[Performance Highlights](index=1&type=section&id=Performance%20Highlights) The Group significantly narrowed its loss in 2022, driven by comprehensive efforts in business recovery, expansion, and internal management, supported by its state-owned shareholder, laying a solid foundation for sustainable development | Indicator | 2022 (RMB million) | 2021 (RMB million) | Year-on-year Change | | :--- | :--- | :--- | :--- | | Revenue | 22,607 | 20,986 | +7.7% | | Gross Profit | 1,587 | 1,236 | +28.4% | | Operating Profit/(Loss) | 834 | (957) | Turnaround to profit (increase of 1,791) | | Finance Costs | 1,007 | 1,302 | -22.7% | | Loss for the Year | 297 | 3,781 | -92.1% | | Net Assets (as of December 31, 2022) | 224 | N/A | N/A | | Adjusted Net Assets (Non-GAAP) | 1,224 | N/A | N/A | - Total gross profit margin increased by **1.1 percentage points** from **5.9% in 2021** to **7.0% in 2022**[197](index=197&type=chunk) - Adjusted net assets (non-GAAP financial measure) consider a **RMB 1 billion** long-term loan from the largest shareholder Xiamen C&D Group Co., Ltd. to reflect its positive impact on the company's going concern ability[199](index=199&type=chunk) [Consolidated Financial Statements](index=3&type=section&id=Consolidated%20Financial%20Statements) This section presents the Group's consolidated financial results and position for 2022, including income, comprehensive income, and balance sheets, showing a significant reduction in net loss and increased total assets [Consolidated Income Statement](index=3&type=section&id=Consolidated%20Income%20Statement) The consolidated income statement shows the Group achieved significant operating performance improvement in 2022, turning an operating loss into profit and substantially reducing the loss for the year | Indicator (RMB thousand) | 2022 | 2021 | Year-on-year Change | | :--- | :--- | :--- | :--- | | Revenue | 22,606,790 | 20,985,529 | +7.7% | | Cost of Sales | (21,019,912) | (19,749,970) | +6.4% | | Gross Profit | 1,586,878 | 1,235,559 | +28.4% | | Other Income | 1,506,316 | 556,634 | +170.6% | | Selling and Distribution Expenses | (1,211,482) | (1,281,469) | -5.5% | | Administrative Expenses | (1,280,537) | (1,151,222) | +11.2% | | Reversal of Impairment Loss/(Loss) on Intangible Assets | 232,426 | (316,617) | N/A | | Operating Profit/(Loss) | 833,601 | (957,115) | Turnaround to profit | | Finance Costs | (1,006,998) | (1,301,874) | -22.7% | | Share of Profits of Associates | 43,055 | 45,340 | -5.0% | | Loss Before Tax | (130,342) | (2,213,649) | -94.1% | | Income Tax | (167,079) | 9,641 | N/A | | Loss for the Year | (297,421) | (3,780,767) | -92.1% | | Loss for the Year Attributable to Equity Holders of the Company (Continuing Operations) | (296,285) | (2,200,181) | -86.5% | | Basic and Diluted Loss Per Share (Continuing Operations, RMB cents) | (10.9) | (81.3) | -86.6% | [Consolidated Statement of Comprehensive Income](index=5&type=section&id=Consolidated%20Statement%20of%20Comprehensive%20Income) The consolidated statement of comprehensive income reflects a substantial narrowing of the Group's total comprehensive loss in 2022, primarily due to reduced net loss, despite foreign currency translation differences | Indicator (RMB thousand) | 2022 | 2021 | | :--- | :--- | :--- | | Loss for the Year | (297,421) | (3,780,767) | | Other Comprehensive Income (after tax): | | | | Exchange differences on translation of financial statements of overseas companies | (20,623) | 6,541 | | Total Comprehensive Income for the Year | (318,044) | (3,774,226) | | Attributable to Equity Holders of the Company (Continuing Operations) | (316,908) | (2,193,640) | | Attributable to Equity Holders of the Company (Discontinued Operations) | — | (1,421,950) | | Attributable to Non-controlling Interests (Continuing Operations) | (1,136) | (3,827) | | Attributable to Non-controlling Interests (Discontinued Operations) | — | (154,809) | [Consolidated Balance Sheet](index=6&type=section&id=Consolidated%20Balance%20Sheet) The consolidated balance sheet shows increased non-current and current assets by year-end 2022, with improved net assets due to reduced current liabilities, reflecting asset-liability structure adjustments | Asset/Liability Category (RMB thousand) | December 31, 2022 | December 31, 2021 | Year-on-year Change | | :--- | :--- | :--- | :--- | | **Non-current Assets** | | | | | Property, Plant and Equipment | 5,766,306 | 5,688,860 | +1.4% | | Investment Properties | 303,593 | 115,631 | +162.5% | | Right-of-use Assets | 2,606,585 | 2,915,812 | -10.7% | | Intangible Assets | 2,705,072 | 2,631,734 | +2.8% | | Goodwill | 566,736 | 566,736 | 0.0% | | Interests in Associates | 15,341 | 533,367 | -97.1% | | Deferred Tax Assets | 673,051 | 616,626 | +9.2% | | Long-term Trade and Other Receivables | 321,037 | 270,075 | +18.9% | | Other Financial Assets | 944,947 | — | N/A | | **Current Assets** | | | | | Inventories | 4,064,270 | 2,649,031 | +53.4% | | Trade Receivables and Bills Receivable | 907,442 | 1,005,066 | -9.7% | | Prepayments, Deposits and Other Receivables | 4,063,517 | 4,294,473 | -5.4% | | Other Financial Assets | 103,561 | 122,589 | -15.5% | | Pledged Bank Deposits | 3,957,215 | 2,696,460 | +46.7% | | Time Deposits | — | 413,841 | -100.0% | | Cash and Cash Equivalents | 734,086 | 208,771 | +251.6% | | Assets Held for Sale | — | 1,400,714 | -100.0% | | **Current Liabilities** | | | | | Loans and Borrowings | 12,234,030 | 14,776,527 | -17.2% | | Bonds Payable | — | 365,936 | -100.0% | | Lease Liabilities | 363,493 | 309,477 | +17.4% | | Trade and Other Payables | 5,827,775 | 5,974,680 | -2.5% | | Income Tax Payable | 394,662 | 414,378 | -4.8% | | Other Financial Liabilities | 91,516 | — | N/A | | **Non-current Liabilities** | | | | | Loans and Borrowings | 6,439,857 | 1,519,457 | +323.8% | | Lease Liabilities | 981,073 | 1,169,334 | -16.2% | | Deferred Tax Liabilities | 989,261 | 839,606 | +17.8% | | Trade and Other Payables | 186,648 | 219,770 | -15.1% | | **Net Assets** | 224,444 | 540,621 | -58.5% | [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section details consolidated financial statement data, covering company overview, accounting policies, revenue, expenses, taxes, loss per share, asset valuation, liabilities, and financial risk management [General Information](index=8&type=section&id=General%20Information) The Group primarily operates 4S dealership, supply chain, and integrated property businesses in China, incorporated in the Cayman Islands in 2010 - China Zhengtong Auto Services Holdings Limited was incorporated in the Cayman Islands on **July 9, 2010**[220](index=220&type=chunk) - The Group primarily engages in **4S dealership business**, **supply chain business**, and **integrated property business** in the People's Republic of China[220](index=220&type=chunk) - The consolidated financial statements are presented in **RMB** and prepared on a **historical cost basis**, except for certain financial assets[208](index=208&type=chunk) [Significant Accounting Policies](index=8&type=section&id=Significant%20Accounting%20Policies) The Group's financial statements are prepared under Hong Kong Financial Reporting Standards on a going concern basis, supported by its major shareholder despite net loss and net current liabilities - The financial statements are prepared in accordance with all applicable **Hong Kong Financial Reporting Standards**, Hong Kong Generally Accepted Accounting Principles, and the disclosure requirements of the Hong Kong Companies Ordinance[221](index=221&type=chunk) - The Group adopted several new and revised Hong Kong Financial Reporting Standards, which had **no significant impact** on the Group's results and financial position for the current or prior periods[221](index=221&type=chunk)[212](index=212&type=chunk)[223](index=223&type=chunk)[240](index=240&type=chunk) - Financial guarantees issued are initially recognized at **fair value**, subsequently measured at the higher of the initial recognition amount less cumulative amortization and the expected credit loss provision[213](index=213&type=chunk)[223](index=223&type=chunk)[224](index=224&type=chunk)[241](index=241&type=chunk)[242](index=242&type=chunk) - Despite a **net loss of RMB 297 million** and **net current liabilities of RMB 5.081 billion** in 2022, the Group prepared its financial statements on a **going concern basis**, supported by financial assistance from its controlling shareholder C&D Group[211](index=211&type=chunk) [Revenue](index=10&type=section&id=Revenue) The Group's 2022 revenue increased by **7.7%**, primarily driven by passenger vehicle sales, especially luxury brands, while after-sales service revenue slightly decreased - The Group is primarily engaged in the sale of passenger vehicles, provision of after-sales services, provision of logistics services, sale of lubricants, and financial services[244](index=244&type=chunk) Revenue Sources (Continuing Operations, RMB thousand) | Revenue Source | 2022 | 2021 | Year-on-year Change | | :--- | :--- | :--- | :--- | | Sale of Passenger Vehicles | 18,844,892 | 16,988,912 | +10.9% | | Provision of After-sales Services | 3,081,406 | 3,104,557 | -0.8% | | Provision of Logistics Services | 472,588 | 613,298 | -22.9% | | Sale of Lubricants | 207,089 | 269,766 | -23.2% | | **Total** | **22,605,975** | **20,976,533** | **+7.8%** | - The Group does not include revenue information regarding remaining performance obligations for passenger vehicle sales contracts with an expected duration of **one year or less**[228](index=228&type=chunk) [Other Income](index=11&type=section&id=Other%20Income) The Group's other income significantly increased by **170.6%** in 2022, mainly due to increased service income and fair value remeasurement gains from Dongfeng Logistics Other Income Sources (Continuing Operations, RMB thousand) | Income Source | 2022 | 2021 | Year-on-year Change | | :--- | :--- | :--- | :--- | | Service Income | 633,895 | 389,932 | +62.6% | | Interest Income from Bank Deposits | 37,443 | 14,126 | +165.0% | | Net Gain on Disposal of Property, Plant and Equipment | 100,728 | 261,737 | -61.5% | | Gain on Remeasurement of Fair Value related to Dongfeng Logistics | 424,271 | — | N/A | | Realized/Unrealized Gain/(Loss) on Other Financial Instruments | 242,654 | (116,775) | N/A | | Gross Rental Income from Investment Properties | 15,787 | 2,958 | +433.7% | | Others | 51,538 | 4,656 | +1006.8% | | **Total** | **1,506,316** | **556,634** | **+170.6%** | [Loss Before Tax](index=12&type=section&id=Loss%20Before%20Tax) The Group's loss before tax significantly narrowed in 2022, primarily due to reduced finance costs and improved exchange losses, with stable growth in staff and inventory costs Finance Costs (Continuing Operations, RMB thousand) | Indicator | 2022 | 2021 | Year-on-year Change | | :--- | :--- | :--- | :--- | | Interest on Loans and Borrowings and Bonds Payable | 957,414 | 1,254,898 | -23.7% | | Interest on Lease Liabilities | 90,556 | 89,807 | +0.8% | | Finance Costs on Business Combination Consideration | 9,083 | 16,048 | -43.4% | | Other Finance Costs | 22,852 | 23,717 | -3.7% | | Less: Capitalized Interest | (72,907) | (82,596) | -11.7% | | **Total Finance Costs** | **1,006,998** | **1,301,874** | **-22.7%** | Staff Costs (Continuing Operations, RMB thousand) | Indicator | 2022 | 2021 | Year-on-year Change | | :--- | :--- | :--- | :--- | | Salaries, Wages and Other Benefits | 924,812 | 1,009,023 | -8.3% | | Contributions to Defined Contribution Retirement Plans | 58,640 | 56,251 | +4.2% | | Equity-settled Share-based Transactions | 1,867 | 15,926 | -88.3% | | **Total Staff Costs** | **985,319** | **1,081,200** | **-8.8%** | Other Items (Continuing Operations, RMB thousand) | Indicator | 2022 | 2021 | Year-on-year Change | | :--- | :--- | :--- | :--- | | Cost of Inventories | 20,454,963 | 19,070,743 | +7.2% | | Depreciation (Owned Property, Plant and Equipment) | 306,469 | 361,024 | -15.0% | | Depreciation (Right-of-use Assets) | 342,546 | 379,291 | -9.7% | | Depreciation (Investment Properties) | 3,955 | 571 | +592.6% | | Amortization of Intangible Assets | 160,999 | 161,114 | -0.1% | | Operating Lease Expenses | 6,878 | 8,069 | -14.8% | | Net Exchange Loss/(Gain) | 398,206 | (181,000) | N/A | | Impairment (Reversal)/Loss (Goodwill) | — | 127,055 | N/A | | Impairment (Reversal)/Loss (Intangible Assets) | (232,426) | 189,562 | N/A | | Impairment (Reversal)/Loss (Property, Plant and Equipment) | (21,239) | 311,777 | N/A | | Auditor's Remuneration | 9,800 | 9,800 | 0.0% | [Income Tax](index=15&type=section&id=Income%20Tax) The Group's 2022 income tax expense was **RMB 167 million**, with a negative effective tax rate due to non-deductible expenses; Hong Kong subsidiaries were exempt, while Chinese subsidiaries faced a **25%** corporate income tax rate Income Tax (Continuing Operations, RMB thousand) | Indicator | 2022 | 2021 | | :--- | :--- | :--- | | Current Tax: Provision for Income Tax for the Year | 73,849 | 113,148 | | Deferred Tax: Origination and Reversal of Temporary Differences | 93,230 | (122,789) | | **Total Income Tax** | **167,079** | **(9,641)** | Reconciliation of Income Tax to Accounting Loss (RMB thousand) | Indicator | 2022 | 2021 | | :--- | :--- | :--- | | Loss Before Tax | (130,342) | (2,213,649) | | Nominal Tax at PRC Income Tax Rate of 25% | (32,586) | (553,412) | | Non-deductible Expenses (net of non-taxable income) | 185,961 | 191,570 | | Unrecognized Unused Tax Losses | 24,468 | 363,536 | | Share of Profits Recognized by Equity Method | (10,764) | (11,335) | | **Income Tax** | **167,079** | **(9,641)** | - Hong Kong subsidiaries did not earn any assessable profits subject to Hong Kong profits tax during the year, thus **no provision** for Hong Kong profits tax was made[6](index=6&type=chunk) - The Group's PRC subsidiaries are subject to PRC corporate income tax at a rate of **25%**[269](index=269&type=chunk) [Loss Per Share](index=17&type=section&id=Loss%20Per%20Share) The Group's basic loss per share significantly decreased in 2022, with diluted loss per share matching basic, reflecting a substantial narrowing of losses from continuing operations Basic Loss Per Share (RMB cents) | Indicator | 2022 | 2021 | Year-on-year Change | | :--- | :--- | :--- | :--- | | Continuing Operations | (10.9) | (81.3) | -86.6% | | Discontinued Operations | — | (52.5) | N/A | | **Total** | **(10.9)** | **(133.8)** | **-91.8%** | - Basic loss per share for 2022 is calculated based on the loss from continuing operations of **RMB 296,285,000** and the weighted average number of ordinary shares outstanding of **2,720,254,036 shares**[180](index=180&type=chunk)[255](index=255&type=chunk) - Diluted loss per share is equal to basic loss per share as the potential ordinary shares from restricted shares have an **anti-dilutive effect**[271](index=271&type=chunk) [Intangible Assets](index=18&type=section&id=Intangible%20Assets) This section details the Group's intangible assets, including valuation, amortization, and impairment test results for automobile dealership rights and trademarks, with a significant impairment reversal for dealership rights in 2022 reflecting improved operations [Automobile Dealership Rights](index=19&type=section&id=Automobile%20Dealership%20Rights) Automobile dealership rights recognized an impairment loss reversal of approximately **RMB 232 million** in 2022 due to resumed normal operations and long-term agreements for some 4S dealerships - Automobile dealership rights generated before business combinations have an estimated useful life of **10 years**, with fair value determined using the multi-period excess earnings method[9](index=9&type=chunk) - Automobile dealership rights generated before business combinations have an estimated useful life of **40 years**, with fair value determined using the multi-period excess earnings method[257](index=257&type=chunk) - In 2022, some dealerships resumed their original long-term dealership agreements, leading to an increase in future cash inflows and the recognition of an impairment loss reversal for intangible assets—automobile dealership rights of approximately **RMB 232 million** (2021: nil)[11](index=11&type=chunk)[274](index=274&type=chunk)[259](index=259&type=chunk) [Trademark](index=22&type=section&id=Trademark) The Group's trademarks have an **indefinite useful life**, with **no impairment loss** recognized in 2022 - Trademarks arising from the acquisition of Tsinghua Tongfang Co., Ltd. have an **indefinite useful life**, with fair value determined using the relief from royalty method[16](index=16&type=chunk) - For the year ended December 31, 2022, **no impairment loss** was recognized for trademarks (2021: impairment loss of **RMB 29,963,000**)[187](index=187&type=chunk) [Impairment Test of Intangible Assets and Goodwill](index=20&type=section&id=Impairment%20Test%20of%20Intangible%20Assets%20and%20Goodwill) Impairment tests, based on five-year budgets and industry forecasts, showed significant revenue growth rate changes in 2022 due to dealership recovery, with no further impairment losses for other intangible assets - The recoverable amount of cash-generating units is determined based on value in use, with cash flow forecasts based on management-approved **five-year financial budgets** and a **3% growth rate** for periods beyond five years[13](index=13&type=chunk) - Key inputs and assumptions for impairment tests include annual revenue growth rate, gross profit margin, working capital as a percentage of revenue, and discount rate[291](index=291&type=chunk) Key Inputs and Assumptions for Impairment Tests | Input Value | 2023 | 2024 | 2025-2027 | | :--- | :--- | :--- | :--- | | Annual Revenue Growth Rate | 3.0%~46.4% | 3.0%~48.9% | 3.0%~30.0% | | Gross Profit Margin | 5.1%~13.0% | 5.2%~14.0% | | | Working Capital as % of Revenue | –11.4%~7.4% | –11.4%~14.2% | | | **As of December 31, 2021** | **2022** | **2023** | **2024-2026** | | Annual Revenue Growth Rate | –1.6%~79.0% | 3.0%~36.1% | 3.0%~12.0% | | Gross Profit Margin | 5.3%~14.2% | 5.9%~14.5% | | | Working Capital as % of Revenue | –31.0%~13.9% | –31.0%~13.9% | | - The main change in 2022 was the variation in revenue growth, with a significant adjustment in the expected revenue growth rate for some dealerships that resumed normal operations, reflecting a return to pre-pandemic levels[19](index=19&type=chunk) - As of December 31, 2022, except for cash-generating units that resumed normal operations, **no further impairment losses** were recognized for other cash-generating units containing intangible assets (2021: intangible assets impairment loss of **RMB 160 million**, goodwill impairment loss of **RMB 127 million**)[181](index=181&type=chunk) [Goodwill](index=22&type=section&id=Goodwill) The Group's goodwill is primarily allocated to the **4S dealership business**, with **no impairment loss** recognized in 2022 Goodwill Allocation (RMB thousand) | Goodwill Allocation | December 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | 4S Dealership Business | 566,736 | 566,736 | - For the year ended December 31, 2022, **no impairment loss** was recognized for goodwill (2021: impairment loss of **RMB 127,055,000**)[276](index=276&type=chunk) [Interests in Associates](index=23&type=section&id=Interests%20in%20Associates) The Group lost significant influence over Dongfeng Logistics in December 2022, ceasing equity method accounting and remeasuring its interest as a fair value financial asset, recognizing a **RMB 424 million** remeasurement gain - The Group has held a **14.43% equity interest** in Dongfeng Logistics, which primarily provides logistics services, since **January 16, 2020**[21](index=21&type=chunk) - The Group lost significant influence over Dongfeng Logistics in **December 2022** due to plans to dispose of all its equity interest and the resignation of nominated directors[279](index=279&type=chunk)[296](index=296&type=chunk) - From the date of losing significant influence, the Group ceased to account for its investment in Dongfeng Logistics using the **equity method** and recognized it as a financial asset measured at **fair value**[279](index=279&type=chunk) - The Group recognized a remeasurement gain of **RMB 424,271,000** in "Other Income" in 2022, representing the difference between the fair value and carrying amount on the date of losing significant influence[279](index=279&type=chunk) Financial Performance of Dongfeng Logistics | Indicator (RMB thousand) | Period up to Loss of Significant Influence | Year ended December 31, 2021 | | :--- | :--- | :--- | | Revenue | 4,374,626 | 5,304,961 | | Profit from Continuing Operations | 303,850 | 312,862 | | Total Comprehensive Income | 303,850 | 312,862 | Group's Share of Associate's Performance (RMB thousand) | Indicator | 2022 | 2021 | | :--- | :--- | :--- | | Group's Share of Associate's Continuing (Loss)/Profit | (790) | 1,210 | | Total Comprehensive Income | (790) | 1,210 | | Total Carrying Amount of Interests in Associates | 15,341 | 533,367 | [Inventories](index=25&type=section&id=Inventories) The Group's total inventory significantly increased by **53.4%** at year-end 2022, mainly due to increased automobile inventory, with some pledged as collateral and a reversal of write-downs due to consumer preference changes Inventory Categories (RMB thousand) | Inventory Category | December 31, 2022 | December 31, 2021 | Year-on-year Change | | :--- | :--- | :--- | :--- | | **4S Dealership Business** | | | | | Automobiles | 3,044,340 | 1,796,851 | +69.4% | | Auto Parts | 313,179 | 216,724 | +44.5% | | Others | 46,166 | 43,917 | +5.1% | | **Integrated Property Business** | | | | | Properties Under Development for Sale | 660,585 | 591,539 | +11.7% | | **Total Inventories** | **4,064,270** | **2,649,031** | **+53.4%** | - Inventories with a carrying amount of **RMB 1,048,425,000** were pledged as collateral for bills payable (2021: **RMB 565,866,000**)[24](index=24&type=chunk) - Inventories with a carrying amount of **RMB 1,121,577,000** were pledged as collateral for loans and borrowings from banks and other financial institutions (2021: **RMB 901,237,000**)[281](index=281&type=chunk) Inventory Amounts Recognized as Expense and Included in Profit or Loss (RMB thousand) | Indicator | 2022 | 2021 | Year-on-year Change | | :--- | :--- | :--- | :--- | | Carrying Amount of Inventories Sold | 20,426,938 | 18,975,817 | +7.6% | | Inventory Write-downs | 54,386 | 54,352 | +0.1% | | Reversal of Inventory Write-downs | (26,361) | (8,270) | +218.7% | | Reassessment of Rebates Receivable | — | 48,844 | N/A | | **Total** | **20,454,963** | **19,070,743** | **+7.2%** | - The reversal of inventory write-downs provided in prior years was due to consumer preference changes leading to an increase in the estimated net realizable value of certain automobiles[26](index=26&type=chunk) [Trade and Other Receivables](index=26&type=section&id=Trade%20and%20Other%20Receivables) The Group's total trade receivables and bills receivable slightly decreased at year-end 2022, remaining high, with all amounts expected to be recovered within **one year** Receivables Categories (RMB thousand) | Receivables Category | December 31, 2022 | December 31, 2021 | Year-on-year Change | | :--- | :--- | :--- | :--- | | Trade Receivables | 907,123 | 1,004,158 | -9.6% | | Bills Receivable | 319 | 908 | -64.8% | | **Total** | **907,442** | **1,005,066** | **-9.7%** | - All trade receivables and bills receivable are expected to be recovered within **one year**[300](index=300&type=chunk) Aging Analysis (by Invoice Date, RMB thousand) | Aging Analysis | December 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Within 3 Months | 900,002 | 976,505 | | Over 3 Months but Within 1 Year | 2,178 | 7,565 | | Over 1 Year | 5,262 | 20,996 | | **Total** | **907,442** | **1,005,066** | Prepayments, Deposits and Other Receivables (RMB thousand) | Category | December 31, 2022 | December 31, 2021 | Year-on-year Change | | :--- | :--- | :--- | :--- | | Prepayments | 402,403 | 583,669 | -31.0% | | Deposits | 399,940 | 475,735 | -16.0% | | Other Receivables | 3,261,174 | 3,235,069 | +0.8% | | **Total** | **4,063,517** | **4,294,473** | **-5.4%** | - All prepayments, deposits, and other receivables are expected to be recovered within **one year**[285](index=285&type=chunk) [Trade and Other Payables](index=27&type=section&id=Trade%20and%20Other%20Payables) The Group's total trade and other payables slightly decreased at year-end 2022, with trade payables significantly down and bills payable up, some secured by inventory and bank deposits Payables Categories (RMB thousand) | Payables Category | December 31, 2022 | December 31, 2021 | Year-on-year Change | | :--- | :--- | :--- | :--- | | **Current** | | | | | Trade Payables | 358,737 | 1,102,712 | -67.5% | | Bills Payable | 3,481,434 | 2,829,084 | +23.1% | | Contract Liabilities | 1,215,170 | 1,150,320 | +5.6% | | Other Payables and Accruals | 771,927 | 891,626 | -13.4% | | Amounts Due to Related Parties | 507 | 938 | -46.0% | | **Non-current** | | | | | Long-term Payables | 186,648 | 219,770 | -15.1% | | **Total** | **6,014,423** | **6,194,450** | **-2.9%** | - As of December 31, 2022, bills payable of **RMB 3,481,434,000** were secured by inventories totaling **RMB 1,048,425,000**[302](index=302&type=chunk) - As of December 31, 2022, bills payable of **RMB 2,574,097,000** were secured by pledged bank deposits of **RMB 1,413,887,000**[287](index=287&type=chunk) - The amount included in the opening balance of contract liabilities recognized as revenue during the year was **RMB 1,129,473,000** (2021: **RMB 890,824,000**)[43](index=43&type=chunk) Aging Analysis (by Invoice Date, RMB thousand) | Aging Analysis | December 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Within 3 Months | 3,379,485 | 3,715,365 | | Over 3 Months but Within 6 Months | 454,091 | 211,543 | | Over 6 Months but Within 12 Months | 6,595 | 4,888 | | **Total** | **3,840,171** | **3,931,796** | [Dividends](index=28&type=section&id=Dividends) The Group neither proposed nor paid any final dividends in **2022 and 2021** - For the years ended December 31, 2022 and 2021, **no proposed dividends** for the previous financial year were approved and paid[30](index=30&type=chunk)[289](index=289&type=chunk) [Financial Risk Management and Fair Value of Financial Instruments](index=28&type=section&id=Financial%20Risk%20Management%20and%20Fair%20Value%20of%20Financial%20Instruments) This section outlines the Group's liquidity risk management, details non-derivative financial liability maturities, and assesses issued financial guarantees and related legal proceedings [Liquidity Risk](index=28&type=section&id=Liquidity%20Risk) The Group manages liquidity risk by maintaining **sufficient cash reserves** and **bank financing** to meet maturing obligations - Liquidity risk is the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due[44](index=44&type=chunk) - The Group manages liquidity risk by regularly monitoring current and expected liquidity requirements, ensuring sufficient cash reserves and committed financing from major financial institutions[304](index=304&type=chunk) Contractual Undiscounted Cash Outflows (RMB thousand) | Contractual Undiscounted Cash Outflows (RMB thousand) | Within 1 Year or On Demand (2022) | 1 to 5 Years (2022) | Over 5 Years (2022) | Total (2022) | Balance Sheet Carrying Amount (2022) | | :--- | :--- | :--- | :--- | :--- | :--- | | Loans and Borrowings | 12,260,131 | 6,889,521 | 22,095 | 19,171,747 | 18,673,887 | | Lease Liabilities | 369,019 | 939,532 | 394,460 | 1,703,011 | 1,344,566 | | Other Financial Liabilities | 91,578 | — | — | 91,578 | 91,516 | | Trade and Other Payables | 5,827,775 | 355,000 | — | 6,182,775 | 6,014,423 | | **Total Liquidity Risk Excluding Issued Financial Guarantees** | **18,548,503** | **8,184,053** | **416,555** | **27,149,111** | **26,124,392** | | | | | | | | | Contractual Undiscounted Cash Outflows (RMB thousand) | Within 1 Year or On Demand (2021) | 1 to 5 Years (2021) | Over 5 Years (2021) | Total (2021) | Balance Sheet Carrying Amount (2021) | | :--- | :--- | :--- | :--- | :--- | :--- | | Loans and Borrowings | 15,232,831 | 1,588,420 | — | 16,821,251 | 16,295,984 | | Lease Liabilities | 372,157 | 1,129,605 | 643,928 | 2,145,690 | 1,478,811 | | Bonds Payable | 374,286 | — | — | 374,286 | 365,936 | | Trade and Other Payables | 5,974,680 | 284,000 | 71,000 | 6,329,680 | 6,194,450 | | **Total Liquidity Risk Excluding Issued Financial Guarantees** | **21,953,954** | **3,002,025** | **714,928** | **25,670,907** | **24,335,181** | [Issued Financial Guarantees](index=29&type=section&id=Issued%20Financial%20Guarantees) Wuhan Zhengtong provided financial guarantees for Beijing Guangze's equity repurchase and loan repayment, with pledged assets; despite unfavorable rulings, the Group's cash exposure is expected to be immaterial via settlement and collateral disposal - Wuhan Zhengtong provided financial guarantees for Beijing Guangze's equity repurchase obligations and outstanding loan balances, secured by certain land use rights and properties of Beijing Zunbaocheng and Beijing Baoze[32](index=32&type=chunk)[33](index=33&type=chunk)[167](index=167&type=chunk)[168](index=168&type=chunk) - In 2021, a court ruling required Beijing Guangze to pay an equity repurchase price of **RMB 420 million** and loan principal of **RMB 1.35 billion** plus interest, with Wuhan Zhengtong bearing joint and several liability[34](index=34&type=chunk)[47](index=47&type=chunk)[169](index=169&type=chunk)[149](index=149&type=chunk)[185](index=185&type=chunk)[307](index=307&type=chunk) - In January 2023, Wuhan Zhengtong reached a settlement agreement with Yuchen Fengze, where Wuhan Zhengtong withdrew its appeal against the first-instance loan judgment, and Yuchen Fengze agreed to assist in disposing of the collateral to recover the debt[36](index=36&type=chunk)[150](index=150&type=chunk) - In June 2022, the second-instance judgment for the equity repurchase first-instance ruling determined that Wuhan Zhengtong only bears **general guarantee liability** within the scope of payable amounts and has the right to seek recourse from Beijing Guangze after fulfilling its guarantee obligations[308](index=308&type=chunk)[169](index=169&type=chunk) - As of December 31, 2022, the fair value and estimated net realizable value of the pledged assets were **RMB 2.79 billion** and **RMB 1.97 billion**, respectively[38](index=38&type=chunk) - The maximum amount guaranteed by Wuhan Zhengtong under the 2020 shortfall make-up agreement was **RMB 1.93 billion** (2021: **RMB 1.83 billion**)[50](index=50&type=chunk) - The expected credit loss provision for financial guarantees was assessed as **immaterial**, considering the value and volatility of pledged assets[51](index=51&type=chunk) [Contingent Liabilities](index=31&type=section&id=Contingent%20Liabilities) The Group faces contingent liabilities from a general contracting agreement, with a subcontractor's payment notice, but deems the likelihood of being pursued for payment as **remote**, thus no provision is made - In 2018, Wuhan Zhengtong entered into a general contracting agreement with Beijing Guangze to engage it in the development, construction, reconstruction, and expansion of 4S dealerships and related commercial projects[40](index=40&type=chunk) - In July 2022, due to Beijing Guangze's failure to fulfill its obligations, the Group received a payment notice of **RMB 6 million** from a subcontractor[40](index=40&type=chunk) - After fully considering legal advice, the Company's directors believe that the likelihood of the Group being sued by the subcontractor to claim payment is **remote**, and therefore **no provision** has been made[293](index=293&type=chunk) - In January 2023, the Group filed a lawsuit against Beijing Guangze, alleging its failure to fulfill obligations under the general contracting agreement[310](index=310&type=chunk) - As of December 31, 2022, the Group had **no other significant contingent liabilities** apart from the aforementioned matters[311](index=311&type=chunk) [Non-Adjusting Events After Reporting Period](index=31&type=section&id=Non-Adjusting%20Events%20After%20Reporting%20Period) The Board approved a plan to dispose of **100% equity interest** in Shenzhen Huianqi Investment Consulting Co., Ltd., expected to be a **major transaction** under Listing Rules requiring shareholder approval - On **February 28, 2023**, the Board approved the disposal of **100% equity interest** in Shenzhen Huianqi Investment Consulting Co., Ltd., which holds property interests in a plot of land in Shenzhen[54](index=54&type=chunk)[133](index=133&type=chunk) - The potential disposal is intended to be conducted through public bidding, with a provisional initial price of approximately **RMB 800 million**[54](index=54&type=chunk)[133](index=133&type=chunk) - The potential disposal, if materialized, is expected to constitute a **major transaction** under Chapter 14 of the Listing Rules, subject to reporting, announcement, circular, and shareholder approval requirements[106](index=106&type=chunk) [Business Review](index=32&type=section&id=Business%20Review) In 2022, the Group significantly narrowed losses in a challenging market by focusing on luxury auto sales and after-sales services, achieving strong results in business recovery, expansion, and management with state-owned shareholder support [Overall Business Performance](index=32&type=section&id=Overall%20Business%20Performance) In 2022, despite automotive industry pressures, the Group significantly improved operating performance and reduced losses by focusing on luxury and ultra-luxury brand businesses - In 2022, the automotive industry faced **triple pressures** of supply shocks, demand contraction, and weakening expectations due to chip shortages and recurring epidemics[52](index=52&type=chunk)[53](index=53&type=chunk) - The Group continued to focus on **luxury and ultra-luxury brands** for automobile sales and after-sales service businesses, prioritizing business recovery and improving operational quality[52](index=52&type=chunk) - With the **five-year strategic plan** and state-owned shareholder support, the Group achieved good results in business recovery, authorization maintenance, business expansion, financing, internal control, and talent development, leading to a **significant reduction in losses**[52](index=52&type=chunk) - The Group recorded revenue of approximately **RMB 22,607 million** (2021: approximately **RMB 20,986 million**) and gross profit of approximately **RMB 1,587 million** (2021: **RMB 1,236 million**)[56](index=56&type=chunk) - Loss attributable to equity holders of the Group was approximately **RMB 296 million** (2021: approximately **RMB 3,622 million**) and basic loss per share was approximately **RMB 10.9 cents** (2021: approximately **RMB 133.8 cents**)[56](index=56&type=chunk) - In 2022, the Group's stores collectively received **249 awards** from automobile manufacturers, local governments, industry media, and industry associations[56](index=56&type=chunk) [Automobile Dealership Segment](index=32&type=section&id=Automobile%20Dealership%20Segment) The automobile