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Annual Report 2016 Contents

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Annual Report 2016 Contents ANNUAL REPORT 2016 CONTENTS 2 Corporate Information 3 Chairman’s Statement 6 Chief Executive Officer’s Statement 11 Management Discussion and Analysis 16 Environmental, Social and Governance Report 20 Corporate Governance Report 30 Directors and Senior Management 35 Report of the Directors 45 Independent Auditors’ Report 50 Consolidated Statement of Profit or Loss 51 Consolidated Statement of Comprehensive Income 52 Consolidated Statement of Financial Position 54 Consolidated Statement of Changes in Equity 55 Consolidated Statement of Cash Flows 57 Notes to Financial Statements 134 Financial Summary CORPORATE INFORMATION BOARD OF DIRECTORS LEGAL ADVISERS TO HONG KONG LAW EXECUTIVE DIRECTORS Freshfields Bruckhaus Deringer Mr. Huang Yi (Chairman) 11th Floor, Two Exchange Square Mr. Li Guoqiang (President and CEO) Central Mr. Du Qingshan Hong Kong Mr. Yu Guangming JOINT COMPANY SECRETARIES Mr. Si Wei Ms. Kam Mei Ha Wendy Mr. Zhang Zhicheng Ms. Mak Sze Man NON-EXECUTIVE DIRECTORS AUTHORIZED REPRESENTATIVES Mr. Adam Keswick (resigned on 22 August 2016) Mr. Huang Yi Mr. Pang Yiu Kai (appointed on 22 August 2016) Ms. Kam Mei Ha Wendy INDEPENDENT NON-EXECUTIVE DIRECTORS AUDIT COMMITTEE Mr. Ng Yuk Keung (resigned on 19 September 2016) Mr. Ying Wei (Chairman) Mr. Shen Jinjun (appointed on 19 December 2016) Mr. Shen Jinjun Mr. Lin Yong Mr. Lin Yong Mr. Shoichi Ota Mr. Ng Yuk Keung (Chairman) Mr. Ying Wei (appointed on 19 December 2016) (resigned on 19 September 2016) CORPORATE HEADQUARTERS REMUNERATION COMMITTEE No. 20 Hequ Street Mr. Lin Yong (Chairman) Shahekou District Mr. Li Guoqiang Dalian Mr. Shen Jinjun PRC NOMINATION COMMITTEE PRINCIPAL PLACE OF BUSINESS IN Mr. Shen Jinjun (Chairman) HONG KONG Mr. Huang Yi Mr. Lin Yong Room 3504–12 35th Floor, Sun Hung Kai Centre COMPLIANCE COMMITTEE 30 Harbour Road Mr. Du Qingshan (Chairman) Wanchai Mr. Huang Yi Hong Kong Mr. Li Guoqiang REGISTERED OFFICE RISK COMMITTEE P.O. Box 10008 Mr. Yu Guangming (Chairman) Willow House Mr. Si Wei Cricket Square Grand Cayman KY1-1001 HONG KONG SHARE REGISTRAR Computershare Hong Kong Investor Services Limited Cayman Islands Shops 1712–1716 17th Floor, Hopewell Centre PRINCIPAL SHARE REGISTRAR AND 183 Queen’s Road East TRANSFER OFFICE Wanchai Tricor Services (Cayman Islands) Limited Hong Kong P.O. Box 10008 Willow House STOCK CODE Cricket Square 881 Grand Cayman KY1-1001 Cayman Islands AUDITORS Ernst & Young Certified Public Accountants 22nd Floor, CITIC Tower 1 Tim Mei Avenue Central Hong Kong 2 ZHONGSHENG GROUP HOLDINGS LIMITED CHAIRMAN’S STATEMENT Huang Yi Chairman Dear shareholders, On behalf of the board (the “Board”) of directors of Zhongsheng Group Holdings Limited (“Zhongsheng Group” or the “Company”), I am pleased to present the annual report of the Company and its subsidiaries (the “Group”) for the year ended 31 December 2016 (the “Reporting Period”). The year 2016 marked the beginning of the implementation of the 13th Five-Year Plan. Under the combined effect of continuous promotion of innovation and ongoing release of the impact of macroeconomic policies, the national economy operated steadily with a leveling-off of growth and rising trend, realizing a bright start. The GDP for the year achieved a year-on-year increase of 6.7%. From the industry perspective, the tertiary sector increased by 7.8% on a year-on-year basis, outpacing the 3.3% of the primary industry and the 6.1% of the secondary industry, gradually becoming a stabilizer for China’s economic growth and demonstrating the diversity and optimization of the economic structure. Given the backdrop of a favourable national economy, the automobile industry stepped up its efforts in supply-side reform by speeding up its pace of adjustments and innovation in product structure. The growth rates of production and sales increased month by month, with both the production volume and sales volume of automobiles for the whole year exceeding 28 million units, ranking first in the world for eight consecutive years. The production volume and sales volume of passenger vehicles also reached a record high of 24.421 million units and 24.377 million units, respectively, representing an increase of 15.5% and 14.9% as compared to that of the corresponding period last year, respectively. Such rapid growth made a contribution of up to 92.3% and 94.1% towards the increase in the production volume and sales volume of automobiles, respectively. ANNUAL REPORT 2016 3 Chairman’s Statement (continued) In addition, second-hand automobile market and after-sales market have been creating new development opportunities. In 2016, the total trading volume of second-hand automobiles in China increased by 10.33% on a year-on-year basis to 10.3907 million