正通汽车(01728) - 2023 - 中期业绩

Interim Results Announcement for the Six Months Ended June 30, 2023 Summary The Group's revenue increased by 11.2% year-on-year to RMB 12,310 million in H1 2023, driven by higher new car sales, but overall gross profit decreased by 33.6% due to lower average selling prices, resulting in a loss attributable to equity holders of approximately RMB 394 million and basic loss per share of RMB 14.4 cents Key Financial and Operating Highlights for H1 2023 | Indicator | H1 2023 (RMB Million) | H1 2022 (RMB Million) | Change (%) | | :--- | :--- | :--- | :--- | | Revenue | 12,310 | 11,068 | +11.2% | | Overall Gross Profit | 630 | 949 | -33.6% | | Gross Profit Margin | 5.1% | 8.6% | -3.5 percentage points | | Loss/Profit Attributable to Equity Holders of the Company | (394) | 8 | N/A | | Basic Loss/Earnings Per Share (RMB Cents) | (14.4) | 0.3 | N/A | | New Car Sales Units | 30,560 | N/A | +17.1% | | Luxury and Ultra-Luxury Car Sales Units | 26,187 | N/A | +22.1% | Consolidated Financial Statements This section presents the unaudited consolidated statement of profit or loss, statement of profit or loss and other comprehensive income, and statement of financial position for the six months ended June 30, 2023, reflecting the Group's financial performance and position Consolidated Statement of Profit or Loss For the six months ended June 30, 2023, Group revenue increased to RMB 12,309,565 thousand, but gross profit significantly decreased due to higher cost of sales and lower average selling prices for new cars, resulting in a loss of RMB 386,064 thousand Key Data from Consolidated Statement of Profit or Loss (RMB Thousand) | Indicator | For the Six Months Ended June 30, 2023 | For the Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Revenue | 12,309,565 | 11,068,764 | | Cost of Sales | (11,679,149) | (10,119,500) | | Gross Profit | 630,416 | 949,264 | | Other Income | 623,786 | 393,264 | | Selling and Distribution Expenses | (565,904) | (542,098) | | Administrative Expenses | (535,363) | (500,141) | | Operating Profit | 152,935 | 532,715 | | Finance Costs | (536,380) | (482,527) | | (Loss)/Profit Before Tax | (383,569) | 70,407 | | (Loss)/Profit for the Period | (386,064) | 5,675 | | (Loss)/Profit Attributable to Equity Holders of the Company | (393,537) | 8,150 | | (Loss)/Profit Attributable to Non-controlling Interests | 7,473 | (2,475) | | Basic and Diluted (Loss)/Earnings Per Share (RMB Cents) | (14.4) | 0.3 | Consolidated Statement of Profit or Loss and Other Comprehensive Income For the six months ended June 30, 2023, the Group reported a loss for the period of RMB 386,064 thousand, which, combined with exchange differences in other comprehensive income (net of tax), resulted in a total comprehensive loss of RMB 393,889 thousand Key Data from Consolidated Statement of Profit or Loss and Other Comprehensive Income (RMB Thousand) | Indicator | For the Six Months Ended June 30, 2023 | For the Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | (Loss)/Profit for the Period | (386,064) | 5,675 | | Other Comprehensive Income for the Period (Net of Tax) | (7,825) | (10,245) | | Total Comprehensive Income for the Period | (393,889) | (4,570) | | Total Comprehensive Income Attributable to Equity Holders of the Company | (401,362) | (2,095) | | Total Comprehensive Income Attributable to Non-controlling Interests | 7,473 | (2,475) | Consolidated Statement of Financial Position As of June 30, 2023, the Group's non-current assets slightly decreased while current assets increased, with a significant rise in current liabilities leading to an expanded net current liabilities position, though net assets and total equity grew substantially due to the issuance of perpetual bonds Key Data from Consolidated Statement of Financial Position (RMB Thousand) | Indicator | As of June 30, 2023 | As of December 31, 2022 | | :--- | :--- | :--- | | Non-current Assets | 13,860,314 | 13,902,668 | | Current Assets | 14,609,696 | 13,830,091 | | Current Liabilities | 20,339,004 | 18,911,476 | | Net Current Liabilities | (5,729,308) | (5,081,385) | | Net Assets | 1,176,274 | 224,444 | | Total Equity | 1,176,274 | 224,444 | | Perpetual Bonds | 899,951 | — | Notes to the Unaudited Interim Financial Statements This section details the basis of preparation, new accounting policies, composition of income and expenses, balance sheet items, and significant financial guarantees, perpetual bonds, and contingent liabilities, providing essential supplementary information for understanding the financial statements 1 General Information The Group primarily engages in 4S dealership, automotive supply chain, and integrated property businesses in China - The Group's principal businesses include 4S dealership, automotive supply chain, and integrated property businesses[36] 2 Basis of Preparation This interim financial report is prepared in accordance with the HKEX Listing Rules and HKAS 34, reviewed by KPMG, includes 2022 annual financial data for comparison, and the directors confirm the Group's ability to continue as a going concern - This interim financial report is prepared in accordance with the HKEX Listing Rules and HKAS 34, and has been reviewed by KPMG[25][38] - Despite a net loss of RMB 386 million and net current liabilities of RMB 5,729 million for the period, the Board believes the Group can continue as a going concern for at least the next 12 months, based on cash flow forecasts and financial support from controlling shareholder Guomao Holdings[29] 3 New Accounting Policies Applied and Changes in Accounting Policies The Group applied HKFRS 17 and amendments to HKAS 8 and 12 this period, classifying perpetual bonds as equity, with HKFRS 17 having no material impact, HKAS 8 amendments aligning with existing methods, and HKAS 12 amendments primarily affecting deferred tax asset and liability disclosures without altering overall balances - Perpetual bonds are classified as equity due to no fixed maturity date and discretionary coupon payments by the Group[30] - The Group has applied HKFRS 17 (Insurance Contracts) and