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During the year under review, despite growth in China's wine industry, the domestic wine manufacturers were confronted with severe challenges due to the change in the consumption pattern and the impact of imported products. The Group’s results were inevitably affected by the above negative factors, and reported losses for the year.

In the interim results of 2016, the Group’s reported a net profit of RMB16,742,000. However, the sales of the Group’s products in the second half of 2016 turned sluggish due to intensified price competition in the market. Moreover, the sales were further dampened by weakened consumer sentiment in the fourth quarter, which was traditionally the peak season for wine sales; and by the urge for thrift Government entertainment. The shifting of consumers’ preference to well-known brands in the Group’s targeted low to mid-end wine markets also impacted on the Group’s sales performance. In tandem with the year-on-year decline in the annual revenue, the Group’s gross profit reported a corresponding retreat.

In response to the macro market trend of rising consumer preference for popular brands, the management deemed it necessary to raise its investments in brand building and marketing in a bid to enhance the popularity and recognition of its products and to create a unique and well-received brand-name among the Group’s target consumers. The Group began to inject capital in advertising and promotion in the second half of 2016 for designing and execution of brand and product promotion in various channels. Such expenditures had inevitably exerted certain pressure on the Group’s results.

A brand well recognized by consumers would serve to enhance customer loyalty and accelerate product penetration in the market. The considerable expenses incurred from the outlay in advertising and promotion are expected to generate extensive attention and recognition for the Group’s product brands in a relatively short period of time. These investments would be able to bring about positive and profound outcome on sales promotion and overall product popularity in the market over the coming year.

In addition to market promotion, we also place emphasis on product quality. The Group’s products continued to win broad market acceptance and recognition. In November 2016, the Group’s “Xuanniya Ice White Grape Wine” won the gold medal again in the “Grape Wine Quality Competition in International Leading Wine Regions”. Besides, the Group continues to pour in resources in research and development of new products. The Group won the “Second Prize of the Innovative Achievements of the 23rd National Enterprise Management Modernization” in December. The Group was ranked among “Top 100 Chinese Wine Manufacturers 2016”, reflecting the recognition from the market and our industry peers of our efforts in growing our business for more than 10 years.

The Group revamped its distributor network during the year in order to enhance sales efficiency, through elimination of underperformed distributors. The Group will continue to explore opportunities arising from the operation model of e-commerce so as to broaden the Group’s sales channel. The management believes that e-commerce can contribute to more diversified distribution channels and broaden sales coverage.

The Group’s future business development will continue to focus on low to mid-end products targeted at mass consumer groups. Underpinned by brand recognition, advertising activities and diversified sales channels, we would further explore the market potential of low to mid-end products and raise our share in these market segments.

We expect China’s wine industry to succumb to complex and unstable industry consolidation in the near term, while the impact of imported products on the domestic market is likely to accentuate further. Therefore, the Group finds it necessary to expand its business scope and broaden its revenue base. The management is evaluating various measures to achieve business diversification. These include merger and acquisition of high-quality overseas projects related to its business, establishment of a two-way trading company and investment in agriculture-related business. We would adopt a prudent and pragmatic stance to conduct in-depth research and evaluation before committing ourselves in any relevant upstream or downstream investment or business diversification capitalizing on existing connections and management skills. Such an approach can serve to best safeguard our shareholders’ interest.

Finally, on behalf of Tontine Wines Group, I would like to express my sincere gratitude to our shareholders, business partners and customers for their continued faith and support over the past years. I would also like to thank all the staff for their dedication and contribution. Against the backdrop of a challenging business environment, the Group will continue to strive for the maximization of shareholders’ value.

Chairman and Executive Director
Wang Guangyuan
27 February 2017