正通汽车(01728) - 2020 - 年度财报

Company Overview Company Profile 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] - As of December 31, 2020, the Group owned 125 operating outlets across 40 cities in 17 provinces and municipalities nationwide[6] - 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] Five-Year Financial Summary Five-Year Financial Summary 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 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][17] - 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] - 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] Management Discussion and Analysis Business Review 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 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] After-Sales Services Business 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 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] Supply Chain Business 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] - 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][47] Network Development 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] Financial Review 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][76] - 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][83] - 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] - 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] - 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] Future Outlook and Strategies 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] - Medium-term strategy: Continue to be rooted in the luxury car market, further improve the luxury brand network layout, and enhance market competitiveness[111] - 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] Corporate Governance Report Corporate Governance Report 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][122] - 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] - 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] 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 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] - 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][228] - 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][232] - 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] Directors' Report Directors' Report 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][316] - 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][338] - 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][362] - 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] - 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][394] Independent Auditor's Report Independent Auditor's Report 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] - 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] - 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] - Recognition of vendor rebates: Rebate agreements are complex, and calculations involve significant management estimates, posing uncertainty risks[435] - 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] Consolidated Financial Statements Consolidated Statement of Profit or Loss 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 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 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 |