China Shengmu Organic Milk Limited provided preliminary consolidated earnings guidance for the six months ended June 30, 2018. The board of directors of the company announced that, based on the valuation of the unaudited preliminary consolidated management accounts of the Group for the period ended 30 June 2018, the Group is expected to record a loss attributable to owners of the parent for the period ended 30 June 2018 of approximately RMB 1.1 billion (for the period ended 30 June 2017, unaudited profit attributable to owners of the parent approximately RMB 6 million), mainly due to the affected by the Group's control over number of cows in response to weak demand for raw milk in the market and a significant decrease in the price of raw milk, changes in fair value less cost of sales of biological assets recorded a substantial loss. In the 2018 Interim Period, loss arising from changes in fair value less cost of sales of biological assets of the Group amounted to approximately RMB 900 million; pursuant to the policy of provision for asset impairment established by the Group based on its actual production and operation conditions and with reference to the expected loss ratio, the Group determined the receivable group using aging as a credit risk characteristic and, by aging analysis, made provisions for bad debts in respect of account and other receivables, and also estimated the provisions for asset impairment with reference to the recoverability of individual account receivables and customer creditworthiness on a prudent basis. In the 2018 Interim Period, the Group provided for approximately RMB 500 million in respect of the impairment of trade and other receivables; and affected by the rising competition in domestic dairy market, sales of self-owned brand liquid milk products decreased significantly as compared with the corresponding period last year, together with the significant decrease in the average price of raw milk as compared with the corresponding period last year, gross profit of the Group decreased notably as compared with the corresponding period last year.