MANAGEMENT DISCUSSION AND ANALYSIS I Positioning of Tsingtao in the national market Other than Tsingtao’s operation base, the Group owns 38 beer production enterprises through out the country. Penglai Mishan Pingyuan Rongcheng Ha Er Bin Xing Kai Hu Anshan Pingdu Weifang Beijing Langfang Anqiu Qingdao Weinan Qingdao PeixianXuzhou Xi'an Suqian Yangzhou Yingcheng Heze Rizhao Shanghai Tengzhou Chongqing Ma An Shan Huangshi Wuhu Luzhou Taizhou Chenzhou Xuecheng Sanshui Shenzhen Zhuhai II Production Total Production in 20001,862('000 tonnes) Total Production in 19991,071('000 tonnes) Increased: 74% Unite: '000 tonnes 2000 1,862 1700 1500 1,071 1000 Increased 74% 500 2000 1999 IIIBeer Production in Different Regions of China in 2000 (‘000 tonnes) 2000 1999 Northeastern China 86 38 Northern China 248 0 Shandong 903 675 Eastern China 222 147 Central China 44 46 Southern China 154 48 Northwestern China 183 117 Southwestern China 22 0 Total 1,862 1,071 20 MANAGEMENT DISCUSSION AND ANALYSIS (CONT'D) IVProduction cost structure of Tsingtao beer (%) 2000 1999 rice 3% malt 12% energy 3% rice 4% production cost 19% direct labour cost 3% energy 3% malt 14% auxiliary materials 2% production cost 18% direct labour cost 2% hops 0.6% auxiliary materials 2% water 0.4% hops 0.6% repackaging material 57% water 0.4% repackaging material 56% V Product Mix (‘000 tonnes) 2000 1999 1,500 1,200 900 600 300 0 Beer Golden Canned 640 ml Fresh Other Beer Exports Label Beer Bottled Beer Brands Tsingtao Beer Beer VISales in Five Major domestic Markets (‘000 tonnes) (‘000 tonnes) (‘000 tonnes) Northeast China (55) Northeast China (37) Shandong (Excluding Qingdao (187) Shandong (Excluding Qingdao (151) Qingdao) (70) Qingdao) (42) Shanghai (42) Shanghai (18) Guangdong (94) Guangdong (51) 2000 1999 21 MANAGEMENT DISCUSSION AND ANALYSIS (CONT'D) VIIExports Sales by Market (tonnes) 2000 1999 North America 7,685 North America 7,498 Southeast Asia 10,717 Southeast Asia 10,592 Europe 11,345 Europe 10,043 VIIIChina Beer Market (‘000 tonnes) 25,000 22,313 IXConditions of the beer industry in the 20,884 PRC in Year 2000 20,000 The quantity of production and sales of the Beer 15,000 Industry grew steadily while the production and consumption have regional limits. 10,000 Increased Merger and acquisition among large enterprises has when become a major trend. compared 5,000 last year The level of intensiveness has been increasing gradu- 6.84% ally and certain dominat enterprises such as Tsingtao 0 Brewery have been absorbing most of the market shares. 2000 1999 The national industrial policy encouraged the de- velopment of products that consume low quantity of grains. The prospects of the beer industry are there- fore optimistic. X PRC Top Ten Breweries by Output ('000 tonnes) Tsingtao Brewery Beijing Yanjing Brewery Yanjing Beijing Zhujiang Brewery Henan Jin Xing Brewery Group C Henan Jin Xing Brewery Harbin Brewery Sichuan Lanjian Brewery Shenyang China Resources Brewery Shenyang China Resources Chongqing Brewery Hubei Jin Long Quan Brewery 2,000 Hui Quan Brewery 1,500 1,000 ompany 500 0 Source: Beer Sub-Committee under the Association of Brewery Industry of PRC 1,862 1,411 739 518 470 467 419 406 381 316 22 MANAGEMENT DISCUSSION AND ANALYSIS (CONT'D) XI Major business initiatives of Tsingtao Brew- shares. The proceeds will be used to acquire the ery in Year 2000 interests in beer enterprises in Shanghai and Beijing held by foreign parties and to implement techno- logical improvement for existing operations. Increase operation scale successfully. The produc- Further improve the management system of "busi- tion and sales volume exceed 1.8million tons, fur- ness development division" and enhance the eco- ther strengthening the leadership of Tsingtao Brew- nomic performance of subsidiaries. ery in the industry. Take advantage of the strong brandname, high tech- Actively implementing the strategy of brand nology and marketing strategies. The aim is to en- promotion. A total of 14 enterprises were acquired, hance economic efficiency by expanding the pro- basically completed the strategic positioning around duction scale. China. Reach the production and sales target of 2.6million Further enhancement of sales network. The number tons and strive to become one of the ten largest of sales offices in the network increased to 49 and beer enterprises in the world. electronic networking techology was introduced. The system of the "business development division" has gained initial success, which was proved by the improved management of subsidiaries and a higher sales volume. XII Business Initiatives to be taken in Year 2001 Properly slowdown the pace of expansion. Improve the management and technological level of existiing enterprises and perform sysytem integration. Raise RMB787million by issuing 100million A 23.