Shandong Xinhua Pharmaceutical : Overseas Regulatory Announcement

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This announcement is for information purposes only and does not constitute an invitation or offer to acquire, purchase or subscribe for securities of the Company.

山東新華製藥股份有限公司

Shandong Xinhua Pharmaceutical Company Limited

(a joint stock company established in the People's Republic of China with limited liability) (Stock Code: 00719)

OVERSEAS REGULATORY ANNOUNCEMENT

This announcement is made pursuant to Rule 13.10B of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

The announcement of Shandong Xinhua Pharmaceutical Company Limited (the "Company") in relation to the remedial measures to mitigate the immediate dilution effects of the proposed non-public issuance of A shares ("Proposed A Shares Issue"), which has been published by the Company on the website of Juchao （ http://www.cninfo.com.cn ） (the "Measures Announcement") is reproduced herein for your reference.

The Measures Announcement was originally prepared in Chinese and the English version which is reproduced herein is provided for reference only. If there is any discrepancy between the English and Chinese version, the Chinese version shall prevail.

In the paragraph headed "I. Analysis on the impact of risks arising from dilution of current returns by the non-public issuance on the key financial indicators - (II) Impact on key financial indicators" of the Measures Announcement, the net profits attributable to the shareholders of the Company in the current financial period (i.e. the financial year ending 31 December 2021) before and after deduction of non-recurring items (the "Relevant Information") are disclosed. The inclusion of the Relevant Information in the Measures Announcement is required under applicable laws and regulations of the People's Republic of China.

While the Relevant Information constitutes a profit forecast under Rule 10 of the Codes on Takeovers and Mergers (the "Takeovers Code") issued by the Securities and Futures Commission of Hong Kong (the "SFC"), shareholders and other investors should note that the Relevant Information, and any assumptions on which the Relevant Information were based, have not been prepared in compliance with the standards of care required under Rule 10 of the Takeovers Code and has not been reported on by financial advisers, auditors or accountants in accordance with the said Rule 10. Therefore, the Relevant Information should not be relied upon as a forecast of any future profitability or other financial position of the Company. Shareholders and other investors should exercise caution when reading and

interpreting the Relevant Information and when assessing the merits or demerits of the Proposed A Shares Issue and dealing or investing in the shares or other securities of the Company.

An application has been made to the Executive Director of the Corporate Finance Division of the SFC (the "Executive") for a waiver from reporting requirements set out in Rule 10 of the Takeovers Code, and the Executive has indicated that it is minded to grant such a waiver.

By Order of the Board

Shandong Xinhua Pharmaceutical Company Limited

Zhang Daiming

Chairman

14 April 2021, Zibo, PRC

As at the date of this announcement, the Board comprises:

Executive Directors:	Independent Non-executive Directors:
Mr. Zhang Daiming (Chairman)	Mr. Pan Guangcheng
Mr. Du Deping	Mr. Zhu Jianwei
Mr. He Tongqing	Mr. Lo Wah Wai
Non-executive Directors:
Mr. Cong Kechun
Mr. Xu Lie

The directors of the Company jointly and severally accept full responsibility for the accuracy of the information contained in this announcement, and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in this announcement have been arrived at after due and careful consideration and there are no other facts not contained in this announcement the omission of which would make any statements in this announcement misleading.

Stock Code: 000756

Abbreviation: Xinhua Pharm

Announcement: 2021- 29

Shandong Xinhua Pharmaceutical Company Limited

Announcement in connection with Remedial Measures to Mitigate Immediate Dilution Effects of the Proposed Non-Public Issuance of A Shares

Shandong Xinhua Pharmaceutical Company Limited (hereinafter referred to as the "Company") intends to conduct a non-public issuance of A shares (hereinafter referred to as the "Non-PublicIssuance"). At the second extraordinary meeting of the 10th session of the board of directors in 2021 held on 14 April 2021, the Company deliberated and adopted the relevant proposals on the Non-Public Issuance of the Company. After the completion of the Non-Public Issuance, the Company's net assets will increase substantially, and the total share capital will increase accordingly. Considering that the timing when the funds raised by the Non-Public Issuance will be received is uncertain and the reduction of financial expenses in 2021 is not obvious, the Company's earnings per share and return on equity may decrease to a certain extent in the short term.

In this announcement, the Company's assumptions on the analysis on operating data do not constitute the Company's profit forecast. Investors are advised to make rational investment decisions and pay attention to investment risks.

