Sun Art Retail Group Limited - Proxy Solicitation & Information Statement 2019

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult a licensed securities dealer or registered institution in securities, a bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Sun Art Retail Group Limited, you should at once hand this circular and the accompanying form of proxy to the purchaser or to the licensed securities dealer or registered institution in securities or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee.

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, 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 circular.

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SUN ART RETAIL GROUP LIMITED 高鑫零售有限公司

(Incorporated in Hong Kong with limited liability)

(Stock code: 06808)

CONTINUING CONNECTED TRANSACTION REVISION OF ANNUAL CAPS

Capitalized terms used in this cover shall have the same meanings as those defined in this circular.

A letter from the Board is set out on pages 6 to 19 of this circular. A letter from the Independent Board Committee to the Independent Shareholders is set out on page 20 of this circular. A letter from Alliance Capital Partners Limited, the Independent Financial Adviser, containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 21 to 30 of this circular.

A notice convening the Extraordinary General Meeting to be held at Lotus Room, 6/F, Marco Polo Hongkong Hotel, Harbour City, 3 Canton Road, Tsim Sha Tsui, Kowloon, Hong Kong on 27th day, September 2019 at 3 p.m. is set out on pages 39 to 40 of this circular.

A form of the proxy for use at the EGM is sent to the Shareholders together with this circular. Such form of proxy is also published on the websites of the Stock Exchange (http://www.hkexnews.hk) and the Company (http://sunartretail.com). Whether or not you intend to attend the EGM, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return the same to the branch share registrar of the Company in Hong Kong, Computershare Hong Kong Investor Services Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for holding of the EGM or any adjournment thereof. Completion and return of the proxy form will not preclude you from attending, and voting in person at the EGM or any adjournment thereof should you so wish.

10 September 2019

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . .	20
Letter from Alliance Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	21
Appendix – General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	31
Notice of EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	39

– i –

DEFINITIONS

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

“Affiliates”
in relation to a body corporate means any other body corporate that controls, is controlled by or is under common control with such body corporate. For the purposes of this definition, the term “control” (including, with correlative meanings, the terms “controlling”, “controlled by” and “under common control with”), as used with respect to any body corporate, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such body corporate, whether through the ownership of voting securities, by contract, voting power or otherwise
“Alibaba”
Alibaba Group Holding Limited (阿里巴巴集團控股有限公司), a company incorporated in the Cayman Islands and the American depositary shares of which are listed on the New York Stock Exchange
“Alibaba Group”
Alibaba, its Subsidiaries and its associates
“Alibaba Technology”
阿里巴巴(中國)網路技術有限公司 (Alibaba (China) Network Technology Co., Ltd.*), a company incorporated under the laws of the PRC and an indirect wholly owned subsidiary of Alibaba
“Alipay (Hangzhou)”
支付寶(杭州)信息技術有限公司 (Alipay (Hangzhou) Information Technology Co., Ltd.*), a company incorporated in the PRC and a deemed connected person of the Company (as defined under the Listing Rules)
“Ant Financial”
浙江螞蟻小微金融服務集團股份有限公司 (Ant Financial Small and Micro Financial Services Group Co., Ltd.*), a company established in the PRC with limited liability and a deemed connected person of the Company (as defined under the Listing Rules)
“Alliance Capital”
Alliance Capital Partners Limited, independent financial adviser of the Company
“associate(s)”
has the meaning ascribed to it under the Listing Rules
“Auchan China”
歐尚(中國)投資有限公司 (Auchan (China) Investment Co., Ltd.*), a company incorporated in the PRC and a subsidiary of the Company

– 1 –

DEFINITIONS

“Board”

the board of Directors of the Company

“Business Day”