amendments to HKAS 8 (Definition of Accounting Estimates) and HKAS 12 (Income Taxes: Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction)[31] - Following HKAS 12 amendments, the Group will separately determine temporary differences related to right-of-use assets and lease liabilities, primarily impacting the disclosure of deferred tax asset and liability components in annual financial statements, but not the overall deferred tax balance[58][68] 4 Revenue The Group's revenue primarily derives from passenger vehicle sales, after-sales services, logistics services, and lubricant sales, with passenger vehicle sales, after-sales services, and lubricant sales recognized at a point in time, and logistics services recognized over time Revenue Composition (RMB Thousand) | Revenue Category | For the Six Months Ended June 30, 2023 | For the Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Sales of Passenger Vehicles | 10,580,807 | 9,281,151 | | Provision of After-sales Services | 1,425,687 | 1,467,521 | | Provision of Logistics Services | 189,234 | 220,270 | | Sales of Lubricants | 113,812 | 99,156 | | Others | 25 | 666 | | Total Revenue | 12,309,565 | 11,068,764 | - Revenue from logistics services is recognized over time, while revenue from passenger vehicle sales, after-sales services, and lubricant sales is recognized at a point in time[79] 5 Other Income The Group's other income primarily includes service income, bank interest, net gain on disposal of property, and net gain on financial instruments, with a significant increase to RMB 623,786 thousand for the six months ended June 30, 2023, mainly due to higher service income and net realized and unrealized gains on financial instruments Other Income Composition (RMB Thousand) | Income Category | For the Six Months Ended June 30, 2023 | For the Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Service Income | 437,841 | 221,635 | | Bank Deposit Interest Income | 33,338 | 15,516 | | Net Gain on Disposal of Property, Plant and Equipment | 21,792 | 93,161 | | Net Realized and Unrealized Gains on Financial Instruments | 76,753 | 8,491 | | Government Grants | 5,446 | 8,431 | | Others | 48,616 | 46,030 | | Total Other Income | 623,786 | 393,264 | 6 (Loss)/Profit Before Tax The Group's loss before tax was primarily impacted by increased finance costs and a reduced reversal of impairment losses on intangible assets, while staff costs slightly decreased and depreciation and amortization expenses increased (Loss)/Profit Before Tax Components (RMB Thousand) | Item | For the Six Months Ended June 30, 2023 | For the Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Finance Costs | 536,380 | 482,527 | | Staff Costs | 441,045 | 459,121 | | Cost of Inventories | 11,419,654 | 9,824,236 | | Depreciation (Owned Property, Right-of-Use Assets, Investment Property) | 334,261 | 354,887 | | Amortization of Intangible Assets | 81,489 | 78,730 | | Reversal of Impairment Loss (Intangible Assets, Property) | — | (253,665) | | Net Exchange Loss | 119,158 | 160,847 | - The increase in finance costs was primarily due to higher interest on loans and borrowings, partially offset by capitalized interest[82] - Staff costs slightly decreased, primarily comprising salaries, wages and other benefits, contributions to defined contribution retirement plans, and equity-settled share-based payment expenses[72][81] 7 Income Tax The Group's income tax expense significantly decreased, mainly due to reduced provision for China income tax and the generation of temporary differences for deferred tax, with Chinese subsidiaries taxed at 25% and Cayman Islands, BVI, and Hong Kong subsidiaries exempt Income Tax Expense (RMB Thousand) | Item | For the Six Months Ended June 30, 2023 | For the Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Provision for China Income Tax for the Period | 10,718 | 47,964 | | Deferred Tax: (Generation)/Reversal of Temporary Differences | (8,223) | 16,768 | | Total Income Tax Expense | 2,495 | 64,732 | - The Group's PRC subsidiaries are subject to a corporate income tax rate of 25%[91] - Subsidiaries in the Cayman Islands, British Virgin Islands, and Hong Kong were not subject to income tax during the period[88][90] 8 (Loss)/Earnings Per Share For the six months ended June 30, 2023, the loss attributable to equity holders of the Company resulted in both basic and diluted loss per share of RMB 14.4 cents, compared to earnings per share of RMB 0.3 cents in the prior period, with potential ordinary shares from the share award scheme having an anti-dilutive effect this period (Loss)/Earnings Per Share (RMB Cents) | Indicator | For the Six Months Ended June 30, 2023 | For the Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Basic (Loss)/Earnings Per Share | (14.4) | 0.3 | | Diluted (Loss)/Earnings Per Share | (14.4) | 0.3 | | Weighted Average Number of Ordinary Shares in Issue | 2,733,099,326 | 2,716,922,420 (Basic) / 2,724,245,883 (Diluted) | - For the six months ended June 30, 2023, potential ordinary shares from the share award scheme had an anti-dilutive effect as they would decrease the loss per share[94] 9 Intangible Assets The Group's intangible assets primarily comprise automotive dealership and operating rights, favorable lease contracts, trademarks, and software, with a slight decrease in net book value as of June 30, 2023, and management's impairment assessment confirmed no impairment losses Net Book Value of Intangible Assets (RMB Thousand) | Intangible Asset Category | As of June 30, 2023 | As of December 31, 2022 | | :--- | :--- | :--- | | Automotive Dealership and Operating Rights | 2,398,216 | 2,477,338 | | Favorable Lease Contracts | — | 6 | | Trademarks | 217,105 | 217,105 | | Software and Others | 8,756 | 10,623 | | Total Net Book Value | 2,624,077 | 2,705,072 | - Automotive dealership rights have an estimated useful life of 40 years, and dealership operating rights 10 years, both fair values determined using the multi-period excess earnings method[76][104] - Management, with the assistance of external valuers, performed an impairment assessment