Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Final 2018-03 August, 2018 1 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Contents I. Important Notice, Contents and Definition ................................................................................. 3 II. Brief Introduction for the Company and Main Financial Indicators .................................... 5 III. Summary of the Company’s Businesses .................................................................................. 8 IV. Management Discussion and Analysis ................................................................................... 11 V. Major issues ................................................................................................................................ 28 VI. Changes in Shares and the Shareholders’ Situation ............................................................. 39 VII. Related Situation of Preferred Shares .................................................................................. 44 VIII Situation for Directors, Supervisors, Senior Management Staffs ....................................... 44 IX. Related Situation of Corporation Bonds ............................................................................... 45 X. Financial Report .......................................................................................................................... 46 XI. Reference Document................................................................................................................ 151 2 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report I. Important Notice, Contents and Definition The Board of Directors, the Board of Supervisors, directors, supervisors & senior management staffs of the Company collectively and individually accept full responsibility for the truthfulness, accuracy and completeness of the information contained in this report and confirm that to the best of their knowledge and belief there are no unfaithful facts, significant omissions or misleading statements. Mr. Zhou Hongjiang (Chairman of the Company), Mr. Jiang Jianxun (Chief Financial Officer & Financial Director) assure the truthfulness, accuracy and completeness of the financial report in the semi-annual report. Except the following directors, all other directors have personally attended the meeting for deliberating the semi-annual report. Director name with Director post with Reason for Name of non-present in person non-present in person non-present in person mandatory Sun Liqiang Director Business trip Zhou Hongjiang Augusto Reina Director Business trip Aldino Marzorati About significant risks that may be faced in production and operation process, please refer to―10. Risks the Company faces and measures‖ in chapter four ―Management Discussion and Analysis‖ of this report. We advise investors to read carefully and pay attention to the investment risks. The business plan and target in the report do not represent the earnings forecast of the listed company to 2018. Whether the Company could achieve that or not depends on several factors including the changes of market conditions and the effort extent of managing team etc. with a great uncertainty, so the investors should be in a special attention. The Company has no plan to distribute cash dividends and bonus shares, and capital reserve will not be transferred to equity. 3 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Definition Definition Item Refers to Definition Content Company/The Company/The Group Refers to Yantai Changyu Pioneer Wine Co. Ltd. Changyu Group/Controlling Refers to Yantai Changyu Group Co. Ltd. Shareholder CSRC Refers to China Securities Regulatory Commission SSE Refers to Shenzhen Stock Exchange Refers to Deloitte Hua Yong Certified Public Accountants Deloitte Hua Yong Co., LTD (special general partnership) CNY Refers to Chinese Yuan 4 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report II、Brief Introduction for the Company and Main Financial Indicators 1. Company’s information Abbreviation of the Shares: Changyu A、Changyu B Code number of the Shares 000869、200869 Abbreviation of the Shares - after alteration Place of listing of the Shares Shenzhen Stock Exchange Legal Name in Chinese 烟台张裕葡萄酿酒股份有限公司 Abbreviation of Chinese name 张裕 Legal Name in English YANTAI CHANGYU PIONEER WINE COMPANY LIMITED Abbreviation of English name CHANGYU Legal Representative Mr. Zhou Hongjiang 2. Contact person and information Secretary to the Board of Directors Authorized Representative of the Securities Affairs Name Mr. Qu Weimin Mr. Li Tingguo Address 56 Dama Road, Yantai, Shandong, China 56 Dama Road, Yantai, Shandong, China Tel 0086-535-6633656 0086-535-6633656 Fax 0086-535-6633639 0086-535-6633639 E-mail quwm@changyu.com.cn stock@changyu.com.cn 3. Other information 1) The Company’s contact information Whether there is any change for the Company‘s registered address, office address, post code, website and e-mail address during the report period. □Available Not available There is no any change for the Company‘s office address, post code, website and e-mail address during the report period, please see 2017 annual report for more details. 2) Information disclosure and filling location Whether there is any change for the information disclosure and filling location during the report period. □Available Not available There is no any change for the newspapers in which the Company‘s information is disclosed, website assigned by CSRC to carry the semi-annual report and the filling location during the report period, please see 2017 annual report for more details. 4. Key accounting data and financial indicators 5 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Whether the Company makes retroactive adjustments or restates the accounting data of previous fiscal years. No In the same period of last More or less than last In the report period year year (%) Business revenue (CNY) 2,828,230,064 2,767,098,197 2.21% Net profit attributed to the shareholders of the listed 635,837,405 670,069,054 -5.11% company (CNY) Net profit attributed to the shareholders of the listed 606,678,719 652,906,375 -7.08% company after deducting the irregular profit and loss (CNY) Net cash flows from the 552,753,472 420,360,319 31.50% operating activities (CNY) Basic earnings per share 0.93 0.98 -5.10% (CNY/share) Diluted earnings per share 0.93 0.98 -5.10% (CNY/share) Weighted average for earning 6.89% 7.84% -0.95% rate of the net assets The end of the report More or less than last The end of last year period year (%) Total assets (CNY) 13,038,507,425 12,536,755,208 4% Net Assets attributed to the shareholders of the listed 9,532,948,884 8,906,342,299 7.04% company (CNY) 5. Differences in accounting data under PRC accounting standards and international accounting standards 1) Differences of net profit and net asset in the financial report disclosed according to both international accounting standards and PRC accounting standards Available □Not available Unit:CNY Net profit attributed to the shareholders of Net Assets attributed to the shareholders of the listed company the listed company Current period Last period End of period Beginning of period According to PRC 635,837,405 670,069,054 9,532,948,884 8,906,342,299 accounting standards Item and amount adjusted according to international accounting standards According to international 635,837,405 670,069,054 9,532,948,884 8,906,342,299 accounting standards 6 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report 2) Differences of net profit and net asset in the financial report disclosed according to both foreign accounting standards and PRC accounting standards □Available Not available There are no differences of net profit and net asset in the financial report disclosed according to both foreign accounting standards and PRC accounting standards during the report period. 3) Explanation of the differences in accounting data under domestic and overseas accounting standards □Available Not available 6. Item and amount of irregular profit and loss Available □Not available Unit:CNY Item Amount Explanation Profit and loss on disposal of non-current assets, including the reversal of 93,958 accrued impairment provision Government grants credited in profit and loss (except for those recurring government grants that are closely related to the entity's operation, in line 37,982,878 with related regulations and have proper basis of calculation) Other non-operating expense and income 614,030 Less: Income tax effect 9,447,208 Minority shareholders equity effect (after tax) 84,972 Total 29,158,686 - The reasons shall be made clear and definitely as to the irregular profit and loss that the Company has defined by virtue of the Explanatory Notice on Public Company’s Information Disclosure No.1 - Irregular Profit and Loss and as to regarding the irregular profit and loss as recurrent profit and loss as specified in the Explanatory Notice on Public Company’s Information Disclosure No.1 - Irregular Profit and Loss. □Available Not available There is no situation that the irregular profit and loss is defined and specified as recurrent profit and loss in accordance with the Explanatory Notice on Public Company’s Information Disclosure No.1 - Irregular Profit and Loss during the report period. 7 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report III. Summary of the Company’s Businesses 1. Main businesses during the report period Whether the Company needs to follow the disclosure requirement of special business No. During the report period, the Company‘s main business is to produce and operate wine and brandy, thus providing the domestic and foreign consumers with healthy and fashionable alcoholic drinks. The Company integrates the planting and procurement of grape, the procurement of raw and auxiliary material, the production and sales of products. Compared with earlier stage, there are no significant changes happened to the Company‘s main businesses. The wine industry that the Company involved in is still in the growth stage, the whole domestic wine market is on the rising trend. The Company takes the dominant position in the domestic wine market. During the report period, the sales of low-price wines, low-priced brandy and chateau wines of Castel are slightly down. The sales of mid-priced wines such as Noble Dragon remain stable. The sales of mid-to-high priced brandy, imported wines and chateaus wines such as AFIP keep the favorable growth momentum. All these make the Company‘s operating revenue appear a small increase compared with the same period of last year. However, due to factors such as rising prices of raw materials and packaging materials, and increased depreciation, the Company's net profit declined slightly. 2. Significant changes of main assets 1) Significant changes of main assets Main assets Explanation of significant changes Equity asset No significant changes Fixed asset No significant changes Intangible asset No significant changes Construction in process No significant changes 8 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report 2) Main overseas assets condition Available □Not available Control measures for Proportion of Whether there are Details of Formation Operation safeguarding of Earning overseas assets in Assets scale Location significant assets reasons mode condition the Company‘s net asset security impairment risks assets The Company participates in making Hacienda Y important decisions Vinedos Acquisition Independent 456,572,779 Spain through board of 1,214,012 4.79% No Marques Del of equity operation directors and appoints Atrio. SL CFO on financial management The Company participates in making Indomita Wine important decisions Founding of Independent Company 483,324,945 Chile through board of -281,859 5.07% No joint venture operation Chile, SpA directors and appoints CFO on financial management The Company directly Francs Champs Founding of Independent appoints senior Participations sole 228,843,440 France -2,717,412 2.40% No operation executives on SAS proprietorship management The Company participates in making Kilikanoon Acquisition Independent 148,472,200 Australia important decisions -115,317 1.56% No Estate Pty Ltd of equity operation through board of directors Explanation on major holding companies and joint stock companies During the report period, Indomita Wine Company Chile, SpA and Kilikanoon Estate Pty Ltd is with small losses, mainly due to the fact that the two are located in the southern hemisphere as well as the low season sales of the first half of the year. 9 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report 3. Analysis of core competitiveness Whether the Company needs to follow the disclosure requirement of special business? No. Compared with the participants in the arena of the Chinese wine sector, we believe that the Company is provided with the following advantages: Firstly, the Company has been enjoying a well-known wine brand since 120-odd years, ―Changyu‖, ―Noble Dragon‖ and ―AFIP‖ are Chinese famous trademarks that have strong influence and good reputation. Secondly, the Company has set up a nationwide marketing network, formed a ―three-level‖ marketing network system mainly composed of the company‘s salesmen and distributors, possessed the strong marketing ability and market exploitation ability. Thirdly, the Company has already had strong research strength and a product R&D system, owned a one and only ―State-level Wine R&D Center‖, made mastery of advanced winemaking technology and production processes, been powerful enough in product innovation and established a perfect quality control system. Fourthly, the Company is in possession of a lot of grape-growing bases to meet its future development, having developed a great deal of vineyards in the most suitable areas for wine grape growing such as in Shandong, Ningxia, Xinjiang, Liaoning, Hebei and Shanxi, whose scales and structures have generally met the Company‘s needs for development. Fifthly, the Company has a great variety of products composed of all grades, its wine,brandy and sparkling wine of over 100 sorts can meet different consumers‘ demands. The Company has taken the lead in the domestic wine sector through rapid development in the past 10-odd years and has possessed comparative superiority in the future competition. Sixthly, the Company has a relatively respect motivation system. Most of Company‘s employees indirectly hold the Company‘s equity through controlling shareholders. There are high consistency between employee benefits and shareholders benefits, in favor of motivating employees to create value for shareholders. Seventhly, the company has established a flexible and efficient decision-making mechanism. The core management of the Company has always maintained a united and pragmatic work style and flexible and efficient decision-making mechanism, enabling the Company to respond more coercively to market changes. Eighthly, the company has basically completed the global production capacity layout. The Company has completed production capacity layout in the world's most important wine producing countries such as China, France, Chile, Spain, Australia, etc., and can make better use of global high-quality raw material resources, capital, talents and advanced production techniques and technologies to provide consumers with diversification quality products and services. Based on the above reasons, the Company has formed strong core competitiveness and will maintain this comparative advantage in the foreseeable market competition in the future. 10 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report IV. Management Discussion and Analysis 1. Summarization During the report period, influenced by the slowdown of domestic economic growth, the overall domestic wine industry is relatively stable. Influenced by the further decrease in product price resulting from the overwhelming flow of foreign wine into Chinese market, the competition in domestic wine market, especially for middle-and-low-level wines, is very fierce, plus the great impact brought by E-commerce and other new channels to traditional sales channels in the meantime this company‘s E-commerce business is still in the beginning stage, resulting in bigger challenges for the Company to achieve sustained and steady growth. Facing quite a lot of external disadvantages, the Company insists to focus on the market, timely adjust the development strategy and marketing tactics, optimize the market layout and product structure, perfect the marketing channels and assessment system, strive to promote product sales, achieving good results and realizing business income of CNY2828.23 million, an increase of 2.21% compared with last year; but due to the impact of increase in operating cost, taxes and additional, sales expense and administrative expense, the Company realized net profit of CNY635.84 million belonging to the parent company‘s shareholders, an decrease of 5.11% compared with last year. During the report period, the Company mainly did following works: Firstly, the Company adjusted and fortified its management team, increasing the management level and capacity of management team. Secondly, the Company proposed the strategy of ―Focus on big product, focus on high quality, focus on middle-to-high end‖ (in other words ―Three Focus‖ strategy), further clarifying its development direction. Thirdly, the Company basically completed the reform and reorganization work in sales systems, improving the mode of market investment and enhancing marketing ability. The Company further implemented the measure of ―personnel reduction while salary increase‖ in sales system, reduced redundant personnel, completed the personnel setting, position setting and personnel allocation work in business management department in sales system, perfected performance assessment method for marketing personnel and conducted authorized operation to partial business unit and provincial branches, improving the sales team‘s working enthusiasm, initiative and fighting capacity. Fourthly, the Company fully implemented ―Three Focus‖ strategy, accelerated the product carding as well as the backbone distributor system construction and increased the market investment, improving products‘ market competitiveness. For high-end products, the Company focused on ―MOSER‖, ―AFIP‖, ―CASTEL‖, ―Golden Icewine Valley‖, ―Baron Balboa‖, ―Rena‖, ―Tinlot‖ wine and ―Koya‖ brandy and strived to build ―MOSER‖ to a globally well-known high-end brand, to build ―AFIP‖, ―CASTEL‖, ―Golden Icewine Valley‖ and ―Koya‖ to nationally well-known high-end brands and to build ―Baron Balboa‖, ―Rena‖, ―Tinlot‖ to regionally well-known high-end brands. For middle-end products, the Company focused on ―Noble Dragon‖ and reserva five-star brandy, reinforced the market development in the ninth-edition Noble Dragon and reserva five-star brandy, continued consolidating and enlarging the position of ―Noble Dragon‖ as domestic biggest single product in wine market and continually increased the market share of middle-end brandy. For low-to-mid-end products, the Company focused on ―Zuishixian‖ and mini-brandy to digging consumption potential and to guide and cultivate new consumer group. For imported liquor, the Company mainly paid attention to acquired brands, such as Atrio, Mirefleurs, Indomita, Kilikanoon and Roullet Fransac in order to occupy important position in Chinese imported wine market. The 11 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Company also conducted comprehensive carding and reorganization to products and distributor team, reduced product items, eliminated and replaced unqualified distributors, implemented strict access system to distributors selling the ninth-edition Noble Dragon and new-edition ―Zuishixian‖, changed the market investment mode, intensified the fighting degree to fleeing goods, further standardized market order, better protected distributors‘ interest and improved distributors‘ enthusiasm. Fifthly, the Company strengthened quality management and quickened the pace in product update and upgrade in order to better adapt to market change. During the report period, the Company revised internal quality management system, took unannounced inspection to eleven wineries and conducted update and upgrade work to products including partial chateau wine, Noble Dragon, reserva five-star brandy, five-star brandy and Zuishixian etc, effectively improving product quality and better satisfying the market need. Sixthly, the Company reinforced financial management and audit work in order to strive to accomplish energy-saving and cost-reducing and to further reduce operating cost. During the report period, the Company further strengthened internal fund allocation and control, reasonably arranged loan structure, strived to reduce fund cost; intensified the cost management, such as advertisement and major raw material purchase and so on, and strongly reduced freight and storage expense; enhanced the financial management in overseas acquired enterprise and reinforced audit degree to investment project in order to prevent operating risk and improve investment benefits; made great efforts to increase the ratio of order-driven products, to shorten delivery time, to reduce inventory and capital occupying and to improve enterprise profitability. Seventhly, the Company continued implementing internationalization strategy and orderly promoted overseas acquisition work. During the report period, the Company acquired 80% equity of Kilikanoon Estate Pty Ltd in Australia, optimizing the Company‘s capacity layout and product structure and further improving the market competition of imported products. Through M&A and strategic cooperation, the Company‘s production had extended to Asia, Europe, America and Oceania and the Company had completed the capacity layout in major global wine-producing countries and famous wine-producing region, such as France, Spain, Australia and Chile and so on. The Company also had deep brand cooperation with major wine enterprises in Italy, New Zealand, Argentina and other countries. Now the Company owned five overseas chateaux, eight domestic chateaux and more than twenty foreign and domestic major brands and sold its products to more than seventy countries and regions in the world. Eighthly, the Company strengthened the management in investment project and basically completed the installation and commissioning work of major production lines in Changyu industrial park, laying the foundation of putting into operation as soon as possible and further improving production efficiency. In order to achieve the operation target set by the Company at the beginning of this year, the Company would do following work in the second half of 2018: Firstly, the Company will intensify the brand construction and carding work and enlarge the cooperation breadth and depth with domestic E-commerce magnate and new media in order to improve brand awareness and reputation. The Company will intensify brand aggregation, continue teasing and reducing product quantity and optimize product line; for choice of media, bind up with high-flow platform, enhance resource exchange and share and take deep cooperation with precision media with high category permeability to form high-flow and strong-viscosity communication strategy; for publicity form, focus on output content, aim at different media attribute and make brand image output at different platforms including MicroBlog, WeChat official account, Zhihu account and TouTiao etc by adopting micro film, short video, multimedia, long image-text, live broadcast and other forms. 12 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Secondly, the Company will continue paying attention to the construction of key distributor team and professional sales personnel team, conduct the tasting and promotion work of mid-to-high-end products, such as chateau wine, Noble Dragon, ―Three Star‖ and above level brandy and Zuishixian and so on, and strive to promote the sales of mid-to-high-end products; do the preparation work for the opening of Koya chateau and the launch of new products, such as Koya brandy; continue promoting the sales work of acquired brands in domestic and foreign markets, such as Atrio, Mirefleurs, Donelli, Indomita and Kilikanoon and so on, further establish and perfect the domestic and foreign sales system, take full advantage of foreign sales network to enlarge the export scale of domestic wines; centralize marketing resources and focus on key markets to continually enlarge the quantity and coverage of dominated market. Thirdly, the Company will start the order-driven business mode for Noble Dragon distributors, make great efforts to shorten delivery time and reduce inventory level and fund occupation. Fourthly, the Company will further enlarge and implement authorized operation to improve the positivity, initiative and flexibility of front-line production and management personnel and to accelerate market reaction speed; improve the Company‘s assessment and incentive measures to production and management department, enhance staff training and reorganization, strictly carry out assessment, reward, promotion and elimination system, and motivate all staff‘s vitality and fighting capacity. Fifthly, the Company will orderly proceed the construction of investment projects and focus on the connection between production and sales. The Company will pay special attention to the ending work of main body‘s civil work in Yantai Changyu International Wine City (in other words Yantai Changyu Industry Park), accelerate the construction of intelligentization and informatization management system as well as the maintenance and transformation in Cognac Roullet Fransac chateau and the fire engineering in the research institute; conduct the coordination work between project construction and production and reasonably arrange construction and production progress to timely satisfy the market need. Sixthly, the Company will strengthen the management in supply chain and fully accomplish the purchase in grape material. The Company will enhance the construction and management in the supply chain of overseas and domestic grape material and other packing materials, strive to realize diversification of material supply and make sure that, for all raw materials, the important segment could be monitored and the whole course could be traced; based on the material requirement in future years, scientifically make raw material purchase plan, further perfect raw material pricing mechanism, reasonably determine raw material purchase price, comprehensively complete raw material purchase work, preferably control raw material cost and improve raw material quality. 13 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report 2. Analysis of main business See ―1. Summarization‖ in ―Management Discussion and Analysis‖. Period comparison of main financial data Unit: CNY In the report In the same period of More or less Reason for changes period last year (%) Mainly attributed to the Company‘s consolidation of companies in Chile and Operating revenue 2,828,230,064 2,767,098,197 2.21% Australia that are included in the scope of consolidation making an increase in operating revenue Operating cost Mainly attributed to the increase in prices of raw materials and packaging 974,557,292 925,754,133 5.27% materials on year-on-year basis Sales expense Mainly attributed to the increase in advertising promotion fees and marketing 710,659,033 668,735,726 6.27% staff compensation on year-on-year basis Management expense Mainly attributed to the increase of employee‘s compensation and depreciation 160,091,888 130,542,386 22.64% expense on year-on-year basis Mainly attributed to the increase in interest expenses and handling fees on Financial expense 13,085,942 11,147,949 17.38% year-on-year basis Mainly attributed to the decrease in total profit (profit before tax) on Income tax expense 211,979,735 228,752,790 -7.33% year-on-year basis which results in a decrease in current income tax expenses on year-on-year basis Net amount of cash flow generated in operating Mainly attributed to the increase of cash received from goods selling and labor 552,753,472 420,360,319 31.50% service providing on year-on-year basis activities Net amount of cash flow Mainly attributed to the recovery of fixed term deposits making the cash generated in investment -291,217,548 -797,540,941 63.49% injection in investment activities increased on year-on-year basis and the cash activities outflow from investment activities decreased on year-on-year basis Net amount of cash flow -6,350,537 353,878,706 -101.79% Mainly attributed to the year-on-year decrease in cash received from loans and 14 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report generated in financing the year-on-year increase in cash paid for debt repayment activities Net increased amount of Mainly attributed to the increase in net cash flow from operating activities and 247,781,188 -27,454,401 1,002.52% cash and cash equivalents net cash flow from investing activities on year-on-year basis Whether there is any great change for the Company‘s profit structure or profit source during the report period □Available Not available There is no great change for the Company‘s profit structure or profit source during the report period. Structure of main businesses Unit: CNY Increase or decrease of operating Increase or decrease of operating Increase or decrease of gross Operating Gross profit Item Operating cost revenue over the same period of cost over the same period of last profit over the same period of revenue (%) last year (%) year (%) last year Sector Wine and alcoholic 2,828,230,064 974,557,292 65.54% 2.21% 5.27% -1% beverages Product 15 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Wine 2,235,369,550 759,887,101 66.01% 3.92% 7.94% -1.26% Brandy 552,121,883 194,450,633 64.78% -4.03% -2.86% -0.43% Other 40,738,631 20,219,557 50.37% 0.22% -6.23% 3.42% 3. Analysis to non-main business □Available Not available 4. Assets and liabilities situation 1) Major changes of assets Unit: CNY The end of the report period The end of the same period of last year Proportion increase or decrease Explanation on significant Proportion in the Proportion in the total changes Amount Amount (%) total assets (%) assets (%) Monetary funds 1,683,038,453 12.91% 1,550,067,781 12.63% 0.28% No significant changes Receivables 243,413,092 1.87% 167,152,509 1.36% 0.51% No significant changes Mainly attributed to the increase in raw materials Inventory 2,338,925,432 17.94% 2,024,302,929 16.49% 1.45% reserved at the end of the report period Investment real estate 17,877,379 0.14% 0% 0.14% No significant changes Long-term equity 0% 0% No significant changes investments 16 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Mainly attributed to the transfer of constructions in Fixed assets 5,457,575,677 41.86% 4,591,037,486 37.40% 4.46% progress during the report period Mainly attributed to the transfer of constructions in Construction in progress 1,015,914,753 7.79% 1,697,297,440 13.83% -6.04% progress into fixed assets during the report period Mainly attributed to the Short-term borrowings 750,454,676 5.76% 846,881,075 6.90% -1.14% return of short term bank loans Long-term borrowings 153,965,191 1.18% 175,270,580 1.43% -0.25% No significant changes 2) Measuring assets and liabilities at fair value □Available Not available 3) Assets rights restricted situation up to the end of report period Assets rights restricted situation of the Company up to the end of report period, please refer to Announcement on External Guarantee (announcement number: 2016-Temporary 021) and Announcement on External Guarantee (announcement number: 2017-Temporary 015) disclosed on China Securities Journal, Securities and the website (www.cninfo.com.cn) respectively on December 22nd, 2016 and December 12th, 2017. 