广汇宝信(01293) - 2020 - 年度财报

Corporate Information Company Basic Information China Grand Automotive Services Group Co, Ltd is a limited company incorporated in the Cayman Islands with stock code 1293, operating primarily in Shanghai and Hong Kong, and audited by Ernst & Young - The company was incorporated in the Cayman Islands with the stock code 1293[18] - Its principal place of business and headquarters is at 3998 Hongxin Road, Minhang District, Shanghai, China, with a Hong Kong office at 54/F, Hopewell Centre, 183 Queen's Road East[18] - The auditor is Ernst & Young[20] Financial Highlights Key Financial Indicators In 2020, the company's revenue was RMB 35.134 billion, a 3.6% decrease YoY, while gross profit and profit attributable to owners fell by 38.5% and 66.4% respectively Key Financial Data for 2020 (RMB million) | Indicator | 2020 | 2019 | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | 35,134 | 36,464 | 36,791 | 34,558 | 25,709 | | Gross Profit | 1,750 | 2,846 | 2,787 | 2,936 | 2,034 | | Gross Profit Margin | 5.0% | 7.8% | 7.6% | 8.5% | 7.9% | | EBITDA | 1,601 | 1,455 | 1,993 | 2,354 | 2,326 | | Profit Attributable to Owners of the Parent | 211 | 629 | 556 | 808 | 414 | Chairman's Statement Macroeconomic and Automotive Industry Review 2020 The global economy contracted in 2020 due to COVID-19, but China's economy grew 2.3%, with the auto industry recovering strongly in H2, led by luxury and new energy vehicles - In 2020, the global economy was projected to shrink by 4.4%, while China's GDP grew by 2.3%, surpassing the RMB 100 trillion mark for the first time[26] - China's auto production and sales decreased by 2.0% and 1.9% respectively, with the luxury market showing rapid growth since April and new energy vehicle sales increasing by 10.9% to 1.367 million units[30] Group's Operating Performance in 2020 The Group's total revenue in 2020 was RMB 35.134 billion, with a gross profit of RMB 1.7501 billion and profit attributable to owners of RMB 211.4 million, adhering to a dual strategy of "sales-oriented" and "service-oriented" development Key Financial Data for the Group in 2020 | Indicator | Amount (RMB) | | :--- | :--- | | Total Revenue | 35.134 billion | | Gross Profit | 1.7501 billion | | Profit Attributable to Owners of the Parent | 211.4 million | | Earnings Per Share | 0.07 | - The Group adheres to a synergistic business strategy of being "sales-oriented" and "service-oriented" to optimize its profit structure, enhance service quality, and increase user loyalty[31] Outlook and Strategy for 2021 For 2021, the Group will focus on luxury vehicle sales and ancillary services, optimize its brand structure, and consolidate operational results through refined management - China's luxury passenger vehicle market is expected to maintain steady growth and further increase its market share[31] - The Group will focus on sales and ancillary services for traditional luxury car brands, optimizing its brand structure and increasing the concentration of premium brands[31] - Through refined management and business structure optimization, the Group aims to enhance the profitability of its existing network, revitalize assets, and solidify its business performance[31] Management Discussion and Analysis Industry Overview China's economy showed strong resilience in 2020, with the auto market rebounding strongly in H2 after the pandemic's initial impact, driven by luxury vehicles and the strategic growth of the new energy vehicle industry - China's total economic output exceeded RMB 100 trillion, and the auto market rebounded strongly post-pandemic, with narrowing declines in passenger vehicle production and sales[37] - The luxury car market grew by 6.5%, accounting for 16.2% of total passenger vehicle sales, primarily driven by BMW, Mercedes-Benz, and Audi[38] - New energy vehicle production and sales grew by 7.5% and 10.9% YoY, respectively, with Tesla's sales increasing by 251%[39] Business Review The Group's total revenue in 2020 was RMB 35.1343 billion, a 3.6% decrease YoY, while gross profit and profit attributable to equity holders fell by 38.5% and 66.4% respectively Group's Key Financial Performance in 2020 | Indicator | 2020 (RMB billion) | YoY Change | | :--- | :--- | :--- | | Total Revenue | 35.1343 | -3.6% | | Gross Profit | 1.7501 | -38.5% | | Profit Attributable to Equity Holders | 0.2114 | -66.4% | | Earnings Per Share | 0.07 | - | - The company emphasizes both vehicle sales volume and service quality, focusing on business transformation and the synergistic development of "sales-oriented" and "service-oriented" strategies[43] New Vehicle Sales In 2020, the Group's new vehicle sales volume was 101,511 units, down 8.6% YoY, with sales revenue of RMB 30.8292 billion, down 2.7% YoY, and an overall gross margin of 1.2% New Vehicle Sales Data for 2020 | Indicator | 2020 | YoY Change | | :--- | :--- | :--- | | New Vehicle Sales Volume | 101,511 units | -8.6% | | New Vehicle Sales Revenue | RMB 30.8292 billion | -2.7% | | Luxury & Ultra-luxury Vehicle Sales Revenue Share | 91.1% | - | | Overall New Vehicle Gross Margin | 1.2% | - | - Sales were significantly impacted by the COVID-19 pandemic in Q1 but gradually recovered in H2; the Group proactively adjusted underperforming or loss-making outlets[46] After-sales Services After-sales service revenue in 2020 was RMB 4.2700 billion, a 9.8% decrease YoY, accounting for 12.2% of total revenue, with a gross profit of RMB 1.3645 billion and a gross margin of 32.0% After-sales Services Data for 2020 | Indicator | 2020 (RMB billion) | YoY Change | | :--- | :--- | :--- | | After-sales Service Revenue | 4.2700 | -9.8% | | Share of Total Revenue | 12.2% | - | | After-sales Service Gross Profit | 1.3645 | -34.3% | | After-sales Service Gross Margin | 32.0% | - | - A decline in new vehicle sales led to reduced vehicle decoration business, impacting after-sales performance; the Group mitigated adverse effects through centralized procurement and cost control[47] Ancillary Services The Group's ancillary service revenue grew by 40.7% YoY to RMB 1.0485 billion in 2020, driven by a 91.5% increase in insurance commission income, with auto finance penetration rising to 65.4% Ancillary Services Revenue in 2020 | Ancillary Service Type | 2020 Revenue (RMB billion) | YoY Change | | :--- | :--- | :--- | | Total Ancillary Service Revenue | 1.0485 | +40.7% | | Financial Services Revenue | 0.2498 | Relatively stable | | Insurance Commission Income | 0.6943 | +91.5% | - The auto finance penetration rate for new vehicles increased from 60.0% in 2019 to 65.4% in 2020[50] - The used car business penetration rate was 32.0%, with active development in evaluation, trade-in, and retail businesses integrated with