Dali Foods : Clarification of News or Reports - Standard or Super

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Dali Foods Group Company Limited

達利食品集團有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 3799) CLARIFICATION ANNOUNCEMENT

This announcement is made to categorically deny, refute and clarify the allegations or comments concerning the Group published by FG Alpha Management on Twitter on 7 June 2017.

Save as disclosed in this announcement, after having made due and careful enquiries with respect to the Group as is reasonable in the circumstances, the Board confirms that it is not aware of any information which must be announced to avoid a false market in the Company's securities or of any inside information that need to be disclosed under Part XIVA of the SFO.

The Board would recommend the Shareholders and potential investors to exercise extreme caution when dealing in the securities of the Company.

This announcement is made by Dali Foods Group Company Limited (the "Company" or "Dali", together with its subsidiaries, the "Group") pursuant to Rule 13.09(2)(a) of the Rules ( the "Listing Rules") Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the "Stock Exchange") and the Inside Information Provisions (as defined in the Listing Rules) under Part XIVA of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)("SFO").

Reference is made to allegations or comments concerning the Group (the "Allegations") published by FG Alpha Management ("FG Alpha" or "FG Alpha Management") on Twitter on 7 June 2017. This announcement is made to categorically deny, refute and clarify the Allegations. The board (the "Board") of directors (the "Directors") of the Company does not have any information about the identity of FG Alpha Management, nor any Director or senior management of the Group has been approached or interviewed by FG Alpha Management to address or clarify the Allegations prior to its publication.

As mentioned in the Allegations, "Daniel David is shorting the Company". The Board would therefore recommend the shareholders of the Company (the "Shareholders") and potential investors to exercise extreme caution when dealing in the securities of the Company.

ALLEGATIONS OR COMMENTS CONCERNING THE GROUP PUBLISHED FG ALPHA MANAGEMENT ON THE TWITTER

1. Allegation relating to advertisement spending

   Company's response

   It is alleged that "Based on CTR reports from 2012-2014, Dali's advertisement spending is ranked higher than Want Want's, conflicting with Dali's and Want Want's annual reported numbers. From 2014-2016, Dali's A&P expense tripled but its CTR ranking decreased."

2. - CTR, known as CTR Market Research Co., Ltd. in full name, is one of the authoritative market research institutions in China. The data on advertising fees collected from the top ranking branded enterprises as set forth in the CTR report are generally based on the standard publication rates quoted by various media, hence the top ranked enterprises on the ranking list in the CTR report are enterprises with annual media budget in billions of Renminbi. However, no enterprise is in fact required to pay such a huge amount of advertising fees, because a substantial discount rate will apply.

   - In China, except for a few television stations where the standard publication rates are relatively close to the actual execution price (with a discount rate ranging from 20% to 50%), even larger discounts normally exist between the standard publication rates and the actual execution price in substantially all television stations. Each of the television stations will determine its own discount policy by considering its cooperation with various branded customers on an independent and individual basis. Different policies may have huge differences (the difference in discount rates among various television stations may be as much as several dozen times), it is almost impossible to predict the actual advertising fees for the entire enterprise by using the standard publication rate.

   • For Dali itself, the operation in advertising placement has always been an advantage for Dali, with the form and characteristics mainly as follows: 1) the cooperation between Dali and Star TV channels is mainly through direct communication with the enterprises, and without going through third party agents, no agent fees will be involved; 2) the placement strategy of Dali is mainly focused on Star TV channels with hard and broad profile, high frequency and commercials of extremely popular advertising image, more emphasis will be placed on the coverage of consumers in various market segments than hotspot programs to increase the performance-to-price ratio; 3) Dali has established cooperative relationship with most Star TV channels in much earlier days, and has been maintaining high frequency, hard and broad profile and continuous cooperation with them. To become the basic customer in cooperation with most channels is the key for Dali to obtain more preferential policy granted by Star TV channels.

   • While the price for advertisements on satellite TV stations each year has been increasingly higher every year for their continuous increase in market share and influence, the adjustment for enterprises, including Dali, which have continuous collaboration with the satellite TV stations earlier, is smaller. Generally, Dali has been in collaboration with each of the satellite TV stations on the basis of appropriate adjustments based on the performance in the previous year of the TV stations on the market. In fact, Dali has been, to a considerable extent, enjoying pioneer bonus.

   • According to the CTR report, Dali is benefited from fees for brand and the strategy and advantages of advertisement placing on media. Satellite TV stations consist of a few 1-tier platforms and a majority of 2- and 3-tier platforms, with which Dali enjoys more substantial advantage for its strategy of advertisements placing mainly on satellite TV stations with greater coverage and supplemented with other media; as such, while fees for Dali is doesn't in fact not great, as shown in the CTR report.

3. From 2014 to 2016, advertisement expenses of Dali were 324 million, 324 million and 374 million respectively, the increase was relatively stable, and there was no significant increase of Dali's advertisement expenses; the significant increase of A&P expenses of Dali (A&P expenses from 2014 to 2016 were 484 million, 1.086 billion and 1.563 billion) mentioned by FG Alpha was due to the increase of promotion fee instead of increase of media advertisement fee.

4. As for FA Alpha's accusation of Dali's advertising costs, there is no strong relevance between the data cited and Dali's financial data. What is more, FA Alpha did not make any in-depth analysis of Dali's published advertising expenditure data.

5. Allegation relating to cash advances from controlling shareholder before IPO

   It is alleged that "Dali took questionable cash advances from its controlling shareholder in the years leading up to its IPO"

   Company's response

6. In the Consolidated Statements of Financial Position on page 233 and the Consolidated Statements of Cash Flows on page I-11 in the IPO Prospectus of Dali, disclosure on the amount due to the Controlling Shareholders by Dali was set out below. In 2012, the Group had new advances in the amount of RMB 843,644,000 due to the Controlling Shareholders, which were mainly used for the purchase and construction of plants and production lines for the new factories which commenced operations during the same year in Henan, Guangdong, Jiangsu, Nanchang and other regions. In 2013, the Group had new advances in the amount of RMB976,998,000 due to the Controlling Shareholders, which were mainly used for the purchase and construction of the plants and new production lines for the factories under construction in Hebei and Shaanxi. Such amounts due to the Controlling Shareholders were non-trading in nature, unsecured, non-interest bearing and repayment would be required on demand.

31 December 30 June Section II 2012 2013 2014 2015 Notes RMB'000 RMB'000 RMB'000 RMB'000

Due to the Controlling

Shareholders 36(d) 862,023 1,335,594 204,411 -