5. Investment situation analysis 1) Overall situation Available □Not available 17 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Amount of investment during the report period Amount of investment in the same period last year Extent of change (CNY) (CNY) 312,384,336.55 630,502,100 50.45% 2) Situation of acquired main equity investments during the report period Available □Not available Unit: CNY Investme Progress Whethe Name of nt profit Main Investme up to the r or not the Investme Investment Shareholdi Capital Produ Estimate and loss Disclosure Disclosure businesse Partners nt balance to invested nt mode amount ng ratio source ct type d profit for date index s horizon sheet prosecu company current date te period PTO7 Pty Ltd、 Announcemen Bruce t on Equity Warren & Acquisition of Lindsey Kilikanoon Anne Estate Pty Ltd Producti Kilikano Baudinet Decemb (announceme on and Acquisiti 101,452,936. Self-own Complet 6,763,52 th on Estate 80% 、Nathan 50 years Wines 9 -115,317 No er 12 , nt number: sales of on 55 ed ed Pty Ltd Waks & 2017 2017-Tempor wines Michelle ary 017) Williams disclosed on 、 the website Woodvale (www. cninfo. Vintners com. cn) Pty Ltd、 18 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report NWMW Nominee s Pty Ltd、W.J. Duthy Holdings Pty Ltd、 Warrick James Duthy、 SH & G Nominee s Pty Ltd、 David Leonard & Rebecca Louise Adams、 12-14 Marsden Street Pty Ltd、 Burford Sampson and Jane Hamilton Sampson 19 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report 101,452,936. 6,763,52 Total - - - - - - - - -115,317 - - - 55 9 3) Situation of main ongoing non-equity investments during the report period Available □Not available Unit: CNY Reasons Accumulated Accumulated for Whether Investment actual realized unreached it belongs Amount investment Process profit up Project Investment Involved Capital Estimated planning Disclosure Disclosure to fixed during the amount up of to the end name mode sectors source profit schedule date index assets report to the end project of the and investment period of the report report estimated profit period period Yantai Please refer to Changyu Announcement on International Resolution of the Liquor Wine City Seventh Session and Blending Self- Owned No direct Board of Yes alcoholic 107,016,000 1,265,635,100 100% - - 2018.04.23 and constructed fund earnings Directors 8th beverage Cooling Meeting disclosed sector Center on China Securities Construction Journal, Securities Project and the website (www.cninfo.com.cn) Yantai Self- Yes Liquor 50,000,000 936,690,000 Owned 100% - - No direct 2018.04.23 20 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Changyu constructed and fund earnings on April 23rd, 2018. International alcoholic Wine City beverage Bottling sector Center Construction Project Yantai Changyu Liquor International and Wine City Self- Owned No direct Yes alcoholic 0 415,207,200 100% - - 2018.04.23 Logistics constructed fund earning beverage Center sector Construction Project Changyu Vine Liquor and Wine and Self- Owned Not put into Research Yes alcoholic 1,800,000 117,560,000 75% - - 2018.04.23 constructed fund operation Institute beverage Construction sector Project Treasure Liquor Wine and Self- Owned Not put into Chateau Yes alcoholic 9,840,000 119,830,000 75% - - 2018.04.23 constructed fund operation Construction beverage Project sector 21 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Koya Liquor Brandy and Self- Owned Not put into Chateau Yes alcoholic 4,230,000 139,928,000 80% - - 2018.04.23 constructed fund operation Construction beverage Project sector Liquor and Greening Self- Owned No direct Yes alcoholic 4,000,000 57,105,700 100% - - 2018.04.23 Investment constructed fund earning beverage sector Cognac Liquor Fransac and Chateau Self- Owned Yes alcoholic 7,535,400 7,535,400 30% - - Not completed 2018.04.23 Rrepair and constructed fund beverage Renovation sector Project Industrial Liquor Production and SAP Self- Owned No direct Yes alcoholic 26,510,000 37,850,000 60% - - 2018.04.23 Information constructed fund earning beverage Construction Project sector Liquor Research and Institute Fire Self- Owned No direct Yes alcoholic 0 0% - - 2018.04.23 Engineering constructed fund earning beverage Project sector 22 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Liquor Oak Barrel and Self- Owned No direct Procurement Yes alcoholic 0 0 0% - - 2018.04.23 constructed fund earning Project beverage sector Non-dry Liquor Sticker and Labeling Self- Owned No direct Yes alcoholic 0 0 0% - - 2018.04.23 Machine constructed fund earning beverage Procurement Project sector Total — — — 210,931,400 3,097,341,400 — — - - -- -- -- 4) Financial assets investment (1) Security investment □Available Not available There is no security investment for the Company during the report period. (2) Derivative investment □Available Not available There is no derivative investment for the Company during the report period. 23 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report 6. Sale of major assets and equities 1) Sale of major assets □Available Not available There is no sale of major assets during the report period. 2) Sale of major equities □Available Not available 7. Analysis to the major holding and joint stock companies Available □Not available Situation of main subsidiaries and joint stock companies affecting over 10% of the Company‘s net profit Unit: CNY Company Company Main business Registered capital Total asset Net asset Operation Operation Net Profit name type revenue profit Grape planting, grape juice, bulk Xinjiang Tianzhu Subsidiary wine and fruit wine processing, CNY75million 100,490,996 94,660,914 18,803 -1,156,537 -184,572 Winery Co., Ltd. filling and sales Yantai Wine and sparkling wine research, Changyu-Chateau Subsidiary production and sales as well as the USD5million 254,998,005 83,446,152 43,226,910 3,706,113 2,861,474 Changyu Castel tourism service Wine Co. Ltd. 24 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Langfang Castel- Joint Changyu Wine stock Wine production and sales USD6.108818million 35,673,406 31,609,890 5,038,281 -1,952,954 -1,952,954 Co. Ltd. company Chateau Changyu Brandy and wines research, AFIP Global Subsidiary CNY642.75million 690,531,538 640,211,147 78,502,666 21,121,608 15,243,700 production and sales Wine Co. Ltd. Chateau Liaoning Changyu Ice Subsidiary Ice wine production CNY59.6873million 84,138,776 55,148,440 27,305,133 2,913,516 905,396 Wine Co., Ltd. Hacienda Y Wine and other liquors production Vinedos Marques Subsidiary EUR2.385732million 456,572,779 122,855,707 148,197,893 -771,033 1,214,012 and operation Del Atrio, SL Indomita Wine Wine and other liquors production Company Subsidiary USD47.19million 483,324,945 349,642,978 93,719,341 -1,582,286 -281,859 and operation Chile, SpA Kilikanoon Estate Wine and other liquors production Subsidiary AUD6.529221million 148,472,200 83,884,229 25,904,401 -385,840 -115,317 Pty Ltd and operation Acquisition and disposal of subsidiaries during the report period □Available Not available Information of main holding and joint stock companies No 8. Main part situation of the special purpose being controlled by the Company Not available 25 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report 9. Forecast for the operation achievements from January to September of 2018 Caution and explanation for the prediction that the cumulative net profit from the beginning of the year to the end of next report period could be in a loss or there will be in a great change comparing with the same period of last year. Not available 10. Risks the Company faces and measures (1) Risks in price fluctuation of raw materials Grapes are the Company‘s main raw materials. The grape‘s yield and quality are affected to a certain extent by the natural factors such as drought, wind, rain, frost and snow. These force majeure factors greatly influence the quantity and price of the grapes in Company orders and add the uncertainty to the Company‘s production and operation. Therefore, the Company will lower the risks that are likely to affect grape quality and result in price fluctuation by means of expanding the self-run vineyards, strengthening the vineyard management and optimizing the layout of vineyards. (2) Risks in uncertainty of market input and output To cope with the cutthroat market competition and to meet the needs for market development, the Company has input more and more capital in the market and the sales expense has taken up a higher percentage point in the business revenue. The input-output ratio will affect the Company‘s operating results to a great extent and the risk that some investments may not reach the expectations is likely to occur. Therefore, the Company will strengthen market research and analysis, enhance market forecast accuracy and continue to perfect the input-output evaluation system to ensure the investments in market to be satisfactory as expected. (3) Risks in product transport The Company‘s products are fragile and sent to different places all over the world, mostly by sea, railway and expressway. The peak season of sales is usually in cold winter and close to the spring festival when market has a great demand. At that time, the natural and human factors such as serious shortage of transport capacity resulting from busy flow of people and goods, wind, snow, freezing as well as traffic accidents make the transport departments difficult to send products to markets in time and safely. As a result, it makes the Company have to face the risks of missing the peak season of sales. Therefore, the Company will adopt all methods possible like making precise sales prediction and well designed connection of production and sales, reasonably arranging production and transport means and making use of more available warehouses in different places to lower these kinds of risks. (4) Risks in investment faults According to the plan, currently the Company has finished the production layout at home, and the next step is to pay more attention to the overseas merge and acquisition in the same industry. Currently, Yantai Changyu International Wine City (namely Yantai Changyu Industrial Park) 26 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report has those features such as the big investment amount, long-term construction period and many uncertain factors; more unforeseeable factors for the overseas merge and acquisition projects in the progress of M&A, it is difficult to make sure the fair and reasonable transaction price, the integration and management after M&A is also hard. Under the influence of uncertain factors for individual projects, it leads to have the risks of facing with the investment amount out of budget or hardly taking back the expected investment earnings. The Company will take an adequate argument and scientific decision-making for investment projects, try hard to reduce and avoid investment risks. 27 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report V. Major issues 1. Information for the shareholders’ meeting and temporary shareholders’ meeting held during the report period 1) Information for the shareholders’ meeting during the report period Participation ratio Session Meeting type Convening date Disclosure date Disclosure Index of investors http://www.cninfo.com.cn Annual Announcement on Resolution of 2017 Annual Shareholders‘ shareholders‘ 62.42% 2018.05.24 2018.05.25 2017 Annual Shareholders’ Meeting Meeting meeting ( Announcement number:2018- Temporary 15) 2) Request for convening temporary shareholders’ meeting by priority shareholders owing recovered voting right □Available Not available 2. The Company’s preliminary scheme of profit distribution and preliminary scheme of increasing equity with capital reserve □Available Not available There are no schemes of paying cash dividend, bonus share and increasing equity with capital during the semi-annual period. 3. Commitments that the Company’s actual controllers, shareholders, related parties, acquirers and the Company and other related commitment parties have implemented during the report period and have not implemented up to the end of the report period Available □Not available 28 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Commitments Commitment party Commitment type Commitment content Commitment time Commitment period Implementation Commitments at share reform Commitments made in acquisition report or equity changes report Commitments at asset restructuring Yantai Changyu Group Solve horizontal Non-horizontal competition Has been performing 1997.05.18 Forever Co. Ltd. competition strictly According to Trademark License Contract, the Company will pay Commitments at trademark royalty for the the initial public Changyu‘‘ offering or Yantai Changyu Group Clear the purpose of products of Yantai Changyu Has been performing refinancing Group Co., Ltd every year, 1997.05.18 Forever Co. Ltd. brand royalty strictly Yantai Changyu Group Co., Ltd will use trademark royalty to advertise Changyu‘‘ trademarks and Contracted products in this contract. Equity incentive commitments 29 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Commitments at middle and small shareholders of the Company Commitment under timely Yes implementation or not Whether or not to have specific reasons of the No unimplemented commitment and next steps 4. The appointment and dismissal of certified public accountants Whether the semi-annual report has been audited □ Yes No The semi-annual report has not been audited. 5. Explanation from the board of directors for the “Non-standard Audit Report” of last year □Available Not available 6. Explanation from the board of directors for the “Non-standard Audit Report” of last year □Available Not available 7. Bankruptcy reorganization □Available Not available There are no related issues of bankruptcy reorganization happened during the report period and until the report period. 30 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report 8. Litigation Issue Material litigation and arbitration □Available Not available There are no material litigation and arbitration during the report period. Other Litigation Issue □Available Not available 9. Penalty and rectification □Available Not available There are no penalties or rectifications during the report period. 10. Credit of the Company, holding shareholders and actual controllers Available □Not available There is no situation such as court effective judgment is failure to execute, a large amount of debt expires but it is unpaid by the company, holding shareholders and actual controllers. 11. Implementation of the Company’s equity inventive plan, employee stock ownership plan or other employee incentive measures □Available Not available There are no implementation of the Company‘s equity inventive plan, employee stock ownership plan and other employee incentive measures. 12. Significant related transactions 1) Related transactions in relation to routine operations Available □Not available Related transactions in relation to routine operations, please refer to XII "Related party and Related Transaction" in the chapter X "Financial Report". 2) Related transactions in relation to acquisition and sales of assets or equity □Available Not available There are no related transactions in relation to acquisition or sales of assets or equity during the report period. 3) Related transactions in relation to common foreign investment 31 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report □Available Not available There are no related transactions in relation to common foreign investment during the report period. 4) Related current credit and debt Available □Not available Whether or not to exist non-operating related credit and debt □Yes No There are no non-operating related credit and debt during the report period. 5) Other major related transactions □Available Not available There are no other major related transactions during the report period. 13. Non-business capital occupying of listed company by controlling shareholder and its related parties □Available Not available There are no non-business capitals occupying of listed company by controlling shareholder and its related parties during the report period. 14. Major and important contracts and execution results 1) Trusteeship, contract and leasehold issues (1) Trusteeship situation □Available Not available There is no trusteeship situation during the report period. (2) Contract situation Available □Not available Contract situation description During the report period, about the Company‘s contract operation situation, please refer to ―41. Other payables‖ in Annex 7 ―Notes to consolidated financial statement‖ in the financial 32 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report report of this report. Project in gains and losses for the Company to achieve more than 10% of the total profit □Available Not available There are no contract projects in gains and losses for the Company to achieve more than 10% of the total profit during the report period. (3) Leasehold situation Available □Not available Leasehold situation description On January 1st, 2017, the Company renewed the Space Lease Agreement with the controlling shareholder Changyu Group. The Company leased the space with 15196.94 square meters located at 174 Shihuiyao Road, Zhifu District,Yantai City. The rent per year is CNY1.4645 million with a rental period of 5 years from January 1st, 2017 to December 31st, 2021. On January 1st, 2017, the Company‘s subordinate Sales&Marketing Co. of Yantai Changyu Pioneer Wine Company Limited. Brand Sales Department renewed the Space Lease Agreement with the controlling shareholder Changyu Group, leasing the space with 42552.83 square meters located at 1 Jichang Road, Zhifu District, Yantai City and the space with 3038 square meters located at 56 Dama Road, Zhifu District, Yantai City, which are all under the name of controlling shareholder. The rent of the above spaces per year is CNY4.3935million with a rental period of 5 years from January 1st, 2017 to December 31st, 2021. On July 1st, 2017, this company signed a house-leasing contract with Yantai Shenma Packaging Company Limited. According to this contract, since July 1st, 2017, this company leased property to Yantai Shenma Packaging Company Limited for a business purpose with the annual rent of CNY1,626,880. This contract expires on June 30th, 2022. Project in gains and losses for the Company to achieve more than 10% of the total profit □Available Not available There are no leasehold projects in gains and losses for the Company to achieve more than 10% of the total profit during the report period. 2) Major guarantee Available □Not available 33 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report (1) Guarantee situation Unit: CNY‘0000 External guarantee of the Company and its subsidiaries(excluding guarantee to subsidiaries) Whether or not Disclosure date of related Actual date of Whether or not Actual guarantee Guarantee belong to Guarantee object name announcement about Guarantee quota occurrence (date of Guarantee type complete amount Period related-party guarantee quota agreement) implementation guarantee Yantai Economic and Technological Mortgage; 2016.12.22 34,160 2016.12.21 34,160 10years No No Development Zone Pledge Management Council. Total of the external guarantee quota approved Total of the actual external guarantee 0 0 during the report period (A1) amount during the report period (A2) Balance of the actual external Total of the external guarantee quota approved by 34,160 guarantee by the end of the report 34,160 the end of the report period (A3) period (A4) Guarantee situations between the Company and subsidiaries Whether or not Disclosure date of related Actual date of Whether or not Actual guarantee Guarantee belong to Guarantee object name announcement about Guarantee quota occurrence (date of Guarantee type complete amount Period related-party guarantee quota agreement) implementation guarantee Sales & Marketing Company of Yantai Joint liability 2016.10.31 10,000 2016.11.05 10,000 2 years No Yes Changyu Pioneer Wine assurance Company Limited 34 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Yantai Changyu Pioneer Mortgage; 2016.12.22 11,984 2016.12.21 11,984 10 years No Yes Wine Company Limited Pledge Yantai Changyu Wine Joint liability Research and 2016.12.22 72,176 2016.12.21 72,176 assurance; 10 years No Yes Development Company Mortgage Limited Kilikanoon Estate Pty Joint liability 2017.12.12 7,100 2018.01.09 7,100 1 year No Yes Ltd assurance Total of the actual guarantee amount Total of the guarantee quota approved to subsidiaries 0 for subsidiaries during the report 7,100 during the report period (B1) period (B2) Balance of the actual guarantee for Total of the guarantee quota approved to subsidiaries 89,276 subsidiaries by the end of the report 89,276 by the end of the report period (B3) period (B4) Guarantee situations between subsidiaries Whether or not Disclosure date of related Actual date of Whether or not Actual guarantee Guarantee belong to Guarantee object name announcement about Guarantee quota occurrence (date of Guarantee type complete amount Period related-party guarantee quota agreement) implementation guarantee Hacienda Y Vinedos Marques Del Atrio. 2016.04.29 3,502 2015.10.08 3,502 Mortgage Long-term No No SL Indomita Wine Company Chile, 2018.04.23 1,986 2018.04.20 1,986 Mortgage Long-term No No SpA Total of the guarantee quota approved to 0 Total of the actual guarantee amount 5,488 35 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report subsidiaries during the report period (C1) for subsidiaries during the report period (C2) Balance of the actual guarantee for Total of the guarantee quota approved to 5,488 subsidiaries by the end of the report 5,488 subsidiaries by the end of the report period (C3) period (C4) Total guarantee amount of the Company(Total of above three major items) Total of the actual guarantee amount Total of the approved guarantee quota during the 0 during the report period 12,588 report period(A1+B1+C1) (A2+B2+C2) Balance of the actual guarantee by Total of the approved guarantee quota by the end of 128,924 the end of the report period 128,924 the report period(A3+B3+C3) (A4+B4+C4) The proportion of actual total guarantee amount (A4+B4+C4) accounting for the Company‘s 13.52% net asset Among : The amount of guarantee for shareholders, actual controllers and their related parties(D) 0 The amount of debt guarantee for the guaranteed objects whose asset-liability ratio is more than 70% 0 directly or indirectly(E) Total amount of guarantee of the part that exceeds 50% of net assets(F) 0 Total amount of the above-mentioned three items(D+E+F) 0 (2) Illegal external guarantee □Available Not available There is no illegal guarantee situation during the report period. 36 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report 3) Other important contracts □Available Not available There are no other important contracts during the report period. 15. Situation for Social Responsibility 1) Major environmental situation The listed company and its subsidiaries are whether or not to belong to the heavy pollution industry stipulated by the state environmental protection department. □Yes No 2) Situation for carrying out social responsibility of targeted poverty (1) Targeted poverty plan No (2) Summary of semi-annual targeted poverty Zhuqiao town in Yantai Laizhou locates in hilly land. The life of farmers living here depends on the weather and their income is very low. Since 2013, the Company has planted 8000 mu of wine-making grapes adapting to the infertile soil in here and employed more than 600 farmers in around 16 villages to work in the vineyard, making these farmers‘ average annual income increase CNY10 thousand. This not only is beneficial for local green ecology construction but also drives local farmers to overcome poverty and achieve prosperity. At present ,there is no poverty-stricken family in these 16 villages. (3) Targeted poverty effectiveness The Company has adopted the mode of ―Company+Cooperative+Farmer‖ to achieve the layout of 200 thousands of mu of grape bases in 37 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report domestic six producing regions including Xinjiang, Ningxia, Yantai, Liaoning, Shaanxi and Hebei and so on, bringing about CNY800million to nationwide fruit farmers every year and driving thousands of farmers to overcome poverty and achieve prosperity. (4) Subsequent targeted poverty plan No 16. Other Major issues □Available Not available There are no other major issues need to be explained during the report period. 17. Major issues of Company’s subsidiaries □Available Not available 38 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report VI. Changes in Shares and the Shareholders’ Situation 1. Changes in shares 1) Changes in shares Unit: share Amount before this change Change (+, -) Amount after this change Transfer Percentage Allot Distribute bonus other Percentage Amount new capital to others Sub total Amount % share % share share capital 1、Unrestricted shares 685,464,000 100% 685,464,000 100% (1) A shares 453,460,800 66.15% 453,460,800 66.15% (2) B shares 232,003,200 33.85% 232,003,200 33.85% 2、Total shares 685,464,000 100% 685,464,000 100% Cause of share change □Available Not available Approval of share change □Available Not available Transfer of changed shares □Available Not available 39 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report The influence of share change on the financial indicators such as basic earnings per share, diluted earnings per share of the latest year and the latest period, net asset per share belonging to the Company‘s common shareholders, etc. □Available Not available Other contents the Company thinks necessary or securities regulatory departments ask to make public. □Available Not available 2) Changes in restricted shares □Available Not available 2. Securities issuance and listing situation □Available Not available 3. Situation for shareholders and the actual controllers Unit:share Total number of preferred Total common shareholders at the end of 40,428 (21,831 of Stock A and 18,597 of shareholder recovering 0 report period Stock B) voting power at the end of report period Shareholders holding more than 5% or the top 10 shareholders holding situation Name of Shareholders Character of shareholders Percentage Shares held until the end of Changes Number Number of Pledged or frozen 40 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report (%) the report period during the of unrestricted report period restricted shares Share status Amount shares YANTAI CHANGYU Domestic non-state-owned legal 50.40% 345,473,856 0 0 345,473,856 0 GROUP CO. LTD. person GAOLING FUND,L.P. Foreign legal person 3.08% 21,090,219 0 0 21,090,219 0 CHINA SECURITIES State-owned legal person 2.27% 15,531,455 -107,200 0 15,531,455 0 FINANCE CORP BBH BOS S/A 2.22% 15,241,826 0 0 15,241,826 0 FIDELITY FD - CHINA Foreign legal person FOCUS FD SHENWAN 1.19% 8,144,869 1,590,215 0 8,144,869 0 HONGYUAN Foreign legal person SECURITIES(HONG KONG) LIMITED GUOTAI JUNAN 0.95% 6,535,089 -293,408 0 6,535,089 0 SECURITIES(HONGK Foreign legal person ONG) LIMITED FIDELITY PURITAN 0.89% 6,100,762 0 0 6,100,762 0 TRUST: FIDELITY SERIES INTRINSIC Foreign legal person OPPORTUNITIES FUND CENTRAL HUIJIN 0.69% 4,761,200 0 0 4,761,200 0 ASSET State-owned legal person MANAGEMENT LTD. 41 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report VANGUARD 0.55% 3,788,487 0 0 3,788,487 0 EMERGING Foreign legal person MARKETS STOCK INDEX FUND FIDELITY CHINA 0.55% 3,779,202 0 0 3,779,202 0 SPECIAL SITUATIONS Foreign legal person PLC Strategic investors or legal result of the placement of new shares to No become a top 10 shareholders(if have)(see note 3) Among the top 10 shareholders, Yantai Changyu Group Company Limited has no associated The explanation for the associated relationship and accordant relationship or accordant action relationship with the other 9 listed shareholders, and the relationship action among the other shareholders is unknown. The top 10 shareholders with unrestricted shares Number of unrestricted shares Type of share Name of Shareholders held until the end of the year Type of share Amount YANTAI CHANGYU GROUP CO. LTD. 345,473,856 A 345,473,856 GAOLING FUND,L.P. 21,090,219 B 21,090,219 CHINA SECURITIES FINANCE CORP 15,531,455 A 15,531,455 BBH BOS S/A FIDELITY FD - CHINA FOCUS FD 15,241,826 B 15,241,826 SHENWAN HONGYUAN SECURITIES(HONG KONG) LIMITED 8,144,869 B 8,144,869 GUOTAI JUNAN SECURITIES(HONGKONG) LIMITED 6,535,089 B 6,535,089 FIDELITY PURITAN TRUST: FIDELITY SERIES INTRINSIC OPPORTUNITIES FUND 6,100,762 B 6,100,762 CENTRAL HUIJIN ASSET MANAGEMENT LTD. 4,761,200 A 4,761,200 VANGUARD EMERGING MARKETS STOCK INDEX FUND 3,788,487 B 3,788,487 42 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report FIDELITY CHINA SPECIAL SITUATIONS PLC 3,779,202 B 3,779,202 Among the top 10 shareholders, Yantai Changyu Group Company Limited The explanation for the associated relationship and accordant action of the top 10 has no associated relationship or accordant action relationship with the shareholders with unrestricted shares, the the associated relationship and accordant action other 9 listed shareholders, and the relationship among the other between the top 10 shareholders with unrestricted shares and the top 10 shareholders shareholders is unknown. Explanation for the top 10 shareholders who involved in financing activities and stock The top 10 shareholders do not involve in financing activities and stock trading business (if have)(see note 4) trade business. Whether or not the Company‘s top 10 common shareholders and shareholders with unrestricted shares take agreed repurchase trading during the report period □Yes No There is no agreed repurchase trading taken by the Company‘s top 10 common shareholders and shareholders with unrestricted shares during the report period. 4. Changes of controlling shareholders or the actual controllers situation Changes of the controlling shareholders during the report period □Available Not available There is no any change of the controlling shareholders during the report period. Changes of the actual controllers during the report period □Available Not available There is no any change of the actual controllers during the report period. 43 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report VII. Related Situation of Preferred Shares □Available Not available VIII. Situation for Directors, Supervisors, Senior Management Staffs 1. Changes in shareholdings of directors, supervisors and senior management staffs □Available Not available There are no any changes in shareholdings of directors, supervisors and senior management staffs during the report period, details see 2017 annual report 2. Personnel changes in Company's directors, supervisors and senior management Available □Not available Name Positions held Type Date Reason Sun Liqiang Chairman leaving the post 2017.12.08 Resigning from the post of chairman on his own initiative and no longer serving as chairman; currently serving as director of the Company Zhou Hongjiang Vice chairman leaving the post 2018.01.08 Resigning from the post of vice chairman on his own initiative, no longer serving as vice chairman, and is elected to serve as chairman; currently serving as chairman of the Company Zhou Hongjiang General manager Non-reappointment 2018.01.08 Resigning from the post of general manager on his own initiative and no longer serving as general manager; currently serving as director of the Company Leng Bin Vice general Non-reappointment 2018.01.08 Resigning from the post of manager vice general manager on his own initiative and no longer serving as vice 44 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report general manager; currently serving as director of the Company. Sun Jian Vice-general Appointed and removed 2018.01.08 Being appointed as general manager manager and removed from vice general manager; currently serving as the general manager of the Company Peng Bin Vice general Appointed 2018.01.08 Being appointed as vice manager general manager; currently serving as vice general manager of the Company Jiang Jianxun Chief financial Appointed 2018.01.08 Being appointed as chief officer financial officer; currently serving as chief financial officer and finance manager of the Company IX. Related Situation of Corporation Bonds Whether or not the Company has the corporation bonds issued in public, listed in the stock exchange, not due on the Semi-annual report‘s authorized issue date or failed to pay in full on the due date. No 45 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report X. Financial Report 1. Audit report Whether the semiannual report has been audited □ Yes √ No 2. Financial statement The unit in the statements of the financial annotations is RMB Yuan. 2.1 Consolidated balance sheet Compiling unit: Yantai Changyu Pioneer Wine Co., Ltd. June 30, 2018 Unit: Yuan Item Note Ending balance Beginning balance Current assets: Monetary fund 7.1 1,683,038,453 1,402,522,509 Settlement reserves Lending funds Financial assets measured at the fair value and the variation of which is recorded into the current profit and loss Derivative financial assets Bills receivable 7.2 367,210,884 244,796,818 Accounts receivable 7.3 243,413,092 263,796,355 Advance payment 7.4 3,122,797 2,417,931 Premium receivable Reinsurance accounts receivable Receivable reserves for reinsurance contract Interest receivable 7.5 1,218,373 240,968 Dividends receivable Other receivables 7.6 16,500,022 18,737,454 Buying back the sale of financial assets Inventories 7.7 2,338,925,432 2,473,614,046 Assets held for sale 7.8 2,000,197 2,000,197 Non-current assets due within one year Other current assets 7.9 362,977,990 230,822,759 Total current assets 5,018,407,240 4,638,949,037 Non-current assets: Offering loans and imprest Available-for-sale financial assets 7.10 463,880 467,251 Held-to-maturity investments Long-term receivables Long-term equity investments Investment real estate 7. 