(5) Company Bonds

Whether or not the Company has the corporation bonds issued in public, listed in the stock exchange, not due on the annual report’s authorized issue date or failed to pay in full on the due date.

No.

3. Management Discussion and Analysis

(1) Brief introduction of operation situation during the report period

①Summary

In 2018, influenced by many factors, such as the slowdown of domestic economic growth and the increase in uncertainty resulting from Sino-US trade friction, the overall sales amount of domestic wine industry was relatively stable, but the sales volumes of both imported wine and domestic wine decreased. As imported wine continued occupying the market of domestic wine, the competition in domestic wine market was very strong. Furthermore, the increase in the price of raw materials and packing materials as well as increase in the depreciation of fixed assets, freight and labor cost further increased the pressure of the company’s increase in profit. Facing quite a lot of external disadvantages, the Company insisted in taking the market as the center, insisted the development strategy of “Focus on middle-and-high level, Focus on high quality, Focus on big product”, intensified internal reform, optimized product structure and market layout, quickened the pace of new product development and market promotion, and strived to promote product sales, achieving good results and realizing operating revenue of CNY5142.24million with an increase of 4.25% compared with last year and net profit of CNY1042.63million belonging to the parent company’s shareholders with an increase of 1.06% compared with last year.

②Analysis of main business

Review and summary of the process of the Company’s early-disclosed development strategy and business plan during the report period

During the report period, the Company realized the operating revenue of CNY5142.24million with an increase of 4.25% compared with last year, slightly lower than the target fixed at the beginning of the year of realizing operating revenue no less than CNY5.2billion. The net profit of CNY1042.63 million belonging to the parent company’s shareholders was realized with an increase of 1.06% compared with last year. The main work during the report period were shown as followed:

Firstly, the Company took the market as the mirror, further promoted the strategy of three Focus, strengthened internal adjustment and reform intensity, accelerated the launch of new products and market expansion of core products, and strived to develop E-business, achieving good results. During the report period, the Company reorganized sales team, preliminarily realized the reduce in staff number and the improve of efficiency, conducted the work of “sales team jointly built by manufacturers and distributors”, actively explored the expense input management and control mode of “check and balance between manufacturers and distributors ”, and received preliminary effects. Ten provincial brandy companies were newly established. Specialized provincial wine companies and comprehensive provincial companies were subdivided. Three business segments, including provinces and cities such as Zhejiang, Fujian, Guangdong, Jiangsu, Shandong, Beijing and Shanghai etc and E-business and so on, realized authorized operation. The Company adjusted the function of VIP customer business, peeled off distribution business in direct supply system, further defined the relationship between the Changyu parent brand and its subsidiary brands, formed the core brand system of various liquors and made development planning of each brand. Series of new products, such as the ninth generation Noble Dragon, new Zenithwirl, 15-year Koya, 10-year Koya, 6-year Koya, Australian Kilikanoon products and Chilean Indomita products and so on, received wide praises and the demand of partial products exceeds supply owing to their hot sale. The Company insisted on the strategy of three Focus, weeded out 134 kinds of wine and centralized most marketing resources to be used for market promotion of  middle-to-high-end wine, five-star and above brandy and imported wine with own brands, making sales revenue of wine and brandy achieve different levels of increase.          

Secondly, the Company took the quality as the basis, regarded product quality as an important magic weapon to defeat enemies. It conducted all-around self-examination,  self-correction and optimization on the selection of grape base, grape planting mode, production process and technology, quality testing equipment and product quality control system etc, formulated three-year planning, implementation scheme and specific measures for product development and quality improvement in future three years, strengthened technical exchanges at home and abroad and team construction of winemakers, focused on new product development and technical difficulties, improved the quality traceability system and strengthened quality control in the whole production process, making the company's technical level and product quality reach a new level. The Company carried out 45 technology researches and completed one sub-project of national 863 project. Drafted standards of Wine-making Grape and Oak Barrel passed the group standards assessment by China Alcoholic Drinks Association, filling in gaps of domestic wine industry. Key Technology Research and Application in Industrialization of Domestic Oak Products was declared for 2018 scientific and technological progress award of China Alcoholic Drinks Association. Key Technology Research for Premium and Characteristic Wine-making Grape Cabernet Gernischt and Wine Production won scientific and technological progress award of China National Light Industry Council. In 2018 IWSC, Kilikanoon Wines Pty Ltd in Australia was awarded “Australian Best Wine Producer of the Year” and was the only one chateau awarded by IWSC among more than 4000 chateaux in Australia, of which 2014 Kilikanoon Estate  Special Reserve Shiraz 8K won outstanding gold medal with scores of 93 points and above) as well as the trophy of “World’s Best Shiraz of the Year” while 2016 Kilikanoon Estate Wine Blend 6K won gold medal with scores of 90 to 92.9 points. Kilikanoon Wines Pty Ltd was honored with the title of “Australian Best Wine Producer of the Year” in 2018 Mundus Vini. 2014 Kilikanoon Estate Special Reserve Shiraz 8K won gold medal in DAWA with the score of 95. 2015 Moser Family Cabernet Sauvignon Red Wine, 2016 Moser Legend Cabernet Sauvignon White Wine, 2015 Golden-label Icewine of Golden Icewine Valley and 2015 Blue-label Icewine of Golden Icewine Valley won gold medal in the 22nd session of Berliner Wein Trophy. Changyu Five-star Fine Brandy won gold medal in 2018 Spirits Selection by Concours Mondial de Bruxelles. Changyu Koya 15-years XO brandy ageing in oak barrel won the design award of luxury category in 2018 Pentawards Award Ceremony. “Water-drop Decanter” of Changyu Koya 10-years XO Brandy won the design award of packaging category in 2018 iF Design Award Ceremony held at BMW Welt in Munich, Germany.

