Opening Remarks and Market Context

Good afternoon, and welcome to the interim results briefing of Kweichow Moutai Co.,Ltd. Following the announcement published on August 15, 2026, we have gathered investor questions and will address the most pressing concerns before moving to live Q&A. The following responses reflect our management's assessment of the current market cycle and the strategic reforms underway.

Navigating the Industry's Cyclical and Structural Adjustment

Regarding the current deep adjustment phase in the baijiu sector, we recognize that the industry faces both cyclical and structural challenges. Cyclically, the sector must transition from the disorderly expansion of the growth phase toward systematic repair, much like any industry undergoing maturity. Structurally, the digital era has fundamentally and irreversibly altered the demand side, including target demographics, consumption scenarios, and purchasing habits. The traditional supply-side model of multi-tier distribution and inventory pressure, which operates far from end consumers, has created multiple "insulation layers" between supply and real consumption. This has amplified price speculation during upturns and triggered price collapses during downturns, a model ill-suited to today's demands for accessibility, pricing transparency, and purchasing fairness. Addressing cyclicality requires patience and confidence, while addressing structural change demands innovation and adaptation to align with evolving consumer needs.

Rationale and Progress of the 2026 Market-Oriented Reform

In January 2026, we launched a market-oriented reform of Moutai liquor sales, prompted by the accumulation of structural contradictions over eight consecutive years of rapid growth, compounded by the industry downturn. By late 2025, price inversions across most Moutai products—except the standard 500ml Flying Fairy—had destabilized the entire pricing structure. The root causes were identified as an over-reliance on high-margin non-core products that pushed blended ton prices up by nearly 30% over five years, distancing prices from real demand; and a guidance price system that failed to connect with actual consumers, creating multiple "insulation layers" that hindered fair, authentic, and convenient access. The reform, centered on consumer needs and market demand, has focused on five key areas: first, reshaping the product portfolio into a "pyramid" structure, with the 500ml Flying Fairy as the base, premium and zodiac cultural products as the mid-tier, and aged and cultural Flying Fairy varieties at the apex, while discontinuing products outside this plan; second, establishing a dynamic pricing mechanism characterized by market alignment, relative stability, supply-demand fit, and volume-price balance. This has involved five adjustments since January, culminating in aligning self-operated retail prices with market transaction prices across all channels, thereby building a price system that supports real consumption and curbs speculation; third, introducing an "agency sales" model for non-core products, operating smoothly since April; fourth, optimizing the channel landscape to create a transparent ecosystem where self-operated and social channels, both online and offline, complement each other, with all Moutai products now available through "i Moutai" and 43 self-operated stores, and plans to consolidate all group subsidiaries' Moutai liquor plans back to the main sales company this year; and fifth, implementing a consumer-centric supply chain upgrade. After seven months, the reform's structural framework is in place, with stable sales volumes, a stabilized price system, and a healthier blended ton price, setting a solid foundation for future precision adjustments based on market conditions.

Explaining the Divergence Between Revenue Growth and Profit Decline

The slight increase in first-half revenue against a decline in net profit is attributable to the ongoing market reforms. While sales volumes for both Moutai and sauce-aroma series liquor have grown, contributing to a stable revenue performance, the adjustment of product prices to align with real consumption has reduced the blended ton price and, consequently, profitability. This is a deliberate strategy to eliminate structural imbalances and build a healthier, more sustainable price foundation for the future. Our net margin of 49.89% for the first half remains within the reasonable range of 44.65%-51.49% observed over the past decade. In the second quarter, the sauce-aroma series underwent a market transformation, shifting away from the pressure-filling model to prioritize market health, with reduced volumes and stable channel inventory, leading to a temporary dip in performance.

Future Plans for Market Value Management

In response to inquiries about market value management, we are systematically developing a comprehensive three-year plan (2027-2029) to enhance long-term value creation. This includes: strengthening operational efficiency and sustainable development; improving information disclosure standards; utilizing appropriate market value management tools to boost investment value and shareholder returns; and maintaining ongoing communication with investors to address market concerns and foster strong investor relations.

Analyzing the Cost Increase in the First Half

The 21.81% year-on-year increase in operating costs, against a 1.3% revenue rise, is directly linked to the market reforms. Total sales volumes increased, driving up costs proportionally. However, the strategic reduction in product prices to better reflect real consumer demand led to a decline in per-ton revenue, resulting in cost growth outpacing revenue growth. The cost-profit margin for the period remains within the historical reasonable range.

Addressing the Decline in Advance Payments

The 60.43% decrease in advance payments from the start of the year does not signal weak channel confidence. It reflects the successful establishment of a channel ecosystem where self-operated platforms like "i Moutai" and physical stores, with their direct consumer reach, act as market stabilizers. The introduction of the "agency sales" model, which does not transfer title, and our focus on maintaining healthy inventory levels across social channels have reduced the need for large advance payments. As the reform deepens, advance payment levels are no longer a primary indicator of market supply-demand dynamics.

Strategy for Youth-Oriented Engagement and Brand Growth

Our approach to attracting younger consumers involves breaking down barriers related to culture, taste, accessibility, price, and occasion. Initiatives like the "Happy Crawfish" events with Moutai Prince liquor in twelve cities, featuring local pairings like crayfish with special cocktails, are designed to introduce baijiu in relaxed, non-formal settings. The "i Moutai" platform, where 44.37% of users are under 35 and 30.9% are aged 35-45, provides a crucial access point. We are also experimenting with lower-alcohol offerings to address taste preferences. Our age-based strategy includes: for the 18-25 group, building brand reputation; for the 25-30 group, guiding gradual adaptation; for the 30-35 group, fostering stable consumption; and for the 35-45 group, reinforcing brand loyalty through high-quality products.