new car sales and supply chain finance[51] - The insurance business improved its management system and introduced innovative products to ensure a simultaneous increase in renewal penetration and quality[52] Network Layout As a leading luxury auto dealer, the Group's operations are concentrated in East China and expanding nationwide, operating 111 stores with 10 luxury and ultra-luxury brands as of year-end 2020 - The business is primarily concentrated in the East China region, covering most major luxury and ultra-luxury auto markets in China[55] - As of December 31, 2020, the Group operated 111 stores with a portfolio of 10 luxury and ultra-luxury car brands[55] - During the reporting period, the Group proactively sold or adjusted 5 underperforming outlets to focus on optimizing existing store management and operational efficiency[55] Future Prospects and Strategies The Group will continue to position itself as a luxury auto dealer and service provider, focusing on "quality + service," consolidating existing brands, and leveraging digital platforms to enhance customer experience - The Group will maintain its positioning as a dealer and service provider for luxury car brands, emphasizing a "quality + service" attribute[56] - It will consolidate and enhance existing luxury brands, revitalize assets, and optimize its brand structure and network layout[56] - The Group will strategically develop the new energy vehicle service industry chain and leverage digital platforms to create new, interactive marketing models[56][57] Financial Review The Group's total revenue in 2020 was RMB 35.1343 billion, down 2.7% YoY, with gross profit at RMB 1.7501 billion, down 38.5%, and operating profit at RMB 1.0520 billion, down 40.8% Financial Data Overview for 2020 (RMB '000) | Indicator | 2020 | 2019 | YoY Change | | :--- | :--- | :--- | :--- | | Total Revenue | 35,134,341 | 36,463,878 | -3.6% | | Vehicle Sales Revenue | 30,829,162 | 31,687,726 | -2.7% | | After-sales Business Revenue | 4,269,980 | 4,732,762 | -9.8% | | Cost of Sales and Services | 33,384,256 | 33,618,000 | -0.7% | | Gross Profit | 1,750,085 | 2,845,908 | -38.5% | | Gross Profit Margin | 5.0% | 7.8% | -2.8 percentage points | | Other Income and Gains, net | 1,082,446 | 869,641 | +24.5% | | Selling and Distribution Expenses | 1,108,724 | 1,210,639 | -8.4% | | Administrative Expenses | 671,809 | 727,135 | -7.6% | | Operating Profit | 1,051,998 | 1,777,775 | -40.8% | | Finance Costs | 646,330 | 822,183 | -21.4% | | Profit for the Year | 200,682 | 622,757 | -67.8% | | Cash and Bank Balances | 1,945,627 | 1,663,106 | +17.0% | | Net Current Assets | 5,121,444 | 2,248,145 | +127.8% | | Capital Expenditure | 479,400 | 673,200 | -28.8% | | Inventories | 3,934,600 | 3,503,600 | +12.3% | | Inventory Turnover Days | 40.1 days | 41.5 days | -1.4 days | | Trade Receivables | 406,700 | 613,500 | -33.7% | | Interest-bearing Bank and Other Borrowings | 6,049,200 | 9,628,100 | -37.2% | | Gearing Ratio | 66.7% | 67.5% | -0.8 percentage points | | Total Employees | 6,953 | 7,210 | -3.6% | | Total Staff Costs | 958,200 | 1,089,100 | -12.0% | - The decrease in revenue was mainly due to pandemic-related fluctuations and macroeconomic conditions, with weaker performance from Jaguar Land Rover and Maserati brands[62] - The decline in gross profit was primarily due to lower revenue, with the after-sales business's share of total gross profit rising to 78.0% (2019: 73.0%)[67] - Other income and gains increased by 24.5%, mainly due to higher commission income and government subsidies[68] - Selling, distribution, and administrative expenses decreased due to the Group's strict cost reduction and efficiency improvement strategies[69] - Cash and bank balances increased by 17.0%, mainly from reduced cash payments and increased use of notes payable[74] - Inventories increased by 12.3%, but the average inventory turnover days decreased to 40.1 days, indicating improved inventory management efficiency[77] - Interest-bearing bank and other borrowings decreased by 37.2%, primarily due to the repayment of several bank loans[81] - The gearing ratio was 66.7%, a decrease of 0.8 percentage points from 2019[83] - The total number of employees decreased to 6,953, and total staff costs fell by 12.0%, as the Group focuses on talent recruitment, training, and compensation[84] Pledge of Group Assets As of December 31, 2020, the Group had pledged approximately RMB 6.7792 billion of its assets, shares of certain subsidiaries, and letters of credit as collateral for bank loans and other borrowings - Pledged Group assets amounted to approximately RMB 6.7792 billion (2019: RMB 6.2637 billion)[87] Material Acquisitions, Disposals, or Investments The Group did not engage in any material acquisitions, disposals of subsidiaries and associates, or significant investments during the year 2020 - For the year ended December 31, 2020, the Group did not conduct any material acquisitions of subsidiaries and associates[88] - For the year ended December 31, 2020, the Group did not conduct any material disposals of subsidiaries and associates[89] - The Group had no material investments for the year ended December 31, 2020[90] Events After the Reporting Period As of the report date, there were no significant post-reporting period events to disclose, but the Group will closely monitor the impact of the COVID-19 pandemic on its financial condition and performance - As of the date of this report, there were no material events subsequent to December 31, 2020, that require disclosure by the Company[91] - The Group will closely monitor the development of the COVID-19 pandemic and assess its impact on the Group's financial position and operating results[92] Corporate Governance Report Corporate Governance Practices The Company is committed to high standards of corporate governance and has adopted the principles of the Corporate Governance Code in Appendix 14 of the Hong Kong Stock Exchange Listing Rules - The Company has adopted the principles of the Corporate Governance Code as set out in Appendix 14 to the Listing Rules[95] - The Board considers that the Company has complied with all code provisions of the Corporate Governance Code for the year ended December 31, 2020, except for code provision A.2.1 regarding the division of responsibilities between the Chairman and the Chief Executive Officer[95] Compliance with the Model Code for Securities Transactions The Company has adopted the Model Code in Appendix 10 of the Listing Rules for directors' securities transactions and confirmed that all directors complied with this code throughout 2020 - The Company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix 10 to the Listing Rules[96] - All Directors have