Luzhou Laojiao Co., Ltd. 2026 Interim Report

瀘州老窖

【August 2026】

Section I Important Statements, Contents and Definitions

The Board of Directors as well as directors and senior management guarantee that the information presented in this report is free of any false records, misleading statements or material omissions, and shall individually and together be legally liable for truthfulness, accuracy and completeness of its contents.

Liu Miao, responsible person for the Company, Xie Hong, responsible person for accounting work and Song Ying, responsible person for the Company’s accounting department (accounting supervisor) have warranted that the financial statements in this report are true, accurate and complete.

All the directors attended the board meeting to deliberate this report by themselves.

Affected by risks, uncertainties and assumptions, the forward-looking statements concerning business objectives and future plans made in this report based on the subjective assumptions and judgments of the future policies and economic conditions may be significantly different from the actual results. Such statements shall not be considered as virtual promises of the Company to investors, and the investors and relevant persons shall maintain adequate risk awareness and shall understand the differences between plans, forecasts and commitments.

In this report, the potential risks in the operation of the Company have been disclosed. Investors are kindly reminded to pay attention to possible investment risks.

The Company has no interim dividend plan, either in the form of cash or stock.

This Report has been prepared in both Chinese and English. Should there be any discrepancies or misunderstandings between the two versions, the Chinese version shall prevail.

Contents

Section I Important Statements, Contents and Definitions....2

Section II Company Profile and Key Financial Results....6

Section III Management Discussion and Analysis....10

Section IV Governance, Environmental and Social Information....32

Section V Significant Events....35

Section VI Changes in Shares and Information about Shareholders....44

Section VII Information about Bond....52

Section VIII Financial Report....53

Documents Available for Reference

1. Financial statements signed and stamped by the responsible person for the Company, the responsible person for accounting work and the responsible person for the Company’s accounting department (accounting supervisor); and

2. The originals of all company documents and announcements that are disclosed to the public during the reporting period.

Definitions

Section II Company Profile and Key Financial Results

1. Corporate information

2. Contact us

3. Other Information

3.1. Contact Information of the Company

Whether any change occurred to the registered address, office address and their zip codes, website address, email address and other contact information of the Company in the reporting period.

Applicable ☑ N/A

No change occurred to the said information in the reporting period, which can be found in the 2025 Annual Report.

3.2. Information disclosure and place where the interim report is kept

Whether any change occurred to the information disclosure and place where the interim report is kept.

Applicable ☑ N/A

No change occurred to the website of the stock exchange, media and other websites designated by the Company for information disclosure, as well as to the place where the disclosed documents are kept in the reporting period. The said information can be found in the 2025 Annual Report.

3.3. Other information

Whether any change occurred to other information in the reporting period.

Applicable ☑ N/A

4. Key accounting data and financial indicators

Whether the Company performed a retroactive adjustment to or restatement of accounting data.

Yes No

5. Differences in accounting data under domestic and overseas accounting standards

5.1. Differences in the net profits and net assets disclosed in the financial reports prepared under the international and China accounting standards

Applicable ☑ N/A

No such differences for the reporting period.

5.2. Differences in the net profits and net assets disclosed in the financial reports prepared under the overseas and China accounting standards

Applicable ☑ N/A

No such differences for the reporting period.

6. Non-recurring profits and losses

☑ Applicable N/A

Unit: CNY

Other items that meet the definition of non-recurring gain/loss:

Applicable ☑ N/A

No such cases for the reporting period.

Explain the reasons if the Company classifies any non-recurring gain/loss item mentioned in the Explanatory Announcement No. 1 on Information Disclosure for Companies Offering Their Securities to the Public-Non-Recurring Gains and Losses as a recurring gain/loss item.

Applicable ☑ N/A

No such cases for the reporting period.

Section III Management Discussion and Analysis

1. Business scope in the reporting period

The Company operates within the baijiu subdivision industry which belongs to the liquor & wine, beverage and refined tea production industry with specialized baijiu product design, production and sales as its main business model. Its primary products include baijiu series such as "National Cellar 1573" and "Luzhou Laojiao", and its main comprehensive performance indicators rank high in the baijiu industry.

At present, the baijiu industry remains in a period of in‑depth adjustment. It is marked by insufficient momentum for consumption growth, mounting inventory pressure across distribution channels, slowing product off‑take, and intensifying competition. To achieve steady high‑quality development, baijiu enterprises must maintain strategic stability, adapt to shifts in consumer behavior and industrial development trends, adopt multi‑dimensional initiatives including product innovation, channel optimization and brand value reshaping, proactively transform to build differentiated core competitiveness, and continuously consolidate their fundamental business foundations.

The Company shall comply with the disclosure requirements for companies engaging in food & liquor and wine production of the Guidelines No. 3 of the Shenzhen Stock Exchange on Self-regulation of Listed Companies—Industry-specific Information Disclosure.

The Company holds three food business licenses, and its production model is self-production. The Company’s main business is the research and development, production and sales of baijiu series such as "National Cellar 1573" and "Luzhou Laojiao". During the reporting period, the Company closely adhered to the development theme of “Boosting Confidence, Maintaining Steady Pace, Forging ahead With Concerted Efforts, and Pursuing Breakthroughs”. Staying focused on its set targets and surmounting difficulties, the Company forged ahead with high‑quality development. In the first half of 2026, the Company recorded operating revenue of CNY 10.472 billion and net profit attributable to shareholders of the listed company of CNY 4.339 billion.

A. Major work that has been done in the reporting period

a. Focusing on all‑domain marketing campaigns for steady market expansion

The Company further deepened its deployment of regional channels. It ramped up implementation of the “235+100” regional development strategy and fully rolled out the Hundred Cities Program 3.0. Momentum for scenario‑based marketing was unleashed. The Company continuously optimized and upgraded scenario‑based marketing activities such as the Wave Program and the Galaxy Left Bank Music Festival. The Company advanced the promotion and operation of innovative products. Full‑scale rollout of low‑alcohol tasting promotions was achieved, and the brand system for 28° Gogoon was established. Continuous empowerment was delivered through digital and intelligent operations. By leveraging the digital marketing system, the Company implemented multi‑dimensional refined operations across target crowds, scenarios, customers, timing and other dimensions.

b. Deepening the development of cultural system and systematically elevating brand momentum

The Company has consolidated the foundation of its cultural heritage. The “Luzhou Laojiao Luohan Cellars” have been inscribed on the 10th batch of Sichuan Provincial Cultural Relics Protection Units, and this makes the Company the only enterprise within the baijiu industry that owns complete cellars of “living heritage” spanning the Ming Dynasty, the Qing Dynasty, the Republic of China period and the contemporary era. The Company expanded its cultural communication matrix. It focused on core themes such as “advantages of single‑grain distillation” and “core essence of the dual living national treasures”, and it applied multiple communication methods to construct an all‑domain communication matrix. The Company achieved targeted breakthroughs in brand outreach. It further developed signature IP events including the Baijiu Seal‑off Ceremony and the Cellar Owner Festival. The Company conducted cooperative initiatives with high‑profile sporting events such as the ITTF, the Australian Open and the World Cup, so its brand stature and influence kept climbing steadily. The Company has promoted the integrated development of baijiu‑themed cultural tourism. It pressed ahead with key projects represented by the China Baijiu Museum in Sichuan, and it built new city landmarks for baijiu‑themed cultural tourism consumption.

c. Upholding the bottom‑line of quality control and ensuring sound production and supply

The Company pursued continuous improvement in production technique and product quality. The pass rate for incoming raw and auxiliary materials and the baijiu source guarantee rate both reached 100%. And the Company participated in the formulation and revision of 12 standards at various levels covering fields such as anti‑counterfeiting and traceability. The Company accelerated the implementation of intelligent baijiu production initiatives. The raw and auxiliary material procurement system went online for operation. Phase II of the Huangyi Baijiu Production System Project passed completion acceptance. Projects including the 950 Baijiu Production MES system moved forward in an orderly manner. The Company delivered efficient and smooth logistics support. It promoted centralized control over compliance reviews for products and explored a combined transportation model of “short‑haul road transfer + main‑route waterway shipping”. Such measures have further strengthened the resilience of the supply chain.

d. Adhering to technology‑driven innovation and deepening the integration of industry, academia, research and application

The Company delivered solid and effective management over its technology platforms and laboratories. It operated 23 technology platforms including the National Engineering Research Center of Solid-state Distillation, administered 17 open‑subject projects under the Chengdu‑Chongqing Solid‑state Distillation Alliance, and successfully maintained its CNAS accreditation status. The Company made vigorous efforts for the application for policy research and technology projects. It secured approval for 13 government‑funded policy research and technology projects. The “Fully‑enclosed Recycling Process for Cooling Water for Baijiu Production of Luzhou Laojiao” was selected as one of Sichuan Province’s Top‑10 Water‑Saving Cases. The Company advanced six major platform projects such as the Tsinghua University‑Luzhou Laojiao Joint

Research Center for Intelligent Testing, and five of its technical achievements were appraised as internationally advanced. The Company achieved fruitful outputs in technology research and commercialization of research findings. It focused on core fields such as the flavor and quality of baijiu, obtained 37 patents, led and participated in the formulation of 12 national and industry standards, published 23 academic papers, and won honors including the First Prize for Technological Progress by the China National Light Industry Council.

e. Consolidating the headquarters management system and boosting efficiency through refined management

The Company standardized and enhanced its corporate governance. It continuously improved basic corporate management practices and strictly implemented the “Three Major Items and One Important Matter” decision‑making system to ensure scientific, standardized and efficient decision‑making. It tightened safeguards against insider trading, and received the highest A rating in the Shenzhen Stock Exchange’s information disclosure assessment for the sixth consecutive year. The Company built rigorous risk prevention and control mechanisms. It focused on key areas including special‑purpose audits, organized integrity‑education sessions, and conducted full‑coverage integrity talks. It continuously strengthened employees’ awareness of disciplines and compliance requirements. The Company boosted operational efficiency through digital and intelligent management empowerment. It upgraded the financial sharing system and effectively addressed pain points in business expense reimbursement. It fully rolled out the procurement management system and realized end‑to‑end online processing for the complete procurement workflow of “invitation for bidding, bid submission, bid opening, bid evaluation and award of contract”.

B. Priorities in the second half of the year

a. The Company will conduct in‑depth market‑oriented business operations to expand sales and lift efficiency across all domains. Further regional store‑expansion initiatives and channel layout for new‑product offerings will be advanced. Various digital models will undergo iterative upgrading, and an all‑domain digital platform will be implemented to achieve end‑to‑end digital and intelligent control over marketing, channel and user‑related operations.

b. The Company will foster solid cultural heritage foundations and optimize brand operation. A system for cultural development and cultural relics protection will be established, and progress will be made on projects including intangible cultural heritage application filings as well as the renovation of museums and traditional workshops. Differentiated and refined brand operation will be adopted, and marketing activities will be iterated in strict alignment with brand positioning.

c. Greater focus will be placed on technological innovation to bolster production assurance capabilities. Formulation of the technology plan for the 15th Five‑Year Plan Period will move forward. Standardized management will be applied to sorghum supplies, and improvements will be delivered to the digital systems for baijiu quality control and production. Warehouse‑network distribution layouts will also receive further optimization.

d. Digital and intelligent management will be advanced to strengthen headquarters‑level supporting capacity. The Company will decompose and implement strategies under the 15th Five‑Year Plan. Upgrades will be carried out for the digital financial system, and an AI middle platform will be established. Various online management platforms will be further improved, and digital mechanisms for talent recruitment and competency development will be put in place.

Brand operation

During the reporting period, the Company resolutely implemented its strategy of “dual brands, three product series, and major single products”. National Cellar 1573, a high-end baijiu series, saw its position as a value benchmark continuously solidified. The Luzhou Laojiao series achieved comprehensive coverage across the sub-premium, mid-range, and mass-market price bands. Health care baijiu, innovative baijiu, new retail, and overseas markets were cultivated with precision. As such, brand recognition and brand intrinsic value were substantially enhanced.

Main sales models:

Currently, the Company has two main sales models:

1. Traditional channel operation model: It is mainly authorized distribution of the offline distributors. The Company establishes cooperative relationships with the distributors by product lines and regions. The Company directly supplies goods to the distributors, and then distributors sell them to consumers and terminal outlets.

2. Emerging channel operation model: It is mainly online sales operations. The Company establishes cooperative relationships with e-commerce platforms, self-media and webcasters, and sells the goods to consumers through flagship stores, specialty stores, live streaming rooms on online platforms and other network terminals.

Distribution models:

☑ Applicable N/A

1. Main sales models

Unit: CNY

2. Distributors

Unit: Number

3. Main settlement method for distributors and distribution method

The Company's main settlement method for distributors is payment before delivery. The distribution method is authorized distribution.

4. Top five distributors

5. Information on top five distributors Store sales terminals accounted for more than 10% Applicable ☑ N/A

Online direct sales

☑ Applicable□ N/A

For the main sales models of the Company, please refer to the contents under the heading “Distribution models” in “1. Business scope in the reporting period” of Section III. For the sales of the Company's main products, please refer to the contents under the heading "Business segment, products or geographical segments contributing over 10% of the operating revenues or profits" in “3. Analysis of main business” of Section III. The Company's main products are sold online. Its main cooperation platforms include JD.com and Tmall.

Sales price of main products contributing over 10% of the total operating revenues for the current period changed by more than 30% from the previous reporting period Applicable ☑ N/A

Purchase model and purchase content Unit: CNY

The purchase of raw materials from cooperatives or farmers accounted for more than 30% of the tota purchase amount

Applicable ☑ N/A

The price of main raw materials purchased externally changed by more than 30% year-on-year Applicable ☑ N/A

Main production model:

The Company's main production model is self-production.

Commissioned processing and production

Applicable ☑ N/A

Main breakdown items of cost of sales

Unit: CNY

Production volume and inventory

1. Production volume, sales volume and inventory of main products

2. Inventory at the end of the reporting period

3. Capacity

Unit: Ton

2. Analysis of core competitiveness

A. Geographical advantage

Luzhou City, where the Company is located, sits in the transitional area between the southern rim of the Sichuan Basin and the Yunnan-Guizhou Plateau, featuring a warmer and more humid sub-tropical climate compared to other areas at the same latitude, with a temperature above 0℃ throughout the year. The unique climate and soil are agreeable to grow grains for baijiu production. The glutinous red sorghum and soft wheat grown in this area are the primary raw materials for the baijiu of the Company. The cellars in which the Company produces its baijiu are made of the local loessal clay characterized by strong viscosity, rich minerals and excellent moisture retention. In addition, the abundant and quality water in the region creates a unique geographical advantage for the production of the Company’s baijiu.

B. Advantage of cellars and the baijiu production technique

Aged cellars are the most essential condition for a strong aromatic baijiu maker to produce good quality baijiu. The Cellars of National Treasure 1573, founded in 1573, was granted by the State Council as the first Cultural Relic of National Importance in the industry under the Protection of the State in December 1996. 1,619 cellars of Luzhou Laojiao which have been continuously used for over 100 years, together with its 16 ancient baijiu production workshops and three natural cellar holes, were all selected as the fourth batch of Cultural Relics of National Importance under the Protection of the State in 2013. They are unique resources that cannot be replicated. In both 2006 and 2012, Luzhou Laojiao Daqu Cellars were twice selected into the preliminary list of China for World Heritage. In November 2018, Luzhou Laojiao Cellars and Baijiu Workshops were selected into China’s Industrial Heritage List. The timehonored Traditional Baijiu Production Technique of Luzhou Laojiao is a 24-generation inheritance and a classic production technique for strong aromatic baijiu. This technique was selected as the first batch of National Intangible Cultural Heritage in May 2006. The Cellars of National Treasure 1573 and the Traditional Baijiu Production Technique of Luzhou Laojiao together provide the most essential basis and assurance for the quality of the product series of National Cellar 1573 and Luzhou Laojiao. Additionally, Huangyi Baijiu Production Eco-Park has moved into full production in late 2020. Upholding the cultural connotations of “inheritance of ancient ways, pure-grain based production, traditional techniques, and intelligent technologies”, the Company carries out production technique renovation featuring automatic, intelligent and information technology-based transformation. As such, it has established a baijiu production eco-park comprising distillation workshops, leaven making workshops, and base baijiu storage cellars, along with energy and sewage treatment facilities. This baijiu production eco-park brings with it new production capacities of 100,000 tons of quality pure-grain solid baijiu and 100,000 tons of leaven in addition to a new storage capacity of 380,000 tons of baijiu per year, marking a substantial increase in the Company’s production capacity.

C. Brand advantage

Brand is a key business resource for baijiu producers. The Company’s reputation is greatly built on its superiority in brand. National Cellar 1573, which is of a connoisseurship level, is a world-famous highend brand. Luzhou Laojiao Tequ, a classic brand for strong aromatic baijiu, was selected in 1952 by the first national tasting competition judges as one of the four most famous baijiu brands in China. It is the only strong aromatic baijiu brand that won the title of “National Famous Baijiu” for five consecutive times, as well as the pioneer with regard to the “Tequ” variety of baijiu. In recent years, the Company has successfully put in place a brand system of “dual brands, three product series, and major single products” with great clarity and focus. The programs carried out to promote the brand of National Cellar 1573 and revive the brand of Luzhou Laojiao have produced remarkable results, with significant improvement in brand influence. The Company’s baijiu is increasingly known by consumers as a national brand of strong aromatic baijiu and of authentic flavor.

