Beer

Beer (40%) Janet Strength -market leader =no.1 brand by volume in the world -huge market penetration, present in 21 out of 34 regions  Weakness -seasonal demand (loss of beer unit in 2010 4Q)  Opportunities - Recent acquisition of around one-fifth of shareholding of Kingway Brewery Holdings in 2011, acquire Amber Breweries and acquire brewing assets of Shandong Hupo Brewery in 2009 may make another foray into the beer market  Threats -Rising minimum wages will increase operational costs -Rising barley prices will negatively impact the cost structure  Strength CRE has improved its reach, scale and addressable market which will positively benefit top-line growth. The Chinese retail and beverages markets are highly fragmented and the top players have been gaining market share. The company is positioned as a large player through the acquisitions and will be able to gain market share to improve revenues. It establishes itself as a national player will provide significant competitive advantages of scale. The company will also have access to tap into several markets to drive revenue growth. <span style="color: #0070c0; font-family: 'Times New Roman','serif'; font-size: 12pt;"> <span style="color: #0070c0; font-family: 'Times New Roman','serif'; font-size: 12pt;">Weakness Financial data comparison with TSINGTAO BREW-H (p.4 of Jeff report) <span style="color: #0070c0; font-family: 'Times New Roman','serif'; font-size: 12pt;"> <span style="color: #0070c0; font-family: 'Times New Roman','serif'; font-size: 12pt;">Opportunities <span style="color: #0070c0; font-family: 'Times New Roman','serif'; font-size: 12pt;">CRE has also followed similar strategy in its beverages segment. In 2009, the company acquired the assets of Anqing Tianzhu Beer Company and Liaoning Songlin Brewery Group Company Limited. Later, the company also acquired assets of another brewer Shandong Hupo Brewery. The operational scale was vastly improved by the acquisitions. CRE has a history of successful acquisitions. The acquisitions led to the company establishing itself as a leading beer manufacturer in the country. <span style="color: #0070c0; font-family: 'Times New Roman','serif'; font-size: 12pt;"> <span style="color: #0070c0; font-family: 'Times New Roman','serif'; font-size: 12pt;">The beer sector in China will benefit as the average selling prices start rising and customers start trading up to premium beer. With the beer consumption estimated to record a low yet steady growth, the pricing flexibility is likely to generate higher profits. The beer consumption is estimated to grow by 7% in 2011 and 2012 and the following two years are likely to see an 8% growth, according to Euromonitor data. Average selling price of beer in China has lagged the consumer price index until 2006 after which the prices saw a huge surge. The average selling prices of beers are expected to rise in 2010 and 2011. Furthermore, there has been an increasing demand for premium beer in China. CRE has launched new premium categories to tap into this growing demand. <span style="color: #0070c0; font-family: 'Times New Roman','serif'; font-size: 12pt;"> <span style="color: #0070c0; font-family: 'Times New Roman','serif'; font-size: 12pt;">Threat CRE's margins will be hit by the rising barley prices which is the primary raw material for beer <span style="color: #0070c0; font-family: 'Times New Roman','serif'; font-size: 12pt;">manufacturing. China has been increasingly importing barley as the beer consumption in the country increases. In 2010, China is estimated to have imported almost 50% of the barley requirement. The barley production has declined pressuring the prices. Global barley production is likely to fall 14% in 2010-11 to 130 million tons. Average global barley prices are up 80% in the last quarter of 2010. In a competitive market passing on the surge in raw material prices to the end customers might not be possible. The rising barley prices will therefore negatively impact the cost structure pressurizing CRE's margins. <span style="color: #0070c0; font-family: 'Times New Roman','serif'; font-size: 12pt;"> <span style="color: #0070c0; font-family: 'Times New Roman','serif'; font-size: 12pt;">Corporate level strategy: <span style="color: #0070c0; font-family: 'Times New Roman','serif'; font-size: 12pt;">Beer: mainly market under Snow Brand <span style="color: #0070c0; font-family: 'Times New Roman','serif'; font-size: 12pt;"> <span style="color: #0070c0; font-family: 'Times New Roman','serif'; font-size: 12pt;">Business strategy on beer: <span style="color: #0070c0; font-family: 'Times New Roman','serif'; font-size: 12pt;">-further consolidate market position with strong nationwide coverage in China -Strategy to be No. 1 – “Encircling the Cities from the Rural Areas” ( <span style="color: #0070c0; font-family: 'PMingLiU','serif'; font-size: 12pt;">農村 <span style="color: #0070c0; font-family: 'Times New Roman','serif'; font-size: 12pt;">  <span style="color: #0070c0; font-family: 'PMingLiU','serif'; font-size: 12pt;">包圍城市 <span style="color: #0070c0; font-family: 'Times New Roman','serif'; font-size: 12pt;">) <span style="color: #0070c0; font-family: 'Times New Roman','serif'; font-size: 12pt;">- Moving up-market <span style="color: #0070c0; font-family: 'Times New Roman','serif'; font-size: 12pt;">- Promotion and branding strategy – aggressive, able to take challenges and innovative, incorporating with Chinese culture <span style="color: #0070c0; font-family: 'Times New Roman','serif'; font-size: 12pt;">- Create brand loyalty and consolidate distribution channels <span style="color: #0070c0; font-family: 'Times New Roman','serif'; font-size: 12pt;">- extensive but rational M&A, target: mainly small regional players