China National Building Material : CONNECTED TRANSACTIONS - CONSOLIDATION OF TESTING BUSINESS

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

(a joint stock limited company incorporated in the People's Republic of China with limited liability of its members)

CONNECTED TRANSACTIONS

CONSOLIDATION OF TESTING BUSINESS

On 8 November 2019, Suzhou Academy, Tianshan Zhuyou, NRDI, Beijing FRP Institute, Industrial Ceramics Institute and Beijing Synthetic Crystals (all being indirect subsidiaries of the Company, collectively "Testing Business Sellers") respectively entered into agreements (collectively, "Testing Business Agreements") with China Certification Group, pursuant to which the Testing Business Sellers have agreed to consolidate their testing business with China Certification Group by way of asset transfer, equity transfer or establishment of joint ventures.

As the Parent has a direct and indirect equity interest of approximately 41.55% in aggregate in the Company, it is a substantial shareholder of the Company and thus a connected person of the Company under the Listing Rules. China Certification Group is an indirect subsidiary of the Parent and thus a connected person of the Company. Accordingly, the Testing Business Agreements and the transactions contemplated thereunder constitute connected transactions of the Company.

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Each of the transactions contemplated under the Suzhou Academy Transaction, Tianshan Transaction, Beijing FRP Institute Transaction, Industrial Ceramics Institute Transaction, and Beijing Synthetic Crystals Transaction, for which all respective applicable percentage ratios are below 0.1%, is fully exempt according to Rule 14A.76(1) of the Listing Rules. As one or more percentage ratios as defined under Rule 14.07 of the Listing Rules for (i) the formation of joint venture under the NRDI Transaction, on its own and when aggregated with the aforesaid transactions relating to formation of joint venture; and (ii) the disposal under the NRDI Transaction is, on its own and when aggregated with the aforesaid transactions relating to disposal, are higher than 0.1% but all applicable percentage ratios are less than 5%, and according to Rule 14A.76(2) of the Listing Rules, is exempt from the circular and shareholders' approval requirements and is only subject to the announcement and reporting requirements under the Listing Rules.

INTRODUCTION

On 8 November 2019, Suzhou Academy, Tianshan Zhuyou, NRDI, Beijing FRP Institute, Industrial Ceramics Institute and Beijing Synthetic Crystals (all being indirect subsidiaries of the Company, collectively "Testing Business Sellers") respectively entered into agreements with China Certification Group (an indirect subsidiary of the Parent), pursuant to which the Testing Business Sellers have agreed to consolidate their testing business with China Certification Group by way of asset transfer, equity transfer or establishment of joint ventures (please see below for details).

PRINCIPAL TERMS OF TESTING BUSINESS AGREEMENTS

Suzhou Academy Transaction and Tianshan Transaction

Date of Agreements

8 November 2019

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Parties
	Seller	Buyer	Target Company
Suzhou Academy	Suzhou Academy	China Certification	Suzhou Test Center
Transaction		(an indirect	Group	(an indirect
		subsidiary of the		subsidiary of the
		Company)		Company)
Tianshan	Tianshan Zhuyou	Tianshan Cement	Tianshan Testing (an
Transaction		(an indirect	(a direct subsidiary	indirect subsidiary
		subsidiary of the	of the Company);	of the Company)
		Company)	China Certification
			Group
Nature of Transaction
Suzhou Academy		Pursuant to the agreement entered into between Suzhou
Transaction:		A c a d e m y a n d C h i n a C e r t i f i c a t i o n G r o u p , C h i n a
		Certification Group has agreed to purchase, and Suzhou
		Academy has agreed to sell 65% equity interest in Suzhou
		Test Center. Upon completion of the Suzhou Academy
		Transaction, China Certification Group will hold 65%
		equity interest in Suzhou Test Center, and Suzhou
		Academy will hold 35% equity interest in Suzhou Test
		Center. Suzhou Test Center will cease to be a subsidiary of
		Suzhou Academy.
Tianshan Transaction:	Pursuant to the agreement entered into between Tianshan
		Zhuyou and China Certification Group, Tianshan Zhuyou
		has agreed to sell 51% equity interest in Tianshan Testing
		to China Certification Group and 49% equity interest in

Tianshan Testing to Tianshan Cement. Upon completion of the Tianshan Transaction, China Certification Group will hold 51% equity interest in Tianshan Testing, and Tianshan Cement will hold 49% equity interest in Tianshan Testing. Tianshan Testing will cease to be a subsidiary of Tianshan Cement.

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Consideration
Relevant	Consideration and basis of
transaction	determination	Payment terms

Suzhou Academy	R M B 3 1 . 3 1 7 m i l l i o n , •
Transaction	determined after arm's length
	negotiation and taking into
	consideration the appraised
	equity value of Suzhou Test
	Center as at 31 December
	2018 as set out in the Suzhou •
	T e s t C e n t e r V a l u a t i o n
	Report.

50% to be paid in cash within

15 working days from the date of fulfillment of the conditions precedent and the conditions for taking effect;

50% to be paid in cash within

20 working days from the date of signing the closing confirmation and completion of the change of industrial and commercial information registration at the relevant authority.

Tianshan	R M B 1 . 8 5 1 3	m i l l i o n •
Transaction	(comprising RMB0 . 9442
	million to be paid by China
	C e r t i f i ca tion	Group and

RMB0.9071 million to be paid by Tianshan Cement), determined after arm's length negotiation and taking into consideration the appraised equity value of Tianshan Testing as at 31 July 2019 as set out in the Tianshan Testing Valuation Report.