D. Quality and R&D advantage

The Company is committed to producing high-quality baijiu, advocating a healthy lifestyle and “making the quality visible”. The first “Organic Sorghum Planting Base” was established and the six-factor management system (including organic, quality, safety, environment, measurement and energy) was built and improved. The research platforms are established, including National Engineering Research Center of Solid-State Distillation, National Baijiu Test Center, National Postdoctoral Workstation, etc., which all support the innovation and upgrading of products with their strong technical force. In recent years, the Company has put in a lot of efforts in researching Tequ production, informatization and intelligent transformation of production and packaging. Relying on the technological innovation platforms such as the National Industrial Design Center, and continuously deepening the cooperation with top-tier universities and scientific research institutes, the Company has undertaken dozens of national- or provincial-level projects and has been granted hundreds of invention or utility model patents. And remarkable results have been achieved with respect to improvement of the quality of base Baijiu, as well as production efficiency improvement.

E. Talent advantage

The Company has 1 inheritor of national intangible cultural heritage, 21 senior professor engineers, 8 experts who receive special allowances from the State Council, 4 national technicians, 3 national model workers, 5 national Labor Day Medal winners, 5 academic and technologic leaders of Sichuan province, 1 expert with outstanding contribution in Sichuan province, 1 technology leader of Tianfu, 2 excellen engineers of Tianfu, 1 skills leader of Tianfu, 3 craftsmen of Tianfu, 5 craftsmen of Sichuan province, 1 technological elite of Tianfu, 2 young science and technology talents of Tianfu, 4 technicians of Sichuan province, as well as hundreds of highly skilled personnel including national baijiu judges, as well as master technicians, senior technicians and technicians in baijiu production and tasting. The comprehensive and professional personnel system assures the sound development of the Company.

3. Analysis of main business

Overview

See contents under the heading “1. Business scope in the reporting period” above.

Year-on-year changes in key financial data Unit: CNY

Significant changes to the profit structure or sources of the Company in the reporting period Applicable ☑ N/A

No such changes in the reporting period.

Breakdown of operating revenues

Unit: CNY

Business segments, products or geographical segments contributing over 10% of the operating revenues or profits

☑ Applicable □ N/A

Unit: CNY

Under the circumstances that the statistical standards for the Company’s main business data were adjusted in the reporting period, the Company’s main business data in the current period is calculated based on adjusted statistical standards at the end of the reporting period

Applicable ☑ N/A

The Company shall comply with the disclosure requirements for companies engaging in food & liquor and wine production of the Guidelines No. 3 of the Shenzhen Stock Exchange on Self-regulation of Listed Companies—Industry-specific Information Disclosure.

A. Breakdown of selling and distribution expenses

Unit: CNY

B. Breakdown of advertising expenses

Unit: CNY

4. Analysis of non-core business

Applicable N/A

5. Assets and liabilities

5.1. Significant change of asset items

Unit: CNY

5.2. Main assets overseas

Applicable ☑ N/A

5.3. Assets and liabilities measured at fair value

☑ Applicable N/A

Unit: CNY

Contents of other changes

None

Whether measurement attribution of main assets changes significantly in this year

Yes No

5.4. Restricted asset rights as of the end of this reporting period

Unit: CNY

6. Investment

6.1. Total investment

☑ Applicable N/A

6.2. Significant equity investment made in the reporting period

Applicable ☑ N/A

6.3. Significant ongoing non-equity investment in the reporting period

Applicable N/A

Unit: CNY

6.4. Financial assets investment

6.4.1. Securities investment

☑ Applicable N/A

Unit: CNY

6.4.2. Derivative investment

Applicable ☑ N/A

No such cases in the reporting period

6.5. Use of funds raised

Applicable ☑ N/A

No such cases in the reporting period

7. Sale of major assets and equity interests

7.1. Sale of major assets

Applicable ☑ N/A

No such cases in the reporting period.

7.2. Sale of major equity interests

Applicable ☑ N/A

8. Analysis of major subsidiaries

Applicable □ N/A

Main subsidiaries and joint companies with an over 10% influence on the Company’s net profit

Unit: CNY

Note 1: The decline in the company’s operating revenue, operating profit and net profit was mainly due to the decreased product sales volume in the current period.

Acquisition and disposal of subsidiaries during the reporting period Applicable ☑ N/A

Notes for major holding companies and joint stock companies

There were no major holding companies or joint stock companies during the reporting period of which information shall be disclosed.

9. Structured entities controlled by the Company

Applicable ☑ N/A

10. Risks facing the Company and countermeasures

A. Risk of a slower-than-expected recovery in consumption. The overall domestic consumer market is still in a recovery phase with insufficient momentum for consumption rebound. Mass consumption has become more rational. Coupled with the ongoing channel inventory destocking cycle across the industry, retail off-take remains weak in some regional markets and the pace of payment collection from channels has slowed. Should the momentum of macroeconomic recovery weaken and the restoration of consumption scenarios fail to meet expectations in the future, the industry adjustment cycle may be prolonged. To address this, the Company will continue to deepen its presence in core markets, implement refined control over channel inventory, further optimize product mix and marketing strategies, and consolidate the foundation for market sales.

B. Risk arising from the iteration of consumer groups and shifts in consumption preferences. Traditional baijiu falls short of matching the consumption demands of new generations in terms of drinking scenarios, flavor profiles and brand communication approaches. The industry faces longterm challenges brought by evolving consumption demand and habits. If the Company cannot promptly adapt to intergenerational consumption shifts and successfully deliver product innovation, brand rejuvenation and deployment in new consumption scenarios, it will be exposed to risks including inadequate penetration among young consumer groups, rigid user communities and limited room for long-term market growth. In response, the Company will stay committed to the strategy of “lower alcohol content, youth-oriented consumption, and scenario-based consumption” to consolidate the consumer base for its long-term sustainable growth.

11. Development and implementation of market value management rules and valuation enhancement plan

Indicate whether the Company has developed market value management rules.

 Yes □ No

Indicate whether the Company has disclosed its valuation enhancement plan.

□ Yes  No

In order to strengthen the Company's market value management, effectively promote the Company to enhance investment value, enhance investor returns and safeguard investor interests, in accordance with the Company Law of the People's Republic of China, the Securities Law of the People's Republic of China, the Information Disclosure Management Measures for Listed Companies, the Listed Company Regulatory Guideline No. 10 - Market Value Management and other applicable laws, regulations, normative documents and the Company's Articles of Association, etc., the Market Value Management Rules of Luzhou Laojiao Co., Ltd. have been formulated upon approval at the Sixth Meeting of the 11th Board of Directors.

12. Implementation of the action plan for "Dual Enhancement of Development Quality and Shareholder Returns"

Indicate whether the Company has disclosed its action plan for "Dual Enhancement of Development Quality and Shareholder Returns".

 Yes □ No

In accordance with the guiding ideology of "further invigorating the capital market and boosting investor confidence" proposed at the Political Bureau meeting of the CPC Central Committee and "vigorously improving the quality and investment value of listed companies, taking more powerful and effective measures, and focusing on stabilizing the market and confidence" proposed at the State Council Executive Meeting, in order to safeguard the interests of all shareholders, boost investor confidence, and promote the long-term healthy and sustainable development of the Company, Luzhou Laojiao Co., Ltd. (hereinafter referred to as "the Company") has formulated its action plan for "Dual Enhancement of Development Quality and Shareholder Returns" in combination with the Company's development strategy, business picture, and financial condition. The specific measures are as follows:

A. Strengthening confidence in strategic planning and aiming at the Company's development goals

The Company has formulated the "136" strategic plan for the 14th Five-Year Plan based on the development idea of "giving play to advantages, tackling areas of weaknesses, improving quality, building strength, and seeking rejuvenation". Specifically, "1" refers to one development goal, namely, firmly insisting on the goal of regaining the "Top 3" ranking among the Chinese baijiu industry; "3" refers to three major development principles, namely, insisting on brand leadership and fully enhancing the value of Chinese famous baijiu brands, insisting on taking quality as foundation and sparing no efforts to build a core production area of world famous baijiu, and insisting on taking culture as the foundation and striving to build a pilgrimage site for Chinese baijiu culture; "6" refers to " mathsf S i x - mathsf i n - mathsf O n mathsf e " Luzhou Laojiao, namely, building a strong-brand Luzhou Laojiao, a quality Luzhou Laojiao, a cultural Luzhou Laojiao, an innovative Luzhou Laojiao, a digital and intelligent Luzhou Laojiao, and a harmonious Luzhou Laojiao. Since the 14th Five-Year Plan period, the Company has firmly implemented the "136" development strategy, won key battles such as expanding production capacity, upgrading brands, and strengthening teams, and has entered a stage of high-quality development. The National Cellar 1573 brand achieved comprehensive coverage in the domestic market and was fully expanding in overseas markets; the Luzhou Laojiao brand built a strong basis in the granary market, and has gained a stable and penetrating presence in the opportunity market; the breakthrough project of expanding key sales areas has been deeply promoted, market consumption has been further activated, and market share has been further increased. In terms of digital marketing and brand building, channel development and public relations empowerment, online expansion and offline integration, and overseas layout and domestic boosting, a clearer and more effective path has been created with the characteristics of Luzhou Laojiao, which has made contributions to the healthy and rapid development of the Company. During the 14th Five-Year Plan period, the compound annual growth rate of the Company's net profit attributable to owners of the parent company was as high as 12.52%. Since the launch of the 15th Five-Year Plan period, guided by the development philosophy of “staying focused on returning to the top three in the industry, tackling key challenges through coordination, and pursuing steady, long-term progress”, the Company has further formulated the “156” Strategic Plan, namely: staying firmly committed to the strategic goal of “returning to the top three in the industry”; upholding five core development philosophies of long-termism, quality, value, innovation, and a shared future; and building six systems covering an excellent system for market expansion and consumption innovation, an excellent system for cultural empowerment and brand management, an excellent system for quality production capacity and supply assurance, an excellent system for digital and intelligent integration and efficiency improvement, an excellent system for organizational vitality and talent development, as wel as an excellent system for coordinated industrial development and ecosystem co-development. Going forward, the Company will resolutely implement the “156” Strategic Plan, stay focused on its goals, overcome difficulties, and seize the initiative for development.

B. Deeply promoting technological innovation and strengthening the transformation of scientific research achievements

In recent years, the Company has attached great importance to the development mode of innovation leading progress, integrated innovation forces, gathered innovation resources, tackled the frontier and common key technologies of the baijiu industry, and promoted the transfer and transformation of achievements and industry sharing, thus promoting the transformation of the baijiu industry from experience oriented to technological oriented. This has made important contributions to the technological innovation, transformation and upgrading of the baijiu industry in China. First, the Company has successfully established multiple major national-level technological innovation platforms, including the National Engineering Research Centre of Solid-State Distillation, the National Industrial

Design Centre, and the National Postdoctoral Workstation. The Company has formed a comprehensive technological innovation platform system with the National Engineering Research Centre of Solid-State Distillation as the R&D core, covering basic R&D, talent cultivation, and engineering transformation in multiple fields, and has built a highland for technological innovation in the entire industry. Second, the Company has continuously increased investment in technological innovation, research and development, and continuously enhanced its independent innovation capabilities. In the past five years, the total R&D investment reached CNY 1,138.8705 million, and the compound annual growth rate of innovation R&D investment reached 6.29%. Third, the Company has actively carried out collaborative innovation between the Company, universities and research institutions, establishing cooperative relationships with more than 30 universities and institutions such as Tsinghua University and Shanghai Jiao Tong University. Through various forms including joint laboratory building, joint undertaking of major projects, joint training of talents, and establishment of open projects, the Company has carried out extensive technical exchange and cooperation, forming a good pattern of diversified cooperation, innovative development, and mutual benefit between universities and the Company. Fourth, the Company has attached great importance to the creation and protection of intellectual property rights, and regarded intellectual property building as an important development strategy for the Company. The number of applications and authorizations for invention and utility model patents has maintained a rapid growth. By the end of 2025, the Company has been granted 304 patents, including 93 invention patents and 211 utility models, both of which are at the forefront of the industry. In the future, the Company will continue to leverage its advantages in scientific research platforms, talent, and publicity to comprehensively consolidate Luzhou Laojiao's leading position in scientific research.

C. Highly valuing standardized operations and improving corporate governance level

The Company has continuously consolidated the foundation of corporate governance, improved the corporate governance structure, actively studied laws and regulations and the latest regulatory policies, and standardized the Company's management system. The Company has also clearly defined the responsibilities and authorities of the Board of Directors, the Board of Supervisors, meetings of shareholders and the management in decision-making, execution, and supervision, and regulated the rights and obligations of the Company and shareholders. The Company has vigorously promoted the systematization, standardization, and digitalization of corporate governance, synchronously enhanced the information-based level in the Board of Directors, the Board of Supervisors and meetings of shareholders, and incorporated the building of the integrated securities business platform into the "digital and intelligent Luzhou Laojiao" system, to continuously improve the level of corporate governance. In order to further improve the Company's risk management system and ensure that the directors, supervisors, and senior management of the Company fully perform their duties within their scope of responsibilities, the Company has actively promoted the purchase of liability insurances for directors, supervisors, and senior management. Meanwhile, the Company has become the first listed company in the industry to sign a liability insurance agreement for directors, supervisors, and senior management which has been approved by a meeting of shareholders. In the future, the Company wil continue to promote information technology building to empower corporate governance, continuously improve operational efficiency and scientific decision-making level.

D. Fulfilling the information disclosure obligation compliantly and strictly guarding the defense line of insider trading

The Company takes standardized information disclosure as the bottom line, conducts information disclosure with high standards, and effectively respects and safeguards the legitimate rights and interests of investors. First, the Company has established and improved a management system centered on major information internal reporting system, temporary and periodic report preparation procedure, insider information management system, and other policy documents, and continuously promoted the standardized and procedural business work, to ensure accurate and rigorous information disclosure. Second, the Company has adhered to investor demand orientation, actively promoted voluntary information disclosure, attached importance to the pertinence, readability, and effectiveness of disclosure content, and continuously improved the transparency of information disclosure of the Company. The Company has been awarded the highest A grade in the information disclosure assessment of listed companies on the Shenzhen Stock Exchange for several consecutive years. In the future, the Company will continuously improve the transparency of information disclosure and continuously display information on the Company's operations at multiple levels, angles, and dimensions.

E. Efficiently carrying out investor relations activities and conveying the Company's investment value

The Company has actively adapted to the needs of investor research and carried out investor relationship management through a combination of "inviting in" and "going out" models. It has actively communicated with investors on industry hot topics, the Company's business picture, and development strategies through the Shenzhen Stock Exchange investor interaction platform, establishment of investor hotlines, improvement of investor relationship websites, hosting online collective reception days, and on-site investor surveys. In doing so, the Company has conveyed its investment value and safeguarded investors' right to know. At the same time, the Company has adhered to investor demand orientation. Based on the continuous growth of overseas shareholders in recent years, the Company has innovatively used overseas accounts such as Facebook, Twitter, and IG to simultaneously publish the Company's performance promotion, shortened the disclosure time interval between Chinese and English versions, and conducted overseas roadshows, to ensure the timeliness of information acquisition for overseas investors. Going forward, the Company will continue to build a two-way communication mechanism for a deep understanding and positive interaction with the capital market to transmit the Company's value. (Investors are welcome to visit the Company's investor relations website at https://000568.ir-online.cn/).

F. Improving shareholder returns and safeguarding the legitimate rights and interests of shareholders

The Company adheres to the implementation of an active profit distribution policy, attaches importance to reasonable returns to investors while considering the sustainable development of the Company, and maintains the continuity and stability of profit distribution. The Company clearly stipulates in its Articles of Association that the Company may distribute dividend in cash or stocks and the dividend should not be less than 50% of the distributable profit realized for that year, and the profit to be distributed in cash should not be less than 30% of the distributable profit realized for that year. Cumulative dividends since its listing have reached CNY 60.56 billion, representing a high dividend payout ratio of 63.50%, ranking among the top among more than 5,000 listed companies in the Shanghai and Shenzhen stock markets. This has allowed all shareholders to fully share the Company's development achievements and effectively maintained the Company's good image in the capital market. In order to further improve the profit distribution policy, establish a scientific, sustained and consistent shareholder return mechanism and enhance investment value, the Company has formulated the 2024-2026 Shareholder Dividend Plan. The Company's annual cash dividends shall account for no less than 65%, 70% and 75% of the net profit attributable to shareholders of the listed company in 2024, 2025 and 2026, respectively, and shall not be less than CNY 8.5 billion. In principle, cash dividends can be paid twice a year. Going forward, while safeguarding normal business operations and long-term corporate development, the Company will adopt a sound profit distribution policy to ensure investors duly share in the fruits of its growth.

G. Encouraging the controlling shareholder to actively increase its shareholdings to maintain the stability of the capital market

Based on its recognition of the Company's long-term value and its firm belief in the Company's development prospects, the controlling shareholder of the Company, Luzhou Laojiao Group Co., Ltd., increased its holdings in the Company by 1,140,200 shares in total with its own funds through call auction trading during the period from December 15, 2023 to June 15, 2024, with a total amount of approximately CNY 200.9629 million. In 2025, Laojiao Group increased its shareholdings in the Company by 2,345,250 shares with special loans and its own funds through call auction trading, representing a total amount of approximately CNY 299.9973 million.