Internationalization Strategy and Challenges

The significant decline in second-quarter export figures is due to a confluence of global challenges, including weak demand, cultural and taste barriers, and regulatory and logistical costs. Our strategic response is to prioritize long-term international health over short-term performance by optimizing product structure, implementing a "quality-price matching" pricing principle, and scientifically reallocating markets based on a three-tier structure of 11 strategic, 15 key, and 74 general markets. We are committed to a phased "three-step" internationalization process—product export, brand globalization, and international value creation—methodically navigating barriers to ensure sustainable growth.

Outlook for the Full Year and Strategic Priorities

For the remainder of 2026, we will continue to fine-tune our strategies based on market conditions. While the reforms have delivered expected results in stabilizing the market, we acknowledge uncertainties inherent in this market-focused transformation, particularly in balancing supply-side constraints with traditional processes. We view the current performance fluctuations as a normal part of the industry's cyclical nature. Our commitment to long-termism, maintaining a healthy operational and market foundation, positions us to navigate these cycles and deliver sustainable, high-quality value for shareholders.

Shareholder Q&A Highlights

On the timing of interim dividends, the company adheres to its 2024-2026 cash dividend plan, with the interim distribution to be reviewed and disclosed in the fourth quarter, as per convention. The broader three-year market value management plan is also under development.

Regarding recent price adjustments, we confirm that all changes are driven by market supply and demand, guided by our principle of market alignment, relative stability, supply-demand fit, and volume-price balance. This ensures that Moutai prices reflect true market value and consumers can purchase fairly, authentically, and conveniently.

Concerning base liquor production, the year-on-year variance in the first half is due to the traditional brewing calendar's different scheduling, leading to statistical differences in progress, not an impact on the full year's output.

On the "agency sales" model, we believe it benefits dealers by reducing their capital and inventory burdens while leveraging their customer reach. Feedback has been positive, and we see it as a key element of our market-based reform, balancing consumer interests with a healthy channel ecosystem.

Regarding Moutai 1935 sales, we decided not to increase market supply in 2026 to ensure market health. Channel execution is nearly 80%, with good terminal sales and healthy inventory. We will continue to adjust policies, increase consumer-focused spending, and strengthen oversight to maintain brand reputation.

On concerns about a potential "stockpile" of Flying Fairy liquor in circulation, our data shows that the social channel inventory-to-sales ratio has remained below 1.0 monthly, indicating a healthy flow. The reformed pricing and channel systems have significantly reduced speculative space, lowering the risk of any destabilizing surplus. The stable price performance over the past seven months corroborates this assessment.

Reiterating the cost analysis, the higher cost growth is a result of increased sales volumes and reduced per-ton prices, a planned outcome of aligning with real consumption.

For the sauce-aroma series, the second-quarter decline reflects a deliberate pivot away from volume-driven growth to a "sell-through" model. This has resulted in higher terminal sales and healthy channel inventory, despite a temporary dip in reported figures. We will continue this approach, focusing on brand value, channel depth, and consumer demand expansion.

On tax and surcharges, the higher growth rate compared to revenue is primarily due to an increased share of direct sales, which raises the tax base, and a time lag between production-side tax collection and terminal sales revenue recognition.

Regarding future dividend and buyback plans, these will be detailed in the upcoming three-year market value management plan, with a commitment to using appropriate tools to enhance shareholder returns.

On youth-focused initiatives, we are actively implementing strategies across cultural, taste, access, price, and occasion barriers, with plans for continued age-segmented operations for the 18-45 demographic.

For "i Moutai" operations, the platform remains stable. In the first half, it added approximately 17.44 million new users, reaching a cumulative 96.91 million registered users, with over 29.41 million active users and more than 7.8 million orders.

Addressing concerns about the sauce-aroma series' performance, we maintain a "no overfishing" philosophy, focusing on a healthy market foundation. With seasonal adjustments, we are optimizing our product, pricing, and channel strategies to ensure sustainable growth.

On "i Moutai" purchase timing, we are planning to increase the daily sales windows to better meet consumer demand. Additionally, our offline self-operated stores offer alternative access.

Regarding the internal asset transfer of "i Moutai" to a wholly-owned subsidiary, this transaction has no impact on profitability or minority shareholder interests. As it is a transfer between parent and subsidiary, there is no loss of asset value or tax implications, and we will ensure full compliance with accounting and data regulations.

On premium product sales, the "second-largest single product" strategy remains unchanged. Sales of premium Moutai are progressing well, with over half of the annual plan completed by mid-year.

Explaining the significant cash inflow in Q2, this is mainly due to increased deposits from group member companies into our finance subsidiary and the maturity of interbank deposits. The core liquor business's operating cash flow saw a slight year-on-year increase.

Clarifying the Q2 Moutai volume and mix, all products are being executed according to the annual plan, with a focus on stabilizing the market during the off-season. We will continue to monitor sell-through and inventory to optimize our product allocation strategy.

On new product releases in 2026, our product planning is fixed at the beginning of the year, and no products outside this plan are being developed.

Finally, regarding the 64% decline in overseas revenue, this is a direct result of our strategic shift to prioritize long-term international market health. We are addressing the unique challenges of internationalization through product optimization, pricing discipline, and a scientific market layout, and remain committed to a steady, progressive expansion.