Conditions Precedent

To be paid in cash within 15 working days from the date of fulfillment of the conditions precedent and the conditions for taking effect.

The respective conditions precedent under the Suzhou Academy Transaction and Tianshan Transaction are: (1) the seller and the target company having obtained the permission and consent of all third parties who will enter into and carry out the obligation under the agreement, as well as approval of government authorities, and (2) the entering into and carrying out of the obligations under the transaction documents will not result in the seller and Tianshan Testing violating any applicable PRC laws or any agreement entered into by the seller and the target company.

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Conditions for Taking Effect

Under the Suzhou Academy Transaction and Tianshan Transaction, each of the agreement will take effect respectively after: (1) the execution of the agreement by both parties; (2) the obtaining of the approval of both parties' respective superior department in charge and of competent decision-making authority; (3) filing of the valuation report of relevant target companies by the Parent; and (4) the execution of the revised articles of association of the target companies by both parties.

Profit Undertaking and Indemnity

Under the Suzhou Academy Transaction, Suzhou Academy undertakes to China Certification Group that it will provide profit undertaking and indemnity during the profit undertaking period. For details, please refer to the section headed "Profit Guarantee" in this announcement.

NRDI Transaction, Beijing FRP Institute Transaction and Industrial Ceramics Institute Transaction

Date of Joint Venture Agreements

8 November 2019

Parties and Nature of Transactions

1. Establishment of Joint Ventures

Each of NRDI, Beijing FRP Institute and Industrial Ceramics Institute (all being indirect subsidiaries of the Company) and China Certification Group have respectively entered into a joint venture agreement, pursuant to which the relevant joint venture parties have agreed to subscribe capital contribution by monetary funds to establish the following joint ventures respectively in the shareholding ratios as follows:

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		Joint venture parties and
		their capital contribution
Relevant		and shareholding in the
transactions	New joint ventures	relevant joint venture
NRDI Transaction	China Building Material	NRDI: 49%, contributing
	Test & Certification	RMB66.64 million;
	Group Nanjing Co., Ltd.
	(Note a)	China Certification Group:
		51%, contributing
		RMB69.36 million
Beijing FRP	Beijing FRP Research and	Beijing FRP Institute: 49%,
Institute	Design Institute Testing	RMB23.422 million;
Transaction	Technology Co., Ltd.
	(Note b)	China Certification Group:
		51%, contributing
		RMB24.378 million
Industrial Ceramics	China Building Material	Industrial Ceramics Institute:
Institute	Test & Certification	49%, RMB5.39 million;
Transaction	Group Zibo Co., Ltd.
	(Note c)	China Certification Group:
		51%, contributing
		RMB5.61 million

Notes:

1. The board of directors of this joint venture company will comprise 5 directors. NRDI and China Certification Group will each be entitled to nominate two directors, and one director will be elected by the employees' representatives conference or the general meeting of staff.
2. The board of directors of this joint venture company will comprise 5 directors. Beijing FRP Institute and China Certification Group will each be entitled to nominate two directors, and one director will be elected by the employees' representatives conference or the general meeting of staff.
3. The board of directors of this joint venture company will comprise 5 directors. Industrial Ceramics Institute will be entitled to nominate one director, China Certification Group will be entitled to nominate three directors, and one director will be elected by the employees' representatives conference or the general meeting of staff.

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2. Business Transfer

After the establishment of the relevant new joint venture companies, it is contemplated that NRDI, Beijing FRP Institute and Industrial Ceramics Institute will transferred their respective assets and liabilities in relation to their testing business to their corresponding new joint venture. It is contemplated that the relevant asset and liability transfer agreements will be signed for this purpose.

Consideration for Business Transfers

Under the NRDI Transaction, Beijing FRP Institute Transaction and Industrial Ceramics Institute Transaction, the cash consideration contemplated to be received by the joint venture parties which are members of the Group (namely NRDI, Beijing FRP Institute and Industrial Ceramics Institute) for the business transfers are as follows:

Relevant transactions	Cash consideration
NRDI Transaction	RMB136 million
Beijing FRP Institute	RMB47.6652 million
Transaction
Industrial Ceramics Institute	Based on the amount of RMB4.9071 million as adjusted
Transaction	on the closing date#, the final transfer price will not
	exceed RMB6 million

#Note: Consideration = value of non-current assets as at 31 December 2018 (i.e. RMB4.9071 million)

• (newly added non-current assets during the period from 31 December 2018 to closing date
  - non-current assets decreased during the period from 31 December 2018 to closing date) + (current assets as at the date of completion of closing - liabilities as at the date of completion of closing)

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The consideration for each of the business transfer was respectively determined after arm's length negotiation and considering the appraised value of target business as at 31 December 2018 as set out in the NRDI Valuation Report, Beijing FRP Institute Valuation Report and Industrial Ceramics Institute Valuation Report.

Under the NRDI Transaction and Beijing FRP Institute Transaction, a part of the consideration for the business transfer, being RMB68 million and RMB23.8326 million, respectively, shall be paid in cash within 15 working days after the corresponding assets and liabilities transfer agreement has taken effect. 90% of the consideration will have already been paid within 5 working days after NRDI and Beijing FRP Institute have completed their obligation of contributing capital to the new joint ventures respectively. 95% of the consideration will have already been paid in cash within 30 working days after the signing of closing confirmation at the closing of business transfer. The remaining 5% of the consideration will be paid after the corresponding certificates have been obtained with the cooperation provided by NRDI and Beijing FRP Institute to China Certification Group respectively.

Under the Industrial Ceramics Institute Transaction, a part of the consideration for the business transfer, namely RMB2.75 million, will be paid in cash within 15 working days after the corresponding assets and liabilities transfer agreement has taken effect.