Moving forward, the Company will focus on the development theme of “Boosting Confidence, Maintaining Steady Pace, Forging ahead With Concerted Efforts, and Pursuing Breakthroughs”, actively take responsibility, keep diligent, and make solid progress while striving for high-quality development. The Company will also firmly establish a sense of return to shareholders, effectively implement the "dual enhancement of development quality and shareholder returns" action plan, significantly enhance investors' satisfaction, and actively contribute to stabilizing the capital market and boosting investor confidence.

Section IV Governance, Environmental and Social Information

1. Changes in directors and senior management

Applicable ☑ N/A

No changes to the Company’s directors and senior management occurred during the reporting period. Please refer to the 2025 Annual Report for details.

2. Profit distribution and converting capital reserves into share capital for the reporting period

Applicable ☑ N/A

The Company has no interim dividend plan, either in the form of cash or stock.

3. Implementation of any equity incentive plan, employee stock ownership plan or other incentive measures for employees

☑ Applicable N/A

3.1. Equity incentives

A. On February 4, 2026, the Company held the 21st Meeting of the 11th Board of Directors, at which the Proposal on the Satisfaction of Unlocking Conditions for the Second Unlocking Period of the Reserved Restricted Shares under the 2021 Restricted Share Incentive Plan, the Proposal on the Satisfaction of Unlocking Conditions for the Third Unlocking Period of the 2021 Restricted Share Incentive Plan, and the Proposal on the Repurchase and Retirement of Certain Restricted Shares and the Adjustment of Repurchase Price were reviewed and approved. On February 5, the Company disclosed the Announcement on the Repurchase and Retirement of Certain Restricted Shares to Reduce Registered Capital and Notice to Creditors. By the expiration of the declaring period, the Company had not received any declaration from the relevant creditors for early payout of debts or provision of guarantee.

B. On February 13, 2026, the Company disclosed the Reminder Announcement on Unlocked Shares in the Second Unlocking Period of the Reserved Restricted Shares under the 2021 Restricted Share Incentive Plan Being Allowed for Public Trading, as well as the Reminder Announcement on Unlocked Shares in the Third Unlocking Period under the 2021 Restricted Share Incentive Plan Being Allowed for Public Trading. As such, the unlocked restricted shares in the second unlocking period of the reserved restricted shares and in the third unlocking period under the 2021 Restricted Share Incentive Plan were allowed for public trading on February 24, 2026.

C. On June 3, 2026, the Company disclosed the Announcement on the Completion of the Repurchase and Retirement of Certain Restricted Shares. As at June 3, 2026, the Company completed the repurchase and retirement of 40,500 restricted shares.

3.2. Implementation of employee stock ownership plans

Applicable ☑ N/A

3.3. Other incentive measures for employees

Applicable ☑ N/A

4. Environmental information disclosure

Whether the listed company or any of its major subsidiaries is included in the list of companies that are required by law to disclose environmental information.

5. Social responsibility

In the first half of 2026, adhering to the mission and responsibility of a state-owned enterprise, the Company strictly followed national arrangements for consolidating and expanding poverty alleviation achievements and comprehensively advancing rural revitalization. It advanced a coordinated range of social responsibility initiatives including rural assistance, public welfare student aid and social preferential care. The Company continued to improve long-term assistance mechanisms, delivered a full range of down-to-earth public welfare projects, and fulfilled its corporate social responsibilities through concrete actions.

A. Sustained and long-term efforts in rural revitalization assistance

Focusing on key areas including industrial empowerment, foundation consolidation, talent cultivation and people’s livelihood improvement, the Company actively carried out assistance work and steadily consolidated and expanded poverty alleviation achievements. First, the Company bolstered industrial self-development capacity to solidify the foundation of local growth. By coordinating capital and talent resources, the Company fully supported the implementation of targeted assistance projects in Hongyuan County, facilitating the upgrading of local modern animal husbandry and helping deliver sustainable income growth for local residents. Second, the Company delivered solid consumption assistance to broaden local income channels. It continued to purchase characteristic agricultural products of Hongyuan County such as yak milk and yak beef jerky. Consumption assistance drove the high-quality development of the county’s featured industries and injected new vitality into local economic growth. Third, the Company provided meticulous livelihood care as a corporate citizen. The Company conducted Spring Festival condolence activities and distributed daily necessities including blankets, rice and cooking oil to disadvantaged households in assisted villages such as Guntang Village of Hongyuan County and Xiangtian Village of Gulin County to alleviate living difficulties. It also donated teaching and office equipment to Maiwa Primary School in Hongyuan County, effectively improving the modern school-running conditions on the plateau and enhancing the hardware foundation for high-quality teaching and efficient campus operation.

B. Targeted project implementation and diversified public welfare practices

Leveraging special public welfare projects and focusing on key areas including education support and police-civilian preferential care, the Company proactively fulfilled its social responsibilities as a stateowned enterprise. First, the Company supported student assistance programs to safeguard the growth of young talents. It continued to participate in the “Little Schoolbag, Big Love” public welfare student aid project and provided targeted assistance to outstanding students from disadvantaged families. Second, the Company advanced local education development and promoted a culture of respecting teachers and valuing education. It renewed the donation agreement for the “Luzhou Laojiao Hongzhang Scholarship and Teaching Award Fund” with Luzhou High School, which further empowered the high-quality development of local basic education in Luzhou. Third, the Company paid tribute to public security martyrs and demonstrated corporate responsibility. From 2026 to 2028, the Company donated CNY 1 million annually to the Sichuan Public Security Police Martyrs Foundation to support public security pension and preferential care programs.

Going forward, the Company will continue to fulfill its mission as a state-owned enterprise, shoulder its political and social responsibilities, and take proactive actions in line with overall priorities. It will advance public welfare assistance through pragmatic measures, innovative approaches and thoughtful initiatives, support comprehensive rural revitalization, promote the sound and sustainable development of public welfare and charity undertakings, and strive to demonstrate new responsibility and achievements of a state-owned enterprise.

Section V Significant Events

1. Undertakings of the Company's actual controller, shareholders, related parties and acquirer, as well as the Company and other commitment makers fulfilled in the reporting period or ongoing by the end of this reporting period

Applicable ☑ N/A

No such cases in the reporting period.

2. Occupation of the Company's fund by the controlling shareholder or its related parties for non-operating purposes

Applicable ☑ N/A

No such cases in the reporting period.

3. Irregularities in the provision of guarantees

Applicable ☑ N/A

No such cases in the reporting period.

4. Engagement and disengagement of CPAs firm

Are the interim financial statements audited?

Yes No

The interim financial statements are not audited.

5. Explanation of the board of directors regarding the "non-standard audit opinion" for the reporting period

Applicable ☑ N/A

6. Explanations of the board of directors regarding the "non-standard audit opinion" of Last Year

Applicable ☑ N/A

7. Bankruptcy reorganization

Applicable ☑ N/A

No such cases in the reporting period.

8. Litigation

Material litigation and arbitration

Applicable N/A

Other litigation

☑ Applicable N/A

9. Punishments and rectifications

Applicable ☑ N/A

No such cases in the reporting period.

10. Credit conditions of the Company as well as its controlling shareholder and actual controller

Applicable ☑ N/A

11. Significant related party transactions

11.1. Related party transactions arising from routine operation

Applicable ☑ N/A

No such cases in the reporting period.

11.2. Related party transactions regarding purchase or sales of assets or equity interests

Applicable ☑ N/A

No such cases in the reporting period.

11.3. Related party transactions arising from joint investments in external parties

Applicable ☑ N/A

No such cases in the reporting period.

11.4. Credits and liabilities with related parties

Applicable ☑ N/A

No such cases in the reporting period.

11.5. Transactions with related finance companies

Applicable ☑ N/A

The Company did not make deposits in, receive loans or credit from and was not involved in any other finance business with any related finance company or any of its related parties.

11.6. Transactions between finance companies controlled by the Company and related parties

Applicable ☑ N/A

No related parties made deposits in, received loans or credit from or was involved in any other finance business with any finance company controlled by the Company.

11.7. Other significant related party transactions

Applicable ☑ N/A

No such cases in the reporting period.

12. Significant contracts and their execution

12.1. Trusteeship, contracting and leasing

12.1.1. Trusteeship

Applicable ☑ N/A

No such cases in the reporting period.

12.1.2. Contracting

Applicable ☑ N/A

No such cases in the reporting period.

12.1.3. Leasing

Applicable ☑ N/A

No such cases in the reporting period.

12.2. Major guarantees

Applicable N/A

No such cases in the reporting period.

12.3. Entrusted assets management

☑ Applicable N/A

Unit: CNY 10,000

Asset management entrusted by the Company as a single principal to financial institutions, or highrisk entrusted asset management investments with low security or poor liquidity

Applicable N/A

Unit: CNY 10,000

12.4. Other significant contracts

Applicable ☑ N/A

No such cases in the reporting period.

13. Visits paid to the Company for purposes of research, communication, interview, etc. in the reporting period

Applicable N/A

14. Other significant events

☑ Applicable □ N/A

A. The Company disclosed in October 2014 and January 2015 respectively the contract disputes involving three savings deposits of CNY 500 million in total with banks including ABC Changsha Yingxin Branch and ICBC Nanyang Zhongzhou Branch. As of the end of the reporting period, the deposit dispute case with ICBC Nanyang Zhongzhou Branch has been concluded, the deposit dispute case with ABC Changsha Yingxin Branch is currently in the court enforcement process, and the Company had recovered a total amount of CNY 409 million for the three disputes.

B. On January 30, 2026, the Company carried out the 2025 interim dividend payout of CNY 13.58 (tax inclusive) for every 10 existing shares held, totaling CNY 1,998,897,185.75 (tax inclusive).

15. Significant events of subsidiaries

☑ Applicable N/A

The Company invested in the Technical Renovation Project of Intelligent Baijiu Production (Phase I) with the wholly-owned subsidiary, Baijiu Production Company, as the implementer. The total investment amount approximated CNY 4,782.5090 million. For further information, see Announcement No. 2022-24 on the Implementation of Luzhou Laojiao’s Technical Renovation Project of Intelligent Baijiu Production (Phase I) by Subsidiary. The program is currently under construction.

Section VI Changes in Shares and Information about Shareholders

1. Changes in shares

1.1 Changes in shares

Unit: Share

Reasons for the change in shares

☑ Applicable N/A

A. According to the provisions of the 2021 Restricted Share Incentive Plan (Draft), 27,800 restricted shares of 17 awardees that satisfied the unlocking conditions for the second unlocking period of the reserved restricted shares under the 2021 Restricted Share Incentive Plan, and 1,962,814 restricted shares of 421 awardees that satisfied the unlocking conditions for the third unlocking period of the 2021 Restricted Share Incentive Plan were allowed for public trading on February 24, 2026.

B. On February 4, 2026, the Company held the 21st Meeting of the 11th Board of Directors, at which the Proposal on the Repurchase and Retirement of Certain Restricted Shares and the Adjustment of Repurchase Price was reviewed and approved. As six awardees were no longer eligible for the incentives, the Company decided to repurchase and retire a total of 40,500 restricted shares that had been granted to the aforesaid awardees but remained in lockup, which was completed on June 3, 2026.

C. During the reporting period, due to the unlocking of restricted shares under the restricted share incentive plan, locked shares of the Company’s senior management increased by 196,260 shares.

Approval of share changes

 Applicable □ N/A

A. On February 4, 2026, the Company held the 21st Meeting of the 11th Board of Directors, at which the Proposal on the Satisfaction of Unlocking Conditions for the Second Unlocking Period of the Reserved Restricted Shares under the 2021 Restricted Share Incentive Plan, and the Proposal on the Satisfaction of Unlocking Conditions for the Third Unlocking Period of the 2021 Restricted Share Incentive Plan were approved. As such, 1,990,614 restricted shares of 438 awardees that satisfied the unlocking conditions for the second unlocking period of the reserved restricted shares and for the third unlocking period under the 2021 Restricted Share Incentive Plan were allowed for public trading on February 4, 2026.

B. On February 4, 2026, the Company held the 21st Meeting of the 11th Board of Directors, at which the Proposal on the Repurchase and Retirement of Certain Restricted Shares and the Adjustment of Repurchase Price was reviewed and approved. As six awardees were no longer eligible for the incentives, the Company decided to repurchase and retire a total of 40,500 restricted shares that had been granted to the aforesaid awardees but remained in lockup, which was completed on June 3, 2026. Upon that, the total share capital of the Company decreased from 1,471,941,963 shares to 1,471,901,463 shares.

Transfer of share ownership

Applicable ☑ N/A

Implementation progress of shares repurchases

Applicable ☑ N/A

Implementation progress of share buyback reduction through call auction trading

Applicable ☑ N/A

Effects of changes in shares on the basic EPS, diluted EPS, net assets per share attributable to common shareholders of the Company and other financial indexes over the last year and the last reporting period

Applicable ☑ N/A

Other contents that the Company considers it necessary or required by the securities regulatory authorities to disclose

Applicable ☑ N/A

1.2 Changes in restricted shares

☑ Applicable N/A

Unit: Share

2. Issuance and listing of securities

Applicable ☑ N/A

3. Total number of shareholders and their shareholdings

Unit: Share

5% or greater shareholders, top 10 shareholders and top 10 non-restricted shareholders involved in refinancing shares lending

□ Applicable  N/A

Changes in top 10 shareholders and top 10 non-restricted shareholders due to refinancing shares lending/return compared with the prior period

□ Applicable  N/A

Did any of the top 10 common shareholders or the top non-restricted common shareholders of the Company conduct any promissory repurchase during the reporting period.

Yes ☑ No

The top 10 non-restricted common shareholders, the top 10 common shareholders did not conduct any promissory repurchase during the reporting period.

4. Changes in shares held by directors and senior management

□ Applicable ☑ N/A

No changes occurred to shares held by directors and senior management in the reporting period. See

the 2025 Annual Report for more details.

5. Change of controlling shareholder or actual controller

If the Company previously disclosed that the actual controller plans a change of control which has not yet been finalized, please elaborate on the latest progress of such change of control arrangement.

Applicable ☑ N/A

Change of the controlling shareholder during the reporting period

Applicable ☑ N/A

No such cases in the reporting period.

Change of the actual controller during the reporting period

Applicable ☑ N/A

The actual controller of the Company has not changed during the reporting period.

6. Preferred shares

Applicable ☑ N/A

No preferred stock in the Company during the reporting period.

Section VII Information about Bond

Applicable ☑ N/A

Section VIII Financial Report

1. Auditor’s report

Are these interim financial statements audited by an independent auditor? □ Yes  No

The interim financial statements are not audited by an independent auditor.

2. Financial statements

Monetary unit for the financial statements and the notes thereto: CNY Prepared by: Luzhou Laojiao Co., Ltd.

Consolidated Balance Sheet

As at June 30, 2026

Unit: CNY

Legal representative: Liu Miao Responsible person for accounting work: Xie Hong

Responsible person for the Company’s accounting department: Song Ying

Balance Sheet of Parent Company

As at June 30, 2026

Unit: CNY

Consolidated Income Statement

Unit: CNY

Legal representative: Liu Miao

Responsible person for accounting work: Xie Hong

Responsible person for the Company’s accounting department: Song Ying

Income Statement of Parent Company

Unit: CNY

Consolidated Statement of Cash Flows

Unit: CNY

Cash Flow Statements of Parent Company

Unit: CNY

Consolidated Statement of Changes in Owners' Equity For the six months ended June 30, 2026

Unit: CNY

For the six months ended June 30, 2025

Unit: CNY

Statement of Changes in Owners' Equity of Parent Company

For the six months ended June 30, 2026

Unit: CNY

For the six months ended June 30, 2025

Unit: CNY

3. Company Profile

3.1. Company Overview

Luzhou Laojiao Co., Ltd. (hereinafter referred to as "Company" or "the Company"), formerly known as Luzhou City Qu Liquor Factory and Luzhou Laojiao Distillery in Sichuan Province. It was established in March 1950 on the basis of 36 baijiu workshops from the Ming and Qing dynasties. On September 20, 1993, Luzhou Laojiao distillery established a joint-stock limited company with fund-raising exclusively from its operational assets. On October 25, 1993, the public offering of shares was approved by Sichuan Provincial People's Government and CSRC with two documents of ChuanFuHan (1993) No.673 and FaShenZi (1993) No.108. After the offering, the total share capital was 86,880,000 shares, which were listed and traded in Shenzhen stock exchange on May 9, 1994.

As at December 31, 2004, the Company's total share capital reached 841,399,673 shares after multiple rights issues, among which the controlling shareholder, State Assets Management Bureau of Luzhou (later renamed as State-owned Assets Supervision and Administration Commission of Luzhou, hereinafter referred to as "SASAC of Luzhou") held 585,280,800 shares of the Company, with a shareholding ratio of 69.56%.

On October 27, 2005, the Company implemented the non-tradable share reform. After the implementation, the total share capital remained unchanged, and the shareholding ratio of SASAC of Luzhou decreased from 69.56% to 60.43%.

In November 2006, the Company implemented private placement, and the total share capital increased from 841,399,673 shares to 871,399,673 shares. The shareholding ratio of SASAC of Luzhou decreased from 60.43% to 58.35%.

As at February 27, 2007, SASAC of Luzhou sold 42,069,983 shares of the Company, and after the sale, it still held 466,375,156 shares of the Company, with its shareholding ratio reduced to 53.52%.

On May 19, 2008, the Company increased 522,839,803 shares of capital stock resulting from capital reserve and undistributed profits transferred to increase capital stock. After the implementation, the total share capital reached 1,394,239,476 shares, among which, SASAC of Luzhou held 746,200,250 shares of the Company, and the shareholding ratio was still 53.52%.