dealership segment saw new car sales growth in 2022, particularly for luxury brands, enhancing after-sales service and market layout through digital customer management and network optimization [New Car Sales Business](index=32&type=section&id=New%20Car%20Sales%20Business) The Group's new car sales volume increased by **9.4%** in 2022, with luxury and ultra-luxury brands growing by **14.2%**, enhancing sales efficiency and customer experience through manufacturer cooperation and digital tools - For the year ended December 31, 2022, the Group's new car sales totaled **56,264 units**, a year-on-year increase of approximately **9.4%**[59](index=59&type=chunk) - Sales of luxury and ultra-luxury brand automobiles totaled **45,334 units**, a year-on-year increase of approximately **14.2%**[59](index=59&type=chunk) - The Group deepened communication and cooperation with brand manufacturers to obtain high-quality vehicle resources and successfully met manufacturer targets[80](index=80&type=chunk) - Launched electronic signature function for sales transaction documents, addressing customer difficulties in purchasing cars during the epidemic and improving sales business processing efficiency[80](index=80&type=chunk) [After-Sales Service Business](index=33&type=section&id=After-Sales%20Service%20Business) The Group's 2022 after-sales service revenue was approximately **RMB 3.081 billion**, continuously enhancing customer experience and satisfaction through digital customer management, personalized services, and innovative models - In 2022, the Group achieved **1,070,313 after-sales service visits**, generating after-sales service revenue of approximately **RMB 3,081 million**[62](index=62&type=chunk) - The Group is committed to being customer-centric, promoting digital customer management based on its independently developed information management system, establishing multi-channel links, and promptly responding to customer needs[60](index=60&type=chunk) - Provided personalized product services to customers, supporting "one-stop" services for online payment, offline consumption, and after-sales consultation, enhancing customer experience[60](index=60&type=chunk) - Promoted "door-to-door pick-up and delivery service" and launched anti-epidemic packages during the epidemic, actively expanding business boundaries and customer base[60](index=60&type=chunk) [Network Development and Layout](index=34&type=section&id=Network%20Development%20and%20Layout) The Group optimized brand structure and store profitability, operating **109 outlets** and **7 planned outlets** by year-end 2022, actively expanding its new energy brand layout - As of December 31, 2022, the Group operated **109 outlets** in 38 cities across 17 provinces and municipalities nationwide, and had **7 authorized dealerships** under construction[81](index=81&type=chunk) - The Group represents luxury and ultra-luxury automobile brands including Porsche, Mercedes-Benz, BMW, Audi, Jaguar Land Rover, Volvo, Hongqi, as well as mid-to-high-end brands such as FAW-Volkswagen, Buick, and Dongfeng Nissan[81](index=81&type=chunk) Outlets by Type | Outlet Type | Operating Outlets | Authorized Outlets Under Construction | Total | | :--- | :--- | :--- | :--- | | Luxury and Ultra-Luxury Brand 5S/4S Stores | 62 | 2 | 64 | | Mid-to-High-End and New Energy Brand 4S Stores | 12 | 2 | 14 | | Luxury Brand City Showrooms | 7 | 0 | 7 | | Luxury Brand Authorized Service Centers | 6 | 1 | 7 | | Mid-to-High-End and New Energy Brand Service Centers | 2 | 2 | 4 | | Self-operated Online Stores | 20 | 0 | 20 | | **Total** | **109** | **7** | **116** | - In 2022, a new Porsche Center, a Hozon Auto brand store, and a Tesla authorized body and paint center were opened, continuously expanding the industrial layout in the new energy sector[81](index=81&type=chunk) - The Group focused on promoting core and highly profitable brand projects, streamlining and strategically adjusting some less profitable brands and outlets to improve overall profitability[83](index=83&type=chunk) [Derivative and Emerging Business Segment](index=35&type=section&id=Derivative%20and%20Emerging%20Business%20Segment) The Group's derivative and emerging business segments accelerated in 2022, with breakthrough growth in insurance agency and used car businesses, and active expansion into the new energy sector with multiple new energy brand authorizations [Derivative Business](index=35&type=section&id=Derivative%20Business) The Group's derivative business performed strongly in 2022, with dual-protection product sales reaching **RMB 80 million**, car insurance new/renewal policies and premium scale increasing year-on-year, and used car business achieving breakthrough growth in scale and profitability - In 2022, the Group achieved dual-protection product sales of approximately **RMB 80 million**, with cumulative sales of nearly **10,000 units**[67](index=67&type=chunk) - In the same year, new and renewal car insurance policies and premium scale increased by **11%** and **15%** year-on-year, respectively[67](index=67&type=chunk) - The "Dual Protection Worry-Free" product was vigorously promoted across the Group, with sales penetration exceeding **40%**, contributing to increased output value and enhanced customer stickiness[84](index=84&type=chunk)[85](index=85&type=chunk) - The Group reported used car sales of **10,564 units**; the used car business contributed gross profit exceeding **RMB 48 million**, a year-on-year increase of over **20%**[67](index=67&type=chunk) - The Group restructured its used car business management system, introduced several industry-leading auction platforms, broadened sales channels, improved turnover efficiency, and enhanced transaction transparency[86](index=86&type=chunk) [Emerging Business](index=37&type=section&id=Emerging%20Business) The Group added multiple new energy brand authorizations in 2022 and established an emerging business team to actively expand its industrial layout and market opportunities in the new energy sector - In 2022, the Group added new energy brand authorizations, including Guangzhou Hozon Auto 4S store, Yichang and Xiangyang NIO service centers, and Jieyang Tesla body and paint center[68](index=68&type=chunk) - The company established an emerging business team to continuously expand its industrial layout in the new energy sector, actively promoting ongoing and reserve projects, and exploring and identifying opportunities for joint ventures and project acquisitions in the new energy market[68](index=68&type=chunk)[88](index=88&type=chunk) [Supply Chain Business Segment](index=37&type=section&id=Supply%20Chain%20Business%20Segment) Shengze Jietong overcame logistics demand challenges in 2022, achieving nearly **RMB 491 million** in total revenue, improving gross profit margin and pre-tax profit through cost reduction, and successfully expanding vehicle logistics and spare parts warehousing - Shengze Jietong's vehicle logistics and spare parts warehousing businesses achieved total revenue of nearly **RMB 491 million**, with an overall gross profit margin increase of **2.02%** and a year-on-year increase of **32.81%** in pre-tax profit[69](index=69&type=chunk) - In terms of vehicle business, Shengze Jietong successfully participated in bidding projects for FAW-Volkswagen, Hongqi, Bestune, and Dongfeng Nissan's vehicle businesses for the next three years[89](index=89&type=chunk) - In terms of warehousing business, it successfully expanded Kangshifu and Dongfeng Fengshen warehousing businesses, and officially entered SAIC Anji's supplier logistics system during the year[89](index=89&type=chunk) - Shengze Jietong obtained high-tech enterprise qualification, was awarded "China's Auto Valley Top Ten Modern Service Enterprises," and was included in the "National Integrated Hub Supply Chain Strengthening" project library[90](index=90&type=chunk) [Management Enhancement](index=38&type=section&id=Management%20Enhancement) In 2022, the Group comprehensively optimized its management system, covering governance, structure, HR, IT, cost reduction, audit, and risk prevention, to enhance operational efficiency and market responsiveness [Corporate Governance](index=38&type=section&id=Corporate%20Governance) The company established and improved a standardized corporate governance structure and scientific rules, clarified decision-making, execution, and supervision responsibilities, and comprehensively revised its rules and regulations - The company established and improved a standardized corporate governance structure and scientific rules of procedure, formulating various rules and systems that comply with listing compliance requirements and business development needs[71](index=71&type=chunk) - During the year, a comprehensive revision of the company's rules and regulations was initiated, covering the optimization and improvement of core control systems such as risk management, investment management, procurement and bidding, expense management, and internal supervision[71](index=71&type=chunk) [Organizational Structure](index=38&type=section&id=Organizational%20Structure) The Group optimized its organizational structure, separating Board Chairman and President roles, re-adjusting executive responsibilities, and streamlining headquarters and brand department structures - Following the principles of effective management, flat and lean structure, and stable adaptability, the roles of Board Chairman and President were separated, and executive responsibilities were re-adjusted to ensure clearer management responsibilities[91](index=91&type=chunk) - The responsibilities of the company's headquarters departments were re-evaluated and integrated accordingly, and the organizational structure of brand departments was adjusted to standardize job settings across brand management departments[91](index=91&type=chunk) [Human Resources](index=38&type=section&id=Human%20Resources) The Group optimized its remuneration system and employee career management, promoted internal and market-based selection for middle/senior management, and strengthened multi-faceted training and corporate culture - Optimized a scientific and reasonable remuneration system and established an employee career management system adapted to the development strategy[72](index=72&type=chunk) - Optimized the cadre selection mechanism and promoted internal competition and market-based selection for middle and senior management positions based on principles of fairness, impartiality, and openness[72](index=72&type=chunk) - Established channels for internal excellent talent exchange and learning, continuously improving talent discovery, growth, development, and incentive mechanisms[92](index=92&type=chunk) - Strengthened multi-faceted training to enhance the professional knowledge and skills of management and business personnel, and organized diverse corporate culture activities[92](index=92&type=chunk) [Information Technology Construction](index=39&type=section&id=Information%20Technology%20Construction) The Group independently developed automotive IT projects for digital customer lifecycle management and built a business indicator monitoring system to enhance refined management and data-driven decision support - Focused on digital operations and management throughout the customer full lifecycle, empowering the Group's innovative development and business upgrades[73](index=73&type=chunk) - Independently designed and developed a series of automotive information technology projects, including developing electronic signature functions, building client-side enterprise WeChat mini-programs, mobile terminal on-site vehicle inspection and registration for used cars, and dual-protection product system development[73](index=73&type=chunk) - Built a business indicator monitoring system and performance benchmarking system to solidify refined management and effectively respond to market changes and evolving consumer demands[73](index=73&type=chunk) [Cost Reduction and Efficiency Improvement](index=39&type=section&id=Cost%20Reduction%20and%20Efficiency%20Improvement) The Group effectively controlled procurement costs, improved capital utilization, and reduced financial expenses through standardized bidding, competitive negotiations, expanded financing, and debt restructuring - The company controlled overall procurement costs through standardized and unified bidding and procurement, and introduced competitive negotiations to reasonably extend supplier payment terms, improving capital utilization efficiency[115](index=115&type=chunk) - Controlled financial expenses and reduced financing costs by expanding financing channels, debt restructuring, and moderately reducing debt scale[115](index=115&type=chunk) [Internal Audit and Supervision](index=40&type=section&id=Internal%20Audit%20and%20Supervision) The Group established a multi-level supervision and inspection system, assessing control implementation through regular audits, special investigations, and store inspections, using IT to pre-warn risks and improve professional ethics risk prevention - The company has established a multi-level supervision and inspection system covering headquarters and various subsidiaries, assessing and supervising the implementation of controls in various business areas through increased frequency of regular audits, special investigations, and store inspections[74](index=74&type=chunk) - Utilized IT technology and systems to automatically identify and pre-warn risks, established dedicated channels for reporting occupational fraud, and improved the company's professional ethics risk prevention system[74](index=74&type=chunk) [Risk Prevention](index=40&type=section&id=Risk%20Prevention) The Group dynamically conducts risk analysis and assessment, formulates operational risk management systems, strengthens risk identification, early warning, and control, and established an emergency and public opinion management team - Dynamically conducted risk analysis and assessment in conjunction with the company's development stage and business expansion, and adjusted risk response strategies accordingly[116](index=116&type=chunk) - Formulated operational risk management systems to strengthen risk identification, early warning, and control; established and optimized the company's financing, guarantee, and foreign exchange transaction management systems to strictly control financial and financing business execution risks[116](index=116&type=chunk) - Established a leading group for emergency management and public opinion management, and established mechanisms for emergency response and public opinion handling[116](index=116&type=chunk) [Financial Review](index=40&type=section&id=Financial%20Review) This section reviews the Group's 2022 financial performance, covering revenue, profitability, expenses, assets, liabilities, cash flow, capital expenditure, financing, exchange risk, and pledged assets [Revenue](index=40&type=section&id=Revenue_FinancialReview) The Group's total revenue increased by **7.7%** in 2022, primarily driven by new car sales, with significant contributions from luxury and ultra-luxury brands, and a slight decrease in after-sales service revenue - For the year ended December 31, 2022, the Group recorded revenue of approximately **RMB 22,607 million**, an increase of approximately **7.7%** compared to approximately **RMB 20,986 million** in 2021, mainly due to increased new car sales during the year[117](index=117&type=chunk) - New car sales revenue in 2022 was approximately **RMB 18,845 million**, an increase of approximately **10.9%** compared to 2021, accounting for approximately **83.4%** of total revenue in 2022 (2021: **81.0%**)[117](index=117&type=chunk) - Revenue from luxury and ultra-luxury brand automobile sales was approximately **RMB 17,491 million**, an increase of approximately **13.0%** year-on-year, accounting for approximately **92.8%** of new car sales revenue in 2022 (2021: **91.1%**)[117](index=117&type=chunk) - After-sales service revenue was approximately **RMB 3,081 million**, a decrease of approximately **0.8%** compared to 2021, accounting for approximately **13.6%** of total revenue (a year-on-year decrease of **1.2 percentage points**)[117](index=117&type=chunk) [Cost of Sales](index=41&type=section&id=Cost%20of%20Sales) The Group's cost of sales increased by **6.4%** in 2022, consistent with new car sales growth; after-sales service cost of sales decreased by **15.4%**, mainly due to lower rental and labor expenses for some stores - For the year ended December 31, 2022, the Group's cost of sales was approximately **RMB 21,020 million**, an increase of approximately **6.4%** year-on-year compared to approximately **RMB 19,750 million** in 2021, consistent with the increase in new car sales[118](index=118&type=chunk) - New car sales cost increased by approximately **10.8%** to approximately **RMB 18,630 million** in 2022, mainly due to increased new car sales[118](index=118&type=chunk) - After-sales service cost of sales decreased by approximately **15.4%** to approximately **RMB 1,806 million**, mainly due to lower rental and labor expenses for some stores[118](index=118&type=chunk) [Gross Profit and Gross Margin](index=41&type=section&id=Gross%20Profit%20and%20Gross%20Margin) The Group's gross profit increased by **28.4%** in 2022, with gross margin rising to **7.0%**, mainly due to increased new car sales revenue, controlled cost of sales, and significantly decreased after-sales service costs - For the year ended December 31, 2022, the Group's gross profit was approximately **RMB 1,587 million**, an increase