11 17,877,379 18,467,989 Fixed assets 7.12 5,457,575,677 5,329,083,969 Construction in progress 7.13 1,015,914,753 1,026,141,569 46 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Item Note Ending balance Beginning balance Construction materials Disposal of fixed assets Productive biological assets 7.14 202,661,748 201,929,888 Oil and gas assets Intangible assets 7.15 662,694,276 655,448,897 Development expenditure Goodwill 7.16 163,930,875 128,135,981 Long-term prepaid expenses 7.17 227,993,424 230,009,231 Deferred tax assets 7.18 270,988,173 308,121,396 Other non-current assets Total non-current assets 8,020,100,185 7,897,806,171 Total assets 13,038,507,425 12,536,755,208 Current liabilities: Short-term loans 7.19 750,454,676 714,434,286 Borrowings from the Central Bank Customer and interbank deposits Borrowing funds Financial liabilities measured at the fair value and the variation of which is recorded into the current profit and loss Derivative financial liabilities Bills payable Accounts payable 7.20 505,856,955 666,442,879 Advances from customers 7.21 366,355,280 350,894,156 Financial assets sold for repurchase Handling fees and commissions payable Employee remunerations 7.22 177,995,138 210,824,234 Taxes payable 7.23 73,859,747 145,094,156 Interest payable 7.24 834,247 771,250 Dividends payable 7.25 746,021 Other payables 7.26 671,707,915 602,964,319 Dividend payable for reinsurance Reserves for insurance contracts Acting trading securities Acting underwriting securities Liabilities held for sale Non-current liabilities due within one year 7.27 140,570,388 110,954,827 Other current liabilities 7.28 16,311,727 16,878,199 Total current liabilities 2,704,692,094 2,819,258,306 Non-current liabilities: Long-term borrowings 7.29 153,965,191 156,125,854 Bonds payable Including: Preferred stock Perpetual capital securities Long-term accounts payable 7.30 235,000,000 259,000,000 Long-term employee remunerations payable Special accounts payable 47 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Item Note Ending balance Beginning balance Estimated liabilities Deferred income 7.31 92,340,427 92,918,855 Deferred tax liabilities 7.18 26,020,063 24,264,203 Other non-current liabilities 7.32 6,848,847 7,209,312 Total non-current liabilities 514,174,528 539,518,224 Total liabilities 3,218,866,622 3,358,776,530 Owner’s equity: Capital stock 7.33 685,464,000 685,464,000 Other equity instruments Including: Preferred stock Perpetual capital securities Capital surplus 7.34 565,955,441 565,955,441 Minus: Treasury stock Other comprehensive income 7.35 -6,121,580 3,109,240 Special reserves Surplus reserves 7.36 342,732,000 342,732,000 General risk preparation Retained earnings 7.37 7,944,919,023 7,309,081,618 Total owner‘s equities attributable to the parent company 9,532,948,884 8,906,342,299 Minority equity 286,691,919 271,636,379 Total owner‘s equities 9,819,640,803 9,177,978,678 Total liabilities and owner‘s equities 13,038,507,425 12,536,755,208 Legal Representative: Zhou Hongjiang Accounting Supervisor: Jiang Jianxun Accounting Department Manager: Jiang Jianxun 2.2 Balance sheet of the parent company Compiling unit: Yantai Changyu Pioneer Wine Co., Ltd. Unit: Yuan Item Note Ending balance Beginning balance Current assets: Monetary fund 818,844,330 559,174,466 Financial assets measured at the fair value and the variation of which is recorded into the current profit and loss Derivative financial assets Bills receivable 33,180,494 41,645,203 Accounts receivable 15.1 12,408,787 7,805,333 Advance payment 453,842 99,673 Interest receivable 87,014 76,646 Dividends receivable 2,238,064 407,495,922 Other receivables 15.2 509,269,034 592,274,075 Inventories 393,024,758 348,042,053 Assets held for sale 2,000,197 2,000,197 Non-current assets due within one year Other current assets 34,997,149 29,706,058 Total current assets 1,806,503,669 1,988,319,626 48 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Item Note Ending balance Beginning balance Non-current assets: Available-for-sale financial assets Held-to-maturity investments Long-term receivables Long-term equity investments 15.3 4,617,128,388 4,511,202,204 Investment real estate 17,877,379 18,467,989 Fixed assets 273,244,802 288,150,901 Construction in progress 11,388,924 6,756,349 Construction materials Disposal of fixed assets Productive biological assets 120,973,169 119,572,539 Oil and gas assets Intangible assets 68,433,643 69,623,219 Development expenditure Goodwill Long-term prepaid expenses Deferred tax assets 22,493,100 28,787,907 Other non-current assets 3,721,606,444 3,718,674,166 Total non-current assets 8,853,145,849 8,761,235,274 Total assets 10,659,649,518 10,749,554,900 Current liabilities: Short-term loans 200,000,000 600,000,000 Financial liabilities measured at the fair value and the variation of which is recorded into the current profit and loss Derivative financial liabilities Bills payable Accounts payable 82,489,858 97,833,124 Advances from customers 6,000,000 6,000,000 Employee remunerations 59,439,264 70,108,076 Taxes payable 5,443,037 14,569,690 Interest payable 238,356 652,500 Dividends payable Other payables 573,572,022 544,713,172 Liabilities held for sale Non-current liabilities due within one year Other current liabilities 3,693,054 3,953,054 Total current liabilities 930,875,591 1,337,829,616 Non-current liabilities: Long-term borrowings Bonds payable Including: Preferred stock Perpetual capital securities Long-term accounts payable Long-term employee remuneration payable Special accounts payable Estimated liabilities 49 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Item Note Ending balance Beginning balance Deferred income 11,253,946 12,970,473 Deferred tax liabilities Other non-current liabilities 2,235,802 2,235,802 Total non-current liabilities 13,489,748 15,206,275 Total liabilities 944,365,339 1,353,035,891 Owner’s equity: Capital stock 685,464,000 685,464,000 Other equity instruments Including: Preferred stock Perpetual capital securities Capital surplus 557,222,454 557,222,454 Minus: Treasury stock Other comprehensive income Special reserves Surplus reserves 342,732,000 342,732,000 Retained earnings 8,129,865,725 7,811,100,555 Total owner‘s equities 9,715,284,179 9,396,519,009 Total liabilities and owner‘s equities 10,659,649,518 10,749,554,900 Legal Representative: Zhou Hongjiang Accounting Supervisor: Jiang Jianxun Accounting Department Manager: Jiang Jianxun 2.3 Consolidated profit statement Compiling unit: Yantai Changyu Pioneer Wine Co., Ltd. Unit: Yuan Item Note Sum of current period Sum of prior period 1. Total operating income 2,828,230,064 2,767,098,197 Including: Operating income 7.38 2,828,230,064 2,767,098,197 Interest income Earned premium Handling fee and commission income 2. Total operating costs 2,018,939,458 1,890,800,616 Including: Operating costs 7.38 974,557,292 925,754,133 Interest expenditure Handling fees and commission expenditure Premium rebate Net amount of indemnity expenditure Net amount of the withdrawn reserve fund for insurance contract Policy bonus payment Amortized reinsurance expenditures Taxes and surcharges 7.39 165,276,251 160,473,998 Selling expenses 7.40 710,659,033 668,735,726 Administrative expenses 7.41 160,091,888 130,542,386 Financial expenses 7.42 13,085,942 11,147,949 Loss on impairment of assets 7.43 -4,730,948 -5,853,576 50 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Plus: Fair value change profit (loss is listed with "-") Investment profit (loss is listed with "-") Including: Investment profit for joint-run business and joint venture Exchange income (loss is listed with "-") Income from asset disposal (loss is listed with "-") 7.44 93,958 -495,071 Other income 7.45 37,982,878 3. Operating profit (loss is listed with "-") 847,367,442 875,802,510 Plus: Non-operating income 7.46 2,006,392 23,147,605 Minus: Non-operating expenses 7.47 1,392,362 186,568 4. Total profits (total loss is listed with "-") 847,981,472 898,763,547 Minus: Income tax expenses 7.48 211,979,735 228,752,790 5. Net profit (net loss is listed with "-") 636,001,737 670,010,757 5.1 Net profit from continuing operation (net loss is listed with 636,001,737 670,010,757 "-") 5.2 Net profit from terminating operation (net loss is listed with "-") Net profit attributable to owner of the parent company 635,837,405 670,069,054 Minority interest income 164,332 -58,297 6. Net after-tax amount of other comprehensive income 7.49 -11,126,413 1,767,741 Net after-tax amount of other comprehensive income attributable to -9,230,820 1,458,809 owner of the parent company 6.1 Other comprehensive income not to be reclassified into profit and loss later 6.1.1 Net liabilities or net assets change after remeasuring and resetting the benefit plans 6.1.2 Share enjoyed in other comprehensive income not to be reclassified into profit and loss in invested unit under equity law 6.2 Other comprehensive income to be reclassified into profit and -9,230,820 1,458,809 loss later 6.2.1 Share enjoyed in other comprehensive income to be reclassified into profit and loss in invested unit under equity law 6.2.2 Profit and loss from changes in fair value of financial assets for sale 6.2.3 Profit and loss from reclassification of held-to-maturity investment into fair value of financial assets for sale 6.2.4 Effective part of profit and loss of cash-flow hedge 6.2.5 Difference in translation of Foreign Currency Financial -9,230,820 1,458,809 Statement 6.2.6 Other Net after-tax amount of other comprehensive income attributable to -1,895,593 308,932 minority shareholders 7. Total comprehensive income 624,875,324 671,778,498 (1) Attributable to owner of the parent company 626,606,585 671,527,863 (2) Attributable to minority shareholders -1,731,261 250,635 8. Earnings per share 8.1 Basic earnings per share 0.93 0.98 8.2 Diluted earnings per share 0.93 0.98 Legal Representative: Zhou Hongjiang Accounting Supervisor: Jiang Jianxun Accounting Department Manager: Jiang Jianxun 51 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report 2.4 Profit statement of the parent company Compiling unit: Yantai Changyu Pioneer Wine Co., Ltd. Unit: Yuan Item Note Sum of current period Sum of prior period 1. Operating income 15.4 408,845,211 831,820,503 Minus: Operating costs 15.4 352,646,989 737,950,378 Taxes and surcharges 24,463,375 48,865,790 Selling expenses Administrative expenses 40,187,747 40,078,068 Financial expenses -15,151,608 9,292,969 Loss on impairment of assets Plus: Fair value change profit (loss is listed with "-") Investment profit (loss is listed with "-") 15.5 312,409,576 66,127,980 Including: Investment profit for joint-run business and joint venture Income from asset disposal (loss is listed with "-") 75,000 10,448 Other income 1,976,527 2. Operating profit (loss is listed with "-") 321,159,811 61,771,726 Plus: Non-operating income 56,479 1,001,523 Minus: Non-operating expenses 528 20,257 3. Total profits (total loss is listed with "-") 321,215,762 62,752,992 Minus: Income tax expenses 2,450,592 -681,003 4. Net profit (net loss is listed with "-") 318,765,170 63,433,995 4.1 Net profit from continuing operation (net loss is listed with "-") 318,765,170 63,433,995 4.2 Net profit from terminating operation (net loss is listed with "-") 5. Net after-tax amount of other comprehensive income 5.1 Other comprehensive income not to be reclassified into profit and loss later 5.1.1 Net liabilities or net assets change after remeasuring and resetting the benefit plans 5.1.2 Share enjoyed in other comprehensive income not to be reclassified into profit and loss in invested unit under equity law 5.2 Other comprehensive income to be reclassified into profit and loss later 5.2.1 Share enjoyed in other comprehensive income to be reclassified into profit and loss in invested unit under equity law 5.2.2 Profit and loss from changes in fair value of financial assets for sale 5.2.3 Profit and loss from reclassification of held-to-maturity investment into fair value of financial assets for sale 5.2.4 Effective part of profit and loss of cash-flow hedge 5.2.5 Difference in translation of Foreign Currency Financial Statement 5.2.6 Other 6. Total comprehensive income 318,765,170 63,433,995 7. Earnings per share 7.1 Basic earnings per share 0.47 0.09 7.2 Diluted earnings per share 0.47 0.09 Legal Representative: Zhou Hongjiang Accounting Supervisor: Jiang Jianxun Accounting Department Manager: 52 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Jiang Jianxun 2.5 Consolidated cash flow statement Compiling unit: Yantai Changyu Pioneer Wine Co., Ltd. Unit: Yuan Item Note Sum of current period Sum of prior period 1. Cash flows from operating activities: Cash received from sales of goods and rending of 2,680,388,050 2,524,565,138 services Net increase in customer and interbank deposits Net increase in borrowings from central bank Net increase in borrowings from other financial institutions Cash received from receiving insurance premium of original insurance contract Net cash received from reinsurance business Net increase in policy holder deposits and investment funds Net increase after disposal of financial assets measured at the fair value and the variation of which is recorded into the current profit and loss Cash received from collecting interest, handling fees and commission Net increase in borrowings Net increase in repurchasement business funds Tax refund received 26,089,608 12,777,072 Other cash received related to operating activities 7.50 42,343,021 38,889,912 Subtotal of cash flows of operating activities 2,748,820,679 2,576,232,122 Cash paid for goods and services 677,552,938 640,732,974 Net increase in customer loans and advances Net increase in deposits in central bank and interbank deposits Cash paid to original insurance contract payments Cash paid to interest, handling fees and commission Cash paid to policy bonus Cash paid to and on behalf of employees 278,814,385 239,805,346 Cash paid for taxes and expenses 802,722,798 842,815,705 Other cash paid related to operating activities 7.50 436,977,086 432,517,778 Sub-total of cash outflows of operating activities 2,196,067,207 2,155,871,803 Net cash flow from operating activities 552,753,472 420,360,319 2. Cash flow from investing activities: Cash received from disinvestment Cash received from withdrawal of fixed deposits 305,000,000 3,000,000 Cash received from obtaining investment profit 2,342,015 25,550 Cash received from disposal of fixed assets, intangible 471,130 237,161 assets and other long-term assets Net cash received from disposal of branch and other business unit Other cash received related to investing activities Subtotal of cash flows of investment activities 307,813,145 3,262,711 53 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Item Note Sum of current period Sum of prior period Cash paid to acquire fixed assets, intangible assets and 154,464,274 282,149,010 other long-term assets Cash for investment Cash paid for purchasing fixed deposits 340,000,000 201,000,000 Net increase in hypothecated loan Net cash paid for acquiring branch and other business 104,566,419 unit Other cash paid related to investment activities 7.50 317,654,642 Subtotal of cash outflows of investment activities 599,030,693 800,803,652 Net cash flow from investing activities -291,217,548 -797,540,941 3. Cash flow from financing activities Cash received from acquiring investment 48,396,726 Including: cash received from acquiring minority 48,396,726 shareholders investment by branch Cash received from acquiring loans 669,905,706 773,435,000 Cash received from issuing bonds Other cash received related to financing activities 7.50 23,521,431 1,303,473 Subtotal cash flows of financing activities 693,427,137 823,135,199 Cash paid for paying debts 658,512,141 451,386,980 Cash paid for distributing dividend and profit or paying 21,265,533 17,869,513 interest Including: dividend and profit paid to minority shareholders by branch Other cash paid related to financing activities 7.50 20,000,000 Subtotal of cash outflows of financing activities 699,777,674 469,256,493 Net cash flow from financing activities -6,350,537 353,878,706 4. Influences of exchange rate fluctuation on cash -7,404,199 -4,152,485 and cash equivalents 5. Net Increase in cash and cash equivalents 247,781,188 -27,454,401 Plus: balance at the beginning of the period of cash and 1,180,889,274 1,256,942,304 cash equivalents 6. Balance at the end of the period of cash and cash 1,428,670,462 1,229,487,903 equivalents Legal Representative: Zhou Hongjiang Accounting Supervisor: Jiang Jianxun Accounting Department Manager: Jiang Jianxun 2.6 Cash flow statement of the parent company Compiling unit: Yantai Changyu Pioneer Wine Co., Ltd. Unit: Yuan Item Sum of current period Sum of prior period 1. Cash flows from operating activities: Cash received from sales of goods and rending of services 275,862,358 570,587,513 Tax refund received Other cash received related to operating activities 100,163,394 385,490,644 Subtotal of cash flows of operating activities 376,025,752 956,078,157 Cash paid for goods and services 200,935,534 269,148,068 Cash paid to and on behalf of employees 43,647,320 52,895,854 Cash paid for taxes and expenses 43,132,327 169,319,730 54 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Item Sum of current period Sum of prior period Other cash paid related to operating activities 19,942,485 62,494,076 Sub-total of cash outflows of operating activities 307,657,666 553,857,728 Net cash flow from operating activities 68,368,086 402,220,429 2. Cash flow from investing activities: Cash received from disinvestment Cash received from withdrawal of fixed deposits 305,000,000 3,000,000 Cash received from obtaining investment profit 720,009,450 198,082,845 Net cash received from disposal of fixed assets, intangible assets and 538,055.18 206,280 other long-term assets Net cash received from disposal of branch and other business unit Other cash received related to investing activities Subtotal of cash flows of investment activities 1,025,547,505.18 201,289,125 Cash paid to acquiring fixed assets, intangible assets and other 11,968,401 3,295,270 long-term assets Cash for investment 105,926,184 329,440,824.11 Cash paid for purchasing fixed deposits 340,000,000 104,999,999.89 Net cash paid for acquiring branch and other business unit Other cash paid related to investment activities Subtotal of cash outflows of investment activities 457,894,585 437,736,094 Net cash flow from investing activities 567,652,920.18 -236,446,969 3. Cash flow from financing activities Cash received from acquiring investment Cash received from acquiring loans 200,000,000 700,000,000 Cash received from issuing bonds Other cash received related to financing activities Subtotal cash flows of financing activities 200,000,000 700,000,000 Cash paid for debts 600,000,000 514,667,600 Cash paid to distribute dividend, profit or pay interest 11,660,417 9,720,581 Other cash paid related to financing activities Subtotal of cash outflows of financing activities 611,660,417 524,388,181 Net cash flow from financing activities -411,660,417 175,611,819 4. Influences of exchange rate fluctuation on cash and cash equivalents 5. Net Increase in cash and cash equivalents 224,360,589.18 341,385,279 Plus: balance at the beginning of the period of cash and cash 493,568,866 238,003,198 equivalents 6. Balance at the end of the period of cash and cash equivalents 717,929,455.18 579,388,477 Legal Representative: Zhou Hongjiang Accounting Supervisor: Jiang Jianxun Accounting Department Manager: Jiang Jianxun 55 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report 2.7 Consolidated owner’s equity changing list Unit: Yuan This period Owners‘ equity of the parent company Item Other equity instruments Minority Minus: Other Total owners‘ Capital Special Surplus General risk Undistributed shareholders‘ Capital stock Perpetual Treasury comprehensive equity Preferred capital reserves reserves reserves preparation profits equity stock Other stock income securities 1. Balance at the end of last 685,464,000 565,955,441 3,109,240 342,732,000 7,309,081,618 271,636,379 9,177,978,678 year Plus: Accounting policies changing Previous error correction Business combination under common control Other 2. Balance at the beginning of 685,464,000 565,955,441 3,109,240 342,732,000 7,309,081,618 271,636,379 9,177,978,678 this year 3. Increased or decreased amount in this period (reducing -9,230,820 635,837,405 15,055,540 641,662,125 amount is listed with "-") 3.1 Total comprehensive -9,230,820 635,837,405 -1,731,261 624,875,324 income 3.2 Owners' invested and 17,532,822 17,532,822 reduced capital 3.2.1 Shareholders‘ invested common stock 3.2.2 Other equity instrument holders‘ invested capital 3.2.3 Amount of shares paid and reckoned in owners' equity 56 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report 3.2.4 Other 17,532,822 17,532,822 3.3 Profit distribution -746,021 -746,021 3.3.1 Accrued surplus reserves 3.3.2 Accrued general risk preparation 3.3.3 Distribution to owners -746,021 -746,021 (or shareholders) 3.3.4 Other 3.4 Internal transfer of owners' equity 3.4.1 Capital reserves transferred and increased capital (or capital stock) 3.4.2 Surplus reserves transferred and increased capital (or capital stock) 3.4.3 Surplus reserves covering deficit 3.4.4 Other 3.5 Special reserves 3.5.1 Withdrawal in this period 3.5.2 Usage in this period 3.6 Other 4. Balance at the end of this 685,464,000 565,955,441 -6,121,580 342,732,000 7,944,919,023 286,691,919 9,819,640,803 period 57 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Unit: Yuan Prior period Owners‘ equity of the parent company Item Other equity instruments Minority Minus: Other Total owners‘ Capital Special Surplus General risk Undistributed shareholders‘ Capital stock Preferred Perpetual Treasury comprehensive equity equity capital reserves reserves reserves preparation profits stock Other stock income securities 1. Balance at the end of last 685,464,000 565,955,441 -5,259,014 342,732,000 6,620,118,562 190,473,697 8,399,484,686 year Plus: Accounting policies changing Previous error correction Business combination under common control Other 2. Balance at the beginning of 685,464,000 565,955,441 -5,259,014 342,732,000 6,620,118,562 190,473,697 8,399,484,686 this year 3. Increased or decreased amount in this period (reducing 8,368,254 688,963,056 81,162,682 778,493,992 amount is listed with "-") 3.1 Total comprehensive 8,368,254 1,031,695,056 3,594,080 1,043,657,390 income 3.2 Owners' invested and 78,236,726 78,236,726 reduced capital 3.2.1 Shareholders‘ invested common stock 3.2.2 Other equity instrument holders‘ invested capital 3.2.3 Amount of shares paid and reckoned in owners' equity 3.2.4 Other 78,236,726 78,236,726 58 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report 3.3 Profit distribution -342,732,000 -668,124 -343,400,124 3.3.1 Drew surplus reserves 3.3.2 Drew general risk preparation 3.3.3 Distribution to owners (or -342,732,000 -668,124 -343,400,124 shareholders) 3.3.4 Other 3.4 Internal transfer of owners' equity 3.4.1 Capital reserves transferred and increased capital (or capital stock) 3.4.2 Surplus reserves transferred and increased capital (or capital stock) 3.4.3 Surplus reserves covering deficit 3.4.4 Other 3.5 Special reserves 3.5.1 Accrual in this period 3.5.2 Usage in this period 3.6 Other 4. Balance at the end of this 685,464,000 565,955,441 3,109,240 342,732,000 7,309,081,618 271,636,379 9,177,978,678 period 59 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report 2.8 Owner’s equity changing list of the parent company Unit: Yuan This period Other equity instruments Minus: Other Item Capital Capital Special Surplus Undistributed Total owners‘ Preferred Perpetual capital Treasury comprehensive stock Other reserves reserves reserves profits equity stock securities stock income 1. Balance at the end of last year 685,464,000 557,222,454 342,732,000 7,811,100,555 9,396,519,009 Plus: Accounting policies changing Previous error correction Other 2. Balance at the beginning of this year 685,464,000 557,222,454 342,732,000 7,811,100,555 9,396,519,009 3. Increased or decreased amount in this 318,765,170 318,765,170 period (reducing amount is listed with "-") 3.1 Total comprehensive income 318,765,170 318,765,170 3.2 Owners' invested and reduced capital 3.2.1 Shareholders‘ invested common stock 3.2.2 Other equity instrument holder‘ invested capital 3.2.3 Amount of shares paid and reckoned in owners' equity 3.2.4 Other 3.3 Profit distribution 3.3.1 Drew surplus reserves 3.3.2 Distribution to owners (or shareholders) 3.3.3 Other 3.4 Internal transfer of owners' equity 3.4.1 Capital reserves transferred and 60 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report increased capital (or capital stock) 3.4.2 Surplus reserves transferred and increased capital (or capital stock) 3.4.3 Surplus reserves covering deficit 3.4.4 Other 3.5 Special reserves 3.5.1 Accrual in this period 3.5.2 Usage in this period 3.6 Other 4. Balance at the end of this period 685,464,000 557,222,454 342,732,000 8,129,865,725 9,715,284,179 Unit: Yuan Prior period Other equity instruments Minus: Other Item Capital Capital Special Surplus Undistributed Total owners‘ Preferred Perpetual capital Treasury comprehensive stock reserves reserves reserves profits equity stock securities Other stock income 1. Balance at the end of last year 685,464,000 557,222,454 342,732,000 7,360,234,545 8,945,652,999 Plus: Accounting policies changing Previous error correction Other 2. Balance at the beginning of this year 685,464,000 557,222,454 342,732,000 7,360,234,545 8,945,652,999 3. Increased or decreased amount in this 450,866,010 450,866,010 period (reducing amount is listed with "-") 3.1 Total comprehensive income 793,598,010 793,598,010 3.2 Owners' invested and reduced capital 3.2.1 Shareholders‘ invested common stock 3.2.2 Other equity instrument holder‘ invested capital 61 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report 3.2.3 Amount of shares paid and reckoned in owners' equity 3.2.4 Other 3.3 Profit distribution -342,732,000 -342,732,000 3.3.1 Drew surplus reserves 3.3.2 Distribution to owners (or shareholders) -342,732,000 -342,732,000 3.3.3 Other 3.4 Internal transfer of owners' equity 3.4.1 Capital reserves transferred and increased capital (or capital stock) 3.4.2 Surplus reserves transferred and increased capital (or capital stock) 3.4.3 Surplus reserves covering deficit 3.4.4 Other 3.5 Special reserves 3.5.1 Accrual in this period 3.5.2 Usage in this period 3.6 Other 4. Balance at the end of this period 685,464,000 557,222,454 342,732,000 7,811,100,555 9,396,519,009 62 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report 3. Company profile Yantai Changyu Pioneer Wine Co., Ltd. (the “Company” or the “Joint-stock Company”) was incorporated as a joint-stock limited company in accordance with the Company Law of the People’s Republic of China (the “PRC”) in the merger and reorganization carried out by Yantai Changyu Group Co., Ltd. (“Changyu Group Company”) with its assets and liabilities in relation to wine business. The Company and its subsidiary companies (hereinafter collectively referred to as the “Group”) are engaged in the production and sale of wine, brandy and champagne, planting and purchase of grapes, development of tourism resources, etc. The registered address of the Company is Yantai City, Shandong Province, and the office address of the headquarters is 56 Dama Road, Zhifu District, Yantai City, Shandong Province. As at June 30, 2018, the Company issued 685,464,000 shares accumulatively. Refer to Note 7.33 for the details. The parent company of the Group is Changyu Group Company incorporated in China, which was ultimately and actually controlled by four parties, including Yantai Guofeng Investment Holding Co., Ltd., ILLVA Saronno Holding Spa, International Finance Corporation and Yantai Yuhua Investment & Development Co., Ltd. The financial statement and the consolidated financial statement of the Company were approved by the Board of Directors on August 28, 2018. The scope of the consolidated financial statement in this period can be seen in Note 9 “Equity in other entities”. The scope changes of the consolidated financial statement in this period can be seen in Note 8 “Changes of the consolidated scope”. 4. Preparation basis of financial statement 4.1 Preparation basis 63 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report The Group implements the Accounting Standards for Business Enterprises (including the new and revised editions published in 2014) (“ASBE”) published by the Ministry of Finance and relevant regulations thereof. In addition, the Group also discloses relevant financial information in accordance with Information Disclosure and Preparation Rules for Enterprises Publically Issuing Securities No.15 ---- General Rules for Financial Statement (Revised in 2014). Note-accounting basis and pricing principle The note-accounting basis of financial accounting adopted by the Group is accrual system and the measurement basis adopted by the Group in preparing its financial statement is historical cost. Subsequently, if the assets are impaired, impairment provisions are made in accordance with relevant accounting standards. When the historical cost measurement is used, the assets are measured by the amount of cash or cash equivalent when the assets are purchased or the fair value of the consideration. The liabilities are measured by the actually received funds or assets for performing the current obligations, or the contract amount for performing the current obligations, or the amount of cash or cash equivalent paid for anticipated liabilities in the daily activities. Fair value refers to a price received for selling an asset or paid for transferring a liability by the market participant in orderly transactions on the measurement date. No matter the fair value is observable or estimated by the valuation technique, the fair value measured and disclosed in this financial statement is recognized on this basis. The fair value measurement is divided into three levels based on the observable degree of the input fair value and the importance of this input value on the whole fair value measurement: *The input value of the first level is the unadjusted price of the same assets or liabilities which can be acquired in an active market on the measurement date. *The input value of the second level is the directly or indirectly observable input value of relevant assets or liabilities except that of the first level. *The input value of the third level is the unobservable input value of relevant assets or liabilities. 64 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report 4.2 Continuous operation The Group has appraised the ability of continuous operation for 12 months from June 30, 2018, and no issues or situations causing major doubts to this ability are found. Therefore, this financial statement is prepared on the basis of the continuous operation assumption. 5. Main accounting policies and accounting estimates 5.1 Statement on compliance with ASBE This financial statement fulfills the requirement of ASBE and gives a true and integrated view of the financial status and the consolidated financial status as at June 30, 2018, as well as the operating result, the consolidated operating result, the cash flow and the consolidated cash flow of the Company from January to June 2018. 5.2 Accounting period The accounting period of the Group is from January 1 to December 31. 5.3 Operating cycle The operating cycle refers to the period from the enterprise purchases the assets used for processing to the cash or cash equivalent is realized. The operating cycle of the Company is 12 months. 