Lentuo International Announces Second Quarter 2012 Financial Results

BEIJING, September 25, 2012 /PRNewswire/ -- Lentuo International Inc. (NYSE: LAS) ("Lentuo" or the "Company"), a leading non-state-owned automobile retailer headquartered in Beijing, today reported its financial results for the second quarter ended June 30, 2012.

Second Quarter 2012 Financial Highlights

• Revenues increased 21.2% to RMB792.5 million ($124.7 million) in the second quarter 2012 from RMB653.8 million in the second quarter 2011.
  
• Vehicles sold increased 54.5% to 4,301 vehicles in the second quarter 2012 from 2,784 vehicles in the second quarter 2011.
  
• Vehicles serviced increased 31.7% to 45,843 vehicles in the second quarter 2012 from 34,818 vehicles in the second quarter 2011.
  
• Net income decreased 28.4% to RMB8.4 million ($1.3 million) in the second quarter 2012 from RMB11.8 million in the second quarter 2011.

"The successful implementation of our expansion and diversification strategy continued with strong sequential and year-over-year revenue growth during the second quarter of 2012," said Mr. Hetong Guo, Founder and Chairman of Lentuo. "The new green field Audi dealership and the FAW-Volkswagen flagship store in Beijing following the five new dealerships added in the second half of 2011 will be significant steps in our expansion strategy and will provide increased momentum. Our recent partnerships with First Automobile Finance and its two subsidiaries represent a strong vote of confidence that validates and further supports our growth strategy. Among other benefits, it will help us finance dealership expansions, improve our competitive position, provide insurance services and strengthen our brand recognition in the luxury car market. We are very proud to be the first automobile retailer in China to sign such an agreement with FAW Auto Finance.

"Leveraging the strong relationships we have built with industry players in an increasingly competitive environment, we remain confident that these initiatives will lead to sustained sales growth and improved shareholder value."

Second Quarter 2012 Financial Performance

Revenues for the three months ended June 30, 2012 increased 21.2% to RMB792.5 million ($124.7 million) from RMB653.8 million in the second quarter of 2011.

Revenues from automobile sales increased 24.3% to RMB709.9 million ($111.7 million) compared to RMB571.1 million during the same period in 2011. The increase was primarily due to higher vehicle sales resulting from the addition of five new dealerships in the second half of 2011. The five new dealerships contributed RMB231.5 million in revenues.

During the second quarter of 2012, the Company sold 4,301 vehicles, representing a 54.5% increase from 2,784 vehicles in the second quarter of 2011. The Company's five new dealerships added a combined 1,808 vehicles during the second quarter of 2012.

The average new vehicle unit price for the second quarter of 2012 was RMB167,730 ($26,402), a 18.2% decrease from RMB205,152 for the same period in 2011. Typically, vehicles sold by the dealerships outside Beijing sell for lower prices than vehicles sold by the original Lentuo dealerships in Beijing. However, during the second quarter of 2012, average new vehicle unit price for the original Lentuo dealerships decreased as well. This was mainly due to inventory buildup as a result of excess production by vehicle manufacturers which directly affected new vehicle selling price.

Revenues from repair and maintenance services in the second quarter of 2012 decreased 18.4% to RMB64.6 million ($10.2 million) compared to RMB79.2 million during the same period in 2011. Revenues at the five new dealerships acquired in the second half of 2011 increased as a result of promotional activities aimed at expanding business and customer loyalty. However, this was not sufficient to offset the decrease in revenues at the older dealerships caused by intensified market competition, Promotions included a customer loyalty program where free repairs are offered to customers who have continuously serviced their vehicles with Lentuo and complementary accessories following the purchase of a vehicle at a Lentuo dealership.

Primarily as a result of the foregoing, the Company serviced 45,843 vehicles during the three months ended June 30, 2012, which represents a 31.7% increase over the 34,818 vehicles serviced in the second quarter of 2011. The increase was primarily due from the addition of five new dealerships in the second half of 2011.

Cost of goods sold increased 22.2% to RMB720.5 million ($113.4 million) in the second quarter of 2012 from RMB589.5 million in the same period of 2011 as a result of higher revenue and sales volumes, driven in part by the addition of the five new dealerships.

Gross profit increased 11.9% to RMB71.9 million ($11.3 million) in the second quarter of 2012, an increase from RMB64.3 million in the second quarter of 2011. This was mainly due to the increase in revenue.

Overall gross margin for the second quarter of 2012 decreased to 9.1% from 9.8% in the second quarter of 2011. Specifically, the gross margin for automobile sales increased to 5.1% in the second quarter of 2012 from 3.9% in the same period of 2011, while the gross margin of repair and maintenance services increased to 52.3% as compared to 48.8% for the same period in 2011. Overall gross margin decreased during the second quarter of 2012 as revenues from car sales, which generate lower margins than maintenance and repairs, increased significantly and accounted for a larger share of total revenues. Gross margin for automobile sales increased mainly due to the higher profits resulting from the more generous rebate policies adopted by the vehicle manufacturers to maintain market share. Gross margin for repair and maintenance services increased primarily due to the increased proportion of revenue from the Company's high-end brand dealerships which typically have higher gross margins.