In light of the above circumstances, in accordance with the relevant requirements of the Opinions of the General Office of the State Council on Further Strengthening the Work of Protection of the Legitimate Rights and Interests of Minority Investors in the Capital Markets (Guo Ban Fa [2013] No. 110), (hereinafter referred to as the "Protection Opinions"), and the China Securities Regulatory Commission's (hereinafter referred to as the "CSRC") Guiding Opinions on Matters concerning the Dilution of Immediate Return in Initial Public Offering, Refinancing and Material Asset Restructuring (CSRC Announcement [2015] No. 31, hereinafter referred to as the "Guidance Opinions"), the Company once again analysed the impact of the Non-Public Issuance on the dilution of current returns and proposed specific measures to compensate for the returns. The relevant entities have also made undertakings that the Company's measures to compensate for the returns can be implemented. The details are as follows:

1. Analysis on the impact of risks arising from dilution of current returns by the Non-Public Issuance on the key financial indicators

After the issuance is completed, the Company's net assets will increase. In the short term, when the raised funds cannot be fully utilised, the Company's earnings per share and return on net assets may be affected to a certain extent; in the medium and long term, the increase in the amount of capital brought about by the proceeds from the Non-Public Issuance will effectively promote the expansion of the Company's business scale and further enhance the Company's business scale and profitability. The Company will actively take various measures to improve the efficiency of the use of net assets and capital in order to obtain a good rate of return on net assets.

1. Major assumptions
2. 1. Considering that the review and issuance of the Non-Public Issuance will take a certain amount of time, it is assumed that the Non-Public Issuance will be completed in October 2021, which is only an estimated date. The actual date of completion is subject to the approval of the CSRC for issuance.
   2. Without taking into account the issuance cost, and assuming that the final number of shares to be issued in the Non-Public Issuance is the upper limit of the number of shares 36,284,470 to be issued, the final number of shares to be issued is subject to the number of shares approved by the CSRC. It is also assumed that the total amount of funds raised in the Non-Public Issuance is the upper limit of the total amount of funds raised in the Non-Public Issuance, RMB 250 million.
   3. The net profit attributable to the shareholders of the parent company in 2020 was RMB 324,859,600, and the net profit attributable to the owner of the parent company after deducting non-recurring gains and losses was RMB 290,790,000. It is assumed that the net profit attributable to the owner of the parent company after deducting non-recurring gains and losses in 2021 can be classified into the following three situations:
   4. 1. increasing by 10% compared with 2020;
      2. remaining at the same level as 2020;
      3. decreasing by 10% compared with 2020.
   5. The impact on the Company's production and operation and financial condition (such as financial expenses and financial income) after the funds raised by the issuance are not taken into consideration.

1. 1. It is assumed that there are no significant adverse changes in the macroeconomic environment and the industry conditions in which the Company operates.
   2. When predicting the net assets of the Company after the issuance, the impact of other factors on the net assets of the Company is not considered except for the funds raised and the net profit after the issuance.
   3. When predicting the total issued shares of the Company, the basis relied on was the 621,859,447 shares of the total issued shares as at 31 December 2020; 5,508,000 new A shares were issued in January 2021 in accordance with the 2018 Share Option Incentive Scheme following the exercise of the share options in the first exercise period. It is assumed that apart from the aforementioned matters and the Non-Public Issuance, no other events which may cause changes in the share capital are considered.
   4. The above assumptions are intended only to measure the impact of the Non-Public Issuance diluting immediate returns on the Company's key financial indicators, and do not represent the Company's judgment of business conditions and trends in 2021, nor do they constitute a profit forecast. An investor shall not make investment decisions based on this, and the Company shall not be liable for compensation if an investor makes investment decisions based on this and incurs losses.
2. Impact on key financial indicators
   Based on the aforesaid assumptions, the impact of the Non-Public Issuance on key financial indicators of the Company as calculated by the Company is as follows:

Item				2020/31	2021/31 December 2021
			Before	the
			December 2020	After the Issuance
				Issuance
Total	share	capital	621,859,447	627,367,447		663,651,917
(share)
Scenario 1: net profit for 2021 remains at the same level
Net	profit attributable
to the shareholders	of
listed	Company	in	the	32,485.96	32,485.96		32,485.96
current period (in RMB
ten thousand)