On September 3, 2009, the 300,000,000 shares and the 280,000,000 shares held by SASAC of Luzhou were separately transferred to Luzhou Laojiao Group Co., Ltd. (hereinafter referred to as the "Laojiao Group") and Luzhou XingLu Investment Group Co., Ltd. (hereinafter referred to as the "XingLu Group"). After the transfer, Laojiao Group, XingLu Group, and SASAC of Luzhou respectively held 300,000,000 shares, 280,000,000 shares and 166,200,250 shares. So far, Laojiao Group became the first majority shareholder and SASAC of Luzhou was the actual controller.

From June 6, 2012 to November 20, 2013, the first and second phases of the Company's equity incentive plan were exercised. After the exercise, the total share capital of the Company was changed to 1,402,252,476 shares.

On April 10, 2014 and July 18, 2016, SASAC of Luzhou transferred 81,088,320 shares and 84,000,000 shares to Laojiao Group and XingLu Group respectively. In addition, Laojiao Group has increased its equity stake through the secondary market of 13,137,100 shares. So far, Laojiao Group, XingLu Group and SASAC of Luzhou held 394,225,489 shares, 365,971,142 shares and 1,111,930 shares respectively, with the shareholding ratios of 28.11%, 26.10% and 0.08% respectively.

On August 23, 2017, the Company issued CNY 62,500,000 ordinary shares (A shares) privately, raising a total capital of CNY 3,000,000,000. After the additional issuance, the total capital stock of the Company was changed to 1,464,752,476 shares. In addition, from 2017 to 2018, Laojiao Group decreased 13,137,100 shares that were increased through the secondary market from April 2014 to December 2015. After share reduction, Laojiao Group, XingLu Group and SASAC of Luzhou held 381,088,389 shares, 365,971,142 shares and 1,111,930 shares respectively in the Company, with the shareholding ratios of 26.02%, 24.99% and 0.08% respectively. Laojiao Group still was the first majority shareholder and SASAC of Luzhou still was the actual controller.

In February 2022, the registration of 6,862,600 shares of the Restricted Share Incentive Plan granted by the Company for the first time was completed; in September 2022, the Company granted 342,334 shares of the Restricted Share Incentive Plan for the second time; in September 2022, with seven awardees no longer eligible, the Company decided to repurchase and retire the 62,310 restricted shares of them that had been granted to the aforesaid awardees but remained in lockup; in December 2022, the Company granted 92,669 shares of the Restricted Share Incentive Plan for the third time.

From December 2023 to June 2024, Luzhou Laojiao Group Co., Ltd., through its wholly-owned subsidiary Sichuan Golden Rudder Investment Co., Ltd., increased its holdings in the Company by 1,140,200 shares through call auction trading, accounting for 0.08% of the total share capital of the Company. Following that, Luzhou Laojiao Group Co., Ltd. and Sichuan Golden Rudder Investment Co., Ltd. collectively held 382,228,589 shares in the Company.

In January, June and September 2024, as five awardees were no longer eligible for the incentives, the Company decided to repurchase and retire a total of 36,266 restricted shares that had been granted to the aforesaid awardees but remained in lockup. As of December 31, 2024, the repurchase and retirement of the said restricted shares had been completed, and the total shares of the Company changed to 1,471,951,503 shares.

From March to September 2025, Laojiao Group increased its holdings in the Company by 2,345,250 shares through call auction trading, representing 0.16% of the Company's total share capital. Upon that, Laojiao Group held 383,433,639 shares in the Company.

In April and November 2025, as three awardees were no longer eligible for the incentives, the Company decided to repurchase and retire a total of 9,540 restricted shares that had been granted to the aforesaid awardees but remained in lockup. As of December 31, 2025, the repurchase and retirement of the said restricted shares had been completed, and the total shares of the Company changed to 1,471,941,963 shares.

In February 2026, as six awardees were no longer eligible for the incentives, the Company decided to repurchase and retire a total of 40,500 restricted shares that had been granted to the aforesaid awardees but remained in lockup. As of June 30, 2026, the repurchase and retirement of the said restricted shares had been completed, and the total shares of the Company changed to 1,471,901,463 shares. The grants and repurchases under the restricted share incentive plan did not lead to change of the Company’s controlling shareholder or actual controller.

As of June 30, 2026, the total number of shares of the Company was 1,471,941,963. Laojiao Group, its wholly-owned subsidiary Sichuan Golden Rudder Investment Co., Ltd., and XingLu Group, held 383,433,639 shares, 1,140,200 shares, and 365,971,142 shares in the Company, respectively, representing shareholding percentages of 26.05%, 0.08%, and 24.86%, respectively; and Laojiao Group held a total of 50.99% of the Company's voting rights.

3.2 Registered address of the Company, company type, and headquarter address

Registered address and headquarter address of the Company are located in Sichuan Luzhou Laojiao Square and company type is other incorporated company (Listed).

3.3 Business nature of the Company and main business activity

Industry of the Company is the baijiu subdivision industry of the liquor and wine, beverage and refined tea production industry.

The principal operations are research and development, production and sales of “National Cellar 1573”,”Luzhou Laojiao” and other baijiu series.

The main products are: “National Cellar 1573 Series”, ”Century-old Luzhou Laojiao Jiaoling Series” , ”Luzhou Laojiao Tequ”, ”Touqu”, ”Hey Guys” and other baijiu series.

3.4 The name of the controlling shareholder and the ultimate substantive controller The controlling shareholder of the Company is Laojiao Group; and the ultimate substantive controller is

SASAC of Luzhou.

3.5 Approval of the financial statements

The financial statements have been approved for issue by the Board of Directors of the Company on August 25, 2026.

4. Basis of preparation of financial statements

4.1. Basis of preparation of financial statements

The Company has prepared its financial statements on a going concern basis, and the preparation is based on actual transactions and events in compliance with Accounting Standards for Business Enterprises and relevant guidance and explanation (hereinafter referred to as the “ASBE”) issued by Ministry of Finance, and Rules on Company Information Disclosure and Preparation of Publicly Issued Securities No.15- General Rules on Financial Reporting Rules (2023 Revision) issued by CSRC.

4.2. Going concern

The Company’s business activities have adequate financial support. Based on the current information obtained by the Company, comprehensively considering factors such as macro-policy risk, market operation risk, current or long-term profitability, debt repayment ability of the Company, as well as its resource of financial support, the Company believes that it is reasonable to prepare the financial statements on a going concern basis and there are no events or situations resulting in significant doubts over going concern for at least 12 months.

5. Significant accounting policies and accounting estimates

The Company shall comply with the disclosure requirements for companies engaging in food & liquor and wine production of the Guidelines No. 3 of the Shenzhen Stock Exchange on Self-regulation of Listed Companies—Industry-specific Information Disclosure.

5.1 The declaration about compliance with ASBE

The financial statements of the Company have been prepared in accordance with ASBE, and present truly and completely, the financial position and the Company’s results of operations, changes in shareholders’ equity and cash flows. In addition, in all material respects, the financial statements of the Company comply with disclosure requirements of the financial statements and their notes in accordance with Rules on Company Information Disclosure and Preparation of Publicly Issued

Securities No.15- General Rules on Financial Reporting Rules revised by CSRC in 2023.

5.2 Accounting period

The Company adopts the calendar year as its accounting year, i.e. from January 1 to December 31.

5.3 Business Cycle

The Company’s business cycle is 12 months.

5.4 Functional currency

The Company has adopted China Yuan (CNY) as functional currency.

5.5 Methods for determining materiality standards and selection criteria

 Applicable □ N/A

5.6 The accounting treatment of business combinations involving enterprises under common control and business combinations not involving enterprises under common control

(1) Business combination under common control

Assets and liabilities obtained by the Company from the combine through business combination under common control shall be measured at the book value as stated in the consolidated financial statements of ultimate controlling party at the combination date. The share of the book value of the merged party’s owner’s equity in the consolidated financial statements is taken as the initial investment cost of longterm equity investments in individual financial statements. The capital reserve (stock premium or capita premium) is adjusted according to the difference between the book value of net asset acquired through combination and the book value of consideration paid for the combination (or total par value of shares issued). If the capital reserve (stock premium or capital premium) is insufficient to offset, the retained earnings shall be adjusted.

(2) Business combination not under common control

Assets paid, liabilities incurred or assumed and the equity securities issued as consideration for combination shall be measured based on fair value on the acquisition date, the difference between fair value and its book value shall be included in current profit and loss. The Company shall recognize the difference of the combination costs in excess of the fair value of the net identifiable asset acquired from the acquiree through combination as goodwill. After the review, if the combination costs are still short of the fair value of the net identifiable asset acquired from the acquiree through combination, include the difference in the current profit and loss.

Fees, commissions, and other transaction expenses paid on issuance of equity securities as combination consideration in the business combination shall be included in the initial measurement amount of equity securities.

5.7 Criteria for judging control and preparation of consolidated financial statements

(1) Consolidated Financial Statement Scope

The scope of the Company’s consolidated financial statements is based on control, and all subsidiaries controlled are included in the consolidation scope of the consolidated financial statements.

(2) Consolidation procedures

The consolidated financial statements are based on the financial statements of the Company and its subsidiaries, and are prepared by the parent company with other relevant information. When preparing consolidated financial statements, the Company considers the whole Company as an accounting entity, adopts unified accounting policies, and applies the requirements of ASBE related to recognition, measurement and presentation to reflect the Company’s financial position, operating results and cash flows.

All the subsidiaries within the consolidation scope of consolidated financial statements shall adopt the same accounting policies and accounting periods as those of the Company. If the accounting policies or accounting periods of a subsidiary are different from those of the Company, the financial statements of the subsidiary, upon preparation of consolidated financial statements, shall be made necessary adjustment based on its own accounting policies and accounting periods of the Company. For subsidiaries acquired from the business combination not under common control, the financia statements shall be adjusted on the basis of the fair value of identifiable net assets on the date of purchase. For the subsidiary acquired from the business combination under common control, its assets and liabilities (including the goodwill formed by the acquisition of the subsidiary by the ultimate controlling party) shall be adjusted on the basis of the book value in the consolidated statements of the ultimate controlling party.

The portion of a subsidiary’s equity, the current net profit and loss of subsidiaries, and the current comprehensive income attributable to non-controlling interests shall be separately presented as noncontrolling interests in consolidated balance sheet within owners' equity, below the net profit line item and below the total comprehensive income line item in the consolidated income statement respectively. When the amount of current loss attributable to non-controlling shareholders of a subsidiary exceeds the balance of the non-controlling shareholders’ portion in the opening balance of owner's equity of the subsidiary, the excess shall be allocated against the non-controlling interests.

① Acquisition of subsidiaries or business

During the reporting period, if the Company acquires subsidiaries from the business combination under common control, the opening balance in the consolidated balance sheet shall be adjusted. The income, expenses and profits of the newly acquired subsidiaries from the beginning to the end of the reporting period shall be included in the consolidated income statement. The cash flows of the newly acquired subsidiaries from the beginning to the end of the reporting period shall be included in the consolidated statement of cash flows. At the same time, the relevant items of the comparative information shall be adjusted as the combined entity existed since the control point of the ultimate controlling party.

If the Company can control the investee from the business combination under common control due to additional investment or other reasons, the parties involved in the combination shall be deemed to adjust in the current state when the ultimate controlling party starts to control them. For the equity investment before obtaining control of the investee, the recognized relevant profit or loss and other comprehensive income and other changes in net assets between the later of acquisition date of previous equity and the date on which both the investor and the investee are under common control and the combination date shall respectively be written down the beginning retained earnings or current profits and losses during the period of comparative information.

During the reporting period, if the Company acquires subsidiaries from the business combination not under common control, the opening balance in the consolidated balance sheet shall not be adjusted. The income, expenses and profits of the newly acquired subsidiaries from the acquisition date to the end of the reporting period shall be included in the consolidated income statement. The cash flows of the newly acquired subsidiaries from the acquisition date to the end of the reporting period shall be included in the consolidated statement of cash flows.

When the Company becomes capable of exercising control over an investee not under common control due to additional investment or other reasons, the Company shall re-measure the previously held equity interests to its fair value on the acquisition date, and the difference shall be recognized as investment income. When the previously held equity investment is accounted for under equity method, any other comprehensive income previously recognized and other equity changes (excluding other comprehensive, net profit and loss and profit distribution ) in relation to the acquiree’s equity changes shall be transferred to profit and loss for the current period when acquisition took place, except for other comprehensive income resulting from changes in net liabilities or net assets due to re-measurement of defined benefit plan by investee.

② Disposal of subsidiaries and business

General treatments

During the reporting period, if the Company disposes subsidiaries, the income, expenses and profits of the newly disposed subsidiaries from the beginning to the disposal date shall be included in the consolidated income statement. The cash flows from the beginning to the disposal date shall be included in the consolidated statement of cash flows.

In case of loss of control over the investee due to partial disposal of the equity investment or other reasons, the Company shall re-measure the remaining equity investment at its fair value at the date of loss of control. The amount of the consideration obtained from the disposal of the equity and the fair value of the remaining equity, minus the net asset shares calculated continuously from the acquisition date based on the previous shareholding proportion and the goodwill, the difference shall be included in the investment income of the period when the control is lost. Other comprehensive income related to the former subsidiary’s equity investment of or other changes in owners' equity excluding net profit and loss, other comprehensive income and profit distribution shall be transferred to investment income for the current period when control is lost. Other comprehensive income resulting from changes in net liabilities or net assets due to re-measurement of defined benefit plan by investee is excluded.

Disposal of subsidiaries by step

If the Company loses control of a subsidiary through multiple transactions by steps, the terms, conditions and economic impact of the disposal transaction shall be considered. When one or more of the following conditions may indicate that multiple transactions should be treated as a package of transactions for accounting treatment:

A. These arrangements were entered into at the same time or in contemplation of each other; B. These arrangements work together to achieve an overall commercial effect; C. The occurrence of one arrangement depends on the occurrence of at least one other arrangement; D. One arrangement alone is not economically justified, but it is economically justified when considered together with other arrangements

If the transactions of the disposal of the equity investment of the subsidiary until the loss of control belong to a package transaction, the Company shall account for as a transaction; However, the difference between each disposal consideration received and the corresponding proportion of the subsidiary’s net assets before the loss of control shall be recognized as other comprehensive income in the consolidated financial statements and transferred into the profit and loss of the current period when the control is lost.

If the transactions from the disposal of the equity investment of the subsidiary to the loss of control are not considered as a package transactions, the accounting treatment shall be conducted according to the relevant policies on the partial disposal of the equity investment of the subsidiary where control is retained before the loss of control. When the control is lost, the disposal shall be accounted for according to the general treatment.

③ Purchase of non-controlling interests

The difference between the increase in the cost of long-term equity investment resulting from acquisition of non-controlling shareholders and the share of net assets of the subsidiary calculated continuously from the acquisition date or combination date based on newly acquired shareholding proportion shall be adjusted to equity (share) premium of capital reserves in the consolidated balance sheet. If the capital reserve is insufficient, any excess shall be adjusted against retained earnings.

④ Partial disposals of equity investment in subsidiaries without loss of control

When the Company disposes of a portion of a long-term equity investment in a subsidiary without loss of control, the difference between disposal consideration and net assets of the subsidiary calculated continuously since the acquisition date or the combination date related to the disposal of long-term equity investment shall be adjusted to equity (share) premium of capital reserves in the consolidated balance sheet. If the capital reserve is insufficient, any excess shall be adjusted against retained earnings.

5.8 Classification of joint venture arrangements and the accounting treatment method of common operation

(1) Classification of joint venture arrangements

A joint arrangement is classified as either a joint operation or a joint venture according to the structure, legal form, agreed terms and other facts and conditions of a joint arrangement. A joint arrangement tha is structured through a separate vehicle is usually classified as a joint venture. However, when a join arrangement provides clear evidence that it meets any of the following requirements and complies with applicable laws and regulations as a joint operation:

① The legal form of the joint arrangement indicates that the parties that have joint control have rights to the assets, and obligations for the liabilities, relating to the arrangement.

② The terms of the joint arrangement specify that the parties that have joint control have the rights to the assets, and the obligations for the liabilities, relating to the arrangement.

③ Other facts and circumstances indicate that the parties that have joint control have rights to the assets, and the obligations for the liabilities, relating to the arrangement. The parties that have joint control have rights to substantially all of the output of the arrangement, and the arrangement depends on the parties that have joint control on a continuous basis for settling the liabilities of the arrangement.

(2) Accounting by parties of a joint operator

A joint operator shall recognize the following items in relation to its interest in a joint operation, and account for them in accordance with relevant accounting standards:

① Its solely-held assets, and its share of any assets held jointly;

② Its solely-assumed liabilities, and its share of any liabilities incurred jointly;

③ Its revenue from the sale of its share of the output arising from the joint operation;

④ Its share of the revenue from sale of the output by the joint operation; and

⑤ Its solely-incurred expenses and its share of any expenses incurred jointly.

The Company shall only recognize the portion of the profit and loss attributable to other participants in the joint venture, resulting from investment or sale of assets to the joint venture by the Company (excluding those assets constituting the business), prior to the sale of such assets to a third party. The Company shall fully recognize impairment loss when there is any impairment loss of invested or sold assets occurring in accordance with the ASBE No.8-Asset Impairment. The Company shall only recognize the part of the profit and loss attributable to other participants in the joint venture before selling the assets and other assets purchased from the joint venture (excluding those assets constituting the business) to a third party. When the impairment loss of the purchased assets is in accordance with the ASBE No.8-Asset Impairment, the Company shall recognize such losses according to its share. When the Company does not have common control over the joint venture, if the Company enjoys the assets related to the joint venture and assumes the liabilities related to the joint venture, the accounting treatment shall be conducted according to the above principles. Otherwise, the accounting treatment shall be conducted in accordance with the relevant accounting standards.

