China Harmony Auto 1H 2013 NDR Presentation September 2013
Disclaimer This document is confidential and is being prepared and supplied to you by China Harmony Auto Holding Limited (the Company") solely for your information and has not been independently verified. No representation or warranty expressed or implied is made as to, and no reliance should be placed on, the fairness, accuracy, completeness or correctness of any information or opinions contained herein. The information contained in this document is subject to change without notice and will not be updated to reflect material developments which may occur after the date of the presentation. None of the Company nor any of its directors, supervisors, senior officers, employees, affiliates, advisers or representatives shall have any liability whatsoever (in negligence or otherwise) for any loss howsoever arising from any use of this document or its contents or otherwise arising in connection with this document. This document contains forward-looking statements. The forward-looking statements are subject to a number of unknown factors, including factors beyond the Company s control, which may cause the Company s actual results or performance to differ materially from those expressed or implied by such forward-looking statements. You should not place undue reliance on such forward-looking statements. This document or any information contained in it does not constitute any offer for sale or invitation, or solicitation of an offer, to subscribe for or purchase any securities. No part of this document shall form the basis of, or be relied upon in connection with, any contract or commitment whatsoever. These materials are highly confidential and are being given solely for your information and for your use only in connection with this presentation. The information contained herein may not be copied, reproduced, redistributed or otherwise disclosed, in whole or in part, to any one person in any manner. 2
Table of Contents 1 2 3 Recent Development Financial Performance 2013 Full Year Outlook
II. 1 Recent Development
: A Snapshot Outstanding business developments in : further expansion of network and brand portfolio; high growth in revenue and profitability 1 Outstanding Business Performance 2 Continued Network Expansion 3 Continued Brand Portfolio Enrichment New car sales volume growth far outpaced the overall PV market in China High growth in revenue and net profit Larger revenue / gross profit contribution from aftersales services 6 new outlets started operation, including Guangzhou Guangdebao, Xiamen Yuanda Lexus, Henan Yingzhiyi, Zhengzhou Zhengdebao service center, Jiaozuo Yuanda Lexus and Beijing Maserati New authorizations obtained for Changzhou Maserati, Shijiazhuang Ferrari/Maserati New authorization obtained for Zhengzhou Lincoln 4S store New authorizations obtained for Volvo 4S stores in Shangqiu and Nanyang New Car Sales Growth Far Outpaced the Overall Industry New Car Sales Volume of Harmony (Unit) 5,407 High Growth in Revenue and Net Profit (RMB mm) Revenue 7,038 China PV Sales Volume ( 0,000 units) 761 (RMB mm) Net Profit 1 867 4 Increased Focus on Aftermarket Businesses Incorporation of an auto finance lease company In preparation for multi-brand aftersales service centers in several cities In preparation for used car business 2,952 3,659 165 251 1 Net profit attributable to parent shareholders Source: company information 5
Continued Network Expansion New Outlets Beijing Shijiazhuang Jiaozuo Zhengzhou Nanyang Shangqiu Changzhou Xiamen Guangzhou Source: company information New Operating Outlets New Authorized Outlets 6
Continued Network Expansion (Cont d) Network as of Latest As of Brand Dec 31, 2010 Dec 31, 2011 Dec 31, 2012 Jun 30, 2013 Expected new store openings in 2H 2013 Total no. of stores expected by Dec 31, 2013 4 7 13 15 3 18 - - 2 2-2 1 1 2 4-4 1 1 1 2 1 3 - - 2 2-2 - 1 2 2-2 - - 1 1-1 - - 1 1 2 3 - - - 1 1 2 - - - - - - - 2 2 Total 6 10 24 30 9 39 Note: The numbers include an Audi store in which Harmony acquired a minority interest of 7 40% on September 29, 2012 and a Land Rover & Jaguar store in which Harmony acquired a minority interest of 30% on December 26, 2011. 7 Source: company information
