Huabao International : REVISION OF ANNUAL CAPS FOR CONTINUING CONNECTED TRANSACTIONS

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(Incorporated in Bermuda with limited liability)

(Stock Code: 00336)

REVISION OF ANNUAL CAPS FOR

CONTINUING CONNECTED TRANSACTIONS

Pursuant to the Sales Framework Agreement, Guangdong Jiahao will, during the period from 1 January 2019 to 31 December 2021 (both days inclusive), continue to sell Jiahao Products and related services to members of Weizhijia Group.

Based on the currently available information and the updated projection of the sales of Jiahao Products by Guangdong Jiahao to members of Weizhija Group, the Company proposes to revise the Original Annual Caps by increasing the transaction amount to an amount not exceeding RMB80 million for the financial year ending 31 December 2019, RMB130 million for the financial year ending 31 December 2020 and RMB150 million for the financial year ending 31 December 2021, respectively.

Guangdong Jiahao is an indirect wholly-owned subsidiary of the Company, while Weizhijia is ultimately controlled by Madam Chu and therefore is an associate of a connected person of the Company under the Listing Rules. The transactions contemplated under the Sales Framework Agreement constitute the continuing connected transactions for the Company. Accordingly, such transactions shall be subject to compliance with the reporting, announcement and annual review requirements and, where applicable, the independent Shareholders' approval requirement under Chapter 14A of the Listing Rules.

Since the highest applicable percentage ratio calculated in respect of the revised annual caps for the continuing connected transactions under the Sales Framework Agreement is more than 0.1% but less than 5%, such transactions are only subject to the reporting, announcement and annual review requirements, but are exempt from independent Shareholders' approval requirement under Chapter 14A of the Listing Rules.

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BACKGROUND

Reference is made to the Previous Announcement. Pursuant to the Sales Framework Agreement, Guangdong Jiahao will, during the period from 1 January 2019 to 31 December 2021 (both days inclusive), continue to sell Jiahao Products and related services to members of Weizhijia Group.

Based on the currently available information and the updated projection of the sales of Jiahao Products by Guangdong Jiahao to members of Weizhija Group, the Company proposes to revise the Original Annual Caps by increasing the transaction amount for each of the three financial years ending 31 December 2021.

PRINCIPAL TERMS OF THE SALES FRAMEWORK AGREEMENT

Date:	14 March 2019
Parties:	(i)	Guangdong Jiahao
	(ii)	Weizhijia
Subject Matter:	Provision of Jiahao Products and related services
	between Guangdong Jiahao and Weizhijia Group
Term:	36 months from 1 January 2019 to 31 December 2021
	(both days inclusive)
Basis of pricing:	Implementation of the prevailing market prices, i.e.
	prices and terms payable to Guangdong Jiahao shall be
	no less favourable than those terms offered to
	independent third party customers for provision of
	similar products and services in its ordinary and usual
	course of business. Enquiry process will be conducted
	by making reference to several other contemporaneous
	transactions with unrelated third parties for similar
	products and services to determine if the prices and
	terms offered to Weizhijia Group are fair and
	reasonable and comparable to those offered to
	independent third parties
Payment terms:	Payments of the transactions will be settled in arrears
	by cash transfer, or such other manners as agreed by
	the parties in accordance with the agreed timing and

manners as specified in the separate implementation agreements to be entered into between Guangdong Jiahao and members of Weizhijia Group from time to time

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REVISION OF ANNUAL CAPS

Revised annual caps and historical figure

Based on the currently available information and the updated projection of the sales of Jiahao Products by Guangdong Jiahao to members of Weizhija Group, the Company proposes to revise the Original Annual Caps by increasing the transaction amount to an amount not exceeding RMB80 million for the financial year ending 31 December 2019, RMB130 million for the financial year ending 31 December 2020 and RMB150 million for the financial year ending 31 December 2021, respectively.

The historical amount (unaudited) of the sale of Jiahao Products by Guangdong Jiahao to members of Weizhijia Group from 1 January 2019 to 27 September 2019 was approximately RMB41,582,000.

As at the date of this announcement, the transaction amount of the continuing connected transaction under the Sales Framework Agreement has not exceeded RMB50,000,000, being the original annual transaction amount for the financial year ending 31 December 2019.