units, exceeding 10 million units for the first time. According the data from the China Association of Automobile Manufacturers, the after-sales market has been increasing by approximately RMB100 billion each year since 2012, and stands at RMB766.0 billion at present, which is expected to exceed RMB800.0 billion by 2017 easily, thereby making considerable room for the development and providing growth potential for the extension of the automobile industry chain. With the positive demand-supply relationship in the automobile market and the enlarged room for development of the after- sales market, Zhongsheng Group has never stopped exploring and innovating so as to achieve steady development. As of 31 December 2016, the Group recorded a revenue of RMB71,599.2 million, representing an increase of 21.1% as compared to RMB59,142.6 million for the corresponding period in 2015. In particular, revenue generated from new automobile sales business amounted to RMB62,459.5 million, representing an increase of 20.5% as compared to RMB51,842.7 million for the corresponding period in 2015; and revenue generated from after-sales and accessories business increased by 25.2% to RMB9,139.7 million as compared to the corresponding period in 2015. Profit attributable to owners of the parent of the Group for 2016 was RMB1,860.2 million, representing an increase of 303.5% as compared to RMB461.0 million in the corresponding period in 2015; and earnings per share was RMB0.87 (the corresponding period in 2015: RMB0.21). By seizing the development opportunities in the entire automobile market, Zhongsheng Group’s strengths in terms of brand portfolio and geographical coverage were further highlighted, and its operational and management efficiency has also been uplifting. In 2016, the Group continued to expand its geographical coverage by optimising its brand portfolio, consolidating its business structure and actively participating in the market integration. In particular, through the acquisition of the equity interests in Hainan Jiahua Weiye Investment Co., Ltd. and its subsidiaries, 18 dealerships were added to the Group’s portfolio, which enabled the Group successfully gained foothold in Hainan and acquired significant market share. As of 31 December 2016, the Group had 251 4S dealerships, covering 22 provincial regions and over 80 cities in China. To tie in with the rapid growth in the automobile market, Zhongsheng Group explored and innovated in a prudent and proactive manner during 2016 with a widely recognized development. In May, Zhongsheng Group ranked the third among the 2015 Top 100 Automobile Dealers in China published by the China Automobile Dealers Association (the “CADA”) with a revenue of RMB59.1 billion for 2015. In July, the Group was once again selected as one of the Fortune China 500, an international authoritative ranking, and ranked 102nd. In November, the Group was granted the “2016 Most Influential Brand in China’s Automobile Dealer Industry” and the “2016 China’s Automobile Dealer Industry Outstanding Contribution Award” by the CADA. All of these honours reflect the full recognition of the development prospects, business model and management philosophy of Zhongsheng Group. 4 ZHONGSHENG GROUP HOLDINGS LIMITED Chairman’s Statement (continued) Looking forward, the automobile industry of the PRC is still facing not only multiple challenges but also the associated opportunities arising from the challenges. By adhering to its firm belief and following its original aspiration, Zhongsheng Group will continue to enhance its strengths in terms of brand and geographical portfolio, further extend its industry chain, consolidate its advantages in the after-sales market, uphold the principle of people-oriented and customer-oriented, enhance its operational and management efficiency and efficiency per capita, promote the delicacy management, maintain a steady growth in the traditional dominant business segment and consistently seek new profit growth points. At the same time, we will stand by our corporate motto of “Zhongsheng Group – Lifetime Partner” as always, enhance our service quality and optimise our management system and management process in order to turn the professional automobile brand services into a cornerstone of the corporate development strategy and foster the sustainable development of the automobile industry of the PRC. The Group’s achievements are relied on the dedication and contributions of its staff from all departments as well as the faith, support, encouragement and trust of all shareholders and business partners. On behalf of the Board, I would like to express our sincere gratitude to all of you for your valuable contributions to the Group’s development. Huang Yi Chairman Hong Kong, 20 March 2017 ANNUAL REPORT 2016 5 Chief Executive Officer’s Statement (continued)
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