and did not recognize any impairment losses for intangible assets (automotive dealership rights and/or goodwill)[105] 10 Other Financial Assets/(Liabilities) The Group's other financial assets primarily include wealth management products, forward contracts, option contracts, and equity investment in Dongfeng Logistics, with a significant increase in financial assets at fair value through profit or loss, mainly driven by realized/unrealized gains on option contracts, and the Group has reclassified its equity investment in Dongfeng Logistics as a financial asset at fair value through profit or loss after losing significant influence Other Financial Assets/(Liabilities) (RMB Thousand) | Item | As of June 30, 2023 | As of December 31, 2022 | | :--- | :--- | :--- | | Other Financial Assets at Fair Value Through Profit or Loss | | | | Wealth Management Products (Current) | 133,105 | 89,969 | | Forward Contracts (Current) | 32,375 | 13,592 | | Option Contracts (Current) | 97,568 | — | | Equity Investment in Dongfeng Logistics (Non-current) | 944,947 | 944,947 | | Other Financial Liabilities at Fair Value Through Profit or Loss | | | | Forward Contracts | — | (91,516) | | Option Contracts | (5,977) | — | - For the six months ended June 30, 2023, net realized/unrealized gains on option contracts amounted to RMB 149,764 thousand, recognized under 'Other income' in the consolidated statement of profit or loss[109] - The Group has lost significant influence over Dongfeng Logistics and reclassified its equity investment as a financial asset at fair value through profit or loss, with a fair value of RMB 944,947 thousand[113][114] - The Group plans to dispose of its entire equity interest in Dongfeng Logistics, but completion within one year is unlikely due to regulatory and shareholder approvals being outside the Group's control[111] 11 Inventories The Group's inventories primarily consist of vehicles, spare parts, and properties under development for sale, totaling RMB 3,580,553 thousand as of June 30, 2023, a decrease from year-end 2022 mainly due to reduced vehicle inventories Inventories Composition (RMB Thousand) | Inventory Category | As of June 30, 2023 | As of December 31, 2022 | | :--- | :--- | :--- | | 4S Dealership Business - Vehicles | 2,558,130 | 3,044,340 | | 4S Dealership Business - Vehicle Spare Parts | 295,850 | 313,179 | | 4S Dealership Business - Others | 47,434 | 46,166 | | Integrated Property Business - Properties Under Development for Sale | 679,139 | 660,585 | | Total Inventories | 3,580,553 | 4,064,270 | Amount of Inventories Recognized as Expense and Included in Profit or Loss (RMB Thousand) | Item | For the Six Months Ended June 30, 2023 | For the Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Carrying Amount of Inventories Sold | 11,372,991 | 9,790,629 | | Write-down of Inventories | 46,663 | 33,607 | | Total | 11,419,654 | 9,824,236 | 12 Trade and Bills Receivables As of June 30, 2023, the Group's total trade and bills receivables amounted to RMB 900,989 thousand, primarily comprising amounts due within three months, and the Group's strict credit risk management indicates a low default risk Aging Analysis of Trade and Bills Receivables (RMB Thousand) | Aging | As of June 30, 2023 | As of December 31, 2022 | | :--- | :--- | :--- | | Within 3 Months | 893,601 | 900,002 | | Over 3 Months but Within 1 Year | 2,163 | 2,178 | | Over 1 Year | 5,225 | 5,262 | | Total | 900,989 | 907,442 | - Trade receivables primarily consist of amounts due from individual customers and warranty deposits from automobile manufacturers, with default risk considered low[127] 13 Prepayments, Deposits and Other Receivables As of June 30, 2023, the Group's total prepayments, deposits, and other receivables amounted to RMB 4,265,095 thousand, an increase from year-end 2022 driven by higher other receivables, with all amounts expected to be recovered within one year Prepayments, Deposits and Other Receivables (RMB Thousand) | Item | As of June 30, 2023 | As of December 31, 2022 | | :--- | :--- | :--- | | Prepayments | 278,441 | 402,403 | | Deposits | 359,496 | 399,940 | | Other Receivables | 3,627,158 | 3,261,174 | | Total | 4,265,095 | 4,063,517 | - Other receivables primarily include supplier rebates earned through various arrangements with automobile manufacturers, assessed based on purchase or sales volume and performance[128] 14 Trade and Other Payables As of June 30, 2023, the Group's total trade and other payables amounted to RMB 4,300,082 thousand, a decrease from year-end 2022 primarily due to reductions in trade and bills payables and contract liabilities Aging Analysis of Trade and Other Payables (RMB Thousand) | Aging/Category | As of June 30, 2023 | As of December 31, 2022 | | :--- | :--- | :--- | | Trade and Bills Payables (Within 3 Months) | 2,798,811 | 3,379,485 | | Trade and Bills Payables (Over 3 Months but Within 1 Year) | 381,530 | 460,686 | | Contract Liabilities | 479,602 | 1,215,170 | | Other Payables and Accruals | 637,766 | 771,927 | | Amounts Due to Related Parties | 2,373 | 507 | | Total Current | 4,300,082 | 5,827,775 | | Long-term Payables (Non-current) | 168,364 | 186,648 | | Total | 4,468,446 | 6,014,423 | 15 Financial Guarantees Issued Wuhan Zhengtong, a Group subsidiary, provided financial guarantees for Beijing Guangze's equity investment repurchase obligations and outstanding loan balances; despite an initial court ruling for joint liability, a second-instance judgment clarified its role as a deficiency guarantor, and a settlement agreement with the creditor, combined with collateral valuation, indicates an immaterial expected credit loss provision for the financial guarantee - Wuhan Zhengtong provided financial guarantees for Beijing Guangze, covering equity investment repurchase obligations and outstanding loan balances, with a maximum guarantee amount of RMB 1.93 billion[121][130] - The first-instance judgment held Wuhan Zhengtong jointly liable for Beijing Guangze's debts, but the second-instance judgment overturned this, clarifying Wuhan Zhengtong as a deficiency