5.4 Recording currency Since Renminbi (RMB) is the currency of the main economic environment in which the Company and the domestic subsidiary companies thereof are situated, the Company and the subsidiary companies thereof adopt RMB as the recording currency. The overseas subsidiary companies thereof determine Euro, Chilean Peso and Australian Dollar as the recording currency according to the main economic environment in which they are situated. The currency in this financial statement prepared by the Group is RMB. 5.5 Accounting treatment method for business combination under common control and 65 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report non-common control 5.5.1 Business combination and goodwill under non-common control A business combination under non-common control is a business combination in which all of the combining enterprises are not ultimately controlled by the same party or parties before and after the combination. The combination cost shall be the fair value of the assets paid, the liabilities incurred or assumed or the equity instruments issued by the acquirer in exchange for the control over the acquiree. The intermediary expenses such as audit, legal services and assessment consultation and other related management expenses paid by the acquirer for business combination are included in the current profit and loss when they occur. The identifiable assets, liabilities and contingent liabilities which are obtained from the acquiree in the business combination and meet the recognition conditions shall be measured on the acquisition date according to the fair value thereof. Where the cost of combination exceeds the acquirer’s interest in the fair value of the acquiree’s identifiable net assets, the difference is treated as an asset and recognised as goodwill, which is measured at cost on initial recognition. Where the cost of combination is less than the acquirer ’s interest in the fair value of the acquiree’s identifiable net assets, the acquirer firstly re-assesses the measurement of the fair values of the acquiree’s identifiable assets, liabilities and contingent liabilities and measurement of the cost of combination. If after that reassessment, the cost of combination is still less than the acquirer’s interest in the fair value of the acquiree’s identifiable net assets, the acquirer recognises the remaining difference immediately in profit or loss for the current period. The goodwill formed due to business combination shall be separately listed in the consolidated financial statement and measured on the basis of the cost minus the accumulative impairment provision. 5.6 Compiling methods of consolidated financial statement The consolidation scope of the consolidated financial statement is determined on the basis of control. Control means that the investor holds the power in the invested party, obtains variable returns by 66 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report participating in relevant activities of the invested party and has the ability to affect the amount of the returns by using the power on the invested party. Once any change of the relevant facts and situations results in any change of relevant elements of the above definition of Control, the Group will carry out reappraisal. The merger of any subsidiary company starts from the date when the Group acquires the power to control this subsidiary company, while the termination of any subsidiary company ends in the date when the Group losses the power to control this subsidiary company. As for any subsidiary company obtained in a business combination under non-common control, the business result and the cash flow thereof since the acquisition date (date of obtaining the control power) shall have been properly included in the consolidated income statement and the consolidated cash flow statement. The principal accounting policies and accounting period adopted by the subsidiary companies shall be determined in accordance with the accounting policies and accounting period uniformly regulated by the Company. The influence of the internal transaction between the Company and the subsidiary companies as well as among subsidiary companies on the consolidated financial statement shall be neutralized at the time of combination. The shares in the owner's equity of the subsidiary companies, which do not belong to the parent company, shall be recognized as the minority equity and listed under the item of “minority equity” of the owner’s equity in the balance sheet. The shares in the current profit and loss of the subsidiary companies, which belong to the minority equity, shall be listed under the item of “minority equity”of the net profit in the consolidated income statement. If the loss of the subsidiary companies borne by minority shareholders exceeds the shares of the owner's equity entitled therein by the minority shareholders at the beginning of the period, the difference shall be still credited against the minority equity. 5.7 Recognition standards of cash and cash equivalents 67 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Cash comprises cash on hand and demand deposit of the Company. Cash equivalents refer to short-term highly liquid investments which are readily convertible into known amount of cash with an insignificant risk of changes in value. 5.8 Foreign currency transaction and foreign currency statement translation 5.8.1 Foreign currency transaction At the time of initial recognition of a foreign currency transaction, the amount of the foreign currency shall be translated into the amount of the recording currency at the spot exchange rate on the transaction date. The monetary items of the foreign currency transaction shall be translated into RMB at the spot change rate on the balance sheet date. The currency translation difference generated by the difference between the spot change rate on the balance sheet date and the spot change rate at the initial recognition or on the previous balance sheet date shall be included in the current profit and loss, except: ① the currency translation difference of the dedicated foreign currency loan that meets the capitalization condition shall be included in the cost of assets as capitalization during the capitalization period; ② the currency translation difference of the arbitrage tool to avoid foreign exchange risk shall be treated according to the hedge accounting method; ③ the currency translation difference of the available-for-sale monetary items generated by the book value other than the amortized cost shall be recognized as other comprehensive income and included in other comprehensive income. The amount of the non-monetary items of the foreign currency transaction measured by historical cost shall be still translated into the amount in the recording currency at the spot exchange rate on the transaction date. The non-monetary items of the foreign currency transaction measured by the fair value shall be translated at the spot exchange rate on the fair value date, and the difference between the amount in the recording currency and the amount in original recording currency shall be treated as the change of the fair value (including exchange rate movement) and shall be included in the current profit and loss or recognized as other comprehensive income. 5.8.2 Translation of foreign currency financial statement In order to compile a consolidated financial statement, the foreign currency financial statement of 68 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report overseas business shall be translated into RMB financial statement in accordance with the following methods: all asset and liability items in the balance sheet shall be translated at the spot exchange rate on the balance sheet date; the shareholders' equity items, except for the ones as "undistributed profits", shall be translated at the spot exchange rate at the time when they occur; all items and the items reflecting the accrual profit distribution in the profit statement shall be translated at the exchange rate similar to the spot exchange rate at the time when they occur; the undistributed profits at the beginning of the year shall be the translated to the undistributed profits at the end of the previous year; the undistributed profits at the end of the year shall be calculated and listed as the translated profit distribution items; and the difference between the asset items and the sum of the liability items and the shareholders’ equity items shall be recognized as other comprehensive income and included in the shareholder's equity. The foreign currency cash flows and the cash flows of the overseas subsidiary companies shall be translated at the exchange rate similar to the spot exchange rate at the time when they occur; the amount of the cash and cash equivalents impacted by the exchange rate movement shall be, as a reconciling item, separately listed under “impact of exchange rate movement on cash and cash equivalents” in the cash flow statement. The balance at the beginning of the year and the actual amount of the previous year shall be listed as the amount translated according to the financial statement of the previous year. 5.9 Financial instruments When becoming a party to a contract of financial instruments, the Group shall recognize a financial asset or financial liability. The financial assets and financial liabilities shall be measured at their fair value at the time of initial recognition. For other categories of financial assets and financial liabilities, relevant transaction expenses thereof shall be included in the initially recognized amount. 5.9.1 Effective interest method The effective interest method refers to the method by which the amortized cost and the interest income or expenditure of different installments are calculated in light of the effective interest rates of the financial assets or financial liabilities (including a group of financial assets or financial liabilities). The effective interest rate refers to the interest rate adopted to cash the future cash flow of a financial asset 69 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report or financial liability within the predicted term of existence or within a shorter applicable term into the current book value of the financial asset or financial liability. When the effective interest rate is calculated, the Group predicts the future cash flow (taking no account of the future credit loss) on the basis of considering all the contractual provisions concerning the financial assets or financial liabilities, as well as all kinds of charges, transaction expenses, discounts, premiums, etc. which are paid, charged, and included in the effective interest rate between the contracting parties of the financial assets or liabilities. 5.9.2 Classification, recognition and measurement of financial assets Financial assets are classified into the following categories when they are initially recognized: the financial assets which are measured at the fair value and the variation of which is included in the current profit and loss, the investments which will be held to their maturity, loans, accounts receivable and available-for-sale financial assets. The financial assets purchased and sold through common modes shall be recognized and terminated from recognition according to the accounting on the transaction date. The financial assets held by the Group are loans, accounts receivable and available-for-sale financial assets. Loans and accounts receivable Loans and accounts receivable refer to the non-derivative financial assets for which there is no quoted price in an active market and of which the repo amount is fixed or determinable. The financial assets classified by the Group into loans and accounts receivable include monetary capital, bills receivable, accounts receivable, interest receivable, dividends receivable and other receivables. The loans and accounts receivable shall be subsequently measured at amortized cost by adopting the effective interest rate method. The profits or losses that occur when such loans and accounts receivable are terminated from recognition, impaired or amortized shall be included in the current profit and loss. Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that are designated as available for sale at the time of initial recognition and the financial assets other than those measured at their fair value and the variation of which is included in the current profit and loss, loans, accounts receivable 70 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report and the investments which will be held to their maturity. The equity instrument investment without quoted market price in an active market whose fair value cannot be reliably measured shall be measured by cost. 5.9.3 Impairment of financial assets On each balance sheet date, the Group checks the book value of the financial assets. If there is any objective evidence indicating that a financial asset is impaired, the impairment provision is accrued. Objective evidence indicating the impairment of financial assets refers to those occurring after the initial recognition, have effect on the estimated future cash flow of the financial assets, and can be measured reliably. The objective evidence indicating the impairment of the financial assets includes the following observable matters: A serious financial difficulty occurs to the issuer or the debtor; The debtor breaches any of the contractual stipulations, such as, failure to pay or delay of the payment of interest or principal; The Group makes any concession due to economic, legal factors or other factors to the debtor which is in financial difficulties; The debtor will probably become bankrupt or carry out other financial reorganizations; The financial assets can no longer continue to be traded in an active market due to serious financial difficulties of the issuer; It is impossible to identify whether the cash flow of a certain asset within a certain group of financial assets has decreased or not. But after making an overall appraisal according to the public data available, it is found that the estimated future cash flow of the said group of financial assets has indeed decreased since it was initially recognized and such decrease can be measured, including: The payment ability of the debtor of the said group of financial assets worsens gradually; The country or economic region where the debtor is situated has the conditions that may cause the financial assets to be unpaid. A serious unfavourable change occurs to the operating technology, market, economic environment, legal environment of the issuer of the equity instruments that causes the investor of the equity instruments can’t recover the investment costs; The fair value of the equity instrument investment has serious or permanent decline; Other objective evidence showing the depreciation of the financial assets. 71 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Impairment of financial assets measured by amortized cost Where a financial asset measured at amortized cost is impaired, the book value of the said financial asset shall be written down to the current value of the predicted future cash flow determined according to the capitalization of original effective exchange rate (excluding the loss of future credits not yet occurred), and the amount as written down shall be recognized as loss of the impairment of the asset and shall be included into the current profit and loss. If there is any objective evidence proving that the value of the said financial asset has been restored, and it is objectively related to the events that occur after such loss is recognized, the impairment losses originally recognized shall be reversed. However, the reversed book value shall not be any more than the amortized costs of the said financial asset on the day of reverse under the assumption that no provision is made for the impairment. An impairment test shall be made by the Group independently on the individually significant financial assets; with regard to not individually significant financial assets, an independent impairment test may be carried out, or they may be included in a combination of financial assets with similar credit risk characteristics so as to carry out an impairment-related test. Where, upon independent test, the financial asset (including the individually significant financial assets and not individually significant financial assets) has not been impaired, it shall be included in a combination of financial assets with similar credit risk characteristics so as to conduct another impairment test. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognized shall not be included in the combination of the financial assets with similar credit risk characteristics for impairment test. Impairment of available-for-sale financial assets measured by cost When the equity instrument investment without quoted market price in an active market and the fair value of which cannot be reliably measured is impaired, the book value is decreased to the current value confirmed by the discounted future cash flow according to the current market return of the similar financial assets. The decreased amount is recognized as impairment loss and included in the current profit and loss. The impairment loss of this kind of financial assets can’t be transferred back upon confirmation. 5.9.4 Transfer of financial assets Where a financial asset satisfies any of the following conditions, it shall be terminated from recognition: ① Where the contractual rights for collecting the cash flow of the said financial asset are terminated; ② Where the said financial asset has been transferred and all the risks and rewards of the financial asset have been substantially transferred to the receiver; ③ Where the financial asset has been transferred, although the Group does not transfer or retain almost all the risks and rewards of the 72 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report financial asset, the Group still waives the control over the financial asset. Where the overall transfer of the financial asset satisfies the derecognition conditions, the difference between the book value of the transferred financial asset as well as the consideration received due to such transfer and the summation of the cumulative amount of the fair value of the asset that is originally included in other comprehensive income shall be included in the current profit and loss. 5.9.5 Classification, recognition and measurement of financial liabilities The Group classifies the financial instruments or the components as financial liabilities or equity instruments at the time of initial recognition according to the contract terms of the issued financial instruments and the reflected economic essence rather than only the legal form, considering the definition of financial liabilities and equity instruments. On initial recognition, financial liabilities are classified into financial liabilities at fair value through profit or loss and other financial liabilities. The financial liabilities in group are other financial liabilities, including short-term borrowings, notes payable, account payables, interest payables, other payables, non-current liabilities due within one year and long-term payables etc. Other financial liabilities Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with gain or loss arising from derecognition or amortisation recognised in profit or loss. 5.9.6 Derecognition of financial liabilities The Group derecognises a financial liability (or part of it) only when the underlying present obligation (or part of it) is discharged. When the Group derecognises a financial liability or a part of it, it recognises the difference between the carrying amount of the financial liability (or part of the financial liability) derecognised and the consideration paid (including any non-cash assets transferred or new financial liabilities assumed) in profit or loss. 73 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report 5.9.7 Offsetting financial assets and financial liabilities Where the Group has a legal right that is currently enforceable to set off the recognised financial assets and financial liabilities, and intends either to settle on a net basis, or to realise the financial asset and settle the financial liability simultaneously, a financial asset and a financial liability shall be offset and the net amount is presented in the balance sheet. Except for the above circumstances, financial assets and financial liabilities shall be presented separately in the balance sheet and shall not be offset. 5.9.8 Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. The Group does not recognise any changes in the fair value of equity instruments. The equity instruments transaction expenses deducted from equity. The Group treats distribution to equity instrument holders as profit distributions. Shareholder equity is not affected by share dividend distributed. 5.10 Accounts Receivable The Group believes that the individual receivables are all significant, and the corresponding receivables are individually tested for impairment, and individual recognition method is used to confirm bad debt provision. 5.11 Inventories 5.11.1 Categories of inventories The Group's inventories mainly include raw materials, work in progress and finished goods. Inventories are initially measured at cost. Cost of inventories comprises all costs of purchase, costs of conversion and other expenditures incurred in bringing the inventories to their present location and condition. 5.11.2 Valuation method of inventories upon delivery 74 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report The actual cost of inventories upon delivery is calculated using the weighted average method. Agricultural products harvested are reported in accordance with the CAS 1 Inventories. 5.11.3 Basis for determining net realisable value of inventories and provision methods for decline in value of inventories At the balance sheet date, inventories are measured at the lower of cost and net realisable value. If the net realisable value is below the cost of inventories, a provision for decline in value of inventories is made. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion, the estimated costs necessary to make the sale and relevant taxes. Net realisable value is determined on the basis of clear evidence obtained, and takes into consideration the purposes of holding inventories and effect of post balance sheet events. Provision for decline in value of other inventories is made based on the excess of cost of inventory over its net realisable value on an item-by-item basis. After the provision for decline in value of inventories is made, if the circumstances that previously caused inventories to be written down below cost no longer exist so that the net realisable value of inventories is higher than their cost, the original provision for decline in value is reversed and the reversal is included in profit or loss for the period. 5.11.4 Inventory count system The perpetual inventory system is maintained for stock system. 5.11.5 Amortisation method for low cost and short-lived consumable items and packaging materials Packaging materials and low cost and short-lived consumable items are amortised using the immediate write-off method. 5.12 Non-current assets held for sale 75 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Non-current assets and disposal groups are classified as held for sale category when the Group recovers the book value through a sale (including an exchange of nonmonetary assets that has commercial substance) rather than continuing use. Non-current assets or disposal groups classified as held for sale are required to satisfy the following conditions: (1) the asset or disposal group is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such asset or disposal group; (2) the sale is highly probable, i.e. the Group has made a resolution about selling plan and obtained a confirmed purchase commitment and the sale is expected to be completed within one year. The Group measures the no-current assets or disposal groups classified as held for sale at the lower of their carrying amount and fair value less costs to sell. Where the carrying amount is higher than the net amount of fair value less costs to sell, carrying amount should be reduced to the net amount of fair value less costs to sell, and such reduction is recognized in impairment loss of assets and included in profit or loss for the period. Meanwhile, provision for impairment of held-for-sale assets are made. When there is increase in the net amount of fair value of non-current assets held for sale less costs to sell at the balance sheet date, the original deduction should be reversed in impairment loss of assets recognized after the classification of held-for-sale category, and the reverse amount is include in profit or loss for the period. Non-current assets held for sale in non-current assets are not subject to depreciation or amortization. 5.13 Long term equity investments 5.13.1 Basis for determining control, joint control and significant influence Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Joint control is the contractually agreed sharing of control over an economic activity, and exists only when the strategic financial and operating policy decisions relating to the activity require the unanimous consent of the parties sharing control. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. When determining whether an investing enterprise is able to exercise control or significant influence over an investee, the effect of potential voting rights of the investee (for example, warrants and convertible debts) held by the investing enterprises or other parties that are currently exercisable or convertible shall be considered. 76 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report 5.13.2 Determination of initial investment cost For a long-term equity investment acquired not involving enterprises under common control, the investment cost of the long-term equity investment is the cost of acquisition. Audit fee, legal services, consulting fees and other related management costs in acquisition are expensed in profits and losses when happened. Other long-term equity investments acquired from other than acquisitions are recognised using original cost. 5.13.3 Subsequent measurement and recognition of profit or loss Long-term equity investment accounted for using the cost method The Group accounts for long-term equity investment using the cost method. A subsidiary is an investee that is controlled by the Group. Under the cost method, a long-term equity investment is measured at initial investment cost. Long-term equity investment is adjusted when capital is added or recollected. Investment income is recognised in the period in accordance with the attributable share of cash dividends or profit distributions declared by the investee. 5.13.4 Disposal of long-term equity investments On disposal of a long term equity investment, the difference between the proceeds actually received and receivable and the carrying amount is recognised in profit or loss for the period. 5.14 Investment properties Investment property is property held to earn rentals or for capital appreciation or both. 77 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report An investment property is measured initially at cost. Subsequent expenditures incurred for such investment property are included in the cost of the investment property if it is probable that economic benefits associated with an investment property will flow to the Group and the subsequent expenditures can be measured reliably. Other subsequent expenditures are recognised in profit or loss in the period in which they are incurred. The Group uses the cost model for subsequent measurement of investment property, and adopts a depreciationor amortisation policy for the investment property which is consistent with that for buildings or land use rights. When an investment property is sold, transferred, retired or damaged, the Group recognises the amount of any proceeds on disposal net of the carrying amount and related taxes in profit or loss for the period. 5.15 Fixed assets 5.15.1 Recognition criteria for fixed assets Fixed assets are tangible assets that are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes, and have useful lives of more than one accounting year. A fixed asset is recognised only when it is probable that economic benefits associated with the asset will flow to the Group and the cost of the asset can be measured reliably. Fixed assets are initially measured at cost. Subsequent expenditures incurred for the fixed asset are included in the cost of the fixed asset and if it is probable that economic benefits associated with the asset will flow to the Group and the subsequent expenditures can be measured reliably. Meanwhile the carrying amount of the replaced part is derecognised. Other subsequent expenditures are recognised in profit or loss in the period in which they are incurred. 5.15.2 Depreciation of each category of fixed assets A fixed asset is depreciated over its useful life using the straight-line method since the month subsequent to the one in which it is ready for intended use. The useful life, estimated net residual value rate and annual depreciation rate of each category of fixed assets are as follows: 78 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Depreciation Residual value Annual depreciation Classification Depreciation method life rate rate Straight-line Houses and buildings 20-40 years 0-5% 2.4%-5.0% depreciation Straight-line 5-30 years 0-5% 3.2%-20.0% Machinery equipment depreciation Straight-line 4-12 years 0-5% 7.9%-25.0% Transportation tools depreciation Estimated net residual value assumes the situation where a fixed asset expire for its estimated useful life and is in its expected final status. Estimated net residual value is the amount that the Group can obtain from the disposal less expected disposal fees. 5.15.3 Other explanations If a fixed asset is upon disposal or no future economic benefits are expected to be generated from its use or disposal, the fixed asset is derecognised. When a fixed asset is sold, transferred, retired or damaged, the amount of any proceeds on disposal of the asset net of the carrying amount and related taxes is recognised in profit or loss for the period. The Group reviews the useful life and estimated net residual value of a fixed asset and the depreciation method applied at least once at each financial year-end, and account for any change as a change in an accounting estimate. 5.16 Construction in progress Construction in progress is measured at its actual costs. The actual costs include various construction expenditures during the construction period, borrowing costs capitalised before it is ready for intended use and other relevant costs. Construction in progress is not depreciated. Construction in progress is transferred to a fixed asset when it is ready for intended use. 5.17 Borrowing costs 79 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Borrowing costs directly attributable to the acquisition, construction or production of qualifying asset are capitalised when expenditures for such asset and borrowing costs are incurred and activities relating to the acquisition, construction or production of the asset that are necessary to prepare the asset for its intended use or sale have commenced. Capitalisation of borrowing costs ceases when the qualifying asset being acquired, constructed or produced becomes ready for its intended use or sale. Capitalisation of borrowing costs is suspended during periods in which the acquisition, construction or production of a qualifying asset is suspended abnormally and when the suspension is for a continuous period of more than 3 months. Capitalisation is suspended until the acquisition, construction or production of the asset is resumed. Other borrowing costs are recognised as an expense in the period in which they are incurred. Where funds are borrowed under a specific-purpose borrowing, the amount of interest to be capitalized is the actual interest expense incurred on that borrowing for the period less any bank interest earned from depositing the borrowed funds before being used on the asset or any investment income on the temporary investment of those funds. 