80% of the consideration will already been paid in cash within 30 working days after the signing of closing confirmation at the closing of business transfer. The remaining 20% of the consideration will be paid upon the completion of the transfer of relevant certificates and the procedures for change of labour relations of the relevant employees.

Conditions for Taking Effect for Business Transfers

Under the NRDI Transaction, Beijing FRP Institute Transaction and Industrial Ceramics Institute Transaction, the corresponding assets and liabilities transfer agreement will take effect after: (1) obtaining of the approval of the competent authorities of NRDI, Beijing FRP Institute and Industrial Ceramics Institute respectively; (2) obtaining of the approval of the shareholders of China Certification Group；(3) filing of the corresponding valuation report by the Parent; and (4) execution of the agreement by both parties.

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Profit Undertaking and Indemnity

Under the business transfer transactions contemplated under each of the NRDI Transaction and Beijing FRP Institute Transaction, it is contemplated that each of NRDI and Beijing FRP Institute will undertake to the new joint ventures (as purchasers of the relevant businesses) respectively that it will provide profit undertaking and indemnity during the profit undertaking period. For details, please refer to the section headed "Profit Guarantee" in this announcement.

Beijing Synthetic Crystals Transaction

Agreement Date

8 November 2019

Parties

Seller: Beijing Synthetic Crystals, an indirect subsidiary of the Company

Buyer: China Certification Group

Nature of Transaction

China Certification Group has agreed to purchase, and Beijing Synthetic Crystals has agreed to sell its assets and liabilities in relation to the testing business.

Consideration

The consideration is RMB6.1021 million. The consideration was determined after arm's length negotiation and considering the appraised value of the assets and liabilities in relation to the testing business of Beijing Synthetic Crystals as at 31 December 2018 as set out in the Beijing Synthetic Crystals Valuation Report. The consideration may be reduced in accordance with the terms of the agreement.

50% of the consideration shall be paid in cash within 15 working days after the agreement has taken effect. 30% of the consideration shall be paid in cash within 30 working days from the date of signing the closing confirmation upon the completion of closing, and the remaining 20% shall be paid after the completion of the transfer of the relevant certificates and completion of the transfer of social security accounts for all the employees of the target testing business of Beijing Synthetic Crystals.

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Conditions for Taking Effect

The agreement shall take effect after: (1) obtaining of the approval of the competent authority of Beijing Synthetic Crystal; (2) obtaining of the approval of the shareholders of China Certification Group; (3) filing of the valuation report of Beijing Synthetic Crystal by the Parent; and (4) execution of the agreement by both parties.

Profit Undertaking and Indemnity

Beijing Synthetic Crystals undertakes to China Certification Group that it will provide profit undertaking and indemnity during the profit undertaking period. For details, please refer to the section headed "Profit Guarantee" in this announcement.

Profit Guarantee

Pursuant to the relevant agreements of the Suzhou Academy Transaction, NRDI Transaction (with respect to business transfer), Beijing FRP Institute Transaction (with respect to business transfer) and Beijing Synthetic Crystals Transaction, the respective audited net profit attributable to equity holders (after deduction of non-recurring profit or loss) of the corresponding target company/target business for each of the financial years ended 31 December 2019, 2020 and 2021 shall be not less than the amount of profit undertaking specified below, respectively:

	Total for FY
Target company/Target business	2019-2020	FY2019	FY2020	FY2021
Suzhou Test Center	RMB13,670,400	RMB3,909,200	RMB4,595,800	RMB5,165,400
Target testing business of NRDI	RMB35,760,000	RMB10,390,000	RMB11,980,000	RMB13,390,000
Target testing business of Beijing
FRP Institute	RMB13,771,000	RMB4,222,400	RMB4,555,300	RMB4,993,300
Target testing business of Beijing
Synthetic Crystals	RMB1,805,300	RMB538,200	RMB600,300	RMB667,000

Each of Suzhou Academy, NRDI, Beijing FRP Institute and Beijing Synthetic Crystals (the "Undertaking Parties") guarantees to China Certification Group and the corresponding joint venture (the "Indemnified Parties") that, as of 31 December 2021, the accrued realised net profit attributable to equity holders (after deduction of non-recurring profit or loss) during the profit indemnity period will not be less than the guaranteed amount set out above, and the net profit attributable to equity holders (after deduction of non-recurring profit or loss) of the corresponding target company/ target business for each year will not be less than 85% of the guaranteed amount set out above.

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During the first two years of the profit undertaking period, if the audited net profit attributable to equity holders (after deduction of non-recurring profit or loss) of the corresponding target company/target business for the current year fails to meet 85% of the guaranteed amount set out above, the corresponding Undertaking Party is required to pay type 1 cash compensation to the corresponding Indemnified Party. During the last year of the profit undertaking period, if the accrued audited net profit attributable to equity holders (after deduction of non-recurring profit or loss) of the corresponding target company/target business for that year fails to meet the accrued guaranteed net profit benchmark for the 2019-2021 profit indemnity period set out above, the corresponding Undertaking Party is required to pay type 2 cash compensation to the corresponding Indemnified Party. The method of calculation of cash compensation is set out below:

Target company/
Target business	Type 1 cash compensation	Type 2 cash compensation

Suzhou Test Center Payable cash compensation = China Certification Group's current cost of shareholding

• (accrued guaranteed net profit benchmark for the current period under profit indemnity - accrued realised net profit benchmark for
  the current period under profit indemnity) ÷ accrued

g u a r a n t e e d n e t p r o f i t benchmark for the three

years (Note #)