5.9 Cash and cash equivalents

When preparing the cash flow statement, the Company recognizes cash on hand and deposits that can be readily withdrawn on demand as cash. Cash equivalents are the Company’s short-term (due within 3 months from purchase date), highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Restricted bank deposits are no recognized as cash and cash equivalents in the cash flow statement.

5.10 Foreign currency transactions and translation of foreign currency statements

(1) Foreign currency transactions

At the time of initial recognition of a foreign currency transaction of the Company, the amount in the foreign currency shall be translated into the amount in CNY currency at the spot exchange rate of the transaction date. For the monetary items of foreign currencies, the translation is done according to spot rate of the balance sheet date. The exchange difference generated from the difference of spot rate of the current balance sheet date and the time of initial recognition of a foreign currency or the previous balance sheet date is charged to the profit or loss of the current period except that the exchange difference generated from foreign currency borrowings relating to assets of which the acquisition or production satisfies the capitalization conditions is capitalized.

Non-monetary items measured at fair value that is reflected in foreign currency at the end of the period, the Company shall firstly translate the foreign currency into the amount in functional currency at the spot exchange rate on the date when the fair value is determined, and then compare it with the origina functional currency amount. Difference between the translated functional currency amount and the original functional currency amount is treated as profit or loss from changes in fair value (including changes in exchange rate) and is recognized in current profit and loss. If there is a non-monetary item of available-for-sale financial assets, the differences are recorded into other comprehensive income.

(2) Translation of foreign currency statements

Assets and liabilities in the balance sheets shall be translated at the spot exchange rates on balance sheet date. Shareholders’ equity items, except for the item of "undistributed profits", are translated at the spot exchange rates on the dates when the transactions occur. Revenue and expense items in the income statement are translated at the spot exchange rates on the dates when the transactions occur or at the exchange rate determined in a systematic and reasonable method and similar to the spot exchange rate on the day when the transactions occur. Differences arising from the above translations of foreign currency financial statements are separately listed under other comprehensive income in the consolidated balance sheet. If the overseas business is partly disposed of, the foreign currency financial statements exchange difference shall be calculated in proportion to the percentage of disposa and transferred to gain or loss on disposal for the current period.

Foreign currency cash flow and cash flow of foreign subsidiaries shall be translated at approximate exchange rate of spot rate on the date of cash flow.

5.11 Financial Instruments

A financial instrument is a contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. When the Company becomes a party to a financia instrument contract, the related financial asset or financial liability should be recognized.

(1) Classification, recognition and measurement of financial assets

Based on the business model of financial asset management and the contract cash flow characteristics of financial assets, the Company classifies financial assets into: financial assets measured at amortized cost; financial assets measured at fair value with their changes included into other comprehensive income; and financial assets measured at fair value with their changes included into curren profits/losses.

At the initial recognition, financial assets are measured at fair value. For financial assets measured at fair value with their changes included into current profits/losses, the expenses involved in the transaction are directly recorded into current profits/losses; for other financial liabilities, the expenses involved in the transaction are recorded into the initially recognized amount.

① Financial assets measured at amortized cost

The business model in which the Company manages financial assets measured at amortized cost aims to receive contract cash flow. Furthermore, the characteristics of the contract cash flow of such financia assets are consistent with basic borrowing and lending arrangements, which means that cash flow generated on a specific date serves only as payment for principal and interests based on the amount of unpaid principal. The Company adopts the effective interest method for such financial assets, performs subsequent measurement of them at amortized cost, and includes the gains or losses from derecognition, changes or impairment of them into current profits/losses.

② Financial assets measured at fair value with their changes included into other comprehensive income

The business model in which the Company manages such financial assets both aims to receive contract cash flow and for the purpose of sale. Furthermore, the characteristics of the contract cash flow of such financial assets are consistent with basic borrowing and lending arrangements. The Company measure such financial assets at fair value and include their changes into other comprehensive income, but record impairment losses or gains, exchange gains or losses and interes income calculated in the effective interest method into current profits/losses.

At the initial recognition, the Company may specify non-trading equity instrument investment as a financial asset measured at fair value with its changes included into other comprehensive income and should recognize the dividend income according to regulations; the specification is irrevocable once made. When the financial asset is derecognized, the cumulative gains or losses previously included into other comprehensive income should be transferred into retained earnings.

③ Financial assets measured at fair value with their changes included into current profits/losses

For financial assets other than the above financial assets measured at amortized cost and financial assets measured at fair value with their changes included into other comprehensive income, the Company classifies them as financial assets measured at fair value with their changes included into current profits/losses. In addition, at the initial recognition, the Company specifies partial financia assets as financial assets measured at fair value with their changes included into current profits/losses, in order to eliminate or substantially reduce accounting mismatch. For such financial assets, the Company performs subsequent measurement using fair value and records changes in the fair value into current profits/losses.

(2) Classification, recognition and measurement of financial liabilities

At their initial recognition, financial liabilities are divided into financial liabilities measured at fair value with their changes included into current profits/losses and other financial liabilities. For financia liabilities measured at fair value with their changes included into current profits/losses, the expenses involved in the transaction are directly recorded into the current profits/losses. For other financia liabilities, the expenses involved in the transaction are recorded into the initially recognized value.

① Financial liabilities measured at fair value with their changes included into current profits/losses Financial liabilities measured at fair value with their changes included into current profits/losses include trading financial liabilities (including derivatives classified as financial liabilities) and the financial liabilities specified to be measured at fair value with their changes included into current profits/losses at the initial recognition.

Trading financial liabilities (including derivatives classified as financial liabilities) are subsequently measured at fair value, with changes in fair value recorded into current profits/losses, except for those related to hedge accounting.

For those specified as financial liabilities measured at fair value with their changes included into current profits/losses, changes in the fair value of such liabilities caused by changes in the Company’s own credit risk should be included into other comprehensive income. In derecognition of such liabilities, cumulative changes in their value caused by the Company’s own credit risk that have been recorded into other comprehensive income should be transferred into retained earnings. Other changes in their fair value should be recorded into current profits/losses. If treatment of the impact of the Company’s own credit risk changes of such financial liabilities in the above manner causes or expands accounting mismatch in profits/losses, the Company will include all gains or losses of such financial liabilities (including the amount of the impact of the Company’s own credit risk changes) into current profits/losses.

② Other financial liabilities

Financial liabilities other than those formed from the transfer of financial assets not meeting derecognition conditions or continuous involvement into transferred financial assets and those outside financial guarantee contracts are classified as financial liabilities measured at amortized cost. Such financial liabilities should be subsequently measured at amortized cost and the gains or losses from derecognition or amortization should be included into current profits/losses.

(3) Recognition basis and measurement method of transfer of financial assets

If a financial asset meets any of the following conditions, it shall be derecognized: 1)The contractua right for collecting the cash flow of the financial asset has been terminated; 2)The financial asset has been transferred and almost all the risks and remunerations in respect of the ownership of the financia asset have been transferred to the transferee; 3)The financial asset has been transferred, and although the enterprise neither transfers nor retains almost all the risks and remunerations in respect of the ownership of the financial asset, it has abandoned its control over the asset.

If the enterprise neither transfers nor retains almost all the risks and remunerations in respect of the ownership of the financial asset and does not abandon its control over the asset, the involved financial asset shall be recognized according to the level of continuous involvement of the transferred financial asset and the relevant liabilities shall be recognized accordingly. The level of continuous involvement of the transferred financial asset refers to the level of risk faced by the enterprise due to changes in the value of the financial asset.

If the overall transfer of the financial asset meets the recognition conditions, the difference between the carrying value of the transferred financial asset as well as the consideration received from the transfer and the cumulative amount of fair value changes originally-recorded into other comprehensive incomes shall be recorded into the current profits/losses.

If partial transfer of the financial asset meets the recognition conditions, the carrying value of the transferred financial asset shall be apportioned at the relative fair value between the derecognition and underecognition part. The difference between the summation of the consideration received from the transfer and the cumulative amount of fair value changes originally-recorded into other comprehensive incomes that should be apportioned to the derecognition part and the apportioned aforementioned carrying value shall be recorded into the current profits/losses.

For a financial asset sold with the right of recourse or with the transfer of the financial asset endorsement, the Company shall decide whether almost all the risks and remunerations in respect of the ownership of the financial asset should be transferred. If they are transferred, the financial asset shall be derecognized; if they are retained, the financial asset shall not be derecognized; if they are neither transferred nor retained, the Company will continue to decide whether the enterprise should retain control over the asset and perform the accounting treatment according to the principles stated in previous paragraphs.

(4) Derecognition of financial liabilities

When the current obligation of a financial liability (or a part of it) is relieved, the Company will derecognize the financial liability (or the part of it). When the Company (borrower) signs an agreement with a lender to replace an original financial liability in the form of bearing a new financial liability and the contract terms for the new financial liability differ from those for the original in substance, the original financial liability should be derecognized and the new one should be recognized. When the Company makes substantial changes to the contract terms of an original financial liability (or a part of it), the original financial liability should be derecognized and a new financial liability should be recognized according to the amended contract terms.

When a financial liability (or a part of it) is derecognized, the Company will include the difference between its carrying value and the consideration paid (including non-cash assets or liabilities borne that are transferred out) into current profits/losses.

(5) Offsetting of financial assets and financial liabilities

When the Company has the legal right to offset recognized financial assets and financial liabilities and may execute the legal right currently and simultaneously, the Company plans to settle or simultaneously encash the financial assets in net amounts and pay off the financial liabilities, the financial assets and the financial liabilities which are presented in the net amount after the mutual offset in the balance sheet. Other than that, they shall be presented separately in the balance sheet without the mutual offset.

(6) Method of determining the fair value of financial assets and financial liabilities

Fair value refers to the price that a market participant can receive for selling an asset or transferring a liability in an orderly transaction on the measurement date. For an existing financial instrument in an active market, the Company adopts the quotations in the active market to determine its fair value. Quotations in the active market refer to prices that can be easily obtained from exchanges, brokers, industrial associations and pricing service institutions and represent the actual prices in the market transactions happening in a fair trade. For a non-existing financial instrument in an active market, the Company adopts the valuation technique to determine its fair value. The valuation technique includes references to familiar situations and the prices used by the parties voluntarily participating in the recent market transactions, as well as references to the present fair value of other financial instruments of the same nature, discounted cash flow method and options pricing model. In the valuation, the Company uses a valuation technique that is applicable in the current situation with sufficient data available and other information support, chooses input values that are consistent with the asset or liability characteristics considered by market players in related asset or liability transactions, and makes maximum effort to use related observable input values on a preferential basis. When it is unable or unfeasible to obtain related observable input values, unobservable will be used.

(7) Equity instruments

Equity instruments refer to the contracts that can prove the Company’s residual equity of assets after the deduction of all liabilities. The Company’s issuance (including refinancing), repurchase, sale or retirement of equity instruments serve as the change treatment of equity. Transaction expenses related to the equity transactions are deducted from the equity. The Company does not recognize changes in the fair value of equity instruments.

Dividends from the Company’s equity instruments distributed during the validity (including the “interests” from instruments classified as equity instruments) are treated as profit distribution.

(8) Impairment of financial instruments

Based on the expected credit loss, the Company treats financial assets measured at amortized cost and debt instrument investment measured at fair value with their changes included into other comprehensive income by impairment and recognizes the provision for loss.

Credit loss means the difference between all contract cash flow discounted at the original effective interest rate to be received according to contracts and all contract cash flow expected to be received, namely, the present value of all cash shortage. For a financial asset with credit impairment purchased by or originated from the Company, it should be discounted by the effective interest rate after credit adjustment to the financial asset.

For accounts receivable that do not contain significant financing components, the Company adopts simplified measurement to measure loss provisions according to the amount equivalent to the expected credit loss for the entire duration.

For a financial asset other than those using the above simplified measurement, the Company assesses on each balance sheet date whether its credit risk has substantially increased since the initia recognition. If it has not and is in the first stage, the Company will measure the loss provision at the amount equivalent to the expected credit loss for the next 12 months and calculate the interest income according to the book balance and the effective interest rate; if it has substantially increased since the initial recognition without credit impairment and is in the second stage, the Company will measure the loss provision at the amount equivalent to the expected credit loss for the entire duration and calculate the interest income according to the book balance and the effective interest rate; if credit impairment has occurred since the initial recognition and is in the third stage, the Company will measure the loss provision by the amount equivalent to the expected credit loss for the entire duration and calculate the interest income according to the amortization cost and the effective interest rate. For financial instruments with low credit risks on balance sheet dates, the Company assumes that their credit risks have not substantially increased since the initial recognition.

The Company assesses expected credit losses of financial instruments based on individual and group assessment. The Company considers the credit risk characteristics of different customers and assesses the expected credit losses of accounts receivable and other receivables based on account age portfolio. When assessing expected credit losses, the Company considers reasonable and wellfounded information on past matters, present conditions and forecast of future economic conditions.

When it no longer reasonably expects to recover all or part of the contract cash flow of financial assets, the Company will directly write down the book balance of such financial assets.

5.12 Notes receivable

The types of portfolios for which bad debt provisions are made according to the portfolios of credit risk characteristics and the basis for determining them:

Divide notes receivables into various portfolios according to common risk characteristics based on the credit risk characteristics of acceptors and determine the accounting estimate policies of expected credit loss

5.13 Accounts receivable

The types of portfolios for which bad debt provisions are made according to the portfolios of credit risk

characteristics and the basis for determining them:

As for accounts receivable, regardless of whether there is a significant financing component, the Company always measures the provision for loss based on the amount equivalent to the expected credit loss over the entire life, and the resulting increase or reversal of provision for loss shall be included in the current profit or loss as gains or losses on impairment. The accrual method is as follows:

(1) When there is objective evidence showing that an account receivable has incurred credit impairment, the Company shall make bad debt provision for the account receivable and recognize the expected credit loss.

(2) When the information about the expected credit loss of a single financial asset cannot be evaluated at a reasonable cost, the Company shall divide the accounts receivable portfolio according to credit risk characteristics and measure the expected credit loss based on portfolios:

Other portfolio refers to the normal intercompany funds among the Company and businesses under common control, the recovery of which is controllable with no risks. Thus, no bad debt provision was made.

The aging calculation method of credit risk characteristic portfolio based on aging:

The Company combines the accounts receivable classified as risk portfolio in accordance with similar credit risk characteristics (aging), and calculates the expected credit loss through the exposure at default and expected credit loss rate over the entire life based on the current situation and prediction of future economic situation consulting historical credit loss experience. The comparative table of the credit loss rate is as follows:

The ageing of accounts receivable is calculated from the month in which the amounts are actually incurred.

5.14 Accounts receivable financing

The accounts receivable financing of the Company refer to the notes receivables measured at fair value through other comprehensive income on the balance sheet date. For more details, see Note 5.11 Financial instruments.

5.15 Other receivables

Determination and accounting treatment of expected credit losses on other receivables

The types of portfolios for which bad debt provisions are made according to the portfolios of credit risk characteristics and the basis for determining them:

As for other receivables, regardless of whether there is a significant financing component, the Company always calculates the expected credit loss through the exposure at default and expected credit loss rate in the next 12 months or over the entire life based on the current situation and prediction of future economic situation consulting historical credit loss experience, and the resulting increase or reversal of provision for loss shall be included in the current profit or loss as gains or losses on impairment. The accrual method is as follows:

(1) When there is objective evidence showing that the other receivable has incurred credit impairment, the Company shall make bad debt provision for the other receivable and recognize the expected credit loss.

(2) When the information about the expected credit loss of a single financial asset cannot be evaluated at a reasonable cost, the Company shall divide the other receivables portfolio according to credit risk characteristics and measure the expected credit loss based on portfolios.

Other portfolio refers to the normal intercompany funds among the Company and businesses under common control, the recovery of which is controllable with no risks. Thus, no bad debt provision was made.

The Company combines the other receivables classified as risk portfolio in accordance with similar credit risk characteristics, and calculates the expected credit loss through the exposure at default and expected credit loss rate in the next 12 months or over the entire life based on the current situation and prediction of future economic situation consulting historical credit loss experience.

5.16 Contract assets

The Company presents contract assets or contract liabilities on the balance sheet according to the relationship between the fulfillment of its contract performance obligations and its customers’ payment.

Considerations that the Company has the right to collect for commodities transferred or services provided to customers (and such right depends on other factors than time lapses) are presented as contract assets. The Company presents the right possessed to collect consideration from customers unconditionally (only depending on the passing of time) as accounts receivable. Refer to “The method of determining the expected credit loss of accounts receivable and accounting treatment method” for the detail on the Company’s method of determining the expected credit loss of contract assets and accounting treatment method.

5.17 Inventory

(1) Classification of inventory

Inventories are classified as: raw materials, goods in progress (including semi-finished goods), stock commodities, and dispatched inventories.

(2) Measurement method of acquiring and dispatching inventories

The standard cost is used for daily accounting of raw materials, and the difference of material cost should be carried forward on a monthly basis to adjust the standard cost into the actual cost; The goods in progress (including semi-finished goods) shall be accounted according to the actual cost, and the weighted average method shall be used when they are received and delivered. The actual cost of the inventory at the end of the month above shall be taken as the standard cost, and the delivery shall be priced according to the standard cost. At the end of the month, the standard cost of the inventory at the end of the month shall be adjusted into the actual cost through the cost-sharing difference.