Increased Focus on Aftermarket Businesses Finance Lease Business Flow Financial Institutions Review Customers to choose financial products and prepare filings Submit application documents for verification Pending approval (2 business days) Telephone interview (1-2 business days) Approved or rejected Pending approval (2 business days) Down payment raise Home visits Additional guarantor(s) Supplementary information Sign contract and go through car leasing procedures Car plate issued and mounted and car pick-up Source: Company information Submit loan documents A penalty equivalent to 5% of the remaining loan principal will be charged for prepayment made in less than 12 months from the start of the loan term, while no penalty will be charged for prepayment after 12 months from the start of the loan term, other than the remaining principal to be repaid Customers are required to purchase insurance or make prepayment before the loans are fully settled, otherwise the renewal deposits will be non-refundable Renewal deposits are kept in customers own payment account, which won t be released upon full settlement of loans 8 Risk Control: Prepayment and Renewal Deposits
Increased Focus on Aftermarket Businesses (Cont d) Multi-Brand Aftersales Service Customer Loss Analysis for Zhengzhou 4S Stores 1 Integrated Aftersales Service Model Positioning Luxury brands Customers choose local 4S stores for car maintenance High cost Brand portfolio BMW, Audi, Mercedes, Jaguar & Land Rover, Porsche, Volvo, Volkswagen (imported) Churn rate as high as 70% among customers who have used the 4S store service for 4+ years and nearly 100% among those who have used 4S service for 7+ years, given the increasing repair and maintenance cost for aging vehicles and more competitive charges of repair workshops 60% churn rate Inability to satisfy customer needs due to capacity constraints and very limited car repair pits versus vehicles sold Target cities Scope of service # of car repair pits Operational model Outside of Henan: Beijing, Shanghai, Xi'an, Guiyang Henan: Zhengzhou, Luoyang, Pingdingshan, Anyang, Xinxiang, Nanyang Wrecked cars, repair and maintenance, premium car sales and retrofitting, auto insurance, auto beauty service, vehicle modification 50-100 Asset-light model providing fast-turnaround modification and maintenance service with no requirement for land purchase or store construction Business Highlights Geographic Footprint One of China's earliest and largest luxury and ultra-luxury passenger vehicle dealers with a professional team and a huge customer base Quality assurance of professional 4S stores Strong, credible and reputable as a listed company Supported by professional spare parts suppliers Beijing Xi an Anyang Xinxiang Zhengzhou Luoyang Shanghai Nanyang Pingdingshan Aim to build a nationwide, reputable brand through the "Harmony" model and an outlet network across the country Outside of Henan In Henan Guiyang Source: Company information 1. Based on surveys on Mercedes, Audi, BMW and Toyota dealers in Zhengzhou 9
Increased Focus on Aftermarket Businesses (Cont d) Used Car Strategic Plan for Used Car Business Business Strength Positioning: Large chain trading centers for used luxury and ultra-luxury cars Outlet network: Expand to Beijing, Shanghai and Guangzhou from Zhengzhou, where the Group is based Team building: Attract and recruit high-caliber talents in China s used car industry Brand promotion: "Harmony Used Car" branding and reputation building Resource integration: Integrate high-end customer resources and dealer resources Profit model: Leverage used car trading centers to offer finance lease, insurance, used car sales, aftersales repair, premium service, accessories, replacement, purchase, license plate, license transfer and auction services, in a bid to build the business into the "Wal-Mart" of the used car industry 1 2 3 5 6 China's leading listed dealership group that specializes in the sales and after-sales service of luxury and ultra-luxury cars Existing extensive intra-group high-end customer resources to leverage Integrate nationwide resources through the established outlet network for accelerated service rollout Strong conviction in and focus on the used car business across the Group Stable strategic partnership with luxury and ultra-luxury car suppliers Profit Model of Used Car Business Stage I Integrating resources to create Harmony used car certification business based on B2C model Stage II Establishing Zhengzhou Used Car Trading Center based on B2C model Stage III Establishing Harmony used car e-commerce and auction platform with a combination of C2B, B2B and B2C models Stage IV Building the business into the "Wal-Mart" of China's used car industry with a combination of C2B, B2B and B2C models Source: Company information 10