of approximately **28.4%** compared to 2021, with a gross profit margin of approximately **7.0%** (2021: **5.9%**)[77](index=77&type=chunk) - New car sales business generated gross profit of approximately **RMB 215 million** (2021: **RMB 182 million**), mainly due to increased revenue from new car sales and controlled cost of sales[119](index=119&type=chunk) - After-sales service gross profit increased by approximately **31.4%** from approximately **RMB 970 million** in 2021 to approximately **RMB 1,275 million**, mainly due to cost-saving measures[119](index=119&type=chunk) [Selling and Distribution Expenses](index=41&type=section&id=Selling%20and%20Distribution%20Expenses) The Group's selling and distribution expenses decreased by **5.5%** year-on-year in 2022, mainly due to reduced staff salary costs and discretionary bonuses - For the year ended December 31, 2022, the Group's selling and distribution expenses were approximately **RMB 1,211 million**, a decrease of approximately **5.5%** compared to 2021, mainly due to reduced staff salary costs and discretionary bonuses[78](index=78&type=chunk) [Administrative Expenses](index=42&type=section&id=Administrative%20Expenses) The Group's administrative expenses increased by **11.3%** year-on-year in 2022, mainly due to exchange losses on foreign currency loans and borrowings caused by RMB depreciation - For the year ended December 31, 2022, the Group's administrative expenses were approximately **RMB 1,281 million**, an increase of approximately **11.3%** compared to 2021, mainly due to exchange losses on foreign currency loans and borrowings caused by RMB depreciation in 2022[121](index=121&type=chunk) [Operating Profit](index=42&type=section&id=Operating%20Profit) The Group achieved an operating profit of approximately **RMB 834 million** in 2022, reversing the 2021 operating loss, with a **3.7%** operating profit margin, mainly due to overall operational improvement - For the year ended December 31, 2022, the Group recorded an operating profit of approximately **RMB 834 million**, compared to an operating loss of approximately **RMB 957 million** in 2021, with the turnaround mainly due to overall improvement in Group operations[122](index=122&type=chunk) - The Group's 2022 operating profit margin was approximately **3.7%**[122](index=122&type=chunk) [Income Tax](index=42&type=section&id=Income%20Tax_FinancialReview) The Group's 2022 income tax was approximately **RMB 167 million**, with a **negative effective tax rate**, mainly influenced by the tax impact of non-deductible expenses - For the year ended December 31, 2022, the Group's income tax was approximately **RMB 167 million**, with an effective tax rate of approximately **-128.2%** (2021: **0.4%**)[123](index=123&type=chunk) - The negative tax rate in 2022 was due to the tax impact of non-deductible expenses (net of non-taxable income)[123](index=123&type=chunk) [Loss for the Year](index=42&type=section&id=Loss%20for%20the%20Year_FinancialReview) The Group's loss for the year significantly decreased by **92.1%** in 2022, mainly due to a substantial increase in other income, business recovery, and cessation of losses at some stores - For the year ended December 31, 2022, the Group's loss for the year was approximately **RMB 297 million**, a decrease of approximately **92.1%** compared to 2021[123](index=123&type=chunk) - The reduction in loss was mainly due to a substantial increase in other income, business recovery, and cessation of losses at some closed stores[123](index=123&type=chunk) - The Group's loss rate was approximately **1.3%**, a decrease of **16.7 percentage points** compared to **18.0%** in 2021[123](index=123&type=chunk) [Contingencies](index=42&type=section&id=Contingencies) As of December 31, 2022, the Group had **no other significant contingent liabilities** apart from those disclosed - As of December 31, 2022, the Group had **no other significant contingent liabilities** apart from those disclosed in "Notes to Consolidated Financial Statements 17 Contingent Liabilities"[124](index=124&type=chunk) [Current Assets and Liabilities](index=42&type=section&id=Current%20Assets%20and%20Liabilities) The Group's current assets increased at year-end 2022, mainly due to increased inventory and pledged bank deposits; current liabilities decreased, primarily due to reduced short-term loans and borrowings - As of December 31, 2022, the Group's current assets were approximately **RMB 13,830 million**, an increase of approximately **RMB 1,039 million** compared to 2021, mainly due to increased inventory and pledged bank deposits[125](index=125&type=chunk) - As of December 31, 2022, the Group's current liabilities were approximately **RMB 18,911 million**, a decrease of approximately **RMB 2,930 million** compared to 2021, mainly due to a reduction in short-term loans and borrowings[126](index=126&type=chunk) [Adjusted Net Assets](index=43&type=section&id=Adjusted%20Net%20Assets) The Company's reported net assets were **RMB 224 million**, with adjusted net assets (non-GAAP) of **RMB 1.224 billion**, reflecting long-term loan support from the largest shareholder - The Company's reported net assets were approximately **RMB 224 million**, with adjusted net assets (non-GAAP financial measure) of approximately **RMB 1,224 million**[127](index=127&type=chunk) - Adjusted net assets are based on the net assets reported in the balance sheet as of December 31, 2022, adjusted for the impact of a **RMB 1 billion** long-term loan from the largest shareholder Xiamen C&D Group Co., Ltd.[127](index=127&type=chunk) - This non-GAAP financial measure aims to reflect the **positive impact** of C&D Group's financial support on the Company's going concern ability, providing investors with clearer financial performance[127](index=127&type=chunk) [Cash Flow](index=43&type=section&id=Cash%20Flow) The Group's cash and cash equivalents increased at year-end 2022, with stable net cash inflow from operating activities, primarily used for new car procurement, loan repayment, and working capital - As of December 31, 2022, the Group's cash and cash equivalents were approximately **RMB 734 million**, an increase of approximately **RMB 525 million** compared to 2021[128](index=128&type=chunk) - For the year ended December 31, 2022, the Group's net cash inflow from operating activities was approximately **RMB 159 million** (2021: **RMB 156 million**)[128](index=128&type=chunk) - The Group's funds were primarily used for purchasing new cars, spare parts, and automotive supplies, repaying loans, allocating working capital and daily expenses, and establishing or acquiring new dealerships[128](index=128&type=chunk) [Capital Expenditure and Investment](index=44&type=section&id=Capital%20Expenditure%20and%20Investment) The Group's capital expenditure and investment increased in 2022, mainly for **store upgrades and renovations** - For the year ended December 31, 2022, the Group's capital expenditure and investment were approximately **RMB 859 million** (2021: **RMB 661 million**), with the increase mainly due to store upgrades and renovations[103](index=103&type=chunk) [Inventories](index=44&type=section&id=Inventories_FinancialReview) The Group's inventory increased at year-end 2022, leading to increased average inventory turnover days, mainly due to expanded operations and epidemic impact - The Group's inventory as of December 31, 2022, was approximately **RMB 4,064 million**, an increase of approximately **RMB 1,415 million** compared to 2021, mainly due to the Group increasing new car inventory based on market demand[103](index=103&type=chunk) - The Group's 2022 average inventory turnover days were **48.4 days**, an increase of **16.9 days** compared to **31.5 days** in 2021, mainly due to expanded operations and increased year-end inventory caused by the epidemic[103](index=103&type=chunk) [Exchange Rate Risk](index=44&type=section&id=Exchange%20Rate%20Risk) The Group primarily conducts business in **RMB**, with foreign currency assets/liabilities not significantly impacting operating cash flow or liquidity, using forward foreign exchange contracts to hedge risk - The Group primarily conducts business in RMB, and although certain bank deposits and bank loans are denominated in foreign currencies, operating cash flow and liquidity were **not significantly impacted** by exchange rate fluctuations[104](index=104&type=chunk) - The Group uses **forward foreign exchange contracts** to hedge foreign exchange risk related to USD-denominated loans and borrowings[104](index=104&type=chunk) [Liquidity and Capital Resources](index=44&type=section&id=Liquidity%20and%20Capital%20Resources) The Group's working capital and capital expenditure primarily came from internal operating cash and bank borrowings, with both cash and cash equivalents and loans/borrowings increasing at year-end 2022 - The Group's working capital and capital expenditure primarily came from cash generated from internal operations and borrowings from major banks and other financial institutions[104](index=104&type=chunk) - As of December 31, 2022, the Group's cash and cash equivalents and bank deposits were approximately **RMB 4,691 million** (including: pledged bank deposits of approximately **RMB 3,957 million**, cash and cash equivalents of **RMB 734 million**), an increase of approximately **RMB 1,372 million** compared to 2021, mainly due to increased financing[104](index=104&type=chunk) - As of December 31, 2022, the Group's loans and borrowings and lease liabilities were approximately **RMB 20,018 million** (2021: approximately **RMB 18,141 million**), with the increase mainly due to new bank loans and borrowings[104](index=104&type=chunk) [Pledged Assets](index=45&type=section&id=Pledged%20Assets) The Group pledged certain assets as collateral for loans and borrowings, with total pledged assets increasing at year-end 2022, mainly due to increased inventory pledges for financing - The Group pledged certain assets as collateral for loans and borrowings, used as working capital for daily business operations[132](index=132&type=chunk) - As of December 31, 2022, the Group's pledged assets were approximately **RMB 8,003 million** (2021: approximately **RMB 6,310 million**), with the increase mainly due to increased inventory pledges required for financing[132](index=132&type=chunk) [Foreign Currency Investments and Hedging](index=45&type=section&id=Foreign%20Currency%20Investments%20and%20Hedging) The Group held **no significant foreign currency investments** in 2022, and operating cash flow or liquidity was **not significantly affected** by exchange rate changes - For the year ended December 31, 2022, the Group held **no significant foreign currency investments**[133](index=133&type=chunk) - The Group's working capital or liquidity was **not significantly affected** by changes in currency exchange rates[133](index=133&type=chunk) [Significant Events After Accounting Year End](index=45&type=section&id=Significant%20Events%20After%20Accounting%20Year%20End) The Board approved a plan to dispose of **100% equity interest** in Shenzhen Huianqi Investment Consulting Co., Ltd., expected to be a **major transaction** requiring shareholder approval - On **February 28, 2023**, the Board approved a proposed plan to dispose of **100% equity interest** in Shenzhen Huianqi Investment Consulting Co., Ltd.[133](index=133&type=chunk) - The potential disposal is intended to be conducted through public bidding, with a provisional initial pri

Financial Performance - For the six months ended June 30, 2022, the company recorded revenue of approximately RMB 11,069 million, representing a year-on-year growth of about 15.2%[4] - The gross profit for the same period was approximately RMB 949 million, showing a significant year-on-year increase of approximately 2,961.3%[4] - The group's revenue for the six months ended June 30, 2022, was approximately RMB 11,069 million, an increase of about 15.2% compared to RMB 9,612 million in the same period of 2021[30] - Revenue from new car sales was approximately RMB 9,281 million, up about 22.7% from RMB 7,566 million in the first half of 2021, accounting for 83.8% of total revenue[30] - The group's gross profit for the six months ended June 30, 2022, was approximately RMB 949 million, a significant increase of about 2,961.3% compared to RMB 31 million in the same period of 2021, with a gross margin of 8.6%[32] - Operating profit for the six months ended June 30, 2022, was approximately RMB 533 million, compared to an operating loss of approximately RMB 762 million in the same period of 2021[36] - The net profit for the six months ended June 30, 2022, was approximately RMB 6 million, a turnaround from a loss of approximately RMB 1,519 million in the first half of 2021[39] - The company reported a net profit of RMB 5,675 for the period, a significant turnaround from a net loss of RMB 1,518,695 in 2021[114] - The company reported a net profit of RMB 8,150,000 for the six months ended June 30, 2022, compared to a loss in the previous period[132] Sales and Market Performance - The company sold a total of 26,100 new vehicles, reflecting a year-on-year growth of approximately 6.9%, including 21,452 luxury and ultra-luxury vehicles, which grew by approximately 17.9%[6] - The after-sales service segment achieved a total of 573,615 service instances, generating after-sales service revenue of approximately RMB 1,468 million[8] - The company plans to focus on the automotive sales service business in the second half of 2022, particularly enhancing its luxury brand agency operations, aiming for continuous high-speed growth[53] - The company intends to expand its used car business significantly, improving the scale and profitability of certified used car retail operations, while also enhancing the market influence of its used car brand[53] - Revenue from after-sales services was RMB 1,467,521 thousand, a decrease of 9.0% from RMB 1,613,169 thousand in the previous year[149] Operational Efficiency and Strategy - The company is focusing on enhancing customer experience through digital management systems and personalized services, aiming to increase customer retention and expand its customer base[8] - The company is strategically closing underperforming outlets and transitioning brands to improve overall profitability while enhancing brand image and customer experience[12] - The company is focusing on optimizing brand structure and dealership profitability while exploring market opportunities in new energy and new dealership models[14] - The company is committed to enhancing its operational efficiency and cost advantages through digitalization and standardization of processes[53] - The company has adopted a restricted share award plan, with a total of 47,100,000 shares awarded since the adoption date, accounting for approximately 1.92% of the issued shares at that time[83] Financial Position and Assets - The group's cash and cash equivalents as of June 30, 2022, were approximately RMB 1,005 million, an increase of about RMB 796 million from RMB 209 million as of December 31, 2021[41] - The average inventory turnover days increased to 40.8 days for the first half of 2022, up from 27.5 days in the same period of 2021[47] - The group's current assets as of June 30, 2022, were approximately RMB 13,343 million, an increase of about RMB 552 million from RMB 12,791 million as of December 31, 2021[40] - The total assets as of June 30, 2022, amounted to RMB 13,610,174, compared to RMB 13,338,841 at the end of 2021, reflecting growth in asset base[121] - The total liabilities decreased to RMB 7,132,778,000 as of June 30, 2022, from RMB 7,140,928,000 at the end of the previous period[132] Governance and Compliance - The company has implemented a comprehensive governance structure to enhance decision-making and internal controls[26] - The company has established a risk management framework to identify and mitigate operational risks effectively[27] - The company is committed to high standards of corporate governance to protect shareholder interests and enhance corporate value and accountability[88] - The company has complied with the corporate governance code, with the roles of chairman and CEO being separated since March 10, 2022[96] - The audit committee, composed entirely of independent non-executive directors, reviewed the unaudited interim financial statements for the six months ended June 30, 2022[100] Challenges and Market Conditions - The supply chain segment reported a revenue of approximately RMB 220 million in the first half of 2022, a decrease of 24.4% year-on-year due to pandemic impacts and supply chain disruptions[23] - The second-hand car market saw a total transaction volume of 758.52 million units in the first half of 2022, a year-on-year decrease of 10.07%, but June alone saw a month-on-month increase of 19.20%[9] - The company has not engaged in any significant acquisitions or disposals of subsidiaries or joint ventures in the first half of 2022[61] Future Outlook - The company is actively developing new products and technologies, including a series of digital projects aimed at enhancing customer lifecycle management[27] - The company is actively collaborating with new energy vehicle brands to expand its service offerings in the new energy vehicle sector, leveraging its resources for rapid network expansion[53] - The company has plans for market expansion and new product development, although specific details were not disclosed in the report[110]