Selling, marketing and distribution expenses increased 20.8% to RMB24.1 million ($3.8 million) in the second quarter of 2012 from RMB19.9 million during the same period of 2011, primarily as a result of the Company's dealership expansion. As a percentage of revenues, selling, marketing and distribution expenses was 3.0%, remaining the same from 3.0% in the second quarter of 2011.

General and administrative expenses increased by 80.3% to RMB16.1 million ($2.5 million) in the second quarter of 2012 from RMB8.9 million during the same quarter of 2011, primarily due to the hiring of additional staff to support growth and increased travel expenses for dealerships located outside Beijing. As a percentage of revenues, general and administrative expenses increased to 2.0% in the second quarter of 2012, an increase from 1.4% in the second quarter of 2011.

Operating income for the second quarter of 2012 decreased 10.4% to RMB31.7 million ($5 million) from RMB35.4 million for the same period in 2011. The change in operating income was primarily the result of increased expenses.

Operating margin for the second quarter of 2012 was 4.0%, compared to 5.4% for the same quarter in 2011. The decrease in operating margin was primarily attributable to a decrease in overall gross margin and increased expenses as a percentage of revenue.

Net income attributable to controlling interest was RMB8.4 million ($1.3 million), a decrease of 28.4% from RMB11.8 million for the same period in 2011.

Basic and diluted earnings per ordinary share were RMB0.14 ($0.02) for the second quarter of 2012 compared to RMB0.20 for the second quarter of 2011, decreasing 30.0%. This translates to basic and diluted earnings per ADS of RMB0.28 ($0.04) in the second quarter of 2012. Each ADS represents two ordinary shares. Weighted average ordinary shares outstanding in the second quarter of 2012 remained unchanged from one year ago at 58,937,912.

Liquidity and capital resources

As of June 30, 2012, the Company had cash and cash equivalents of RMB92.2 million ($14.5 million), compared to RMB161.4 million as of December 31, 2011.

Expansion Strategy Update

The Company remains focused on three regions that it believes offer the best economic returns currently: Northeast, Southeast and Southwest China. These regions present numerous opportunities for expansion in second and third-tier cities where a growing number of middle class Chinese enjoy rising standards of living. As acquisitions are expected to become more expensive, the Company has shifted its focus to organic growth and will concentrate on opening greenfield dealerships.

The opening of the new FAW-Volkswagen flagship store in Beijing is scheduled for the fourth quarter of 2012.

The Company announced in July that it had received approval from FAW-Volkswagen Audi to build a new 4S Audi dealership in south Beijing, further strengthening the relationship between Lentuo and FAW Group.

To help facilitate the Company's expansion, Lentuo has signed a comprehensive cooperation agreement with FAW Auto Finance Co. Ltd. ("FAW-AF"), a subsidiary of the FAW Group. Under the terms of the agreement, FAW-AF will help finance Lentuo's 4S greenfield dealership network expansion in China. Lentuo is the first automobile retailer in China to sign such an agreement with FAW-AF.

Conference Call

Lentuo's management will host a conference call to discuss the results at 8:00 a.m. Eastern Daylight Time on September 25, 2012 (8:00 p.m. Beijing time on the same day).

The dial-in details for the live conference call are:

A telephone replay of the call will be available after the conclusion of the conference call at 11:00 a.m. Eastern Daylight Time on September 25, 2012 through 11:59 p.m. Eastern Daylight Time on October 9, 2012. The dial-in details for the replay are:

A live webcast of the conference call will be available on the investor relations section of Lentuo's website at: http://ir.lentuo.net or alternately at http://ViaVid.net.

Exchange Rate

This announcement contains translations of certain Renminbi amounts into U.S. dollars at specified rates solely for the convenience of readers. Unless otherwise noted, all translations from Renminbi to U.S. dollars were made at the exchange rate of RMB 6.3530 to US $1.00, as set forth in the H.10 statistical release of the Federal Reserve Board on June 30, 2012.

About Lentuo International Inc.

Lentuo is a leading non-state-owned automobile retailer headquartered in Beijing. Lentuo operates 11 franchise dealerships, 10 automobile showrooms, one automobile repair shop, and one car leasing company.

Safe Harbor Statement

This press release contains forward-looking statements. These statements constitute "forward-looking" statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates," "target," "going forward," "outlook" and similar statements. Such statements are based upon management's current expectations and current market and operating conditions, and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the Company's control, which may cause the Company's actual results, performance or achievements to differ materially from those in the forward-looking statements. Further information regarding these and other risks, uncertainties or factors is included in the Company's filings with the U.S. Securities and Exchange Commission. The Company does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under applicable law.

For more information, please contact:

Ms. Jennifer Chen
CFO
Lentuo International Inc.
Email: chenjianping@lentuo.net

Christensen
Mr. Christian Arnell
Telephone +86 10 5826 4939 in Beijing
Email: carnell@christensenir.com

Ms. Linda Bergkamp
Phone: +1-480-614-3004 (U.S.A.)
Email: lbergkamp@christensenir.com