Payable cash compensation = China Certification Group's current cost of shareholding × ( 1 - a c c r u e d r e a l i s e d n e t p r o f i t b e n c h m a r k ÷ accrued guaranteed net profit benchmark) - accrued cash compensated

Target testing	Payable cash compensation = Payable cash compensation =
business of NRDI	consideration paid by the	consideration paid by the
	corresponding Indemnified	corresponding Indemnified
Target testing	Party for acquiring target	Party for acquiring target
business of Beijing	b u s i n e s s × ( g u a r a n t e e d	t e s t i n g b u s i n e s s × ( 1 -
FRP Institute	net profit benchmark for	accrued realised net profit
	the current period under	b e n c h m a r k	÷ a c c r u e d
Target testing	profit indemnity - realised	g u a r a n t e e d	n e t p r o f i t
business of Beijing	net profit benchmark for	benchmark) - accrued cash
Synthetic Crystals	the current period under	compensated (Note ##)

profit indemnity) ÷ accrued g u a r a n t e e d n e t p r o f i t benchmark for the three years

Note# : If the accrued realised net profit of Suzhou Test Center has reached the accrued guaranteed net profit benchmark for the 2019-2021 profit indemnity period set out above, the cash compensation already received by China Certification Group will be refunded to Suzhou Academy.

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Note##: If the calculated compensation amount for the current period is a negative value, the cash compensation already received by the relevant Indemnified Party will not be refunded.

The compensation amount of the corresponding Undertaking Party will not exceed the total consideration received by the corresponding Undertaking Party in the corresponding transaction.

INFORMATION ON RELEVANT PARTIES

The Group

The Group is a leading building materials company in the PRC with principal operations in cement, new materials, and engineering services business segments. The non-wholly owned subsidiaries directly and indirectly held by the Company set out below are principally engaged in the businesses as follows:

• Suzhou Academy is principally engaged in services such as testing, inspection, research, development and advisory of building materials and products;
• Tianshan Zhuyou is principally engaged in Open-pit mining of construction sand; production and sales of commercial concrete; production and sales of sand and gravel for construction;
• Tianshan Cement is principally engaged in development, production, sales and technical services of cement and related products; import and export of building materials; production and sales of commercial concrete; mining, processing and sales of limestone and sandstone;
• NRDI is principally engaged in quality testing and study of testing methods for glass fiber and heat-proof materials; technological development, manufacturing, sales, advisory, services of inorganic non-metal materials and new types of building materials;
• Beijing FRP Institute is principally engaged in technical services including research, development, manufacture, processing, sale and testing of high quality composite materials for the transportation, construction engineering, electronics and electricity, aviation and aerospace sectors; research, development and production of glass steel, composite materials, raw and auxiliary materials;

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• Industrial Ceramics Institute is principally engaged in development, production, sales, testing and inspection of industrial ceramic products, specialty ceramics and fibre products;
• Beijing Synthetic Crystals is principally engaged in engineering and technological research, experimental development and testing of stones.

China Certification Group

China Certification Group is a company listed on the main board of the Shanghai Stock Exchange and is principally engaged in services such as testing, verification and certification in the building materials and construction engineering sectors, and research, development and sales of equipment and devices, standard samples and reference materials.

The Parent

The Parent is a state-owned limited liability company engaged in the business of building materials in the PRC.

INFORMATION OF THE TARGETS

Suzhou Test Center

Prior to completion of the Suzhou Academy Transaction, Suzhou Test Center was a wholly-owned subsidiary of Suzhou Academy principally engaged in testing, inspection, research, development, advisory and services of building materials and products, and services such as construction of hydraulic and hydro-power projects, industrial and civil buildings and institutional projects. After completion of the Suzhou Academy Transaction, Suzhou Test Center will cease to be a subsidiary of Suzhou Academy.

According to the Suzhou Test Center Valuation Report, the book value and the appraised value (using income approach) of the 100% equity interest in Suzhou Test Center as at 31 December 2018 were as follows:

	Total Book Value	Total Appraised Value
	(RMB)	(RMB)
	(as at 31 December 2018)	(as at 31 December 2018)
Suzhou Test Center	2.0637 million	48.1816 million

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Pursuant to the audited accounts of Suzhou Test Center for the years ended 31 December 2017 and 31 December 2018, respectively, prepared in accordance with generally accepted accounting principles of the PRC, the net profits (before taxation) of the Suzhou Test Center for 2017 and 2018 amounted to approximately RMB2,727,545.11 and RMB5,724,685.62, respectively, and the net profits (after taxation) of the Suzhou Test Center for 2017 and 2018 amounted to approximately RMB2,103,921.38 and RMB5,053,088.72, respectively.

Tianshan Testing

Prior to completion of the Tianshan Transaction, Tianshan Testing was a subsidiary of Tianshan Cement, mainly engaged in testing of construction steel, cement, sands for construction-use, and study, development and application, technology transfer and technological services of new type construction materials and chemical products. Upon completion of the Tianshan Transaction, Tianshan Testing will cease to be a subsidiary of Tianshan Cement.

According to the Tianshan Testing Valuation Report, the book value and the appraised value (using asset approach) of the 100% equity interests of Tianshan Testing as at 31 July 2019 were as follows:

	Total Book Value	Total Appraised Value
	(RMB)	(RMB)
	(as at 31 July 2019)	(as at 31 July 2019)
Tianshan Testing	1.9107 million	1.8513 million

Pursuant to the audited accounts of Tianshan Testing for the years ended 31 December 2017 and 31 December 2018, respectively, prepared in accordance with generally accepted accounting principles of the PRC, the net profits (before taxation) of Tianshan Testing for 2017 and 2018 amounted to approximately RMB-1,223,628.81 and RMB-934,279.93, respectively, and the net profits (after taxation) of Tianshan Testing for 2017 and 2018 amounted to approximately RMB-1,225,093.55 and RMB-935,695.30, respectively.

