Asset Acquisitions and Disposals::Proposed disposal of minority stake in Dairy Subsidiary

JAPFA LTD

(Company Registration Number: 200819599W) (Incorporated in Singapore on 8 October 2008)

PROPOSED DISPOSAL OF MINORITY STAKE IN DAIRY SUBSIDIARY

1. Introduction

The Board of Directors ("Directors") of Japfa Ltd ("Company") and together with its subsidiaries, the "Group") wishes to announce that the Company has today entered into Sale and Purchase Agreements (the "SPAs" and each, a "SPA") for the sale of shares (the "Sale Shares") representing an aggregate of 7.5% of the issued shares of its subsidiary, AustAsia Investment Holdings Pte Ltd ("AIH") with the following parties (each an "Investor" and collectively, the "Investors"):

1. Plutus Taurus Technology HK Limited ("Genki"), a subsidiary of Genki Forest Technology Group Holdings Limited ("Genki Parent"), for the sale of 16,805,598 shares, representing 5.0% of the issued shares of AIH (the "Genki Shares"); and
2. Honest Dairy Group Co., Ltd. ("Honest Dairy") for the sale of 8,402,799 shares, representing 2.5% of the issued shares of AIH (the "HD Shares", and collectively with the Genki Shares, the "Sale Shares"),

(collectively, the "Proposed Transactions"). The due and punctual performance of the obligations of Genki under its SPA, Deed of Ratification and the Shareholders' Agreement (each as defined below) are guaranteed by the Genki Parent.

Each Investor has, in connection with its respective Proposed Transaction, entered into (i) a deed of ratification and accession ("Deed of Ratification and Accession") pursuant to which it shall, subject to completion of the sale and purchase of its respective Sale Shares ("Completion") having taken place, and with effect from its Completion, be bound by, and be entitled to the benefit of, all the terms and conditions of the shareholders' agreement1 in respect of AIH (the "Shareholders' Agreement"); and (ii) a contract with subsidiaries of AIH to provide for the supply of raw milk to such Investor on a 5-year rolling basis, renewable annually ("Milk Supply Agreement").

AIH is the holding company of the Group's dairy farming business ("AustAsia Group")2.

2. Rationale for the Proposed Transactions

The Proposed Transactions are part of the Company's plans to grow the AustAsia Group into the largest independent raw milk producer in China. In July 2020, the Company brought in Meiji Co., Ltd. ("Meiji") as a strategic shareholder of AIH, through its sale to Meiji of such number of AIH shares representing 25% of the issued shares of AIH. The Proposed Transactions build on this strategy by adding strategic investors who are milk processors with branded dairy products as

1. Please refer to the announcement by the Company dated 15 April 2020 in relation to the disposal of a 25% stake in AIH to Meiji for further details of key terms of the Shareholders' Agreement.
2. AustAsia Group also operates cattle feedlots producing beef in China.

shareholders of AIH. Following Completion, the Company will remain the single largest and controlling shareholder in AIH with a 67.5% stake.

The Directors are of the view that the Proposed Transactions are in the best interests of the Company and its shareholders.

• The Investors are both milk processors and existing customers of the AustAsia Group. The Proposed Transactions will allow AustAsia to team up with strategic Chinese dairy partners.
• The Milk Supply Agreements entered in connection with the Proposed Transactions will also provide a revenue stream for the AustAsia Group, as it provides for the supply of certain quantity of milk to the Investors.

3. Principal terms of the Proposed Transactions

Consideration

The aggregate consideration for the Proposed Transactions is a cash amount of US$87.6 million ("Consideration") comprising:

1. US$58.4 million3 from Genki for its acquisition of16,805,598 shares, representing 5.0% of the issued shares of AIH; and
2. US$29.2 million3 from Honest Dairy for its acquisition of 8,402,799 shares, representing 2.5% of the issued shares of AIH.

The Consideration implies a 100% equity value of US$1,168 million for AIH.

Each Investor will pay its respective consideration to the Company on or prior to the date of its respective Completion.

