2018Annual Report Abstract of Yantai Changyu Pioneer Wine Co. Ltd. Stock Code: 000869, 200869 Stock Abbreviation: Changyu A, Changyu B Announcement No.: 2019-Final01 Yantai Changyu Pioneer Wine Co. Ltd. 2018 Annual Report Abstract 1. Important Notice This Annual Report abstract comes from the whole contents of annual report. If investors desire to comprehensively understand the Company’s operating results, financial situation and future development plan, please read the Annual Report on the media specified by the China Securities Regulatory Commission. No directors, supervisors or senior executives issue a statement of objection to 2018 Annual Report. Except following directors, all other directors have personally attended the meeting for deliberating the annual report. Director name with Director post with Reason for non-present Name of mandatory non-present in person non-present in person in person Sun Liqiang Director Business trip Zhou Hongjiang Antonio Appignani Director Business trip Augusto Reina Non-standard audit opinion notice □Available Not available The preliminary scheme of the report period’s ordinary share profit distribution or increasing equity with reserve deliberated by the board of the directors Available □Not available Whether to increase equity with reserve □Yes No The Company’s draft plan of ordinary share profit distribution deliberated and passed by the board of the directors is as following: Based on the Company’s total 685,464,000 shares,the Company plans to pay CNY 6 (including tax) in cash as dividends for every 10 shares to all shareholders and to send 0 bonus (including tax). The capital reserve will not be converted to capital stock. The draft plan of preferred share profit distribution during the report period deliberated and passed by the board of directors □Available Not available 2. Basic information of the Company (1) Brief introduction of the Company Changyu A, 000869, Abbreviation of Shares: Code number of the Shares Changyu B 200869 Place of listing of Shares Shenzhen Stock Exchange Contact person and information Secretary to the Board of Authorized Representative of the 1 2018Annual Report Abstract of Yantai Changyu Pioneer Wine Co. Ltd. Directors Securities Affairs Name Mr. Qu Weimin Mr. Li Tingguo 56 Dama Road, Yantai, 56 Dama Road, Yantai, Address Shandong, China Shandong, China Fax 0086-535-6633639 0086-535-6633639 Tel 0086-535-6633656 0086-535-6633656 E-mail quwm@changyu.com.cn stock@changyu.com.cn (2) Main businesses during the report period or brief introduction of products During the report period, the Company’s main business is to produce and operate wine and brandy, providing domestic and foreign consumers with healthy and fashionable alcoholic drinks. Compared with last report period, there are no significant changes in the Company’s main business. The wine industry in which the Company is located is still in the growth stage and the domestic wine market is generally on the rise. The Company is at the forefront of domestic wine industry.. (3) Key accounting data and financial indicators ①Key accounting data and financial indicators in recent three years Whether the Company makes retroactive adjustments or restates the accounting data of previous fiscal years □Yes No Unit: CNY More or less than Item 2018 2017 2016 Last year (%) Operation revenue 5,142,244,740 4,932,545,229 4.25% 4,717,596,472 Net profit attributed to the shareholders of 1,042,632,929 1,031,695,056 1.06% 982,460,488 the listed company Net profit attributed to the shareholders of the listed company 965,426,238 986,095,872 -2.10% 941,730,478 after deducting the irregular profit and loss Net cash flows from the operating 975,978,746 973,243,027 0.28% 889,911,970 activities Basic earnings per 1.52 1.51 0.66% 1.43 share (CNY/share) Diluted earnings per 1.52 1.51 0.66% 1.43 share (CNY/share) Weighted average for 11.23% 12.14% -0.91% 12.55% 2 2018Annual Report Abstract of Yantai Changyu Pioneer Wine Co. Ltd. earning rate of the net assets More or less than Dec. 31st 2018 Dec. 31st 2017 Dec. 31st 2016 Last year (%) Total assets 13,117,729,052 12,536,755,208 4.63% 11,528,077,971 Net Assets attributed to the shareholders of 9,606,099,365 8,906,342,299 7.86% 8,209,010,989 the listed company ②Key accounting data by quarter Unit: CNY st nd rd th 1 Quarter 2 Quarter 3 Quarter 4 Quarter Operation revenue 1,804,057,976 1,024,172,088 1,032,328,986 1,281,685,690 Net profit attributed to the shareholders of the 479,444,238 156,393,167 133,916,250 272,879,274 listed company Net profit attributed to the shareholders of the listed company after 466,181,564 140,497,155 110,520,695 248,226,824 deducting the irregular profit and loss Net cash flows from the 507,263,964 45,489,508 224,087,322 199,137,952 operating