5.18 Biological assets The Group's biological assets are bearer biological assets. Bearer biological assets are biological assets, for example, held for the production of agricultural produce, provision of services or rental, Bearer biological assets in the Group are vines. A bearer biological asset is initially measured at cost. The cost of a bearer biological asset self-grown or self-bred comprises those costs necessarily incurred and directly attributable to the asset before the asset becomes available for its intended production and operating purposes, and any borrowing cost meeting the capitalisation criteria. The productive biological assets are not accrued depreciation until reaching the intended production and operation purposes. After reaching the intended production and operation purposes, the productive biological assets are accrued depreciation within the service life straight-line depreciation. The service life, estimated net residual value rate and annual depreciation rate of different productive biological assets are as follows: Estimated Estimated Annual Category useful life residual rate depreciation rate Vines 20 years - 5.0% 80 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report The Group evaluates the useful life and expected net salvage value by considering the normal producing life of the bearer biological assets. The Group reviews the useful life and estimated net residual value of bearer biological assets and the depreciation method applied at least once at each financial year-end, and account for any change as a change in an accounting estimate. On the sale, identification of any shortages during stocktaking, death or damage of biological asset, the proceeds on disposal net of the carrying amount and relevant taxes is recognised in profit or loss for the current period. 5.19 Intangible assets Intangible assets include land use rights, software, etc. An intangible asset is measured initially at cost method. When an intangible asset with a finite useful life is available for use, its original cost less net residual value and any accumulated impairment losses is amortised over its estimated useful life using the straight-line method. Intangible assets with indefinite useful lives are not amortized. The useful lives of the intangible assets are as follows: Annual Item Useful life Net residual value amortization rate Land use rights 40-50 years - 2.0%-2.5% Software 5-10 years - 10.0%-20.0% Trademark 10 years - 10.0% Except for the above intangible assets with finite useful lives, the Group had also land use right and trademark with infinite useful lives. Land use right with infinite useful lives was related to the acquisition of permanent ownership held by Via Indómita, S.A., Via Dos Andes, S.A., and Bodegas Santa Alicia SpA. (collectively referred to as the "Chile Indomita Wine Group") according to related Chilean law and the acquisition of permanent ownership held by Kilikanoon Estate Pty Ltd (referred to as the "Australia Kilikanoon") according to related Australian law, for which there is no need to conduct amortization. Trademark was related to the Group acquired the Chile Indomita Wine Group, 81 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report which had no finite useful lives. The valuation of trademark was based on the trends in the market and competitive environment, product cycle, and managing long-term development strategy. Those basis indicated the trademark will provide net cash flows to the Group within a given period. Because it was hard to predict the period that it would bring economic benefits to the Group, the useful lives were uncertain. For an intangible asset with a finite useful life, the Group reviews the useful life and amortisation method at the end of the period, and makes adjustments when necessary. 5.20 Impairment of long-term assets The Group and the Company review the impairment status of long-term equity investments, fixed assets, construction in progress, bearer biological asset and intangible assets with finite useful life at the end of each year. If the assets exist impairment, the Group estimates the recoverable amount of the assets.Intangible assets with indefinite useful life and intangible assets not yet available for use are tested for impairment annually, irrespective of whether there is any indication that the assets may be impaired. Recoverable amount is estimated on individual basis. If it is not practical to estimate the recoverable amount of an individual asset, the recoverable amount of the asset group to which the asset belongs will be estimated. The recoverable amount of an asset is the higher of its fair value less costs of disposal and the present value of the future cash flows expected to be derived from the asset. If recoverable amount of assets is less than book value, the difference is recognised as impairment provision and expensed in current period. Goodwill is tested for impairment at least at the end of each year. For the purpose of impairment testing, goodwill is considered together with the related assets group (s), i.e., goodwill is reasonably allocated to the related assets group (s) or each of assets group (s) expected to benefit from the synergies of the combination. An impairment loss is recognised if the recoverable amount of the assets group or sets of assets groups (including goodwill) is less than its carrying amount. The impairment loss is firstly allocated to reduce the carrying amount of any goodwill allocated to such assets group or sets of assets groups, and then to the other assets of the group pro-rata on the basis of the carrying amount of each asset (other than goodwill) in the group. 82 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report The impairment is recognised in profit or loss for the period in which it is incurred and will not be reversed in any subsequent period. 5.21 Long term prepaid expenses Long term prepaid expenses of the Group are amortized over the following period: Amortization period Land requisition fee 50 years Land lease prepayment 50 years Greening fee 5-20 years Leasehold improvement 3-5years Others 3 years 5.22 Employee benefits 5.22.1 Short-term employee benefits In an accounting period in which an employee has rendered service to the Group, the Group recognises the actual employee benefits for that service as a liability. The employee benefits of the Group are either included in cost of related assets or charged to profit or loss in the period when they are incurred. Non-monetary employee benefits are measured at fair value. Social insurances such as medical insurance, injury insurance and pregnancy insurance, housing funds, labor union and employee education fees paid by the Group for employees, are recognised as relevant liability in the period in which the employees provide service, in accordance with the regulated recognition basis and percentage. The related expenditures are either included in cost of related assets or charged to profit or loss in the period when they are incurred. 5.22.2 Accounting treatments of retired benefits Retired benefits of the Group are all predetermined provision plan. 83 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report In the period in which the employees provide service, the Group recognise liability in accordance with the amounts to be paid calculated according to the predetermined provision plan, and the related expenditures are either included in cost of related assets or charged to profit or loss in the period when they are incurred. 5.22.3 Accounting treatments of termination benefits When providing termination benefits to employees, the Group recognise employee benefits payroll resulting from termination benefits at the earlier of: the Group cannot unilaterally withdraw from the termination plan or the redundancy offer; the Group recognise relevant costs and expenses related to the payment of termination benefits in reconstructuring. 5.23 Revenue 5.23.1 Revenue from sale of goods Revenue from sale of goods is recognised when the Group has transferred to the buyer the significant risks and rewards of ownership of the goods. The Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold. The amount of revenue can be measured reliably and it is probable that the associated economic benefits will flow to the Group. The associated costs incurred or to be incurred can be measured reliably. 5.23.2 Revenue from rendering of services When the outcome of a transaction involving the rendering of services can be estimated reliably, revenue associated with the transaction shall be recognized by reference the stage of completion of the transaction at the reporting date. The outcome of a transaction can be estimated reliably. When the outcome of the transaction involving the rendering of services cannot be estimated reliably, revenue is recognised only to the extent of the costs incurred that will be recoverable, and the costs incurred are recognised as expenses for the period. When it is not probable that the costs incurred will be recovered, revenue is not recognised. 84 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report 5.24 Government grants Government grants are transfer of monetary assets and non-monetary assets from the government to the Group at no consideration. A government grant is recognised only when the Group can comply with the conditions attaching to the grant and the Group will receive the grant. Monetary government grants are measured by the amount received or receivable. 5.24.1 Government grant related to an asset A government grant related to an asset is recognised as deferred income, and evenly amortised to profit or loss over the useful life of the related asset. 5.24.2Government grant related to income For a government grant related to income, if the grant is a compensation for related expenses or losses to be incurred in subsequent periods, the grant is recognised as deferred income, and recognised in profit or loss over the periods in which the related costs are recognised. If the grant is a compensation for related expenses or losses already incurred, the grant is recognised immediately in profit or loss for the period. A government grant related to the Group's daily activities is recognized in other income based on the nature of economic activities; a government grant is not related to the Group's daily activities is recognized in non-operating income and expenses. The Company's government loans with below-market rate of interest are directly paid to the Company, and the related low rate interest will write off related borrowing costs. The government loans with below-market rate of interest obtained by other subsidiaries of the Group are government loans, which is provided by local bureau of finance through bank with below-market rate of interest. The actual amount of the loan received by the Group recognized as borrowings, and the related borrowing costs are calculated according to the principal of the loan and the below-market rate. 5.25 Deferred tax assets/deferred tax liabilities 85 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report The income tax expenses include current income tax and deferred income tax. 5.25.1 Current income tax At the balance sheet date, current income tax liabilities (or assets) for the current and prior periods are measured at the amount expected to be paid (or recovered) according to the requirements of tax laws. 5.25.2 Deferred tax assets and deferred tax liabilities For temporary differences between the carrying amounts of certain assets or liabilities and their tax base, or between the nil carrying amount of those items that are not recognised as assets or liabilities and their tax base that can be determined according to tax laws, deferred tax assets and liabilities are recognised using the balance sheet liability method. Deferred tax is generally recognised for all temporary differences. Deferred tax assets for deductible temporary differences are recognised to the extent that it is probable that taxable profits will be available against which the deductible temporary differences can be utilised. However, for temporary differences associated with the initial recognition of goodwill and the initial recognition of an asset or liability arising from a transaction (not a business combination) that affects neither the accounting profit nor taxable profits (or deductible losses) at the time of transaction, no deferred tax asset or liability is recognised. For deductible losses and tax credits that can be carried forward, deferred tax assets are recognised to the extent that it is probable that future taxable profits will be available against which the deductible losses and tax credits can be utilised. Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future. 86 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report At the balance sheet date, deferred tax assets and liabilities are measured at the tax rates, according to tax laws, that are expected to apply in the period in which the asset is realised or the liability is settled. Current and deferred tax expenses or income are recognised in profit or loss for the period, except when they arise from transactions or events that are directly recognised in other comprehensive income or in shareholders' equity, in which case they are recognised in other comprehensive income or in shareholders' equity; and when they arise from business combinations, in which case they adjust the carrying amount of goodwill. At the balance sheet date, the carrying amount of deferred tax assets is reviewed and reduced if it is no longer probable that sufficient taxable profits will be available in the future to allow the benefit of deferred tax assets to be utilised. Such reduction in amount is reversed when it becomes probable that sufficient taxable profits will be available. 5.25.3 Net off of income taxes When the Group has a legal right to settle on a net basis and intends either to settle on a net basis or to realise the assets and settle the liabilities simultaneously, current tax assets and current tax liabilities are offset and presented on a net basis. When the Group has a legal right to settle current tax assets and liabilities on a net basis, and deferred tax assets and deferred tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend either to settle current tax assets and liabilities on a net basis or to realise the assets and liabilities simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected to be reversed, deferred tax assets and deferred tax liabilities are offset and presented on a net basis. 5.26 Leases Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. 5.26.1 Operating lease accounting methods 87 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report The Group as lessee under operating leases Operating lease payments are recognised on a straight-line basis over the term of the relevant lease, and are either included in the cost of related asset or charged to profit or loss for the period. Initial direct costs incurred are charged to profit or loss for the period. The Group as lessor under operating leases Rental income from operating leases is recognised in profit or loss on a straight-line basis over the term of the relevant lease. Initial direct costs with more than an insignificant amount are capitalised when incurred, and are recognised in profit or loss on the same basis as rental income over the lease term. Other initial direct costs with an insignificant amount are charged to profit or loss in the period in which they are incurred. Contingent rents are charged to profit or loss in the period in which they actually arise. 5.27 Changes in major accounting policies and accounting estimates 5.27.1 Changes in major accounting policies No 5.27.2 Changes in major accounting estimates No 5.28 Others Critical judgments in applying accounting policies and key assumptions and uncertainties in accounting estimates In the application of accounting policies as set out in Note 4, the Group is required to make judgments, estimates and assumptions about the carrying amounts of items in the financial statements that cannot be measured accurately, due to the internal uncertainties of the operating activities. These judgments, 88 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report estimates and assumptions are based on historical experience of the Group's management as well as other factors that are considered to be relevant. Actual results may differ from these estimates. The Group periodically review the judgments, estimates and assumptions above on a going concern basis. For those changes in accounting policies that only affect current financial statements, the influences are recognized in current period. For those changes in accounting policies that affect both current and future financial statements, the influences are recognized in both current and prospective periods. Significant accounting judgments and accounting estimates The following are key assumptions for after balance sheet date event and other factors of uncertain estimation. They may cause material adjustment on balance sheet in following accounting period. Deferred tax assets Deferred tax assets are recognized for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and level of future taxable profits together with future tax planning strategies. Depreciation The depreciation is calculated on the straight line basis to write-off the cost of each item of fixed assets to its residual value over its estimated useful life. The Group's management determines the estimated useful lives for its fixed assets. This estimate is based on the historical experience of the actual useful lives of fixed assets of similar nature and functions. If the previous estimates have significant changes, and depreciation expenses will be adjusted in the future periods. Useful life of intangible assets The estimated useful lives of the intangible assets are determined based on the historical experience of the actual useful lives of intangible assets of similar nature and functions as well as considering the contractual rights and statutory rights applicable to the intangible assets. 89 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report When the estimated useful lives of finite intangible assets are shortened or extended, the amortization periods should be adjusted accordingly. Impairment of long-term assets The Group assesses whether the recoverable amount is lower than the book value. If there are any indicators that the book value of non-current assets cannot be fully recoverable, impairment losses should be recorded. The recoverable amount is the higher of an asset's fair value less costs to sell and the present value of the future cash flows expected to be derived from an asset. As it is difficult for the Group to obtain the quoted market price of the assets (or assets group), the fair value of the assets cannot be reliably estimated. When the management make estimation on the expected future cash flows from the asset or cash generating unit, estimates should be made on choosing a suitable growth rate of sales , average gross profit , related operating costs and discount rate in order to calculate the present value of those cash flows, which has a high uncertainty. Estimated provision for accounts receivable A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy are considered indicators that the trade receivable is impaired. The provision is reassessed at the end of each year. Inventory provision based on net realizable value The inventories are measured on the lower of carrying value and net realizable value, and provision should be made for impairment on obsolete and slow moving inventories. The group will reassess whether the net realizable value is lower than the carrying cost at the end of each year. The determination of the fair value of identifiable assets and liabilities associated with business combination. For the cost of business combination, the Group allocates the purchase price based on fair value of 90 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report relatively identifiable assets and liabilities. When the fair value of relatively identifiable assets and liabilities are evaluated by the present value of its future cash flows, The management need estimate the growth rate of sales based on future market supply and demand to predict cash flows, and considered the proper discount rate for calculating, management need use major accounting estimates and judgments in the progress. 6. TAXES 6.1 The main taxes and tax rate are as follows: Tax category Taxation basis Tax rate Value added tax Levied on the balance between the 16%, 10%, 6% (Chinese), 20% output tax calculated based on taxable (France), 21% (Spain), 19% (Chile), income and the input tax allowed to be 10% (Australia) deducted in current period Consumption tax Levied on taxable income 10%, 20% (Chinese) City development tax Levied on circulation tax actually paid 7% (Chinese) Corporate income tax Levied on taxable income 25%(Chinese), 33.3%(France), 28% (Spain), 27% (Chile), 30% (Australia) 6.2 Tax incentives and relative permit Ningxia Changyu Grape Growing Co., Ltd.("Ningxia Growing"), a subsidiary of the Group, whose principal activity is grape growing is incorporated in Ningxia Huizu Autonomous Region. According to clause 27 of PRC Corporate Income Tax and clause 86 of PRC Corporate Income Tax Measures for Implementation, Ningxia Growing enjoys an exemption of corporate income tax. Yantai Changyu Grape Growing Co., Ltd.(" Grape Growing "), a branch of the Company, whose principal activity is grape growing is incorporated in Zhifu District, Yantai City, Shandong Province. According to clause 27 of PRC Corporate Income Tax and clause 86 of PRC Corporate Income Tax Measures for Implementation, Grape Growing enjoys an exemption of corporate income tax. 91 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Xinjiang Tianzhu Co., Ltd ("Xinjiang Tianzhu"), a subsidiary of the Company, is an enterprise of wine production and sales incorporated in Shihezi city, Xinjiang Weizu Autonomous. In accordance with the Notice on Tax Policy Issues concerning Further Implementation of the Western China Development Strategy (Cai Shui [2011] No.58), Xinjiang Tianzhu is qualified to enjoy preferential taxation policies, which means it can pay corporate income tax at a preferential rate of 15% for the period from 2015 to 2020. Xinjiang Babao Baron Chateau Co., Ltd. ("Shihezi Chateau"), a subsidiary of the Company, is an enterprise of wine production and sales incorporated in Shihezi city, Xinjiang Weizu Autonomous. In accordance with the Notice on Tax Policy Issues concerning Further Implementation of the Western China Development Strategy (Cai Shui [2011] No.58), Shihezi Chateau is qualified to enjoy preferential taxation policies, which means it can pay corporate income tax at a preferential rate of 15% for the period from 2015 to 2020. 92 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report 7. Notes to consolidated financial statement 7.1 Monetary capital Unit: Yuan Item Ending balance Beginning balance Cash on hand 151,228 136,973 Bank deposit 1,561,166,484 1,278,397,711 Other monetary capital 121,720,741 123,987,825 Total 1,683,038,453 1,402,522,509 As at June 30, 2018, the restricted bank deposit details are listed as follows: Item Ending balance Beginning balance Housing fund of the unit 2,647,250 2,645,410 Total 2,647,250 2,645,410 As at June 30, 2018, the details of other monetary funds are listed as follows: Item Ending balance Beginning balance Pledge of fixed deposits by Yantai Changyu Wine Research, 61,700,000 61,700,000 Development and Manufacture Co., Ltd. (―R&D Company‖) Guaranteed deposits paid for the letter 57,946,190 57,946,190 of credit Account balance of Alipay 1,743,116 4,317,635 Guaranty money for the unit card 321,435 14,000 Guaranty money for ICBC platform 10,000 10,000 Total 121,720,741 123,987,825 As at June 30, 2018, the bank deposits of the Group including short-term fixed deposits ranging from 3 months to 12 months amounted to RMB 130,000,000 Yuan (December 31, 2017: RMB 95,000,000 Yuan), with the interest rates ranging from 1.40% to 2.03%. 7.2 Bills receivable 7.2.1 Classification of bills receivable Unit: Yuan Type Ending balance Beginning balance Bank acceptance 367,210,884 244,796,818 Trade acceptance Total 367,210,884 244,796,818 7.2.2 Bills receivable pledged by the Company at the end of period Nil 93 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report 7.2.3 Bills receivable endorsed or discounted by the Company at the end of period but not yet matured as of the balance sheet date Unit: Yuan Amount terminating recognition at the end Amount not terminating recognition Item of period at the end of period Bank acceptance 225,833,211 Trade acceptance Total 225,833,211 7.2.4 Bills receivable reclassified as accounts receivable by the Company due to the default of drawer at the end of period Nil 7.3 Accounts receivable 7.3.1 Accounts receivable disclosed by type Unit: Yuan Ending balance Beginning balance Book balance Bad debt provision Book balance Bad debt provision Type Amount Proportio Amount Accrued Book value Amount Proportion Amount Accrued Book value n proportion proportion Accounts 243,413,092 100.0% 243,413,092 263,796,355 100.0% 263,796,355 receivable of significant single amount and single accrued bad debt provision Accounts receivable accrued bad debt provision by credit risk features Accounts receivable of insignificant single amount and single accrued bad debt provision Total 243,413,092 100.0% 243,413,092 263,796,355 100.0% 263,796,355 The credit term of accounts receivable is normally one month. Major customers can be granted a credit term up to one year. The accounts receivable are free from interest. As at June 30, 2018, the accounts receivable with ownership restrictions were RMB 35,016,424 Yuan 94 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report (December 31, 2017: RMB 46,337,062 Yuan). Please refer to Note 7.19 for details. 7.3.2 Bad debt provision accrued, transferred back or received in this period The bad debt provision accrued in this period was RMB 0 Yuan; and that transferred back or received in this period was RMB 0 Yuan. 7.3.3 Accounts receivable actually cancelled after verification in this period Nil 7.3.4 Accounts receivable collected by the borrowers of top 5 units ranked by the ending balance Unit: Yuan Relationship with the Percentage in total Unit Amount Period Company accounts receivable Nonggongshang Supermarket (Group) Co., Third party 11,250,509 Within 1 year 4.6% Ltd. Yantai Zhongya Medical Affiliated party 8,912,812 Within 1 year 3.7% Health Wine Co., Ltd. Lianhua Supermarket Third party 8,263,237 Within 1 year 3.4% Holdings Co., Ltd. Suguo Supermarket Co., Ltd. Third party 5,812,309 Within 1 year 2.4% Shanghai Lotus Supermarket Third party 5,694,902 Within 1 year 2.3% Chain Store Co., Ltd. Total -- 39,933,769 -- 16.4% 7.3.5 Accounts receivable terminating recognition due to transfer of financial assets Nil 7.3.6 Accounts receivable transferred and included in assets and liabilities Nil 7.4 Advance payment 7.4.1 Advance payment listed by age Unit: Yuan Ending balance Beginning sum Age Amount Proportion Amount Proportion Within 1 year 3,122,797 100.0% 2,417,931 100.0% 95 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report 1-2 years 2-3 years More than 3 years Total 3,122,797 -- 2,417,931 -- 7.4.2 Advance payment collected by the prepaid parties of top 5 units ranked by the ending balance Unit: Yuan Percentage Relationship with in the total Unit Amount Age Reason for unsettlement the Group advance payment% Yantai Power Supply Company of State Within 1 Prepaid electricity Grid Shandong Electric Power Third party 500,000 16.0% year purchasing fund Company Within 1 Beijing Putianshou Trade Co., Ltd. Third party 192,000 Failure to receive the goods 6.1% year Within 1 Qingdao Vinopro Trading Co., Ltd. Third party 105,200 Failure to receive the goods 3.4% year Xinjiang Xinyanmushen Technology Within 1 Third party 116,980 Failure to receive the goods 3.7% Co., Ltd. year Yantai Bohong Industry & Trade Co., Within 1 Third party 95,137 Failure to receive the goods 3.0% Ltd. year Total -- 1,009,317 -- -- 32.2% 7.5 Interest receivable 7.5.1 Classification of interest receivable Unit: Yuan Item Ending balance Beginning balance Fixed deposit 1,218,373 240,968 Entrusted loan Bond investment Total 1,218,373 240,968 96 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report 7.6 Other accounts receivable 7.6.1 Other accounts receivable disclosed by type Unit: Yuan Ending balance Beginning balance Book balance Bad debt provision Book balance Bad debt provision Type Amount Proportion Amount Accrued Book value Amount Proportion Amount Accrued Book value proportion proportion Other accounts receivable of significant single 16,500,022 100.0% 16,500,022 18,737,454 100.0% 18,737,454 amount and single accrued bad debt provision Other accounts receivable accrued bad debt provision by credit risk features Other accounts receivable of insignificant single amount and single accrued bad debt provision Total 16,500,022 100.0% 16,500,022 18,737,454 100.0% 18,737,454 7.6.2 Bad debt provision accrued, transferred back or received in this period The bad debt provision accrued in this period was RMB 0 Yuan; and that transferred back or received in this period was RMB 0 Yuan. 7.6.3 Other accounts receivable actually cancelled after verification in this period Nil 7.6.4 Other accounts listed by nature Unit: Yuan Nature Ending book balance Beginning book balance Deposit and guaranty money receivable 11,240,442 10,075,901 97 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Nature Ending book balance Beginning book balance Imprest receivable 2,134,326 2,215,146 Investment receivable 2,050,000 Consumption tax and added-value tax export rebate 472,569 2,451,188 Other 2,652,685 1,945,219 Total 16,500,022 18,737,454 7.6.5 Other accounts receivable collected by the borrowers of top 5 units ranked by the ending balance Unit: Yuan Percentage in total Ending Ending balance of Unit Nature Age ending balance of other balance bad debt provision accounts receivable Construction YEDA Construction Industry guaranty 7,702,477 2-3 years 46.7% Association money Advance Beijing Shanshui Decoration electric 465,460 1-2 years 2.8% Engineering Co., Ltd. charge receivable Advance Shaanxi Fangyuan Construction electric 449,337 1-2 years 2.7% Engineering Co., Ltd. charge receivable TRANSBANK Deposit 324,029 Within 1 year 2.0% Guaranty YEDA Finance Bureau 198,056 1-2 years 1.2% money Total -- 9,139,359 -- 55.4% 7.6.6 Other accounts receivable terminating recognition due to transfer of financial assets Nil 7.6.7 Other accounts receivable transferred and included in assets and liabilities Nil 7.7 Inventories 7.7.1 Inventory classification Unit: Yuan Ending balance Beginning balance Item Depreciation Depreciation Book balance Book value Book balance Book value provision provision 195,466,096 195,466,096 66,881,090 66,881,090 Raw materials 98 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report 1,529,164,344 1,529,164,344 1,568,230,851 1,568,230,851 Goods in process 627,705,074 13,410,082 614,294,992 864,097,497 25,595,392 838,502,105 Commodity stocks 2,352,335,514 13,410,082 2,338,925,432 2,499,209,438 25,595,392 2,473,614,046 Total 7.7.2 Inventory depreciation provision Unit: Yuan Increase in this period Decrease in this period Beginning Item Transfer back or Ending balance balance Accrual Other Other write-off Raw materials Goods in process 25,595,392 683,753 12,869,063 13,410,082 Commodity stocks 25,595,392 683,753 12,869,063 13,410,082 Total 7.8 Assets held for sale Unit: Yuan Estimated disposal Item Ending book value Fair value Estimated disposal time expenses Zhenshantun collective 2,000,197 16,282,224 3,878,560 2018 apartment Total 2,000,197 16,282,224 3,878,560 -- The Company has signed an irrevocable agreement for disposing the fixed assets, and the contract amount is RMB 16,282,224 Yuan. The disposal is predicted to be completed in 2018. 