Livzon Pharmaceutical : VOLUNTARY ANNOUNCEMENT LAUNCH OF FUTURES HEDGING ACTIVITIES BY CONTROLLING SUBSIDIARIES

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VOLUNTARY ANNOUNCEMENT

LAUNCH OF FUTURES HEDGING ACTIVITIES

BY CONTROLLING SUBSIDIARIES

To avoid the risk of fluctuation in the prices of principle raw materials required for production and operation, and guarantee the steady business development of Livzon Pharmaceutical Group Inc.*麗珠醫藥集團股份 有限公司 (the "Company", together with its subsidiaries, the "Group"), on 7 May 2021, the board of directors of the Company (the "Board") reviewed and approved the "Proposal on the Launch of Futures Hedging Activities by Controlling Subsidiaries" (《關於控股附屬公司開展期貨套期保值業務的議 案》), and agreed that the controlling subsidiaries of the Company, i.e. Livzon Group Xinbeijiang Pharmaceutical Manufacturing Inc.* ( 麗珠集團新北江製藥股份有限公司), Livzon Group Fuzhou Fuxing Pharmaceutical Co., Ltd.* ( 麗 珠 集 團 福 州 福 興 醫 藥 有 限 公 司 ), Livzon Group (Ningxia) Pharmaceutical Manufacturing Co., Ltd.* ( 麗 珠 集團 ( 寧 夏 ) 製 藥 有 限 公 司 ) and Sichuan Guangda Pharmaceutical Manufacturing Co., Ltd.* ( 四 川 光 大 製 藥 有 限 公 司 ), shall continue to carry out commodity futures hedging activities (the "Futures Hedging Activities").

Based on the current deposit ratio prescribed by the relevant futures exchanges and brokerage firms, the total deposit planned to be invested in the Futures Hedging Activities shall not exceed RMB20.00 million (the "Deposit"). As all applicable percentage ratios of the Deposit under Rule 14.07 of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (the "Hong Kong Listing Rules") are below 5%, the Futures Hedging Activities do not constitute notifiable transactions of the Company under Chapter 14 of the Hong Kong Listing Rules.

In accordance with the Stock Listing Rules of the Shenzhen Stock Exchange, the Hong Kong Listing Rules, the Articles of Association of the Company and other relevant rules, the Futures Hedging Activities are not required to be submitted to the general meeting of the Company for consideration. The Futures Hedging Activities do not constitute related transactions/connected transactions under the Stock Listing Rules of the Shenzhen Stock Exchange and the Hong Kong Listing Rules. This announcement is made voluntarily by the Company.

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I. BASIC INFORMATION ABOUT THE FUTURES HEDGING ACTIVITIES

1. The Futures Hedging Activities to be conducted by the Company's subsidiaries are still limited to the futures related to the principal raw materials required for the Group's production and operation, such as corn starch and sugar, and no speculative futures trading shall be engaged in.
2. Based on the production and operation budgets and planned hedging ratios of the above-mentioned controlling subsidiaries of the Company, as well as the current deposit ratio prescribed by the relevant futures exchanges, the total deposit planned to be invested in the Futures Hedging Activities as approved by the Board shall not exceed RMB20.00 million.
3. The validity period is within 12 months from the date of the Board's approval.
4. The position to be held by each of the subsidiaries of the Company in futures contracts for the Futures Hedging Activities shall not in principle exceed the quantity of spot trading of raw materials required in their production and operation plans.
5. The source of funds utilized by the controlling subsidiaries of the Company for the Futures Hedging Activities shall be in compliance with the laws and regulations, and shall not violate the national laws and regulations as well as the relevant regulations of the China Securities Regulatory Commission and the Shenzhen Stock Exchange. No bank credit fund or raised proceeds can be used directly or indirectly for the Futures Hedging Activities.

II. RISK ANALYSIS OF THE FUTURES HEDGING ACTIVITIES

The subsidiaries of the Company shall carry out the Futures Hedging Activities in a hedging principle of avoiding the risk of fluctuation in raw material price and stabilizing purchase costs, and no speculative transaction is allowed. Strict risk control shall be performed when signing hedging contracts and closing a position. The price and quantity of raw materials shall be determined based on the scale of the Group's production and operation plan. Our own funds are utilized to purchase the corresponding futures contracts in a timely manner. The prices and quantity of raw materials shall be locked up for hedging based on the operation conditions of the Group. The implementation of the Futures Hedging Activities can reduce the impact of fluctuation in raw material prices on the Group's operating results, enabling the Group to maintain a stable profit level when the raw material prices fluctuate significantly. However, there are certain risks in the Futures Hedging Activities as follows:

1. Market risk: systematic risks in the market; deviation of futures price from spot price; lack of liquidity in futures contracts.
2. Capital risk: if the amount of investment is excessive, it may result in liquidity risk.