Financial Performance - In 2021, the company reported revenue of RMB 20,985.5 million, a 24.8% increase from RMB 16,880.9 million in 2020[10] - The company experienced a loss before tax of RMB 2,213.6 million in 2021, compared to a loss of RMB 10,395.4 million in 2020, indicating an improvement[10] - The gross profit for 2021 was approximately RMB 1,236 million, a significant recovery from a gross loss of RMB 5,173 million in 2020[29] - The net loss attributable to equity holders was approximately RMB 3,622 million, reduced from RMB 8,579 million in 2020, marking a decrease of about 57.8%[29] - The basic loss per share improved to approximately RMB 133.8 cents, down from RMB 334.8 cents in 2020, reflecting a reduction of about 60.1%[29] - The company reported a revenue of RMB 601 million for its supply chain business in 2021, representing a year-on-year growth of 3.72%[53] - New car sales revenue was approximately RMB 16,989 million, up about 34.8% from RMB 12,606 million in 2020, accounting for 81.0% of total revenue in 2021[70] - The net loss for the year was approximately RMB 3,781 million, a reduction of about 56.0% from RMB 8,589 million in 2020, with a loss margin of 18.0%[79] Operational Expansion - The company expanded its operational network to 118 locations across 40 cities in 17 provinces and municipalities by the end of 2021, adding 4 new outlets during the year[5] - The group opened 4 new operational outlets in 2021, bringing the total to 118 outlets across 40 cities in 17 provinces and municipalities[44] - The group has been authorized to establish 5 new dealership outlets for luxury brands, including Porsche and Mercedes-Benz, with plans for rapid development[44] - The company expanded its dealership network by adding one Porsche and one Mercedes-Benz dealership during the reporting period[29] Market Trends and Strategy - The luxury car sales segment showed significant growth, with the company focusing on high-end brands such as Porsche, BMW, and Mercedes-Benz[5] - The overall automotive market in China is shifting towards a concentration of leading dealers, with increased competition in the used car and after-sales service sectors[17] - The Chinese automotive market is projected to continue growing, with domestic brands capturing over 40% market share and significant increases in export volumes[17] - The company is strategically positioned to leverage the dual circulation model of the economy, enhancing its market presence amid changing consumer behaviors[17] - The company aims to enhance its after-sales service to meet the growing demand in the automotive market, emphasizing high-quality and rapid service[7] Technological Investment - The company is investing in new technologies and services to adapt to the evolving automotive ecosystem, including electric vehicles and integrated service offerings[17] - The group is actively pursuing digital transformation to drive innovation, focusing on customer lifecycle management and operational efficiency improvements[39] Customer Experience and Service - The group achieved a total of 1,352,572 after-sales service instances in 2021, generating after-sales service revenue of approximately RMB 3,105 million[33] - The company aims to enhance operational capabilities and customer experience through brand upgrades and increased interaction with manufacturers[44] - The company is actively entering the new energy vehicle market and enhancing its service experience in this sector[29] Corporate Governance - The company has committed to high standards of corporate governance to protect shareholder interests and enhance corporate value[113] - The board has delegated daily management responsibilities to the CEO and senior management while retaining oversight of strategic decisions[126] - The company has adopted a set of securities trading rules that are at least as stringent as the standard rules outlined in the listing rules[118] - The company has established three committees: remuneration, nomination, and audit, each with clear written terms of reference to oversee specific aspects of the company's affairs[149] ESG Commitment - The ESG report for 2021 highlights the company's commitment to environmental and social responsibilities, addressing key ESG issues of concern to stakeholders[185] - The group has identified key ESG issues including product health and safety, supply chain management, and customer privacy, focusing on performance improvement in these areas[194] - The group is committed to sustainable development, integrating ESG principles into all operational activities to minimize negative environmental impacts[197] - The group has established a top-down ESG governance structure, with the board overseeing environmental and social matters, including risk assessment and management[198]

Financial Performance - In the first half of 2021, the company recorded revenue of approximately RMB 9,612 million, representing a year-on-year increase of about 8.23%[7] - The company reported a loss attributable to equity holders of approximately RMB 1,455 million, with a basic loss per share of approximately RMB 0.54, representing a year-on-year increase of about 6.59%[7] - The group's revenue for the first half of 2021 was approximately RMB 9,612 million, an increase of about 8.2% compared to RMB 8,881 million in the same period of 2020[41] - The company reported a net loss of approximately RMB 1,519 million for the first half of 2021, compared to a loss of RMB 1,323 million in the first half of 2020[50] - The company incurred a net loss of 1,455,474 for the six months ended June 30, 2021, compared to a loss of 1,518,695 in the same period of the previous year[149] - The total comprehensive loss for the six months ended June 30, 2021, was RMB 1,516,106, compared to RMB 1,328,152 in 2020, indicating an increase in loss of about 14.2%[129] Vehicle Sales and Market Performance - The company sold a total of 24,424 new vehicles in the first half of 2021, reflecting a year-on-year growth of approximately 13.2%, including 18,198 luxury and super-luxury vehicles, which grew by about 3.6%[8] - The luxury car market in China saw sales of approximately 1.472 million units in the first half of 2021, a year-on-year increase of 39.7%[4] - New car sales revenue was approximately RMB 7,566 million, up 12.0% from RMB 6,758 million in the first half of 2020, accounting for 78.7% of total revenue[41] - Revenue from passenger vehicle sales was RMB 7,566,395 thousand, up from RMB 6,757,976 thousand, indicating a growth of about 11.9%[166] After-Sales and Service Revenue - The after-sales service business recorded a total of 592,551 service instances in the first half of 2021, a year-on-year decrease of approximately 3.5%, with service revenue of RMB 1,613 million, down 8.9% year-on-year[11] - The company’s revenue from after-sales services decreased to RMB 1,613,169 thousand from RMB 1,769,919 thousand, a decline of approximately 8.8%[166] - The gross profit from after-sales services was approximately RMB 568 million, a decline of 24.4% compared to the same period last year, resulting in a gross margin of 35.2%[11] Financial Services and Loans - Dongzheng Automotive Finance's loan scale decreased by 29% from RMB 57.5 billion on December 31, 2020, to RMB 41.1 billion by June 30, 2021[16] - Net interest income for Dongzheng Automotive Finance was RMB 164 million, a decrease of 43% compared to the same period in 2020[16] - Dongzheng Automotive Finance reported a net loss of RMB 260 million for the first half of 2021, compared to a net profit of RMB 143 million in the same period of 2020[16] - The non-performing loan ratio for Dongzheng Automotive Finance was 10.7% as of June 30, 2021[17] Operational Developments - The company opened one new Mercedes-Benz store and one new Porsche store during the reporting period, further expanding its advantageous brand network[7] - The company actively engaged in the new energy vehicle market, attempting new business operation models and accumulating service experience[7] - The company implemented differentiated sales strategies based on brand market performance to expand sales scale and profitability[9] - The company has restored credit limits with financial institutions to support rapid business development following the resolution of liquidity risks[9] Inventory and Cash Flow - Inventory as of June 30, 2021, was approximately RMB 2,090 million, an increase of about RMB 288 million from RMB 1,802 million at the end of 2020[56] - Operating cash flow for the six months ended June 30, 2021, was negative at -60,069, compared to positive 569,205 for the same period in 2020[149] - Cash and cash equivalents were reported at RMB 319,390 thousand, a decrease from RMB 395,119 thousand at the end of 2020[136] Shareholder and Equity Information - The company completed a supplementary agreement with Xiamen Guotai Holdings, adjusting the number of shares to be transferred to 820,618,184 shares, representing 29.9% of the total issued share capital, for a total consideration of HKD 1,427,875,640.16, equivalent to HKD 1.74 per share[71] - As of June 30, 2021, the total number of issued shares was 2,744,542,420 shares, with the largest shareholder, Yidu, holding 50.41% of the shares[75] - The company has a stock option plan that allows for the issuance of up to 200,000,000 shares, which is approximately 7.29% of the total issued share capital as of the report date[83] - The company has established a trust for the shares granted under the stock incentive plan, ensuring that the beneficiaries are properly managed[74] Strategic Initiatives and Future Plans - The group plans to introduce strategic investment partners to eliminate liquidity risks and improve operational efficiency in the short term[66] - The group aims to enhance its luxury brand network and provide high-value services to improve market competitiveness in the mid-term[66] - The group is committed to transforming and upgrading its operations to create greater value for shareholders, employees, and society in the long term[66] - The group is actively exploring new marketing models, utilizing multiple online platforms for customer interaction to enhance marketing channels and improve business development efficiency[38]

Company Overview [Company Profile](index=4&type=section&id=Company%20Profile) China ZhengTong Auto Services Holdings Limited is a leading 4S dealership group in China, operating 125 outlets across 40 cities and offering comprehensive automotive solutions for luxury and ultra-luxury brands - The company is a leading 4S dealership group in China, primarily distributing luxury and ultra-luxury automobile brands such as **Porsche, Mercedes-Benz, BMW, and Audi**[5](index=5&type=chunk) - As of **December 31, 2020**, the Group owned **125 operating outlets** across **40 cities** in **17 provinces and municipalities** nationwide[6](index=6&type=chunk) - In addition to car dealership and after-sales services, the Group actively develops financial businesses including **auto finance, financial leasing, and insurance agency** to achieve strategic transformation and sustainable growth[6](index=6&type=chunk) Five-Year Financial Summary [Five-Year Financial Summary](index=5&type=section&id=Five-Year%20Financial%20Summary) The company experienced a severe performance decline in 2020, with revenue plummeting to **RMB 16.88 billion** and a substantial loss of **RMB 8.59 billion**, alongside significant reductions in total assets and equity Five-Year Performance Summary | Indicator (RMB Thousand) | 2016 | 2017 | 2018 | 2019 | 2020 | | :--- | :--- | :--- | :--- | :--- | :--- | | **Revenue** | 31,519,255 | 35,474,325 | 37,455,510 | 35,137,794 | 16,880,923 | | **(Loss)/Profit Before Tax** | 790,798 | 1,753,791 | 1,889,488 | 1,163,064 | (10,395,426) | | **(Loss)/Profit for the Year** | 508,359 | 1,211,462 | 1,254,782 | 766,705 | (8,588,604) | | **(Loss)/Profit Attributable to Equity Holders of the Company** | 493,282 | 1,190,795 | 1,224,065 | 663,862 | (8,579,106) | Five-Year Assets and Liabilities Summary | Indicator (RMB Thousand) | 2016 | 2017 | 2018 | 2019 | 2020 | | :--- | :--- | :--- | :--- | :--- | :--- | | **Total Assets** | 27,728,910 | 36,939,130 | 44,199,218 | 44,857,974 | 27,995,953 | | **Total Liabilities** | (18,786,749) | (26,585,498) | (31,873,772) | (31,217,677) | (22,683,053) | | **Equity Attributable to Equity Holders of the Company** | 8,858,331 | 10,200,811 | 12,143,276 | 12,418,268 | 4,108,094 | Chairman's Statement [Chairman's Statement](index=8&type=section&id=Chairman%27s%20Statement) In 2020, the company navigated dual challenges of COVID-19 and liquidity risks by reducing expenses and exploring online marketing, with a strategic cooperation with Xiamen C&D significantly improving operations despite a 6.0% decline in the overall passenger vehicle market - In **2020**, China's economy grew by **2.3%**, while national passenger vehicle sales decreased by **6.0%** year-on-year, but the luxury car market grew by **6.5%**, with its market share increasing to **16.0%**[16](index=16&type=chunk)[17](index=17&type=chunk) - Facing the **COVID-19 pandemic** and **liquidity risks**, the Group adopted measures including **cost reduction, adjustment of operating strategies, and exploration of new marketing models** to mitigate losses[20](index=20&type=chunk) - In **October 2020**, the Group reached a cooperation intention with **Xiamen C&D Co., Ltd.**, which fundamentally improved the Group's operating environment, with most outlets resuming normal operations by year-end[20](index=20&type=chunk) Management Discussion and Analysis [Business Review](index=12&type=section&id=Business%20Review) In 2020, the company's performance was severely impacted by COVID-19 and liquidity risks, resulting in a **50.7% revenue decrease** and a **RMB 8.58 billion loss** attributable to equity holders, despite counter-trend growth in the supply chain business Key Performance Indicators for 2020 | Indicator | Amount | Year-on-Year Change | | :--- | :--- | :--- | | **Revenue** | Approx. RMB 16.881 Billion | -50.7% | | **Gross Loss** | Approx. RMB 5.173 Billion | -252.0% | | **Loss Attributable to Equity Holders** | Approx. RMB 8.579 Billion | -1,392.0% | | **Basic Loss Per Share** | Approx. RMB 334.8 Cents | -1,335.4% | [New Car Sales Business](index=12&type=section&id=New%20Car%20Sales%20Business) New car sales significantly declined in 2020, with total sales down **59.9%** to **41,394 units** and gross profit margin dropping to **-52.4%** due to reduced manufacturer rebates, prompting a shift to online marketing and enhanced inventory management New Car Sales Performance | Indicator | 2020 | Year-on-Year Change | | :--- | :--- | :--- | | **Total Sales Volume** | 41,394 Units | -59.9% | | **Luxury and Ultra-Luxury Brand Sales Volume** | 31,565 Units | -61.4% | | **New Car Sales Gross Profit Margin** | -52.4% | -56.4 Percentage points | - To cope with the pandemic and liquidity risks, the Group actively experimented with new marketing models such as **online live streaming**, strengthened **inventory management**, improved turnover efficiency, and reduced capital occupation[29](index=29&type=chunk) [After-Sales Services Business](index=13&type=section&id=After-Sales%20Services%20Business) After-sales service revenue decreased by **29.3%** to **RMB 3.373 billion** in 2020, with gross profit down **39.6%** to **RMB 1.291 billion** and a gross profit margin of **38.3%**, as the company focused on customer retention and derivative product penetration After-Sales Services Performance | Indicator | 2020 | Year-on-Year Change | | :--- | :--- | :--- | | **Service Sessions** | 1,245,486 Service Sessions | -17.9% | | **After-Sales Service Revenue** | RMB 3.373 Billion | -29.3% | | **Gross Profit** | RMB 1.291 Billion | -39.6% | | **Gross Profit Margin** | 38.3% | N/A | [Auto Finance Technology Segment](index=13&type=section&id=Auto%20Finance%20Technology%20Segment) Dongzheng Auto Finance faced severe challenges in 2020, with its loan portfolio decreasing by **42.5%** to **RMB 5.75 billion** and net profit plummeting **85.9%** to **RMB 55 million**, yet maintained a low non-performing loan ratio of **0.36%** through upgraded risk control Dongzheng Auto Finance Performance | Indicator | End of 2020 | Year-on-Year Change | | :--- | :--- | :--- | | **Loan Portfolio** | RMB 5.75 Billion | -42.5% | | **Net Profit** | RMB 55 Million | -85.9% | | **Non-Performing Loan Ratio** | 0.36% | N/A | - Dongzheng Auto Finance achieved a dual reduction in **non-performing loan ratio** and **non-performing loan balance** by upgrading its big data risk control model, strengthening risk monitoring, and improving asset preservation strategies[38](index=38&type=chunk) [Supply Chain Business](index=15&type=section&id=Supply%20Chain%20Business) Despite early 2020 pandemic impacts, the supply chain business (Shengzejietong) achieved strong performance with total vehicle delivery volume increasing by **33.98%** to **479,300 units**, driven by new contracts and expanded partnerships, while also advancing new logistics base construction - In **2020**, the supply chain business cumulatively delivered **479,300 vehicles**, a year-on-year increase of **33.98%**, primarily benefiting from new business contracts with **Dongfeng Group** and **FAW Group**[42](index=42&type=chunk) - The company successfully signed a cooperation agreement with **Geely Auto**, entering the logistics system of China's top domestic automobile brand, and plans to further construct a new logistics base in **Hannan District, Wuhan**, to enhance core competitiveness[43](index=43&type=chunk)[47](index=47&type=chunk) [Network