The Aftermath of Mergers and Acquisitions: Country Garden Services' Net Profit Drops Over 60% | Financial Report Review

Ask AI · Why did Country Garden Services’ goodwill impairment cluster and surge specifically in the acquired targets?

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Expect a downturn to bottom out and rebound over the next 3 years.

China Real Estate News reporter Zeng Dongmei | Guangzhou report

Years of large-scale mergers and acquisitions still continue to profoundly affect the financial statements of listed property management companies.

On March 27, Country Garden Services Holdings Company Limited (hereinafter referred to as “Country Garden Services,” 06098.HK) released its full-year performance, showing that in 2025, the company’s revenue increased year over year by 9.9% to RMB 48.35B, while its net profit declined instead of rising, down 68% year over year to RMB 0.6 billion. The year-over-year decline in profit attributable to shareholders was 67%.

One important factor driving the decrease in net profit is that Country Garden Services made a full impairment provision for the goodwill carrying amount related to Man Guo Environment, totaling approximately RMB 970 million. In 2020, Country Garden Services acquired 70% equity interests in Man Guo Environment at a consideration not exceeding RMB 2.45 billion, entering the sanitation and environmental services track. In the past two years, because Man Guo Environment’s business development failed to meet expectations, Country Garden Services had to record impairment for its goodwill. By the end of 2025, the company’s net goodwill carrying value arising from mergers and acquisitions was still RMB 14.45 billion.

Accounts receivable also face impairment pressure. During the period, Country Garden Services cleared trade receivables with long aging periods, leading to an increase in credit impairment losses and affecting profit by about RMB 660 million.

Over the four accounting years from 2022 to 2025, Country Garden Services recorded a significant year-over-year drop in net profit in three years. The company’s management said during the earnings call that the sequential pressure on profits came from proactive financial deleveraging actions; going forward, over the next three years it hopes to maintain mid-single-digit growth at both the revenue side and the profitability side.

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Cumulative goodwill impairment exceeds RMB 5 billion

Man Guo Environment was established in 2015 and engages in integrated urban and rural environmental sanitation management and operation services. Its business covers more than 20 provinces, autonomous regions, and cities across China and has national Class A qualification in the Chinese cleaning industry. At the time, Country Garden Services said that acquiring this industry benchmark enterprise would be beneficial for building its strategic entry into the city services field, helping it craft a multi-category brand for deep engagement in city services.

It is understood that this acquisition involved a performance-to-sell agreement (earn-out). Man Guo Environment must, after the 3-year valuation adjustment period ends, achieve cumulative operating revenue not less than 4.53 times that of 2020, and cumulative profit after excluding non-recurring items not less than 4.37 times that of 2020. Country Garden Services, meanwhile, committed to spin off the sanitation and environmental services segment and list it before December 31, 2027.

As of now, Country Garden Services has not disclosed Man Guo Environment’s performance data, but the related goodwill impairment announcements already shed light on many issues. For example, in fiscal year 2024, the management of Country Garden Services believed that Man Guo Environment’s business expansion in prior years had not been carried out as expected, and that some existing businesses were adjusted, leading to declines in revenue and profit. Meanwhile, some customers’ payment collection cycles became longer, resulting in less-than-ideal cash flow. Accordingly, Country Garden Services recognized a goodwill impairment provision of RMB 990 million for Man Guo Environment.

In 2025, Man Guo Environment’s performance remained unsatisfactory; operating cash flow did not show any major improvement, and the relevant business was further strategically scaled back, which further reduced its recoverable amount. As a result, the remaining goodwill carrying balance of approximately RMB 970 million was fully written down through impairment, causing Country Garden Services’ net profit for 2025 to decrease by RMB 970 million. In just two years, Man Guo Environment recorded total goodwill impairment of RMB 1.96 billion.

Half a month after announcing the acquisition of Man Guo Environment, Country Garden Services also disclosed its plan to acquire a 60% stake in Fujian Dongfei for RMB 375 million. Fujian Dongfei is also a city services company, and both parties signed a performance-to-sell agreement. It is understood that Fujian Dongfei failed to meet the performance commitments stated in the equity transfer agreement. From 2021 to 2023, the total operating revenue achieved by the company fell short of the agreed target by RMB 710 million, and the shortfall in profit after excluding non-recurring items was about RMB 110 million. Therefore, Country Garden Services recorded goodwill impairment of about RMB 400 million for it.

Public information shows that at the end of 2019, Country Garden Services’ goodwill had a net carrying value of RMB 1.22 billion. In the following two years, the company launched large-scale mergers and acquisitions; even the acquisition amount in 2021 alone exceeded RMB 20 billion. As a result, goodwill grew rapidly, and by the end of 2021 its goodwill net carrying value had reached RMB 19.29 billion. As the real estate market cooled, the property services industry gradually returned to rationality. Many acquisition targets subsequently faced impairment pressure as business development failed to meet expectations. By the end of 2025, Country Garden Services’ cumulative goodwill impairment reached RMB 5.03 billion, becoming one of the important factors behind its net profit decline in recent years.