7.9 Other current assets Unit: Yuan Item Ending balance Beginning balance Prepaid corporate income tax 101,768,819 22,911,298 Deductible input tax 259,484,264 206,529,504 Rent to be amortized 1,724,907 1,381,957 Total 362,977,990 230,822,759 7.10 Available-for-sale financial assets 7.10.1 Particulars of available-for-sale financial assets Unit: Yuan Ending balance Beginning balance Item Book Impairment Book Book Impairment Book balance provision value balance provision value 99 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Available-for-sale financial instruments: Available-for-sale equity 463,880 463,880 467,251 467,251 instruments: Fair value measurement Cost measurement 463,880 463,880 467,251 467,251 Total 463,880 463,880 467,251 467,251 7.10.2 Available-for-sale financial assets by cost measurement at the end of period Unit: Yuan Book balance Impairment provision Cash Shareholding Increase Decrease Increase Decrease dividend Invested unit ratio in the Beginning in this in this Ending Beginning in this in this Ending in this invested unit period period period period period Less than Other (Note) 467,251 5053 8424 463,880 1% Total 467,251 5053 8424 463,880 -- Note: The Group holds less than 1% of the shares in such invested entities. These invested entities are all unlisted companies and their fair value can‘t be measured reliably, so the Group shall measure such available-for-sale financial assets by cost method. 7.11 Investment real estate 7.11.1 Investment real estate by cost measurement method √ Applicable □ Inapplicable Unit: Yuan Houses and Construction in Item Land use right Total buildings progress Ⅰ Original book value 1. Beginning balance 38,347,283 38,347,283 2. Increase in this period 2.1 Outsourcing 2.2 Transfer in from inventories\fixed assets\ construction in progress 2.3 Business merger increase 3. Decrease in this period 3.1 Disposal 3.2 Other transfer out 4. Ending balance 38,347,283 38,347,283 Ⅱ Accumulated depreciation & accumulated amortization 1. Beginning balance 19,879,294 19,879,294 2. Increase in this period 590,610 590,610 2.1 Accrual or 590,610 590,610 100 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Houses and Construction in Item Land use right Total buildings progress amortization 3. Decrease in this period 3.1 Disposal 3.2 Other transfer out 4. Ending balance 20,469,904 20,469,904 Ⅲ Impairment provision 1. Beginning balance 2. Increase in this period 2.1 Accrual 3. Decrease in this period 3.1 Disposal 3.2 Other transfer out 4. Ending balance Ⅳ Book value 1. Ending book value 17,877,379 17,877,379 2. Beginning book value 18,467,989 18,467,989 7.12 Fixed assets 7.12.1 Particulars of fixed assets Unit: Yuan Houses and Item Machinery equipment Transportation tools Total buildings Ⅰ Original book value: 1. Beginning balance 4,508,868,684 2,247,350,293 28,689,415 6,784,908,392 2. Increase in this period 28,099,550 276,616,965 2,714,616 307,431,131 2.1 Acquisition 4,386,524 117,719,992 1,772,906 123,879,422 2.2 Transfer in from 98,234,615 98,234,615 construction in progress 2.3 Business merger 23,713,026 60,662,358 941,710 85,317,094 increase 2.4 Other 3. Decrease in this period 7,556,503 3,521,487 11,077,990 3.1 Disposal or 7,556,503 3,521,487 11,077,990 retirement 3.2 Other 4. Ending balance 4,536,968,234 2,516,410,755 27,882,544 7,081,261,533 Ⅱ Accumulated depreciation 1. Beginning balance 512,643,486 922,944,520 20,236,417 1,455,824,423 2. Increase in this period 67,468,028 106,700,526 1,231,461 175,400,015 2.1 Accrual 65,844,058 72,709,493 559,369 139,112,920 2.2 Business merger 1,623,970 33,991,033 672,092 36,287,095 increase 2.3 Other 3. Decrease in this period 6,591,830 946,752 7,538,582 101 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Houses and Item Machinery equipment Transportation tools Total buildings 3.1 Disposal or 6,591,830 946,752 7,538,582 retirement 3.2 Other 4. Ending balance 580,111,514 1,023,053,216 20,521,126 1,623,685,856 Ⅲ Impairment provision 1. Beginning balance 2. Increase 2.1 Accrual 2.2 Other 3. Decrease 3.1 Disposal or retirement 3.2 Other 4. Ending balance Ⅳ Book value 1. Ending book value 3,956,856,720 1,493,357,539 7,361,418 5,457,575,677 2. Beginning book value 3,996,225,198 1,324,405,773 8,452,998 5,329,083,969 As at June 30, 2018, the net value of the fixed assets with ownership restrictions was RMB 142,338,624 Yuan (December 31, 2017: RMB 145,009,923 Yuan). Please refer to Note 7.52 for details. As at June 30, 2018, the net value of the fixed assets divided into those held for sale was RMB 2,000,197 Yuan (December 31, 2017: RMB 2,000,197 Yuan). 7.12.2 Temporarily idle fixed assets Nil 7.12.3 Fixed assets under finance leases Nil 7.12.4 Fixed assets under operating lease Unit: Yuan Item Ending book value Machinery equipment 199,791 7.12.5 Fixed assets without property certificates Unit: Yuan Reason for not receiving the property Item Book value certificate Industrial Production Center of the R&D Company 1,623,153,949 Under transaction 102 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Dormitory Building, Main Building and Reception Building of 353,370,544 Under transaction Chang‘an Chateau European Town, Main Building and Service Building of Beijing 190,443,678 Under transaction Chateau Main Building of Yantai Chateau Changyu Tinlot 84,912,291 Under transaction Fermentation Workshop and Wine Storage Workshop of Xinjiang 18,143,780 Under transaction Tianzhu Office Building and Packaging Workshop of Icewine Valley 9,352,280 Under transaction Wine-making Workshop of Changyu (Jingyang) 4,326,818 Under transaction Office Building, Laboratory Building and Workshop of 3,750,132 Under transaction Fermentation Center Finished Goods Warehouse and Workshop of Kylin Packaging 2,442,189 Under transaction Office of Sales Company 2,021,311 Under transaction Total 2,291,916,972 Under transaction 7.13 Construction in progress 7.13.1 Particulars of construction in progress Ending balance Beginning balance Item Impairment Impairment Book balance Book value Book balance Book value provision provision Research, Development & Manufacture Center (―Changyu Wine City 835,624,055 835,624,055 883,731,540 883,731,540 Complex‖) Construction Project of Chang‘an 48,016,036 48,016,036 53,290,036 53,290,036 Chateau Construction Project of Ningxia 47,902,668 47,902,668 35,711,269 35,711,269 Chateau Construction Project of Shihezi 29,221,272 29,221,272 25,463,724 25,463,724 Chateau Construction Project of Sales Company 14,205,640 14,205,640 11,355,685 11,355,685 Construction Project of Chateau Tinlot 17,689,488 17,689,488 5,819,246 5,819,246 Construction Projects of Other 23,255,594 23,255,594 10,770,069 10,770,069 Companies Total 1,015,914,753 1,015,914,753 1,026,141,569 1,026,141,569 103 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report 7.13.2 Changes of major construction in progress in this period Unit: Yuan Including Proportion Other Accumulati : Transferred of Capitalizati decrea ve capitalize Beginning Increase in to fixed Ending accumulati on ratio of Capital Item Budget se in capitalized d amount balance this period assets in balance ve project interest in source this amount of of interest this period input in this period period interest in this budget period Constructi on Project Loans of form Research, financial Developm 4,505,780,0 883,731,54 39,381,9 87,489,3 835,624,0 11,092,50 2,664,5 1.20% institutio ent & 72.5% 00 0 14 99 55 6 41 and 4.3% Manufactu ns and re Center self-raise (―Changyu d funds Wine City Complex‖) Constructi on Project Self-rais 620,740,00 5,437,37 10,711,3 48,016,03 of 53,290,036 107.7% ed funds 0 2 72 6 Chang‘an Chateau Constructi Self-rais on Project 780,000,00 3,757,54 29,221,27 25,463,724 92.0% ed funds of Shihezi 0 8 2 Chateau Constructi on Project Self-rais 161,350,00 2,849,95 14,205,64 11,355,685 95.2% ed funds of Sales 0 5 0 Company Constructi Self-rais on Project 12,191,3 47,902,66 41,415,000 35,711,269 128.0% ed funds of Ningxia 99 8 Chateau Constructi on Project 192,400,00 Self-rais 11,870,2 17,689,48 5,819,246 102.5% ed funds of Chateau 0 42 8 Tinlot 6,301,685,0 1,015,371,5 75,488,4 98,200,7 992,659,1 11,092,50 2,664,5 -- Total -- 00 00 30 71 59 6 41 As at June 30, 2018, there was no indication for impairment of construction in progress of the Group, so no provision for impairment was made. 104 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report 7.14 Productive biological assets 7.14.1 Productive biological assets by cost measurement method Unit: Yuan Item Plantation Total Immature Mature Ⅰ Original book value 1. Beginning balance 12,175,000 217,537,353 229,712,353 2. Increase in this period 1,548,693 8,462,877 10,011,570 2.1 Outsourcing 2.2 Self cultivation 5,131,006 4,880,564 10,011,570 2.3 The immature turn to the mature -3,582,313 3,582,313 3. Decrease in this period 3.1 Disposal 3.2 Other 4. Ending balance 13,723,693 226,000,230 239,723,923 Ⅱ Accumulated depreciation 1. Beginning balance 27,782,465 27,782,465 2. Increase in this period 9,279,710 9,279,710 2.1 Accrual 9,279,710 9,279,710 2.2 Other 3. Decrease in this period 3.1 Disposal 3.2 Other 4. Ending balance 37,062,175 37,062,175 Ⅲ Impairment provision 1. Beginning balance 2. Increase in this period 2.1 Accrual 2.2 Other 3. Decrease in this period 3.1 Disposal 3.2 Other 4. Ending balance Ⅳ Book value 1. Ending book value 13,723,693 188,938,055 202,661,748 2. Beginning book value 12,175,000 189,754,888 201,929,888 As at June 30, 2018, no ownership of the biological assets was restricted. As at June 30, 2018, there was no indication for impairment of biological assets of the Group, so no provision was made. 105 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report 7.15 Intangible assets 7.15.1 Particulars of intangible assets Unit: Yuan Item Land use right Software use right Trademark Total Ⅰ Original book value 1. Beginning balance 521,731,139 73,666,754 159,702,508 755,100,401 2. Increase in this period 7,089,292 3,228,127 9,167,907 19,485,326 2.1 Acquisition 999,745 1,183,404 211,645 2,394,794 2.2 Internal R&D 2.3 Business merger 6,089,547 2,044,723 8,956,262 17,090,532 increase 2.4 Other 3. Decrease in this period 3.1 Disposal 3.2 Other 4. Ending balance 528,820,431 76,894,881 168,870,415 774,585,727 Ⅱ Accumulated amortization 1. Beginning balance 67,547,772 21,516,741 10,586,991 99,651,504 2. Increase in this period 5,316,763 4,729,142 2,194,042 12,239,947 2.1 Accrual 5,316,763 4,056,496 2,194,042 11,567,301 2.2 Business merger 672,646 672,646 increase 3. Decrease in this period 3.1 Disposal 3.2 Other 4. Ending balance 72,864,535 26,245,883 12,781,033 111,891,451 Ⅲ Impairment provision 1. Beginning balance 2. Increase in this period 2.1 Accrual 2.2 Other 3. Decrease in this period 3.1 Disposal 3.2 Other 4. Ending balance Ⅳ Book value 106 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report 1. Ending book value 455,955,896 50,648,998 156,089,382 662,694,276 2. Beginning book value 454,183,367 52,150,013 149,115,517 655,448,897 As at June 30, 2018, the net value of the intangible assets with ownership restrictions was RMB 161,934,242 Yuan (December 31, 2017: RMB 164,051,996 Yuan). Please refer to Note 7.52 for details. 7.15.2 Land use right of that not receiving the property certificate Nil 7.16 Goodwill 7.16.1 Original book value of goodwill Unit: Yuan Name of the invested Increase in this period Decrease in this period Beginning unit or matter forming Formed by business Ending balance balance Other Disposal Other goodwill merger Etablissements Roullet Fransac (―Roullet 13,112,525 13,112,525 Fransac‖) Dicot Partners, S.L 92,391,901 92,391,901 (―Atrio Group‖) Societe Civile Argricole Du Chateau 15,761,440 15,761,440 De Mirefleurs (―Mirefleurs‖) Indomita Wine 6,870,115 6,870,115 Company Chile, SpA Kilikanoon Estate, 35,794,894 35,794,894 Australia Total 128,135,981 35,794,894 163,930,875 7.17 Long-term unamortized expenses Unit: Yuan Increase in this Amortization in this Item Beginning balance Other decrease Ending balance period period Land lease fees 56,365,385 719,454 55,645,931 Land acquisition 43,976,036 569,650 43,406,386 fees Afforestation fees 125,628,334 6,101,637 6,526,355 125,203,616 Renovation costs 873,263 109,158 764,105 Other 3,166,213 192,827 2,973,386 Total 230,009,231 6,101,637 8,117,444 227,993,424 107 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report 7.18 Deferred income tax assets/liabilities 7.18.1 Un-offset deferred income tax assets Unit: Yuan Ending Balance Beginning Balance Item Deductible Deductible Deferred income Deferred income temporary temporary tax assets tax assets difference difference Asset impairment provision 13,410,082 3,352,521 25,595,392 6,398,848 Unrealized profits from inter-company 585,312,988 146,328,247 618,591,681 154,647,920 transactions Deductible loss 300,198,853 77,339,305 345,639,059 88,584,337 Unpaid bonus 59,305,392 14,853,004 94,462,722 23,671,611 Dismission welfare 20,405,213 5,101,303 27,980,857 6,995,214 Deferred income 108,652,154 23,832,078 109,797,054 24,285,203 Asset valuation impairment 673,019 181,715 684,622 184,848 Accrued promotional expenses 13,413,655 3,353,415 Total 1,087,957,701 270,988,173 1,236,165,042 308,121,396 7.18.2 Un-offset deferred income tax liabilities Unit: Yuan Ending Balance Beginning Balance Item Taxable Taxable Deferred income Deferred income temporary temporary tax liabilities tax liabilities difference difference Assets appraisal appreciation in business merger 105,651,986 26,020,063 89,316,823 24,264,203 under non-common control Changes in fair value of available-for-sale financial assets Total 105,651,986 26,020,063 89,316,823 24,264,203 7.18.3 Details of unconfirmed deferred income tax assets Unit: Yuan Item Ending balance Beginning balance Deductible loss 157,307,221 150,320,039 Total 157,307,221 150,320,039 7.18.4 Deductible losses of unconfirmed deferred income tax assets will expire in: Unit: Yuan Year Ending sum Beginning sum Remark 2019 7,311,273 7,311,273 2020 45,960,766 45,960,766 108 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report 2021 82,685,213 82,685,213 2022 14,362,787 14,362,787 2023 6,987,182 Total 157,307,221 150,320,039 -- 7.19 Short-term loans 7.19.1 Classification of short-term loans Unit: Yuan Item Ending balance Beginning balance Pledge loan Mortgage loan 54,882,050 65,939,662 Guaranteed loan 43,544,169 Fiduciary loan 652,028,457 648,494,624 Total 750,454,676 714,434,286 As at June 30, 2018, the mortgage loan referred to the factoring business for accounts receivable of EUR 4,576,413 (equivalent to RMB 35,016,424 Yuan) that Hacienda y Vinedos Marques del Atrio, S.L.U. (―Marques del Atrio‖) transacted in such banks as Banco de Sabadell, S.A. (December 31, 2017: RMB 46,337,062 Yuan), and a loan of USD 3,000,000 (equivalent to RMB 19,865,626 Yuan) that Indomita Wine Company Chile, SpA from BBVA bank by mortgage of fixed assets of CLP 3,139,045,000 (equivalent to RMB 31,704,355 Yuan) (December 31, 2017: RMB 19,602,600 Yuan). By means of overseas loan under domestic guarantee, the Company opened a financing guarantee with the credit line of domestic bank to provide a guarantee for the loan of AUD 8,953,626 (equivalent to RMB 43,544,169 Yuan) of Kilikanoon Estate, Australia. The letter of guarantee came into effect from January 17, 2018 and will expire on January 15, 2019. 7.20 Accounts payable 7.20.1 List of accounts payable Unit: Yuan Item Ending balance Beginning balance Within one year 502,094,548 664,020,176 From one year to two years 2,408,743 2,051,592 From two years to three years 1,097,233 371,111 Over three years 256,431 Total 505,856,955 666,442,879 7.20.2 Explanation of significant accounts payable aged more than one year As at June 30, 2018, there were no significant accounts payable aged more than one year. 109 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report 7.21 Advances from customers 7.21.1 List of advances from customers Unit: Yuan Item Ending sum Beginning sum Within one year 356,522,984 340,025,690 From one year to two years 2,894,155 7,072,254 From two years to three years 3,285,740 381,463 Over three years 3,652,401 3,414,749 Total 366,355,280 350,894,156 7.21.2 Advances from customers of significant amount aged more than one year As at June 30, 2018, the Company had no advances from customers of significant amount aged more than one year. 7.22 Employee remunerations payable 7.22.1 List of employee remunerations payable Unit: Yuan Increase in this Decrease in this Item Beginning balance Ending balance period period 1. Short-term remuneration 182,545,284 218,523,367 244,584,113 156,484,538 2. Post-employment welfare – defined 298,093 26,186,535 25,379,241 1,105,387 contribution plan 3. Dismission welfare 27,980,857 1,275,387 8,851,031 20,405,213 4.Other welfare due within one year Total 210,824,234 245,985,289 278,814,385 177,995,138 7.22.2 List of short-term remunerations Unit: Yuan Increase in this Decrease in this Item Beginning balance Ending balance period period 1. Salaries, bonuses, allowances 185,014,318 194,859,167 220,953,405 158,920,080 and subsidies 2. Staff welfare 2,116,475 4,592,350 5,304,548 1,404,277 3. Social insurance charges 524,316 11,468,383 10,938,536 1,054,163 Including: Medical insurance 524,316 9,928,407 9,411,157 1,041,566 Injury insurance 819,706 807,109 12,597 Maternity insurance 720,270 720,270 4. Housing fund 39,256 5,680,880 5,709,726 10,410 5. Union fee and staff education fee 2,060,231 1,922,587 2,038,363 1,944,455 110 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Increase in this Decrease in this Item Beginning balance Ending balance period period 6. Short-term compensated absences 7. Short-term profit-sharing plan Minus: Those divided into 7,209,312 360,465 6,848,847 non-current liabilities Total 182,545,284 218,523,367 244,584,113 156,484,538 7.22.3 List of defined contribution plan Unit: Yuan Item Beginning balance Increase Decrease Ending balance 1. Basic endowment insurance 297,591 25,034,196 24,821,104 510,683 2. Unemployment insurance 502 1,152,339 558,137 594,704 3. Enterprise annuity payment - Total 298,093 26,186,535 25,379,241 1,105,387 7.22.4 Dismission welfare Unit: Yuan Item Beginning balance Increase Decrease Ending balance 1. Compensation for server of labor 1,275,387 1,275,387 relation 2. Compensation for early retirement 27,980,857 7,575,644 20,405,213 Total 27,980,857 1,275,387 8,851,031 20,405,213 7.23 Taxes payable Unit: Yuan Item Ending balance Beginning balance Value added tax 15,404,619 35,681,696 Consumption tax 12,373,243 44,961,022 Corporate income tax 35,771,016 38,834,293 Individual income tax 804,004 7,805,917 Urban maintenance and construction tax 1,542,643 5,669,280 Property tax 3,976,184 4,647,644 Urban land use tax 2,493,549 2,645,687 Other 1,494,489 4,848,617 Total 73,859,747 145,094,156 7.24 Interest payable Unit: Yuan Item Ending balance Beginning balance Interest of long-term loans with interest paid by 111 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Item Ending balance Beginning balance installment and principal paid on maturity Interest of corporate bonds Interest payable of short-term loans 834,247 771,250 Interest of preferred shares\ perpetual bonds divided into financial liabilities Other Total 834,247 771,250 7.25 Dividends payable Unit: Yuan Item Ending balance Beginning balance Ordinary stock dividends Preferred stock dividends/sustainable debt dividends divided into equity instruments Other 746,021 Total 746,021 7.26 Other payables 7.26.1 Other payables listed by nature Unit: Yuan Item Ending balance Beginning balance Dealer‘s deposit payable 153,278,830 139,710,963 Equipment purchase and construction costs 112,120,286 130,706,777 payable Transportation charges payable 13,329,596 27,847,092 Trademark use fees payable for Changyu Group 45,965,699 77,208,929 Company Advertising expenses payable 243,506,777 132,248,615 Employee cash deposit 7,199,282 13,327,132 Supplier‘s deposit payable 11,909,254 3,082,595 Contracting fees payable 26,669,423 38,070,571 Other 57,728,768 40,761,645 Total 671,707,915 602,964,319 7.26.2 Other significant accounts payable aged more than one year Unit: Yuan Item Ending balance Cause of unpayment or carry-over Beijing Qinglang Ecological Agriculture 7,033,763 The contracting fees haven‘t been settled Technology Development Yantai De‘an Investment Co., Ltd. 3,218,174 The contracting fees haven‘t been settled Total 10,251,937 -- 112 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report 7.27 Non-current liabilities due within one year Unit: Yuan Item Ending balance Beginning balance Long-term loans due within one 106,570,388 76,954,827 year Long-term accounts payable due 34,000,000 34,000,000 within one year Total 140,570,388 110,954,827 7.28 Other current liabilities Unit: Yuan Item Ending balance Beginning balance Deferred income 16,311,727 16,878,199 Total 16,311,727 16,878,199 7.29 Long-term loans 7.29.1 Classification of long-term loans Unit: Yuan Item Ending balance Beginning balance Pledge loan Mortgage loan 7,528,121 6,693,544 Guaranteed loan 75,000,000 81,250,000 Fiduciary loan 71,437,070 68,182,310 Total 153,965,191 156,125,854 Description of the classification of long-term loans: Unit: Yuan Item Ending balance Long-term loan due within one Long-term loan due over one year year Pledge loan Mortgage loan 7,528,121 7,528,121 Guaranteed loan 100,000,000 25,000,000 75,000,000 Fiduciary loan 153,007,458 81,570,388 71,437,070 Total 260,535,579 106,570,388 153,965,191 As at June 30, 2018, the guaranteed loan referred to the long-term loan of RMB 100,000,000 Yuan borrowed by the Company for the R&D Company by means of credit guarantee (December 31, 2017: RMB 100,000,000 Yuan), and the mortgage loan referred to the loan of EUR 679,560 (equivalent to RMB 5,199,656 Yuan) borrowed from Popular Espaol by Marques del Atrio by mortgage of its fixed assets of EUR 4,264,170 (equivalent to RMB 32,627,300 Yuan) (December 31, 2017: RMB 9,502,372 Yuan). Kilikanoon Estate, Australia borrowed a loan of AUD 478,783 (equivalent to RMB 2,328,465 Yuan) by pledge of its fixed assets of AUD 503,163 (equivalent to RMB 2,447,034 Yuan) from NAB bank (December 31, 113 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report 2017: Nil). 7.30 Long-term accounts payable 7.30.1 Long-term accounts payable listed by nature Unit: Yuan Item Ending balance Beginning balance China Agricultural Development Key Construction Fund 235,000,000 259,000,000 Total 235,000,000 259,000,000 In 2016, Agricultural Development Fund invested RMB 305,000,000 Yuan in the R&D Company, accounting for 37.9% of the registered capital. According to the investment agreement, it is agreed that Agricultural Development Fund will take back the investment fund in ten years and obtain fixed income according to year, which is 1.2% of the remaining principal. Except for the above fixed income, the Agricultural Development Fund shall not enjoy other profits of the R&D Company or bear the losses of the R&D Company. Accordingly, the investment of the Agricultural Development Fund in the R&D Company is equity investment nominally, which is debt investment in deed. The Group included the investment of the Agricultural Development Fund in long-term accounts payable measured by amortized cost. In 2017, the Group gave back the principal of RMB 12,000,000 Yuan. From January to June 2018, the Group gave back the principal of RMB 24,000,000 Yuan, and the mortgaged and pledged assets included monetary capital of RMB 61,700,000 Yuan, fixed assets of RMB 75,559,935 Yuan, and intangible assets of RMB 161,934,242. Unit: Yuan Balance of long-term accounts Long-term accounts payable Long-term accounts payable due in one payable due within one year year later 269,000,000 34,000,000 235,000,000 7.31 Deferred income Unit: Yuan Increase in this Decrease in this Item Beginning balance Ending balance Forming reason period period Governmental 109,797,054 8,200,000 9,344,900 108,652,154 subsidy Minus: Those included in current 16,878,199 16,311,727 -- liabilities Non-current 92,918,855 92,340,427 -- liabilities Projects related to governmental subsidy Unit: Yuan 114 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Amount Amount of Amount included Amount subsidy included in Beginning in other offset Other Ending Related to Item of liabilities newly non-operating balance income in the cost changes balance assets/income increased revenue in this expenses in this this period period period Grape bulk wine 4,739,400 717,450 4,021,950 Related to assets brewing project Reward for investment in fixed assets of 9,276,600 1,140,000 8,136,600 Related to assets Chateau Shihezi project Industrial revitalization and technical 17,064,000 711,000 16,353,000 Related to assets transformation project in Xinjiang Special subsidy for supporting 5,300,000 530,000 4,770,000 Related to assets infrastructure Industrial revitalization and technical 1,086,000 1,086,000 Related to assets transformation project in Ningxia Tourism development 500,000 500,000 Related to income fund subsidy project Supporting fund for 10,200,000 10,200,000 Related to income corporate development Construction project of grape brewing 3,600,000 200,000 3,400,000 Related to assets production capacity (Huanren) Electronic traceability 3,192,311 333,527 2,858,784 Related to assets system project of wine Transferred fund of Propaganda 888,945 444,472 444,473 Related to assets Department, Miyun County Committee Wine industry 744,000 93,000 651,000 Related to assets development project Peninsula blue economic zone 8,000,000 1,000,000 7,000,000 Related to assets construction project Technical transformation project of information-based 3,480,000 290,000 3,190,000 Related to assets system construction engineering Cross-border 702,615 300,000 1,002,615 Related to income e-commerce project Research project of red wine phenolic 284,601 284,601 Related to income substances Grape base 520,000 260,000 260,000 Related to assets construction project Fund for water pollution treatment 320,132 56,801 263,331 Related to income project Infrastructure 1,843,750 62,500 1,781,250 Related to assets 115 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Amount Amount of Amount included Amount subsidy included in Beginning in other offset Other Ending Related to Item of liabilities newly non-operating balance income in the cost changes balance assets/income increased revenue in this expenses in this this period period period construction fund Supporting fund for 36,900,000 2,050,000 34,850,000 Related to assets industrial development Subsidy for economic and energy-saving 1,154,700 64,150 1,090,550 Related to assets technical transformation project Special fund for building Yantai as a 4,750,000 4,750,000 Related to income strong manufacturing city Efficient water-saving 3,150,000 306,000 2,844,000 Related to assets irrigation project Total 109,797,054 8,200,000 9,344,900 108,652,154 -- 7.32 Other non-current liabilities Unit: Yuan Item Ending balance Beginning balance Employee remunerations payable 6,848,847 7,209,312 Total 6,848,847 7,209,312 As at June 30, 2018, the employee remunerations payable referred to the job security deposit deducted from the year-end bonus of the employees higher than sales manager of the Company in proportion, which will be paid from 2019 to 2021 as predicted. 7.33 Share capital Unit: Yuan Increase or decrease (+,-) in this period Share Beginning transferred Ending balance Newly issued Allocated balance from Other Subtotal shares shares accumulation fund Total shares 685,464,000 685,464,000 7.34 Capital reserves Unit: Yuan Decrease in this Item Beginning balance Increase in this period Ending balance period Capital premium (Share 560,038,853 560,038,853 capital premium) Other capital reserves 5,916,588 5,916,588 Total 565,955,441 565,955,441 116 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report 7.35 Other comprehensive income Unit: Yuan Amount incurred in this period Minus: profit Amount or loss in this Beginning incurred Minus: Attributable Attributable Ending Item period balance before income to parent to minority balance transferred income tax tax company shareholders from other in this expenses after tax after tax comprehensive period income before 1. Other comprehensive income not to be reclassified into profit and loss later Including: change in net liabilities and net assets from recalculated defined benefit plan Share enjoyed in other comprehensive income not to be reclassified into profit and loss in invested unit under equity law 2. Other comprehensive income to be reclassified into profit and loss 3,109,240 -11,126,413 -9,230,820 -1,895,593 -6,121,580 later Including: share enjoyed in other comprehensive income to be reclassified into profit and loss in invested unit under equity law Profit and loss from changes in fair value of financial assets for sale Profit and loss from reclassification of held-to-maturity investment into fair value of financial assets for sale Effective part of profit and loss of cash-flow hedge Difference in translation of Foreign Currency Financial 3,109,240 -11,126,413 -9,230,820 -1,895,593 -6,121,580 Statement Total other comprehensive income 3,109,240 -11,126,413 -9,230,820 -1,895,593 -6,121,580 7.36 Surplus reserves Unit: Yuan Decrease in this Item Beginning balance Increase in this period Ending balance period Legal surplus reserves 342,732,000 342,732,000 Free surplus reserves Reserve fund Enterprise expansion fund Other Total 342,732,000 342,732,000 117 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report 7.37 Undistributed profit Unit: Yuan Item Ending balance Beginning balance Undistributed profit at the end of prior period before adjustment 7,309,081,618 6,620,118,562 Total Undistributed profit at the beginning of the period before adjustment (increase listed with+ , and decrease listed with -) Undistributed profit at the beginning of the period after adjustment 7,309,081,618 6,620,118,562 Plus: Net profit for owner of the parent company 635,837,405 1,031,695,056 Minus: Drawn legal surplus Drawn free surplus Drawn common risk provision Common dividend payable 342,732,000 Common dividend transferred to share capital Undistributed profit at the end of period 7,944,919,023 7,309,081,618 7.38 Operating income and operating cost Unit: Yuan Amount incurred in this period Amount incurred in prior period Item Income Cost Income Cost Main business 2,818,814,912 969,407,949 2,761,797,479 921,629,225 Other business 9,415,152 5,149,343 5,300,718 4,124,908 Total 2,828,230,064 974,557,292 2,767,098,197 925,754,133 7.39 Taxes and surcharges Unit: Yuan Item Amount incurred in this period Amount incurred in prior period Consumption tax 97,343,463 87,580,364 Urban maintenance and construction tax 23,778,056 30,288,028 Education surcharges 17,417,976 21,968,359 Building tax 16,878,556 9,993,265 Land use tax 6,013,248 5,092,473 Stamp duty 2,247,814 1,970,707 Other 1,597,138 3,580,802 Total 165,276,251 160,473,998 118 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report 7.40 Selling expenses Unit: Yuan Item Amount incurred in this period Amount incurred in prior period Advertising promotion expenses 362,293,691 353,792,438 Employee remunerations 139,247,494 115,463,193 Transportation expenses 67,177,736 64,053,872 Trademark use fees 43,363,867 44,428,033 Storage and lease expenses 19,857,616 27,357,293 Depreciation expenses 21,735,895 19,740,726 Service charges 12,459,237 6,734,393 Travel expenses 10,886,711 10,036,717 Water, electricity and gas charges 7,166,936 3,572,499 Office & postage costs 2,349,806 2,479,541 Packing expenses 3,873,287 3,140,528 Public security & clean-keeping 2,336,546 2,532,418 expenses Business entertainment expenses 1,995,516 1,190,071 Afforestation fees 1,177,756 1,342,117 Property management expenses 1,291,390 1,348,857 Other 13,445,549 11,523,030 Total 710,659,033 668,735,726 7.41 Management expenses Unit: Yuan Item Amount incurred in this period Amount incurred in prior period Employee remunerations 60,660,238 45,732,792 Depreciation expenses 35,410,914 28,996,760 Contracting expenses 7,178,106 10,086,436 Repair expenses 7,076,148 5,768,634 Office expenses 10,977,189 8,693,956 Amortization expenses 9,520,182 9,569,693 Afforestation fees 6,493,556 3,893,103 Rental expenses 5,061,778 5,095,023 Business entertainment expenses 2,815,060 2,562,180 Public security & clean-keeping 3,953,646 2,787,735 expenses Travel expenses 2,139,939 2,650,716 Other 8,805,132 4,705,358 Total 160,091,888 130,542,386 7.42 Financial expenses Unit: Yuan Item Amount incurred in this period Amount incurred in prior period Interest expenditure 18,739,528 15,042,038 Minus: Interest income 7,245,870 4,849,166 119 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Plus: Commission charges 3,005,483 754,300 Exchange gain or loss -1,413,199 200,777 Total 13,085,942 11,147,949 7.43 Loss on impairment of assets Item Amount incurred in this period Amount incurred in prior period 1. Loss on bad debts 2. Inventory falling price loss -4,730,948 -5,853,576 3. Loss on impairment of available-for-sale financial assets 4. Loss on impairment of held-to maturity investment 5. Loss on impairment of long-term equity investment 6. Loss on impairment of investment real estate 7. Loss on impairment of fixed assets 8. Loss on impairment of engineering materials 9. Loss on impairment of construction in progress 10. Loss on impairment of productive biological assets 11. Loss on impairment of oil and gas assets 12. Loss on impairment of intangible assets 13. Loss on impairment of goodwill 14. Other Total -4,730,948 -5,853,576 7.44 Income from asset disposal Unit: Yuan Source of income from asset disposal Amount incurred in this period Amount incurred in prior period Income from disposal of fixed assets 93,958 -495,071 Total 93,958 -495,071 7.45 Other income Unit: Yuan Amount incurred in this Amount incurred in Nature Source of other income period prior period Supporting fund for industrial development 2,050,000 Related to assets Industrial revitalization and technical 1,086,000 Related to assets transformation project in Ningxia Reward for investment in fixed assets 1,140,000 Related to assets Special fund for construction of peninsula blue 1,000,000 Related to assets economic zone Other 4,012,100 Related to assets Tax returns 15,011,673 Related to income Other 13,683,105 Related to income 120 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Amount incurred in this Amount incurred in Nature Source of other income period prior period Total 37,982,878 7.46 Non-operating income Unit: Yuan Amount incurred in Amount incurred in Amount included in the current Item this period prior period non-recurring profits/losses Gains on debt recombination Gains on exchange of non-monetary assets Grains on donations Governmental subsidy 19,735,204 Other 2,006,392 3,412,401 2,006,392 Total 2,006,392 23,147,605 2,006,392 Governmental subsidies included in the current profit/loss: Unit: Yuan Amount incurred in Amount incurred in Item of subsidy Related to assets/income this period prior period Supporting fund of major projects 3,520,914 Related to assets Supporting fund for the development of 2,086,027 Related to assets small and medium-sized enterprises Tax returns 12,737,950 Related to income Other 1,390,313 Related to income Total 19,735,204 -- 7.47 Non-operating expenses Unit: Yuan Amount incurred in Amount incurred in Amount included in the current Item non-recurring profits/losses this period prior period Loss on debt recombination Loss on exchange of non-monetary assets Donation Fine, penalty and overdue fine paid due to violation of laws and 1,187,713 170,997 1,187,713 administrative regulations Other 204,649 15,571 204,649 Total 1,392,362 186,568 1,392,362 121 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report 7.48 Income tax expenses 7.48.1 List of income tax expenses Unit: Yuan Item Amount incurred in this period Amount incurred in prior period Current income tax expenses 178,993,081 195,716,215 Deferred income tax expenses 32,986,654 33,036,575 Total 211,979,735 228,752,790 7.48.2 Adjustment process of accounting profit and income tax expenses Unit: Yuan Item Amount incurred in this period Total profit 847,981,472 Income tax expenses calculated according to the legal/applicable tax rate 211,995,368 Influence of different tax rates applicable to subsidiary -3,617,656 Influence of income tax in the term before adjustment 200,814 Influence of nontaxable income Influence of non-deductible costs, expenses and losses 1,654,413 Influence of deductible loss from use of unconfirmed deferred income tax assets in prior period Influence of deductible temporary difference or deductible loss of unconfirmed deferred 1,746,796 income tax assets in this period Income tax expense 211,979,735 7.49 Other comprehensive income See details in Note 7.35. 