China Tontine Wines : rsquo; 2016 Interim Revenue Rose by 28.0% YOY, Net Profit Surged by 38.4% YOY

To: Business Editor Date: 23 August 2016

China Tontine Wines Group Limited ("Tontine Wines" or "the Group", stock code: 0389), one of the leading sweet wine producers in China, announced its unaudited interim results for the six months ended 30 June 2016. The Group's revenue during the period under review rose by approximately

28.0 per cent year-on-year to approximately RMB178.1 million. Profit and total comprehensive income for the period attributable to owners of the Company surged by approximately 38.4 per cent year-on-year to approximately RMB13.29 million. Basic earnings per share of the Group for the period under review edged up in tandem by 40 per cent to approximately RMB0.7 cent. The increase in the Group's net profit was mainly attributable to an increase in revenue and gross profit, and a drop in sales and distribution expenses during the period under review.

During the period under review, the Group remained focused on mass-market products. The management raised the production and sales of low to mid end wine products to meet the popular demand from the general public. The Group continued to optimize operations, and realign business deployment and product mix targeting at its key customer base. In line with the mass market approach, the Group adopted a sales-oriented marketing strategy, raising sales volume through strengthening product mix and streamlining distribution channels.

The Group's gross profit during the period under review increased by 23.9 per cent year-on-year to approximately RMB62.35 million. Due to a 30.4 per cent year-on-year increase in cost of sales, the gross profit margin retreated by 1.2 percentage points year-on-year to 35.0 per cent. However, it represented a slight improvement as compared to the gross profit margin of 32.2 per cent for the full year of 2015The rate of increase in cost of sales was slightly higher than that of revenue during the period under review, mainly due to the year-on-year price surge of grapes and grape juice.

The Group continued to execute effective cost control measures during the period under review. One of these was the cutting of the advertising expenditures to approximately RMB0.75 million, down by approximately 87.6 per cent year-on-year. The Group adjusted its advertising strategies from 2015 onwards by focusing on appropriate market exposure.

During the period under review, the Group's EBITDA (earnings before interest, tax, depreciation and amortisation) rose by 39.2 per cent year-on-year to approximately RMB23.09 million, on the back of an increase in revenue and gross profit, as well as a decrease in selling and distribution expenses, which partly offset the negative impact from an increase in administrative expenses. The EBITDA margin increased by approximately 1.1 percentage points year-on-year to approximately

13.0 per cent.

Mr Wang Guangyuan, the Chairman of Tontine Wines, said, "In view of the continuing consolidation of the wine market, the Group further adjusted its marketing strategies in the first half of 2016, but its focus was still on promoting sweet wine products to suit the daily consumption preferences of the general public."

The low-margin sweet wine products accounted for approximately 56.8 per cent of the total revenue of the Group during the period under review, while the high-end dry wine products accounted for approximately 37.2 per cent. These two wine products accounted for approximately

94.0 per cent of the total revenue for the period under review. Ice wines, brandy and white wines accounted for approximately 4.1 per cent, 1.4 per cent and 0.5 per cent of the total revenue for the period under review respectively.

During the period under review, the Group launched eight new products, seven of which were sweet wines and one was dry wine. Mr Wang said, "These new products have reflected the Group's determination to adopt an innovative business approach. Diversified product range has enabled the Group to satisfy various consumer tastes and demand."

With respect to the traditional distribution channels, the Group management took strenuous efforts during the period under review in streamlining the structure of its selling and distribution network, so as to eliminate distributors with poor sales records. As a result, the number of distributors was reduced by 13 from the corresponding period last year to 122, covering 22 provinces, 3 autonomous regions and 4 direct-controlled municipalities in China. During the period under review, the average sales revenue generated from the Group's nationwide distributors increased by approximately 41.7 per cent year-on-year to RMB1,460,000, reflecting that the streamlining of the selling and distribution network had helped substantially boost sales efficiency.

