Elite Color Environmental Resources Science&Technology Co.Ltd(002998) : Announcement on carrying out commodity futures hedging business

Securities code: Elite Color Environmental Resources Science&Technology Co.Ltd(002998) securities abbreviation: Elite Color Environmental Resources Science&Technology Co.Ltd(002998) Announcement No.: 2022010

Elite Color Environmental Resources Science&Technology Co.Ltd(002998)

Announcement on carrying out commodity futures hedging business

The company and all members of the board of directors guarantee that there are no false records, misleading statements or major omissions in the contents of the announcement, and bear individual and joint liabilities for the authenticity, accuracy and completeness of the contents.

Elite Color Environmental Resources Science&Technology Co.Ltd(002998) (hereinafter referred to as "the company") held the second meeting of the third board of directors and the second meeting of the third board of supervisors on April 13, 2022, deliberated and adopted the proposal on developing commodity hedging business. The company is approved to carry out the hedging business of raw material commodity futures related to production and operation. The specific contents are announced as follows:

1、 Purpose of commodity hedging business

The company is engaged in commodity futures hedging, mainly by buying (selling) futures contracts with the same amount of spot inventory (forward orders) and the opposite trading direction, so as to avoid the risk of price fluctuation.

2、 Development of commodity hedging business in 2021

After the deliberation and approval of the 15th meeting of the second board of directors, it is agreed that the company will carry out futures hedging business with a total maximum margin of no more than 40 million yuan within 12 months after the deliberation and approval of the board of directors. In 2021, the maximum amount of margin occupied by the company for commodity hedging business was 1.4635 million yuan, the investment varieties were purified terephthalic acid and ethylene glycol, and the cumulative investment income was 823700 yuan.

3、 Basic information of commodity hedging business to be carried out

1. Futures varieties to be invested: commodity futures varieties such as purified terephthalic acid (PTA) and ethylene glycol (MEG) related to raw materials required for production and operation.

2. Amount of capital to be invested and business period: according to the actual situation of the company, the total maximum amount of margin for futures hedging such as purified terephthalic acid (PTA) and ethylene glycol (MEG) is no more than 40 million yuan, and the business period is 2022.

In principle, the holding time of the company's hedging futures position shall match the time period of taking risks in the spot market. After signing the spot contract, the holding time of the corresponding hedging position shall not exceed the time specified in the spot contract or the actual execution time of the contract

3. The company's futures hedging business meets the relevant conditions for the application of hedging accounting methods specified in the accounting standards for business enterprises.

4、 Risk analysis of hedging business

The commodity futures hedging business conducted by the company follows the basic principle of locking the price of raw materials and does not engage in speculative trading operations. Therefore, strict risk control is carried out when signing hedging contracts and closing positions. Commodity futures hedging operation can assess the impact of material price fluctuations on the company, so that the company can focus on production and operation, and maintain a stable profit level when the price of raw materials fluctuates sharply, but there will also be some risks.

1. Price fluctuation risk: when the futures market changes greatly, the company may not be able to sell the hedging contract at or above the cost price of raw materials, resulting in losses.

2. Capital risk: futures trading adopts the margin and mark to market system. If the market changes sharply, it may cause capital liquidity risk, and even be forced to close the position because it is too late to supplement the margin, resulting in actual losses.

3. Internal control risk: futures trading is highly risky and complex, which may cause risks due to imperfect internal control system.

4. Technical risk: technical risk may be caused by incomplete computer system.

5. Risk due to improper operation of trading personnel

5、 Risk control measures taken by the company

1. Organization control: the company establishes a hedging business working group as the management organization responsible for hedging business, which is responsible for the formulation of trading plans and the coordination and communication of information with external cooperative institutions. The working group is composed of the general manager, the Secretary of the board of directors, the chief financial officer, the head of the audit department and other personnel related to commodity hedging business. The working group makes decisions on commodity hedging business in the form of meeting, which can be adopted only with the approval of more than two-thirds of the members.

2. Risk management: the company uses risk control measures before, during and after the event to prevent, discover and resolve risks.

