Huabao International : CONNECTED TRANSACTIONS WITH GUANGDONG TOBACCO COMPANY

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(Incorporated in Bermuda with limited liability)

(Stock Code: 00336)

CONNECTED TRANSACTIONS WITH GUANGDONG TOBACCO COMPANY

TRANSACTIONS WITH GUANGDONG TOBACCO COMPANY

The seven purchase orders all dated 18 March 2021 placed by Guangdong Tobacco with the Group in relation to the provision of flavours (tobacco flavours) and auxiliary materials for an aggregate consideration of RMB7,009,378 by the Group to Guangdong Tobacco Company, as confirmed as accepted by the Group on 23 March 2021. The purchase orders referred to in the Sales Agreement were confirmed as accepted by the Group on 23 March 2021.

The Company indirectly holds approximately 55.375% equity interests in Guangdong Jinke, which is regarded as an indirect non-wholly owned subsidiary of the Company. Guangdong Tobacco holds 17.5% equity interest in Guangdong Jinke. Guangdong Tobacco Company are regarded as connected persons at the subsidiary level of the Company under the Listing Rules. Transactions between the Group and Guangdong Tobacco Company for sale and purchase of flavours (tobacco flavours), RTL products, granules, auxiliary materials, etc. constitute connected transactions of the Company.

IMPLICATIONS UNDER THE LISTING RULES

Prior to the entering into the Sales Agreement, the transaction amount between the Group and Guangdong Tobacco Company for the period from 1 January 2021 to 3 March 2021 (being the date on which the purchase order last placed by Guangdong Tobacco Company as confirmed as accepted by the Group) amounted to approximately RMB38,968,345 (per the latest management accounts), which did not exceed 1% of the applicable percentage ratios as calculated pursuant to Rule 14.07 of the Listing Rules.

Since one or more of the applicable percentage ratios of the transaction amount of the transactions contemplated under the Sales Agreement, when aggregated with the previous transaction amount between the Group and Guangdong Tobacco Company incurred prior to the date of this announcement, exceed 1% but not more than 5%, such transactions contemplated under the Sales Agreement and the previous transactions are subject to the reporting, annual review, and announcement requirements, but are exempt from the independent shareholders' approval requirements.

TRANSACTIONS WITH GUANGDONG TOBACCO COMPANY

The seven purchase orders all dated 18 March 2021 placed by Guangdong Tobacco with the Group in relation to the provision of flavours (tobacco flavours) and auxiliary materials for an aggregate consideration of RMB7,009,378 by the Group to Guangdong Tobacco Company, as confirmed as accepted by the Group on 23 March 2021. The purchase orders referred to in the Sales Agreement were confirmed as accepted by the Group on 23 March 2021.

RELATIONSHIP BETWEEN THE PARTIES

The Group is principally engaged in the research and development, production, distribution and sales of flavours and fragrances, tobacco raw materials (comprising the RTL and tobacco new materials products), aroma raw materials, condiment products in the PRC.

Guangdong Tobacco is a PRC state-owned tobacco entity, and is primarily engaged in cigarettes production. Guangdong Tobacco Company is one of the largest tobacco manufacturing groups in the PRC and one of the long-term customers of the Group's products.

The Company indirectly holds approximately 55.375% equity interests in Guangdong Jinke, which is regarded as an indirect non-wholly owned subsidiary of the Company. Guangdong Tobacco holds 17.5% equity interest in Guangdong Jinke. As at the date of this announcement and to the best knowledge of the Company, the other shareholders, holding an aggregate 27.125% equity interests in Guangdong Jinke, are China National Tobacco Corporation Guangdong Company, China Tobacco Guangxi Tiancheng Investment Management Co., Ltd. and China Tobacco Industry Development Center whom, according to the information available to the Company, are parties independent of, and not connected with, the Company and its connected persons. Guangdong Tobacco Company are regarded as connected persons at the subsidiary level of the Company under the Listing Rules.

Huabao Flavours is a subsidiary of the Company and its shares are listed on the ChiNext of Shenzhen Stock Exchange (Stock Code: 300741).

Each of Guangzhou Hua Fang and Owada Flavours is an indirect non-wholly owned subsidiary of the Company. As at the date of this announcement and to the best knowledge of the Company, the other shareholders, holding an aggregate 49% equity interests in Guangzhou Hua Fang, are Guangdong Tobacco (16.3%) and China Tobacco Investment Management Company (32.7%).