Development](index=16&type=section&id=Network%20Development) As of **2020 year-end**, the Group operated **125 outlets** across **40 cities**, strategically closing **7 underperforming 4S stores** and converting some dealerships to self-operated outlets, while **8 new luxury brand stores** remain under preparation Outlet Details (As of December 31, 2020) | Outlet Type | Opened | Authorized Pending Opening | Total | | :--- | :--- | :--- | :--- | | **Luxury and Ultra-Luxury Brand 5S/4S Stores** | 75 | 6 | 81 | | **Mid-to-High-End Brand 4S Stores** | 13 | 0 | 13 | | **Luxury Brand City Showrooms** | 10 | 0 | 10 | | **Used Car Centers** | 1 | 0 | 1 | | **Luxury Brand Authorized Service Centers** | 6 | 2 | 8 | | **Self-Operated Outlets** | 20 | 0 | 20 | | **Total** | 125 | 8 | 133 | - In **2020**, the Group strategically closed **7 underperforming brand 4S stores** and **3 city showrooms**, with some dealership authorizations terminated and converted to self-operated outlets[52](index=52&type=chunk) [Financial Review](index=20&type=section&id=Financial%20Review) The company's financial situation sharply deteriorated in 2020, with total revenue down **50.7%** to **RMB 16.88 billion**, a shift from gross profit to a **RMB 5.17 billion gross loss** (30.6% gross loss margin) due to reduced manufacturer rebates and significant impairment losses, resulting in a **RMB 9.34 billion operating loss** and reduced cash Revenue Composition (RMB Million) | Revenue Source | 2020 | 2019 (Restated) | Year-on-Year Change | | :--- | :--- | :--- | :--- | | **New Car Sales** | 12,606 | 28,564 | -55.9% | | **After-Sales Services** | 3,373 | 4,771 | -29.3% | | **Total Revenue** | 16,881 | 34,258 | -50.7% | - The main reasons for the revenue decline were the impact of the **COVID-19 pandemic** (approximately **RMB 7 billion**) and **liquidity constraints** leading to manufacturers canceling dealership rights (approximately **RMB 9 billion**)[72](index=72&type=chunk)[76](index=76&type=chunk) - A **gross loss of RMB 5.17 billion** (gross loss margin of **30.6%**) was recorded in **2020**, compared to a gross profit of **RMB 3.4 billion** in **2019**, primarily due to a significant reduction in manufacturer rebates and a **RMB 4.318 billion provision** for rebates receivable due to disputes with automobile manufacturers[78](index=78&type=chunk)[83](index=83&type=chunk) - Due to business interruptions and declining financial performance, the company recognized impairment losses of **RMB 1.241 billion** for goodwill and **RMB 906 million** for automobile dealership rights[88](index=88&type=chunk) - The controlling shareholder entered into an agreement with **Xiamen C&D**, which intends to acquire **29.9% of the company's shares**, becoming the largest single shareholder and providing financial support upon completion of the transaction[103](index=103&type=chunk) - As required by the **China Banking and Insurance Regulatory Commission**, the company committed to selling its entire equity interest in **Shanghai Dongzheng Auto Finance**, which was classified as a disposal group held for sale and a discontinued operation at the end of **2020**[104](index=104&type=chunk) [Future Outlook and Strategies](index=26&type=section&id=Future%20Outlook%20and%20Strategies) The company anticipates continued growth in China's luxury car market and has outlined a three-step strategy: short-term, introduce strategic investors to resolve liquidity risks; medium-term, deepen cultivation of the luxury car market and optimize network layout; long-term, integrate resources to build a world-class automotive service brand - Short-term strategy: Introduce **strategic investment partners** to eliminate the Group's **liquidity risks** and improve the operating environment[111](index=111&type=chunk) - Medium-term strategy: Continue to be rooted in the **luxury car market**, further improve the **luxury brand network layout**, and enhance market competitiveness[111](index=111&type=chunk) - Long-term strategy: Based on the **luxury car market**, integrate advantageous resources, form a business closed-loop around the customer's entire vehicle lifecycle, and build a **world-class automotive service brand**[111](index=111&type=chunk) Corporate Governance Report [Corporate Governance Report](index=27&type=section&id=Corporate%20Governance%20Report) This report details the company's compliance with the Hong Kong Stock Exchange's Corporate Governance Code in 2020, outlining the **seven-member Board of Directors** (including **three independent non-executive directors**), its three committees, and practices in risk management, internal control, and shareholder communication - The Board of Directors consists of **seven directors**, including **four executive directors** and **three independent non-executive directors**, meeting the listing rule requirement that independent non-executive directors shall not be less than one-third[118](index=118&type=chunk)[122](index=122&type=chunk) - The Board of Directors has established a **Remuneration Committee, a Nomination Committee, and an Audit Committee**, and has formulated clear written terms of reference[142](index=142&type=chunk) - The Board of Directors is responsible for maintaining sound and effective **risk management** and **internal control systems**, and has completed a review of their effectiveness for the year ended **December 31, 2020**[161](index=161&type=chunk) Auditor's Remuneration for 2020 (RMB Yuan) | Service Type | Fees Paid/Payable | | :--- | :--- | | **Audit Services** | 13,800 | | **Non-Audit Services** | 200 | | **Total** | 14,000 | Environmental, Social and Governance (ESG) Report [Environmental, Social and Governance (ESG) Report](index=36&type=section&id=Environmental%2C%20Social%20and%20Governance%20%28ESG%29%20Report) This report outlines the company's ESG practices, including efforts to reduce waste and resource consumption through eco-friendly repair processes, focus on employee welfare, anti-corruption, supply chain management, customer experience, and active community support during the pandemic - In terms of environmental protection, the company reduces the generation of hazardous waste by adopting measures such as using **water-based paints** instead of oil-based paints and **dry grinding processes** instead of wet grinding, and cooperates with qualified companies for hazardous waste disposal[197](index=197&type=chunk) - As of **2020 year-end**, the Group had **7,997 employees**, focusing on training through the "Zhengtong Academy" online learning platform with over **180 internal lecturers** and over **1,340 online courses**[213](index=213&type=chunk)[228](index=228&type=chunk) - The company strictly complies with **anti-corruption regulations**, preventing corrupt behavior through institutional building and promotional education, with **no corruption incidents** found during the reporting period[229](index=229&type=chunk)[232](index=232&type=chunk) - During the **COVID-19 pandemic**, the company actively participated in community anti-epidemic efforts, providing **car purchase discounts and conveniences for medical personnel**, and organizing car clubs to participate in transporting medical personnel and supplies[250](index=250&type=chunk) Directors' Report [Directors' Report](index=59&type=section&id=Directors%27%20Report) The Directors' Report details the company's 2020 principal businesses, financial position, and governance, including the decision to **forego dividends** due to the pandemic, disclosure of **continuing connected transactions** (primarily property leases), adoption of a **restricted share award scheme**, and an overview of key risks such as macroeconomic and market competition factors - Given the uncertain economic impact of the **COVID-19 pandemic**, the Board decided **not to declare a dividend for 2020** to maximize the Group's liquidity[304](index=304&type=chunk)[316](index=316&type=chunk) - The Group has **continuing connected transactions** with several companies controlled by **Mr. Wang Muqing's family**, primarily involving lease agreements for **offices, 4S stores, and logistics warehouses**, with an annual cap of **RMB 121 million**[328](index=328&type=chunk)[338](index=338&type=chunk) - The company adopted a **restricted share award scheme** on **June 12, 2020**, granting a total of **47,100,000 awarded shares** to **40 participants**, including three executive directors[358](index=358&type=chunk)[362](index=362&type=chunk) - The report identified the main risks faced by the company, including **macroeconomic environment, changes in industry policies, manufacturer policies, intense competition, supply chain disruptions, information systems, and market risks**[396](index=396&type=chunk) - The **China Banking and Insurance Regulatory Commission** accused the company of obtaining administrative permits for establishing its subsidiary **Dongzheng Auto Finance** through improper means and demanded the divestment of its equity, with the company's administrative review being rejected[393](index=393&type=chunk)[394](index=394&type=chunk) Independent Auditor's Report [Independent Auditor's Report](index=79&type=section&id=Independent%20Auditor%27s%20Report) KPMG issued an unmodified opinion on the 2020 consolidated financial statements but highlighted "Material Uncertainty Related to Going Concern" due to significant losses and short-term debts, emphasizing reliance on **Xiamen C&D's financial support** and future cash flow generation, with key audit matters including **goodwill impairment**, **vendor rebate recognition**, and **financial services receivables provisions** - The auditor's report includes an emphasis of matter paragraph on **"Material Uncertainty Related to Going Concern,"** noting that the company incurred significant losses (**RMB 8.59 billion**) during the year and had substantial short-term debts, raising significant doubt about its ability to continue as a going concern[424](index=424&type=chunk) - The company's ability to continue as a going concern depends on **financial support from strategic investor Xiamen C&D**, the **renewal of bank borrowings**, and the ability of future operations to generate sufficient cash inflows[424](index=424&type=chunk) - Key audit matters include: - **Impairment of goodwill and intangible assets**: Impairment assessment involves significant management judgment due to intense market competition and volatile performance of the 4S dealership business[428](index=428&type=chunk) - **Recognition of vendor rebates**: Rebate agreements are complex, and calculations involve significant management estimates, posing uncertainty risks[435](index=435&type=chunk) - **Loss provisions for financial services operating receivables**: The calculation of expected credit loss models relies on several key parameters and assumptions, involving management judgment[442](index=442&type=chunk) Consolidated Financial Statements [Consolidated Statement of Profit or Loss](index=89&type=section&id=Consolidated%20Statement%20of%20Profit%20or%20Loss) For 2020, revenue from continuing operations significantly decreased by **50.7%** to **RMB 16.88 billion**, resulting in a **RMB 5.17 billion gross loss** and a **RMB 9.34 billion operating loss**, with the total loss for the year reaching **RMB 8.59 billion** after including discontinued operations Consolidated Statement of Profit or Loss Summary (RMB Thousand) | Item | 2020 | 2019 (Restated) | | :--- | :--- | :--- | | **Revenue (Continuing Operations)** | 16,880,923 | 34,258,232 | | **Gross (Loss)/Profit** | (5,173,447) | 3,403,705 | | **Operating (Loss)/Profit** | (9,340,566) | 1,800,887 | | **(Loss)/Profit Before Tax** | (10,395,426) | 788,013 | | **(Loss)/Profit for the Year** | (8,588,604) | 766,705 | | **(Loss)/Profit Attributable to Equity Holders of the Company** | (8,579,106) | 663,862 | [Consolidated Statement of Financial Position](index=91&type=section&id=Consolidated%20Statement%20of%20Financial%20Position) As of **December 31, 2020**, total assets significantly decreased by **37.6%** to **RMB 28.0 billion**, total liabilities decreased to **RMB 22.68 billion**, and total equity sharply dropped to **RMB 5.31 billion**, resulting in **net current liabilities of RMB 3.49 billion** and indicating liquidity pressure Consolidated Statement of Financial Position Summary (RMB Thousand) | Item | December 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | **Total Assets** | 27,995,953 | 44,857,974 | | **Total Liabilities** | 22,683,053 | 31,217,677 | | **Total Equity** | 5,312,900 | 13,640,297 | | **Current Assets** | 13,955,163 | 24,135,613 | | **Current Liabilities** | 17,440,187 | 25,819,015 | | **Net Current Liabilities** | (3,485,024) | (1,683,402) | [Consolidated Statement of Cash Flows](index=94&type=section&id=Consolidated%20Statement%20of%20Cash%20Flows) In 2020, net cash inflow from operating activities significantly decreased to **RMB 346 million**, while net cash outflow from financing activities was **RMB 1.359 billion**, leading to a **RMB 1 billion reduction** in cash and cash equivalents, ending the year at **RMB 491 million** Consolidated Statement of Cash Flows Summary (RMB Thousand) | Item | 2020 | 2019 | | :--- | :--- | :--- | | **Net Cash From Operating Activities** | 346,230 | 2,546,021 | | **Net Cash From (Used In) Investing Activities** | 22,414 | (969,281) | | **Net Cash Used In Financing Activities** | (1,359,266) | (2,995,404) | | **Net Decrease in Cash and Cash Equivalents** | (990,622) | (1,418,664) | | **Cash and Cash Equivalents at Year-End** | 490,540 | 1,497,400 |

Financial Performance - For the first half of 2020, the company recorded revenue of approximately RMB 9,241 million, a year-on-year decrease of about 47.0%[8] - The group's revenue for the first half of 2020 was approximately RMB 9,241 million, a decrease of about 47.0% compared to RMB 17,431 million in the same period of 2019[45] - New car sales revenue was approximately RMB 6,758 million, down 52.1% from RMB 14,099 million in the first half of 2019, accounting for 73.1% of total revenue[45] - After-sales service revenue was approximately RMB 1,770 million, a decrease of 27.3% from RMB 2,435 million in the first half of 2019, representing 19.2% of total revenue[45] - The group's gross profit for the first half of 2020 was approximately RMB 1,230 million, down 40.0% from RMB 2,051 million in the same period of 2019, with a gross margin of 13.3%[47] - The company reported a net loss of RMB 1,323 million for the six months ended June 30, 2020, compared to a profit of RMB 520 million in the same period of 2019[121] - The company recorded an impairment loss on goodwill and intangible assets of approximately RMB 916 million and RMB 549 million, respectively[51] - The total comprehensive loss for the period was RMB 1,328.15 million, compared to a total comprehensive income of RMB 518.69 million in the same period of 2019[121] Sales and Operations - The company sold a total of 21,572 new vehicles in the first half of 2020, representing a year-on-year decline of approximately 58.6%[9] - The luxury and ultra-luxury brand vehicle sales amounted to 17,570 units, down approximately 57.0% year-on-year[9] - The after-sales service business experienced a decline, with 613,815 service instances, a year-on-year decrease of about 13.0%[12] - The average replacement rate in key first-tier cities approached 40%, indicating stable growth in vehicle replacement despite declining new car sales[13] - The company faced significant challenges due to COVID-19, particularly with 16 of its 4S stores located in Hubei province, which had slower recovery rates[8] - The company implemented new marketing strategies, including online interactions and competitive marketing plans, to mitigate the impact of the pandemic[10] Financial Services - As of June 30, 2020, Dongzheng Automotive Finance's loan scale decreased by 18.5% to RMB 8.15 billion from RMB 10 billion at the end of 2019[16] - The net interest income for Dongzheng Automotive Finance was RMB 289 million, an increase of 30.1% compared to the same period in 2019[16] - The net profit for Dongzheng Automotive Finance was RMB 143 million, a decrease of 29.2% compared to RMB 202 million in the same period of 2019[16] - The total registered capital of Dongzheng Automotive Finance was RMB 2.14 billion, providing strong financial support for its loan business[19] - The company has established a full-cycle automotive financial ecosystem, integrating various financial services including retail loans and dealer financing[16] Cost Management and Efficiency - The company is focusing on optimizing procurement channels and enhancing parts turnover to control costs effectively[12] - The group implemented a tiered management system for dealerships, significantly improving resource allocation efficiency and overall profitability[42] - The group launched a new cloud platform management system in collaboration with Tencent to enhance service capabilities and operational quality[41] - The company has implemented stricter cost control measures and limited discretionary capital expenditures to improve its financial condition[152] Employee and Operational Changes - The total employee cost was approximately RMB 375 million, a decrease from approximately RMB 453 million for the same period in 2019, with 9,023 employees in China[67] - The company offered 122 courses on its learning platform, with over 30,000 total learning sessions by employees in the first half of 2020[43] - Employee costs decreased to RMB 375,028,000 in the first half of 2020, down 17.3% from RMB 453,420,000 in the same period of 2019[166] Future Outlook and Strategy - The company anticipates a rapid recovery in macroeconomic conditions and automotive consumption in China as the COVID-19 pandemic is effectively controlled, with a focus on the luxury car market[68] - The company plans to introduce strategic investment partners in the short term to mitigate negative impacts from COVID-19 and restore business operations quickly[68] - The long-term strategy includes integrating resources and enhancing external cooperation to create a world-class automotive service brand, focusing on the entire lifecycle of customer vehicle usage[68] Shareholder and Governance Information - As of June 30, 2020, the total number of issued shares was 2,452,220,420, with major shareholder Yidu Holdings Limited holding 56.42%[71] - The company has adopted a stock option plan effective from December 10, 2010, allowing the issuance of up to 200,000,000 shares, which represents approximately 7.41% of the company's issued share capital as of the report date[82] - The company has adopted the corporate governance code and has complied with its provisions throughout the reporting period[108] Impairment and Financial Challenges - The company incurred an impairment loss of RMB 1,465.41 million on goodwill and intangible assets, which was not present in the previous year[118] - The company experienced significant operational and financial impacts due to COVID-19, particularly in regions with higher concentrations of 4S dealerships[191] - The company is focusing on generating sufficient cash inflows and securing financing to address its liquidity challenges in the upcoming year[115]