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Assets and liabilities of the testing business of each of NRDI, Beijing FRP Institute, Industrial Ceramics Institute and Beijing Synthetic Crystals

According to the NRDI Valuation Report, Beijing FRP Institute Valuation Report, Industrial Ceramics Institute Valuation Report and Beijing Synthetic Crystals Valuation Report, the book value and the appraised value of the relevant net assets of the testing business as at 31 December 2018 were as follows:

	Total Book Value	Total Appraised Value
	(RMB)	(RMB)
	(as at 31 December 2018)	(as at 31 December 2018)
Target business of NRDI	10.3514 million	136.0002 million(1)
Target business of Beijing
FRP Institute	8.0650 million	47.6652 million(1)
Target business of
Industrial Ceramics
Institute	3.0639 million	5.30 million(2)
Target business of Beijing
Synthetic Crystals	0.5069 million	6.1021 million(1)

Notes: (1) valuation adopting income approach; (2) valuation adopting asset approach

FINANCIAL EFFECT OF THE DISPOSAL OF EQUITY INTEREST AND BUSINESS AND USE OF PROCEEDS

According to the preliminary estimation of the Company, after the disposal of equity interests under the Suzhou Academy Transaction and Tianshan Transaction and the disposal of assets and liabilities under NRDI Transaction, Beijing FRP Institute Transaction, Industrial Ceramics Institute Transaction and Beijing Synthetic Crystals Transaction, the Group will record a gain (before-tax) attributable to the shareholders of the Company of approximately RMB30.50 million, RMB-30,030, RMB125.65 million, RMB39.60 million, RMB2.65 million and RMB5.79 million respectively, which are estimated amounts calculated by subtracting the book value of net assets of the relevant targets (except that for Suzhou Academy Transaction, it is by subtracting the book value of long-term investment from the consideration, for Industrial Ceramics Institute Transaction, it is by subtracting the book value of net assets and depreciation for the period from January to October 2019 from the consideration, and for Beijing Synthetic Crystals Transaction, by subtracting the book value of net assets and profit or loss for the period from 1 January 2019 to 30 September 2019 from the consideration) and other related cost and expenses from the consideration of relevant disposals (the net income from the disposals still needs to be audited by the accountant of the Company and reported in the consolidated financial statements of the Company).

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The proceeds from the transactions are intended to be used for working capital of the Group.

VALUATION OF THE EQUITY INTERESTS

The Suzhou Test Center Valuation Report in respect of the equity interests of the target company (i.e. Suzhou Test Center) under the Suzhou Academy Transaction adopts the income approach, and constitutes a profit forecast under Rules 14A.06(32) and 14.61 of the Listing Rules.

Baker Tilly Hong Kong Limited, the reporting accountant of the Company, has reported on the accounting policies and the calculations for the forecast used in the Suzhou Test Center Valuation Report. So far as the calculations are concerned, the income approach has been properly compiled in all material respects in accordance with the bases and assumptions adopted by the Directors as set out in the Suzhou Test Center Valuation Report. Please see Report from the Reporting Accountant in Appendix I.

The Board has confirmed that the profit forecast has been made after due and careful enquiry by the Board. Please see Letter from the Board in Appendix II.

Principal Assumptions Adopted in the Valuation Report

The principal assumptions used in the Suzhou Test Center Valuation Report, among others, are set out as below:

1. Basic assumptions

1. Transaction assumption

The transaction assumption assumes all assets to be appraised are already in the process of transaction, and the valuation conducted by the valuer is based on a simulated market in accordance with the conditions of transaction of the assets to be appraised. Transaction assumption is the most fundamental assumption of the valuation of assets.

2. Open-market assumption

The open-market assumption assumes that both parties of the transaction of assets traded or to be traded in the market are at equal status and have opportunities and time to get adequate market information so as to make rational judgments on the function, usage and trading price of the assets. Open-market assumption is based on the fact that the assets can be publicly traded in the market.

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3. Going-concern assets assumption

The going-concern assets assumption means that the valuation method, parameters and basis are to be determined according to the condition that the appraised assets will be used as a going-concern in consistent with the current function, way, scale, frequency and environment of use, or used on the basis of some changes.

4. Going-concern assumption

Going-concern assumption assumes that the appraised entity will continue its operations and its manner of operation will be the same as its current manner of operation.

1. General assumptions
2. 1. It is assumed that following the valuation benchmark date, there are no significant changes to the appraised entity and the political, economic, social or other macro-environment in the place where it operates, which would affect its operation;
   2. It is assumed that except for the laws and regulations that have been promulgated by the government (whether they have come into force or not) as of the valuation benchmark date which affect the operation of the appraised entity, there will be no significant changes in the laws and regulations in relation to the operation of the appraised entity during the earning period;
   3. It is assumed that following the valuation benchmark date, there will be no force majeure and unforeseeable events which would affect the operations of the appraised entity;
   4. It is assumed that the materials provided by the commissioning party and the appraised entity are true, complete and reliable, and there are no defects or contingencies which may affect the valuation conclusions that should have been provided by the commissioning party/appraised entity but remain unavailable to the valuer who has fulfilled the requisite valuation procedures;
   5. There will be no significant changes in the social and economic environment where the appraised entity is situated, and there will be no significant changes in the relevant laws, regulations and policies of the country and the region where the appraised entity is situated.

