CONTENTS Page Corporate Information 2 Financial Highlights 4 Chairman’s Statement 5 Management Discussion and Analysis 8 Corporate Governance Report 19 Directors and Senior Management 35 Report of the Directors 38 Independent Auditor’s Report 50 Consolidated Statement of Profit or Loss 56 Consolidated Statement of Comprehensive Income 57 Consolidated Statement of Financial Position 58 Consolidated Statement of Changes in Equity 60 Consolidated Statement of Cash Flows 61 Notes to Financial Statements 63 Five-Year Financial Summary 174 ANNUAL REPORT 2018 1 CORPORATE INFORMATION BOARD OF DIRECTORS JOINT COMPANY SECRETARIES Executive Directors Ms. XU Xing (appointed on 20 November 2018) Ms. CHENG Mei Chun Mr. LI Jianping (Chairman) Mr. WANG Xinming (President) Mr. QI Junjie AUTHORISED REPRESENTATIVES Mr. LU Ao Mr. LI Jianping Ms. XU Xing (re-designated from Ms. XU Xing non-executive Director on 8 June 2018) STOCK CODE Non-Executive Director 1293 Mr. Zhou Yu (resigned on 10 May 2018) WEBSITE Independent Non-Executive Directors www.klbaoxin.com Mr. DIAO Jianshen Ms. LIU Yangfang (appointed on 8 June 2018) Mr. CHAN Wan Tsun Adrian Alan PRINCIPAL PLACE OF BUSINESS Mr. WANG Keyi (resigned on 8 June 2018) AND HEAD OFFICE IN THE PRC No. 3998 Hongxin Road AUDIT COMMITTEE Minhang District, Shanghai, PRC. Mr. DIAO Jianshen (Chairman) Ms. LIU Yangfang (appointed on 8 June 2018) PRINCIPAL PLACE OF BUSINESS Mr. CHAN Wan Tsun Adrian Alan IN HONG KONG Mr. WANG Keyi (resigned on 8 June 2018) Level 54, Hopewell Centre, 183 Queen’s Road East, REMUNERATION COMMITTEE Hong Kong. Mr. DIAO Jianshen (Chairman) REGISTERED OFFICE Mr. LI Jianping Ms. LIU Yangfang (appointed on 8 June 2018) P.O. Box 309, Ugland House Mr. WANG Keyi (resigned on 8 June 2018) Grand Cayman KY1-1104, Cayman Islands. NOMINATION COMMITTEE Ms. LIU Yangfang (Chairman) (appointed on 8 June 2018) Mr. LI Jianping Mr. DIAO Jianshen Mr. WANG Keyi (resigned on 8 June 2018) 2 GRAND BAOXIN AUTO GROUP LIMITED CORPORATE INFORMATION PRINCIPAL SHARE REGISTRAR Maples Fund Services (Cayman) Limited P.O. Box 1093, Boundary Hall, Cricket Square, Grand Cayman, KY1-1102, Cayman Islands. HONG KONG BRANCH SHARE REGISTRAR Computershare Hong Kong Investor Services Limited Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong. LEGAL ADVISERS TO HONG KONG LAW Kirkland & Ellis 26th Floor, Gloucester Tower, The Landmark, 15 Queen’s Road Central, Hong Kong. AUDITORS Ernst & Young Certified Public Accountants 22/F CITIC Tower, 1 Tim Mei Avenue, Central, Hong Kong. ANNUAL REPORT 2018 3 FINANCIAL HIGHLIGHTS 2018 36,724 2017 34,558 2016 25,709 2015 23,776 REVENUE 2014 30,723 2018 2,784 7.6% 2017 2,935 8.5% 2016 2,034 7.9% GROSS PROFIT AND 2015 2,189 9.2% GROSS PROFIT MARGIN 2014 2,788 9.1% 2018 2,042 2017 2,326 2016 1,455 2015 1,268 EBITDA 2014 1,989 2018 566 2017 808 2016 414 PROFIT ATTRIBUTABLE TO 2015 220 OWNERS OF THE PARENT 2014 707 4 GRAND BAOXIN AUTO GROUP LIMITED CHAIRMAN’S STATEMENT 2018 36,724 2017 34,558 DEAR SHAREHOLDERS, 2016 25,709 2015 23,776 REVENUE On behalf of the board of directors and the management of Grand Baoxin Auto Group 2014 30,723 Limited (the “Company” or “our Company”), I am pleased to present the annual results report of the Company and its subsidiaries (collectively, the “Group”, “our Group”, “we” or “us”) for the twelve months ended 31 December 2018 (the “Reporting Period”). The year of 2018 witnessed the transformation of China’s economy from high-speed 2018 7.6% 2,784 growth to high-quality development and increased downward pressure but generally 2017 2,935 8.5% stable development with progress amid stability. China’s GDP exceeded RMB90 trillion, 2016 2,034 7.9% representing an increase of 6.6% as compared with previous year. Affected by a multiple of factors, China’s automobile market suffered negative growth for the first time in the GROSS PROFIT AND 2015 2,189 9.2% GROSS PROFIT MARGIN recent 30 years. According to the data released by China Association of Automobile 2014 2,788 9.1% Manufactures, there were 27,809,000 units and 28,081,000 units of automobile produced and sold respectively in China, representing a year-on-year decrease of 4.16% and 2.76% respectively, of which 23,530,000 units and 23,710,000 units of passenger vehicles were produced and sold respectively, representing a year-on-year decrease of 5.15% and 4.08% 2018 2,042 respectively. 