Accordingly, transactions between the Group and Guangdong Tobacco Company for sale and purchase of flavours (tobacco flavours), RTL products, granules, auxiliary materials, etc. constitute connected transactions of the Company under the Listing Rules.

SALES AGREEMENT

The seven purchase orders all dated 18 March 2021 placed by Guangdong Tobacco Company with the Group in relation to the provision of flavours (tobacco flavours) and auxiliary materials for an aggregate consideration of RMB7,009,378 by the Group to Guangdong Tobacco Company, as confirmed as accepted by the Group on 23 March 2021. Principal terms of the purchase orders placed by Guangdong Tobacco with the Group are set out below:

(A)

Date:

18 March 2021

Parties:

• (i) Guangdong Tobacco

• (ii) Guangdong Jinke

Subject Matter:

Provision of auxiliary materials by the Group to Guangdong Tobacco Company

Transaction amount:

RMB645,133 (RMB729,000, inclusive of tax)

Payment terms:

Payments of the transaction amounts will be settled in arrears by cash transfer

(B)

Date:

18 March 2021

Parties:

• (i) Guangdong Tobacco

• (ii) Huabao Flavours

Subject Matter:

Provision of flavours (tobacco flavours) by the Group to Guangdong Tobacco Company

Transaction amount:

RMB691,419 (RMB781,303, inclusive of tax)

Payment terms:

Payments of the transaction amounts will be settled in arrears by cash transfer

(C)

Date:

18 March 2021

Parties:

Subject Matter:

• (i) Guangdong Tobacco

• (ii) Huabao FlavoursProvision of flavours (tobacco flavours) by the Group to Guangdong Tobacco Company

Transaction amount:

RMB3,556,493 (RMB4,018,837, inclusive of tax)

Payment terms:

Payments of the transaction amounts will be settled in arrears by cash transfer

(D)

Date:

18 March 2021

Parties:

Subject Matter:

• (i) Guangdong Tobacco

• (ii) Guangzhou Hua FangProvision of flavours (tobacco flavours) by the Group to Guangdong Tobacco Company

Transaction amount:RMB871,974 (RMB985,331, inclusive of tax)

Payment terms:

Payments of the transaction amounts will be settled in arrears by cash transfer

(E)

Date:

18 March 2021

Parties:

Subject Matter:

• (i) Guangdong Tobacco

• (ii) Owada FlavoursProvision of flavours (tobacco flavours) by the Group to Guangdong Tobacco Company

Transaction amount:

RMB269,077 (RMB304,057, inclusive of tax)

Payment terms:

Payments of the transaction amounts will be settled in arrears by cash transfer

(F)

Date:

18 March 2021

Parties:

Subject Matter:

• (i) Guangdong Tobacco

• (ii) Owada FlavoursProvision of flavours (tobacco flavours) by the Group to Guangdong Tobacco Company

Transaction amount:RMB951,903 (RMB1,075,650, inclusive of tax)

Payment terms:

Payments of the transaction amounts will be settled in arrears by cash transfer

(G)

Date:

18 March 2021

Parties:

Subject Matter:

• (i) Guangdong Tobacco

• (ii) Owada Flavours

Provision of flavours (tobacco flavours) by the Group to Guangdong Tobacco Company

Transaction amount:

RMB23,380 (RMB26,419, inclusive of tax)

Payment terms:

Payments of the transaction amounts will be settled in arrears by cash transfer

Upon receipt of the above purchase orders and in compliance with the internal control system, the Group has conducted the procedures mentioned in the section headed "PRICING TERMS UNDER THE SALES AGREEMENT" and the production and inventory review to ensure that it could meet with the orders placed by Guangdong Tobacco. The Group provided its confirmation by accepting the Sales Agreement on 23 March 2021.

PRICING TERMS UNDER THE SALES AGREEMENT

Guangdong Tobacco Company has been a long term customer of the Group. As between Guangdong Tobacco Company and the Group, the basis of pricing for provision of the products by the Group to Guangdong Tobacco Company is as follows:

• (i) Insofar as the provision of tobacco flavours products are concerned, the pricing will be based on bidding prices which shall be determined in accordance with the applicable Bidding Laws of the PRC and according to the internal bidding practice and policy of the Company. During the process, various departments including the Company's marketing department, finance department and technology department will work in collaboration in the bidding process and in process management. The bidding quotations will be determined after taken into consideration factors such as product costs, investments costs for required research and development, tender quantities and relevant requirements as per tender documents, and follow-up on the tender process and results. The Company will be formally notified upon winning the bid, and the Company will sell the products to the counterparty at the winning bid price. Therefore, the bidding price will be determined in accordance with the due bidding process and on a fair and open basis.