Net	profit	attributable
to the	shareholders	of
listed		Company	after	29,079.00		29,079.00	29,079.00
deduction	of	non-
recurring items
(in RMB ten thousand)
Basic	earnings		per	0.52		0.52	0.51
share (RMB/share)
Basic	earnings		per
share after deduction of	0.47		0.46	0.46
non-recurring	items
(RMB/share)
Diluted	basic earnings
per share (RMB/share)	0.52		0.52	0.51
Diluted	basic earnings
per		share	after
deduction	of	non-	0.47		0.46	0.46
recurring items
(RMB/share)
Scenario 2：net profit for 2021 increases by 10%
Net	profit	attributable
to the	shareholders	of
listed	Company	in	the	32,485.96		35,734.55	35,734.55
current period (in RMB
ten thousand)
Net	profit	attributable
to the	shareholders	of
listed		Company	after	29,079.00		31,986.90	31,986.90
deduction	of	non-
recurring	items	(in
RMB ten thousand)
Basic	earnings		per	0.52		0.57	0.56
share (RMB/share)
Basic	earnings		per
share after deduction of	0.47		0.51	0.51
non-recurring	items
(RMB/share)
Diluted	basic earnings
per share (RMB/share)	0.52		0.57	0.56
Diluted	basic earnings
per		share	after
deduction	of	non-	0.47		0.51	0.51
recurring items
(RMB/share)
Scenario 3: net profit for 2021 decreases by 10%
Net	profit	attributable
to the	shareholders	of	32,485.96		29,237.36	29,237.36
listed	Company	in	the

current period (in RMB
ten thousand)
Net profit	attributable
to the	shareholders of
listed	Company	after	29,079.00	26,171.10	26,171.10
deduction	of	non-
recurring	items	(in
RMB ten thousand)
Basic	earnings	per	0.52	0.47	0.46
share (RMB/share)
Basic	earnings	per
share after deduction of
non-recurring		0.47	0.42	0.41
items
(RMB/share)
Diluted	basic earnings
per share (RMB/share)	0.52	0.47	0.46
Diluted	basic earnings
per	share	after
deduction	of	non-	0.47	0.42	0.41
recurring items
(RMB/share)

Notes on calculation are as follows:

1. The Company's hypothetical analysis of the annual net profit in 2021 does not constitute the Company's profit forecast, and investors shall not make investment decisions based on it. If investors make investment decisions based on it and incur losses, the Company shall not be liable for compensation.
2. The number of non-public issued shares and the completion time of issuance are only estimates, and shall be subject to the final number of shares approved by the regulatory authorities and the actual time of completion for the Issuance.
3. When forecasting the main financial indicators after the issuance of the Company, the impact of other factors on the main financial indicators is not considered except for the total amount of funds to be raised and the net profit.
   The Company reminds investors that the above analysis does not constitute the Company's profit forecast. The issuance still needs to be approved by the regulatory authorities, and there are uncertainties whether it will be approved, when it will be approved, and when the issuance will be completed. Investors are hereby reminded to pay attention to the impact of the issuance on immediate returns.

1. Risks of dilution of current returns by the Non-Public Issuance

The proceeds from the Non-Public Issuance, once received, would increase the total share capital and net assets of the Company accordingly. Nonetheless, in the short-term, the extent of increase in the Company's net profit might be lower than the extent of increase in its share capital and net assets, which will lead to risks of a certain decrease in financial indices such as earnings per share and weighted average net return on equity and dilution of the immediate shareholder returns after the issuance.

1. Necessity and feasibility analysis on the Non-Public Issuance
2. 1. Optimising the capital structure, reducing financial risk and improving the risk-resistance capacity
      As of 31 March 2021, the Company's combined asset-liability ratio was 51.43%. Compared with comparable listed companies in the same industry, the Company's asset-liability ratio has been on a relatively high trend for a long time. The Company's ability to expand its business scale is limited to a certain extent by the Company's overall capital and liability conditions. After the completion of the issuance, the Company's capital will be increased, financial expenses and asset-liability ratio will be reduced, working capital will be supplemented, capital structure will be optimised, financial position will be further improved, financial risks will be reduced, and capacity to withstand risks will be enhanced.
   2. Supplementing working capital and laying a good foundation for the Company's sustainable and stable development
      As of 31 March 2021, the total monetary capital of the Company was RMB 913,617,400, including bank deposits of RMB 787,991,000.
      In its daily operations, the Company needs to retain a certain amount of monetary funds for raw material procurement, product research and development, production and the payment of staff remuneration. As the size of the Company's business continues to grow, the Company's need for working capital will increase accordingly. At present, the Company meets the needs of working capital mainly through bank loans and other debt financing, and the asset-liability ratio is relatively higher. Therefore, it is necessary for the Company to raise funds through equity financing to supplement working capital in order to support the sustainable development of the Company's principal business.
   3. Enhancing the financial strength of the Company to provide a guarantee for the next stage of its strategic framework

