On behalf of the board of directors (the “Directors” or the “Board”) of Grace Wine Holdings Limited (“Grace Wine” or the “Company”, and together with its subsidiaries, the “Group”, “we”, “us” or “our”), I am pleased to present the Company’s 2018 annual report. In this statement, I highlight some of our achievements this year, which I hope will help you to gain a better understanding of our business beyond what can be learned from looking at the financial results. For the whole year of 2018, our revenue grew to RMB72.6 million, representing an increase of 3.1% from RMB70.4 million for the same period in 2017. Our cost of goods sold (“COGS”), however, was negatively affected by past decisions made by us following 2013’s significant market downturn. More specifically, in order to balance our sales and inventory, we decided to lower our production for the vintages 2013-2016, which raised our per-unit production costs. We expect that the COGS will return to historical norms in the second half of 2019 as we continue to reduce our inventories of wine made in the 2013-2016 period. Our listing costs, sale of subsidiaries and the change in our subsidiaries’ dividend policy are the three other principal factors that affected our 2018 results. You can find further details in the section headed “Management Discussion and Analysis” section in this annual report. The wine market in the People’s Republic of China (the “PRC”, “China” or “Mainland China”) is dynamic and everchanging. We compete not only with an increasing number of local producers, but also with producers from all over the world. We believe that continuing innovation and embracing technology is our key to moving forwards in the industry. We are particularly excited about the growth we have achieved on our online platforms. Compared to 2017, our online revenue in 2018 grew by 34.1%. Online platforms not only offer us an exciting way to grow; we are also able to use this channel to gather useful data about our consumers, helping us to understand how to service them better. In my previous interim statement, I wrote about our collaboration with key opinion leaders (KOLs) in other industries. We continue to believe that this channel will enable us to tap into the non-drinking millennial market. Collaborations with KOLs can be difficult, however, as they can be costly to employ and are often selective when selecting their business partners. We have been able to overcome these challenges by leveraging the reputation that we have established in the industry and our brand recognition. In 2018, our revenue through this channel increased by 1.3 times from 2017 and we believe it will continue to grow in 2019. Our brand is one of our most important assets and we will continue to focus our efforts on further strengthening our brand in the upcoming year. In 2018, our brand and wine products continued to receive awards and recognitions. Our brand was named a Top 10 Annual Influential Brand of 2017 by WBO Wine Industry. Each of our “Deep Blue 2015”, “Tasya’s Reserve Cabernet Franc 2015”, “Premium Cabernet Merlot 2017” and “Nian Hua 2017” won the Silver Award in the 2018 Cathay Pacific Hong Kong International Wine & Spirit Competition.
As part of our corporation’s social responsibilities, we commenced an energy and water-saving initiative at our Shanxi winery last year. With our team’s commitment to the cause and their creative-thinking solutions, we were able to reduce our water and electricity consumption by 33% and 7%, respectively. Finally, our viticultural and cellar teams continue to search for new potential varieties (after our success with our new products Aglianico, Marselan and Syrah) which suit our vineyards, as well as developing new products, lowering costs and improving our product quality. We welcome you to visit our winery and allow us share with you some of our results. China’s economy may be heading toward a period of slower growth, but we still believe strongly in the brandedconsumer-goods market in China over the long term. Delivering satisfactory results to you is important to us and we are fully prepared to do our best in the upcoming challenging year. On behalf of the Board and the team, once again I would like to express my gratitude to our shareholders and clients for your support throughout the years.