confirmed their compliance with the Model Code throughout the year ended December 31, 2020[96] The Board of Directors The Board, responsible for leading and controlling the Company, comprises four executive and three independent non-executive directors with no relationships among them, and has arranged appropriate liability insurance - The Board is responsible for leading and controlling the Company, overseeing the Group's business, strategic decisions, and performance[98] - The Board consists of seven members, including four executive Directors and three independent non-executive Directors, with no relationships among them[99][100] - The Company has arranged appropriate liability insurance for its directors and officers against legal actions arising from corporate activities[103] - Each executive Director has a three-year service contract, independent non-executive Directors have one-year appointment letters, and all Directors are subject to retirement by rotation and re-election at least every three years[108][109][111] Board Committees The Board has established an Audit Committee, a Remuneration Committee, and a Nomination Committee, each with clear written terms of reference and chaired by an independent non-executive director - The Board has established an Audit Committee, a Remuneration Committee, and a Nomination Committee to oversee specific areas of the Company's affairs[113] - The Audit Committee's primary duties include reviewing financial information, internal controls, and risk management systems, and maintaining a good relationship with external auditors[114] - The Remuneration Committee's primary duties include reviewing the remuneration packages of directors and senior management and making recommendations to the Board[119] - The Nomination Committee's primary duties include reviewing the structure, size, and composition of the Board and making recommendations on director appointments and succession planning[123] Board Meetings and Attendance The Board held six meetings in 2020, with directors participating in person or electronically, and meeting materials were provided in advance to ensure informed decision-making - In 2020, the Board held six meetings to review the Company's financial and operational performance and discuss future strategies[127] - Board documents with all appropriate, complete, and reliable information are sent to all directors at least three days before each Board or committee meeting[127] Board and Committee Meeting Attendance in 2020 | Director's Name | Board of Directors | Audit Committee | Remuneration Committee | Nomination Committee | General Meeting | | :--- | :--- | :--- | :--- | :--- | :--- | | Mr. Lu Wei | 2/2 | N/A | 1/1 | 1/1 | N/A | | Mr. Wang Xinming | 6/6 | N/A | N/A | N/A | 1/1 | | Mr. Lu Ao | 6/6 | N/A | N/A | N/A | 1/1 | | Ms. Xu Xing | 6/6 | N/A | N/A | N/A | 1/1 | | Mr. Li Jianping | 4/4 | N/A | 1/1 | 1/1 | 1/1 | | Mr. Qi Junjie | 3/3 | N/A | N/A | N/A | N/A | | Mr. Diao Jianshen | 6/6 | 2/2 | 2/2 | 2/2 | 1/1 | | Ms. Liu Yangfang | 6/6 | 2/2 | 2/2 | 2/2 | 1/1 | | Mr. Chen Hongjun | 6/6 | 2/2 | N/A | N/A | 1/1 | Directors' Continuing Professional Development The Company ensures directors continuously develop their knowledge and skills through induction programs, internal briefings, and external training to contribute effectively to the Board - Each newly appointed director receives a comprehensive, formal, and tailored induction[133] - The Company arranges internal briefings for directors and provides relevant reading materials and professional development opportunities as appropriate[137] - For the year ended December 31, 2020, all directors participated in internal and other external training[138][139] Corporate Governance Functions The Audit Committee is responsible for performing corporate governance functions, and the Board continuously reviews and improves corporate governance practices to ensure proper regulation - The Audit Committee is responsible for performing the corporate governance functions set out in code provision D.3.1 of the Corporate Governance Code[140] - The Board has reviewed corporate governance policies and practices, training for directors and senior management, and legal and regulatory compliance policies[140] Board Diversity Policy The Company has adopted a board diversity policy to enhance diversity at the board level, annually reviewing its structure, size, and composition based on various factors - The Company has adopted a board diversity policy, viewing board-level diversity as a key element for maintaining a competitive advantage[142] - The Nomination Committee annually reviews the Board's structure, size, and composition, considering factors such as gender, age, cultural and educational background, professional qualifications, skills, knowledge, and industry experience[142] Board Nomination Policy The Company has adopted a director nomination policy with clear selection criteria and procedures to ensure the Board possesses the necessary skills, experience, and diversity - The Company has adopted a director nomination policy to ensure the Board has the skills, experience, and diversity of perspectives required for the Company's business[143] - Candidate evaluation considers character and integrity, professional qualifications, skills, knowledge, diversity (including gender, age, cultural background), and independence[144] Directors' Responsibility for Financial Statements The directors are responsible for preparing the Group's financial statements in compliance with statutory requirements and accounting standards on a going concern basis - The directors acknowledge their responsibility for preparing the Group's financial statements for the year ended December 31, 2020[149] - The directors have ensured that the Group's financial statements are prepared in accordance with statutory requirements and applicable accounting standards on a going concern basis[149] Auditor's Remuneration For the year 2020, the Group paid its external auditor, Ernst & Young, a total remuneration of RMB 6,253 thousand, of which RMB 6,100 thousand was for audit services Auditor's Remuneration for 2020 (RMB '000) | Service Type | Fee | | :--- | :--- | | Audit Services | 6,100 | | Non-audit Services | 153 | | Total | 6,253 | Risk Management and Internal Control The Board is responsible for the risk management and internal control systems, with the Audit Committee assisting in overseeing their design, implementation, and monitoring - The Board is responsible for evaluating and determining the nature and extent of risks it is willing to take in achieving the Company's strategic objectives and for establishing and maintaining appropriate and effective risk management and internal