At present, the Company is in the key stage of optimising its industrial framework, and supplementing working capital is of great importance to the strategic development of the Company. After the Company's financial strength is enhanced, it will continue to promote the strategy of large-scale preparations, large-scale research and development and internationalisation, and improve its internal reform and basic management. This will further enhance the Company's core competitiveness.

4. The subsidiary of the controlling shareholder subscribed for the shares issued, showing its confidence and support for the future business development of the Company

The Company's controlling shareholder plans to subscribe for the shares issued by the Company through Hualu Investment Development Co. Ltd., which reflects the controlling shareholder's determination to give firm support to the listed Company and confidence in the future development of the Company, which is conducive to the stable and sustainable development of the Company. With the injection of the funds raised by the issuance, the Company's financial situation will be improved and its risk resistance capacity will be enhanced, which is conducive to the expansion of the Company's business scale and the continued operations of its subsequent operations, and is also conducive to safeguarding the interests of the Company's small and medium-sized shareholders and realising the maximisation of the interests of the Company's shareholders.

IV.	Specific measures taken by the Company to remedy returns
	In order to protect the interests of investors, the Company will take a variety of
	measures to ensure the effective use of the raised funds, effectively prevent the
	risk of immediate returns from being diluted, and improve future returns. Specific
	measures include the following:

1. Strengthening the management of proceeds to effectively protect the interests of investors
   In accordance with the Company Law, Securities Law, Administrative Measures for the Issuance of Securities by Listed Companies, Regulatory Guidelines for Listed Companies No. 2 - Regulatory Requirements for the Management and Use of Funds Raised by Listed Companies, Rules Governing the Listing of Shares on Shenzhen Stock Exchange, Guidelines of the Shenzhen Stock Exchange for the Standard Operation of Listed Companies on the Main Board and other relevant laws and regulations, along with articles of association of the Company, the Company has formulated the

Administrative Measures for the Use of Proceeds to regulate the deposit, use, change of purpose, management and supervision of the special accounts for the proceeds. In order to ensure the Company's standardised and effective use of proceeds, after the funds raised in the issuance are received, the board of directors will continue to supervise the deposit and use of proceeds, conduct regular internal audits on proceeds, and cooperate with supervisory banks and sponsoring institutions in their inspections on the use of raised funds to ensure the reasonable and standardised use of raised funds and reasonably prevent the risks arising from the use of raised funds.

1. Strengthening the level of corporate governance to ensure the development of the Company
   The Company will strictly abide by the Company Law, Securities Law, Code of Corporate Governance of Listed Companies and other laws and regulations and regulatory documents, and continuously improve corporate governance to ensure that shareholders can fully exercise their rights and ensure that the board of directors can exercise their powers, make scientific, prompt and prudent decisions in accordance with laws, regulations and the articles of association of the Company. The Company will ensure that independent directors can perform their duties seriously, safeguard the overall interests of the Company, especially the legitimate rights and interests of minority shareholders, and ensure that the board of supervisors can independently and effectively exercise the power to supervise and inspect the directors, senior management and the Company's finances, and provide institutional guarantees for the Company's development.

1. Strictly implementing the dividend policy to ensure the return of the Company's shareholders' interests
   In accordance with the Notice on Further Implementation of Matters in Relation to Cash Dividend of Listed Companies, Regulatory Guidelines for Listed Companies No. 3 - Cash Dividend of Listed Companies and Guidelines for Articles of Association of Listed Companies and on the basis of fully considering the return on investment to shareholders and taking into account the Company's growth and development, the Company has formulated the Shareholder Return Plan for the Next Three Years (2021-2023)based on its actual circumstances, further clarifying and improving the Company's profit distribution principles and methods; profit distribution, especially the specific conditions and proportions of cash dividends; and the distribution conditions of stock dividends, improving the Company's profit distribution decision-makingprocedures and mechanisms, and the decision- making procedures for adjusting profit distribution policy.