a day on which banks are open for business in the PRC

“Company”
Sun Art Retail Group Limited (高鑫零售有限公司), a company incorporated under the laws of Hong Kong on 13 December 2000 with limited liability, the shares of which are listed on the main board of the Stock Exchange
“connected person(s)”
has the meaning ascribed to it under the Listing Rules
“Director(s)” director(s) of the Company
“Disposal”
the disposal of the entire equity interest in Hainan Hema by RT-Mart China to Shanghai Runhe pursuant to the terms and conditions of the Equity Transfer Agreement
“EGM”
the extraordinary general meeting of the Company to be convened for the Independent Shareholders to approve, confirm and ratify the entering into of the Supply Agreements and the Revised Annual Caps
“Equity Transfer Agreement”
the equity transfer agreement dated 31 May 2019 entered into between RT-Mart China and Shanghai Runhe in relation to the Disposal
“Group”
the Company and its Subsidiaries
“Guangdong Ruenhua”
廣東潤華商業有限公司 (Guangdong Ruenhua Commercial Co., Ltd.*) a company incorporated in the PRC and a subsidiary of the Company
“Hainan Hema”
海南盒馬網路科技有限公司 (Hainan Hema Network Technology Co. Ltd.*), a company incorporated in the PRC and a subsidiary of the Company as of the date of this announcement, to be transferred to Shanghai Runhe pursuant to the Equity Transfer Agreement
“Hainan Hema Supply Agreement”
the master supply agreement (inclusive of the subcommercial agreement) entered into between Guangdong Ruenhua and Hainan Hema on 31 May 2019 in relation to the supply of Relevant Products

– 2 –

DEFINITIONS

“Hema Stores”

the retail store(s) operated by Shanghai Runhe in accordance with the terms of the Hainan Hema Business Cooperation Agreement or Northeast China Hema Business Cooperation Agreement which adopts the “Hema Fresh” (“盒馬鮮生”) business model

“Hong Kong” the Hong Kong Special Administrative Region of the PRC
“Independent Financial Advisor” Alliance Capital Partners Limited
“Independent Shareholders” the independent shareholders of the Company
“Latest Practicable Date”
6 September 2019, being the latest practicable date prior to the printing of this circular for ascertaining certain information
“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange
“Master Supply Agreement”
the master supply agreement entered into between the Group and Taobao China (on behalf and together with the Taobao China Affiliates) on 11 April 2019 and amended on 14 August 2019 according to the Supply Addendum in relation to the supply of Relevant Supply Products and/or Relevant Supply Services to Taobao China Affiliates
“Northeast China Hema Supply Agreement”
the master supply agreement (inclusive of the subcommercial agreement) entered into between Qingdao Ruentex and Shanghai Runhe on 31 May 2019 in relation to the supply of Relevant Products
“Original Annual Caps”

the original annual caps for the aggregate transaction amounts receivable from Alibaba Group for the category of “Sale of goods and services by the Group to the Alibaba Group” as announced in the announcement dated 31 May 2019

“PRC”

the People’s Republic of China and for the purpose of this announcement, it excludes Taiwan, Hong Kong and Macau Special Administrative Region of the PRC

“Promotional Goods Supply Agreement”

the promotional goods supply agreement entered into between RT Mart China, Auchan China and Alipay (Hangzhou) on 19 August 2019 in relation to supply of tissue paper products

– 3 –

DEFINITIONS

“Qingdao Ruentex”

青島潤泰事業有限公司瀋陽分公司 (Qingdao Ruentex Enterprises Co., Ltd., branch of Shenyang*), a company incorporated in the PRC and a subsidiary of the Company

“Relevant Supply Product(s)”
fresh food products, pre-packaged food products, grocery products, household products and any other merchandise customarily sold in the relevant retail outlet operated by Auchan China and RT-Mart China, and any other products which the Group and Taobao China Group may agree in writing from time to time under the Master Supply Agreement
“Relevant Supply Service(s)”
the relevant services to be confirmed and agreed by the Group and Taobao China Group in writing from to time under the Master Supply Agreement
“Revised Annual Caps”
the revised annual caps for the aggregate transaction amounts receivable from Alibaba Group for the category of “Sale of goods and services by the Group to Alibaba Group” as announced in this announcement
“RMB”
Renminbi, the lawful currency of the PRC
“RT-Mart China”
康成投資(中國)有限公司 (Concord Investment (China) Co., Ltd.*), a limited liability company incorporated in the PRC and is a subsidiary of the Company
“Shanghai Runhe”
上海潤盒網絡科技有限公司 (Shanghai Runhe Internet Technology Co., Ltd.*), a limited liability company incorporated in the PRC and is jointly held by RT-Mart China as to 51% equity interest and Alibaba Technology as to 49% equity interest
“Shanghai Runhe Supply Agreements”
the Northeast China Hema Supply Agreement and the Hainan Hema Supply Agreement
“Share(s)” ordinary share(s) of the Company in issue
“Shareholder(s)” the holder(s) of the Shares
“Stock Exchange”
The Stock Exchange of Hong Kong Limited
“Subsidiary(ies)”
has the meaning ascribed to it under the Listing Rules
“substantial shareholder”
has the meaning ascribed to it under the Listing Rules