At the end of the reporting period, Country Garden Services’ goodwill net carrying value was still RMB 14.45 billion. The management stated that among the projects under management from acquisitions in the past, there are indeed a small number of loss-making projects, and it expects that, aside from Man Guo Environment, the risk of further impairment of goodwill balances arising from other historical acquisitions is controllable.

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Accounts receivable impairment risk has not yet been fully cleared

In addition to goodwill, impairment provisions for accounts receivable also drag down Country Garden Services’ net profit indicators. According to management, in 2025 the company adopted stricter provisioning policies and proactively cleared trade receivables with long aging periods, which led to an increase in credit impairment losses on related trade receivables.

Performance reports show that as the scale of development grew, Country Garden Services’ trade receivables rose in parallel. By the end of 2025, the total gross carrying amount was about RMB 18.8 billion, up RMB 1.1 billion year over year. Cumulatively, impairment losses were provisioned at about RMB 3.93 billion. From its composition, it can be seen that the risk of trade receivables from related parties was already in the late stage of clearance. By the end of 2025, the accumulated impairment was RMB 1.57 billion, and the remaining carrying value was about RMB 0.57 billion. Meanwhile, impairment losses on trade receivables from third parties totaled RMB 2.36 billion, and the carrying amount still stood at RMB 18.23 billion.

Some investors said that after digesting the issues over the past three years, Country Garden Services’ large-scale goodwill impairment and the receivables issue involving related parties have basically been resolved. However, in the future there is still another big mountain to cross—receivables from third parties. By the end of 2025, the company’s total trade receivables for 2 to 3 years and over 3 years were RMB 3.52B, up about 35% year over year. Efforts to collect long-aged receivables may still result in additional bad debt provisions, putting pressure on its income statement.

In the view of Country Garden Services’ management, amortization costs of intangible assets, goodwill impairment, and other intangible asset impairments resulting from mergers and acquisitions are all non-operating factors. Overall, in 2025 the company achieved the targets set at the beginning of the year in terms of operating fundamentals. For instance, operating revenue grew by nearly 10 percentage points, and cash flow remained stable and healthy.

Specifically, property management services remain the company’s core business. Full-year revenue was approximately RMB 27.93 billion, up about 7.3% year over year, accounting for about 57.8% of total revenue. Revenue from community value-added services and from “three supplies and one utilities” (an arrangement covering utilities services) also increased. Revenue from non-owner value-added services, environmental business, and commercial operation services declined year over year.

The overall gross margin is on a downward trend, down 1.6 percentage points year over year to about 17.5%. The reason is that changes in the business structure caused period-by-period adjustments in the gross margins of community value-added services, environmental business, and “three supplies and one utilities.” For example, the gross margin of high-margin community value-added services declined 9.5 percentage points year over year to 28.9%. The gross margin of property management and other related services within “three supplies and one utilities” fell 2.1 percentage points year over year to 7.9%. The gross margin of the environmental business declined 4.8 percentage points year over year to 9.8%. Meanwhile, the gross margin of the property management segment, which plays the role of the stabilizing “anchor” business, improved—up 0.6 percentage points year over year to 20.6%.

For 2026, Country Garden Services’ management shared a positive outlook for operations and disclosed that it expects to basically complete the structural adjustment of core business and the building of capabilities by 2028.

However, Country Garden Services’ risks also come from violations and regulatory penalties. In the past two years, multiple local companies were penalized by government regulators for reasons such as failing to meet service standards and operating in violation. On May 23, 2024, the Zhangqiu Country Garden Community served by the Jinan branch of Country Garden Life Service Group (济南分公司) faced frequent elevator malfunctions and inadequate maintenance and service coverage. It did not ensure safe elevator operations and later failed to handle and rectify the issues in a timely and standardized manner. The Jinan Zhangqiu District Market Supervision Administration filed a case for investigation and imposed a fine of RMB 30k.

On September 23, 2025, five residential communities served by the Tongzhou branch of Country Garden Life Service Group were penalized by the Tongzhou District Market Supervision Administration of Nantong for violating regulations such as “charging fees without providing services in accordance with regulations,” with issues including service shrinkage and a mismatch between service quality and price. The authority imposed a fine of RMB 90k.

The China Enforcement Information Disclosure website also shows that more than 10 subsidiaries under Country Garden Life Service Group were listed as judgment debtors (enforcement targets). Within the past year, there were 23 records of entities being listed as judgment debtors. Among them, on August 19, 2025, the Shanghai Second Intermediate People’s Court executed an enforcement target of RMB 523 million. On January 22, 2026, the Guilin Lipu People’s Court in Guangxi executed an enforcement target of RMB 138.6k.

Besides that, the 11 subsidiaries held by the company—representing more than RMB 967 million in equity interests—were ordered by the court to be frozen.

Duty editor: Su Zhiyong

Responsible editor: Li Hongmei, Wen Hongmei