A. Before carrying out commodity hedging business, the company must:

(1) Carefully select financial institutions and commodity futures brokerage companies.

(2) Reasonably set up the organization of commodity hedging working group and select and arrange business personnel for corresponding operation positions.

B. The Audit Department of the company shall supervise the hedging operators to implement risk management policies and risk management procedures, and timely prevent operational risks in business.

C. Risk handling procedures:

(1) The working group of the company shall hold a meeting in time to analyze and discuss the risk situation and Countermeasures to be taken.

(2) Relevant personnel shall implement the company's risk treatment decisions.

D. The company shall reasonably plan and arrange the use of margin to ensure the normal hedging process. The company shall reasonably select the commodity hedging period to avoid market liquidity risk.

E. The company shall be equipped with trading, communication, computer and information service facilities and systems that meet the requirements to ensure the normal operation of the trading system and the normal development of hedging business and trading.

F. The company shall arrange and employ qualified business operators in strict accordance with the regulations, strengthen the professional ethics education and business training of relevant personnel, and improve the comprehensive quality of relevant personnel.

3. Reporting system: the trading operator shall regularly report to the working group the new position, planned position establishment and position closing, the change of net inventory exposure after hedging and the latest market information. At the end of each month, the finance department shall report the trading profit and loss of commodity hedging business to the working group and prepare the detailed statement of trading profit and loss of commodity hedging business.

4. Confidentiality system: relevant personnel of the company's commodity hedging business shall abide by the company's confidentiality system. Without permission, the relevant personnel of the company's commodity hedging business shall not disclose the company's hedging scheme, trading, settlement, capital status and other information related to the company's commodity futures trading. If losses are caused by the disclosure of secrets by relevant personnel, they shall bear corresponding economic responsibilities, and the company may give dismissal or other sanctions according to the specific circumstances. 5. Information disclosure obligation: if the company needs to disclose information regularly or temporarily when engaging in commodity hedging business, the company shall determine the specific content and time of information disclosure in accordance with the requirements of relevant laws, regulations and normative documents, and the Secretary of the board of directors of the company shall be responsible for handling announcement and other relevant procedures to Shenzhen Stock Exchange. 6. File management: the company shall keep the original transaction data, settlement data, account opening documents and authorization documents for futures hedging for at least 10 years.

6、 Review procedure

1. Deliberations of the board of directors

The second meeting of the third board of directors of the company deliberated and approved the proposal on carrying out commodity hedging business, and agreed to carry out the hedging business of raw material commodity futures related to operation.

2. Deliberation of the board of supervisors

The second meeting of the third board of supervisors of the company deliberated and adopted the proposal on developing commodity hedging business. After examination, the board of supervisors believes that the company's futures hedging business is conducive to preventing and resolving the market risks caused by the price changes of raw materials. There is no harm to the interests of investors in this matter, which is in line with the provisions of relevant documents of China Securities Regulatory Commission and Shenzhen Stock exchange.

3. Opinions of independent directors

(1) The relevant approval procedures of the company's commodity futures hedging business comply with relevant laws, regulations and the articles of association.

(2) The company has established a sound organization, business operation process, approval process and commodity futures hedging management system for commodity futures hedging business.

(3) The types of commodity futures hedging business carried out by the company and the amount of capital invested are required for the expansion of business scale. The hedging function of futures market is used to reduce the losses caused by commodity price fluctuations in the company's production and operation, so as to ensure the steady development of the company's business and avoid damaging the interests of the company and all shareholders. In conclusion, the independent directors of the company unanimously agreed that the company should carry out commodity futures hedging business.

7、 Documents for future reference

1. Resolutions of the second meeting of the third board of directors;

2. independent opinions of independent directors on matters related to the second meeting of the third board of directors;

3. China Industrial Securities Co.Ltd(601377) issued the verification opinions on the types of commodity hedging business and the amount of capital invested.

It is hereby announced.

Elite Color Environmental Resources Science&Technology Co.Ltd(002998) board of directors

April 14, 2022

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