– 4 –

DEFINITIONS

“Supply Addendum”
“Supply Agreements”
“Taobao China”
“Taobao China Affiliates”
“Taobao China Group”
“Taobao China Group Entity(ies)”
“12 April Announcement”
“19 August Announcement”
“31 May Announcement”

“%”

the addendum agreement entered into between the Company and Taobao China (on behalf of and together with Taobao China Affiliates) on 14 August 2019 in respect of the Master Supply Agreement

the Master Supply Agreement (as amended by the Supply Addendum), the Shanghai Runhe Supply Agreements and Promotional Goods Supply Agreement
Taobao China Holding Limited, a company incorporated in Hong Kong and an indirect wholly owned subsidiary of Alibaba

Subsidiaries and Affiliates of Alibaba

Taobao China and the Taobao China Affiliates
the relevant entity/(ies) of Taobao China Group conducting business with and/or supplying services or goods to the Group and which fall within the applicable scope under the underlying agreements
the announcement published by the Company on 12 April 2019 in relation to the entering of various agreements entered into for the purpose of governing different categories of connected transactions, including the Master Supply Agreement
the announcement published by the Company on 19 August 2019 in relation to the entering of the Promotional Goods Supply Agreement in relation to supply of tissue paper products

the announcement published by the Company on 31 May 2019 in relation to the entering of the Shanghai Runhe Supply Agreements

per cent.

– 5 –

LETTER FROM THE BOARD

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SUN ART RETAIL GROUP LIMITED 高鑫零售有限公司

(Incorporated in Hong Kong with limited liability)

(Stock code: 06808)

Non-executive Directors:

Mr. ZHANG Yong (Chairman) Mr. Edgard, Michel, Marie BONTE Mr. Benoit, Claude, Francois, Marie, Joseph LECLERCQ Mr. Xavier, Marie, Alain DELOM de MEZERAC Mr. CHEN Jun Ms. Isabelle Claudine, Françoise BLONDÉ ép. BOUVIER

Registered office: Level 54, Hopewell Centre 183 Queen’s Road East Hong Kong

Place of business in the PRC: No. 255 Jiang Chang Xi Road Jing’an District 200436, Shanghai China

Independent non-executive Directors:

Ms. Karen Yifen CHANG Mr. Desmond MURRAY Mr. HE Yi

10 September 2019

To the Shareholders

Dear Sir/Madam,

CONTINUING CONNECTED TRANSACTION REVISION OF ANNUAL CAPS

INTRODUCTION

Reference is made to the 12 April Announcement, the 31 May Announcement and 19 August Announcement in relation to the continuing connected transactions entered into between the Group and the Alibaba Group. Reference is also made to the announcement of the Company dated 20 August 2019 in which the Company announced that for particular reasons described in this circular, the Board anticipates that the Original Annual Caps will no longer be sufficient and a set of the Revised Annual Caps has been proposed.

– 6 –

LETTER FROM THE BOARD

As disclosed in the 12 April Announcement, since the alliance with Alibaba Group in 2017, the Group has been developing its long-term relationship and has carried out on-going transactions with Alibaba Group. In April 2019, the Company entered into a number of master agreements with Taobao China according to the different types/nature of goods and services, details of which were disclosed in the 12 April Announcement.

Under category “Sale of goods and services by the Group to Alibaba Group”, the Group has entered into the Master Supply Agreement with Taobao China to govern transactions between the Group and Taobao China Affiliates. The Group has continued to enter into a variety of sales arrangements with Taobao China Affiliates pursuant to the Master Supply Agreement.

In addition to the Master Supply Agreement and transactions with Taobao China Affiliates contemplated thereunder, the Group has entered into (1) the Shanghai Runhe Supply Agreements to govern transactions with Shanghai Runhe and Hainan Hema respectively, details of which were announced in the 31 May Announcement; and (2) the Promotional Goods Supply Agreement between RT Mart China, Auchan China and Alipay (Hangzhou) on 19 August 2019 in relation to supply of tissue paper products, details of which were announced in 19 August Announcement. The transactions under the Shanghai Runhe Supply Agreements and the Promotional Goods Supply Agreement are aggregated with the transactions under the Master Supply Agreement under Rule 14A.81 of the Listing Rules.

As Taobao China holds approximately 20.98% of the total issued Shares of the Company as at the date of the present announcement and is therefore a substantial shareholder and a connected person of the Company under Chapter 14A of the Listing Rules. Taobao China is an indirect wholly-owned subsidiary of the Alibaba Group. Alibaba Group is therefore also a connected person of the Company under the Listing Rules. As such, the transactions referred to above constitute continuing connected transactions under Chapter 14A of the Listing Rules.