In terms of regional revenue, the Eastern region remained the largest market of the Group during the period under review, with revenue increasing by 19.0 per cent year-on-year and accounting for approximately 26.5 per cent of the Group's total revenue. Benefiting from its adjacency to the Group's production base in Tonghua, Jilin, the North-East region enjoys home market advantage, with revenue increasing by approximately 59.6 per cent year-on-year and accounting for approximately 20.5 per cent of total revenue. This enabled the North-East region to outshine the Northern region, thus becoming the second largest market of the Group. Northern region recorded a year-on-year increase of approximately 17.1 per cent in revenue, accounting for approximately

18.9 per cent of the Group's total revenue. South-Central region showed a year-on-year increase of approximately 33.7 per cent in revenue, accounting for approximately 17.3 per cent of the Group's total revenue. South-West region exhibited a year-on-year rise of approximately 20.4 per cent in revenue, accounting for 16.8 per cent of the Group's total revenue.

Mr Wang said, "The revenue and respective proportion of total revenue of these sales regions demonstrated a more balanced development of the Group's regional sales. This has enabled the Group to diversify its business risks, and broaden its revenue and profit bases. Meanwhile, the management will further explore the sales potential of wine products among second and third-tier cities across China."

When talking about the development plans for the second half of the year, Mr Wang noted, "The Group holds sufficient financial resources and without any bank borrowings. Such a strong financial position would facilitate the Group to capture investment opportunities with ample flexibility." As at 30 June 2016, the Group held bank balances and cash of approximately RMB285.8 million.

The Group plans to establish a trading company in Hong Kong in the second half of this year, in a bid to conduct two-way wine trading activities. On one hand, this company is geared to introducing imported wine to the Mainland China market, and on the other hand it will promote China-produced wine to overseas markets. The management expects this trading company will help expand the business scope of the Group and enhance its profitability.

The Board of Tontine Wines also considers merger and acquisition of high quality vineyards in overseas markets, with an aim to enrich the Group's product portfolio and cater for the tastes and needs of different customers. However, such a move will be conducted in a prudent manner. The Board will carry out detailed research on the operation, product quality and target markets of the possible vineyards to be merged or acquired, before making the final decision.

The Group plans to develop its own high end brand winery, namely Jilin Tongtian Winery, which is expected to obtain business license from the government in the second half of this year. This winery is equipped with an annual capacity of approximately 500 tonnes. Capitalising on this winery, the management intends to produce high and mid-end products with fully integrated production all the way from growing grapes to brewing wine. Apart from extending production line, the Group also expects to deepen brand building and gradually establish a unique brand in the industry, thus supporting the sustainable development of its business.

Looking forward, Mr Wang said, "In view of uncertain global economic outlook and continuous slowdown of China's economy, wine market would still be undergoing a process of slow and deep adjustment in the short to medium term. Despite anticipated challenges in the second half of this year, the management will endeavor to explore market opportunities with a proactive attitude. Based on past experience, the second half of a year tends to be the traditional peak season for wine products. Distributors normally purchase large quantities of wine before December-end to be prepared for the upcoming Spring Festival sales. As such, the management expects the sales of the second half of the year to be higher than that of the first half. The Group will continue to exercise stringent cost control, so as to yield stable return for shareholders."

China Tontine Wines Group Limited is one of the leading sweet wine producers in China. Many of the wine products under the Group have received both domestic and international awards for their unique taste and quality, such as the Group's "Tongtian Yaaru Wine Spirits 2013", which won the gold medal in the "Spirits Selection by Concours Mondial de Bruxelles 2015", "Tongtian Liqueur Mountain Grape Wine", which received "China Wine Market Golden Goat Award 2015", and "Xuanniya Ice White Grape Wine", which was granted the "Special Award of DSW China Fine Wine" in "The Second China Fine Wine Challenge 2015".

The exceptional quality of Tontine Wines' products is much attributable to the Group's commitment to quality assurance and its grape supply from Ji'an city in Jilin Province, one of the few regions in the world that can cultivate the unique mountain grapes. In recent years, the Group has been dedicated to diversify its product portfolio to include low to mid-end wines to tap the mass market. The Group currently offers 128 types of wine products sold through 122 distributors in 22 provinces, 3 autonomous regions and 4 municipal cities in China. The Company's shares were listed on the Main Board of the Stock Exchange of Hong Kong Limited since November 2009.

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Issued by: China Tontine Wines Group Limited Through: CorporateLink Limited

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(Attached with China Tontine Wines Group Limited's condensed consolidated statement of profit or loss and other comprehensive income for the six months ended 30 June 2016)