Last year, Xiamen's largest state-owned enterprise, C&D Co., Ltd., spent about 6 billion yuan to take over Red Star Macalline.
At that time, Che Jianxing, the boss of Red Star Macalline, encountered huge liquidity pressure.
Jianfa acted as a white knight, waved his hand, and chose to buy the bottom.
In C&D's 2023 financial report, the acquisition has become a fig leaf.
In the past two days, C&D has just announced its 2023 financial results, and its net profit has more than doubled to more than 13.1 billion.
Among them, C&D's restructuring income from Red Star Macalline was 9.5 billion, contributing more than 70% of the profit.
Tens of billions of restructuring proceeds belong to paper wealth -
It will only be reflected in C&D's financial statements and will not bring any cash inflow.
This is an accounting treatment –
C&D acquired 30% of the equity of Red Star Macalline, corresponding to the net assets of Red Star Macalline of about 16 billion, while C&D paid less than 6.3 billion for the acquisition.
In other words, C&D has bought Red Star Macalline's net assets of as much as 16 billion with less than 6.3 billion in cash.
As a result, when C&D makes accounting entries in the financial statements, it will have tens of billions of additional restructuring gains.
In fact, excluding the restructuring proceeds of Red Star Macalline can more truly reflect the profitability of C&D's main business.
The eleventh brother took a look, and if these restructuring gains were eliminated, the profits of C&D's main business would immediately be beaten back to their original shape-
Its net profit will fall back to around 4.1 billion, compared to nearly 6.3 billion in 2022, a decrease of more than a third.
C&D has two major business segments - bulk commodity trading and real estate development.
For a long time, bulk trade has contributed to C&D's main revenue, while rolling huge cash flow.
In contrast, although the revenue scale of the real estate business is not large, it can make up a lot of profits for C&D.
In 2021, C&D's revenue exceeded 707.8 billion.
Among them, the revenue of bulk trade business reached 611.5 billion, accounting for 86%.
The income of real estate business was 96.3 billion, accounting for less than 14% of C&D's revenue.
That year, C&D earned a net profit of 6.1 billion.
Among them, the bulk trade business contributed 3.2 billion profits, accounting for about 53%.
The real estate business contributed nearly 2.9 billion yuan in profits, accounting for more than 47%.
In other words, C&D's real estate business, which accounts for less than 14% of its revenue, can contribute nearly half of the profits to listed companies.
However, in the past two years, C&D's business model of relying on rolling cash flow from bulk trade and real estate to earn profits has been difficult to maintain.
The real estate business, in particular, is getting bigger and bigger, but it's hardly profitable.
Last year, C&D's revenue was 763.7 billion.
Among them, the revenue of bulk trade business was 593.4 billion, accounting for about 78%.
The income of real estate business was 166.5 billion, accounting for nearly 22%.
These two business segments earned a net profit of 4.1 billion yuan last year.
Among them, the bulk trading business contributed more than 3.9 billion yuan in profits, and the real estate business contributed less than 200 million yuan in profits.
As much as 166.5 billion in revenue, the final net profit is less than 200 million, making money or losing money, only one step away.
In C&D's system, it is engaged in real estate development and is divided into two business platforms -
C&D Real Estate, Lianfa Group.
Last year, C&D Real Estate was still profitable, earning a net profit of about 2 billion.
But Lianfa Group has fallen into the red, with a net loss of nearly 1.9 billion last year.
These two real estate development platforms, one profit and one loss, resulting in the net profit of the real estate sector of listed companies, is less than 200 million.
Whether it is C&D Real Estate or Lianfa Group, their profitability is declining.
Last year, the gross profit margin of C&D's real estate business has fallen to about 11%, almost at the bottom level of the industry.
Its profitability has declined, mainly due to the fact that it has auctioned a lot of high-priced land in the past two years and misjudged the property market.
In the past two years, the property market has declined, housing prices have fallen, and these high-priced development projects have been smashed in their hands.
The eleventh brother calculated that C&D made an impairment provision of up to 6.8 billion yuan for 128 real estate projects under its name last year.
This accounting treatment means that the development cost of these real estate projects is much higher than the value of what they can be sold in the market.
The cost of development is higher than the housing price, and it is doomed to lose money.
The inventory impairment of hundreds of real estate projects has greatly weakened the profitability of C&D——
In 2022, C&D lost more than 5.1 billion net profit due to inventory impairment, and lost another 3.3 billion net profit last year.
The ferocity of grabbing land at a high price in the past few years is still paying a heavy price until now.
Although the real estate business is almost unprofitable, C&D has no intention of stopping on the road to scale expansion.
Last year, C&D's sales hit a record high, reaching 229.5 billion, ranking among the top 10 in the industry.
It spent another 132 billion yuan on land, equivalent to about 60% of sales.
More than half of the sales are reinvested in the land market to replenish ammunition.
This means that the scale of C&D's real estate business will roll even bigger.
In addition to the inventory impairment of development projects, a considerable part of C&D's net profit was eaten.
Its extensive operation and management have also made the profitability of listed companies weaker and weaker.
Although C&D's revenue remained at about 763.7 billion, it still fell by more than 8% compared with 2022, a decrease of 69.1 billion.
However, its three expenses - sales expenses, administrative expenses, and financial expenses - have increased significantly.
Among them, sales expenses have increased by more than 20%, and expenses such as advertising, business office, and agency procedures have increased.
Administrative expenses have more than doubled, especially employee salaries, business offices, equity incentives and other expenses, which have increased significantly.
Finance expenses increased by more than 55 per cent, mainly due to higher interest payments in order to take on large interest-bearing debt.
The scale of revenue is declining, profits are decreasing, but expenses are increasing significantly, which is the true face of C&D's main business.
If it weren't for the bottom-buying takeover of Red Star Macalline last year, tens of billions of restructuring gains would have been added to the books of listed companies.
Otherwise, C&D's financial performance in 2023 will become very ugly.
However, after all, the proceeds of restructuring are only paper wealth, and they can only beautify the financial statements of listed companies, and cannot bring cash inflows.
Red Star Macalline's previous boss, Che Jianxing, fell into a huge debt crisis, which also dragged down Red Star Macalline's operation.
C&D's acquisition transaction of more than 6 billion yuan is to pick up the bottom or dig a hole for itself.
Let the bullets fly for a while.