Financial Performance - In 2019, the total revenue of China Zhengtong Auto Services Holdings Limited was RMB 35,137.8 million, a decrease of 3.5% compared to RMB 37,455.5 million in 2018[10] - The company's profit before tax for 2019 was RMB 1,163.1 million, down 38.4% from RMB 1,889.5 million in 2018[10] - The net profit attributable to equity shareholders for 2019 was RMB 663.9 million, a decline of 45.5% from RMB 1,224.1 million in 2018[10] - The gross profit for 2019 was approximately RMB 3,818 million, down about 14.9% compared to the previous year[31] - Profit attributable to equity holders was approximately RMB 664 million, with basic earnings per share of RMB 0.271, representing declines of approximately 45.8% and 45.7% respectively[31] - New car sales revenue was approximately RMB 28,564 million, down about 9.4% from RMB 31,529 million in 2018, accounting for 81.3% of total revenue in 2019[89] - Revenue from luxury and ultra-luxury brand car sales was approximately RMB 25,986 million, a decrease of about 8.4% from RMB 28,383 million in 2018, representing 91.0% of new car sales revenue in 2019[89] - After-sales service revenue increased by approximately 10.2% to RMB 4,771 million from RMB 4,331 million in 2018, accounting for 13.6% of total revenue, up by 2.0 percentage points year-on-year[89] Operational Highlights - As of December 31, 2019, the total assets of the company were RMB 44,858.0 million, a slight increase from RMB 44,199.2 million in 2018[11] - The company operated 135 dealerships across 41 cities in 17 provinces and municipalities in China by the end of 2019[6] - The company plans to enhance its brand structure and network layout, focusing on the development of new energy vehicle services[31] - The company is committed to increasing investment in information technology research and employee training to improve operational efficiency and service quality[31] - The company aims to optimize inventory management through a data-driven approach, enhancing the efficiency of working capital usage[37] - The company will continue to explore innovative service models and improve customer service processes to enhance overall operational quality[30] - The group strategically closed 7 underperforming outlets to enhance operational competitiveness and profitability[72] - The group has been authorized to establish 10 new dealership outlets for core luxury brands, expanding its competitive advantage in traditional provinces and entering rapidly developing regions[72] Market Trends - The luxury car market in China saw a 6.5% increase in sales, with major luxury brands selling 2.98 million vehicles in 2019[19] - BMW sales in China reached 724,000 units in 2019, representing a growth of 13.1% year-on-year[19] - By the end of 2019, the total number of privately owned vehicles in China was 22.635 million, reflecting a year-on-year growth of 9.2%[24] - In 2019, the national used car transaction volume reached 14.92 million units, an increase of 8.0% year-on-year, indicating a slowing growth rate as the industry enters a new adjustment phase[42] After-Sales Services - The after-sales service business achieved a total of 1,517,701 service instances, an increase of approximately 17.1% year-on-year, with after-sales revenue of approximately RMB 4,771 million, up 10.2%[38] - The after-sales gross profit was approximately RMB 2,138 million, resulting in an after-sales gross margin of about 44.8%[38] - The after-sales service business focuses on customer needs, enhancing customer satisfaction through optimized business processes and personalized service offerings[39] - The company is exploring new business models and revenue growth points around the entire customer lifecycle to ensure sustainable growth in after-sales services[39] Financial Services - The loan portfolio of Dongzheng Automotive Finance increased by 18.7% to RMB 10,004 million as of December 31, 2019, compared to RMB 8,426 million at the end of 2018[43] - Net interest income for Dongzheng Automotive Finance rose by approximately 22.1% to RMB 536 million in 2019[43] - The non-performing loan ratio for Dongzheng Automotive Finance was 0.44% in 2019, with a loan provision ratio of 1.89% and a coverage ratio of 423.97%[43] - Dongzheng Automotive Finance's registered capital was increased to RMB 2.14 billion in 2019, enhancing its capital adequacy ratio to support loan operations[48] - The dealer network for Dongzheng Automotive Finance exceeded 900 dealers by December 31, 2019, covering over 172 cities and nearly 200 mid-to-high-end 4S stores[48] Corporate Governance - The board consists of eight members, including five executive directors and three independent non-executive directors[135] - The company has adopted a securities trading code that complies with the standards set out in the listing rules[134] - The board has confirmed compliance with the securities trading code for the year ended December 31, 2019[134] - The company has established a diversity policy for board members, considering various factors such as professional experience, gender, and age[153] - The company provides formal training for newly appointed directors to ensure they understand the business and regulatory requirements[157] - The board has authorized the executive committee to manage daily operations, which includes the CEO and four other executive directors[144] Risk Management - The company has established a comprehensive risk management system to enhance credit risk management and optimize risk management capabilities[50] - The company has developed and launched a full-process transaction system, with a big data risk control system enabling online business approval in seconds[54] - The company has established a strategic cooperation agreement with China People's Insurance Company, providing real-time coverage for loan performance insurance, reducing funding risks[54] - The board is responsible for maintaining a robust risk management and internal control system, with a commitment to review its effectiveness at least once a year[183] Environmental, Social, and Governance (ESG) - This report is the fourth ESG report published by the group since its first release in 2017[198] - The report focuses on the sales, after-sales service, and supply chain business of luxury and ultra-luxury brand vehicles in China, covering all business segments for social data and significant environmental impact from vehicle sales and after-sales services[199] - The group has begun systematically collecting environmental data and vehicle recall information, selecting 29 representative stores as pilot collection sites to accumulate experience for future expansion[199]

Financial Performance - In the first half of 2019, the group recorded revenue of approximately RMB 17,431 million, a year-on-year decrease of about 7.1%[8] - The group achieved a gross profit of approximately RMB 2,051 million, down approximately 11.0% year-on-year, primarily due to weak new car sales[8] - The net profit attributable to equity holders was approximately RMB 471 million, with basic earnings per share of approximately RMB 0.192, both down about 33.8% year-on-year[8] - New car sales revenue was approximately RMB 14,099 million, down about 10.8% from RMB 15,805 million in the first half of 2018, accounting for 80.9% of total revenue[48] - After-sales service revenue increased by approximately 7.8% to RMB 2,435 million, representing 14.0% of total revenue, up 2.0 percentage points year-on-year[48] - The group's gross profit for the first half of 2019 was approximately RMB 2,051 million, a decrease of about 11.0% from RMB 2,304 million in the same period of 2018[52] - The gross profit margin was approximately 11.8%, down 0.5 percentage points from 12.3% in the first half of 2018[52] - The group's operating profit for the six months ended June 30, 2019, was approximately RMB 1,305 million, a decrease of about 14.5% compared to RMB 1,526 million in the first half of 2018[55] - The net profit for the same period was approximately RMB 520 million, down about 28.4% from RMB 726 million in the first half of 2018[59] - The company reported a decrease in other income to RMB 386,475 from RMB 471,227 in the previous year, a decline of 18.0%[115] - The profit before tax was RMB 767,608, down 28.8% from RMB 1,079,878 in 2018[115] Sales and Market Trends - New car sales totaled 52,060 units in the first half of 2019, a year-on-year decline of approximately 5.6%, with luxury and ultra-luxury brand sales at 40,869 units, down about 3.8%[11] - The luxury car market in China saw a 9.0% year-on-year increase in sales, totaling 1,440,000 units in the first half of 2019, despite an overall decline in the passenger car market[4] - The second-hand car market saw a total of 6,862,000 transactions in the first half of 2019, marking a year-on-year growth of 3.9%[16] After-Sales and Service - The after-sales service business achieved a total of 705,610 service instances in the first half of 2019, representing a year-on-year increase of approximately 14.1%[14] - After-sales revenue reached approximately RMB 2,435 million, a year-on-year growth of 7.8%, with a gross profit of approximately RMB 1,127 million and a gross margin of about 46.3%[14] - The company is actively exploring new business models and revenue growth points in the after-sales service sector to enhance customer experience and loyalty[15] Financial Services - The financial services segment generated interest and service income of approximately RMB 466 million, an increase of 27.7% compared to the same period last year[20] - The net amount of customer loans and advances increased from RMB 8,426 million to RMB 9,969 million, reflecting a growth rate of 18.3%[20] - The non-performing loan ratio for Dongzheng Automotive Finance was 0.33%, with a loan provision ratio of 1.57% and a provision coverage ratio of 471.01%[20] - Dongzheng Automotive Finance aims to establish a comprehensive automotive financial ecosystem, providing a one-stop service for all automotive-related financial products[20] Operational Efficiency and Management - The group is developing a data-driven management platform to optimize inventory management and improve operational efficiency[12] - The group continues to strengthen partnerships with luxury car manufacturers and is committed to enhancing customer service experience through refined management and innovative practices[4] - The group is focusing on strategic mergers and innovative operational cooperation models to enhance business scale and profitability[39] - The group has partnered with Tencent Technology to develop a new generation "cloud platform" operational management system to improve service capabilities and customer experience[45] - The group is implementing a tiered management system for dealerships to enhance performance evaluation and resource allocation[47] Expansion and Network Development - The number of dealers in the sales network increased from 1,280 as of December 31, 2018, to 1,373 as of June 30, 2019[23] - The company operates 141 dealership outlets across 41 cities in 17 provinces and municipalities as of June 30, 2019, with plans to expand further into new regions[37] - The company has authorized 13 new dealership outlets, focusing on luxury and super-luxury automotive brands, enhancing its competitive advantage in traditional and rapidly developing regions[37] Logistics and Infrastructure - The company is expanding its logistics infrastructure with the construction of a multi-modal logistics base in Wuhan, expected to be completed by the end of 2020[34] - The company has introduced strategic investors to enhance its logistics capabilities and improve operational efficiency, aiming for sustained revenue growth[35] Shareholder and Capital Management - Joy Capital Holdings Limited holds 1,383,516,820 shares, representing 56.42% of the company's equity as of June 30, 2019[76] - Citigroup Inc. holds 62,578,459 shares, accounting for 2.55% of the company's equity, as well as additional controlled entity interests[80] - The company declared an interim dividend of HKD 0.10 per share for the six months ending June 30, 2019, to be paid on or around October 25, 2019[102] - The company completed a placement of 226 million new shares at HKD 7.70 per share, raising approximately HKD 1,727 million for the development of its automotive finance business[101] Accounting and Financial Reporting - The company has adopted the revised Hong Kong Financial Reporting Standard No. 16 from January 1, 2019, without restating comparative figures[116] - The adoption of Hong Kong Financial Reporting Standard 16 ("Leases") has been implemented since January 1, 2019, affecting the accounting treatment of leases[150] - The initial measurement of lease liabilities is based on the present value of lease payments, discounted using the interest rate implicit in the lease or the incremental borrowing rate[153] - The Group's lease liabilities as of January 1, 2019, amounted to RMB 1,730,954,000 after applying the Hong Kong Financial Reporting Standard 16[165] Employee and Operational Metrics - As of June 30, 2019, the group employed 12,053 employees in China, a decrease from 12,353 employees as of December 31, 2018[73] - Total employee costs for the six months ended June 30, 2019, were approximately RMB 453 million, compared to RMB 425 million for the same period in 2018, representing a year-over-year increase of 6.6%[73] Future Outlook - The group anticipates steady growth in China's macro economy and an increase in disposable income, leading to a gradual rise in demand for luxury vehicles[74] - The competitive landscape has shifted from an incremental market to a stock market, with consumers demanding higher quality and service from automotive products[74] - The group aims to enhance operational efficiency and innovate management practices by leveraging its diversified luxury brand portfolio and advanced automotive fintech platform[74]