guarantor[132][135] - Wuhan Zhengtong reached a settlement agreement with Yuchen Fengze, where Yuchen Fengze agreed to assist in disposing of collateral to recover the debt, limiting the Group's cash exposure to the difference between collateral disposal proceeds and the debt[135][146] - As of June 30, 2023, the fair value and estimated net realizable value of the pledged assets were RMB 2.79 billion and RMB 1.97 billion, respectively, and the expected credit loss provision for the financial guarantee was assessed as immaterial[136][147] 16 Dividends The Board does not recommend an interim dividend for the six months ended June 30, 2023, and no proposed final dividend for the previous financial year was approved or paid during the reporting period - The Board does not recommend the payment of an interim dividend for the six months ended June 30, 2023[123][215] - No proposed final dividend for the previous financial year was approved or paid during the reporting period[137] 17 Perpetual Bonds The Group issued three perpetual bonds totaling RMB 1.299951 billion, which are classified as equity due to their indefinite term and discretionary redemption or interest payment, with Perpetual Bonds 1 and 2 recognized in non-controlling interests and Perpetual Bond 3 in equity attributable to equity holders of the Company - Wuhan Zhengtong issued Perpetual Bond 1 (RMB 200 million, initial annual interest rate 8.5%) and Perpetual Bond 2 (RMB 200 million, initial annual interest rates 8.5% and 8.0%), both with no fixed maturity and discretionary redemption or interest payment[124][138][149] - A short-term loan of US$124.547 million (approximately RMB 899.951 million) from Guomao Hong Kong to the Company was converted into Perpetual Bond 3, with an annual interest rate of 5.0%, no fixed maturity, and discretionary redemption or interest payment[151] - Perpetual Bonds 1 to 3 are all classified as equity, with Perpetual Bonds 1 and 2 recognized in non-controlling interests and Perpetual Bond 3 directly in total equity attributable to equity holders of the Company in the consolidated statement of financial position[152] 18 Contingent Liabilities Wuhan Zhengtong, a Group subsidiary, entered into a general contracting agreement with Beijing Guangze, and subsequently received payment notices from subcontractors due to Beijing Guangze's non-performance; based on external legal advice, Beijing Guangze is the primary debtor, and the Group's likelihood of making payments is low, thus no provision has been made - Wuhan Zhengtong entered into a general contracting agreement with Beijing Guangze for 4S dealership and related commercial projects; due to Beijing Guangze's non-performance, the Group received payment notices totaling RMB 6 million from subcontractors[153] - External legal counsel opined that Beijing Guangze is the primary debtor, and the likelihood of the Group being sued by subcontractors and making payments is low, thus no provision has been made[139][155] 19 Comparative Figures Certain comparative figures have been adjusted to conform to the current period's presentation - Certain comparative figures have been adjusted to conform to the current period's presentation[141] Management Discussion and Analysis This section reviews the Group's operating results and management initiatives for H1 2023, highlighting revenue growth despite market challenges through focus on luxury brands, optimized after-sales services, expanded used car exports, and strengthened financial services, alongside significant progress in governance, risk prevention, human resources, and digitalization - For H1 2023, Group revenue was approximately RMB 12,310 million, a 11.2% year-on-year increase, while gross profit was approximately RMB 630 million, a 33.6% year-on-year decrease[169] - Amidst a volatile market, the Group continued to focus on luxury and ultra-luxury vehicle sales and after-sales services, while also monitoring the rise of domestic brands and exploring new growth opportunities[157][1] Business Review In H1 2023, the Chinese automotive industry faced challenges including the transition to National VI A standards, NEV price adjustments, and price wars, yet the Group maintained stable operations by focusing on luxury and ultra-luxury brand sales and after-sales services, earning 193 awards - In H1 2023, the Group's stores received 193 awards, including 165 manufacturer awards and 28 government, media, and industry association awards[143] - The market faced challenges such as promotional waves, intense industry competition, and inventory clearance pressure from the National VI B emission standard transition; domestic passenger vehicle retail sales grew by 2.7% year-on-year, but consumer sentiment and price recovery still require time[158] (I) Automobile Dealership Segment The automobile dealership segment actively responded to market changes in H1 2023, achieving a 17.1% year-on-year increase in new car sales units, with luxury brands growing by 22.1%, after-sales service revenue reaching RMB 1,426 million, and used car business gaining export qualifications and strengthening retail, while automotive finance performed well with new insurance policies up 7% and renewals up 13%, and the Group continued to optimize its network, expand new brands, and strengthen cooperation with OEMs - The Group represents luxury and ultra-luxury brands such as Porsche, Mercedes-Benz, BMW, Audi, Jaguar Land Rover, Volvo, and Hongqi, as well as mid-to-high-end brands like FAW-Volkswagen and Buick[183] - The Group actively responded to market changes, completing upgrades and renovations for 9 core brand stores and showrooms, and expanding key account supply chain business and new media marketing channels[171] 1. New Car Sales Business In H1 2023, the Group sold 30,560 new cars, a 17.1% year-on-year increase, with luxury and ultra-luxury brands accounting for 26,187 units, up 22.1%, achieved through enhanced communication with manufacturers, store upgrades, key account expansion, and new media marketing New Car Sales Data | Indicator | For the Six