Sun Art Retail Group Limited - TodayIR.com

REPORT OF DIRECTORS
Under the terms of the Auchan Agency Agreement, the Group agreed to grant Auchan Switzerland, as
agent, exclusive rights to provide the Group with the services of an international negotiator in relation to
the international services agreements we have with international suppliers of merchandise and other small
and medium suppliers of merchandise which may include international and PRC local suppliers. However,
the Group does not provide services to any PRC local suppliers through agency agreements provided by
Auchan Switzerland. The Group engaged Auchan Switzerland as an agent to provide such services as it
is administratively more efficient for the Group to deal with one party rather than multiple suppliers and
this ensures greater consistency in negotiations with international and other suppliers of merchandise.
The services provided by Auchan Switzerland include (i) negotiating for the provision of the Group’s
expertise and assistance to such suppliers such as marketing studies, international commercial action
plans and access to the Group’s sales network; (ii) negotiating, on the Group’s behalf, the settlement of
disputes within China with such suppliers as and when the disputes arise; (iii) advising the Group on the
suppliers’ requirements for provision of such expertise and assistance; and (iv) collecting payments to
be paid to the Group by the suppliers.
The annual fees payable to Auchan Switzerland for such services is determined with reference to (i) all
costs and expenses incurred by Auchan Switzerland in providing the services; and (ii) the fee required by
Switzerland tax authorities. Pursuant to the terms of the Auchan Agency Agreement, Auchan Switzerland
is entitled to deduct the fees payable to them from the payments collected on behalf of the Group.
On 27 December 2012, the Company published an announcement for the revision of annual caps for
Auchan Agency Agreement in anticipation that the annual caps for the continuing connected transactions
contemplated under the Auchan Agency Agreement for the two years ended 31 December 2012 and
2013 would be exceeded. The revised annual cap amounts of the fees payable to the Group by Auchan
Switzerland (after deducting fees to Auchan Switzerland) for the two years ended 31 December 2012
and 2013 shall not exceed RMB80 million and RMB110 million respectively.
During the year of 2012, the fees received by the Group under the Auchan Agency Agreement was
approximately RMB50 million, after deducting fees to Auchan Switzerland of RMB3 million.
License for use of the “Auchan” trademarks
Pursuant to a master trademark license agreement dated 13 December 2001 (the “Auchan Trademark
Agreement”) entered into between Groupe Auchan and ACHK, Groupe Auchan granted to ACHK a
non-exclusive and non-transferable license of its Auchan trademarks for use in connection with our Auchan
banner businesses in the PRC. Such licensing arrangements granted by Groupe Auchan for the use of
“Auchan” trademarks is a group policy adopted by Groupe Auchan, which is adopted worldwide in its
other hypermarket operations. The Auchan trademarks include the Latin and Chinese Auchan characters
“Auchan” and “”, as well as the Auchan logo. Under the terms of the Auchan Trademark Agreement,
the license was granted for an initial period of 3 years for free, that is, until 13 December 2004, and
thereafter at a fee of 0.3% of total annual turnover (VAT included) for a period not exceeding ten years.
Pursuant to an amendment to the Auchan Trademark Agreement, both parties agreed that from 1 January
2007, the trademark license fee shall be 0.2% of total income (VAT excluded) for a period not exceeding
ten years. Under the terms of the Auchan Trademark Agreement, the current term of the license expires
on 14 May 2015, after which it is automatically renewed every ten years.
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Sun Art Retail Group Limited
Annual Report 2012