Subsequent to the 12 April Announcement and 31 May Announcement, the business relationship between the Group and the Alibaba Group has continued to develop. On such basis, the Group currently anticipates a significant growth in the transaction amounts for the transactions contemplated under the Master Supply Agreement. In particular, the Group began the trial of the shared inventory arrangement pursuant to the Master Supply Agreement as a new business model between the Group and the Alibaba Group to target the online consumer market by providing speedy delivery of products ordered online. The Group is keen to seize the market opportunity by expanding the scale of the shared inventory arrangement under the Master Supply Agreement. Therefore, the Board anticipates that the Original Annual Caps will no longer be sufficient and proposes to further revise the annual caps for the transactions contemplated under the category “Sale of goods and services by the Group to Alibaba Group”. The entering of the Supply Agreements and the Revised Annual Caps are subject to the independent Shareholders’ approval at the shareholders extraordinary general meeting of the Company (“EGM”) and details of which are set out below.

– 7 –

LETTER FROM THE BOARD

The purpose of this circular is to provide you with, among other things:

(i) details of the Supply Agreements and the transactions contemplated hereunder and the Revised Annual Caps;
(ii) the advice and recommendations from the Independent Board Committee to the Independent Shareholders in respect of the Supply Agreements and the Revised Annual Caps;
(iii) a letter from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders containing its recommendation in respect of the Revised Annual Caps;
(iv) a notice convening the EGM; and
(v) other information required under the Listing Rules.

CONTINUING CONNECTED TRANSACTION – TERMS OF AGREEMENTS

Master Supply Agreement

As disclosed in the 12 April Announcement, the principal terms of the Master Supply Agreement are as follows:

Date : 11 April 2019 Parties : (i) The Company; and (ii) Taobao China (on behalf of and together with Taobao China’s Affiliates). Term : Three (3) years commencing from 1 January 2019 and ending on 31 December 2021, unless at any time prior to the expiry of the Master Supply Agreement either party gives the other party of not less than one (1) month’s prior notice to terminate the Master Supply Agreement.

Nature of : Pursuant to the Master Supply Agreement, Taobao China transaction (through members of Taobao China Group) agreed to and shall procure Taobao China Affiliates to, purchase from the Group, and the Group agreed to supply to Taobao China Group, the Relevant Supply Products and/or Relevant Supply Services (together with any other services and/or products as may be agreed in writing by the parties from time to time).

– 8 –

LETTER FROM THE BOARD

Each of the Company, Taobao China shall, and shall procure the relevant entities within the Group and Taobao China Group (as appropriate) to, enter into relevant agreements (as applicable) setting out the terms and conditions of the sales of the Relevant Supply Products and/or Relevant Supply Services.

Prices and fees : The selling price for the Relevant Supply Products and/or Relevant Supply Services (inclusive of any value-added tax, customs duties, other relevant taxes payable by Taobao China Group Entities, packaging and delivery costs included) will be determined at the time of the particular sale based on arm’s length negotiations with reference to (i) the selling price charged for the same category of services and/or products offered to independent purchasers at the time of a particular transaction; (ii) the gross profit margin expected by the Group in respect of the Relevant Supply Products and/or Relevant Supply Services of the same categories; and (iii) the price of products and services of the same categories as the Relevant Supply Products and/or Relevant Supply Services generally offered on the market by independent third parties. Payments of the transactions will be settled in arrears, or such other manners as agreed by the parties in accordance with the agreed timing and manners as specified in the separate agreements to be entered into between members of the Group and Taobao China Group from time to time.
Payment : The selling price of the Relevant Supply Products and/or arrangement Relevant Supply Services shall be settled by Taobao Group Entity to the Group each month on the date as agreed in the relevant agreements.

Shanghai Runhe Supply Agreements

Northeast China Hema Supply Agreement

As disclosed in the 31 May Announcement, the principal terms of the Northeast China Hema Supply Agreement are as follows:

Date : 31 May 2019 Parties : (i) Qingdao Ruentex; and (ii) Shanghai Runhe.

– 9 –

LETTER FROM THE BOARD

Term

: Commencing from 31 May 2019 and ending on 31 December 2021, unless at any time prior to the expiry of the Northeast China Hema Supply Agreement, Shanghai Runhe gives Qingdao Ruentex not less than thirty (30) days’ prior notice to terminate the Northeast China Hema Supply Agreement.
Nature of transaction
: Pursuant to the Northeast China Hema Supply Agreement, Shanghai Runhe agreed to appoint Qingdao Ruentex as supplier to supply Relevant Products to Shanghai Runhe and retail stores operated under the “Hema” or “Hema Fresh” banner.

