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Lentuo International Inc. Announces First Quarter 2011 Financial Results

First Quarter 2011 Financial Performance

Revenues for the three months ended March 31, 2011 increased 2.9% to RMB 598.2 million ($91.3 million) from RMB 581.2 million in the first quarter of 2010. The increase was primarily driven by an increased average unit price for new vehicle sales, and the increased volume of automobile repair and maintenance services as well as other services.

During the first quarter of 2011, the Company sold 2,496 vehicles, representing a 20.7% decrease from 3,146 vehicles in the first quarter of 2010. The decrease was primarily due to the Beijing government’s new traffic congestion control measures introduced in December.

The average new vehicle unit price for the first quarter of 2011 was $31,924, a 24.4% increase over $25,658 for the same period in 2010. In addition, the Company serviced approximately 30,958 vehicles during the three months ended March 31, 2011, representing a 4.5% increase over 29,630 vehicles in the first quarter of 2010. The increase in the average new vehicle unit price was primarily driven by customers’ changing preferences toward higher-end vehicles after the Beijing government adopted policies aimed at curbing traffic congestion and increased the cost of car usage.

Cost of goods sold increased 0.8% to RMB 519.3 million ($79.3 million) in the first quarter of 2011 from RMB 515.4 million in the same period of 2010. The increase was primarily in line with the increased average new vehicle unit price as well as the increase in revenues from automobile repair and maintenance services. As a percentage of revenues, cost of goods sold decreased to 86.8% in the first quarter of 2011 from 88.7% in the first quarter of 2010.

Gross profit increased 19.8% to RMB 78.9 million ($12.0 million), up from RMB 65.8 million in the first quarter of 2010. The increase in gross profit was primarily due to the increase in revenues from automobile repair and maintenance services and other services, as well as a significantly improved gross margin on repair and maintenance services, from 47.9% in the first quarter of 2010 to 58.5% in the first quarter of 2011.

Gross margin for the first quarter of 2011 increased to 13.2% from 11.3% in the first quarter of 2010 due to an increase in the revenues from automobile repair and maintenance services as a percentage of total revenues in the first quarter of 2011 and an increased gross margin on repair and maintenance services in the first quarter of 2011. Specifically, the contribution of repair and maintenance services to our total revenues rose to 11.5%, as compared to 8.8% for the same period in 2010.

Selling, marketing and distribution expenses increased 58.0% to RMB 12.2 million ($1.9 million) in the first quarter of 2011 from RMB 7.7 million in the same period a year ago, primarily as a result of increased maintenance expenses, increased staffing costs related to an increase in employees, and increased advertising expenses. As a percentage of revenues, selling, marketing and distribution expenses increased to 2.0% in the first quarter of 2011 from 1.3% in the first quarter of 2010.

General and administrative expenses increased by 20.1% to RMB 10.2 million ($1.6 million) in the first quarter of 2011 from RMB 8.5 million in the same quarter of 2010, primarily due to increased office maintenance expenses, and increased staffing costs related to an increase in employees. As a percentage of revenues, general and administrative expenses increased slightly to 1.7% in the first quarter of 2011 from 1.5% in the first quarter of 2010.

Operating income for the first quarter of 2011 increased 13.9% to RMB 56.6 million ($8.6 million) from RMB 49.7 million for the same period in 2010.

Operating margin for the first quarter of 2011 was 9.5%, compared to 8.5% for the same quarter in 2010. The increase in operating margin was primarily attributable to the increase in gross margin.

Income tax expenses for the first quarter of 2011 were RMB 12.8 million ($2.0 million), representing an effective tax rate of 30.0%, up from 28.5% for the same period in 2010.

Net income was RMB 29.9 million ($4.6 million), an increase of 4.2% from RMB 28.7 million for the same period in 2010.

Diluted earnings per ADS were RMB $1.02 ($0.16) for the first quarter of 2011 compared to RMB 1.44 for the first quarter of 2010.

Liquidity and Capital Resources

As of March 31, 2011, the Company had cash and cash equivalents of RMB 766.6 million ($117.1 million), compared to RMB 177.8 million as of March 31, 2010. Net cash used in operating activities was RMB 400.0 million ($61.1 million) in the first quarter of 2011, compared to net cash provided by operating activities of RMB 67.5 million in the first quarter of 2010.

Strategic Acquisition and Expansion

Lentuo has completed the due diligence process on the Honda dealership in Tianjin and plans to finalize the deal in early June. This acquisition demonstrates the Company’s proactive response to the strong demand for automobiles in China and is in line with Lentuo’s business development strategy of expanding its 4S dealership network into surrounding areas of Beijing. The Company believes that the acquisition will enhance Lentuo’s targeted market positioning. Pending completion of the acquisition, the Company expects not only to have a controlling interest in the Tianjin dealership but also to gain a local strategic ally who will serve as the junior partner in this joint venture. The junior partner will be committed to helping Lentuo expand into Tianjin, a major metropolitan market, in a rapid and cost-effective manner.

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