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1. Assumptions in relation to this valuation
2. 1. The scope and manner of operation and the mode of management of the appraised entity will, on the basis of maintaining consistency, be able to be adjusted and innovated timely as market, science and technology evolve.
   2. There will be no dispute over title and other matters of economic dispute over the assets and liabilities reported by the appraised entity.
   3. The production and operation and the economic behaviour in connection with the production and operation of the appraised entity comply with national laws and regulations.

Expert qualification, consent and opinions

The qualification of the expert who has given its statement in this announcement is as follows:

Name	Qualification
Baker Tilly Hong Kong	Certified Public Accountants
Limited

As at the date of this announcement, the expert listed above does not have:

1. any direct or indirect interest in any assets which have been acquired or disposed of by or leased to any member of the Group, or are proposed to be acquired or disposed of by or leased to any member of the Group since 31 December 2018, being the date to which the latest published audited financial statements of the Group were made up; and
2. any shareholding in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

Baker Tilly Hong Kong Limited has given and has not withdrawn its consent to the issue of this announcement with the inclusion of its letter and reference to its name in the form and context in which it appears.

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REASONS FOR AND BENEFITS OF THE TESTING BUSINESS AGREEMENTS AND THE TRANSACTIONS CONTEMPLATED THEREUNDER

The restructuring and consolidation of the Testing Business with China Certification Group will be favourable to resolving the issues of peer competition between the Group and China Certification Group.

In respect of the Suzhou Academy Transaction and Tianshan Transaction, given the relatively small scale of the Suzhou Test Center and the narrow scope of its testing business, and that Tianshan Testing has little qualifications and a single business, through the consolidation, it is conducive to resource sharing and business development.

In respect of the NRDI Transaction, Beijing FRP Institute Transaction, Industrial Ceramics Institute Transaction, Beijing Synthetic Crystals Transaction, it will generate synergies from their respective business sectors, share resources, complement advantages, realise synergetic development, so that it will further expand their influence in the industry and increase their market share and profitability.

Except for the Beijing Synthetic Crystals Transaction, after the transactions, the Group will continue to hold equity interest in the joint ventures so that it will be able to share the benefit of future development.

The Board (including the independent non-executive Directors) is of the view that the terms of the Testing Business Agreements are fair and reasonable, and the transactions under the Testing Business Agreements are conducted on normal commercial terms, in the ordinary and usual course of business of the Group, and in the interests of the Company and its shareholders as a whole.

None of the Directors has a material interest in the transactions contemplated under the Testing Business Agreements or is required to abstain from voting on the relevant Board resolution.

LISTING RULES IMPLICATIONS

As the Parent has a direct and indirect equity interest of approximately 41.55% in aggregate in the Company, it is a substantial shareholder of the Company and thus a connected person of the Company under the Listing Rules. China Certification Group is an indirect subsidiary of the Parent and thus a connected person of the Company. Accordingly, the Testing Business Agreements and transactions contemplated thereunder constitute connected transactions of the Company.

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Each of the transactions contemplated under the Suzhou Academy Transaction, Tianshan Transaction, Beijing FRP Institute Transaction, Industrial Ceramics Institute Transaction, and Beijing Synthetic Crystals Transaction, for which all respective applicable percentage ratios are below 0.1%, is fully exempt according to Rule 14A.76(1) of the Listing Rules. As one or more applicable percentage ratios as defined under Rule 14.07 of the Listing Rules for (i) the formation of joint venture under the NRDI Transaction, on its own and when aggregated with the aforesaid transactions relating to formation of joint venture; and (ii) the disposal under the NRDI Transaction is, on its own and when aggregated with the aforesaid transactions relating to disposal, are higher than 0.1% but all applicable percentage ratios are less than 5%, and according to Rule 14A.76(2) of the Listing Rules, is exempt from the circular and shareholders' approval requirements and is only subject to the announcement and reporting requirements under the Listing Rules.

DEFINITIONS
"Beijing FRP Institute"	北 京 玻 璃 鋼 研 究 設 計 院 有 限 公 司(Beijing
	FRP Research and Design Institute Co., Ltd.*)
"Beijing FRP Institute	the formation of a joint venture, Beijing FRP
Transaction"	Research and Design Institute Testing Technology
	Co., Ltd., by Beijing FRP Institute and China
	Certification Group and the transfer of testing
	related assets and liabilities by Beijing FRP
	Institute to the joint venture
"Beijing FRP Institute Valuation	the valuation report in respect of the testing related
Report"	assets and liabilities of Beijing FRP Institute,
	prepared by the Valuer for the purpose of the
	Beijing FRP Institute Transaction
"Beijing Synthetic Crystals"	北 京 中 材 人 工 晶 體 研 究 院 有 限 公 司(Beijing
	Sinoma Synthetic Crystals Co., Ltd. *
"Beijing Synthetic Crystals	the disposal of the testing related assets and
Transaction"	liabilities by Beijing Synthetic Crystals to China
	Certification Group
"Beijing Synthetic Crystals	the valuation report in respect of the testing related
Valuation Report"	assets and liabilities of Beijing Synthetic Crystals,
	prepared by the Valuer for the purpose of the
	Beijing Synthetic Crystals Transaction
"Board"	the board of Directors of the Company