Reasons for and benefit of revising the Original Annual Caps and the determination basis

As mentioned in the Company's interim results dated 23 August 2019, the PRC economic growth rate slowed down in 2019. The PRC domestic economy has been affected by various internal and external factors and the pressure of the economic downturn is gradually increasing. The business and consumer confidence has also been weakened to a certain extent. In light of the challenging macro-economic and business environment, the Group has optimized the distribution channel of condiments to maintain the overall sales force and revenue growth momentum.

Weizhijia is a company established in the PRC and is primarily engaging in the marketing and promotion of fast moving consumer goods ("FMCG") in the catering industry through a B2B branded condiments platform in the PRC. Weizhijia has established a countrywide product sales network and has rich channels and resources in the catering industry in the PRC.

Leveraging on Weizhijia's overall qualification and position in the condiment industry, the Directors believe that the sales transactions between Guangdong Jiahao and Weizhijia Group contemplated under the Sales Framework Agreement will further increase the sales momentum of Jiahao Products and hence bring more revenue to Guangdong Jiahao. Accordingly, it is in the interest of the Company and its shareholders as a whole that the Original Annual Caps be revised by increasing the transaction amount to an amount not exceeding RMB80 million for the financial year ending 31 December 2019, RMB130 million for the financial year ending 31 December 2020 and RMB150 million for the financial year ending 31 December 2021, respectively.

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In determining the revised annual caps for each of the three financial years ending 31 December 2021, the Company has taken into account a number of factors into consideration, including the historical transaction amounts relating to the provisions of Jiahao Products and related services between Guangdong Jiahao and Weizhijia Group, the projected demand for Jiahao Products and related services in accordance with Weizhijia's overall distribution capabilities, Guangdong Jiahao's operation scale, the acceptance of the products and future business development with reference to the prevailing market conditions.

INTERNAL CONTROL MEASURES

The Company has implemented internal control over the sales transactions relating to the provision of Jiahao Products and related services between Guangdong Jiahao and Weizhijia Group. The continuing connected transactions under the Sales Framework Agreements will continue to be conducted on a non-exclusive basis. Payment terms are basically market-driven according to the prevailing market conditions. Nonetheless, Guangdong Jiahao will continue to conduct enquiry process by which Guangdong Jiahao will make reference to at least two contemporaneous transactions with unrelated third parties for similar products and services to determine if the prices and terms offered to Weizhijia Group are fair and reasonable and comparable to those offered to independent third parties.

In addition, the Group (including Guangdong Jiahao) has also adopted the following internal control measures regarding the continuing connected transactions:

1. the Group will conduct regular checks to review and assess whether the transactions contemplated under the relevant continuing connected transactions are conducted in accordance with the terms of their respective agreements;
2. the external auditors of the Company will conduct a year-end audit for each financial year, and will issue their opinion to the Board in relation to the pricing policies and annual caps of the continuing connected transactions of the Group conducted during the financial year pursuant to the Listing Rules;
3. the independent non-executive Directors of the Company will conduct an annual review with respect to the continuing connected transactions of the Group throughout the financial year and confirm the transaction amounts and terms of the continuing connected transactions in the annual report of the Company; and
4. the Company's internal audit department shall conduct regular internal assessments in order to ensure that the internal control measures in respect of the connected transactions remain complete and effective.

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BOARD CONFIRMATION

The Board has resolved and approved the resolution relating to revision of the Original Annual Caps. The Directors (including all the independent non-executive Directors of the Company) are of the view that the continuing connected transactions contemplated under the Sales Framework Agreement have been conducted on normal commercial terms, were entered into in the ordinary and usual course of business of the Group, are fair and reasonable and in the interests of the Company and its shareholders as a whole, and that the revised annual caps for each of the three financial years ending 31 December 2021 for the continuing connected transactions contemplated under the Sale Framework Agreement are fair and reasonable.

Madam Chu and Mr. Lam Ka Yu (son of Madam Chu and an executive Director), both were regarded as having a material interest in the Sales Framework Agreement (including the revised annual caps), have abstained from voting on the relevant resolution to approve the revised annual caps of the Sales Framework Agreement and the transactions contemplated thereunder. Save for Madam Chu and Mr. Lam Ka Yu, none of the other Directors has any material interest in the Sales Framework Agreement (including the revised annual caps) and was required to abstain from voting on the Board resolution in relation thereto.

INFORMATION ON THE PARTIES

The Company is an investment holding company. The Group (excluding Jiahao Group) is mainly engaged in the research and development, production, distribution and sale of flavours and fragrances, tobacco raw materials and aroma raw materials.