The respective consideration for each Investor was arrived at on a "willing-buyer,willing-seller" basis, after taking into account (amongst others) the financial position of the AustAsia Group. The Company believes that the Consideration reflects fairly the valuation of the AustAsia Group at the current stage of its development. No independent valuation was conducted for the Proposed Transaction.

Completion

Completion of:

1. the sale and purchase of the Genki Shares is expected to take place on or about 15 Business Days after the date of this announcement; and
2. the sale and purchase of the HD Shares is expected to take place on or about 3 Business Days after the date of this announcement.

4. Book Value and Net Tangible Asset Value of the shares in AIH being disposed

As at 30 June 2021, the book value and net tangible asset value of the Sale Shares was US$55.1 million and US$55.0 million respectively. The book value and net tangible asset value of the Sale shares was computed based on 7.5% of the unaudited consolidated book value and net tangible asset value of AIH as at 30 June 2021 of US$734.1 million and US$733.4 million respectively.

3 Representing a price per share of US$3.475 (rounded to 3 decimal places).

1. Gain on disposal from the Proposed Transactions
   For illustration purposes, based on the Consideration of US$87.6 million and the book value of the Sale Shares of US$55.1 million as at 30 June 2021, the estimated Group's gain from the disposal of the Sale Shares to be recorded in the equity is US$32.5 million4.
2. Proceeds from the Proposed Transactions
   The Proposed Transactions will realise cash proceeds of US$87.6 million and thereby strengthen the Group's financial position. The Group intends to use the proceeds of the Proposed Transactions for general working capital and corporate purposes.
3. Relative Figures Under Rule 1006 of the Listing Manual of the SGX-ST
   The relative figures for the Proposed Transactions as computed on the bases set out in Rule 1006 of the Listing Manual of the SGX-ST ("Listing Manual") and the latest announced unaudited consolidated financial statements of the Group for the financial period ended 30 June 2021 are as follows:

Rule 1006	Base	Relative	figure
		computed	in
		accordance with the
		bases set out in Rule
		1006
(a)	The net asset value of the assets to be disposed of,		2.8%(2)
	compared with the Group's net asset value.
(b)	The net profit(1) attributable to the assets disposed of,		2.4%(3)
	compared with the Group's consolidated net profits.
(c)	The aggregate value of the consideration received,		8.5% (4)
	compared with the Company's market capitalisation
	based on the total number of issued shares excluding
	treasury shares.
(d)	The number of equity securities issued by the Company	Not applicable
	as consideration for an acquisition, compared with the
	number of equity securities previously in issue.
(e)	The aggregate volume or amount of proven and probable	Not applicable
	reserves to be acquired, compared with the aggregate of
	the Group's proven and probable reserves.

Notes:

1. Under Rule 1002(3)(b) of the Listing Manual, "net profits" means profit before income tax, minority interests and extraordinary items.
2. The unaudited net asset value of the Group as at 30 June 2021 was US$1,948.9 million. The net asset value of the Sale Shares was US$55.1 million, computed based on 7.5% of the unaudited consolidated net asset value of AIH, which was US$734.1 million as at 30 June 2021.
3. The Group's unaudited net profits for the period from 1 January 2021 to 30 June 2021 was US$235.1 million. The unaudited net profits for the period from 1 January 2021 to 30 June 2021 attributable to the Sale Shares was US$5.5 million, computed based on 7.5% of the unaudited consolidated net profits of AIH, which was US$73.7 million for the period from 1 January 2021 to 30 June 2021.
4. Based on the Consideration of US$87.6 million, and the Company's market capitalisation (without taking into consideration debt at Company level) of approximately US$1,036.6 million. The Company's market capitalisation is determined by multiplying the number of shares in issue of 2,047,070,320 (excluding

4 The actual gain on disposal to be recorded in the equity will be determined based on the book value of the shares in AIH being disposed at Completion.

20,353,000 treasury shares) by the closing price of S$0.685 (US$0.51) per share on 27 August 2021, being the market day preceding the date of this announcement.