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"China Certification Group"	中國建材檢驗認證集團股份有限公司(China
	Building Material Test & Certification Group Co.,
	Ltd.*), a joint stock limited company incorporated
	under the laws of the PRC, the shares of which
	are listed on the main board of the Shanghai Stock
	Exchange
"Company"	中 國 建 材 股 份 有 限 公 司(China National
	Building Material Company Limited*), a joint
	stock limited company incorporated under the laws
	of the PRC, the H shares of which are listed on The
	Stock Exchange of Hong Kong Limited
"Director(s)"	the directors of the Company
"Group"	the Company and its subsidiaries from time to time
"Industrial Ceramics Institute"	山東工業陶瓷研究設計院有限公司(Shandong
	Industrial Ceramics Research & Design Institute
	Co., Ltd.)
"Industrial Ceramics Institute	the formation of a joint venture, China Building
Transaction"	Material Test & Certification Group Zibo Co.,
	Ltd., by Industrial Ceramics Institute and China
	Certification Group and the transfer of testing
	related assets and liabilities by Industrial Ceramics
	Institute to the joint venture
"Industrial Ceramics Institute	the valuation report in respect of the testing
Valuation Report"	related assets and liabilities of Industrial Ceramics
	Institute, prepared by the Valuer for the purpose of
	the Industrial Ceramics Institute Transaction
"Listing Rules"	the Rules Governing the Listing of Securities on
	The Stock Exchange of Hong Kong Limited
"NRDI"	南 京 玻 璃 纖 維 研 究 設 計 院 有 限 公 司(Nanjing
	Fiberglass R&D Institute Co., Ltd. *)
"NRDI Transaction"	the formation of a joint venture, China Building
	Material Test & Certification Group Nanjing Co.,
	Ltd., by NRDI and China Certification Group and
	the transfer of testing related assets and liabilities
	by NRDI to the joint venture

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"NRDI Valuation Report"	the valuation report in respect of the testing related
	assets and liabilities of NRDI, prepared by the
	Valuer for the purpose of the NRDI Transaction
"Parent"	中 國 建 築 材 料 集 團 有 限 公 司(China National
	Building Material Group Co., Ltd.*), a state-owned
	limited liability company incorporated under the
	laws of the PRC and a controlling shareholder of
	the Company
"PRC"	the People's Republic of China, excluding, for the
	purpose of this announcement only, the Hong Kong
	Special Administrative Region, the Macau Special
	Administrative Region and Taiwan
"RMB"	Renminbi, the lawful currency of the PRC
"Suzhou Academy"	蘇州混凝土水泥製品研究院有限公司(Suzhou
	Concrete Cement Products Academy Co., Ltd.*)
"Suzhou Academy Transaction"	the disposal of 65% equity interest in Suzhou Test
	Center by Suzhou Academy to China Certification
	Group
"Suzhou Test Center"	蘇 州 混 凝 土 水 泥 製 品 研 究 院 檢 測 中 心 有
	限 公 司(Suzhou Concrete and Cement Products
	Research Institute Test Center Co. Ltd.)
"Suzhou Test Center Valuation	the valuation report in respect of the equity interest
Report"	in Suzhou Test Center, prepared by the Valuer for
	the purpose of the Suzhou Academy Transaction
"Tianshan Cement"	新 疆 天 山 水 泥 股 份 有 限 公 司(Xinjiang
	Tianshan Cement Co., Ltd.*), a joint stock limited
	company incorporated under the laws of the PRC,
	the shares of which are listed on the main board of
	the Shenzhen Stock Exchange
"Tianshan Testing"	新 疆 天 山 建 築 材 料 檢 測 有 限 公 司(Xinjiang
	Tianshan Building Materials Inspection & Testing
	Co., Ltd.*)
"Tianshan Transaction"	the transfer of 51% and 49% equity interest
	in Tianshan Testing by Tianshan Zhuyou to
	China Certification Group and Tianshan Cement
	respectively

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"Tianshan Zhuyou"	新疆天山築友混凝土有限責任公司(Tianshan
	Zhuyou Cement Co., Ltd*)
"Tianshan Testing Valuation	the valuation report in respect of the equity interest
Report"	in Tianshan Testing, prepared by the Valuer for the
	purpose of the Tianshan Transaction
"Valuer"	北 京 亞 超 資 產 評 估 有 限 公 司(Beijing Yachao
	Asset Appraisal Co.,Ltd.*)
	By order of the Board
	China National Building Material Company Limited*
	Yu Kaijun
	Secretary of the Board
Beijing, the PRC
8 November 2019

As at the date of this announcement, the board of directors of the Company comprises Mr. Cao Jianglin, Mr. Peng Shou and Mr. Cui Xingtai as executive directors, Ms. Xu Weibing, Mr. Chang Zhangli, Mr. Tao Zheng, Mr. Chen Yongxin, Mr. Shen Yungang and Ms. Fan Xiaoyan as non-executive directors and Mr. Sun Yanjun, Mr. Liu Jianwen, Mr. Zhou Fangsheng, Mr. Qian Fengsheng and Ms. Xia Xue as independent non-executive directors.

• For identification purposes only

- 23 -

APPENDIX 1 REPORT FROM THE REPORTING ACCOUNTANT

The following is the text of a report received from the reporting accountant, Baker Tilly Hong Kong Limited, Certified Public Accountants, for inclusion in this announcement.

INDEPENDENT ASSURANCE REPORT ON THE CALCULATIONS OF DISCOUNTED FUTURE CASH FLOWS IN CONNECTION WITH THE BUSINESS VALUATION OF SUZHOU CONCRETE AND CEMENT PRODUCTS RESEARCH INSTITUTE TEST CENTER CO. LTD. *

To the Board of Directors of China National Building Material Company Limited (the "CNBM")

We refer to the discounted future cash flows on which the business valuation ("the Valuation") dated 28 October 2019 prepared by 北 京 亞 超 資 產 評 估 有 限 公 司 (Beijing YaChao Asset Appraisal Co., Ltd.*) in respect of the appraisal of the fair value of the entire equity interest of 蘇 州 混 凝 土 水 泥 製 品 研 究 院 檢 測 中 心 有 限 公 司(Suzhou Concrete and Cement Products Research Institute Test Center Co. Ltd.*, or "Suzhou Test Center") as at 31 December 2018 is based.