control systems[152] - The Group has established an internal risk control system and corresponding management codes, with an internal control audit department to regularly monitor implementation[154] - The Group strictly follows the Listing Rules and SFC guidelines for handling and disseminating inside information, with established confidentiality rules and training[156][157] Joint Company Secretaries Ms Xu Xing and Ms Wong Pui Yan serve as the Joint Company Secretaries, with Ms Xu granted a waiver from the Stock Exchange's qualification requirements, assisted by Ms Wong - Ms Xu Xing and Ms Wong Pui Yan are the Joint Company Secretaries of the Company[160] - Ms Xu Xing was granted a waiver from the qualification requirements for a company secretary by the Stock Exchange and is assisted by Ms Wong Pui Yan during the waiver period[161] - For the year ended December 31, 2020, both Ms Xu and Ms Wong received no less than 15 hours of professional training[162] Directors' and Senior Management's Remuneration The Company has a formal and transparent procedure for setting senior management remuneration policies, designed to motivate executives by linking compensation to company performance and market statistics - The Company has established a formal and transparent procedure for developing the remuneration policy for the Group's senior management[163] - The remuneration packages are designed to motivate executive directors and senior management by linking their compensation to the Group's operating results, individual performance, and comparable market statistics[163] Salary Bands for Non-Director Senior Management in 2020 | Salary Range (RMB) | Number of Individuals | | :--- | :--- | | 1,500,001 to 2,000,000 | 3 | | 2,000,001 to 2,500,000 | 1 | Shareholders' Rights To protect shareholder interests, separate resolutions are proposed for distinct issues at general meetings, with voting conducted by poll, and shareholders can convene special meetings or propose resolutions - Separate resolutions are proposed for each substantially separate issue at general meetings, and voting is conducted by way of a poll[165] - Any two or more shareholders holding not less than one-tenth of the Company's issued share capital may make a written request to convene a special general meeting[166] - Shareholders wishing to propose a resolution at a general meeting must submit a written request to the Board[167] - Shareholders may at any time send their enquiries and requests to the Board by personal delivery, post, or email[168] Investor Relations and Communication with Shareholders The Company is committed to effective communication with shareholders, providing updated information on business development, financials, and corporate governance through general meetings and its website - The Company is committed to maintaining effective communication with its shareholders, particularly through annual and special general meetings[173] - The Company maintains a website at www.klbaoxin.com, where business developments, financial information, corporate governance practices, and other information are available to the public[173] Constitutional Documents During the year ended December 31, 2020, the Company made no amendments to its Articles of Association, the latest version of which is available on the Stock Exchange and company websites - During the year ended December 31, 2020, the Company did not amend its Articles of Association[174] - The latest version of the Company's Articles of Association is available on the websites of the Stock Exchange and the Company[174] Dividend Policy The Company has adopted a dividend policy without a pre-determined payout ratio, allowing the Board to recommend dividends based on the Group's financial condition and other factors, subject to shareholder approval - The Company has adopted a dividend policy for dividend payments and does not have any pre-determined dividend payout ratio[175] - The Board may recommend the declaration and/or payment of dividends depending on the financial condition of the Company and the Group and the conditions and factors set out in the dividend policy[175] Directors and Senior Management Directors The Board of Directors is composed of experienced industry professionals, including executive directors Mr Lu Wei (Chairman), Mr Wang Xinming (President), Mr Lu Ao, and Ms Xu Xing, and independent non-executive directors - Mr Lu Wei was appointed as an executive Director and Chairman of the Board on August 28, 2020, and also serves as a director and vice president of Xinjiang Grand Automotive Service Group Co, Ltd[178] - Mr Wang Xinming has been an executive Director and President since June 21, 2016, and also serves as a director and president of China Grand Auto[179] - Mr Lu Ao has been an executive Director since June 21, 2016, and also serves as the vice president and chief financial officer of China Grand Auto[180] - Ms Xu Xing has served as an executive Director since June 8, 2018, and was appointed as a joint company secretary on November 20, 2018, responsible for corporate governance and capital market matters[183] - Independent non-executive directors Mr Diao Jianshen, Ms Liu Yangfang, and Mr Chen Hongjun have extensive experience in automotive distribution, law, and corporate finance, respectively[184][185][186][187] Senior Management The Company's senior management team includes Mr Wang Xinming, President and Executive Director, and Ms Xu Xing, Vice President and Executive Director - Mr Wang Xinming is the President and an executive Director of the Company[188] - Ms Xu Xing is the Vice President and an executive Director of the Company[189] Joint Company Secretaries Ms Xu Xing and Ms Wong Pui Yan serve as the Joint Company Secretaries, with Ms Wong being a Senior Manager at Tricor Services Limited and holding degrees from the University of New South Wales - Ms Xu Xing was appointed as a Joint Company Secretary of the Company on November 20, 2018[190] - Ms Wong Pui Yan was appointed as a Joint Company Secretary on May 1, 2020, and is a member of the Hong Kong Institute of Certified Public Accountants and CPA Australia[190] Report of the Directors Principal Activities and Results The Company is principally engaged in investment holding, with its subsidiaries focused on automobile sales and services, and the Group's results for 2020 are detailed in the consolidated statement of comprehensive income - The Company is principally engaged in investment holding, and its subsidiaries' main business is automobile sales and services[195] - The results of the Group for the year ended December 31, 2020 are set out in the consolidated statement of comprehensive income on page 54 of this annual report[197] Financial