8. Financial Effects on the Proposed Transactions

The pro forma financial effects of the Proposed Transactions on the Group set out below are purely for illustrative purposes only and are therefore not indicative of the actual future financial position of the Group after the completion of the Proposed Transactions.

Effect on Net Tangible AssetsAs at 31 December 2020

For illustrative purposes only, the financial effects of the Proposed Transactions on the net tangible assets per share of the issuer as at 31 December 2020 (based on the audited consolidated financial statements of the Group for the financial year ended 31 December 2020, being the most recently completed financial year), assuming completion of the Proposed Transactions had taken place on

31 December 2020, are as follows:

		Before Proposed	After Proposed Transactions
		Transactions
Consolidated Net Tangible	1,405.5	1,444.2 (1)(2)
Asset attributable to
shareholders of the Company
(US$ million)
Number of issued shares as at	2,026,084,720	2,026,084,720
31 December 2020
(excluding treasury shares)
Consolidated Net tangible	0.69	0.71
assets per share (US$)
Consolidated Net	Tangible	0.92	0.94
Assets per share (S$)
computed based	on the
exchange rate of US$1.00 : S$
1.3221 as at 31 December
2020

Notes:

1. Adjusted for the increase in the Group's net tangible assets attributable to shareholders of the Company of US$38.7 million arising from the gain on disposal of shares in AIH from the Proposed Transactions. The gain on disposal from the Proposed Transactions was computed based on the Consideration of US$87.6 million and the book value of the AIH shares being disposed of US$48.9 million as at 31 December 2020. The book value of the AIH shares being disposed was computed based on 7.5% of the audited consolidated book value of AIH as at 31 December 2020 of US$651.7 million.
2. Assume no other costs (such as tax and other transaction costs) arising from the Proposed Transactions.

As at 30 June 2021

For illustrative purposes only, the financial effects of the Proposed Transactions on the net tangible assets per share of the issuer as at 30 June 2021 (based on the latest announced unaudited consolidated financial statements of the Group for the financial period beginning 1 January 2021

and ended on 30 June 2021), assuming completion of the Proposed Transactions had taken place on 30 June 2021, are as follows:

		Before Proposed	After Proposed Transactions
		Transactions
Consolidated Net Tangible	1,350.0	1,382.5 (1)(2)
Asset attributable to
shareholders of the Company
(US$ million)
Number of issued shares as at	2,047,070,320	2,047,070,320
30 June 2021
(excluding treasury shares)
Consolidated Net tangible	0.66	0.68
assets per share (US$)
Consolidated Net	Tangible	0.89	0.91
Assets per share (S$)
computed based	on the
exchange rate of US$1.00 : S$
1.3444 as at 30 June 2021

Notes:

1. Adjusted for the increase in the Group's net tangible assets attributable to shareholders of the Company of US$32.5 million arising from the gain on disposal of shares in AIH from the Proposed Transactions. The gain on disposal from the Proposed Transactions was computed based on the Consideration of US$87.6 million and the book value of the AIH shares being disposed of US$55.1 million as at 30 June 2021. The book value of the AIH shares being disposed was computed based on 7.5% of the unaudited consolidated book value of AIH as at 30 June 2021 of US$734.1 million.
2. Assume no other costs (such as tax and other transaction costs) arising from the Proposed Transactions.

Effect on Earnings Per Share

For illustrative purposes only, the financial effects of the Proposed Transactions on the earnings per share of the issuer (based on the audited consolidated financial statements of the Group for the financial year ended 31 December 2020, being the most recently completed financial year), assuming completion of the Proposed Transactions had taken place on 1 January 2020, are as follows:

	Before Proposed	After Proposed Transactions
	Transactions
Profit after tax attributable to	322.0	314.8 (1)(2)
shareholders of the Company
(US$ million)
Weighted average number of	2,029,455,016	2,029,455,016
issued shares as at 31
December 2020
(excluding treasury shares)