Jiahao Group is primarily engaged in the production, sale and distribution of chicken bouillon (liquid cooking stock), wasabi paste, concentrated fruit juice (used in cooking applications) and functional soy sauce across China.

Weizhijia is a company established in the PRC and is primarily engaging in the marketing and promotion of FMCG in the catering industry through a B2B branded condiments platform in the PRC.

IMPLICATIONS UNDER THE LISTING RULES

Guangdong Jiahao is an indirect wholly-owned subsidiary of the Company, while Weizhijia is ultimately controlled by Madam Chu and therefore is an associate of a connected person of the Company under the Listing Rules. The transactions contemplated under the Sales Framework Agreement constitute the continuing connected transactions for the Company. Accordingly, such transactions shall be subject to compliance with the reporting, announcement and annual review requirements and, where applicable, the independent Shareholders' approval requirement under Chapter 14A of the Listing Rules.

Since the highest applicable percentage ratio calculated in respect of the revised annual caps for the continuing connected transactions under the Sales Framework Agreement is more than 0.1% but less than 5%, such transactions are only subject to the reporting, announcement and annual review requirements, but are exempt from independent Shareholders' approval requirement under Chapter 14A of the Listing Rules.

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DEFINITIONS

In this announcement, the following expressions shall have the following meanings unless the context otherwise requires:

"associate(s)"	has the meaning ascribed to it in the Listing Rules
"Board"	the board of Directors of the Company
"Company"	Huabao International Holdings Limited, a company
	incorporated in Bermuda on 11 October 1991, the
	shares of which are listed on the Main Board of the
	Stock Exchange
"connected person(s)"	has the meaning ascribed to it in the Listing Rules
"Director(s)"	director(s) of the Company
"Group"	the Company and its subsidiaries
"Guangdong Jiahao"	Guangdong Jiahao Foodstuff Co., Ltd. (廣東嘉豪食品
	有限公司), a wholly owned subsidiary of Jiahao
"Jiahao"	Jiahao Foodstuff Limited, a limited liability company
	incorporated under the laws of Hong Kong
"Jiahao Group"	Jiahao and its subsidiaries
"Jiahao Products"	all products relating to catering condiments of Jiahao
	Group from time to time
"Listing Rules"	the Rules Governing the Listing of Securities on the
	Main Board of the Stock Exchange
"Madam Chu"	Ms. CHU Lam Yiu, the Chairlady and CEO of the
	Company. As at the date of this announcement, Madam
	Chu, through companies wholly owned by her,
	indirectly holds in aggregate of 2,293,408,900 Shares
	of the Company, representing approximately 73.79% of
	the total issued shares of the Company
"Original Annual Caps"	the original annual caps for the continuing connected
	transactions contemplated under the Sales Framework
	Agreement for the three financial years ending 31
	December 2021, i.e. RMB50,000,000, RMB62,500,000
	and RMB78,125,000, respectively, as disclosed in the
	Previous Announcement

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"Previous Announcement"	the announcement of the Company dated 14 March
	2019 in relation to the Sales Framework Agreement
	entered into between Guangdong Jiahao and Weizhijia
"PRC" or "China"	the People's Republic of China
"RMB"	Renminbi, the lawful currency of the PRC
"Sales Framework	the sales framework agreement entered into between
Agreement"	Guangdong Jiahao and Weizhijia on 14 March 2019
	relating to the provision of Jiahao Products and related
	services between Guangdong Jiahao and members of
	Weizhijia for a term of 3 years commencing on 1
	January 2019 and expiring on 31 December 2021, both
	days inclusive
"Share(s)"	ordinary share(s) of HK$0.10 each in the share capital
	of the Company
"Shareholder(s)"	the shareholder(s) of the Company
"Stock Exchange"	The Stock Exchange of Hong Kong Limited
"Weizhijia"	Yingtan Weizhijia Food Co., Ltd., a limited liability
	company incorporated in the PRC
"Weizhijia Group"	Weizhijia and its subsidiaries
	By Order of the Board
	Huabao International Holdings Limited
	POON Chiu Kwok
	Executive Director

Hong Kong, 30 September 2019

As at the date of this announcement, the Board comprises four executive directors, namely Ms. CHU Lam Yiu (Chairlady and CEO), Messrs. XIA Liqun, POON Chiu Kwok and LAM Ka Yu and four independent non-executive directors, namely Mr. LEE Luk Shiu, Ms. MA Yunyan, Mr. WU Chi Keung and Mr. Jonathan Jun YAN.

• For identification purpose only

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