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