Dynasty Fine Wines Group (HKG:0828) says that its unaudited consolidated net profit for the year ended 31 December 2011 may be considerably lower compared to 2010.

Despite the increase in average ex-factory price of the group's wine products as a result of shifting of sales mix further to high-end products, sales revenue still dropped compared with 2010 mainly because the group was implementing a reform on its sales and distribution model with a view to improve the operational efficiency of the group. Purchase orders for the year ended 31 December 2011 from certain distributors which were affected by the reform, especially those in Zhejiang Province, reduced, resulting in a decrease in sales volume in such region compared with 2010. During the second half of 2011, the reform was still in progress and would take time to implement.

The gross profit margin decreased compared with 2010 mainly as a result of the impact of (i) the increase in the cost of raw materials (including grapes and grape juice) and manufacturing overheads; and (ii) the newly imposed city construction tax and education surcharge levied on the group's subsidiaries in mainland China.

With the implementation of the reform, the group believes that the programme of reform on sales and distribution model will improve the group's operational efficiency and maximize the sales revenue of the group in the long run.