(3) Determining criteria and method of provision for stock obsolescence

At the end of the period, inventory is measured according to the lower of cost and net realizable value. The difference between inventory cost and net realizable value is higher than the provision for stock obsolescence, which is recorded into current profit and loss. For inventories that are related to produc ranges produced and sold in the same district or used for the same or similar ultimate purpose and are difficult to be measured separately from other inventories, the Company provides for stock obsolescence as a whole. For inventories that have large quantities but low value, the Company provides for stock obsolescence on a category basis.

The materials held for production shall be measured at cost if the net realizable value of the finished products is higher than the cost. If a decline in the value of materials shows that the net realizable value of the finished products is lower than the cost, the materials shall be measured at the net realizable value.

(4) Inventory system

The Company adopts perpetual inventory system.

(5) Packing materials and low-cost consumables are amortized in full at once.

5.18 Assets held for sale

(1) Determining criteria for non-current assets held for sale or disposal groups

The Company shall classify the non-current assets or disposal group meeting the following conditions into the held-for-sale category: The assets (or disposal group) must be available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets (or disposal groups); Its sale must be highly probable; The Company has already made a decision to dispose the component and has a commitment from the purchaser, the transfer will be completed within one year.

The non-current assets or disposal group acquired by the Company for resale shall be divided into the held-for-sale category on the acquisition date if it meets the condition that "the sale is expected to be completed within one year" and if it is likely to meet other conditions for the held-for-sale category within a short period (usually three months).

Due to one of the following reasons which the Company is unable to control, leading to the transactions not completed with non-related party within one year, and the Company still commits to selling noncurrent assets or disposal groups, it can continue to account for non-current assets or disposal groups as held-for-sale: the buyer or any other party accidentally sets sale extension conditions. The Company has to take action in time according to these conditions and the extension problem is expected to be solved within one year; In rare cases, the Company has taken the necessary steps and re-satisfies the hold for sale category condition within the first year for the new circumstances which caused it unable to complete the sale of the non-current assets or disposal group within one year.

(2) Accounting treatment of non-current assets or disposal groups held for sale

① Initial measurement and subsequent measurement

When the Company measure a non-current asset or disposal group held for sale initially or re-measure at balance sheet date subsequently, the impairment loss should be recognized if the book value is higher than fair value less costs to sell by the amount of the difference between these two in profit and loss, the provision for assets held for sale need to be recognized at the same time.

For the non-current assets or disposal groups divided into held-for-sale category on the acquisition date, they shall be measured as the lower of the initial measurement amount and the net amount after deducting the selling expenses from the fair value under the assumption that it is not divided into heldfor-sale categories at the initial measurement. Except for the non-current assets or the disposal groups obtained in the enterprise merger, the difference caused by the non-current assets or the disposal groups taking the net amount after the fair value minus the selling expenses as the initial measurement amount shall be recorded into the current profit and loss.

For the impairment of disposal group, it should write off goodwill if existing, and then write down the related assets proportionally.

Depreciation or amortization should cease for the non-current asset held for sale. Interest and other charges on liabilities in the disposal groups held for sale continue to be recognized.

② Accounting treatment of reversal of impairment loss

If the net amount of the non-current assets held for sale on the subsequent balance sheet date increases after the fair value minus the selling expenses, the amount previously written down shall be reversed, and the amount of the impairment loss recognized after being classified as the held-for-sale shall be reversed, and the reversed amount shall be included in the current profit and loss. The impairment loss recognized before the classification of the held-for-sale shall not be reversed.

If the net amount of the disposal groups held for sale on the subsequent balance sheet date increases after the fair value deducting the selling expenses, the amount previously written down shall be reversed, and the amount of the impairment loss recognized as non-current assets after being classified as the held-for-sale shall be reversed, and the reversed amount shall be included in the current profit and loss. The book value of the goodwill that has been written down and the impairment losses recognized before the classification of the held-for-sale shall not be reversed.

The subsequent reversed amount of the impairment loss recognized by the disposal groups held for sale shall be increased in proportion to the book value of non-current assets except goodwill in the disposal groups.

③ Recognition criteria and presentation of discontinued operations

Non-current assets or disposal groups that are no longer divided into held-for-sale category or noncurrent assets are removed from disposal groups held for sale because of no longer meeting the condition of classification of held-for-sale, they are measured at lower of the following two: book value before being classified as the held-for-sale considering depreciation, amortization or impairment that should have been recognized under the assumption that it is not divided into held-for-sale categories; and recoverable amount.

When terminating the recognition of the non-current assets held for sale or the disposal groups, the unrecognized gains or losses shall be recorded into the current profit and loss.

5.19. Long-term equity investment

(1) Judgment criteria of common control and significant influence

Common control on an agreement with other participants refers to the Company share control with other participants on an arrangement according to relevant conventions, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. This arrangement belongs to joint venture. Where the joint venture arrangement is made by a separate entity and the Company is judged to have rights to the net assets of such a separate entity according to the relevant conventions. Such a separate entity shall be regarded as a joint venture and accounted by the equity method. If the Company is judged to be not entitled to the net assets of the separate entity according to relevant conventions, the separate entity shall be regarded as a joint venture and the Company shall recognize the items related to the shares of the joint venture and perform accounting treatment in accordance with relevant accounting standards.

The term ‘significant influence’ refers to the power to participate in decision-making on the financial and operating policies of the investee, but with no control or joint control over the formulation of these policies. The Company judges that it has a significant impact on the invested entity through one or more of the following situations and taking all the facts and circumstances into consideration:

① Dispatch representatives to the board of directors or similar authorities of the investee.

② To participate in the financial and business policy making process of the investee.

③ Significant transactions with the investee.

④ Dispatch management personnel to the investee.

⑤ To provide key technical data to the investee.

(2) Determination of the initial investment cost

① Long-term equity investment resulting from combination

Business combination under common control：For the long-term equity investments obtained by cash paid, non-monetary assets paid or assumed liabilities and the equity securities issued by the acquirer, on the merger date, the initial investment cost of long-term equity investment shall be taken as the share of the owner's equity of the investee in the book value of the final control party's consolidated financial statements. If the investee under business combination under common control can be controlled due to additional investment or other reasons, the initial investment cost of long-term equity investment shall be determined on the merger date according to the share of the net assets of the investee in the book value of the final control party's consolidated financial statements. The difference between the initial investment cost of the long-term equity investment on the merger date and sum of the book value of the long-term equity investment before the merger and the new consideration of acquiring shares on the merger date shall be recorded to adjust the equity premium. If the equity premium is insufficient to be written down, the retained earnings shall be written down.

Business combination not under common control：The Company takes the initial investment cost of long-term equity investment as the merger cost determined on the purchase date. If the investee can be controlled under business combination not under common control due to additional investment or other reasons, the previous book value of the equity investment held plus the sum of the newly added investment cost shall be taken as the initial investment cost calculated according to the cost method.

② Long-term equity investment obtained by other means

For the long-term equity investments obtained by cash paid, the Company recognizes their fair value as the initial investment costs.

For the long-term equity investments acquired by the issue of equity securities, the initial investment cost shall be the fair value of the equity securities issued.

For long-term equity investments obtained by non-monetary assets exchange, under the condition that an exchange of non-monetary assets is of commerce nature and the fair value of assets exchanged can be reliably measured, non-monetary assets traded in is initially stated at the fair value of the assets traded out, unless there is conclusive evidence indicating that the fair value of the assets traded in is more reliable; if the above conditions are not satisfied, initial investment costs of long-term equity investments traded in shall be recognized at the book value of the assets traded out and the relevant

taxes and surcharges payable.

For long-term equity investments obtained by debt restructuring, the Company recognizes the fair value of shares of debt-for-equity swap as the initial investment costs.

(3) Subsequent measurement and recognition of profit and loss

① Long-term equity investments measured under the cost method

Long-term equity investments that can control the investee are measured under the cost method. For long-term equity investments accounted at the cost method, except cash dividends or profits declared but not yet distributed which are included in the actual payments or the consideration actually paid for the investment, the cash dividends or profits declared by the investee shall be recognized as the investment income irrespective of net profits realized by the investee before investment or after investment.

② Long-term equity investments measured under the equity method

For the long-term equity investment which has joint control or significant influence over the investee, the equity method is adopted for accounting. For long-term equity investments measured at the equity method, if the initial investment costs are higher than the investor’s attributable share of the fair value of the investee’s identifiable net assets, no adjustment will be made to the initial costs of the long-term equity investments; if the initial investment costs are lower than the investor’s attributable share of the fair value of the investee’s identifiable net assets, the difference shall be recognized in current profit and loss.

The Company shall, according to the shares of net profits and other comprehensive income realized by the investee that shall be enjoyed or borne by the Company, recognize the profit and loss on the investments and adjust the book value of the long-term equity investments. When recognizing the net profits and losses and other comprehensive income of the investee that the Company shall enjoy or bear, the Company shall make a recognition and calculation based on the net book profits and losses of the investee after appropriate adjustments. However, where the Company is unable to obtain the relevant information due to failure to reasonably determine the fair value of the investee’s identifiable assets, minor difference between the investee’s identifiable assets and the book value thereof or other reasons, the profits or losses on the investments shall be directly calculated and recognized based on the net book profits and losses of the investee. The Company shall calculate the part distributed from cash dividends or profits declared by the investee and correspondingly reduce the book value of the long-term equity investments. When recognizing the income from investments in associates and joint ventures, the Company shall write off the part of income from internal unrealized transactions between the Company and associates and joint ventures which are attributable to the Company and recognize the profit and loss on investments on such basis. Where the losses on internal transactions between the Company and the investee are impairment of related assets, full amounts of such losses shall be recognized. Profit and loss from internal unrealized transactions between the Company’s subsidiaries included into the combination scope and associates and joint ventures shall be written off according to the above principles and the profit and loss on investments thereafter shall be recognized on such basis.

When the share of net loss of the investee attributable to the Company is recognized, it is treated in the following sequence: Firstly, write off the book value of the long-term equity investments; where the book value of the long-term equity investments is insufficient to cover the loss, investment losses are recognized to the extent that book value of long-term equity which form net investment in the investee in other substances and the book value of long-term receivables shall be written off; after all the above treatments, if the Company still assumes additional obligation according to investment contracts or agreements, the obligation expected to be assumed should be recognized as provision and included into the investment loss in the current period. If the investee is profitable in subsequent accounting periods, the Company shall treat the loss in reverse order against that described above after deducting unrecognized share of loss: i.e. write down the book value of the recognized provision, then restore the book value of long-term interests which substantially form net investments in the investee, then restore the book value of long-term investments, and recognize investment income at the same time.

5.20. Investment property

Measurement model of investment property

Cost model

Method of depreciation or amortization

Investment property is the property that is held to earn rent or capital appreciation or both and can be measured and sold separately. The Company’s investment property includes land use right for rent, land use right held for appreciation and then sold, and buildings for rent.

(1) Initial Recognition

When the Company can obtain the rental income or value-added income related to the investment property and the cost of the investment property that can be measured reliably, the Company wil initially measure it according to the actual expenditure of purchase or construction:

The cost of the purchased investment property includes the purchase price and related taxes directly attributable to the asset;

The cost of self-built investment property consists of the necessary expenses incurred before the asset reaches the intended use condition;

The cost of the investment property obtained by other means shall be recognized in accordance with relevant accounting standards.

(2) Subsequent measurement

In general, the Company adopts the cost model to measure the follow-up expenditure of investment property. The depreciation or amortization of investment property shall be carried out in accordance with the accounting policies for the Company's fixed assets or intangible assets.

If there is solid evidence that suggests that the investment property acquired can be measured at fair value continuously and reliably, the Company can use fair value model for subsequent measurement. For the investment property measured at fair value model, the Company does not provide depreciation or amortization and adjusts its book value based on the fair value of investment property at the balance sheet date. The difference between the fair value and book value is recorded into current profit or loss.

(3) When the Company changes the use of investment property, the relevant investment property will be transferred to other assets.

5.21. Fixed assets

(1) Recognition of fixed assets

Fixed assets refer to tangible assets held for the purpose of producing commodities, providing services, renting or business management with useful life exceeding one accounting year. Fixed assets are recognized when the following criteria are satisfied simultaneously: It is probable that the economic benefits relating to the fixed assets will flow into the Company; the cost of the fixed assets can be measured reliably.

(2) Depreciation of fixed assets

Except for fixed assets still in use after full depreciation, the Company depreciates all fixed assets and calculates the depreciation in the straight-line depreciation method.

Based on the nature and use of fixed assets, the Company determines their service life and estimated net salvage value and reviews their service life, estimated net salvage value and depreciation method at the end of the year. Changes in the service life, estimated net salvage value and depreciation method of the same type of assets are treated as changes in accounting estimation.

(3) Impairment test method and impairment provision accrued method of fixed assets

At the end of the period, the fixed assets shall be measured at the lower of the book value and the recoverable amount. If the recoverable amount of fixed assets is lower than the book value due to a continuous decline in the market value, or technological obsolescence, damage, or long-term idleness, a provision for impairment of the fixed assets shall be made for the difference between the recoverable amount and the book value of individual fixed assets. If the recoverable amount of the individual asset is difficult to estimate, the Company will determine the recoverable amount of the asset group based on the asset group to which the asset belongs. The impairment losses on fixed assets must not be reversed in subsequent accounting periods once recognized.

For fixed assets for which depreciation provision has been made, the depreciation rate and depreciation amount shall be remeasured according to the book value of the fixed assets (the original price of fixed assets minus accumulated depreciation and provision for impairment), and the remaining service life. On the balance sheet date, the fixed assets shall be measured at the lower of the book value and the recoverable amount.

5.22. Construction in progress

(1) Construction in progress refers to various construction and installation works carried out for the construction or repair of fixed assets, including the actual expenditure incurred in new construction, reconstruction and expansion, and the net value of fixed assets transferred from the reconstruction and expansion projects.

(2) Construction in progress is accounted on an individual project basis with actual cost valuation method. The borrowing costs incurred before the projects reach the intended use condition shall be included in the project cost. The fixed assets shall be carried forward in the month when the project is qualified for acceptance and delivery for use. For those that have reached the intended use condition but have not yet completed the final account, from the date of reaching the intended use condition, according to the project budget, construction cost or the actual cost of the project, the cost transferred to the fixed assets shall be determined according to the estimated value, and the depreciation shall be recognized; After the completion of the final account, the original provisional value shall be adjusted according to the actual cost, but the amount of depreciation accrued shall not be adjusted.

(3) The loan interest and related expenses incurred during the construction period shall be capitalized into the cost of the construction in Progress.

(4) On the balance sheet date, the construction in progress is recognized at the lower of book value and recoverable amount.

5. 23. Borrowing costs

(1) Scope of borrowing costs and its capitalization conditions

The Company’s borrowing costs capitalized during period of capitalization are relevant loan expenses directly attributable to the assets eligible for capitalization, including interest thereon, amortization of discounts or premiums, ancillary expenses and exchange differences incurred from foreign currency loan, etc.

Borrowing costs are capitalized when the following three conditions are met simultaneously: ① the asset expenditure has occurred, ② the borrowing costs have occurred, ③ the purchase and construction activities necessary to make the assets reach the intended use condition have started.

(2) Recognition of capitalized amounts

The capitalized amount of borrowing expenses is calculated as follows: As for special loan borrowed for acquiring and constructing or producing assets eligible for capitalization, borrowing costs of special loan actually incurred in the current period less the interest income of the loans unused and deposited in bank or return on temporary investment should be recognized as the capitalization amount of borrowing costs. As for general loans used for acquiring and constructing or producing assets eligible for capitalization, the interest of general loans to be capitalized should be calculated by multiplying the weighted average of asset disbursements of the part of accumulated asset disbursements in excess of special loans by the capitalization rate of used general loans. During the period of capitalization, the capitalized amount of interest of each accounting period shall not exceed the current actual interest of the relevant loans. Where there are discounts or premiums on loans, the amounts of interest for each accounting period should be adjusted taking account of amortizable discount or premium amounts for the period by effective interest method. Auxiliary expenses incurred from special loans before the acquired or constructed assets eligible for capitalization reach the working condition for their intended use or sale should be capitalized when they incur and charged to the costs of assets eligible for capitalization; those incurred after the acquired or constructed assets eligible for capitalization reach the working condition for their intended use or sale should be recognized as costs according to the amounts incurred when they incur and charged to the current profit or loss.

(3) Recognition of capitalization rate

① For a special loan for the purchase and construction of fixed assets, the capitalization rate is the interest rate of the loan;

② For more than one special loan for the acquisition and construction of fixed assets, the capitalization rate is a weighted average interest rate of these loans.

(4) Suspension of capitalization of borrowing costs

If the acquisition and construction or production activities of assets eligible for capitalization are interrupted abnormally and this condition lasts for more than three months, the capitalization of borrowing costs should be suspended. The borrowing costs incurred during interruption are charged to profit or loss for the current period, and the capitalization of borrowing costs continues when the acquisition and construction or production activities of the asset resume.

(5) Cessation of capitalization of borrowing costs

Capitalization of borrowing costs should cease when the acquired and constructed or produced assets eligible for capitalization have reached the working condition for their intended use or sale. Borrowing costs incurred after the assets eligible for capitalization have reached the working condition for their intended use or sale should be recognized as the current profit and loss when they incur. If parts of the acquired and constructed or produced assets are completed separately but the assets cannot be used or sold externally until overall completion, the capitalization of borrowing costs should cease at the time of overall completion of the said assets.