activities Whether there are significant differences between above-mentioned financial indicators or their sum and the related financial indicators in the quarterly report and semi-annual report disclosed by the Company. □Yes No 3 2018Annual Report Abstract of Yantai Changyu Pioneer Wine Co. Ltd. (4) Capital stock and shareholders’ situation ① Number of ordinary shareholder and preferred shareholder recovering voting power, and situation of shares held by top ten shareholders Unit: share Total number of preferred Total number of Total number of preferred shareholder recovering ordinary shareholders shareholder recovering voting power by the end Total shareholders in the report period 42,980 by the end of last month 45,104 voting power by the end 0 0 before the disclosure of last month before the of report period day of the annual report disclosure day of the annual report The top 10 shareholders holding situation Number of held Pledged or frozen situation Shareholding shares with Name of Shareholders Character of shareholders Number of held shares ratio (%) restricted Share status Number condition Domestic non-state-owned YANTAI CHANGYU GROUP CO., LTD. 50.40% 345,473,856 0 legal person GAOLING FUND,L.P. Foreign legal person 3.08% 21,090,219 0 CHINA SECURITIES FINANCE CORP State-owned legal person 2.25% 15,440,794 0 BBH BOS S/A FIDELITY FD - CHINA Foreign legal person 2.22% 15,241,826 0 FOCUS FD SHENWAN HONGYUAN Foreign legal person 1.22% 8,347,663 0 SECURITIES(HONGKONG) LIMITED FIDELITY PURITAN TRUST: FIDELITY Foreign legal person 0.89% 6,100,762 0 4 2018Annual Report Abstract of Yantai Changyu Pioneer Wine Co. Ltd. SERIES INTRINSIC OPPORTUNITIES FUND TAIKANG LIFE INSURANCE LIMITED LIABILITY COMPANY-- UNIT Domestic non-state-owned 0.75% 5,159,757 0 –LINKED-- INDUSTRY legal person CONFIGURATION GUOTAI JUNAN Foreign legal person 0.74% 5,043,507 0 SECURITIES(HONGKONG) LIMITED CENTRAL HUIJIN ASSET State-owned legal person 0.69% 4,761,200 0 MANAGEMENT LIMITED TAIKANG LIFE INSURANCE LIMITED LIABILITY Domestic non-state-owned 0.69% 4,746,954 0 COMPANY-DIVIDEND-PERSONAL legal person DIVIDEND-019L-FH002 SHEN Among the top 10 shareholders, there is associated relationship between Taikang Life Insurance Limited Liability Company- Unit-linked- Industry Configuration and Taikang Life Insurance Limited Liability The explanation for the associated relationship and Company- Dividend- Personal dividend-019L-FH002 Shen. Yantai Changyu Group Company Limited has no accordant action associated relationship or accordant action relationship with the other 9 listed shareholders, and the relationship among the other shareholders is unknown. Explanation for shareholders who involved in The top 10 shareholders do not involve in financing activities and stock trade business. financing activities and stock trading business ②Number of preferred shareholder and situation of preferred shares held by top ten preferred shareholders □Available Not available There are no shares held by preferred shareholders during the report period. 5 2018Annual Report Abstract of Yantai Changyu Pioneer Wine Co. Ltd. ③Introduction for property right and control relations between the Company and its actual controllers 6 2018Annual Report Abstract of Yantai Changyu Pioneer Wine Co. Ltd. (5) Company Bonds Whether or not the Company has the corporation bonds issued in public, listed in the stock exchange, not due on the annual report’s authorized issue date or failed to pay in full on the due date. No. 3. Management Discussion and Analysis (1) Brief introduction of operation situation during the report period ①Summary In 2018, influenced by many factors, such as the slowdown of domestic economic growth and the increase in uncertainty resulting from Sino-US trade friction, the overall sales amount of domestic wine industry was relatively stable, but the sales volumes of both imported wine and domestic wine decreased. As imported wine continued occupying the market of domestic wine, the competition in domestic wine market was very strong. Furthermore, the increase in the price of raw materials and packing materials as well as increase in the depreciation of fixed assets, freight and labor cost further increased the pressure of the company’s increase in profit. Facing quite a lot of external disadvantages, the Company insisted in taking the market as the center, insisted the development strategy of “Focus on middle-and-high level, Focus on high quality, Focus on big product”, intensified internal reform, optimized product structure and market layout, quickened the pace of new product development and market promotion, and strived to promote product sales, achieving good results and realizing operating revenue of CNY5142.24million with an increase of 