Group provided services for 44 commercial properties and 23 residential properties, with total GFA under management of approximately 7.9 million square meters and 3.3 million square meters, respectively691695 Property Leasing The Group leases its investment properties for rental income, with average occupancy decreasing to 60.05% due to power facility renovations at its largest leasing project - As of June 30, 2023, the Group's average occupancy rate for leased properties was approximately 60.05%, a decrease from approximately 65.8% in the same period last year693696 OUTLOOK The Group plans to expand through M&A, integrate into Suzhou High-tech Zone's urban services, enhance customized property services, and accelerate digital transformation to improve efficiency - The Group plans to expand its business scale through mergers and acquisitions, equity investments, and in-depth market research to improve project bid success rates694697 - The Group will continue to deeply integrate into the urban service integration reform of Suzhou High-tech Zone and comprehensively improve the functions of its city manager platform703705 - The Group will accelerate digital transformation, fully promote integrated customer service centers and WeChat mini-programs, and strengthen smart property development to enhance service quality705707 FINANCIAL REVIEW For the six months ended June 30, 2023, total revenue increased by 40.4% to RMB 341.4 million, driven by city services, with gross profit up 34.2% to RMB 75.3 million, and profit for the period reaching RMB 36.7 million Key Financial Indicators for H1 2023 | Indicator | H1 2023 (RMB thousand) | H1 2022 (RMB thousand) | YoY Change | | :--- | :--- | :--- | :--- | | Total Revenue | 341,420 | 243,242 | +40.4% | | Gross Profit | 75,344 | 56,124 | +34.2% | | Gross Profit Margin | 22.1% | 23.1% | -1.0 ppt | | Profit for the Period | 36,688 | 29,502 | +24.4% | | Profit Attributable to Owners of the Parent | 34,759 | 28,506 | +21.9% | Revenue Total revenue for H1 2023 increased by 40.4% to RMB 341.4 million, primarily driven by an 81.7% surge in city services revenue, which now accounts for 58.9% of total revenue Revenue Breakdown by Business Segment (RMB thousand) | Business Line | H1 2023 | % of Total Revenue | H1 2022 | % of Total Revenue | | :--- | :--- | :--- | :--- | :--- | | City Services | 201,050 | 58.9% | 110,647 | 45.5% | | Commercial Property Management Services | 91,196 | 26.7% | 88,028 | 36.2% | | Residential Property Management Services | 38,424 | 11.3% | 32,631 | 13.4% | | Property Leasing | 10,750 | 3.1% | 11,936 | 4.9% | | Total | 341,420 | 100.0% | 243,242 | 100.0% | - City services revenue significantly increased by 81.7%, primarily due to the increase in integrated city service projects and the expansion of public building management services into new areas such as cultural and sports venues, universities, and schools754 Gross Profit and Gross Profit Margin Gross profit increased by 34.2% to RMB 75.3 million in H1 2023, with an overall gross profit margin of 22.1%, slightly down from 23.1% in the prior year, while city services were the main contributor to gross profit growth Gross Profit and Gross Profit Margin by Business Segment | Business Line | H1 2023 Gross Profit (RMB thousand) | H1 2023 Gross Profit Margin | H1 2022 Gross Profit (RMB thousand) | H1 2022 Gross Profit Margin | | :--- | :--- | :--- | :--- | :--- | | City Services | 45,872 | 22.8% | 26,912 | 24.3% | | Commercial Property Management Services | 16,962 | 18.6% | 16,304 | 18.5% | | Residential Property Management Services | 3,470 | 9.0% | 2,751 | 8.4% | | Property Leasing | 9,040 | 84.1% | 10,157 | 85.1% | | Total | 75,344 | 22.1% | 56,124 | 23.1% | Other Financial Items Other income and gains surged by 281.6% to RMB 11.5 million, while administrative expenses increased by 125.2% due to higher credit loss provisions, and finance costs rose by 76.9% as borrowing costs were expensed - Other income and gains increased from RMB 3 million to RMB 11.5 million, primarily due to increased interest income, higher net foreign exchange differences, and appreciation in investment property value800 - Administrative expenses increased by 125.2% from RMB 12 million to RMB 27.1 million, mainly due to increased credit loss provisions805807 - Finance costs increased by 76.9% from RMB 4.3 million to RMB 7.6 million, primarily because borrowing costs ceased to be capitalized and were recognized as expenses after the waste transfer center commenced operations805807 Key Balance Sheet Items As of June 30, 2023, the Group's balance sheet remained robust, with trade receivables increasing to RMB 280 million due to city services expansion, and the gearing ratio slightly decreasing to 37.1% - Trade receivables increased by 58.6% from RMB 177 million at the end of 2022 to RMB 280 million, mainly due to the expansion of city services and unsettled project payments7375 - Trade payables increased by 16% from RMB 212 million at the end of 2022 to RMB 246 million, for