Position and Dividends The Group's profit and state of affairs for the year ended December 31, 2020 are presented in the financial statements, with distributable reserves of RMB 2.3832 billion, and the Board does not recommend a final dividend - The profit of the Group for the year ended December 31, 2020, and the state of affairs of the Company and the Group as at that date are set out in the financial statements on pages 53 to 161 of this annual report[198] - As at December 31, 2020, the Company's distributable reserves amounted to RMB 2.3832 billion[200] - The Board does not recommend the payment of a final dividend for the year ended December 31, 2020[201] Annual General Meeting and Share Transfer Registration The Company will hold its Annual General Meeting on June 11, 2021, and the register of members will be closed from June 8 to June 11, 2021, to determine shareholder eligibility - The Company will hold its 2021 Annual General Meeting on June 11, 2021[202] - The register of members will be closed from June 8, 2021 to June 11, 2021 (both days inclusive) to determine the eligibility of shareholders to attend and vote at the Annual General Meeting[204] Connected Transactions and Continuing Connected Transactions The Group engaged in several connected transactions with its controlling shareholder, China Grand Auto, including sale-leaseback and property leasing framework agreements, all confirmed to comply with Listing Rules - The Group entered into a 2018 Sale-Leaseback Framework Agreement with China Grand Auto and its subsidiaries, with an annual cap of RMB 1,800,000,000[210] - The Group entered into the Baoxin Property Leasing Framework Agreement and the China Grand Auto Property Leasing Framework Agreement, both with an annual cap of RMB 8,000,000 in 2020[211][213] - The auditor has issued an unqualified letter regarding the continuing connected transactions, and the independent non-executive Directors have confirmed that these transactions were conducted on normal commercial terms or better in the ordinary course of business[214][215] Compliance with Laws and Regulations and Environmental, Social and Governance Policies The Group has complied with all relevant laws and regulations, established internal environmental policies with energy-saving measures, and is committed to sustainable development - For the year ended December 31, 2020, the Group has complied with all relevant laws and regulations that have a significant impact on the Group[219] - The Group complies with all relevant national and local environmental laws, has formulated internal environmental policies, and has taken measures for energy conservation, emission reduction, and waste recycling[220] - The Group will publish its Environmental, Social and Governance Report on the Stock Exchange's website within three months from the date of this annual report[220] Directors' and Senior Management's Interests As of December 31, 2020, the Company's directors and chief executive held interests in the company's shares and underlying shares, primarily through a share option scheme - As at December 31, 2020, no director had a service contract with the Company which is not determinable within one year without payment of compensation[222] - No director had any interest in any business which competes or is likely to compete, either directly or indirectly, with the business of the Group[225] - The Company has a share option scheme to encourage and reward eligible participants who have contributed to the success of the Group[229] Interests of Directors or Chief Executive in Shares, Underlying Shares and Debentures as at December 31, 2020 | Name of Director/Chief Executive | Capacity/Nature of Interest | Number of Ordinary Shares | Number of Underlying Shares under Share Options | Approximate Percentage of Shareholding Interest in the Company | | :--- | :--- | :--- | :--- | :--- | | Wang Xinming | Beneficial owner | – | 3,600,000 (L) | 0.13% | | Lu Ao | Beneficial owner | – | 1,800,000 (L) | 0.06% | | Xu Xing | Beneficial owner | – | 1,800,000 (L) | 0.06% | Substantial Shareholders' Interests As of December 31, 2020, China Grand Automotive Service (Hong Kong) Limited and its affiliates held approximately 67.70% of the Company's issued share capital, making them the largest shareholder Interests of Substantial Shareholders in Shares and Underlying Shares as at December 31, 2020 | Name | Capacity/Nature of Interest | Number of Ordinary Shares | Approximate Percentage of Shareholding Interest in the Company | | :--- | :--- | :--- | :--- | | China Grand Automotive Service (Hong Kong) Limited | Beneficial interest | 1,921,117,571 (L) | 67.70% | | China Grand Automotive Service Co, Ltd | Interest in a controlled corporation | 1,921,117,571 (L) | 67.70% | | Shanghai Huiyong Automobile Sales Co, Ltd | Interest in a controlled corporation | 1,921,117,571 (L) | 67.70% | | China Grand Automotive Service Group Co, Ltd | Interest in a controlled corporation | 1,921,117,571 (L) | 67.70% | | Baoxin Investment Management Ltd | Beneficial interest | 219,379,630 (L) | 7.73% | | Mr Yang Aihua | Interest in a controlled corporation | 219,379,630 (L) | 7.73% | Major Customers and Suppliers In 2020, the Group's top five suppliers accounted for approximately 77.9% of total purchases, with the largest supplier representing about 42.2%, while no single customer reached 10% of revenue - For the year ended December 31, 2020, the total purchases from the Group's five largest suppliers accounted for approximately 77.9% (2019: 78.8%) of the Group's total purchases, with the largest supplier accounting for about 42.2% (2019: 41.2%)[249] - As sales to any single customer did not reach 10% or more of the Group's revenue during the year, no major customer segment information is presented[249] Relationship with Stakeholders The Company values its relationships with employees, customers, and business partners, striving to provide a fair work environment, quality services, and fulfill social responsibilities for sustainable development - The Company is committed to maintaining close ties with its employees, providing a fair working environment, competitive remuneration, and promotion opportunities[255] - The Company advocates a customer-centric service culture, values customer feedback, and has established mechanisms for handling customer service and support[255] - The Company has established close and stable cooperative relationships with leading global automakers and their joint ventures in China and actively fulfills its social responsibilities[255][256] Continuing Obligations under Chapter 13 of the Listing Rules The Company disclosed details of a 2018 facility agreement for a US$358 million term loan, which