7.50 Items of cash flow statement 7.50.1 Other cash received related to operating activities Unit: Yuan Item Amount incurred in this period Amount incurred in prior period Governmental subsidy income 33,687,978 1,570,329 Interest income 3,555,019 3,007,182 Net amercement income 1,609,829 1,173,364 Withdrawal of cash deposit for bills payable 30,900,000 Other 3,490,195 2,239,037 Total 42,343,021 38,889,912 122 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report 7.50.2 Other cash paid related to operating activities Unit: Yuan Item Amount incurred in this period Amount incurred in prior period Selling expenses 387,846,396 352,845,674 Administrative expenses 45,235,101 43,700,254 Refundable deposits 35,030,980 Other 3,895,589 940,870 Total 436,977,086 432,517,778 7.50.3 Other cash paid related to investment activities Unit: Yuan Item Amount incurred in this period Amount incurred in prior period Prepaid investment fund 317,654,642 Total 317,654,642 7.50.4 Other cash received related to financial activities Unit: Yuan Item Amount incurred in this period Amount incurred in prior period Government subsidies received related to 3,150,000 1,000,000 assets Interest income from pledge of fixed 371,431 303,473 deposits by the R&D Company Long-term loans from pledge of fixed 20,000,000 deposits by R&D Company Total 23,521,431 1,303,473 7.50.5 Other cash paid related to financial activities Unit: Yuan Item Amount incurred in this period Amount incurred in prior period R&D Company‘ long-term loans pledged by 20,000,000 fixed-term deposits Total 20,000,000 7.51 Supplementary information to cash flow statement 7.51.1 Supplementary information to cash flow statement Unit: Yuan Supplementary materials Amount incurred in this period Amount incurred in prior period 1. Cash flows from operating activities calculated by -- -- adjusting the net profit: Net profit 636,001,737 670,010,757 Plus: Provision for impairment of assets -4,730,948 -5,853,576 Depreciation of fixed assets, oil-and-gas assets and 148,983,240 132,923,630 productive biological assets 123 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Supplementary materials Amount incurred in this period Amount incurred in prior period Intangible assets amortization 11,567,301 9,588,347 Amortization of long term prepaid expenses 8,117,444 5,221,889 Losses on disposal of fixed assets, intangible assets and -93,958 495,071 other long-term assets (profit listed with ―-‖) Losses on retirement of fixed assets (profit listed with ―-‖) Losses on fair value change (profit listed with ―-‖) Financial costs (profit listed with ―-‖) 15,048,678 15,086,410 Investment losses (profit listed with ―-‖) Decrease in deferred income tax assets (increase listed 37,133,223 36,092,247 with ―-‖) Increase of deferred income tax liabilities (decrease -4,146,569 -3,055,672 listed with ―-‖) Decrease in inventories (increase listed with ―-‖) 216,486,236 230,160,387 Decrease in operating receivables (increase listed with -305,623,146 -345,259,383 ―-‖) Increase in operating payable (decrease listed with ―-‖) -205,989,766 -325,049,788 Other Net cash flows from operating activities 552,753,472 420,360,319 2. Significant investment and financing activities not -- -- involving cash deposit and withdrawal: Debt transferred into assets Convertible corporate bond due within 1 year Fixed assets under financing lease 3. Net changes of cash and cash equivalent: -- -- Ending balance of cash 1,428,670,462 1,229,487,903 Minus: Beginning balance of cash 1,180,889,274 1,256,942,304 Plus: Ending balance of cash equivalent Minus: Beginning balance of cash equivalent Net increase amount of cash and cash equivalent 247,781,188 -27,454,401 7.51.2 Composition of cash and cash equivalents Unit: Yuan Item Ending balance Beginning balance 1. Cash 1,428,670,462 1,229,487,903 Including: Cash on hand 151,228 112,832 Bank deposits on demand 1,428,519,234 1,229,375,071 Other monetary capital on demand Due from central bank available for payment Due from the industry Inter-bank lending 2. Cash equivalents Including: Bond investment due within three months 3. Balance of cash and cash equivalents at the end of 1,428,670,462 1,229,487,903 period 124 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Including: Restricted use of parent company or subsidiaries in the group 7.52 Assets with ownership or use right restrictions Unit: Yuan Item Ending book value Reason for restriction Loan deposit, L/C deposit, frozen balance of Alipay, Monetary capital 124,367,991 housing fund and guaranty money for deposit in unit card Accounts receivable 35,016,424 Pledge of short-term loans Pledge of short-term loans, long-term loans and Fixed assets 142,338,624 long-term accounts payable Intangible assets 161,934,242 Pledge of long-term accounts payable Total 463,657,281 -- 7.53 Foreign currency monetary items 7.53.1 Foreign currency monetary items The foreign currency monetary items of the Group in domestic entities of China are listed as follows: Unit: Yuan Item Ending foreign currency balance Translation exchange rate Ending converted RMB balance Monetary capital -- -- 39,366,401 Including: USD 5,949,495 6.6166 39,365,429 EUR 127 7.6515 972 HKD 7.53.2 Overseas operational entities The currency adopted by the overseas subsidiaries of the Company according to the main economic environment where the operation is located shall be chosen as the recording currency. Marques del Atrio and Francs Champs Participations SAS (―Francs Champs‖) both use euro as the recording currency, Indomita Wine Company Chile, SpA uses Chilean peso as the recording currency, and Kilikanoon Estate, Australia uses Australian dollar as the recording currency. The foreign currency assets or liabilities of overseas subsidiaries are listed as follows: Unit: Yuan Item Ending foreign currency balance Translation exchange rate Ending converted RMB balance Monetary capital -- -- 41,202,833 Including: USD 6,169,166 6.6166 40,818,904 EUR 50,177 7.6515 383,929 HKD Short-term loans -- -- 59,549,400 Including: USD 9,000,000 6.6166 59,549,400 EUR HKD 125 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report 8. Changes in scope of consolidation 8.1 Business merger under non-common control incurred in this period Unit: Yuan Income of Net profit of the the Determination purchased purchased Time of Cost of Name of the Shareholding Way of equity Purchasing basis of the from the from the equity equity purchased ratio acquisition date purchasing purchasing purchasing acquisition acquisition date date to the date to the end of this end of this period period The Company Kilikanoon acquired the Estate Pty control right Ltd January 18, January 18, 105,926,184 80% Purchase over the 25,904,401 -115,317 ("Kilikanoon 2018 2018 merged party Estate, on the date of Australia") purchase. According to the Equity Transfer Contract signed between the Company and the shareholders of Kilikanoon Estate, Australia, the Company purchased 80% of the shares held by Kilikanoon Estate, Australia with AUD 20,605,000 (equivalent to RMB 105,926,184 Yuan). On January 18, 2018, the preconditions for full equity transfer were fulfilled, and the Company acquired the control right over the finance and business policy of Kilikanoon Estate, Australia. 8.1.2 Combined cost and goodwill Unit: Yuan Combined cost Kilikanoon Estate, Australia --Cash 105,926,184 -- Fair value of the non-cash assets -- Fair value of the issued or assumed debts -- Fair value of the issued equity securities -- Fair value of the contingent consideration -- Fair value of the stock equity held before the purchasing date on the purchasing date --Other Total combined cost 105,926,184 Minus: Fair value share of the acquired net identifiable assets 70,131,290 Amount of the share that the goodwill/combined cost is less than the fair 35,794,894 value of the net identifiable assets 8.1.3 Identifiable assets and liabilities of the purchased on the purchasing date Unit: Yuan Item Kilikanoon Estate, Australia Fair value on the purchasing date Book value on the purchasing date Assets: Monetary capital 1,359,765 1,359,765 126 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Item Kilikanoon Estate, Australia Fair value on the purchasing date Book value on the purchasing date Accounts receivable 10,366,281 10,366,281 Advance payment 237,174 237,174 Other receivables 182,667 182,667 Inventory 69,612,312 57,946,312 Financial assets available for sale 5,053 5,053 Fixed assets 49,029,999 38,696,709 Intangible assets 16,417,886 7,461,624 Total assets 147,211,137 116,255,585 Liabilities: Long-term loans 1,282,550 1,282,550 Accounts payable 6,198,846 6,198,846 Employee remuneration payable 876,987 876,987 Taxes and dues payable 1,789,093 1,789,093 Long-term loans 43,497,119 43,497,119 Deferred income tax liabilities 5,902,429 Total liabilities 59,547,024 53,644,595 Net assets 87,664,113 62,610,990 Minus: Minority equity 17,532,823 12,522,198 Net assets acquired 70,131,290 50,088,792 9. Equity in other entities 9.1 Equity in the subsidiaries 9.1.1 Constitution of enterprise group Proportion of Business shareholding Name of subsidiary Principal business location Registration place Acquisition mode nature Direct Indirect Shihezi City, Xinjiang Acquired from a business Shihezi City, Xinjiang Uygur Manufacturing Xinjiang Tianzhu (a) Uygur Autonomous Region, 60% combination under Autonomous Region, China industry China non-common control Acquired from a business Roullet Fransac Cognac, France Cognac, France Trading 100% combination under non-common control Acquired from a business Mirefleurs Bordeaux, France Bordeaux, France Trading 100% combination under non-common control Acquired from a business Marques del Atrio (b) Navarra, Spain Navarra, Spain Sales 75% combination under non-common control Acquired from a business Adelaide, South Australia, Adelaide, South Australia, Kilikanoon Estate, Australia Sales 80% combination under Australia Australia non-common control Acquired by Indomita Wine (c) Santiago, Chile Santiago, Chile Sales 85% establishment or investment Beijing Changyu Wine Acquired by Marketing Co., Ltd. Beijing City, China Beijing City, China Sales 100% establishment or (―Beijing Marketing‖) investment Yantai Kylin Packaging Acquired by Yantai City, Shandong Yantai City, Shandong Manufacturing Co., Ltd. (―Kylin 100% establishment or Province, China Province, China industry Packaging‖) investment 127 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Proportion of Business shareholding Name of subsidiary Principal business location Registration place Acquisition mode nature Direct Indirect Yantai Chateau Acquired by Yantai City, Shandong Yantai City, Shandong Manufacturing Changyu-Castel Co., Ltd. 70% establishment or Province, China Province, China industry (―Chateau Changyu‖) (d) investment Changyu (Jingyang) Acquired by Xianyang City, Shaanxi Xianyang City, Shaanxi Manufacturing Pioneer Wine Co., Ltd. 90% 10% establishment or Province, China Province, China industry (―Jingyang Wine‖) investment Yantai Changyu Pioneer Acquired by Yantai City, Shandong Yantai City, Shandong Wine Sales Co., Ltd. Sales 100% establishment or Province, China Province, China (―Sales Company‖) investment Langfang Development Acquired by Zone Castel-Changyu Wine Langfang City, Hebei Langfang City, Hebei Province, Manufacturing 39% 10% establishment or Co., Ltd. (―Langfang Province, China China industry investment Castel‖) (e) Changyu (Jingyang) Acquired by Xianyang City, Shaanxi Xianyang City, Shaanxi Pioneer Wine Sales Co., Sales 10% 90% establishment or Province, China Province, China Ltd. (―Jingyang Sales‖) investment Langfang Changyu Pioneer Acquired by Langfang City, Hebei Langfang City, Hebei Province, Wine Sales Co., Ltd. Sales 10% 90% establishment or Province, China China (―Langfang Sales‖) investment Shanghai Changyu Wine Acquired by Marketing Co., Ltd. Shanghai City, China Shanghai City, China Sales 30% 70% establishment or (―Shanghai Marketing‖) investment Beijing Changyu AFIP Eco-agriculture Acquired by Miyun County, Beijing City, Miyun County, Beijing City, Development Co., Ltd. Sales 100% establishment or China China (―Eco-agriculture investment Development‖) Beijing Changyu AFIP Acquired by Manufacturing Wine Chateau Co., Ltd. Beijing City, China Beijing City, China 90% establishment or industry (―Beijing Chateau‖) (f) investment Acquired by Yantai Changyu Wine Sales Yantai City, Shandong Yantai City, Shandong Sales 90% 10% establishment or Co., Ltd. ( ―Wine Sales‖) Province, China Province, China investment Yantai Changyu Pioneer Acquired by Yantai City, Shandong Yantai City, Shandong International Wine Co., Ltd. Sales 70% 30% establishment or Province, China Province, China (―Pioneer International‖) investment Hangzhou Changyu Wine Acquired by Hangzhou City, Zhejiang Hangzhou City, Zhejiang Sales Co., Ltd. (―Hangzhou Sales 100% establishment or Province, China Province, China Changyu‖) investment Acquired by Yinchuan City, Ningxia Hui Yinchuan City, Ningxia Hui Planting Ningxia Growing 100% establishment or Autonomous Region, China Autonomous Region, China industry investment Huanren Changyu National Acquired by Benxi City, Liaoning Benxi City, Liaoning Province, Wine Sales Co., Ltd. Sales 100% establishment or Province, China China (―National Wine‖) investment Liaoning Changyu Icewine Acquired by Benxi City, Liaoning Benxi City, Liaoning Province, Manufacturing Valley Co., Ltd. (―Icewine 51% establishment or Province, China China industry Valley‖) (g) investment Yantai Development Zone Acquired by Changyu Trading Co., Ltd. Yantai City, Shandong Yantai City, Shandong Sales 100% establishment or (―Development Zone Province, China Province, China investment Trading‖) Shenzhen Changyu Wine Acquired by Shenzhen City, Guangdong Shenzhen City, Guangdong Marketing Co., Ltd. Sales 100% establishment or Province, China Province, China (―Shenzhen Marketing‖) investment Yantai Fushan District Acquired by Yantai City, Shandong Yantai City, Shandong Changyu Trading Co., Ltd. Sales 100% establishment or Province, China Province, China (―Fushan Trading‖) investment Beijing Changyu AFIP Acquired by International Conference Miyun County, Beijing City, Miyun County, Beijing City, Service 100% establishment or Center Co., Ltd. China China industry investment (―Conference Center‖) Beijing Changyu AFIP Acquired by Miyun County, Beijing City, Miyun County, Beijing City, Tourist Tourism and Culture Co., 100% establishment or China China industry Ltd. (―AFIP Tourism‖) investment 128 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Proportion of Business shareholding Name of subsidiary Principal business location Registration place Acquisition mode nature Direct Indirect Changyu (Ningxia) Pioneer Acquired by Yinchuan City, Ningxia Hui Yinchuan City, Ningxia Hui Manufacturing Wine Co., Ltd. (―Ningxia 100% establishment or Autonomous Region, China Autonomous Region, China industry Wine‖) investment Yantai Changyu Chateau Acquired by Yantai City, Shandong Yantai City, Shandong Wholesale and Tinlot Co., Ltd. (―Chateau 65% 35% establishment or Province, China Province, China retail Tinlot‖) investment Changyu (Qingtongxia) Qingtongxia City, Ningxia Acquired by Qingtongxia City, Ningxia Hui Wine Sales Co., Ltd. Hui Autonomous Region, Sales 100% establishment or Autonomous Region, China (―Qingtongxia Sales‖) China investment Shihezi City, Xinjiang Acquired by Shihezi City, Xinjiang Uygur Manufacturing Shihezi Chateau Uygur Autonomous Region, 100% establishment or Autonomous Region, China industry China investment Chateau Changyu Moser Acquired by Yinchuan City, Ningxia Hui Yinchuan City, Ningxia Hui Manufacturing XV Ningxia Co., Ltd. 100% establishment or Autonomous Region, China Autonomous Region, China industry (―Ningxia Chateau‖) investment Chateau Changyu Rena Acquired by Xianyang City, Shaanxi Xianyang City, Shaanxi Manufacturing Shaanxi Co., Ltd. 100% establishment or Province, China Province, China industry (―Chang‘an Chateau‖) investment Acquired by Yantai City, Shandong Yantai City, Shandong Manufacturing R&D Company (g) 65% establishment or Province, China Province, China industry investment Changyu (Huanren) Pioneer Wine-making Acquired by Benxi City, Liaoning Benxi City, Liaoning Province, Wine Co., Ltd. (―Huanren project 100% establishment or Province, China China Wine‖) preparation investment Xinjiang Changyu Wine Shihezi City, Xinjiang Acquired by Shihezi City, Xinjiang Uygur Sales Co., Ltd. (―Xinjiang Uygur Autonomous Region, Sales 100% establishment or Autonomous Region, China Sales‖) China investment Xinjiang Changyu Pioneer Shihezi City, Xinjiang Acquired by Shihezi City, Xinjiang Uygur Manufacturing Wine Co., Ltd. (―Xinjiang Uygur Autonomous Region, 100% establishment or Autonomous Region, China industry Wine‖) China investment Ningxia Changyu Trading Acquired by Yinchuan City, Ningxia Hui Yinchuan City, Ningxia Hui Co., Ltd. (―Ningxia Sales 100% establishment or Autonomous Region, China Autonomous Region, China Trading‖) investment Shaanxi Changyu Rena Acquired by Xianyang City, Shaanxi Xianyang City, Shaanxi Wine Sales Co., Ltd. Sales 100% establishment or Province, China Province, China (―Shaanxi Sales‖) investment Penglai Changyu Wine Acquired by Penglai City, Shandong Penglai City, Shandong Sales Co., Ltd. (―Penglai Sales 100% establishment or Province, China Province, China Wine‖) investment Laizhou Changyu Wine Acquired by Laizhou City, Shandong Laizhou City, Shandong Sales Co., Ltd. (―Laizhou Sales 100% establishment or Province, China Province, China Sales‖) investment Acquired by Francs Champs Investment Cognac, France Cognac, France 100% establishment or Participations SAS trade investment Lanzhou Changyu Wine Acquired by Lanzhou City, Gansu Lanzhou City, Gansu Province, Marketing Co., Ltd. Sales 100% establishment or Province, China China (―Lanzhou Marketing‖) investment Beijing Changyu Trading Acquired by Co., Ltd. (―Beijing Beijing City, China Beijing City, China Sales 100% establishment or Trading‖) investment Tianjin Changyu Pioneer Acquired by Wine Sales Co., Ltd. Tianjin City, China Tianjin City, China Sales 100% establishment or (―Tianjin Pioneer‖) investment Fuzhou Changyu Pioneer Acquired by Fuzhou City, Fujian Fuzhou City, Fujian Province, Wine Co., Ltd. (―Fuzhou Sales 100% establishment or Province, China China Pioneer‖) investment Nanjing Changyu Pioneer Acquired by Nanjing City, Jiangsu Nanjing City, Jiangsu Province, Wine Co., Ltd. (―Nanjing Sales 100% establishment or Province, China China Pioneer‖) investment Xianyang Changyu Pioneer Acquired by Xianyang City, Shaanxi Xianyang City, Shaanxi Wine Sales Co., Ltd. Sales 100% establishment or Province, China Province, China (―Xianyang Pioneer‖) investment Shenyang Changyu Pioneer Shenyang City, Liaoning Shenyang City, Liaoning Sales 100% Acquired by Wine Co., Ltd. (―Shenyang Province, China Province, China establishment or 129 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Proportion of Business shareholding Name of subsidiary Principal business location Registration place Acquisition mode nature Direct Indirect Pioneer‖) investment Jinan Changyu Pioneer Acquired by Jinan City, Shandong Jinan City, Shandong Province, Wine Co., Ltd. (―Jinan Sales 100% establishment or Province, China China Pioneer‖) investment Shanghai Changyu Pioneer Acquired by Wine Co., Ltd. (―Shanghai Shanghai City, China Shanghai City, China Sales 100% establishment or Pioneer‖) investment Fuzhou Changyu Pioneer Acquired by Fuzhou City, Jiangxi Fuzhou City, Jiangxi Province, Wine Co., Ltd. (―Fuzhou Sales 100% establishment or Province, China China Pioneer‖) investment Shijiazhuang Changyu Acquired by Pioneer Wine Sales Co., Shijiazhuang City, Hebei Shijiazhuang City, Hebei Sales 100% establishment or Ltd. (―Shijiazhuang Province, China Province, China investment Pioneer‖) Hangzhou Yuzefeng Acquired by Hangzhou City, Zhejiang Hangzhou City, Zhejiang Trading Co., Ltd. Sales 100% establishment or Province, China Province, China (―Hangzhou Yuzefeng‖) investment Acquired by Jilin Changyu Pioneer Wine Changchun City, Jilin Changchun City, Jilin Sales 100% establishment or Co., Ltd. (―Jilin Pioneer‖) Province, China Province, China investment Beijing Changyu Pioneer Acquired by Wine Sales Co., Ltd. Beijing City, China Beijing City, China Sales 100% establishment or (―Beijing Pioneer‖) investment Harbin Changyu Pioneer Acquired by Harbin City, Heilongjiang Harbin City, Heilongjiang Wine Sales Co., Ltd. Sales 100% establishment or Province, China Province, China (―Harbin Pioneer‖) investment Hunan Changyu Pioneer Acquired by Changsha City, Hunan Changsha City, Hunan Wine Co., Ltd. (―Hunan Sales 100% establishment or Province, China Province, China Pioneer‖) investment Yinchuan Changyu Pioneer Acquired by Yinchuan City, Ningxia Hui Yinchuan City, Ningxia Hui Wine Co., Ltd. (―Yinchuan Sales 100% establishment or Autonomous Region, China Autonomous Region, China Pioneer‖) investment Kunming Changyu Pioneer Acquired by Kunming City, Yunnan Kunming City, Yunnan Wine Co., Ltd. (―Kunming Sales 100% establishment or Province, China Province, China Pioneer‖) investment Chongqing Changyu Acquired by Pioneer Wine Sales Co., Chongqing City, China Chongqing City, China Sales 100% establishment or Ltd. (―Chongqing Pioneer‖) investment Zhengzhou Changyu Acquired by Zhengzhou City, Henan Zhengzhou City, Henan Pioneer Wine Co., Ltd. Sales 100% establishment or Province, China Province, China (―Zhengzhou Pioneer‖) investment Wuhan Changyu Pioneer Acquired by Wuhan City, Hubei Wuhan City, Hubei Province, Wine Co., Ltd. (―Wuhan Sales 100% establishment or Province, China China Pioneer‖) investment Taiyuan Changyu Pioneer Acquired by Taiyuan City, Shanxi Taiyuan City, Shanxi Province, Wine Co., Ltd. (―Taiyuan Sales 100% establishment or Province, China China Pioneer‖) investment Hohhot Changyu Pioneer Hohhot City, Inner Acquired by Hohhot City, Inner Mongolia Wine Co., Ltd. (―Hohhot Mongolia Autonomous Sales 100% establishment or Autonomous Region , China Pioneer‖) Region , China investment Chengdu Changyu Pioneer Acquired by Chengdu City, Sichuan Chengdu City, Sichuan Wine Co., Ltd. (―Chengdu Sales 100% establishment or Province, China Province, China Pioneer‖) investment Nanning Changyu Pioneer Nanning City, Guangxi Acquired by Nanning City, Guangxi Zhuang Wine Co., Ltd. (―Nanning Zhuang Autonomous Sales 100% establishment or Autonomous Region, China Pioneer‖) Region, China investment Lanzhou Changyu Pioneer Acquired by Lanzhou City, Gansu Lanzhou City, Gansu Province, Wine Co., Ltd. (―Lanzhou Sales 100% establishment or Province, China China Pioneer‖) investment Yantai Roullet-Fransac Acquired by Imported Wine Sales Co., Yantai City, Shandong Yantai City, Shandong Sales 100% establishment or Ltd. (―Yantai Province, China Province, China investment Roullet-Fransac‖) Hefei Changyu Pioneer Hefei City, Anhui Province, Hefei City, Anhui Province, Sales 100% Acquired by Wine Co., Ltd. (―Hefei China China establishment or 130 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Proportion of Business shareholding Name of subsidiary Principal business location Registration place Acquisition mode nature Direct Indirect Pioneer‖) investment Urumchi Changyu Pioneer Urumchi City, Xinjiang Acquired by Urumchi City, Xinjiang Uygur Wine Co., Ltd. (―Urumchi Uygur Autonomous Region, Sales 100% establishment or Autonomous Region, China Pioneer‖) China investment Guizhou Changyu Pioneer Acquired by Guiyang City, Guizhou Guiyang City, Guizhou Wine Co., Ltd. (―Guizhou Sales 100% establishment or Province, China Province, China Pioneer‖) investment Guangzhou Changyu Acquired by Guangzhou City, Guangzhou City, Guangdong Pioneer Wine Co., Ltd. Sales 100% establishment or Guangdong Province, China Province, China (―Guangzhou Pioneer‖) investment Acquired by Yantai City, Shandong Yantai City, Shandong Wine Sales Co., Ltd. Sales 100% establishment or Province, China Province, China investment Explanation for difference between the proportion of shareholding and proportion of voting power in the subsidiaries: (a) Xinjiang Tianzhu is a subsidiary of the Company obtained by merger and acquisition, whose 60% of the shares are held by the Company. The Company exercises full control over the operation, investment and financing policies of Xinjiang Tianzhu by contract arrangement. This contract arrangement was expired on August 6, 2017. After the expiration, the minority shareholders of Xinjiang Tianzhu shall enjoy/bear all rights/duties of shareholders specified in the Articles of Association. (b) On September 12, 2016, Atrio Group completed the internal reorganization, and Marques del Atrio absorbed and merged Atrio Group and its subsidiaries Enotec S.L., Hostaler I S.L., and Faustino Rivero Ulecia S.L. After the reorganization was completed, Marques del Atrio becomes the only existing company. (c) Indomita Wine is a Sino-foreign joint venture jointly established by the Company and Inversiones Beth-Wines Limitada, in which the Company invested USD 40,110,000 (equivalent to RMB 274,248,114 Yuan), holding 85% of the stock rights, and Inversiones Beth-Wines Limitada invested USD 7,080,000 (equivalent to RMB 48,396,726 Yuan), holding 15% of the stock rights. (d) Changyu Chateau is a Sino-foreign joint venture established by the Company and a foreign investor, whose 70% of the shares are held by the Company. The Company exercises full control over the operation, investment and financing policies of Changyu Chateau by contract arrangement. The contract arrangement will expire on December 31, 2022. (e) Langfang Castel is a Sino-foreign joint venture established by the Company and a foreign investor, whose 49% of the shares are held by the Company and its subsidiaries. The Company exercises full control over the operation, investment and financing policies of Langfang Castel by contract arrangement. The contract arrangement will expire on December 31, 2022. (f) Beijing Chateau is a limited liability company jointly established by the Company and Yantai De‘an and Beijing Qinglang. In 2017, the Company made capital increase of RMB 131 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report 502,910,000 Yuan in Beijing Chateau, and Yantai De‘an and Beijing Qinglang jointly made capital increase of RMB 29,840,000 Yuan. On December 22, 2017, Beijing Chateau completed business registration alteration. After the capital increase, the Company holds 90% of the stock rights. The Company exercises full control over the operation, investment and financing policies of Beijing Chateau by contract arrangement. The contract arrangement will expire on September 2, 2019. (g) Icewine Valley is a Sino-foreign joint venture established by the Company and a foreign investor, whose 51% of the shares are held by the Company. The Company exercises full control over the operation, investment and financing policies of Icewine Valley by contract arrangement. The contract arrangement will expire on December 31, 2021. (h) The R&D Company is a joint venture established by the Company and Agricultural Development Fund, whose 65% of the shares were held by the Company on June 30, 2018. As stated in Note 7.30, Agricultural Development Fund invested RMB 305,000,000 Yuan in the R&D Company in 2016, accounting for 37.9% of the registered capital. According to the investment agreement, it is agreed that Agricultural Development Fund will take back the investment fund in ten years and obtain fixed income according to year, which is 1.2% of the remaining principal. Except for the above fixed income, the Agricultural Development Fund shall not enjoy other profits of the R&D Company or bear the losses of the R&D Company. Accordingly, the investment of the Agricultural Development Fund in the R&D Company is equity investment nominally, which is debt investment in deed. This Company shall include the investment of the Agricultural Development Fund in long-term accounts payable measured by amortized cost. The Company exercises full control over the operation, investment and financing policies of the R&D Company by contract arrangement. The contract arrangement will expire on May 22, 2026. 9.1.2 Important non-wholly-owned subsidiaries Unit: Yuan Dividend declared to be Shareholding proportion Profit/loss attributable Balance of minority distributed to minority Name of subsidiary of minority to minority shareholders shareholder‘s interest at shareholders in this shareholders in this period the end of period period Xinjiang Tianzhu 40% -73,829 53,299,623 Marques del Atrio 25% 303,503 746,021 30,648,536 Changyu Chateau 30% 12,365,016 Langfang Castel 51% 22,702,522 Beijing Chateau 10% 65,133,868 Icewine Valley 49% 33,319,062 Indomita Wine 15% -42,279 52,446,446 Kilikanoon Estate, 20% -23,063 16,776,846 Australia 132 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Explanation for difference between the proportion of shareholding and proportion of voting power of the minority shareholders in the subsidiaries: See details in Note 9.1.1. 