2017 2,326 In 2018, in response to the changes of the external environment, relying on the 2016 1,455 existing well-developed outlet layout and brand resource and with reference to the 2015 1,268 manufacturers’ sales policies, following the market rules, the Group has made more EBITDA efforts in the development and effective use of customer resources, and expanded 2014 1,989 the potential car buyers in a wider range. During the reporting period, the Group has strengthened its collaboration with the car manufacturers and enhanced mutual understanding through more frequent high-level communication with the manufacturers. Throughout the year, the Group has organised more than 30 high-level 2018 566 meetings with more than 20 brands including BMW, Audi, Jaguar & Land Rover, Volvo and GM Buick and obtained high-level business policy support from many brands 2017 808 to lay the solid foundation to guarantee the stable sales profit and ensure the overall 2016 414 profitability of our sale of new automobiles. As at 31 December 2018, the Group’s PROFIT ATTRIBUTABLE TO 2015 220 total sales volume of new automobiles was 112,643 units, representing a year-on- OWNERS OF THE PARENT 2014 707 year increase of 7.8%. Sales revenue from new automobiles amounted to RMB32,203.4 million, representing a year-on-year increase of 4.8%. ANNUAL REPORT 2018 5 CHAIRMAN’S STATEMENT 6 GRAND BAOXIN AUTO GROUP LIMITED CHAIRMAN’S STATEMENT In addition, with the increasing parc and aging of passenger vehicles in China, in 2018, the aftersales service market of passenger vehicles in China has continued to achieve rapid growth. As a result, the source of revenue and gross profit of Chinese car dealers has preliminarily completed the structural transformation from sale of new vehicles to after-sales services, which will facilitate the improvement of car dealers’ profitability. Looking forward to the future, the automobile dealership industry is being confronted with unprecedented reform and shuffle. In this new circumstance, we will embrace the new changes and new development brought by new areas, new models and new business with a strategic and forward-looking view. Focusing on the business philosophy of “people- oriented and customers first”, we will explore the new consumption logic in the new circumstance and proactively conduct synergy and cooperation between each business segment, launch new products and achieve service innovation by means of the powerful industry integration capability of the Group. In the end, on behalf of the Group, I would like to extend my heartfelt gratitude to all our shareholders, customers and business partners for their continuous trust and support and to all diligent and dedicated staff. We are convinced that, all the achievements the Group has made are attributed to their great support and the concerted efforts of our team. Looking forward to the future, promised by the vast market space in China, we are bound to attain our desired objectives and maximise returns for shareholders. Yours sincerely, LI Jianping Chairman Hong Kong, 29 March 2019 ANNUAL REPORT 2018 7 MANAGEMENT DISCUSSION AND ANALYSIS INDUSTRY OVERVIEW Industry review In 2018, despite of being affected by many internal and external factors and confronted with the increasingly complicated international environment and a challenging and strenuous domestic reform mission, China’s economy has maintained its steady development progress. According to data released by the National Bureau of Statistics, China’s GDP exceeded RMB90 trillion for the year of 2018, representing an increase of 6.6% compared to that of last year. The automobile industry was under pressure as a result of the changes in economic situation and policy environment in 2018. After the high-speed growth for several consecutive years, the production and sales volume of automobiles in China has reached a large base number of 29,400,000 units in 2017. It would be relatively difficult to obtain the continuous high growth on this basis again. Since the third quarter of 2018, affected by multiple factors including the cancellation of preferential treatment of purchase tax, deleveraging policy and escalating trade conflicts between China and the US, the growth in the sales of automobiles experienced a certain level of decline and weak market performance. According to statistics from the China Association of Automobile Manufacturers, the sales volume of passenger vehicles in the PRC amounted to 23.71 million units in 2018, representing a year-on-year decrease of 6.3% as compared with 2017. In 2018, in sharp contrast with the passenger vehicle market as a whole, the mainstream luxury automobile brands in China continued to grow and recorded a high year-on-year growth of 8%, outshining all other categories of vehicles. In 2018, according to the sales volume data officially published by luxury automobile companies, the sales volume of luxury automobiles reached 2.81 million units, accounting for 11.9% of the total sales volume of passenger vehicles of 23.71 million units in China. The high growth of the luxury automobile market in China was mainly driven by the demands for upgrading purchase as a result of the upgrade in consumption of previous car buyers, and the increase of sales volume of luxury automobiles was driven by the increase in demands for luxury brands by the younger generations in China.