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China is currently the fifth largest wine consuming country in the world. As the Chinese wine market has gradually become mature, more and more imported wines are flocking to the Chinese market to share a piece of the pie. In recent years, the wine import volume and import amount have grown continuously.

Although imported wine has boost domestic wine consumption and promoted the development of the domestic wine industry, it has also grabbed the market share of domestic wine. The domestic wine industry is entering an adjustment period and its total output continues to decline. On the other hand, the well-known brands that originally produced liquor in China, such as Maotai and Luzhou Laojiao, made high profile marketing and promotion of their wine products in 2018, which made the domestic wine market more competitive.

The wine consumption capacity of second– and third-tier cities in China was further released in 2018, and the growth rate of some cities even exceeded that of first-tier cities. The release of wine consumption capacity in non-first-tier cities has prompted wine producers to further expand their channels and start to open wine stores in county-level cities along the coast. In second– and third-tier cities in Chinese Mainland where wine consumption is relatively immature but demand increases, the extended sales channels help expand the market. The red wines sold by the Group are mainly medium and low-priced. The popularization of wine consumption in second– and third-tier cities and the expansion of sales channels to these cities will help the Group further expand its market share.

As compared with loss and total comprehensive expense attributable to owners of the Company and non-controlling interests for the previous year, during the year under review, the Group had achieved a turnaround from loss and recorded profit and total comprehensive income for the year attributable to owners of the Company and non-controlling interests. This was mainly because we adjusted our sales strategy, reduced marketing and promotion expenses and deployed more resources to directly establish interactive contact with the end consumers instead. We also reorganized our sales channel and exercised strict control over product distribution expense, thus reducing our sales and distribution costs.

In 2018, the terminal form of wine had undergone some structural changes. Under the impact of the new retail concept, wine chain stores, wine-themed social spaces, wine unmanned vending machines, etc. have emerged to bring wine to the mass market in a more down-to-earth way. Under the trend of channel flattening, more and more wine companies have directed marketing targets to the terminal instead of turning to middlemen. In the year under review, the main marketing appeal of wine had become “cost-performance”, “quality” and “let consumers buy good wine”.

To keep a foothold in the intensified competition requires well-established sales channels. The Group has been devoted to consolidating its all-round sales platform. In addition to the traditional distribution network, the Group has also actively expanded online sales platform and promoted products via websites specialising in wine sales in recent years. Although the Group’s products are mainly sold through distributors at present, the online platform plays an important role in sales promotion.

The Group’s winery engaged in the production of high-end wine products under the Group’s own brand will be put into production by stages. After nearly two years’ calibration, the product quality and overall operation of the winery have become gradually stable. We can effectively enhance our competitiveness in the domestic market by launching products under our own brand, so as to demonstrate our advantage in differentiating our brand from other domestic brands.

As the overall economic environment is declining and consumption is slowing down, it is expected that the industry profit rate of wine sales will reduce in 2019. On the other hand, the competition in the domestic wine market is becoming increasingly fierce. More and more foreign wine manufacturers are striving to enter the Chinese market. While a few domestic wine manufacturers can produce differentiated products, most of them fail to establish distinctive brands and supply personalized products. In addition to launching its own branded winery products, the Group is also committed to creating a more distinctive product image in the product packaging and marketing strategy among target consumer group. During the year under review, the Group had launched 16 new products and its total number of product category was hence increased to 149. In particular, the newly launched distilled grape liquor “Tongtian Yaaru Wine「雅羅白」” recorded satisfying sales result in the Year, evidencing that the Group had successfully combined the varietal characteristics of vitis amurensis with its unique technology of using distillation to produce liquor, broke the traditional concept of grain distilled liquor and produced alkalescent distilled grape liquor that meets the taste of the domestic consumer. We also continue to maintain a rigorous quality control process to ensure that product quality reaches or exceeds the level of imported products at the same price.

In terms of industrial chain development, we are exploring the feasibility of investing in wineries at home and abroad and seeking opportunities to invest in online and offline sales platforms. Since the production base of the Group is located in the agricultural regions in the Northeast China, we hope to apply the Group’s all-round quality control system and modern corporate management mode in other agricultural projects in the region to help promote agricultural and economic development in the region. Investing in other agricultural projects can not only make full use of the Group’s financial and management resources, but also enable the Group to realise its horizontal business extension to build a more diverse source of revenue.

Wang Guangyuan
Chairman
15 March 2019