Months Ended June 30, 2023 | Year-on-Year Growth | | :--- | :--- | :--- | | New Car Sales Units | 30,560 | 17.1% | | Luxury and Ultra-Luxury Car Sales Units | 26,187 | 22.1% | 2. After-sales Service Business The Group maintained a customer-centric approach, enhancing digital customer operations and online mall optimization to provide convenient after-sales services, accumulating 574,600 after-sales service units and generating approximately RMB 1,426 million in revenue for the six months ended June 30, 2023 - The Group enhanced digital customer operations through self-developed information systems, WeChat mini-programs, and enterprise WeChat, offering services like maintenance reminders and online consultations[159] After-sales Service Data | Indicator | For the Six Months Ended June 30, 2023 | | :--- | :--- | | Automotive After-sales Service Units | 574,600 | | After-sales Service Revenue | Approximately RMB 1,426 Million | 3. Used Car Business In H1 2023, China's used car transaction volume increased by 15.6% year-on-year, and the Group updated its standardized used car management system, focused on strengthening retail business, and obtained used car export qualifications in July 2023 to accelerate business expansion - From January to June 2023, China's cumulative used car transaction volume reached 8.7686 million units, a 15.6% year-on-year increase, with a transaction value of RMB 551.726 billion[160] - The Group updated its standardized used car management system, enhancing retail business quality through increased external procurement support, establishing benchmark retail outlets, and sharing vehicle sources[162] - The Group obtained used car export qualifications in July 2023 and has commenced export operations, accelerating expansion and building a full-link supply chain system[162] 4. Automotive Finance Business The Group's automotive finance business performed well in H1 2023, with new insurance policies up 7% year-on-year, renewals up 13%, and dual-insurance product sales reaching RMB 76 million, as the Group focused on customer needs and innovative insurance services to enhance customer retention and store comprehensive profit Automotive Finance Business Data | Indicator | For the Six Months Ended June 30, 2023 | Year-on-Year Increase | | :--- | :--- | :--- | | New Insurance Policies Units | 26,000 | 7% | | New Car Insurance Penetration Rate | 94% | N/A | | Renewal Insurance Policies Units | 93,000 | 13% | | Dual-Insurance Product Sales | RMB 76 Million | N/A | Company Network Development and Layout As of June 30, 2023, the Group operated 109 outlets and had 3 under construction across 16 provinces and 37 cities in China, opening 2 new 4S stores and 2 NIO service centers in H1, expanding its luxury brand advantage and entering the new energy sector, while actively advancing core brand projects, strengthening OEM cooperation, and streamlining underperforming brands and outlets Outlet Details (As of June 30, 2023) | Outlet Type | Operating Outlets | Outlets Under Construction | Total | | :--- | :--- | :--- | :--- | | Luxury and Ultra-Luxury Brand 5S/4S Stores | 58 | 1 | 59 | | Mid-to-High-End and New Energy Brand 4S Stores | 17 | 1 | 18 | | Luxury Brand City Showrooms | 5 | 0 | 5 | | Luxury Brand Authorized Service Centers | 4 | 1 | 5 | | Mid-to-High-End and New Energy Brand Showrooms | 1 | 0 | 1 | | Mid-to-High-End and New Energy Brand Service Centers | 5 | 0 | 5 | | Self-operated Outlets | 19 | 0 | 19 | | Total | 109 | 3 | 112 | - In H1 2023, the Group opened one Mercedes-Benz 4S store, one Great Wall Haval 4S store, and two NIO service centers, continuously expanding its traditional luxury brand advantage and venturing into new energy vehicle maintenance[1] - The Group actively advanced core and highly profitable brand projects, aligning with brand image upgrades and new energy transformation, while streamlining underperforming brands and outlets to enhance overall profitability[166] (II) Supply Chain Business Segment In H1 2023, the Group's supply chain business segment achieved total revenue of RMB 303 million, with Shengze Jietong making new progress in vehicle logistics, warehousing, and spare parts, and being recognized among the "2023 Top 50 Car Carrier Self-Owned Capacity" - For H1 2023, the Group's supply chain business segment achieved total revenue of RMB 303 million[186] - Shengze Jietong added Dongfeng Honda Chongqing Port last-mile distribution business, successfully introduced XPeng Motors vehicle warehousing business, and won the bid for the nationwide transportation and distribution project of BWI Group auto parts[166] - The construction of Hannan Logistics Base is largely complete, poised to become a comprehensive logistics hub integrating spare parts logistics, vehicle logistics, and vehicle warehousing businesses[166] - Shengze Jietong was recognized by the China Federation of Logistics & Purchasing Automotive Logistics Branch as one of the '2023 Top 50 Car Carrier Self-Owned Capacity' for its business development and cost management achievements[176] (III) Management Enhancement In H1 2023, the Group optimized and enhanced its governance, organizational structure, internal oversight, risk prevention, human resources, and digitalization, including revising policies, establishing an ESG committee, optimizing executive responsibilities, strengthening internal audits, formulating operational risk management policies, refining compensation systems, and accelerating digital operation project development - In terms of standardized governance, 31 new/revised policies were introduced, 5 abolished, clarifying decision-making, execution, and oversight responsibilities, and optimizing approval authorities[187] - Regarding organizational structure, an Environmental, Social, and Governance (ESG) Committee was established under the Board, and executive division of labor and headquarters department responsibilities were adjusted and optimized[187] - In internal audit and supervision, audit priorities were emphasized, issue rectification promoted, and internal control research, diagnosis, and