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1. Operational risk: improper or failed operation may occur due to high professionalism in the operation of futures trading, resulting in corresponding risks. There may be risks of losses incurred from being forced to close a position due to failure to pay additional deposit as a result of significant fluctuation in the futures trading market price.
2. Technical risk: the trading system is not operating normally due to uncontrollable and unpredictable system failure, network failure, communication failure, etc., leading to problems such as delay and interruption of trading orders or data errors.
3. Policy risks: significant changes in the laws, regulations and policies of the futures market may lead to risks arising from market volatility or failure to trade.

III. RISK CONTROL MEASURES ADOPTED BY THE COMPANY

1. The Futures Hedging Activities shall be consistent with the Group's production and operation to hedge the price fluctuation risk to the maximum level. When the market experiences significant fluctuations or deviates greatly from the expected price trend, the mechanism of adjustment and revision to the hedging implementation scheme shall be strictly performed to reasonably avoid risks. On the premise of matching with raw materials required for the Group's production and operation, futures with active trading and good liquidity shall be selected for trading whenever possible.
2. The scale of the funds for the Futures Hedging Activities shall be strictly controlled. The Deposit shall be reasonably planned and utilized in line with the amount and period approved by the Board, and a strict fund transfer and approval process shall be implemented for the injection of the Deposit to ensure the amount of the Deposit to be invested in the Futures Hedging Activities at any time within the period shall not exceed the quota approved.
3. The Company has formulated the administrative measures for its Futures Hedging Activities, specifying regulations on the organization of Futures Hedging Activities and its responsibilities (including approval and licensing rights), authorization system, business process, trading risk control and other aspects. All staff involved in hedging are separated from each other in their duties and responsibilities, and shall not cross or exceed their authority in the exercise of duties and responsibilities to ensure mutual supervision and restriction. Meanwhile, the occupational ethics education and business training of relevant staff shall be constantly enhanced to improve the overall quality of relevant staff.
4. The Company has established a computer system and related facilities that meet the requirements to ensure the normal operation of the transactions. When a failure occurs, appropriate measures shall be taken in time to reduce losses.
5. The grasp and understanding of the relevant national policies and related administrative agencies shall be strengthened, and the ideas and plans in relation to the hedging shall be adjusted in a timely and reasonable manner.

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IV. PURPOSE AND NECESSITY OF FUTURES HEDGING ACTIVITIES

The Group carries out the Futures Hedging Activities for a purpose of avoiding the risks arising from the fluctuation in the prices of principal raw materials used in production and operation. The transactions relating to standardized futures contracts listed on domestic futures exchanges shall be carried out in combination with plans of sales and production procurement to hedge the price fluctuation risks in the transactions in the spot market, thereby stabilizing procurement costs and guaranteeing the steady business development of the Group.

V. IMPLICATIONS UNDER THE HONG KONG LISTING RULES

As all applicable percentage ratios of the Deposit under Rule 14.07 of the Hong Kong Listing Rules are below 5%, the Futures Hedging Activities do not constitute notifiable transactions of the Company under Chapter 14 of the Hong Kong Listing Rules.

In accordance with the Stock Listing Rules of the Shenzhen Stock Exchange, the Hong Kong Listing Rules, the Articles of Association of the Company and other relevant provisions, the Futures Hedging Activities are not required to be submitted to the general meeting of the Company for consideration. The Futures Hedging Activities do not constitute related transactions/connected transactions under the Stock Listing Rules of the Shenzhen Stock Exchange and the Hong Kong Listing Rules. This announcement is made voluntarily by the Company.

By order of the Board

麗珠醫藥集團股份有限公司

Livzon Pharmaceutical Group Inc. *

Yang Liang

Company Secretary

Zhuhai, China

7 May 2021

As at the date of this announcement, the Executive Directors of the Company are Mr. Tang Yanggang (President) and Mr. Xu Guoxiang (Vice Chairman and Vice President); the Non-Executive Directors of the Company are Mr. Zhu Baoguo (Chairman), Mr. Tao Desheng (Vice Chairman), Mr. Qiu Qingfeng and Mr. Yu Xiong; and the Independent Non-Executive Directors of the Company are Mr. Bai Hua, Mr. Zheng Zhihua, Mr. Xie Yun, Mr. Tian Qiusheng and Mr. Wong Kam Wa.

* For identification purpose only

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