includes a "change of control" clause that could trigger immediate repayment - The Company and Baoxin Financing entered into a facility agreement on November 30, 2018, for a term loan facility totaling US$358 million[259] - The facility agreement contains a "change of control" clause, allowing lenders to cancel commitments and demand immediate repayment if China Grand Auto ceases to be the Company's single largest shareholder or no longer controls the Company[260][261] Auditor The Company's external auditor, Ernst & Young, will retire, and the Audit Committee has recommended their reappointment, which has been approved by the Board, subject to shareholder approval - The Company's external auditor, Ernst & Young, will retire[262] - The Audit Committee has recommended the reappointment of Ernst & Young as the Company's external auditor, which has been approved by the Board, subject to shareholder approval at the upcoming Annual General Meeting[262] Independent Auditor's Report Opinion The auditor concluded that the consolidated financial statements give a true and fair view of the Group's financial position as of December 31, 2020, and of its financial performance and cash flows, in accordance with HKFRS - In the auditor's opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2020, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards[270] - The consolidated financial statements have been properly prepared in compliance with the disclosure requirements of the Hong Kong Companies Ordinance[270] Basis for Opinion The audit was conducted in accordance with Hong Kong Standards on Auditing, and the auditor maintained independence and fulfilled ethical responsibilities, obtaining sufficient and appropriate audit evidence - The auditor conducted the audit in accordance with Hong Kong Standards on Auditing (HKSAs) issued by the Hong Kong Institute of Certified Public Accountants (HKICPA)[271] - The auditor is independent of the Group and has fulfilled other ethical responsibilities in accordance with the Code of Ethics for Professional Accountants[271] Key Audit Matters The auditor identified goodwill impairment assessment and vendor rebates as the most significant matters in the audit of the consolidated financial statements due to their complex judgments and calculation procedures - Key audit matters included goodwill impairment assessment and vendor rebates[272] - Goodwill impairment assessment was a key matter because the management's impairment assessment process is complex and involves significant judgment, such as future cash flow projections, growth rates, and discount rates[275] - Vendor rebates were a key matter due to the significant balance of receivables and the complexity of the calculation procedures for accrued amounts[276] Directors' and Auditor's Responsibilities The directors are responsible for preparing true and fair consolidated financial statements and for internal control, while the auditor is responsible for obtaining reasonable assurance that the statements are free from material misstatement - The directors of the Company are responsible for the preparation of consolidated financial statements that give a true and fair view in accordance with HKFRSs and the disclosure requirements of the Hong Kong Companies Ordinance, and for such internal control as the directors determine is necessary[281] - The auditor's objective is to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error[283] - The auditor exercises professional judgment and maintains professional skepticism throughout the audit, and identifies and assesses the risks of material misstatement[285] Consolidated Statement of Profit or Loss Overview of the 2020 Consolidated Statement of Profit or Loss In 2020, the Group's revenue was RMB 35,134,341 thousand, with a gross profit of RMB 1,750,085 thousand, profit for the year of RMB 200,682 thousand, and basic and diluted earnings per share of RMB 0.07 Key Data from the 2020 Consolidated Statement of Profit or Loss (RMB '000) | Indicator | 2020 | 2019 | | :--- | :--- | :--- | | Revenue | 35,134,341 | 36,463,878 | | Cost of sales and services rendered | (33,384,256) | (33,617,970) | | Gross profit | 1,750,085 | 2,845,908 | | Other income and gains, net | 1,082,446 | 869,641 | | Selling and distribution expenses | (1,108,724) | (1,210,639) | | Administrative expenses | (671,809) | (727,135) | | Operating profit | 1,051,998 | 1,777,775 | | Finance costs | (646,330) | (822,183) | | Profit before tax | 405,983 | 1,016,809 | | Income tax expense | (205,301) | (394,052) | | Profit for the year | 200,682 | 622,757 | | Profit attributable to owners of the parent | 211,418 | 629,202 | | Profit attributable to non-controlling interests | (10,736) | (6,445) | | Basic and diluted earnings per share (RMB) | 0.07 | 0.22 | Consolidated Statement of Comprehensive Income Overview of the 2020 Consolidated Statement of Comprehensive Income In 2020, the Group's profit for the year was RMB 200,682 thousand, with a net other comprehensive income of RMB 114,616 thousand, resulting in a total comprehensive income of RMB 315,298 thousand Key Data from the 2020 Consolidated Statement of Comprehensive Income (RMB '000) | Indicator | 2020 | 2019 | | :--- | :--- | :--- | | Profit for the year | 200,682 | 622,757 | | Net other comprehensive income | 114,616 | (51,007) | | Total comprehensive income for the year | 315,298 | 571,750 | | Comprehensive income attributable to owners of the parent | 326,034 | 578,195 | | Comprehensive income attributable to non-controlling interests | (10,736) | (6,445) | - The net other comprehensive income in 2020 was primarily affected by an exchange difference on translation of financial statements of RMB 122,000 thousand[294] Consolidated Statement of Financial Position Overview of the 2020 Consolidated Statement of Financial Position As of December 31, 2020, the Group's total assets were RMB 28,561,475 thousand, with net current assets of RMB 5,121,444 thousand and net assets of RMB 8,012,174 thousand Key Data from the 2020 Consolidated Statement of Financial Position (RMB '000) | Indicator | 31 December 2020 | 31 December 2019 | | :--- | :--- | :--- | | Total non-current assets | 8,939,579 | 9,140,356 | | Total current assets | 19,621,896 | 19,637,464 | | Total current liabilities | 14,500,452 | 17,389,319 | | Net current assets | 5,121,444 | 2,248,145 | | Total assets less current liabilities | 14,061,023 | 11,388,501 | | Total non-current liabilities | 6,048,849 | 3,691,322 | | Net assets | 8,012,174 | 7,697,179 | | Equity attributable to owners of the parent | 8,003,169 | 7,669,584 | | Non-controlling interests | 9,005 | 27,595 | | Total equity | 8,012,174 | 7,697,179 | - Net current assets increased