system optimization projects initiated[188] - For risk prevention, dynamic risk analysis and assessment were conducted, operational risk management policies formulated, and management of financing, guarantees, and foreign exchange transactions strengthened[177] - In human resources, the compensation system was optimized, an employee career management system established, and internal competitive recruitment and market-based selection for mid-to-high-level positions promoted[177] - For digitalization, a series of automotive information projects were independently designed and developed, including client-side enterprise WeChat mini-programs, electronic vehicle tag inventory management systems, and test drive and courtesy car management systems[178] Financial Review This section provides a detailed review of the Group's H1 2023 financial performance, covering revenue growth, gross profit decline, expense variations, period loss, liquidity, capital expenditure, inventory management, pledged assets, and foreign currency risk hedging, highlighting the impact of reduced new car sales gross profit margin on overall profitability Operating Revenue For the six months ended June 30, 2023, the Group's operating revenue was approximately RMB 12,310 million, an 11.2% year-on-year increase, primarily driven by higher new car sales volume, with new car sales revenue accounting for 86.0% and after-sales service revenue for 11.6% of total revenue Operating Revenue Composition and Growth | Item | H1 2023 (RMB Million) | H1 2022 (RMB Million) | Year-on-Year Growth/Decrease | | :--- | :--- | :--- | :--- | | Total Revenue | 12,310 | 11,069 | +11.2% | | New Car Sales Revenue | 10,581 | 9,281 | +14.0% | | After-sales Service Revenue | 1,426 | 1,468 | -2.9% | | New Car Sales Revenue as % of Total Revenue | 86.0% | 83.8% | +2.2 percentage points | | Luxury and Ultra-Luxury Car Sales Revenue as % of New Car Sales Revenue | 95.0% | 93.5% | +1.5 percentage points | Cost of Sales For the six months ended June 30, 2023, the Group's cost of sales was approximately RMB 11,679 million, a 15.4% year-on-year increase, mainly due to higher new car sales volume and promotional activities for some inventory vehicles, with new car sales cost rising by 20.6% while after-sales service cost decreased by 21.0% due to operational cost control Cost of Sales Composition and Growth | Item | H1 2023 (RMB Million) | H1 2022 (RMB Million) | Year-on-Year Growth/Decrease | | :--- | :--- | :--- | :--- | | Total Cost of Sales | 11,679 | 10,120 | +15.4% | | New Car Sales Cost | 10,558 | 8,755 | +20.6% | | After-sales Service Cost | 851 | 1,077 | -21.0% | - The decrease in after-sales service cost of sales was primarily due to operational cost control at integrated and mid-to-high-end brand stores[181] Gross Profit and Gross Profit Margin For the six months ended June 30, 2023, the Group's gross profit was approximately RMB 630 million, a 33.6% year-on-year decrease, with a gross profit margin of 5.1%, down 3.5 percentage points from the prior period, primarily due to lower average selling prices for new cars Gross Profit and Gross Profit Margin | Indicator | H1 2023 (RMB Million) | H1 2022 (RMB Million) | Year-on-Year Change | | :--- | :--- | :--- | :--- | | Gross Profit | 630 | 949 | -33.6% | | Gross Profit Margin | 5.1% | 8.6% | -3.5 percentage points | - The decline in gross profit and gross profit margin was primarily due to lower average selling prices for new cars[205] Selling and Distribution Expenses For the six months ended June 30, 2023, the Group's selling and distribution expenses were approximately RMB 566 million, a 4.4% year-on-year increase, mainly due to higher marketing expenses and staff costs Selling and Distribution Expenses (RMB Million) | Indicator | H1 2023 | H1 2022 | Year-on-Year Growth | | :--- | :--- | :--- | :--- | | Selling and Distribution Expenses | 566 | 542 | +4.4% | - The increase in selling and distribution expenses was primarily due to higher marketing expenses and staff costs[5] Administrative Expenses For the six months ended June 30, 2023, the Group's administrative expenses were approximately RMB 535 million, a 7.0% year-on-year increase, primarily due to higher depreciation and amortization from new store openings Administrative Expenses (RMB Million) | Indicator | H1 2023 | H1 2022 | Year-on-Year Growth | | :--- | :--- | :--- | :--- | | Administrative Expenses | 535 | 500 | +7.0% | - The increase in administrative expenses was primarily due to higher depreciation and amortization resulting from new store openings[6] Operating Profit For the six months ended June 30, 2023, the Group's operating profit was approximately RMB 153 million, a significant decrease from RMB 533 million in the prior period, primarily due to lower new car sales gross profit margin Operating Profit (RMB Million) | Indicator | H1 2023 | H1 2022 | Year-on-Year Change | | :--- | :--- | :--- | :--- | | Operating Profit | 153 | 533 | Significant Decrease | - The primary reason for the decline in operating profit was the decrease in new car sales gross profit margin during the period[189] Income Tax For the six months ended June 30, 2023, the Group's income tax expense was approximately RMB 2 million, a significant reduction from RMB 65 million in the prior period Income Tax Expense (RMB Million) | Indicator | H1 2023 | H1 2022 | Year-on-Year Change | | :--- | :--- | :--- | :--- | | Income Tax Expense | 2 | 65 | Significant Decrease | Contingent Liabilities As of June 30, 2023, the Group had no other significant contingent liabilities apart from those related to certain construction projects disclosed in Note 18 to the interim financial information - As of June 30, 2023, the Group had no other significant contingent liabilities, except for contingent matters related to certain construction projects disclosed in Note 18[191] (Loss)/Profit for the Period For the six months ended June 30, 2023, the Group recorded a loss for the period of approximately RMB 386 million, compared to a profit of approximately RMB 6 million in the prior