China Shengmu Organic Milk : Announcements and Notices - Major Transaction in Relation to Disposal of A Subsidiary - Consideration Adjustment

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CHINA SHENGMU ORGANIC MILK LIMITED

中國聖牧有機奶業有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1432)

MAJOR TRANSACTION

IN RELATION TO DISPOSAL OF A SUBSIDIARY -

CONSIDERATION ADJUSTMENT

References are made to the announcements of China Shengmu Organic Milk Limited (the "Company") dated 24 December 2018, 27 December 2018, 3 January 2019, 11 January 2019 and 20 May 2019 respectively and the circular of the Company dated 7 January 2019 (the "Circular") in relation to, among other things, the Investment Agreements and the transactions contemplated thereunder. Unless otherwise defined, capitalised terms used in this announcement shall have the same meaning as those defined in the Circular.

Pursuant to the Share Purchase Agreement, it is agreed that the Target Company shall provide its financial reports as of the Closing Date to be audited by auditors recognised by Inner Mongolia Mengniu. Inner Mongolia Mengniu shall engage a valuer to evaluate the value of the Target Company as at the Closing Date. If the valuation of the Target Company as of the Closing Date is more than the current valuation, i.e. RMB594.95 million (the "Current Valuation") prepared by Shanghai Orient Appraisal Co., Ltd. (上海東洲資產評估有限公司) (the "Valuer") (the "Excess Amount"), Inner Mongolia Mengniu shall pay an additional 51% of the Excess Amount to the Sellers in accordance with their respective shareholdings in the Sale Shares when Inner Mongolia Mengniu pays the First Payment Amount. If the actual valuation as of the Closing Date is less than the Current Valuation (the "Insufficient Amount"), Inner Mongolia Mengniu shall deduct 51% of the Insufficient Amount from the First Payment Amount paid to the Sellers in accordance with their respective shareholdings in the Sale Shares (the "Consideration Adjustment Mechanism").

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It is noted that Inner Mongolia Mengniu has engaged the Valuer to evaluate the value of the Target Company as at the Closing Date. Based on the evaluation report prepared by the Valuer, the actual valuation of the Target Company as of the Closing Date is RMB265,609,822, which was less than the Current Valuation as of 30 September 2018. According to the Consideration Adjustment Mechanism, the First Payment Amount to be paid to Shengmu Holding and Shengmu High-tech shall be adjusted from RMB142,982,262.7 and RMB130,437,137.3 to RMB55,149,904.2 and RMB50,311,105 respectively, in accordance with their respective shareholdings in the Sale Shares. The remaining RMB30,000,000 will be paid within five Business Days from the first anniversary date of the Payment Confirmation Certificate.

The decrease in valuation of the Target Company occurs mainly because the Target Company incurred operating loss in the period from 30 September 2018 to 30 April 2019.

By Order of the Board

China Shengmu Organic Milk Limited

Shao Genhuo

Chairman

Hong Kong, 19 July 2019

As at the date of this announcement, the executive Directors of the Company are Mr. Yao Tongshan, Mr. Wu Jianye and Mr. Zhang Jiawang; the non-executive Directors of the Company are Mr. Wen Yongping, Mr. Sun Qian and Mr. Shao Genhuo; and the independent non-executive Directors of the Company are Mr. Fu Wenge, Mr. Wang Liyan and Mr. Li Xuan.

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