significantly from RMB 2,248,145 thousand in 2019 to RMB 5,121,444 thousand in 2020[298] - Total non-current liabilities increased substantially from RMB 3,691,322 thousand in 2019 to RMB 6,048,849 thousand in 2020[298] Consolidated Statement of Changes in Equity Overview of the 2020 Consolidated Statement of Changes in Equity As of December 31, 2020, total equity attributable to owners of the parent was RMB 8,003,169 thousand, with a profit for the year of RMB 211,418 thousand and total comprehensive income of RMB 326,034 thousand Key Data from the 2020 Consolidated Statement of Changes in Equity (RMB '000) | Indicator | 1 January 2020 | Profit for the year | Total comprehensive income for the year | 31 December 2020 | | :--- | :--- | :--- | :--- | :--- | | Share capital | 23,277 | – | – | 23,277 | | Share premium | 2,372,982 | – | – | 2,372,982 | | Share option reserve | 100,296 | – | – | 110,049 | | Statutory reserve | 1,299,229 | – | – | 1,300,192 | | Merger reserve | (18,532) | – | – | (18,532) | | Other reserve | (2,185) | – | (7,384) | (14,715) | | Exchange fluctuation reserve | (634,246) | – | 122,000 | (512,246) | | Retained profits | 4,528,763 | 211,418 | 211,418 | 4,742,162 | | Total attributable to owners of the parent | 7,669,584 | 211,418 | 326,034 | 8,003,169 | | Non-controlling interests | 27,595 | (10,736) | (10,736) | 9,005 | | Total equity | 7,697,179 | 200,682 | 315,298 | 8,012,174 | - The exchange fluctuation reserve changed from (RMB 634,246 thousand) at the end of 2019 to (RMB 512,246 thousand) at the end of 2020, an increase of RMB 122,000 thousand during the year[301] - The acquisition of non-controlling interests during the year resulted in a decrease in equity of RMB 5,146 thousand and a decrease in non-controlling interests of RMB 7,854 thousand[301] Consolidated Statement of Cash Flows Overview of the 2020 Consolidated Statement of Cash Flows In 2020, the Group's net cash from operating activities was RMB 2,143,399 thousand, net cash used in investing activities was RMB 146,279 thousand, and net cash used in financing activities was RMB 1,694,828 thousand Key Data from the 2020 Consolidated Statement of Cash Flows (RMB '000) | Indicator | 2020 | 2019 | | :--- | :--- | :--- | | Net cash flows from operating activities | 2,143,399 | 662,250 | | Net cash flows (used in)/from investing activities | (146,279) | 76,143 | | Net cash flows used in financing activities | (1,694,828) | (1,614,092) | | Net increase/(decrease) in cash and cash equivalents | 302,292 | (875,699) | | Cash and cash equivalents at end of year | 1,939,507 | 1,663,106 | - Net cash from operating activities increased significantly YoY, from RMB 662,250 thousand in 2019 to RMB 2,143,399 thousand[303] - Investing activities shifted from a cash inflow in 2019 to a cash outflow in 2020, mainly due to reduced proceeds from the disposal of property, plant and equipment[305] - Net cash used in financing activities increased slightly, primarily due to larger repayments of bank and other borrowings[305] Notes to the Financial Statements Corporate and Group Information The Company is incorporated in the Cayman Islands with shares listed on the Hong Kong Stock Exchange, and its ultimate holding company is China Grand Auto, with the Group primarily engaged in automobile sales and services - The Company was incorporated in the Cayman Islands, and its shares were listed on the Main Board of The Stock Exchange of Hong Kong Limited on December 14, 2011[307] - The Group is principally engaged in automobile sales and services, and its ultimate holding company is China Grand Auto[307] - Major subsidiaries include NCGA Holdings Limited, Yan Jun Automobile Co, Ltd, and Shanghai Baoxin Automobile Sales and Service Co, Ltd, primarily engaged in investment holding or automobile sales and services[309][311][313][315][317][319] Basis of Preparation and Changes in Accounting Policies The financial statements are prepared in accordance with HKFRS under the historical cost convention and presented in RMB, with the Group adopting the revised HKFRS 16 and early applying the COVID-19-related rent concessions amendment - The financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards (HKFRSs) issued by the Hong Kong Institute of Certified Public Accountants (HKICPA) and are presented in RMB[322] - The Group has adopted the Conceptual Framework for Financial Reporting 2018 and amendments to HKFRSs for the first time in the current year's financial report[327] - The Group early adopted the amendment to HKFRS 16 and elected not to apply lease modification accounting for rent concessions arising as a direct consequence of the COVID-19 pandemic, resulting in a reduction of RMB 11,963,000 in rent concessions being recognised in profit or loss[328][334] Issued but not yet Effective Hong Kong Financial Reporting Standards The report lists several issued but not yet effective amendments to HKFRS, including the definition of a business, interest rate benchmark reform, and classification of liabilities, with some not expected to have a material impact - Issued but not yet effective standards include amendments to HKFRS 3 (Reference to the Conceptual Framework), amendments to HKFRS 9 (Interest Rate Benchmark Reform – Phase 2), and others[335] - The amendments for Interest Rate Benchmark Reform provide a practical expedient for changes in the basis for determining contractual cash flows of financial assets and liabilities, and are not expected to result in a significant modification gain or loss[339][340] - Amendments to HKAS 1 clarify the requirements for classifying liabilities as current or non-current and are not expected to have any significant impact on the Group's financial statements[344] Summary of Significant Accounting Policies This section outlines the Group's key accounting policies regarding investments in associates and joint ventures, business combinations, goodwill, fair value measurement, impairment, related parties, leases, financial instruments, and revenue recognition - The Group's investments in associates and joint ventures are accounted for using the equity method[348] - Business combinations are accounted for using the acquisition method, with goodwill initially measured at cost and tested for impairment annually[355][356][359] - Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses, with depreciation calculated on a straight-line basis over their estimated useful lives[368] - Investment properties are stated at fair value, with gains or losses from changes in fair value recognised in the statement of profit or loss[371][372] - As a lessee, the Group recognises right-of-use assets and lease liabilities for all leases, except for short-term and low-value asset