• (ii) Insofar as the provision of RTL products and auxiliary products are concerned, the pricing will basically be market-driven according to the prevailing market conditions. Prior to the entering into or where appropriate accepting the Sales Agreement, the Group has conducted enquiry process by which the Group has made reference to at least two contemporaneous transactions with unrelated third parties for similar products and services and comparing the pricing terms for the transactions with those with connected persons to ensure that the prices and terms offered by Guangdong Tobacco are on normal commercial terms and are fair and reasonable and comparable to those offered by independent third parties.

HISTORICAL TRANSACTION AMOUNTS WITH GUANGDONG TOBACCO COMPANY

The annual cap in relation to the continuing connected transactions between the Group and Guangdong Tobacco Company contemplated under 2020-GD Framework Agreement is set to be not exceeding RMB213,000,000 for the year ended 31 December 2020, the aggregate of the actual transaction amount paid by Guangdong Tobacco Company to the Group was approximately RMB152,435,000 (audited). Prior to the entering into the Sales Agreement, the transaction amount between the Group and Guangdong Tobacco Company for the period from 1 January 2021 to 3 March 2021 (being the date on which the purchase order last placed by Guangdong Tobacco Company as confirmed as accepted by the Group) amounted to approximately RMB38,968,345 (per the latest management accounts), which did not exceed 1% of the applicable percentage ratios as calculated pursuant to Rule 14.07 of the Listing Rules.

The Board considers that the transactions by the Group with Guangdong Tobacco Company is necessary for the Group, and is beneficial for the business operations, expansion and provision of better customer services of the Group.

BOARD CONFIRMATION

The Directors (including all the independent non-executive Directors of the Company) are of the opinion that the Sales Agreement was entered into: (i) in the ordinary and usual course of business of the Group; (ii) on normal commercial terms (on arm's length basis) or better or on terms no less favourable than those terms offered by the Group to independent third party for similar products and services in its ordinary and usual course of business; and (iii) and that the terms of the agreement and the transaction amounts as aforesaid are fair and reasonable. The Directors (including all the independent non-executive Directors of the Company) are of the view that the connected transactions contemplated under the agreement as aforesaid are in the interests of the Company and its Shareholders as a whole.

To the best belief and knowledge of the Directors, as at the date of this announcement, Guangdong Tobacco Company does not hold any interest in the shares of the Company. In addition, each Director has confirmed that he/she does not hold any equity interest in Guangdong Tobacco Company. No Directors are required to abstain from voting on the resolutions in respect of the Sales Agreement.

IMPLICATIONS UNDER THE LISTING RULES

Prior to the entering into the Sales Agreement, the transaction amount between the Group and Guangdong Tobacco Company for the period from 1 January 2021 to 3 March 2021 (being the date on which the purchase order last placed by Guangdong Tobacco Company as confirmed as accepted by the Group) amounted to approximately RMB38,968,345 (per the latest management accounts), which did not exceed 1% of the applicable percentage ratios as calculated pursuant to Rule 14.07 of the Listing Rules.

Since one or more of the applicable percentage ratios of the transaction amount of the transactions contemplated under the Sales Agreement, when aggregated with the previous transaction amount between the Group and Guangdong Tobacco Company incurred prior to the date of this announcement, exceed 1% but not more than 5%, such transactions contemplated under the Sales Agreement and the previous transactions are subject to the reporting, annual review, and announcement requirements, but are exempt from the independent shareholders' approval requirements.

The transactions between Guangdong Tobacco Company to the Group are subject to aggregation under the Listing Rules. The Company will continue to monitor the transaction amounts between the Group and Guangdong Tobacco Company and re-comply with all applicable reporting, disclosure and, if applicable and required, independent shareholders' requirements under Chapter 14A of the Listing Rules.

DEFINITIONS

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

Huabao International Holdings Limited

POON Chiu Kwok

Executive Director

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 purposes only

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