In the future, the Company will continue to strictly implement the Company's dividend policy, strengthen the supervision and management mechanism of investor returns, and ensure that the interests of Company's shareholders, especially that of minority shareholders are protected, and strive to improve the level of shareholder returns.

(IV) Strengthening technology research and development and promoting innovation and development

The Company will fully implement the "Greater Research and Development Plan", further increase R&D investment and accelerate the reform of the scientific research system and mechanism, further improve the R&D system and R&D platform construction, and further enrich the pain control, cardiovascular and cerebrovascular, and anti-tumor categories and other new products in the R&D pipeline. The Company will accelerate the application of new preparation technologies, further upgrade high-end drug delivery systems, and achieve breakthroughs in antibody drugs and major innovative drugs.

The Company will efficiently integrate existing resources, accelerate work on subsequent products, especially the consistency evaluation of key products, and strive to obtain consistency evaluation approval for four products such as amoxicillin capsules.

1. Undertakings of directors and senior management in relation to measures to compensate for returns
   In order to implement regulations including the Opinions of the General Office of the State Council on Further Strengthening the Work of Protection of the Legitimate Rights and Interests of Minority Investors in the Capital Markets, Opinions of the State Council on Further Promoting the Sound Development of Capital Markets and the CSRC's Guiding Opinions on Matters concerning the Dilution of Immediate Return in Initial Public Offering, Refinancing and Material Asset Restructuring, and to effectively protect the legitimate interests of investors, especially those of minority investors, all directors and senior management of the Company make the following undertakings:
2. 1. "I undertake that I will not direct benefits to other units or individuals at nil consideration or on unfair terms, and will not harm the Company's interests in any other manner;
   2. I undertake that I will act to control work-related spending;

3. I undertake that I will not utilise the assets of the Company for any

	investment or consumption irrelevant with the performance of my duties;
	4. I undertake that the remuneration system formulated by the board of directors
	or the remuneration committee will correspond with the implementation of
	the Company's measures to compensate for diluted current returns;
	5. in the event of the implementation of any share option incentive scheme by
	the Company in the future, I undertake that the conditions for exercising
	options under such scheme will correspond with the implementation of the
	Company's measures to compensate for returns;
	6. from the date of the issue of this undertaking to the completion of the
	Company's Non-Public Issuance, if the state and securities regulatory
	authorities issue other new regulatory requirements on measures for listed
	companies to compensate for diluted current returns, and this undertaking
	cannot meet the requirements of the state and securities regulations, I promise
	to issue an undertaking in accordance with the latest regulations of the state
	and securities regulatory authorities; and
	7. as one of the responsible parties in relation to the measures to compensate for
	returns, if I violate the undertaking or refuse to fulfill this undertaking, I
	agree that the state or securities regulatory authorities will impose relevant
	penalties or take relevant regulatory measures in accordance with the relevant
	regulations and rules formulated or issued by it."
VI.	Undertakings of the controlling shareholder of the Company in relation to
	measures to compensate for returns
	In order to implement regulations including the Opinions of the General Office of
	the State Council on Further Strengthening the Work of Protection of the
	Legitimate Rights and Interests of Minority Investors in the Capital Markets,
	Opinions of the State Council on Further Promoting the Sound Development of
	Capital Markets and CSRC's Guiding Opinions on Matters concerning the
	Dilution of Immediate Return in Initial Public Offering, Refinancing and
	Material Asset Restructuring, and to effectively protect the legitimate interests of
	investors, especially those of minority investors, the controlling shareholder of
	the Company makes the following undertakings:
	1. "we undertake that we will not act beyond our powers to interfere with the
	Company's operating and management activities or infringe upon the
	Company's interests;

1. from the date of the issue of this undertaking to the completion of the Company's Non-Public Issuance , if the state and securities regulatory authorities issue other new regulatory requirements on measures for listed companies to compensate for diluted current returns, and this undertaking cannot meet the requirements of the state and securities regulations, we promise to issue an undertaking in accordance with the latest regulations of the state and securities regulatory authorities; and
2. we undertake to take the relevant measures to compensate for the diluted current returns formulated by the Company and fulfill this undertaking. If any loss is caused to the Company or investors due to the breach of this undertaking or the refusal to fulfill this undertaking, the Company is willing to assume the corresponding liability and compensate the losses in accordance with the law."

Board of Directors

Shandong Xinhua Pharmaceutical Company Limited

15 April 2021