5.24. Intangible assets

(1) Useful life and the basis for its determination, estimation, amortization methodology or review procedures

Intangible assets refer to identifiable non-monetary assets that are owned or controlled by the Company without a physical form. The Company’s intangible assets consist of land use rights, software, trademark use rights, patent rights and data resources.

① Measurement method

A. Costs of intangible assets purchased include purchase price, related tax and expenses and other expenditure that can be distributed to the asset directly to reach its expected use.

B. Intangible assets invested by investors shall be valued at the value agreed upon in the investment contract or agreement;

C. Expenses on the research phase of internally researched and developed intangible assets shall be included in the current profit and loss when they incur; The expenditures incurred in the development stage of the internal research and development projects shall be recognized as intangible assets when the following conditions are met; otherwise, they shall be recorded into the current profit and loss when they incur.

a. It is technically feasible to finish intangible assets for use or sale;

b. It is intended to finish and use or sell the intangible assets;

c. The usefulness of methods for intangible assets to generate economic benefits shall be proved, including being able to prove that there is a potential market for the products manufactured by applying the intangible assets or there is a potential market for the intangible assets themselves or the intangible assets will be used internally;

d. It is able to finish the development of the intangible assets, and able to use or sell the intangible assets, with the support of sufficient technologies, financial resources and other resources.

e. The expenditure attributable to the intangible asset during its development phase can be measured reliably.

D. If payment of the purchase price of intangible assets can be deferred and exceeds normal credi conditions, the purchase has the nature of finance in fact and cost of the intangible asset shall be determined on the basis of present value of the purchase price. The difference between the amoun actually paid and the present value of the purchase price should be recorded into current profit or loss other than the differences that should be capitalized during the credit period.

② Useful life and the basis for its determination, estimation, amortization methodology or review procedures

For intangible assets with limited useful life, amortization shall be carried out according to the straightline method within the period that brings economic benefits to the enterprise. At the end of each period, the useful life and amortization method of intangible assets with limited service life shall be reviewed. If there are differences with the original estimates, corresponding adjustments shall be made.

Intangible assets whose useful life is uncertain shall be regarded as intangible assets if it is impossible to foresee the term in which intangible assets bring economic benefits to the enterprise. Intangible assets with uncertain useful life shall not be amortized during the holding period, and the life of intangible assets shall be reviewed at the end of each period. If it is still uncertain after the review at the end of the period, the impairment test shall continue during each accounting period. At the end of each period, the useful life of intangible assets with uncertain service life shall be reviewed.

③ Impairment test

On the balance sheet date, intangible assets are valued at the lower of book value and recoverable amount.

(2) The scope of research and development expenditure collection and the related accounting treatment

The R&D expenditure of the Company mainly include the materials consumed in the implementation of R&D activities, salaries of R&D department employees, depreciation and amortization of assets such as equipment and software used in research and development, R&D testing, R&D technical service fees, and licensing fees.

The expenditures incurred in the development stage of the research and development projects shall be recognized as intangible assets when the following conditions are met; otherwise, they shall be recorded into the current profit and loss when they occur.

① It is technically feasible to finish intangible assets for use or sale;

② It is intended to finish and use or sell the intangible assets;

③ The usefulness of methods for intangible assets to generate economic benefits shall be proved, including being able to prove that there is a potential market for the products manufactured by applying the intangible assets or there is a potential market for the intangible assets themselves or the intangible assets will be used internally;

④ It is able to finish the development of the intangible assets, and able to use or sell the intangible assets, with the support of sufficient technologies, financial resources and other resources.

⑤ The expenditure attributable to the intangible asset during its development phase can be measured reliably.

Development expenditures that have been recorded into profit and loss in previous periods are not recognized as assets in subsequent periods. The capitalized expenditure in the development stage is listed as development expenditure in the balance sheet, and it will be recorded into intangible assets from the date when the project reaches its intended purpose.

5.25. Long-term assets impairment

On the balance sheet date, the Company makes a judgment on whether there are signs of possible impairment of long-term assets. If there are impairment indicators of non-current assets, the Company estimates the recoverable amount based on individual asset. If recoverable amount of individual asset is difficult to be estimated, the Company should recognize the recoverable amount of the asset group which the individual asset belongs to.

The recoverable amount is the higher of fair values less costs of disposal and the present values of the future cash flows expected to be derived from the asset.

If the measurement result of recoverable amount shows that recoverable amount of the non-current assets is less than its book value, the book value shall be written down to the recoverable amount, and the amount written down shall be recognized as the impairment loss of assets, recorded into the current profit and loss, and the corresponding impairment provision of assets shall be made at the same time. Once impairment loss stated above is recognized, reversal is not allowed in the subsequent accounting periods.

After the recognition of the impairment loss, the depreciation or amortization expense of the impairmen asset shall be adjusted accordingly in the future period so as to systematically apportion the adjusted book value of the asset (deducting the expected net salvage value) within the remaining service life of the asset.

The Company should perform impairment test for goodwill and intangible assets with indefinite life at least at each year end, no matter whether there is impairment indicator.

Goodwill shall be combined with its related asset group or asset group portfolio so as to perform an impairment test. When the Company performs an impairment test on relevant asset group or asset group portfolio including goodwill, if there are signs of impairment, the Company shall firstly perform an impairment test on asset group or asset group portfolio excluding goodwill and calculate the recoverable amount, and compare with the related book value, recognize the corresponding impairment loss. Then, the Company performs an impairment test on relevant asset group or asset group portfolio including goodwill, and compares the book value of the relevant asset groups or asset group portfolio (including proportional book value of goodwill) with its recoverable amount. If the recoverable amount of relevant asset group or asset group portfolio is less than its book value, the Company shall recognize impairment loss of goodwill.

5.26. Long-term deferred expenses

Long-term deferred expenses shall be initially measured according to the actual costs incurred. It is amortized using the straight-line method over the beneficial period. If it cannot benefit the following accounting period, the amortized value of the item that has not been amortized will be transferred to the current profit and loss.

5.27. Contract liabilities

The recognition method of contract liabilities: The Company presents contract assets or contract liabilities on the balance sheet according to the relationship between the fulfillment of its contract performance obligations and its customers’ payment. Obligations to be fulfilled by the Company of transferring commodities or providing services to customers, as the Company has received or should receive customers’ considerations, are presented as contract liabilities

5.28. Employee benefits

(1) Accounting treatment method of short-term benefits

Short-term benefits are the benefits that the Company expects to pay in full within 12 months after the reporting period in which the employee provided relevant services, excluding the compensation for employment termination. Accrued short term benefits will be recognized as liability during the accounting period in which the employee is providing the relevant service to the Company. The liability will be included in the current profit and loss or the relevant assets cost.

(2) Accounting treatment method of post-employment benefits

① Defined contribution plan

The defined contribution plan of the Company includes payments of basic pension and unemployment insurance calculated according to the local payment base and proportion. The amount shall be included into the profit and loss or the relevant assets cost for the accounting period in which the employee provides the service to the Company.

② Defined benefit plan

According to the formula determined by the expected accumulative projected unit credit method, the

Company will record the benefit obligation generated by the defined benefit plan belonging to the period during which the employee provides the service into the current profit and loss or the relevant assets cost.

The deficit or surplus resulting from the present value minus the fair value of the assets of a defined benefit plan is recognized as a net liability or net asset of a defined benefit plan. If there is surplus in the defined benefit plan, the net assets of the defined benefit plan shall be measured at the lower of the surplus and the upper limit of assets of the defined benefit plan.

All defined benefit plan obligations, including those expected to be paid within the twelve months following the end of the annual reporting period in which the employee provides the service, are discounted based on the market yield and high quality corporate bonds in an active market that match the duration and currency of defined benefit plan obligations on the balance sheet date.

The service costs generated by the defined benefit plan and the net interest on net liabilities or net assets of the defined benefit plan are included in the current profit and loss or relevant assets cost; Changes in net liabilities or net assets generated by the re-measurement of the defined benefit plan are included in other comprehensive income and are not reversed to profit and loss in subsequent accounting periods.

At the time of settlement of the defined benefit plan, the settlement gains or losses shall be recognized according to the difference between the present value of the obligations of the defined benefit plan and the settlement price determined on the settlement date.

(3) Accounting treatment method of termination benefits

Employee benefits liabilities shall be recognized and included into profit or loss for the current period on the earlier date of the two following circumstances: a. When the Company is not able to withdraw the benefits from termination of employment or resignation persuasion unilaterally; b. When the Company recognizes costs and fees relevant to reforming the termination benefits payment. As for the termination benefits that cannot be fully paid within 12 months after the end of the annual report period, the Company shall choose an appropriate discount rate and record it into current profit and loss based on it.

(4) Accounting treatment method of other long-term employee benefits

Other long-term employee benefits are all employee benefits other than short-term benefits, post-

employment benefits and termination benefits.

Other long-term employee benefits provided by the Company to the employee that meet the conditions of the defined contribution plan shall be treated in accordance with the same principles of the defined contribution plan; If the conditions for defined benefits are met, net liabilities or net assets of other longterm employee benefits shall be recognized and measured in accordance with the relevant principles of the defined benefits plan.

5.29. Estimated liabilities

(1) Recognition criteria of estimated liabilities

If the contingent obligations meet the following conditions simultaneously, the Company shall recognize it as an estimated liability:

This obligation is the Company's current obligation; the performance of this obligation is highly likely to result in an outflow of economic benefits from the Company; The amount of the obligation can be measured reliably.

(2) Measurement method of estimated liabilities

The Company's estimated liabilities are initially measured in terms of the best estimate of the expenditure of fulfilling the relevant current obligations.

For determining the best estimate, the Company takes various factors into account such as the risk, uncertainty and time value of money related to contingencies. If the time value of money has a significant impact, the best estimate is determined by discounting the relevant future cash outflows.

The best estimate is processed as follows:

Where there is a continuous range (or range) of required expenditures and the probability of the occurrence of various results within the range is the same, the best estimate is determined according to the mean of the middle value of the range, namely the mean value of the upper and lower limits.

Where there is no continuous range (or range) of required expenditures, or where there is a continuous range but the possibility of various outcomes within the range is different, if the contingencies involve a single item, the best estimate is determined according to the most likely amount; If the contingencies involve more than one item, the best estimate is calculated and determined according to various

possible results and relevant probabilities.

Where all or part of the expenses required for the liquidation of the estimated liabilities of the Company are expected to be compensated by a third party, the amount of compensation shall be recognized as an asset when it is basically confirmed that it can be received, and the confirmed amount of compensation shall not exceed the book value of the estimated liabilities.

5.30. Share-based payment

(1) The type of share-based payment

Share-based payment is classified as equity-settled share-based payment and cash-settled sharebased payment.

(2) The method of determining the fair value of equity instruments

For equity-settled share-based payment related to employees, the equity instrument is measured at fair value. The cash-settled share-based payment shall be measured according to the fair value of the liabilities calculated and determined on the basis of shares or other equity instruments undertaken by the Company.

For the fair value of the stock option granted, the fair value is determined by using the stock option pricing model, and the following factors are taken into account: the current price of the underlying shares, the exercise price of the option, the risk-free interest rate within the period of the option, the option life, and the expected volatility of the stock price.

(3) Recognition of the best estimate basis of instrument that can be exercised

For the equity-settled share-based payment settled immediately after the grant, the fair value of the equity instrument shall be included in the relevant costs or expenses on the grant date, and the capital reserve shall be increased accordingly. Grant date means the date on which the share-payment agreement is approved.

For the equity-settled share-based payment, in which the services during waiting period are completed and the performance conditions are met, in return for services of employees, on each balance sheet date during waiting period, the current obtained service shall be included in the relevant costs or expenses and the capital reserves in accordance with the fair value of the equity instruments on the grant date, based on best estimate of the number of vested equity instruments, and the subsequent changes in fair value shall not be recognized. On each balance sheet date during waiting period, the Company makes the best estimate based on the latest available employee number change and other subsequent information, and modifies the number of equity instruments for the estimated vesting. On the vesting date, the final expected number of vesting instruments is the same as the actual number of vesting instruments.

(4) Relevant accounting treatment of implementation, modification and termination of share-based payment plan

For equity-settled share-based payment, no adjustments will be made to the recognized costs and total owners' equity after the vesting date. On the vesting date, the Company shall recognize the share capital and the equity premium according to the exercise situation, and carry forward the capital reserve recognized in the waiting period.

No matter how it modifies the terms and conditions of the granted equity instruments or it cancels the granted equity instruments or its settlement, the equity instruments granted by the Company shall be recognized at fair value on the grant date and it measures the corresponding services obtained, unless it cannot be vested because it cannot meet the vesting conditions of equity instruments (except marke conditions).

5.31. Revenue

Accounting policies for recognition and measurement of revenue disclosed by type of business

(1) Basic principles of revenue identification

The Company recognizes revenue when it has fulfilled the performance obligations under the contract, that is, when the customers obtain the control of relevant goods or services, at the transaction price allocated to the performance obligations.

Performance obligations refer to the Company's promise that it will transfer clearly distinguishable goods or services to customers under the contract.

Obtaining control of related goods refers to that customers can control the use of the goods and obtain almost all the economic benefits from the goods.

The Company will evaluate the contract on the contract start date, identify each individual performance obligation contained in the contract, and judge whether each individual performance obligation will be performed within a certain period of time or at a certain point in time. If one of the following conditions is met, and the performance obligation is performed within a certain period of time, the Company wil identify revenue within a period of time according to the performance progress: 1) The customers obtain and consume the economic profits while the Company performs the contract. 2) The customers can control the products under construction during the performance of the Company; 3) The products produced during the performance of the Company cannot be replaced, and the Company has the right to collect payment for the completed performance accumulated during the entire contract period. Otherwise, the Company will identify revenue when the customers obtain control rights of the relevant goods or services.

For the performance obligations performed within a certain period of time, the Company will apply the input-output method to identify the appropriate performance progress based on the nature of the goods and services. The input-output method is to identify the performance progress based on the value of the goods that have been transferred to the customers. When the performance progress cannot be reasonably identified and the Company's incurred costs are expected to be compensated, the Company will identify the revenue according to the amount of the incurred costs until the performance progress can be reasonably identified.

(2) The methods of revenue identification

The Company primarily sells baijiu, which involve performance obligations fulfilled at a certain point in time. For the recognition of the revenue of domestic products, the following conditions must be met: The Company has delivered the products to the customer as per the contract, and the customer has accepted the goods; payment has been received or a receipt voucher has been obtained, and the relevant economic benefits are likely to flow in; and control of the goods has transferred to the customer. The following requirements must be met to recognise the revenue of export products: The Company has declared the products according to the contract, obtained the bill of lading, received the payment or obtained the receipt voucher, and relevant economic benefits are likely to flow in, and control of the goods has transferred to the customer. The following requirements must be met to recognise the revenue of sales through third-party platforms or company-owned websites: The sales platform is responsible for delivering the goods to the customer, or the Company entrusts a logistics company to deliver the goods to the customer, and revenue is recognised upon receipt of the platform settlement statement or upon delivery of the goods.

Different business models for the same type of business involve different revenue recognition and measurement methods

N/A

5.32. Contract costs

Contract costs comprise incremental costs incurred as the Company obtains a contract, and costs for contract performance. Incremental costs incurred as the Company obtains a contract refer to those costs which will not incur without entering into a contract (such as sales commission). If it is expected that the costs are recoverable, the Company will recognize the costs incurred to obtain a contract as one form of assets. In case that the term of asset amortization is shorter than one year or one norma operating cycle, the costs will be recognized as profit and loss of the current period after occurrence.

If the costs incurred from contract performance fall outside the inventory or the scope of other enterprise accounting standards and satisfy all of the following conditions, the Company will recognize the costs for contract performance as assets: a) The costs are directly related to one existing contract or contract that is expected to be obtained; b) The costs enrich the Company's resources for future contract performance (including continual fulfillment); c) The costs are estimated to be recovered.

Assets recognized from costs incurred to obtain a contract and costs for contract performance (hereinafter referred to as "assets related to contract costs") will be amortized based on the same basis as the income from commodities or services related to the assets, and will be recognized as profit and loss of the current period. In case that the book value of assets related to contract costs is higher than the difference of the two items below, the Company will set aside provisions for assets impairment to deal with the extra part, and recognize that part as impairment losses: a) Estimated residual consideration to be obtained from transfer of commodities or services related to the assets; b) Estimated costs incurred from transfer of the relevant commodities or services.

5.33. Government grants

Government grants are monetary assets and non-monetary assets acquired free of charge by the Company from the government like fiscal subsidies.

(1) Judgment basis and accounting treatment method of government grants related to assets Government grants related to assets are government grants that are acquired by the Company and used for forming long-term assets through purchasing and constructing or other ways. If the government documents do not clearly specify the target of the subsidy, the Company shall separately explain judgment basis of classifying the government grants into the government grants related to assets or income.

Accounting method: it shall be recognized as deferred income allocated evenly over the useful lives (the period of depreciation and amortization) of the relevant assets from the month of commencement of depreciation or amortization when the relevant assets have reached the intended use condition, and included in the current profit or loss. However, government grants measured at the nominal amount shall be directly included in current profit and loss.