4.25% compared with last year and net profit of CNY1042.63million belonging to the parent company’s shareholders with an increase of 1.06% compared with last year. ②Analysis of main business Increase or decrease of Description the end of the period Cause of significant changes over the end of last year Mainly because of increase in average Operation revenue 4.25% price of products resulting from improvement of product mix Mainly because of increase in the price of Operating cost 13.76% raw materials and packing materials Mainly because of year-on-year increase Sales expense 0.16% in wage & welfare Mainly because of year-on-year increase Management expense 2.12% in wage & welfare and depreciation of afforestation fees Mainly because of increase in expenses R&D expense 10.72% for technology research and development in 2018 7 2018Annual Report Abstract of Yantai Changyu Pioneer Wine Co. Ltd. Mainly because of increase in loan Financial expense 93.36% interest expenditure Net amount of cash Mainly because of increase in received flow generated in 0.28% cash from product sales and rendering of operating activities serdeputy Net amount of cash Mainly because of increase in received flow generated in 38.08% cash from t recouping the investment investment activities Net amount of cash flow generated in Mainly because of increase in payment of -77.83% capital-raising cash for debt repayment activities Review and summary of the process of the Company’s early-disclosed development strategy and business plan during the report period During the report period, the Company realized the operating revenue of CNY5142.24million with an increase of 4.25% compared with last year, slightly lower than the target fixed at the beginning of the year of realizing operating revenue no less than CNY5.2billion. The net profit of CNY1042.63 million belonging to the parent company’s shareholders was realized with an increase of 1.06% compared with last year. The main work during the report period were shown as followed: Firstly, the Company took the market as the mirror, further promoted the strategy of three Focus, strengthened internal adjustment and reform intensity, accelerated the launch of new products and market expansion of core products, and strived to develop E-business, achieving good results. During the report period, the Company reorganized sales team, preliminarily realized the reduce in staff number and the improve of efficiency, conducted the work of “sales team jointly built by manufacturers and distributors”, actively explored the expense input management and control mode of “check and balance between manufacturers and distributors ”, and received preliminary effects. Ten provincial brandy companies were newly established. Specialized provincial wine companies and comprehensive provincial companies were subdivided. Three business segments, including provinces and cities such as Zhejiang, Fujian, Guangdong, Jiangsu, Shandong, Beijing and Shanghai etc and E-business and so on, realized authorized operation. The Company adjusted the function of VIP customer business, peeled off distribution business in direct supply system, further defined the relationship between the Changyu parent brand and its subsidiary brands, formed the core brand system of various liquors and made development planning of each brand. Series of new products, such as the ninth generation Noble Dragon, new Zenithwirl, 15-year Koya, 10-year Koya, 6-year Koya, Australian Kilikanoon products and Chilean Indomita products and so on, received wide praises and the demand of partial products exceeds supply owing to their hot sale. The Company insisted on the strategy of three Focus, weeded out 134 kinds of wine and centralized most marketing resources to be used for market promotion of middle-to-high-end wine, five-star and above brandy and imported wine with own brands, making sales revenue of wine and brandy achieve different levels of increase. 8 2018Annual Report Abstract of Yantai Changyu Pioneer Wine Co. Ltd. Secondly, the Company took the quality as the basis, regarded product quality as an important magic weapon to defeat enemies. It conducted all-around self-examination, self-correction and optimization on the selection of grape base, grape planting mode, production process and technology, quality testing equipment and product quality control system etc, formulated three-year planning, implementation scheme and specific measures for product development and quality improvement in future three years, strengthened technical exchanges at home and abroad and team construction of winemakers, focused on new product development and technical difficulties, improved the quality traceability system and strengthened quality control in the whole production