2 Financial Performance
Overview of Financial Performance Revenue Gross Profit and Gross Margin (RMB mm) (RMB mm) 3,659 468 2,952 341 12.8% 11.6% Operating Profit and Operating Profit Margin Net Profit 1 and Net Profit Margin (RMB mm) (RMB mm) 426 5.6% 251 6.9% 281 9.5% 11.7% 165 1 Net profit attributable to owners of the parent Source: company information 12
Segment Information Revenue from New Car Sales Revenue from Aftersales Services Revenue Breakdown (RMB mm) (RMB mm) 6.5% 8.6% 3,345 314 2,761 191 93.5% 91.4% New Car Sales Af tersales Services Gross Profit and Gross Margin of New Car Sales (RMB mm) Gross Profit and Gross Margin of Aftersales Services (RMB mm) Gross Profit Breakdown 261 9.5% 314 9.4% 80 153 48.8% 23.5% 76.5% 32.8% 67.2% 42.0% Gross Prof it Gross Margin New Car Sales Af tersales Services Source: company information 13
Working Capital Management Inventory Turnover Days 1 Trade Receivables Turnover Days 2 55 3 27 2 Trade and Bills Payables Turnover Days 3 Cash Conversion Cycle 4 59 59 (1) (31) 1. Inventory turnover days = (Beginning inventory balance + ending inventory balance) / 2*181 / COGS 2. Trade receivables turnover days = (Beginning trade receivables balance + ending trade receivables balance) / 2*181 / Sales 3. Trade and bills payables turnover days = (Beginning trade and bills payables balance + ending trade and bills payables balance) / 2*181 / COGS 4. Cash conversion cycle = inventory turnover days + trade receivables turnover days trade and bills payables turnover days Source: company information 14
V. 3 2013 Full Year Outlook
Further Strengthen After-market Businesses Our goal is to improve our revenue mix and profit margin by further strengthening aftermarket businesses and diversifying revenue source; we have set up a finance lease company and are currently in preparation for the establishment of our multi-brand after-sales service centers in several cities and used car business, which are expected to start operation in 2H2013 Maintenance and Repair 1 Auto Beauty 8 2 Auto Parts Sale Auto Related Premium Products 7 3 Auto Lease Used Auto 6 4 Auto Insurance 5 Auto Finance 16
Q&A
Appendix: Financial Summary
Summary of Income Statement (RMB 000) 1H 2013 1H 2012 Growth Revenue 3,659,406 2,951,852 24.0% Gross Profit 467,821 341,200 37.1% Other Income and Gain 168,441 75,726 122.4% Selling and Distribution Costs (164,691) (108,706) 51.5% Administrative Expenses (45,178) (27,411) 64.8% Operating Profit 426,393 280,809 51.8% Finance Costs (82,161) (59,547) 38.0% Profit Before Tax 344,383 221,262 55.6% Net Profit 249,572 164,406 51.8% Net Profit Attributable to Owners of the Parent 250,812 164,576 52.4% 19
Summary of Balance Sheet (RMB 000) 2013630 20121231 Growth Cash and Cash Equivalent 2,190,254 342,685 539.1% Inventories 1,238,837 710,554 74.3% Trade Receivables 58,333 59,112 (1.3)% Total Current Assets 5,346,365 3,162,408 69.1% PPE 1,377,894 1,149,926 19.8% Land Use Rights 13,297 13,497 (1.5)% Total Non Current Assets 1,460,338 1,212,730 20.4% Total Assets 6,806,703 4,375,138 55.6% Bank Loans and Other Borrowings 2,306,918 1,777,774 29.8% Trade and Bills Payable 1,277,873 818,129 56.2% Total Current Liabilities 4,662,349 3,478,170 34.0% Long Term Borrowings 57,037 290,000 (80.3)% Total Non Current Liabilities 66,326 294,929 (77.5)% Total Liabilities 4,728,675 3,773,099 25.3% Equity Attributable to Owners of the Parent 2,065,987 588,758 250.9% Total Equity 2,078,028 602,039 245.2% 20
Summary of Cash Flow Statement (RMB 000) 1H 2013 1H 2012 Growth Net Cash Flow from Operations (79,571) 485,364 (116.4)% Net Cash Flow from Investing (173,888) (930,877) (81.3)% Net Cash Flow from Financing 1,420,271 648,580 119.0% Net Increase / (Decrease) in Cash and Cash Equivalent 1,166,812 203,067 474.6% 21