(2) Judgment basis and accounting treatment method of government grants related to income Government grants related to income are government grants other than government grants related to assets;

Accounting method:

① If it is used to compensate the Company’s relevant expenses or losses in future periods, it should be recognized as deferred income and included into the current profit and loss or written off against the related costs when the relevant expenses, losses are recognized.

② If it is used to compensate the Company’s relevant expenses or losses incurred, it is directly included into the current profit and loss on acquisition or written off of the related costs.

③ Recognition time-point of government grants

Government grants are recognized when the Company can meet the attached conditions for the government grants and the Company can receive the grants.

④ Measurement of government grants

If a government grant is a monetary asset, it shall be measured in the light of the received or receivable amount. If a government grant is a non-monetary asset, it shall be measured at its fair value; and if its fair value cannot be obtained in a reliable way, it shall be measured at a nominal amount.

5.34. Deferred tax assets or deferred tax liabilities

The Company adopts the balance sheet liability method to account for income tax.

The Company recognizes deferred tax assets when the following conditions are met simultaneously: (1) Temporary differences are highly likely to be reversed in the foreseeable future;

(2) Taxable income that may be used to offset the deductible temporary difference is likely to be obtained in the future and is limited to the amount of taxable income that is likely to be obtained.

On each balance sheet date, the current income tax liabilities (or assets) incurred in the current period or prior periods shall be measured by the Company in light of the expected payable (refundable) amount of income taxes according to the tax law; The deferred income tax assets and deferred income tax liabilities shall be measured at the tax rate applicable to the period during which the assets are expected to be recovered or the liabilities are expected to be settled

The Company shall review the carrying amount of deferred income tax assets on each balance sheet date. The current income tax and deferred income tax shall be recorded into the current profit and loss as income tax expense or income, except for the income tax generated from the enterprise merger, transactions or events directly recognized in the owner's equity.

Basis for deferred income tax assets and deferred income tax liabilities presented as a net amount after offset:

When the following conditions are simultaneously met, deferred income tax assets and deferred income tax liabilities are presented as a net amount after offset:

(1) The enterprise has the legal right to settle the current income tax assets and current income tax liabilities on a net basis;

(2) Deferred income tax assets and deferred income tax liabilities were related to the income tax levied by the same tax administration department on the same taxpayer or different taxpayers, but during the period when each significant deferred income tax assets and liabilities would be reversed in the future, the involved taxpayer intended to settle the current income tax assets and liabilities on a net basis or to acquire assets and settle liabilities at the same time.

5.35. Lease

(1) Accounting treatment with the Company as lessee

① Judgment criteria and accounting treatment for short-term leases and leases of low-value assets as a lessee for simplified treatment

On the commencement date of the lease term, the Company will recognize the lease with a lease term not exceeding 12 months and exclude the purchase option as a short-term lease. Leases with a value below CNY 40,000 when a single leased asset is a brand-new asset are identified as low-value asset leases. If the Company sublets or expects to sublet the leased assets, the original lease shall not be deemed as a low-value asset lease.

The Company records the payments of short-term and low-value asset leases incurred during each period of the lease term in the relevant asset costs or the profit or loss for the current period by the straight-line method.

The Company will recognize right-of-use assets and lease liabilities on the inception date of the lease term, excluding the above short-term and low-value asset leases.

② Right-of-use assets

Right-of-use assets are initially measured at costs, including: A. The initial measurement amount of lease liabilities; B. If there is a lease incentive for the lease payment paid on or before the start date of the lease term, the relevant amount of the lease incentive already enjoyed shall be deducted; C. Initial direct expenses incurred by the Company; D. The expected cost to be borne by the Company in order to dismantle and remove the assets leased, restore original state of the place where the assets leased are in, or restore the assets leased to the state stipulated in the lease terms.

③ Lease liabilities

The Company initially measures the lease obligation at the present value of the lease payments outstanding at the commencement date of the lease term. When calculating the present value of lease payments, the Company uses the interest rate implicit in lease as the rate of discount. If the interest rate implicit in lease cannot be determined, the Company’s incremental lending rate is used as the rate of discount.

After the commencement of the lease term, the Company uses the cost model for subsequent measurement of right-of-use assets, depreciates right-of-use assets on a straight-line basis, calculates the interest expense on the lease liability within the lease term and includes it in the current profit or loss, unless such interest charge is stipulated to be included in the underlying asset cost. Variable lease payments that are not included in the measurement of the lease obligation should be included in the current profit or loss when they are actually incurred, unless such payments are stipulated to be included in the underlying asset cost.

After the commencement of the lease term, the Company remeasures the lease liability and adjusts the corresponding right-of-use asset, and if the carrying value of the right-of-use asset has been reduced to zero but the lease liability is subject to further reduction, the difference is recorded in current profit or loss: (1) When there is a change in the valuation of the purchase option, renewal option or termination option, or actual exercise, the Company remeasures the lease liabilities at the present value of the lease payments after the change and the revised discount rate; (2) When there is a change in the actual fixed payment, the estimated residual value of the guarantee payable, the index or rate used to confirm the lease payment, the Company calculates the present value based on the changed lease payment amount and the original discount rate to remeasure the lease liabilities. However, where changes in lease payments arise from changes in floating interest rates, a revised discount rate was used to calculate the present value.

(2) Accounting treatment with the Company as lessor

① Lease classification

The Company classifies leases into finance leases and operating leases at the inception of leases. A finance lease refers to a lease where almost all the risks and rewards, related to the ownership of the leased asset, are substantially transferred, regardless of whether the ownership is eventually transferred or not. All leases other than finance leases are classified as operating leases.

② Operating leases

The Company recognizes the lease payments receivable of the operating lease as rental earnings in each period within the lease term on a straight-line basis or according to other systematic and reasonable methods. The initial direct costs related to the operating lease are capitalized, amortized within the lease term on the same basis as the recognition of rental earnings, and included in profit or loss for the current period. The received variable lease payments related to the operating lease that are not included in the lease payments receivable are included in profit or loss for the current period when they are actually incurred.

③ Finance leases

On the commencement date of the lease term, the Company recognizes the finance lease receivables for the finance lease and derecognizes the leased asset of the finance lease. In the initial measurement of finance lease receivables, the sum of the unsecured residual value and the present value of the lease payments receivable not yet received on the commencement date of the lease term discounted at the interest rate implicit in lease is the entry value of the finance lease receivables. The Company calculates and recognizes the interest income in each period within the lease term at a fixed interest rate implicit in the lease. The received variable lease payments that are not included in the measurement of the net investment in the lease are included in profit or loss for the current period when they are actually incurred.

5.36. Income tax expenses

The Company adopts the balance sheet liability method to account for income tax.

The Company recognizes deferred tax assets when the following conditions are met simultaneously: 1. Temporary differences are highly likely to be reversed in the foreseeable future;

1. Temporary differences are highly likely to be reversed in the foreseeable future;

2. Taxable income that may be used to offset the deductible temporary difference is likely to be obtained in the future and is limited to the amount of taxable income that is likely to be obtained.

On each balance sheet date, the current income tax liabilities (or assets) incurred in the current period or prior periods shall be measured by the Company in light of the expected payable (refundable) amount of income taxes according to the tax law; The deferred income tax assets and deferred income tax liabilities shall be measured at the tax rate applicable to the period during which the assets are expected to be recovered or the liabilities are expected to be settled.

The Company shall review the carrying amount of deferred income tax assets on each balance sheet date. The current income tax and deferred income tax shall be recorded into the current profit and loss as income tax expense or income, except for the income tax generated from the enterprise merger, transactions or events directly recognized in the owner's equity.

5.37. Changes in significant accounting policies and accounting estimates

5.37.1. Changes in significant accounting policies

 Applicable □ N/A

Unit: CNY

5.37.2. Changes in significant accounting estimates

□ Applicable  N/A

5.37.3. Adjustments to Financial Statement Items at the Beginning of the Year of the First Implementation of the New Accounting Standards Implemented since 2026

□ Applicable  N/A

6. Taxes

6.1. Major tax types and rates

Tax payment subject using different corporate income tax rates, the corporate income tax rates are as follows:

6.2. Tax preferences

(1) According to Announcement of the Ministry of Finance, State Taxation Administration and National Development and Reform Commission on Continuing the Corporate Income Tax Policies Concerning the Western Development Strategy (No. 23 in 2020, Ministry of Finance), from 1 January 2021 to 31 December 2030, companies located in the western region whose primary business is listed in the Catalogue of Encouraged Industries in the Western Region, and the primary business income accounting for over 60% of the total enterprise income. These companies shall be subject to the corporate income tax at a reduced rate of 15%. The Company's majority-owned subsidiary, Luzhou Pinchuang Technology Co., Ltd., whose primary business income meets the requirements of scope and standard of the Catalogue of Encouraged Industries in the Western Region, is subject to the rate of 15% for corporate income tax.

(2) According to Article 27 of the Corporate Income Tax Law of the People's Republic of China and Article 86, Item 1 of the Implementation Regulations of the Corporate Income Tax Law, companies are exempted from enterprise income tax when they engage in agricultural, forestry, animal husbandry and fishery industries. The majority-owned subsidiary of the Company, Luzhou Red Sorghum Modern Agricultural Development Co., Ltd., is engaged in the cultivation and sale of organic sorghum and enjoys the reduction of corporate income tax preferences.

(3) Pursuant to Item 1 of Article 24 of the Value-Added Tax Law of the People's Republic of China, agricultural producers sell self-produced agricultural products exempt from value-added tax. The majority-owned subsidiary of the Company, Luzhou Red Sorghum Modern Agricultural Developmen Co., Ltd., is engaged in the cultivation and sale of organic sorghum and enjoys the value-added tax exemption.

(4) According to the Notice on Preferential Corporate Income Tax Policies in Hainan Free Trade Port (Cai Shui [2020] No. 31) and the Notice on Extending the Implementation of Preferential Corporate Income Tax Policies in Hainan Free Trade Port (Cai Shui [2025] No. 3), the Company's wholly-owned subsidiary, Luzhou Laojiao International Trade (Hainan) Co., Ltd., whose primary business income meets the requirements of scope and standard of the Catalogue of Encouraged Industries in Hainan Free Trade Port, is paid at the rate of 15% for corporate income tax.

7. Notes to the main items of the consolidated financial statements (All currency unit is CNY, unless otherwise stated)

7.1. Cash and cash equivalents

Unit: CNY

Other statements:

Note 1: The deposit outbound is the balance of cash and cash equivalents of the foreign holding subsidiary of the Company.

Note 2: The balance of other cash and cash equivalents mainly consists of balances of funds in selfowned accounts on third-party platforms for subsidiaries in the amount of CNY 13,959,763.00, balances of funds in the co-management bank account for special government funds of CNY 10,006,699.34, balances in securities accounts of CNY 3,999,838.07, deposits for travel services of CNY 200,000.00 and other business- related frozen funds of CNY 10,000.00.

Of which: The co-management bank account for special government funds was established by a subsidiary, Luzhou Laojiao Baijiu Production Co., Ltd., together with the Jiangyang District Economy and Information Technology Bureau of Luzhou City, for the purpose of special government funds. This account is managed in accordance with the measures for the administration of special funds for the project and will be released upon acceptance of the project.

Note 3: There is no special benefit arrangement such as establishing a fund co-management account with related parties other than those mentioned above.

Liquor and wine manufacturing companies shall disclose in detail whether there are special interest arrangements such as establishing co-management accounts with related parties.

□ Applicable  N/A

7.2. Held-for-trading financial assets

Unit: CNY

7.3. Notes receivable

N/A

7.4. Accounts receivable

7.4.1. Disclosure by aging

Unit: CNY

7.4.2. Disclosure by withdrawal methods for bad debts

Unit: CNY

Note: 1 The closing balance of accounts receivable increased by CNY 17,528,464.70 or 271.86% compared with the opening balance, which was mainly due to the increase in accounts receivable within the contract period arising from the overseas baijiu sales business.

The category name of provision for bad debt by the portfolio: Accounts receivable tested for impairment on the portfolio with characteristics of credit risk

Unit: CNY

Notes to the determination basis for the portfolio: Accounts receivable of the same age have similar credit risk characteristics.

If adopting the general mode of expected credit loss to withdraw provision for bad debt of accounts receivable

□ Applicable  N/A

7.4.3. Provision and recovery for bad and doubtful debt in the current period

Allowance of provision for bad debt:

Unit: CNY

7.4.4. Top five entities with the largest balances of accounts receivable and contract assets

Unit: CNY

7.5. Contract assets

N/A

7.6. Accounts receivable financing

7.6.1. Accounts receivable financing listed by category

Unit: CNY

7.6.2. Disclosure by withdrawal methods for bad debts

Unit: CNY

Note: 1 The notes receivable under accounts receivable financing comprise bank acceptance, and the Company believes that the bank acceptance it holds does not pose significant credit risks. It does not anticipate significant losses due to defaults by banks or other drawers, therefore, no provision for credit impairment losses has been recognized.

The category name of provision for bad debt by the portfolio: Accounts receivable financing tested for impairment on the portfolio with characteristics of credit risk

Unit: CNY

Notes to the determination basis for the portfolio: As bank acceptance has low credit risks, no bad debt provision is made.

7.6.3. Accounts receivable financing that have been endorsed to other parties or discounted by the Company but have not expired at the end of the period

Unit: CNY

Note: 1 Due to the fact that the acceptor of bank acceptance is a commercial bank, which is of high credit level, the likelihood of default at the maturity of bank acceptance is low. Therefore, the Company derecognizes bank acceptance that has been endorsed or discounted.

7.6.4. Changes in accounts receivable financing in the reporting period and fair value

Note: Accounts receivable financing represents bank acceptance, with a short remaining maturity. The book value closely aligns with the fair value; hence, the book value is used as its fair value.

7.7. Other receivables

Unit: CNY

7.7.1. Dividend receivable

7.7.1.1. Classification of dividend receivable

Unit: CNY

7.7.2. Other receivables

7.7.2.1. Other receivables disclosed by nature

Unit: CNY

Note: 1 The saving deposits involving contract disputes are three deposits amounting to CNY 500,000,000.00 with Changsha Yingxin Sub-branch of Agricultural Bank of China and Nanyang Zhongzhou Sub-branch of Industrial and Commercial Bank of China disclosed by the Company in the 2014 Annual Report. The deposits have lost the nature of monetary fund due to their involvement in contract disputes and have thus been transferred into “other receivables”. The closing balance of this account as at the date of the statement was CNY 91,110,008.99.

7.7.2.2. Disclosure by aging

Unit: CNY

Note: 1 Other receivables with significant single amount exceeding three years in age relates to saving deposits of CNY 91,110,008.99, which are yet to be recovered due to contractual disputes.

7.7.2.3. Disclosure by withdrawal methods for bad debts

 Applicable □ N/A Unit: CNY

The category name of provision for bad debt by individual item: Other receivables that are individually material and for which a separate provision for bad debts has been made

Unit: CNY

The category name of provision for bad debt by the portfolio: Other receivables tested for impairment on the portfolio with characteristics of credit risk

Unit: CNY

Notes to the determination basis for the portfolio:

Accounts receivable of the same age have similar credit risk characteristics.

Provision for bad debt adopting the general mode of expected credit loss:

Unit: CNY

The basis for the division of each stage and the withdrawal proportion of bad debt provision

The basis for division is that other receivables with single bad debt provision represent credit impairment losses incurred since initial recognition (Stage 3), while the remaining portion is categorized based on expected credit risk. Withdrawal proportions of bad debt provision are 20.68% for Stage 1 and 87.81% for Stage 3, totaling 83.05%.

Changes of book balance with significant amount changes of loss provision in the current period □Applicable  N/A

7.7.2.4. Provision and recovery for bad and doubtful debt in the current period

Provision for bad debt:

Unit: CNY

7.7.2.5. Top five entities with the largest balances of the other receivables

Unit: CNY

7.8. Prepayment

7.8.1. Aging analysis

Unit: CNY

Note: 1 The closing balance of prepayments increased by CNY 63,404,993.68 or 43.55% compared with the opening balance, which was mainly due to the increase in prepayments to advertising suppliers.

Reasons for significant prepayments whose aging is longer than 1 year without timely settlement: There was no significant prepayment whose aging is longer than 1 year.

7.8.2. Top five entities with the largest balances of prepayment

7.9.Inventories

Whether the Company needs to comply with the disclosure requirements of real estate industry No

7.9.1. Categories of Inventories

Unit: CNY

Note: 1 The increase in the closing balance of goods in progress was mainly due to the Company’s promotion of high-quality production capacity reserve and quality improvement plan, which increased the strategic reserve of high-quality base baijiu.

The Company shall comply with the disclosure requirements for companies engaging in food & liquor and wine production of the Guidelines No. 3 of the Shenzhen Stock Exchange on Self-regulation of Listed Companies—Industry-specific Information Disclosure.

7.9.2. Notes to the closing balance of inventories including capitalized borrowing expense

There was no capitalized borrowing expense in the closing balance of inventories.

7.10. Other current assets

Unit: CNY

Other statements:

Note 1: The value-added tax expected to be deducted in the following fiscal period and corporate income tax and other taxes are disclosed in other current assets.

7.11. Other equity instrument investment

Unit: CNY

Categories of non-trading equity instrument investment in the current period: Unit: CNY

7.12. Long-term equity investments

Unit: CNY

The recoverable amount is determined based on the net amount of the fair value minus disposal costs □ Applicable  N/A The recoverable amount is determined by the present value of the forecasted future cash flow □ Applicable  N/A

7.13. Investment property

7.13.1. Investment property with cost measurement model

 Applicable □ N/A

Unit: CNY