process, making the company's technical level and product quality reach a new level. The Company carried out 45 technology researches and completed one sub-project of national 863 project. Drafted standards of Wine-making Grape and Oak Barrel passed the group standards assessment by China Alcoholic Drinks Association, filling in gaps of domestic wine industry. Key Technology Research and Application in Industrialization of Domestic Oak Products was declared for 2018 scientific and technological progress award of China Alcoholic Drinks Association. Key Technology Research for Premium and Characteristic Wine-making Grape Cabernet Gernischt and Wine Production won scientific and technological progress award of China National Light Industry Council. In 2018 IWSC, Kilikanoon Wines Pty Ltd in Australia was awarded “Australian Best Wine Producer of the Year” and was the only one chateau awarded by IWSC among more than 4000 chateaux in Australia, of which 2014 Kilikanoon Estate Special Reserve Shiraz 8K won outstanding gold medal with scores of 93 points and above) as well as the trophy of “World’s Best Shiraz of the Year” while 2016 Kilikanoon Estate Wine Blend 6K won gold medal with scores of 90 to 92.9 points. Kilikanoon Wines Pty Ltd was honored with the title of “Australian Best Wine Producer of the Year” in 2018 Mundus Vini. 2014 Kilikanoon Estate Special Reserve Shiraz 8K won gold medal in DAWA with the score of 95. 2015 Moser Family Cabernet Sauvignon Red Wine, 2016 Moser Legend Cabernet Sauvignon White Wine, 2015 Golden-label Icewine of Golden Icewine Valley and 2015 Blue-label Icewine of Golden Icewine Valley won gold medal in the 22nd session of Berliner Wein Trophy. Changyu Five-star Fine Brandy won gold medal in 2018 Spirits Selection by Concours Mondial de Bruxelles. Changyu Koya 15-years XO brandy ageing in oak barrel won the design award of luxury category in 2018 Pentawards Award Ceremony. “Water-drop Decanter” of Changyu Koya 10-years XO Brandy won the design award of packaging category in 2018 iF Design Award Ceremony held at BMW Welt in Munich, Germany. Thirdly, the Company realized online identification and order-driven mode of major products. During the reporting period, the Company issued Assessment Measures for Performance Rate of Production Order, gave full play to advantages of advanced production facilities, high automation and informationization and fast production speed, optimized and adjusted business processes, and strengthened coordination of supply, production and sales, making 27 kinds of Noble Dragon products with high sales volume and all domestic chateau wines achieve order-driven mode. Most domestic wine products achieved online tagging, which improved production efficiency and delivery speed, dramatically reduced product and capital backlogs and better satisfied the market needs. Fourthly, the Company enhanced financial management and established and improved the assessment system taking profit as principal line. During the report period, the Company strengthened the management in financial budget, fixed funds and overseas enterprises’ financial 9 2018Annual Report Abstract of Yantai Changyu Pioneer Wine Co. Ltd. affairs, enhanced the audit in price execution, gross profit margin, capital occupation, key expenses, and investment projects, increased the investigation of economic responsibility, scientifically allocated internal capital, vigorously strived for policy-based capital loans and continuously reduce the cost of capital. It strengthened the simulated profit assessment of authorized business units and strived to establish a profit assessment system covering all business segments and respective responsibilities in order to provide a basic basis for more reasonable and efficient performance assessment and to improve profitability. Fifthly, the Company successfully completed the procurement of raw materials including grapes and further strengthened the management in grape base. The Company comprehensively accomplished the procurement plan of raw materials exemplified as grapes, improved the fermentation rate of premium wines, further deepened sort management and sort acquisition of grape bases and continued promoting the mechanization process in vineyards, lowering the operating costs of self-supported grape bases and making scientific and normative management in grape base reach a higher level. It raised grape purchase standard, improved raw material quality, actively conducted the introduction, selective breeding and improvement of new grape varieties and characteristic varieties and cultivated a lot of new varieties, enriching the variety resource for future product development. It also organized orchardist to take professional training on grape planting technology, which