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Lentuo International Inc. Announces Fourth Quarter And Fiscal Year 2010 Financial Results

Ms. Ping Yu, Chief Financial Officer of Lentuo, added, “We are delighted to have achieved record revenues in the fourth quarter. Reflecting a higher ASP and solid new car sales, gross profit noticeably expanded, driving strong net income. Despite Beijing’s new quota system for new licenses, we remain optimistic about the automobile market potential in our target markets. We believe Lentuo is well-positioned to execute on our expansion plans, deliver sustainable financial results and create more value for our shareholders.”

Fourth quarter 2010 Financial Performance

Revenues in the fourth quarter 2010 increased by 70.0% to RMB1.1 billion ($167.4 million) from RMB650.2 million in the same period of 2009. The revenue growth was driven by increased sales volume of new vehicles,especially the strong sales made after the Beijing government issued provisional measures aimed at curbing traffic congestion on December 23, 2010. An increased average unit price, as well as the increased volume of automobile repair and maintenance services, also drove revenues upward.

For the fourth quarter 2010, the Company sold 6,292 vehicles, representing a 61.5% increase from 3,895 in the same period of 2009. The sales growth was primarily driven by strong consumer demand in fourth quarter following the Beijing government’s new traffic congestion control measures introduced in December.

The average unit price for the fourth quarter 2010 was RMB164,879 ($24,982), an 8.2% increase over RMB152,401 in the same period of 2009. In addition, the Company serviced approximately 37,868 vehicles at Company dealerships in the three months ended December 31, 2010, representing a 30.8% increase over the fourth quarter of 2009. The growth was primarily driven by increased market demand, the Company’s enhanced retail sales efforts, and increased sales for repair and maintenance services.

Cost of goods sold increased by 73.8% to RMB986.8 million ($149.5 million) in the fourth quarter of 2010 from RMB567.8 million in the same quarter of 2009, primarily as a result of increased sales of new vehicles, as well as automobile repair and maintenance services. As a percentage of revenues, cost of goods sold increased to 89.3% in the fourth quarter of 2010 from 87.3% in the fourth quarter of 2009.

Gross profit increased by 43.4% to RMB118.2 million ($17.9 million) from RMB82.4 million for the fourth quarter of 2009. The increase in gross profit was primarily due to the increase in revenues both from new vehicles sales and automobile repair and maintenance services.

Gross margin for the fourth quarter of 2010 decreased to 10.7% from 12.7% for the fourth quarter of 2009 because new vehicle sales as a portion of total revenues increased in the fourth quarter of 2010. Specifically, their contribution to overall revenues rose to 93.9% from 91.3% in the same period of 2009. Within the increased car sales, we saw a greater number of lower margin automobiles sold.

Selling, marketing and distribution expenses increased by 63.0% to RMB20.8 million ($3.1 million) in the fourth quarter of 2010 from RMB12.7 million in the same quarter of 2009, primarily as a result of the increased performance-related bonuses paid to Company’s salespersons in line with increased revenues, increased maintenance expenses, increased employees’ social welfare expenses, and increased advertising expenses. As a percentage of revenues, selling, marketing and distribution expenses decreased to 1.9% in the fourth quarter of 2010 from 2.0% in the fourth quarter of 2009.

General and administrative expenses increased by 21.7% to RMB12.7 million ($1.9 million) in the fourth quarter of 2010 from RMB10.4 million in the same quarter of 2009, primarily due to increased depreciation expenses, increased office maintenance expenses, and increased employees social welfare expenses. As a percentage of the revenues, general and administrative expenses decreased to 1.2% in the fourth quarter of 2010 from 1.7% in the fourth quarter of 2009.

Operating income for the fourth quarter 2010 increased by 43.2% to RMB84.7 million ($12.8 million) from RMB59.2 million in the same period in 2009.

Operating margin in the fourth quarter of 2010 was 7.7%, compared to 9.1% in the same quarter of 2009. The decrease of the operating margin was mainly attributable to the decrease in gross margin as well as the increased selling, marketing and distribution expenses discussed above.

Income tax expenses in the fourth quarter of 2010 were RMB18.3 million ($2.8 million), representing an effective tax rate of 27.2%, decreasing from 27.7% in the same period of 2009.

Net income was RMB49.0 million ($7.4 million), an increase of 40.2% from RMB34.9 million in the comparable period of 2009.

Diluted earnings per ordinary share was RMB1.01 ($0.15) in the fourth quarter of 2010 compared to RMB0.88 in the fourth quarter of 2009.

As of December 31, 2010, the Company had cash and cash equivalents of RMB806.3 million ($122.2 million), compared to RMB72.1 million as of December 31, 2009. Net cash provided by operating activities was RMB431.3 million ($65.3 million) in the twelve months ended December 31, 2010, compared to net cash used in operating activities of RMB92.9 million in the twelve months ended December 31, 2009.

Fiscal Year 2010 Financial Performance

Revenues in the full year of 2010 increased by 43.7% to RMB3.4 billion ($509.6 million) from RMB2.3 billion in 2009. The revenue growth was driven by the increased sales volume of new vehicles and increased average unit price, as well as the increased volume of automobile repair and maintenance services , automobile repair and maintenance services increased 35% on a year over year basis .

For the full year 2010, the Company sold 18,176 vehicles, representing a 20.8% increase from 15,047 in 2009. The average unit price in 2010 was RMB169,182 ($25,634), a 19.4% increase from RMB141,650 in the same period of 2009. In addition, the Company serviced approximately131,758 vehicles at Lentuo’s dealerships, representing a 29.7% increase over the full year of 2009. The growth was primarily driven by the increased strong market demand and the Company’s enhanced sales efforts.

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