The Valuation is prepared based in part on the discounted future cash flows and is regarded as a profit forecast under Rules 14A.06 and 14.61 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the "Listing Rules").

Directors' Responsibilities

The directors of CNBM (the "Directors") are responsible for the preparation of the discounted future cash flows in accordance with the bases and assumptions determined by the Directors and as set out in the Valuation. This responsibility includes carrying out appropriate procedures relevant to the preparation of the discounted future cash flows for the Valuation and applying an appropriate basis of preparation; and making estimates that are reasonable in the circumstances.

• For identification purpose only

- 24 -

Our Independence and Quality Control

We have complied with the independence and other ethical requirements of the Code of Ethics for Professional Accountants issued by the Hong Kong Institutes of Certified Public Accountants ("HKICPA"), which is founded on fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behavior.

The firm applies Hong Kong Standard on Quality Control 1 "Quality Control for Firms That Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements" issued by the HKICPA and accordingly maintains a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements.

Reporting Accountants' Responsibilities

Our responsibility is to report, as required by Rules 14A.68(7) and 14.62(2) of the Listing Rules, on the calculations of the discounted future cash flows used in the Valuation. The discounted future cash flows do not involve the adoption of accounting policies.

Basis of opinion

We conducted our engagement in accordance with the Hong Kong Standard on Assurance Engagements 3000 (Revised) "Assurance Engagements Other Than Audits or Reviews of Historical Financial Information" issued by the HKICPA. This standard requires that we plan and perform our work to obtain reasonable assurance as to whether, so far as the calculations are concerned, the Directors have properly compiled the discounted future cash flows in accordance with the bases and assumptions adopted by the Directors as set out in the Valuation. We performed procedure on the arithmetical calculations and the compilations of the discounted future cash flows in accordance with the bases and assumptions adopted by the Directors. Our work is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing issued by the HKICPA. Accordingly, we do not express an audit opinion.

- 25 -

Opinion

In our opinion, so far as the calculations are concerned, the discounted future cash flows have been properly compiled in all material respects in accordance with the bases and assumptions adopted by the Directors as set out in the Valuation.

Other matters

Without qualifying our opinion, we draw to your attention that we are not reporting on the appropriateness and validity of the bases and assumptions on which the discounted future cash flows are based and our work does not constitute any valuation of Suzhou Test Center or an expression of an audit or review opinion on the Valuation.

The discounted future cash flows depend on future events and on a number of assumptions which cannot be confirmed and verified in the same way as past results and not all of which may remain valid throughout the period. Our work has been undertaken for the purpose of reporting solely to you under Rules 14A.68(7) and 14.62(2) of the Listing Rules and for no other purpose. We accept no responsibility to any other person in respect of, arising out of or in connection with our work.

Yours faithfully,

Baker Tilly Hong Kong Limited

Certified Public Accountants

Hong Kong, 8 November 2019

Gao Yajun

Practising Certificate Number P06391

- 26 -

APPENDIX II LETTER FROM THE BOARD

8 November 2019

The Listing Division

The Stock Exchange of Hong Kong Limited

12th Floor, One International Finance Centre

1 Harbour View Street

Central, Hong Kong

Dear Sirs,

CONNECTED TRANSACTION -

DISPOSAL OF EQUITY INTEREST IN SUZHOU CONCRETE AND

CEMENT PRODUCTS RESEARCH INSTITUTE TEST CENTER CO., LTD.

( 蘇 州 混 凝 土 水 泥 製 品 研 究 院 檢 測 中 心 有 限 公 司)

We refer to the valuation report (Bei Jing Ya Chao Ping Bao Zi (2019) No.A206) dated 28 October 2019 prepared by 北 京 亞 超 資 產 評 估 有 限 公 司(Beijing Yachao Asset Appraisal Co., Ltd.*) (the "Independent Valuer") in relation to the valuation ("Valuation") of the equity interests of a subsidiary of 中 國 建 材 股 份 有 限 公 司 (China National Building Material Company Limited*) (the "Company"), Suzhou Concrete and Cement Products Research Institute Test Center Co., Ltd. ( 蘇 州 混 凝 土 水 泥 製 品 研 究 院 檢 測 中 心 有 限 公 司) ("Suzhou Test Center") as at 31 December 2018:

As the Valuation adopts the income approach based on Suzhou Test Center, the Valuation constitutes a profit forecast under Rules 14A.06(32) and 14.61 of the Listing Rules and accordingly, Rules 14A.68(7) and 14.62 of the Listing Rules are applicable.

We have discussed with the Independent Valuer about different aspects including the bases and assumptions upon which the Valuation has been prepared, and reviewed the Valuation for which the Independent Valuer is responsible. We have also considered the report from our reporting accountant, Baker Tilly Hong Kong Limited, regarding whether the Valuation was compiled properly so far as the calculations are concerned.

- 27 -

Pursuant to the requirements of Rules 14A.68(7) and 14.62(3) of the Listing Rules, we are of the opinion that the Valuation prepared by the Independent Valuer has been made after due and careful enquiry.

Yours faithfully,

By order of the Board

China National Building Material Company Limited*

Cao Jianglin

Chairman

Beijing, the PRC

• For identification purpose only

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