improved their grape planting and management level. Sixthly, the Company continued promoting internationalization strategy and steadily implemented overseas acquisition. It acquired 80% equity of Kilikanoon Estate Pty Ltd in Australia. ③Revenue and cost 1) Composition of operation revenue Unit: CNY 2018 2017 Year-on-year ` Proportion in Proportion in increase or Amount operation Amount operation decrease (%) revenue revenue Total operation 5,142,244,740 100% 4,932,545,229 100% 4.25% revenue Industry-classified Industry of liquor and alcoholic 5,142,244,740 100% 4,932,545,229 100% 4.25% beverage Product-classified Wine 4,000,233,434 77.79% 3,829,326,556 77.63% 0.16% Brandy 999,207,299 19.43% 989,889,728 20.07% -0.64% 10 2018Annual Report Abstract of Yantai Changyu Pioneer Wine Co. Ltd. Others 142,804,007 2.78% 113,328,945 2.30% 0.48% Area-classified Domestic 4,486,387,956 87.25% 4,497,288,066 91.18% -3.93% Abroad 655,856,784 12.75% 435,257,163 8.82% 3.93% 2) Condition of industry, product or area accounting for over 10% of the Company’s operation revenue or operating profit Available □Not available Whether the Company needs to follow disclosure requirements of special industry No Unit: CNY Year-on Year-on- Year-on- -year year year increase increase increase Gross or or or Operation revenue Operating cost profit decrease decrease decrease rate (%) of (%) of (%) of gross operation operating profit revenue cost rate Sector-classified Sector of liquor and 5,142,244,740 1,901,611,507 63.02% 4.25% 13.76% -3.09% alcoholic beverage Product-classified Wine 4,000,233,434 1,460,855,413 63.48% 4.46% 15.36% -3.45% Brandy 999,207,299 403,699,973 59.60% 0.94% 14.58% -4.81% Others 142,804,007 37,056,121 74.05% 26.01% -29.91% 20.70% Total 5,142,244,740 1,901,611,507 63.02% 4.25% 13.76% -3.09% Area-classified Domestic 4,486,387,956 1,477,589,238 67.07% -0.24% 7.17% -2.27% Abroad 655,856,784 424,022,269 35.35% 50.68% 44.76% 2.65% Under the condition that the statistical caliber of the Company’s main business data is adjusted during the report period, the Company’s main business data adjusted on the basis of caliber at the end of report period in recent one year. □Available Not available (2) Whether major business has significant changes during the report period? 11 2018Annual Report Abstract of Yantai Changyu Pioneer Wine Co. Ltd. □Yes No (3) Condition of products accounting for over 10% in the Company’s main business income or main business profit Available □Not available Unit: CNY Year-on-y Year-on-y Year-on-y ear ear ear increase or increase or increase or Gross Operation revenue Operating cost decrease decrease decrease profit rate (%) of (%) of (%) of Operation operating gross revenue cost profit rate Wine 4,000,233,434 1,460,855,413 63.48% 4.46% 15.36% -3.45% Brandy 999,207,299 403,699,973 59.60% 0.94% 14.58% -4.81% Others 142,804,007 37,056,121 74.05% 26.01% -29.91% 20.70% Total 5,142,244,740 1,901,611,507 63.02% 4.25% 13.76% -3.09% (4) Whether there are seasonality or periodicity operating features required special attention □Yes No (5) Explanation for significant changes in operation revenue, operating cost, total net profit or constitution attributable to the ordinary shareholders of the listed company compared with last report period □Available Not available (6) Condition of Facing listing suspension and termination □Available Not available (7) Items related to financial report ①Situation explanation for changes in the accounting policy, accounting estimation and accounting method compared with 2017 annual financial report □Available Not available There is no change in the accounting policy, accounting estimation and accounting method during the report period. ②Situation explanation for the correction of major accounting errors need to be retrospected and restated during the report period □Available Not available There is no situation for the correction of major accounting errors need to be retrospected and restated. 12 2018Annual Report Abstract of Yantai Changyu Pioneer Wine Co. Ltd. ③Situation explanation for changes in the scope of consolidated statements compared with 2017 annual financial report Available □Not available According to Share Sale & Purchase Agreement signed on December 5th, 2017 between the Company and shareholders of Kilikanoon Estate Pty Ltd, the Company acquired 80% equity of Kilikanoon Estate Pty Ltd with the price of AUD20,860,825 (equivalence CNY107,194,420) to. The Company has completed equity transfer on January 18th, 2018, obtaining control rights of finance and business policy for Kilikanoon Estate Pty Ltd. During the report period, this company has been included in the scope of consolidated statements. Yantai Changyu Pioneer Wine Co., Ltd. Board of Directors April 20th, 2019 13