reasons similar to receivables7475 - As of June 30, 2023, the Group's gearing ratio was 37.1%, a slight decrease from 38.4% at the end of 2022124 LIQUIDITY AND CAPITAL RESOURCES As of June 30, 2023, the Group's cash and cash equivalents were approximately RMB 311.8 million, with liquidity primarily from operating cash flow and interest-bearing borrowings, maintaining a healthy gearing ratio of 37.1% - As of June 30, 2023, the Group's cash and cash equivalents were approximately RMB 311.8 million, comprising RMB 136.9 million and HKD 189.7 million (equivalent to approximately RMB 174.9 million)8183 Bank Borrowings (RMB thousand) | Category | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Current | 11,250 | 11,250 | | Non-current | 107,813 | 111,250 | | Total | 119,063 | 122,500 | - As of June 30, 2023, approximately RMB 119.1 million of the Group's bank loans were secured by investment properties and buildings with a total carrying amount of RMB 56.2 million124 SIGNIFICANT INVESTMENTS, ACQUISITIONS AND DISPOSALS During the reporting period, the Group pursued two significant asset disposal plans: the proposed sale of its 49% equity interest in Sugao New Yiyang due to underperformance, and the proposed sale of its 3.167% equity interest in Suzhou Huirong due to lack of dividends and poor returns - The company proposed to sell its 49% equity interest in Sugao New Yiyang through public tender, with the final winning bid price of RMB 5,808,100, due to the associate's underperformance and continuous losses179181183 - The company proposed to sell its 3.167% equity interest in Suzhou Huirong through public tender, with the final winning bid price of RMB 60,302,500, as no dividends had been received from this investment since 2012, and it recorded a significant operating loss in 2022188190192 PROCEEDS FROM LISTING On April 27, 2023, the company reallocated approximately HKD 52.9 million of net proceeds from its global offering, originally for waste transfer center construction and elderly care services, to acquire office properties in Hong Kong for self-use and leasing - On April 27, 2023, the Board resolved to change the use of proceeds, reallocating approximately HKD 38.8 million originally designated for waste transfer center construction and HKD 14.1 million for investing in elderly care service companies to "acquire Hong Kong office properties for self-use and leasing"246249 - The reasons for the change include: waste transfer center construction has been paid for by internal resources; the invested elderly care service company (Sugao New Yiyang) is underperforming and planned for disposal245248 Use of Net Proceeds (as of June 30, 2023) | Intended Use | Unutilized Amount after Reallocation (HKD million) | Utilized during Period (HKD million) | Unutilized Amount at Period End (HKD million) | | :--- | :--- | :--- | :--- | | Acquisitions | 50.04 | 3.85 | 49.05 | | Acquisition of Hong Kong office properties | 52.9 | 0 | 52.9 | | Strategic investments (waste transfer center) | 14.1 | 0 | 14.1 | | Expansion of value-added services | 26.4 | 0 | 26.4 | | Technology investments | 6.41 | 0.81 | 6.29 | | Talent development | 5.01 | 0.3 | 5.01 | | Working capital | 3.31 | 16.71 | 0 | | Total | 158.17 | 21.67 | 153.74 | EMPLOYEES AND REMUNERATION POLICY As of June 30, 2023, the Group's full-time employees significantly increased to 1,721, with staff costs for H1 2023 at approximately RMB 82.6 million, and remuneration policies based on qualifications, experience, position, and performance - As of June 30, 2023, the Group's total number of full-time employees was 1,721, an increase from 1,226 at the end of 2022303 - For the six months ended June 30, 2023, staff costs were approximately RMB 82.6 million, compared to approximately RMB 71.2 million for the same period in 2022303 Corporate Governance and Other Information This section details the company's adherence to corporate governance codes, significant shareholder interests, interim dividend policy, and the review process for interim results COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE During the reporting period, the company largely complied with the Corporate Governance Code, with a previous deviation regarding the combined roles of Chairman and General Manager, which has since been rectified - During the reporting period, the roles of Chairman and General Manager were both held by Mr. Cui Xiaodong, deviating from Corporate Governance Code provision C.2.1 regarding separation of roles308342 - Mr. Cui Xiaodong resigned as General Manager on September 5, 2023, after which the company complied with the relevant code provision310340343 INTERESTS OF PERSONS OTHER THAN THE DIRECTORS, SUPERVISORS AND CHIEF EXECUTIVE IN SHARES AND UNDERLYING SHARES As of June 30, 2023, controlling shareholder Suzhou SND Group Co., Ltd. and its wholly-owned subsidiary collectively held approximately 74.22% of the company's issued share capital, with other significant H-shareholders also detailed - Controlling shareholder