[Company Overview](index=4&type=section&id=%E5%85%AC%E5%8F%B8%E7%B0%A1%E4%BB%8B) [Company Profile](index=4&type=section&id=%E5%85%AC%E5%8F%B8%E7%B0%A1%E4%BB%8B) China ZhengTong Auto Services Holdings Limited is a leading 4S dealership group in China focusing on luxury and ultra-luxury automobile brands[5](index=5&type=chunk) - The company's core business is the distribution of luxury and ultra-luxury car brands, including Porsche, Mercedes-Benz, BMW, and Audi[5](index=5&type=chunk) - As of December 31, 2018, the company operated **140 outlets** in 40 cities across 16 provinces and municipalities, covering first, second, and third-tier cities[5](index=5&type=chunk) - The company is actively promoting financial services such as auto finance, financing leases, and insurance agencies to achieve strategic transformation and sustainable growth[6](index=6&type=chunk) [Five-Year Financial Summary](index=5&type=section&id=%E4%BA%94%E5%B9%B4%E8%B2%A1%E5%8B%99%E6%A6%82%E8%A6%81) [Five-Year Financial Summary](index=5&type=section&id=%E4%BA%94%E5%B9%B4%E8%B2%A1%E5%8B%99%E6%A6%82%E8%A6%81) The company demonstrated steady growth from 2014 to 2018, with revenue increasing from RMB 30.9 billion to RMB 37.5 billion and total assets expanding significantly **Five-Year Performance Summary (2014-2018)** | Metric (RMB in thousands) | 2014 | 2015 | 2016 | 2017 | 2018 | | :--- | :--- | :--- | :--- | :--- | :--- | | **Revenue** | 30,910,087 | 29,361,499 | 31,519,255 | 35,474,325 | 37,455,510 | | **Profit Before Tax** | 1,175,055 | 921,779 | 790,798 | 1,753,791 | 1,889,488 | | **Profit for the Year** | 823,538 | 628,662 | 508,359 | 1,211,462 | 1,254,782 | | **Profit Attributable to Equity Shareholders of the Company** | 803,792 | 618,530 | 493,282 | 1,190,795 | 1,224,065 | **Five-Year Asset and Liability Summary (2014-2018)** | Metric (RMB in thousands) | 2014 | 2015 | 2016 | 2017 | 2018 | | :--- | :--- | :--- | :--- | :--- | :--- | | **Total Assets** | 22,182,690 | 23,679,650 | 27,728,910 | 36,939,130 | 44,199,218 | | **Total Liabilities** | 13,885,582 | 14,990,312 | 18,786,749 | 26,585,498 | 31,873,772 | | **Equity Attributable to Shareholders of the Company** | 8,172,075 | 8,588,632 | 8,858,331 | 10,200,811 | 12,143,276 | [Chairman's Statement](index=6&type=section&id=%E4%B8%BB%E5%B8%AD%E5%A0%B1%E5%91%8A%E6%9B%B8) [Chairman's Statement](index=6&type=section&id=%E4%B8%BB%E5%B8%AD%E5%A0%B1%E5%91%8A%E6%9B%B8) The Chairman highlighted the luxury car market's growth despite an overall market decline, crediting the Group's brand portfolio and expansion into auto FinTech - In 2018, China's passenger vehicle sales **decreased by 4.1% year-on-year**, but the luxury car market maintained rapid growth[14](index=14&type=chunk) **Sales Performance of Major Agency Luxury Brands in China for 2018** | Brand | Sales in China (units) | YoY Growth | | :--- | :--- | :--- | | BMW (incl MINI & Rolls-Royce) | 639,953 | +7.7% | | Audi | 660,888 | +11.0% | | Mercedes-Benz | 652,996 | +11.1% | | Volvo | 130,593 | +14.1% | | Porsche | 80,108 | +12.0% | | Jaguar Land Rover | 114,777 | -21.6% | - The Group's strategic focus is on expanding innovative businesses, particularly in financial services, to build a comprehensive auto FinTech platform[18](index=18&type=chunk) - The Group will continue to expand its network, accelerate new store profitability, and enhance service innovation to provide richer auto life services[19](index=19&type=chunk) [Management Discussion and Analysis](index=11&type=section&id=%E7%AE%A1%E7%90%86%E5%B1%A4%E8%A8%8E%E8%AB%96%E8%88%87%E5%88%86%E6%9E%90) [Business Review](index=12&type=section&id=%E6%A5%AD%E5%8B%99%E5%9B%9E%E9%A1%A7) In 2018, the Group's revenue and gross profit grew steadily, driven by strong performance in new car sales, after-sales, and auto FinTech segments **Key Performance Indicators for 2018** | Metric | 2018 Amount (RMB) | YoY Change | | :--- | :--- | :--- | | **Revenue** | 37,456 million | +5.6% | | **Gross Profit** | 4,487 million | +19.1% | | **Profit Attributable to Equity Holders of the Company** | 1,224 million | +2.8% | | **Basic Earnings Per Share** | 49.9 cents | -7.2% | [New Car Sales Business](index=13&type=section&id=%E6%96%B0%E8%BB%8A%E9%8A%B7%E5%94%AE%E6%A5%AD%E5%8B%99) New car sales volume and gross margin increased in 2018, driven by strong demand for luxury models like the BMW 5 Series and Mercedes-Benz GLC **New Car Sales Data for 2018** | Metric | 2018 Data | YoY Growth | | :--- | :--- | :--- | | **Total Sales Volume** | 112,574 units | +3.3% | | **Luxury & Ultra-luxury Brand Sales Volume** | 86,400 units | +8.0% | | **New Car Sales Gross Margin** | 6.1% | +1.2 pp | [After-Sales Service Business](index=13&type=section&id=%E5%94%AE%E5%BE%8C%E6%9C%D_E5%8B%99%E6%A5%AD%E5%8B%99) The after-sales service business achieved stable growth in revenue and gross profit, with a significant increase in the number of vehicles serviced **After-Sales Service Data for 2018** | Metric | 2018 Data (RMB) | YoY Growth | | :--- | :--- | :--- | | **After-sales Revenue** | 4,331 million | +11.1% | | **After-sales Gross Profit** | 2,003 million | +8.9% | | **Vehicles Serviced** | 1,295,657 units | +14.8% | [Used Car Business](index=14&type=section&id=%E4%BA%8C%E6%89%8B%E8%BB%8A%E6%A5%AD%E5%8B%99) The Group is developing its used car business by focusing on trade-in rates and launching a digital platform to enhance operational efficiency - The focus is on increasing the used car trade-in rate for new car sales, with the **average rate exceeding 30%** in key first-tier cities[31](index=31&type=chunk) - A digital information platform and management system for used cars was launched to standardize business processes and improve operational efficiency[31](index=31&type=chunk) [Automotive FinTech Segment](index=14&type=section&id=%E6%B1%BD%E8%BB%8A%E9%87%91%E8%9E%8D%E7%A7%91%E6%8A%80%E6%9D%BF%E5%A1%8A) The auto FinTech segment achieved rapid growth in revenue and profit, driven by the expansion of its core subsidiary Dongzheng Automotive Finance **Financial Services Business Key Data for 2018** | Metric | 2018 Data (RMB) | YoY Growth | | :--- | :--- | :--- | | **Interest and Service Income** | 844 million | +61.7% | | **Reportable Profit** | 621 million | +64.3% | | **Reportable Assets** | 9,714 million | +34.2% | - Subsidiary Dongzheng Automotive Finance's net customer loans and advances **grew by 43.6%** to RMB 8.426 billion, with a low non-performing loan ratio of **0.27%**[33](index=33&type=chunk) - Dongzheng Automotive Finance's partner dealer network expanded significantly from 351 at the end of 2017 to **1,280 by the end of 2018**, covering 182 cities[37](index=37&type=chunk) [Supply Chain Business](index=17&type=section&id=%E4%BE%9B%E6%87%89%E9%8F%88%E6%A5%AD%E5%8B%99) The supply chain business expanded its services by adding rail transport to create a multimodal logistics model and entering the new energy vehicle sector - Subsidiary Shengze Jietong added rail transport services, establishing a **multimodal transport model** combining road, rail, and water[45](index=45&type=chunk) - The business expanded into new energy vehicle supply chain logistics and established one-stop transport channels for imported cars in Tianjin and Shanghai ports[45](index=45&type=chunk) [Network Development](index=18&type=section&id=%E7%B6%B2%E7%B5%A1%E7%99%BC%E5%B1%95) The Group expanded its network to 140 operating outlets by year-end 2018, with a continued focus on opening new luxury brand dealerships **Outlet Details at Year-End 2018** | Outlet Type | Opened | Authorized for Construction | Total | | :--- | :--- | :--- | :--- | | **Luxury & Ultra-luxury 5S/4S Stores** | 100 | 11 | 111 | | **Mid-to-high-end 4S Stores** | 14 | 0 | 14 | | **Luxury Brand City Showrooms** | 18 | 0 | 18 | | **Luxury Brand Authorized Service Centers** | 7 | 1 | 8 | | **Used Car Centers** | 1 | 0 | 1 | | **Total** | **140** | **12** | **152** | [Innovative Management Models to Enhance Operational Quality](index=20&type=section&id=%E5%89%B5%E6%96%B0%E7%AE%A1%E7%90%86%E6%A8%A1%E5%BC%8F%EF%BC%8C%E6%8F%90%E5%8D%87%E7%B6%93%E7%87%9F%E8%B3%AA%E9%87%8F) The Group implemented several refined management measures, including a "Cloud Platform" system and centralized marketing, to improve operational quality - Developed a proprietary **"Cloud Platform"** operational management system to create "Smart 4S Stores" and enhance customer experience[58](index=58&type=chunk) - Integrated marketing operations to establish a unified customer acquisition channel media library, effectively **reducing customer acquisition costs**[59](index=59&type=chunk) - Introduced a performance evaluation system to manage dealerships by tier, helping key stores improve profitability[61](index=61&type=chunk) [Financial Review](index=21&type=section&id=%E8%B2%A1%E5%8B%99%E5%9B%9E%E9%A1%A7) The Group's 2018 financial performance was solid, with increased revenue and gross margin, though administrative expenses rose due to exchange losses **Financial Summary for 2018** | Metric | 2018 (RMB) | 2017 (RMB) | YoY Change | | :--- | :--- | :--- | :--- | | **Revenue** | 37,456 million | 35,474 million | +5.6% | | **Gross Profit** | 4,487 million | 3,768 million | +19.1% | | **Gross Profit Margin** | 12.0% | 10.6% | +1.4pp | | **Operating Profit** | 2,763 million | 2,426 million | +13.9% | | **Profit for the Year** | 1,255 million | 1,211 million | +3.6% | | **Administrative Expenses** | 1,650 million | 733 million | +125.1% | | **Net Cash from Operating Activities** | 776 million | (866) million | N/A | | **Net Gearing Ratio** | 130.7% | 102.2% | +28.5pp | - The gross profit margin for new car sales **increased from 4.9% to 6.1%**, with the margin for luxury and ultra-luxury brands rising from 5.2% to 6.7%[66](index=66&type=chunk) - Average inventory turnover days **increased from 41.1 days to 44.0 days**[75](index=75&type=chunk) [Future Outlook and Strategy](index=24&type=section&id=%E6%9C%AA%E4%BE%86%E5%B1%95%E6%9C%9B%E5%8F%8A%E7%AD%96%E7%95%A5) The Group will leverage its brand portfolio, network, and FinTech platform to address the market shift from volume to value-based competition - The strategy will address the market's shift from incremental growth to a stock market, where consumers demand higher quality products and services[83](index=83&type=chunk) - The strategy will leverage three core advantages: a diversified luxury brand portfolio, a nationwide network, and a leading auto FinTech platform[83](index=83&type=chunk) - The Group will vigorously develop its used car business and explore new marketing models to prepare for competition in the stock market[83](index=83&type=chunk) [Corporate Governance Report](index=25&type=section&id=%E4%BC%81%E6%A5%AD%E7%AE%A1%E6%B2%BB%E5%A0%B1%E5%91%8A) [Corporate Governance Report](index=25&type=section&id=%E4%BC%81%E6%A5%AD%E7%AE%A1%E6%B2%BB%E5%A0%B1%E5%91%8A) The company complied with the Corporate Governance Code during 2018, maintaining a clear governance structure with defined board and committee roles - The company adopted and complied with the applicable code provisions of the Corporate Governance Code of the Hong Kong Stock Exchange throughout 2018[88](index=88&type=chunk) - The Board of Directors consists of nine members, including **six executive directors and three independent non-executive directors**, meeting listing rule requirements[92](index=92&type=chunk)[94](index=94&type=chunk) - The roles of Chairman (Mr. Wang Muqing) and Chief Executive Officer (Mr. Koh Chee Choon) are separate, ensuring a balance of power[108](index=108&type=chunk) - The Board has established a Remuneration Committee, a Nomination Committee, and an Audit Committee, each with clear written terms of reference[113](index=113&type=chunk) - The Board reviewed the company's risk management and internal control systems for the year ended December 31, 2018, and confirmed their soundness and effectiveness[128](index=128&type=chunk) [Environmental, Social and Governance (ESG) Report](index=35&type=section&id=%E7%92%B0%E5%A2%83%E3%80%81%E7%A4%BE%E6%9C%83%E5%8F%8A%E7%AE%A1%E6%B2%BB(ESG)%E5%A0%B1%E5%91%8A) [Environmental, Social and Governance (ESG) Report](index=35&type=section&id=%E7%92%B0%E5%A2%83%E3%80%81%E7%A4%BE%E6%9C%83%E5%8F%8A%E7%AE%A1%E6%B2%BB(ESG)%E5%A0%B1%E5%91%8A) The Group's 2018 ESG report details its commitment to environmental protection, employee welfare, product responsibility, and community investment - **Environmental Protection**: The Group insists on using water-based paint in spray booths and ensures waste is handled by licensed suppliers[151](index=151&type=chunk) - **Employment and Labor**: The company had **12,353 employees** at year-end 2018 and emphasized training, organizing 214 new employee training sessions[157](index=157&type=chunk)[167](index=167&type=chunk)[168](index=168&type=chunk) - **Health and Safety**: A total of **98 fire drills** were conducted during the year, and no major safety accidents occurred[166](index=166&type=chunk) - **Product Responsibility**: The Group actively promoted new energy vehicles and assisted automakers with the recall of **11,637 vehicles** during the year[176](index=176&type=chunk)[181](index=181&type=chunk)[183](index=183&type=chunk) - **Community Investment**: The Group actively participates in public welfare activities organized by car brands and encourages local community engagement[187](index=187&type=chunk)[188](index=188&type=chunk) [Directors and Senior Management Profile](index=50&type=section&id=%E8%91%A3%E4%BA%8B%E5%8F%8A%E9%AB%98%E7%B4%9A%E7%AE%A1%E7%90%86%E4%BA%BA%E5%93%A1%E7%B0%A1%E4%BB%8B) [Directors and Senior Management Profile](index=50&type=section&id=%E8%91%A3%E4%BA%8B%E5%8F%8A%E9%AB%98%E7%B4%9A%E7%AE%A1%E7%90%86%E4%BA%BA%E5%93%A1%E7%B0%A1%E4%BB%8B) The core management team is led by experienced industry veterans, including the Group's founder, a former CEO, and a former BMW (China) executive - **Mr. Wang Muqing**, age 68, is the founder of the Group and has served as Chairman of the Board since 2013[249](index=249&type=chunk) - **Mr. Wang Kunpeng**, age 47, is the Vice Chairman of the Board and former CEO, with extensive experience in auto sales, after-sales, and logistics[250](index=250&type=chunk) - **Mr. Koh Chee Choon**, age 60, is the CEO and previously served as Vice President of Sales and President of BMW (China)[251](index=251&type=chunk) - **Mr. Li Zhuobo**, age 49, is the CFO, with nearly 24 years of financial management experience in the auto distribution industry[251](index=251&type=chunk) [Report of the Directors](index=53&type=section&id=%E8%91%A3%E4%BA%8B%E6%9C%83%E5%A0%B1%E5%91%8A) [Report of the Directors](index=53&type=section&id=%E8%91%A3%E4%BA%8B%E6%9C%83%E5%A0%B1%E5%91%8A) This report covers statutory disclosures for 2018, including business performance, dividend proposals, connected transactions, and share placements - The Board recommends a **final dividend of HK$0.14 per share** for the year ended December 31, 2018[266](index=266&type=chunk) - In 2018, the Group's largest supplier and top five suppliers accounted for **18.48% and 63.48%** of total purchases, respectively[272](index=272&type=chunk) - The Group engaged in non-exempt continuing connected transactions, including leasing agreements, with entities controlled by the family of the controlling shareholder, Mr. Wang Muqing[284](index=284&type=chunk)[285](index=285&type=chunk) - The company repurchased shares in April and November 2018 and completed two new share placements, raising net proceeds of approximately **HK$377 million and HK$1.727 billion**[344](index=344&type=chunk)[346](index=346&type=chunk)[347](index=347&type=chunk) - The report identifies macroeconomic conditions, industry policies, intense competition, and supply chain issues as the Group's principal risks and uncertainties[328](index=328&type=chunk) [Independent Auditor's Report](index=70&type=section&id=%E7%8D%A8%E7%AB%8B%E6%A0%B8%E6%95%B8%E5%B8%AB%E5%A0%B1%E5%91%8A) [Independent Auditor's Report](index=70&type=section&id=%E7%8D%A8%E7%AB%8B%E6%A0%B8%E6%95%B8%E5%B8%AB%E5%A0%B1%E5%91%8A) KPMG issued an unmodified audit opinion on the 2018 financial statements, highlighting three key audit matters requiring significant management judgment - The auditor, KPMG, issued an **unmodified opinion** on the consolidated financial statements[353](index=353&type=chunk) - **Key Audit Matter 1**: Impairment of goodwill and intangible assets (vehicle distribution rights), due to their material value and the complex judgments involved[358](index=358&type=chunk) - **Key Audit Matter 2**: Recognition of vendor rebates, due to the complexity of numerous rebate agreements and the risk of premature recognition[360](index=360&type=chunk) - **Key Audit Matter 3**: Loss allowance for receivables from financial services operations, due to the inherent uncertainty and significant management judgment in the expected credit loss model[363](index=363&type=chunk) [Consolidated Financial Statements](index=78&type=section&id=%E7%B6%9C%E5%90%88%E8%B2%A1%E5%8B%99%E5%A0%B1%E8%A1%A8) [Consolidated Statement of Profit or Loss](index=78&type=section&id=%E7%B6%9C%E5%90%88%E6%90%8D%E7%9B%8A%E8%A1%A8) For the year ended December 31, 2018, the Group's revenue and gross profit increased, resulting in a profit for the year of RMB 1.255 billion **Consolidated Statement of Profit or Loss Summary for 2018** | Item (RMB in thousands) | 2018 | 2017 | | :--- | :--- | :--- | | **Revenue** | 37,455,510 | 35,474,325 | | **Gross Profit** | 4,486,827 | 3,768,346 | | **Operating Profit** | 2,762,965 | 2,425,754 | | **Profit Before Tax** | 1,889,488 | 1,753,791 | | **Profit for the Year** | 1,254,782 | 1,211,462 | | **Profit Attributable to Equity Shareholders of the Company** | 1,224,065 | 1,190,795 | [Consolidated Statement of Financial Position](index=80&type=section&id=%E7%B6%9C%E5%90%88%E8%B2%A1%E5%8B%99%E7%8B%80%E6%B3%81%E8%A1%A8) As of December 31, 2018, the Group's total assets and liabilities grew in tandem, reflecting the continued expansion of its business operations **Consolidated Statement of Financial Position Summary at Year-End 2018** | Item (RMB in thousands) | Dec 31, 2018 | Dec 31, 2017 | | :--- | :--- | :--- | | **Total Assets** | 44,199,218 | 36,939,130 | |    Non-current Assets | 19,259,362 | 14,383,828 | |    Current Assets | 24,939,856 | 22,555,302 | | **Total Liabilities** | 31,873,772 | 26,585,498 | |    Non-current Liabilities | 8,071,955 | 5,646,559 | |    Current Liabilities | 23,801,817 | 20,938,939 | | **Total Equity** | 12,325,446 | 10,353,632 | [Consolidated Statement of Cash Flows](index=82&type=section&id=%E7%B6%9C%E5%90%88%E7%8F%BE%E9%87%91%E6%B5%81%E9%87%8F%E8%A1%A8) In 2018, the Group's net cash from operating activities improved significantly, turning from a net outflow to a net inflow of RMB 776 million **Consolidated Statement of Cash Flows Summary for 2018** | Item (RMB in thousands) | 2018 | 2017 | | :--- | :--- | :--- | | **Net cash from/(used in) operating activities** | 776,342 | (866,418) | | **Net cash used in investing activities** | (2,999,635) | (1,854,451) | | **Net cash from financing activities** | 2,405,062 | 3,817,595 | | **Net increase in cash and cash equivalents** | 181,769 | 1,096,726 | | **Cash and cash equivalents at end of year** | 2,911,395 | 2,716,220 | [Notes to the Consolidated Financial Statements](index=83&type=section&id=%E7%B6%9C%E5%90%88%E8%B2%A1%E5%8B%99%E5%A0%B1%E8%A1%A8%E9%99%84%E8%A8%BB) The notes provide detailed explanations of accounting policies and breakdowns of financial statement items, including the impact of adopting new IFRS standards