Thirdly, the Company realized online identification and order-driven mode of major products. During the reporting period, the Company issued Assessment Measures for Performance Rate of Production Order, gave full play to advantages of advanced production facilities, high automation and informationization and fast production speed, optimized and adjusted business processes, and strengthened coordination of supply, production and sales, making 27 kinds of Noble Dragon products with high sales volume and all domestic chateau wines achieve order-driven mode. Most domestic wine products achieved online tagging, which improved production efficiency and delivery speed, dramatically reduced product and capital backlogs and better satisfied the market needs.

Fourthly, the Company enhanced financial management and established and improved the assessment system taking profit as principal line. During the report period, the Company strengthened the management in financial budget, fixed funds and overseas enterprises’ financial affairs, enhanced the audit in price execution, gross profit margin, capital occupation, key expenses, and investment projects, increased the investigation of economic responsibility, scientifically allocated internal capital, vigorously strived for policy-based capital loans and continuously reduce the cost of capital. It strengthened the simulated profit assessment of authorized business units and strived to establish a profit assessment system covering all business segments and respective responsibilities in order to provide a basic basis for more reasonable and efficient performance assessment and to improve profitability.

Fifthly, the Company successfully completed the procurement of raw materials including grapes and further strengthened the management in grape base. The Company comprehensively accomplished the procurement plan of raw materials exemplified as grapes, improved the fermentation rate of premium wines, further deepened sort management and sort acquisition of grape bases and continued promoting the mechanization process in vineyards, lowering the operating costs of self-supported grape bases and making scientific and normative management in grape base reach a higher level. It raised grape purchase standard, improved raw material quality, actively conducted the introduction, selective breeding and improvement of new grape varieties and characteristic varieties and cultivated a lot of new varieties, enriching the variety resource for future product development. It also organized orchardist to take professional training on grape planting technology, which improved their grape planting and management level.

Sixthly, the Company continued promoting internationalization strategy and steadily implemented overseas acquisition. It acquired 80% equity of Kilikanoon Estate Pty Ltd in Australia.

③Revenue and cost

1) Composition of operation revenue

                                                                Unit: CNY

2) Condition of industry, product or area accounting for over 10% of the Company’s operation revenue or operating profit

RAvailable  □Not available

Whether the Company needs to follow disclosure requirements of special industry

No

Unit: CNY

Under the condition that the statistical caliber of the Company’s main business data is adjusted during the report period, the Company’s main business data adjusted on the basis of caliber at the end of report period in recent one year.

□Available  RNot available

(2) Whether major business has significant changes during the report period?

□Yes   RNo

(3) Condition of products accounting for over 10% in the Company’s main business income or main business profit

RAvailable   □Not available

Unit: CNY

(4) Whether there are seasonality or periodicity operating features required special attention

□Yes   RNo

(5) Explanation for significant changes in operation revenue, operating cost, total net profit or constitution attributable to the ordinary shareholders of the listed company compared with last report period

□Available  RNot available

(6) Condition of Facing listing suspension and termination

□Available  RNot available

(7) Items related to financial report

①Situation explanation for changes in the accounting policy, accounting estimation and accounting method compared with 2017 annual financial report

□Available  RNot available

There is no change in the accounting policy, accounting estimation and accounting method during the report period.

②Situation explanation for the correction of major accounting errors need to be retrospected and restated during the report period

□Available   RNot available

There is no situation for the correction of major accounting errors need to be retrospected and restated.

③Situation explanation for changes in the scope of consolidated statements compared with 2017 annual financial report 

RAvailable   □Not available

According to Share Sale & Purchase Agreement signed on December 5^th, 2017 between the Company and shareholders of Kilikanoon Estate Pty Ltd, the Company acquired 80% equity of Kilikanoon Estate Pty Ltd with the price of AUD20,860,825 (equivalence CNY107,194,420) to. The Company has completed equity transfer on January 18^th, 2018, obtaining control rights of finance and business policy for Kilikanoon Estate Pty Ltd. During the report period, this company has been included in the scope of consolidated statements.

Yantai Changyu Pioneer Wine Co., Ltd.

        Board of Directors

      　　　　April 20^th,N 2019