Suzhou SND Group Co., Ltd. (SND Company) and its subsidiary collectively held approximately 74.22% of the company's shares, possessing absolute control395 INTERIM DIVIDEND The Board of Directors resolved not to declare any interim dividend for the six months ended June 30, 2023 - The Board resolved not to declare an interim dividend for the six months ended June 30, 2023521 REVIEW OF INTERIM RESULTS The financial information in this report, though unaudited, has been reviewed by Ernst & Young in accordance with Hong Kong Standard on Review Engagements 2410, and the company's audit committee also reviewed the unaudited condensed consolidated financial statements - The financial information is unaudited but has been reviewed by the auditor, Ernst & Young532533 - The company's audit committee has reviewed the unaudited condensed consolidated financial statements for the period525 Interim Condensed Consolidated Financial Statements This section presents the interim condensed consolidated financial statements, including the review report, statement of profit or loss, statement of financial position, statement of cash flows, and notes to the financial information Report on Review of Interim Condensed Consolidated Financial Statements Ernst & Young issued an independent review report to the Board, confirming their review of the interim financial information for the six months ended June 30, 2023, found no material non-compliance with IAS 34 - Ernst & Young reviewed the interim financial information and issued an unqualified review report539540 Interim Condensed Consolidated Statement of Profit or Loss For the six months ended June 30, 2023, the company reported revenue of RMB 341.4 million, gross profit of RMB 75.3 million, profit for the period of RMB 36.7 million, and basic earnings per share of RMB 0.34 Condensed Consolidated Statement of Profit or Loss (RMB thousand) | Item | H1 2023 | H1 2022 | | :--- | :--- | :--- | | Revenue | 341,420 | 243,242 | | Cost of sales | (266,076) | (187,118) | | Gross Profit | 75,344 | 56,124 | | Profit before tax | 49,466 | 39,840 | | Income tax expense | (12,778) | (10,338) | | Profit for the period | 36,688 | 29,502 | | Profit attributable to owners of the parent | 34,759 | 28,506 | | Profit attributable to non-controlling interests | 1,929 | 996 | | Basic earnings per share (RMB) | 0.34 | 0.38 | Interim Condensed Consolidated Statement of Financial Position As of June 30, 2023, the company's total assets were RMB 1.495 billion, total liabilities RMB 708 million, and net assets RMB 786 million, with significant non-current assets in property, plant, and equipment and investment properties Condensed Consolidated Statement of Financial Position Summary (RMB thousand) | Item | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total non-current assets | 845,358 | 856,281 | | Total current assets | 649,307 | 579,965 | | Total assets | 1,494,665 | 1,436,246 | | Total current liabilities | 409,143 | 371,910 | | Total non-current liabilities | 299,229 | 300,658 | | Total liabilities | 708,372 | 672,568 | | Net assets | 786,293 | 763,678 | | Equity attributable to owners of the parent | 775,190 | 756,954 | Interim Condensed Consolidated Statement of Cash Flows In H1 2023, net cash generated from operating activities significantly decreased to RMB 0.743 million due to increased trade receivables, while net cash used in investing activities was RMB 39.2 million, and cash and cash equivalents at period-end totaled RMB 311.8 million Condensed Consolidated Statement of Cash Flows (RMB thousand) | Item | H1 2023 | H1 2022 | | :--- | :--- | :--- | | Net cash generated from operating activities | 743 | 20,458 | | Net cash used in investing activities | (39,209) | (33,812) | | Net cash used in financing activities | (6,271) | (65,408) | | Net decrease in cash and cash equivalents | (44,737) | (78,762) | | Cash and cash equivalents at beginning of period | 350,909 | 302,644 | | Cash and cash equivalents at end of period | 311,752 | 223,882 | Notes to Interim Condensed Consolidated Financial Information The notes provide detailed financial information, including accounting policies, segment information, revenue breakdown, related party transactions, and fair value of financial instruments, highlighting that all revenue and assets are from mainland China - All company revenue is derived from mainland China, with no other geographical segment information; a single largest customer contributed approximately RMB 71.94 million in revenue, accounting for approximately 21% of total revenue674 - The company declared a final dividend for 2022 of RMB 0.17 per ordinary share, totaling RMB 17.178 million45 - Subsequent to the reporting period, the company agreed to sell its 3.167% equity interest in Suzhou Huirong for approximately RMB 60.3 million, and agreed to acquire 100% equity interest in Sutong Kejia (for RMB 1) and 100% equity interest in Runjia (for a total consideration of approximately RMB 4.19 million)441442443
苏新服务(02152) - 2023 - 中期财报