period, primarily due to lower new car sales gross profit margin (Loss)/Profit for the Period (RMB Million) | Indicator | H1 2023 | H1 2022 | Year-on-Year Change | | :--- | :--- | :--- | :--- | | (Loss)/Profit for the Period | (386) | 6 | Turned to Loss | - The primary reason for the period turning to loss was the decrease in new car sales gross profit margin[192] Current Assets and Current Liabilities As of June 30, 2023, the Group's current assets were approximately RMB 14,610 million, an increase of approximately RMB 780 million from year-end 2022, while current liabilities were approximately RMB 20,339 million, an increase of approximately RMB 1,428 million, mainly due to higher business-related short-term bank borrowings Current Assets and Current Liabilities (RMB Million) | Indicator | As of June 30, 2023 | As of December 31, 2022 | Change | | :--- | :--- | :--- | :--- | | Current Assets | 14,610 | 13,830 | +780 | | Current Liabilities | 20,339 | 18,911 | +1,428 | | Primary Reason for Increase in Current Liabilities | Increase in business-related short-term bank borrowings | N/A | N/A | Cash Flow For the six months ended June 30, 2023, the Group's net cash from operating activities was a net outflow of approximately RMB 446 million, compared to a net inflow of approximately RMB 171 million in the prior period, primarily due to lower new car sales gross profit, with cash and cash equivalents slightly decreasing Cash Flow (RMB Million) | Indicator | H1 2023 | H1 2022 | Change | | :--- | :--- | :--- | :--- | | Net Cash from Operating Activities | (446) (Net Outflow) | 171 (Net Inflow) | Turned to Net Outflow | | Cash and Cash Equivalents | 705 | 734 (As of Dec 31, 2022) | -29 | - The net cash outflow from operating activities was primarily due to the decrease in new car sales gross profit[208] Capital Expenditure and Investments For the six months ended June 30, 2023, the Group's capital expenditure and investments were approximately RMB 401 million, an increase from RMB 371 million in the prior period, primarily due to upgrades and renovations of some stores Capital Expenditure and Investments (RMB Million) | Indicator | H1 2023 | H1 2022 | Year-on-Year Growth | | :--- | :--- | :--- | :--- | | Capital Expenditure and Investments | 401 | 371 | +30 | - The increase in capital expenditure and investments was primarily due to upgrades and renovations of some stores[195] Inventories As of June 30, 2023, the Group's inventories were approximately RMB 3,581 million, a decrease of approximately RMB 483 million from year-end 2022, primarily due to reduced new car ending inventory, with average inventory turnover days increasing to 49.4 days Inventories and Turnover Days (RMB Million) | Indicator | As of June 30, 2023 | As of December 31, 2022 | Change | | :--- | :--- | :--- | :--- | | Inventories | 3,581 | 4,064 | -483 | | Average Inventory Turnover Days (Days) | 49.4 | 40.8 (H1 2022) | +8.6 | - The decrease in inventories was primarily due to the Group reducing its new car ending inventory[210] Liquidity and Capital Resources As of June 30, 2023, the Group's cash and bank balances were approximately RMB 5,600 million, an increase of approximately RMB 909 million from year-end 2022, with total loans and borrowings and lease liabilities amounting to approximately RMB 21,448 million, and the net gearing ratio significantly decreased to approximately 1,347.3% but remains high Liquidity and Capital Resources (RMB Million) | Indicator | As of June 30, 2023 | As of December 31, 2022 | Change | | :--- | :--- | :--- | :--- | | Cash and Bank Balances | 5,600 | 4,691 | +909 | | Loans and Borrowings, Lease Liabilities | 21,448 | 20,018 | +1,430 | | Net Gearing Ratio | 1,347.3% | 6,828.9% | Significant Decrease | - The Group will actively improve operating efficiency and consider various methods to enhance its financial position and reduce leverage[11] Pledged Assets As of June 30, 2023, the Group's pledged assets were approximately RMB 9,648 million, an increase of approximately RMB 1,645 million from year-end 2022, serving as collateral for loans and borrowings used for daily business operations Pledged Assets (RMB Million) | Indicator | As of June 30, 2023 | As of December 31, 2022 | Change | | :--- | :--- | :--- | :--- | | Pledged Assets | 9,648 | 8,003 | +1,645 | - Pledged assets serve as collateral for loans and borrowings, used for daily business working capital[212] Foreign Currency Investments and Hedging For the six months ended June 30, 2023, the Group held no foreign currency investments and primarily conducted business in RMB, but used forward foreign exchange instruments and option foreign exchange instruments to hedge part of its foreign currency risk for future USD loan repayments - For the six months ended June 30, 2023, the Group held no foreign currency investments[199] - The Group uses forward foreign exchange instruments and option foreign exchange instruments to hedge part of its foreign currency risk for future USD loan repayments[210] Employees and Remuneration Policy As of June 30, 2023, the Group employed 7,093 staff in China, with staff costs of approximately RMB 441 million, and emphasizes human resources by offering competitive remuneration and benefit plans to attract and retain high-quality employees Employee and Remuneration Data | Indicator | As of June 30, 2023 | As of December 31, 2022 | | :--- | :--- | :--- | | Number of Employees (China) | 7,093 | 7,181 | | Staff Costs (RMB Million) | 441 (H1) | 459 (H1 2022) | - The Group offers competitive remuneration and benefit plans, including retirement benefits, work injury compensation benefits, maternity insurance, medical, and unemployment benefit schemes[213] Future Outlook and Strategies The Company will capitalize on market opportunities from NEV purchase tax subsidies and consumption recovery policies by strengthening management to improve operational quality, vigorously expanding used car export business, and actively assessing automotive dealership industry trends, focusing on new energy and new dealership model market opportunities - The Company will strengthen management and improve operational quality through refined assessment methods and a focus on per capita efficiency[214] - Leveraging existing store resources and channels, combined with favorable policies, market conditions, and logistics, the Company will vigorously expand its used car export business[214] - The Company will actively assess the development trends and directions of the automotive dealership industry, focusing on market opportunities under new energy and new dealership models, and selecting appropriate times to participate in dealership, maintenance, and related businesses of new entrants and domestic brands with significant growth potential[20][214] - The long-term network expansion strategy will continue to focus on luxury automotive brands, deepen comprehensive cooperation with various OEMs (including new energy projects), strengthen strategic partnership status, and continuously optimize brand structure and store-level profitability[200] Review of Interim Results The Company's Audit Committee reviewed the unaudited condensed consolidated interim financial statements for the six months ended June 30, 2023, which were also reviewed by external auditor KPMG in accordance with Hong Kong Standard on Review Engagements 2410 - The Audit Committee, comprising three independent non-executive directors, has reviewed the interim financial statements[14] - The Group's external auditor, KPMG, has reviewed the interim financial statements in accordance with Hong Kong Standard on Review Engagements 2410 issued by the Hong Kong Institute of Certified Public Accountants[21] Interim Dividend The Board does not recommend the payment of an interim dividend for the six months ended June 30, 2023 - The Board does not recommend the payment of an interim dividend for the six months ended June 30, 2023[215] Post-Reporting Period Events Subsequent to the reporting period, Mr. Zeng Tingyi ceased to be an executive director and authorized representative, while Mr. Huang Junfeng was appointed as an executive director, and Ms. Fung Wai Sum, the company secretary, was appointed as an authorized representative - Effective July 31, 2023, Mr. Zeng Tingyi ceased to be an executive director and authorized representative of the Company[216] - Mr. Huang Junfeng was appointed as an executive director of the Company, and Ms. Fung Wai Sum, the company secretary, was appointed as the authorized representative of the Company[216] Purchase, Sale or Redemption of the Company's Listed Securities For the six months ended June 30, 2023, neither the Company nor any of its subsidiaries purchased, sold, or redeemed any of the Company's listed securities - For the six months ended June 30, 2023, neither the Company nor any of its subsidiaries purchased, sold, or redeemed any of the Company's listed securities[15] Use of Proceeds The Company completed a placement in June 2023, with net proceeds of approximately HK$56.34 million intended entirely for bank loan repayment; as of June 30, 2023, the funds were unutilized but have been fully utilized by the announcement date - The Company entered into a placing agreement on June 7, 2023, to place 122,560,000 shares at HK$0.48 per share, raising net proceeds of approximately HK$56.34 million[224] Use of Placing Proceeds | Use | Percentage of Proceeds Used | Placing Proceeds (HK$ Million) | Actual Use as of June 30, 2023 (HK$ Million) | Unutilized Net Proceeds as of June 30, 2023 (HK$ Million) | | :--- | :--- | :--- | :--- | :--- | | Repayment of Bank Loans | 100% | 56.34 | 0 | 56.34 | - As of the announcement date (August 29, 2023), the aforementioned net proceeds have been fully utilized for their intended purpose[16] Corporate Governance The Company is committed to high standards of corporate governance, has adopted the Corporate Governance Code in Appendix 14 of the Listing Rules, and complied with its provisions for the six months ended June 30, 2023, with regular reviews planned to enhance corporate governance practices - The Group is committed to upholding high standards of corporate governance to safeguard shareholders' interests and enhance corporate value and accountability[23] - The Company has adopted the Corporate Governance Code set out in Appendix 14 of the Listing Rules and complied with its provisions for the six months ended June 30, 2023[218] Directors' Securities Transactions The Company has adopted a code for securities transactions by directors, with standards no less exacting than those in Appendix 10 of the Listing Rules, and all current directors confirmed compliance for the six months ended June 30, 2023 - The Company has adopted a code for securities transactions by directors with standards no less exacting than those set out in Appendix 10 of the Listing Rules[226] - All current directors confirmed their compliance with the securities dealing code and the Model Code throughout the six months ended June 30, 2023[226] Publication of Interim Results Announcement This interim results announcement is available on the HKEX and Company websites, and the full interim report containing all information required by the Listing Rules will be dispatched to shareholders and published on these websites later - This interim results announcement is available on the websites of Hong Kong Exchanges and Clearing Limited (http://www.hkexnews.hk) and the Company (http://www.zhengtongauto.com)[228](index=228&type=chunk) - The Company's interim report for the six months ended June 30, 2023, containing all information required by the Listing Rules, will be dispatched to shareholders and published on the aforementioned websites later[228] Acknowledgements The Board extends its sincere gratitude to the Group's management team and employees for their dedicated service and diligence, and to shareholders and business partners for their strong support of the Group - The Board sincerely thanks the Group's management team and employees for their dedicated service and diligence, and shareholders and business partners for their strong support of the Group[18]