9.1.3 Main financial information of important non-wholly-owned subsidiaries Unit: Yuan Ending balance Name of subsidiary Non-current Non-current Current assets Total assets Current liabilities Total liabilities assets liabilities Xinjiang 31,621,493 68,869,503 100,490,996 493,969 5,336,114 5,830,082 Tianzhu Changyu 140,023,527 114,974,477 254,998,005 171,551,853 171,551,853 Chateau Langfang 18,220,999 17,452,408 35,673,406 4,063,516 4,063,516 Castel Beijing 215,371,778 475,159,760 690,531,538 50,320,391 50,320,391 Chateau Icewine 59,047,298 25,091,478 84,138,776 28,890,336 100,000 28,990,336 Valley Marques del 348,900,749 107,672,031 456,572,779 246,746,293 86,970,780 333,717,072 Atrio Indomita 183,652,569 299,672,376 483,324,945 127,449,902 6,232,065 133,681,967 Wine Kilikanoon Estate, 85,037,994 63,434,206 148,472,200 57,335,399 7,252,572 64,587,971 Australia Unit: Yuan Beginning balance Name of subsidiary Non-current Non-current Current assets Total assets Current liabilities Total liabilities assets liabilities Xinjiang 30,264,441 71,323,940 101,588,381 809,080 5,336,114 6,145,194 Tianzhu Changyu 140,038,021 115,435,985 255,474,006 175,061,601 175,061,601 Chateau Langfang 22,728,536 17,973,719 40,702,255 6,133,909 6,133,909 Castel Beijing 214,079,274 481,668,050 695,747,324 73,963,043 73,963,043 Chateau Icewine 38,657,358 25,484,359 64,141,717 10,871,695 100,000 10,971,695 Valley Marques del 398,835,959 116,299,504 515,135,463 299,030,002 89,336,338 388,366,340 Atrio Indomita 175,669,256 305,664,706 481,333,962 122,023,764 5,206,406 127,230,170 Wine Unit: Yuan Amount incurred in this period Amount incurred in prior period Name of Total Total subsidiary Operating Operating Operating Operating Net profit comprehensive Net profit comprehensive income cash flow income cash flow income income Xinjiang 18,803 -184,572 -184,572 10,284,801 115,904,168 22,453,715 22,453,715 -7,275,404 133 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Tianzhu Changyu 43,226,910 2,861,474 2,861,474 2,419,427 20,668,538 -106,018 -106,018 12,978,276 Chateau Langfang 5,038,281 -1,952,954 -1,952,954 -4,435,022 23,732,778 161,088 161,088 -137,422 Castel Beijing 78,502,666 15,243,700 15,243,700 12,282,145 75,491,933 12,511,172 12,511,172 -37,040,335 Chateau Icewine 27,305,133 905,396 905,396 2,018,740 16,724,881 -2,063,324 -2,063,324 -1,416,775 Valley Marques 148,197,893 1,214,012 -929,332 -21,783,821 131,223,890 -233,187 3,996,659 -31,616,566 del Atrio Indomita 93,719,341 -281,859 -4,460,814 -7,723,684 Wine Kilikanoon Estate, 25,904,401 -115,317 -3,779,883 -1,469,903 Australia 10. Risks related to financial instruments The main financial instruments of the Group include monetary capital, bills receivable, accounts receivable, interest receivable, other receivables, available-for-sale financial assets, short-term loans, accounts payable, other payables, interest payable, long-term accounts payable and long-term loans. Please refer to Note 7 of each financial instrument for the details. The risks related to these financial instruments and risk management policies adopted by the Group to reduce these risks are shown as follows. The management of the Group manages and monitors these risk exposures to ensure that the above-mentioned risks are controlled within a defined scope. The Group adopts sensitivity analysis techniques to analyze the possible influence of possible reasonable changes of risk variables on the current profit and loss and shareholders‘ equity. Since any risk variable merely changes independently and the final influence of relevance between variables on the change of certain risk variable will exert a great effect, the following content is carried out under the hypothesis that each variable changes independently. The risk management objective of the Group is to achieve proper balance between risks and benefits, to minimize the negative influence of the risks on the business performance of the Group and to maximize the shareholders‘ benefit. Based on this risk management objective, the basic risk management strategy of the Group is to determine and analyze various risks faced by the Group, to set up proper risk tolerance bottom line and to carry out risk management, and to supervise various risks timely and reliably to control the risks within a defined scope. 10.1 Risk management objective and policy 10.1.1 Market risk ① Foreign exchange risk 134 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Foreign exchange risk refers to the risk that causes loss due to exchange rate fluctuation. The foreign exchange risk borne by the Group is mainly relevant to EUR and USD. Except that the overseas subsidiaries of the Group purchase and sell in EUR, Chilean peso and Australian dollar, which borrow in USD, and domestic subsidiaries deposit in EUR and USD, other main business activities of the Group are priced and settled in RMB. As at June 30, 2018, except that the assets and liabilities mentioned in the table below were the balance of deposits or loans shown in foreign currencies, other assets and liabilities of the entities of the Group were settled in their respective functional currencies. Unit: Yuan Item Ending balance Beginning balance Monetary capital (EUR) 383,929 1,190,459 Monetary capital (USD) 40,818,904 34,843,968 Short-term loans (USD) 59,549,400 58,807,800 The foreign exchange risk caused by the assets and liabilities of such foreign currency balance may exert an influence on the business performance of the Group. The Group pays close attention to the influence of exchange rate fluctuation on the foreign exchange risk of the Group. The Group has not taken any measures to avoid the foreign exchange risk at present. Sensitivity analysis of foreign exchange risk With the other variables unchanged, the pre-tax influence of possible reasonable exchange rate fluctuation on current profit and loss and shareholders‘ equity is shown as follows: Domestic entities: Unit: Yuan This period Item Exchange rate fluctuation Influence on profit in this period Influence on shareholders‘ equity EUR 5% appreciation against RMB 49 49 EUR 5% depreciation against RMB -49 -49 USD 5% appreciation against RMB 1,968,271 1,968,271 USD 5% depreciation against RMB -1,968,271 -1,968,271 Overseas entities: Unit: Yuan This period Item Exchange rate fluctuation Influence on profit in this period Influence on shareholders‘ equity USD 5% appreciation against EUR 22,027 22,027 USD 5% depreciation against EUR -22,027 -22,027 USD 10% appreciation against CLP -5,830,116 -5,830,116 135 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report USD 10% depreciation against CLP 5,830,116 5,830,116 EUR 5% appreciation against CLP 19,205 19,205 EUR 5% depreciation against CLP -19,205 -19,205 Note: As at June 30, 2018, the management of the Group predicted that the EUR and USD exchange rate against RMB, EUR exchange rate against USD, and EUR exchange rate against CLP changed by 5%; and USD exchange rate against CLP changed by 10%. ② Interest rate risk – risk of change in cash flow The risk of change in cash flow of financial instruments caused by interest rate change of the Group is mainly relevant to the monetary capital and bank loan at floating interest rate. The policy of the Group is to maintain the floating interest rate of these loans to eliminate the risk of change in fair value of the interest rate. Sensitivity analysis of interest rate risk Sensitivity analysis of interest rate risk is based on the hypothesis that the change in market interest rate influences the interest income or expense of financial instruments at variable rate. The management of the Group thinks that the interest rate risk of deposit in bank borne by the Group is not significant, and therefore the sensitivity analysis of interest rate of deposit in bank is not disclosed here. On the basis of the above-mentioned hypothesis, with the other variables unchanged, the pre-tax influence of possible reasonable exchange rate fluctuation on current profit and loss and shareholders‘ equity is as follows: Unit: Yuan This period Item Interest rate change Influence on profit of this period Influence on shareholders‘ equity Bank loan Increase by 50 BP -1,751,529 -1,751,529 Bank loan Decrease by 50 BP 1,751,529 1,751,529 Note: As at June 30, 2018, the management of the Group predicted that the bank floating rate changed by 50 basis points 10.1.2 Credit risk As at June 30, 2018, the largest credit risk exposure possibly causing the financial loss of the 136 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Group was mainly caused by the loss generated by the financial assets of the Group due to failure of another party of the contract in fulfilling obligations. To lower the credit risk, the Group only trades with the recognized and reputable third party. In accordance with the policy of the Group, credit check shall be carried out for all customers who transact by means of credit. In addition, the Group conducts continuous monitoring on the balance of accounts receivable to ensure that the Group will not face major risk of bad debts. For transactions not settled with recording currency of relevant business units, unless the credit control department of the Group specially approves, the Group will not provide credit trade terms. In addition, the Group audits the collection of each single significant account receivable on each date of balance sheet to ensure that sufficient bad-debt provision is accrued for accounts unable to be collected. Therefore, the management of the Group thinks the credit risk borne by the Group is greatly reduced. Since the Group only trades with the recognized and reputable third party, no collateral is required. The credit risk is managed centrally according to the customer/counter-party, geographic area and industry. As at June 30, 2018, 16.4% of accounts receivable of the Group came from top five borrowers in accounts receivable of the Group (December 31, 2017: 20.7%). The Group holds no collateral or other credit enhancement for the balance of accounts receivable. 10.1.3 Liquidity risk When managing the liquidity risk, the Group reserves and monitors the cash and cash equivalents the management considers sufficient to satisfy the operation need of the Group and reduce the influence of fluctuation in cash flow. The management of the Group monitors the use of bank loans and ensures to abide by the loan agreement. 10.1.4 Disclosure of fair value – fair value of financial assets and liabilities not measured by fair value Fair value Item Book value First-level Second-level fair Third-level Total fair value value fair value Long-term accounts payable 269,000,000 - 229,053,269 - 229,053,269 measured by amortized cost The management of the Group thinks that, as at June 30, 2018, except for the long-term 137 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report accounts payable stated above, the book value of other financial assets and liabilities measured by amortized cost was close to the fair value thereof. 11. Related parties and related transactions 11.1 Particulars of the parent company of the Company Proportion of Proportion of Name of parent shareholding of the voting powers of Registration place Business nature Registered capital company parent company in the parent company the Company in the Company Changyu Group Manufacturing Yantai City 50,000,000 50.40% 50.40% Company industry From January to June 2018, there was no fluctuation in the registered capital of the parent company and its share in equity interest and voting right. 11.2 Particulars of the subsidiaries of the Company See particulars of the subsidiaries of the Company in Note 9. 11.3 Particulars of other related parties Name of other related parties Relationship between other related parties and the Company Yantai Changyu Wine Culture Museum Co., Ltd. (―Wine A company controlled by the same parent company Culture Museum‖) Yantai Changyu Window of International Wine City Co. Ltd. A company controlled by the same parent company (―Window of Wine City‖) Yantai God Horse Packing Co., Ltd. (―God Horse Packing‖) A company controlled by the same parent company Yantai Zhongya Medical Health Wine Co., Ltd. (―Zhongya A company controlled by the same parent company Medical‖) Yantai Changyu Cultural Tourism Development Co., Ltd. A company controlled by the same parent company (―Changyu Cultural Tourism‖) 11.4 Related transactions 11.4.1 Related transactions of purchasing and selling goods and providing and receiving services List of purchasing goods/receiving services Unit: Yuan Amount incurred in this Related parties Related transactions Amount incurred in prior period period 138 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Amount incurred in this Related parties Related transactions Amount incurred in prior period period God Horse Packing Purchasing goods 95,990,354 64,896,342 Zhongya Medical Purchasing goods 6,037,893 10,700,788 Wine Culture Museum Purchasing goods 9,475,159 6,319,776 Window of Wine City Purchasing goods 2,857,130 231,879 List of selling goods/providing services Unit: Yuan Amount incurred in this Related parties Related transactions Amount incurred in prior period period Wine Culture Museum Selling goods 13,889,017 4,252,962 Window of Wine City Selling goods 8,773,612 5,642,914 Zhongya Medical Selling goods 2,203,629 1,956,658 God Horse Packing Selling goods 15,742 829,977 Changyu Cultural Tourism Selling goods 220,759 The price of transactions between the Group and the related parties are based on the negotiated price. 11.4.2 Related trusteeship/contracting and mandatory administration/outsourcing Nil 11.4.3 Leasing with related parties The Company as a lessor: Unit: Yuan Rental income recognized in Rental income recognized in Name of the lessee Type of leased assets this period prior period Office building and God Horse Packing 813,440 plant Window of Wine City Office building 535,000 Zhongya Medical Office building 285,000 Pursuant to a lease contract dated July 1, 2017 signed between the Company and God Horse Packing, starting from July 1, 2017, the Company rents properties to God Horse Packing for operation purposes with annual rental income of RMB 1,626,880 Yuan, and the expired date of the contract is June 30, 2022. From January to June 2018, the rental income recognized by the Company amounted to RMB 813,440 Yuan. Pursuant to a lease contract dated January 1, 2018 signed between the Company and Window of Wine City, starting from January 1, 2018, the Company rents houses to Window of Wine 139 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report City for operation purposes with annual rental income of RMB 1,070,000 Yuan, and the expired date of the contract is December 31, 2018. From January to June 2018, the rental income recognized by the Company amounted to RMB 535,000 Yuan. Pursuant to a lease contract dated January 1, 2018 signed between the Company and Zhongya Medical, starting from January 1, 2018, the Company rents houses to Zhongya Medical for operation purposes with annual rental income of RMB 570,000 Yuan, and the expired date of the contract is December 31, 2018. From January to June 2018, the rental income recognized by the Company amounted to RMB 285,000 Yuan. The Company as a lessee: Unit: Yuan Rent recognized in prior Name of the lessor Type of leased assets Rent recognized in this period period Changyu Group Company Office building and plant 3,775,362 3,775,362 Pursuant to a lease contract dated January 1, 2016 signed between the Company and Changyu Group Company, starting from January 1, 2016, the Company rents properties from Changyu Group Company for operation purposes at a basic annual rent of RMB 1,692,724 Yuan, and the expired date of the contract is December 31, 2020. From January to June 2018, the rental expenses recognized by the Company to Changyu Group Company amounted to RMB 846,362 Yuan. Pursuant to a lease contract dated January 1, 2017 signed between the Company and Changyu Group Company, starting from January 1, 2017, the Company rents properties from Changyu Group Company for operation purposes at a basic annual rent of RMB 1,464,500 Yuan, and the expired date of the contract is December 31, 2021. From January to June 2018, the rental expenses recognized by the Company to Changyu Group Company amounted to RMB 732,250 Yuan. Pursuant to a lease contract dated January 1, 2017 signed between the Company and Changyu Group Company, starting from January 1, 2017, the Company rents properties from Changyu Group Company for operation purposes at a basic annual rent of RMB 4,393,500 Yuan, and the expired date of the contract is December 31, 2021. From January to June 2017, the rental expenses recognized by the Company to Changyu Group Company amounted to RMB 2,196,750 Yuan. 11.4.4 Guarantee with related parties Nil 140 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report 11.4.5 Inter-bank borrowing and lending of related parties Nil 11.4.6 Asset transfer and debt recombination of related parties Nil 11.4.7 Other related transactions Unit: Yuan Item Note Amount incurred in this period Amount incurred in prior period Trademark use fee (a) 43,363,867 44,428,033 Patent fee (b) 25,000 25,000 The price of transactions between the Group and the related parties is based on the negotiated price. (a) Trademark royalty contract Pursuant to a trademark royalty contract dated May 18, 1997 signed between the Company and Changyu Group Company, starting from September 18, 1997, the Company may use certain trademark of Changyu Group Company, which has been registered with the PRC Trademark Office. An annual royalty at 2% of the Company‘s annual specific sales is payable to Changyu Group Company by the Company. The contract is effective until the expiry of the registration of the trademark. From January to June 2018, the trademark royalty paid to related parties by the Company accounted for 100% of the trademark royalty in the Group. (b) Patent implementation license contract Pursuant to a patent implementation license contract dated May 18, 1997 signed between the Company and Changyu Group Company, starting from September 18, 1997, the Company may use the patented technologies of Changyu Group Company. The annual patent royalty payable by the Company to Changyu Group Company was RMB 50,000 Yuan. The contract was expired on December 20, 2005. On August 20, 2016, the Company renewed the patent implementation license contract for 10 year, which should pay the patent royalty of RMB 50,000 Yuan to Changyu Group Company annually as before. From January to June 2018, the patent royalty payable by the Company to Changyu Group Company amounted to RMB 25,000 Yuan. From January to June 2018, the patent fees paid to related parties by the Group accounted for 100% of the patent fees in the Group. 141 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report 11.5 Accounts receivable and payable of the related parties 11.5.1 Accounts receivable Unit: Yuan Ending balance Beginning balance Item Related parties Book Bad debt Bad debt Book balance balance provision provision Accounts receivable Zhongya Medical 8,912,812 8,134,150 Accounts receivable God Horse Packing 1,668,058 1,342,348 Accounts receivable Window of Wine City 2,333,822 3,196,095 Accounts receivable Wine Culture Museum 57,360 34,280 Accounts receivable Changyu Cultural Tourism 256,080 11.5.2 Accounts payable Unit: Yuan Item Related parties Ending book balance Beginning book balance Accounts payable God Horse Packing 36,775,249 52,403,056 Accounts payable Zhongya Medical 5,305,577 2,051,991 Accounts payable Wine Culture Museum 2,945,967 2,040,860 Accounts payable Window of Wine City 889,442 1,485,766 Other accounts payable Changyu Group Company 49,766,061 77,208,929 12. Commitment and contingency 12.1 Significant commitment Unit: Yuan Item Ending balance Beginning balance Long-term asset commitments 810,228,900 1,246,506,000 12.2 Contingency By the balance sheet date, the Group didn‘t have any undisclosed contingency to be disclosed. 13. Matters after balance sheet 13.1 Important non-adjusting events Nil 13.2 Profit distribution Unit: Yuan Profits or dividends to be distributed 342,732,000 Allocated profits or dividends approved to declare upon 342,732,000 discussion 142 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report According to the decision of the Shareholders‘ Meeting dated May 24, 2018, based on the issued capital stock of 685,464,000 shares in 2017, the Company allocated RMB 5 Yuan in cash (including tax) for every 10 shares to all shareholders with the total cash dividends of RMB 342,732,000 Yuan. Such cash dividends were distributed on July 9, 2018 and July 11, 2018 respectively. 14. Other important matters Nil 15. Notes on major items in financial statements of the parent company 15.1 Accounts receivable 15.1.1 Accounts receivable disclosed by type Unit: Yuan Ending balance Beginning balance Book balance Bad debt provision Book balance Bad debt provision Type Accrued Book value Accrued Book value Amount Proportion Amount Amount Proportion Amount proportion proportion Accounts receivable of significant single amount 12,408,787 100% 12,408,787 7,805,333 100% 7,805,333 and single accrued bad debt provision Accounts receivable accrued bad debt provision by credit risk features Accounts receivable of insignificant single amount and single accrued bad debt provision Total 12,408,787 100% 12,408,787 7,805,333 100% 7,805,333 15.1.2 Bad debt provision accrued, received or transferred back in this period The bad debt provision accrued in this period was RMB 0 Yuan; and that received or transferred back in this period was RMB 0 Yuan. 15.1.3 Accounts receivable actually canceled after verification in this period Nil 143 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report 15.1.4 Accounts receivable collected by the borrower of top 5 units ranked by the ending balance Unit: Yuan Percentage in Relationship with Unit Amount Age total accounts the Company receivable (%) Yantai Zhongya Medical Health Wine Affiliated party 7,847,857 Within 1 year 63.2% Co., Ltd. Shandong Yantai Winemaking Co., Ltd. Third party 2,934,050 Within 1 year 23.6% Liquan Wine Branch Yantai God Horse Packing Co., Ltd. Affiliated party 1,626,880 Within 1 year 13.2% Total 12,408,787 100.0% 15.1.5 Accounts receivable derecognized due to transfer of financial assets Nil 15.1.6 Accounts receivable transferred and included in assets and liabilities Nil 15.2 Other accounts receivable 15.2.1 Other accounts receivable disclosed by type Unit: Yuan Ending balance Beginning balance Book balance Bad debt provision Book value Book balance Bad debt provision Book value Type Accrued Accrued Amount Proportion Amount Amount Proportion Amount proportion proportion Other accounts receivable of significant single amount 509,269,034 100% 509,269,034 592,274,075 100% 592,274,075 and single accrued bad debt provision Other accounts receivable accrued bad debt provision by credit risk features 144 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Other accounts receivable of insignificant single amount and single accrued bad debt provision Total 509,269,034 100% 509,269,034 592,274,075 100% 592,274,075 15.2.2 Bad debt provision accrued, received or transferred back in this period The bad debt provision accrued in this period was RMB 0 Yuan; and that received or transferred back in this period was RMB 0 Yuan. 15.2.3 Other accounts receivable classified by nature Unit: Yuan Nature of fund Ending book balance Beginning book balance Accounts receivable of subsidiaries 507,332,524 589,897,407 Deposit and guaranty money receivable 2,500 Other 1,936,510 2,374,168 Total 509,269,034 592,274,075 15.2.4 Other accounts receivable collected by the borrower of top 5 units ranked by the ending balance Unit: Yuan Percentage in the Ending balance Nature of total ending Unit Ending balance Age of bad debt fund balance of other provision accounts receivable Internal Sales Company incomings 216,011,410 Within 1 year 42.4% and outgoings Internal R&D Company incomings 205,461,252 Within 1 year 40.3% and outgoings Internal Chateau Tinlot incomings 20,500,000 Within 1 year 4.0% and outgoings Internal Penglai Sales incomings 13,766,522 Within 1 year 2.7% and outgoings Internal Laizhou Wine incomings 13,244,757 Within 1 year 2.6% and outgoings Total -- 468,983,942 -- 92.0% 15.2.5 Accounts receivable related to governmental subsidy Nil 145 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report 15.2.6 Other accounts receivable derecognized due to transfer of financial assets Nil 15.2.7 Other accounts receivable transferred and included in assets and liabilities Nil 15.3 Long-term equity investment Unit: Yuan Ending balance Beginning balance Item Impairment Impairment Book balance Book value Book balance Book value reserve reserve Investment in 4,617,128,388 4,617,128,388 4,511,202,204 4,511,202,204 subsidiaries Investment in associated enterprises and joint ventures Total 4,617,128,388 4,617,128,388 4,511,202,204 4,511,202,204 15.3.1 Investment in subsidiaries Provision for Ending balance Beginning Increase in this Decrease in this Invested unit Ending balance impairment in of impairment balance period period this period provision Xinjiang Tianzhu (a) 60,000,000 60,000,000 Kylin Packaging 23,176,063 23,176,063 Changyu Chateau 28,968,100 28,968,100 (a) Pioneer 3,500,000 3,500,000 International (b) Ningxia Growing 36,573,247 36,573,247 National Wine 2,000,000 2,000,000 Icewine Valley (a) 30,440,500 30,440,500 Beijing Chateau (a) 579,910,000 579,910,000 Sales Company 7,200,000 7,200,000 Langfang Sales (b) 100,000 100,000 Langfang Castel (a) 19,835,730 19,835,730 Wine Sales 4,500,000 4,500,000 Shanghai Marketing 300,000 300,000 146 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Provision for Ending balance Beginning Increase in this Decrease in this Invested unit Ending balance impairment in of impairment balance period period this period provision (b) Beijing Marketing 850,000 850,000 Jingyang Sales (b) 100,000 100,000 Jingyang Wine (b) 900,000 900,000 Ningxia Wine 222,309,388 222,309,388 Ningxia Chateau 443,463,500 443,463,500 Chateau Tinlot (b) 212,039,586 212,039,586 Shihezi Chateau 809,019,770 809,019,770 Chang‘an Chateau 803,892,258 803,892,258 R&D Company (a) 500,000,000 500,000,000 Huanren Wine 21,700,000 21,700,000 Wine Sales Company Francs Champs 236,025,404 236,025,404 Marques del Atrio 190,150,544 190,150,544 Indomita Wine 274,248,114 274,248,114 Kilikanoon Estate, 105,926,184 105,926,184 Australia Total 4,511,202,204 105,926,184 4,617,128,388 (a) The Company acquired 100% voting right and usufruct of such non-wholly-owned subsidiaries by means of contract arrangement. Please refer to Note 9.1. (b) The Company acquired 100% voting right of such subsidiaries by means of indirect holding through its wholly-owned subsidiaries. From January to June 2018, there were no restrictions for the invested entities of the Company to transfer assets to the Company. 15.4 Operating income and operating cost Unit: Yuan Amount incurred in this period Amount incurred in prior period Item Income Cost Income Cost Main business 384,520,180 330,810,994 445,339,324 387,600,176 Other business 24,325,031 21,835,995 386,481,179 350,350,202 147 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Total 408,845,211 352,646,989 831,820,503 737,950,378 15.5 Investment income Unit: Yuan Amount incurred in this Item Amount incurred in prior period period Income from long-term equity investment by cost method 312,409,576 66,127,980 Income from long-term equity investment by equity method Investment income from disposal of long-term equity investment Investment income of the financial assets measured at their fair values and the variation of which is recorded into the current profit and loss during the holding period Investment income gained from disposal of the financial assets measured at their fair values and the variation of which is recorded into the current profit and loss Investment income of held-to-maturity investment during the holding period Investment income of financial assets held for sale during the holding period Investment income gained from disposal of financial assets held for sale Gains generated from the remaining equity remeasured as per fair value after the loss of control Total 312,409,576 66,127,980 16. Supplementary materials 16.1 List of non-current profits/losses in this period Unit: Yuan Item Amount Remark Profits/losses on disposal of non-current assets 93,958 Tax return, deduction and exemption approved beyond the authority or without formal approval document Governmental subsidy included in the current profits/losses 37,982,878 (excluding those closely related to the enterprise business and 148 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Item Amount Remark enjoyed in accordance with the unified standard quota or ration of the state) Payment for use of funds by non-financial enterprises included in the current profits/losses Income obtained when the investment cost obtained by the enterprise from subsidiaries, joint-run business and joint venture is less than the fair value of the net identifiable assets obtained from the invested units when the investment is made Profits/losses on exchange of non-monetary assets Profits/losses on entrusting other people to make investment or manage assets Asset impairment provision accrued due to force majeure such as natural disaster Profits/losses on debt restructuring Enterprise reorganization expenses such as staffing expenditure and integration expenses, etc. Profits/losses on those beyond the fair value generated from transactions with unfair transaction price Current net profits/losses on subsidiaries acquired from a business combination under common control from the beginning to the consolidation date Profits/losses on contingencies irrelated to the normal business of the Company Profits/losses on changes of fair value of financial assets and liabilities held for trading, and investment income from disposal of financial assets and liabilities held for trading and financial assets held for sale, excluding effective hedging operations relevant to the normal business of the Company Returns of provision for impairment of accounts receivable with single impairment test Profits/losses on external entrusted loans Profits/losses on fair value changes of investment real estate with fair value mode for follow-up measurement 149 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report Item Amount Remark Influence of the one-time adjustment of the current profits/losses in accordance with tax and accounting laws and regulations on the current profits/losses Trustee fee income from entrusted operation Other non-operating income and expenditure besides the 614,030 above items Other profits/losses conforming to the definition of non-current profits/losses Minus: Influenced amount of income tax 9,447,208 Influenced amount of minority shareholders‘ equity 84,972 Total 29,158,686 -- 16.2 Return on net assets and earnings per share Earnings per share Weighted average return on Profit incurred in this period Basic EPS Diluted EPS net assets (Yuan/Share) (Yuan/Share) Net profit attributable to common 6.89% 0.93 0.93 shareholders of the Company Net profit attributable to common shareholders of the Company deducting 6.58% 0.88 0.88 non-incidental profits/losses 16.3 Accounting data difference under domestic and foreign accounting standard 16.3.1 Net profits & net assets difference disclosed in the financial report according to the international accounting standard and Chinese accounting standard Unit: Yuan Net profits Net assets Amount incurred in Amount incurred in prior Ending balance Beginning balance this period period In accordance with the 635,837,405 670,069,054 9,532,948,884 8,906,342,299 Chinese accounting standard Item & amount adjusted in accordance with the international accounting standard: In accordance with the international accounting 635,837,405 670,069,054 9,532,948,884 8,906,342,299 standard 150 Yantai Changyu Pioneer Wine Co., Ltd. 2018 Semi-annual Report XI. Reference Documents (1)The original of 2018 Semi-annual Report autographed by the chairman. (2)The Financial Statements autographed and signed by the chairman, chief accountant and accountants in charge. (3)The Prospectus and Public Offering Announcement for Stock B in 1997; The Prospectus and The Shares’ Change & Public Offering Announcement for Stock A in 2000. (4) The originals of all documents and announcements that the Company made public during the report period in the newspapers designated by China Securities Regulatory Commission. Yantai Changyu Pioneer Wine Co. Ltd. Board of Directors August 30th, 2018 151