leases[378] - Financial assets are classified at initial recognition as subsequently measured at amortised cost, fair value through other comprehensive income, or fair value through profit or loss[390] - Revenue from contracts with customers is recognised when control of the goods or services is transferred to the customer, and vendor rebates are recognised as a deduction from the cost of sales on an accrual basis[435][444] Significant Accounting Judgements and Estimates The preparation of financial statements involves significant management judgments and estimates, including the timing of performance obligations, recognition of deferred tax assets, goodwill impairment, and fair value of investment properties - Management judges that the performance obligation for after-sales services is satisfied at a point in time, and revenue is recognised at that point[461] - The recognition of deferred tax assets depends on the timing and level of future taxable profits, with a carrying amount of RMB 320,818,000 as at December 31, 2020[462] - Goodwill impairment testing requires estimating the value in use of cash-generating units, involving forecasts of future cash flows and the selection of a discount rate, with a goodwill carrying amount of RMB 1,222,016,000 as at December 31, 2020[464] - The provision for expected credit losses on trade receivables and other financial assets is based on a provision matrix, considering historical default rates and forward-looking economic conditions[465][466] - The estimation of the incremental borrowing rate for leases reflects the rate the Group would have to pay to borrow funds to obtain a similar asset in a similar economic environment[468] - The fair value of investment properties is assessed by an independent professional valuer using the discounted cash flow method, with key inputs including estimated rental values, growth rates, vacancy rates, and discount rates[469][470] Operating Segment Information The Group's principal business is automobile sales and services, which is operated as a single business unit, thus presenting one operating segment, with no geographical or major customer information presented - The Group's principal business is automobile sales and services, which is operated as a single business unit with one reportable segment[475] - As the majority of the Group's revenue is derived from automobile sales and services in Mainland China and the majority of its non-current assets are located there, no geographical information is presented[478] - During the year, no revenue from sales to a single customer amounted to 10% or more of the Group's revenue[479] Revenue, Other Income and Gains, Net In 2020, the Group's total revenue was RMB 35,134,341 thousand, with automobile sales accounting for RMB 30,829,162 thousand, and net other income and gains were RMB 1,082,446 thousand Revenue Source Analysis for 2020 (RMB '000) | Revenue Source | 2020 Revenue | Contribution to Total Revenue (%) | 2019 Revenue | Contribution to Total Revenue (%) | | :--- | :--- | :--- | :--- | :--- | | Automobile sales | 30,829,162 | 87.7 | 31,687,726 | 86.9 | | After-sales business | 4,269,980 | 12.2 | 4,732,762 | 13.0 | | Finance lease services | 35,199 | 0.1 | 43,390 | 0.1 | | Total revenue | 35,134,341 | 100 | 36,463,878 | 100 | Other Income and Gains, Net for 2020 (RMB '000) | Item | 2020 | 2019 | | :--- | :--- | :--- | | Commission income | 1,048,545 | 745,028 | | Government grants | 86,176 | 58,838 | | Bank interest income | 16,513 | 33,084 | | Loss on disposal of items of property, plant and equipment | (33,204) | (10,373) | | Fair value (loss)/gain on investment properties | (4,791) | 27,239 | | Net foreign exchange differences | (151,776) | (59,015) | | Total | 1,082,446 | 869,641 | - Automobile sales revenue decreased by 2.7% YoY, while after-sales business revenue decreased by 9.8% YoY[480] - Net other income and gains increased by 24.5% YoY, primarily driven by higher commission income and government grants[487] Profit Before Tax The Group's profit before tax in 2020 was RMB 405,983 thousand, after deducting employee benefit expenses of RMB 962,619 thousand and cost of sales and services of RMB 33,384,256 thousand Composition of Profit Before Tax for 2020 (RMB '000) | Item | 2020 | 2019 | | :--- | :--- | :--- | | Total employee benefit expense | 962,619 | 1,099,848 | | Total cost of sales and services | 33,384,256 | 33,617,970 | | Depreciation of property, plant and equipment | 268,631 | 272,105 | | Depreciation of right-of-use assets | 234,889 | 213,809 | | Amortisation of other intangible assets | 61,712 | 61,811 | | Advertising and business promotion expenses | 242,504 | 268,039 | | Total impairment of financial assets | 33,778 | 23,694 | | Write-down of inventories to net realisable value | 36,791 | 19,589 | | Net foreign exchange differences | 151,776 | 59,015 | | Government grants | (86,176) | (58,838) | - Total employee benefit expense decreased by 12.5% YoY, and the total cost of sales and services decreased by 0.7% YoY[490] - Total impairment of financial assets and the write-down of inventories to net realisable value both increased[492] Finance Costs The Group's finance costs in 2020 were RMB 646,330 thousand, a 21.4% decrease YoY, primarily comprising interest on bank and other borrowings and interest on lease liabilities Analysis of Finance Costs for 2020 (RMB '000) | Item | 2020 | 2019 | | :--- | :--- | :--- | | Interest on bank and other borrowings | 561,337 | 731,841 | | Loan arrangement fees | 37,314 | 79,899 | | Interest on lease liabilities | 84,993 | 90,342 | | Total | 646,330 | 822,183 | - Finance costs decreased by 21.4% YoY, mainly due to a reduction in interest on bank and other borrowings[494] Income Tax The Group's income tax expense for 2020 was RMB 205,301 thousand, comprising current tax of RMB 284,854 thousand and deferred tax of (RMB 79,553) thousand, with subsidiaries in Mainland China subject to a 25% corporate income tax rate Income Tax Expense for 2020 (RMB '000) | Item | 2020 | 2019 | | :--- | :--- | :--- | | Current tax | 284,854 | 503,978 | | Deferred tax | (79,553) | (109,926) | | Total tax expense for the year | 205,301 | 394,052 | - Subsidiaries in Mainland China are subject to a 25% corporate income tax rate, while two subsidiaries in Xinjiang are exempt, and 16 subsidiaries in Sichuan enjoy a 15% rate[496] - The reconciliation of tax expense to accounting profit for 2020 shows unrecognised tax losses of RMB 117,715 thousand and a withholding tax impact of RMB 26,427 thousand[498][499] Directors' and Chief Executive's Remuneration The total remuneration for directors and the chief executive in 2020 was RMB 4,415 thousand, including salaries, allowances, and benefits