Prices and fees

: Qingdao Ruentex shall provide quotation of the selling prices for the Relevant Products (inclusive of any value-added tax, customs duties, other relevant taxes, packaging costs, insurance delivery costs included) and the quoted selling prices are final once they are agreed by Shanghai Runhe.

The selling price for the Relevant Products of the particular sale is based on arm’s length negotiations with reference to (i) the selling price charged for the same category of services and/or products offered to independent purchasers at the time of a particular transaction; (ii) the gross profit margin expected by the Group in respect of the Relevant Products of the same categories; and (iii) the price of products and services of the same categories as the Relevant Products generally offered on the market by independent third parties.

A dedicated team of the Group will monitor and review the selling prices for the Relevant Products regularly, in order to ensure that the transactions under the Northeast China Hema Supply Agreement are conducted on normal commercial terms.

Payment : The amount payable by Shanghai Runhe to Qingdao Ruentex arrangement will be settled by Shanghai Runhe each month after confirmation of the amount payable and the issuance of value added tax invoice on dates as agreed in the Northeast China Hema Supply Agreement.

– 10 –

LETTER FROM THE BOARD

Hainan Hema Supply Agreement

As disclosed in the 31 May Announcement, the principal terms of the Hainan Hema Supply Agreement are as follows:

Date : 31 May 2019

Parties : (i) Guangdong Ruenhua; and
(ii) Hainan Hema.

Term

: Commencing from 31 May 2019 and ending on 31 December 2021, unless at any time prior to the expiry of the Hainan Hema Supply Agreement either party gives the other party of not less than thirty (30) days’ prior notice to terminate the Hainan Hema Supply Agreement.
Nature of transaction
: Pursuant to the Hainan Hema Supply Agreement, Hainan Hema agreed to appoint Guangdong Ruenhua as supplier to supply Relevant Products to Hainan Hema and retail stores operated under the “Hema” or “Hema Fresh” banner.

Prices and fees

: Guangdong Ruenhua shall provide quotation of the selling prices for the Relevant Products (inclusive of any valueadded tax, customs duties, other relevant taxes, packaging costs, insurance delivery costs included) and the quoted selling prices are final once they are agreed by Hainan Hema.

A dedicated team of the Group will monitor and review the selling prices for the Relevant Products regularly, in order to ensure that the transactions under the Hainan Hema Supply Agreement are conducted on normal commercial terms.

– 11 –

LETTER FROM THE BOARD

Payment : The amount payable by Hainan Hema to Guangdong arrangement Ruenhua will be settled by Hainan Hema each month after confirmation of the amount payable and the issuance of value added tax invoice on dates as agreed in the Hainan Hema Supply Agreement.

Promotional Goods Supply Agreement

As disclosed in the 19 August Announcement, the principal terms of the Promotional Goods Supply Agreement are as follows:

Date : 19 August 2019 Parties : (i) Alipay (Hangzhou); (ii) RT Mart China (a subsidiary of the Company); and (iii) Auchan China (a subsidiary of the Company).
Term : Ending upon the promotional goods having been fully distributed to Alipay (Hangzhou)’s customers pursuant to the promotional events in August 2019 but may be extended to end upon the promotional goods having been fully distributed pursuant to the promotional events in September 2019.
Nature of : Supply of promotional goods in the form of tissue paper transaction packs to customers upon presentation of e-coupons issued by Alipay (Hangzhou).
Prices and fees : Alipay (Hangzhou) shall pay to RT Mart China and Auchan China a fixed price for each e-coupon, which price is arrived at after arm-length negotiation. Customers of Alipay (Hangzhou) may exchange each e-coupon for a specified number of tissue paper packs from any of the physical retail stores under the RT Mart and Auchan banners.
Payment : The parties shall settle accounts according to the actual arrangements verified quantity of tissue paper packs redeemed. RT Mart China and Auchan China shall issue value added tax invoice to Alipay (Hangzhou) for payment within 30 days of confirmation of verified quantity of tissue paper packs redeemed.

– 12 –

LETTER FROM THE BOARD

In June 2019, the Group began the trial of the shared inventory arrangement pursuant to the Master Supply Agreement. Under this arrangement, Alibaba’s online customers will be able to place orders for a broad range of products, excluding garments and electronic products, available at the Group’s physical stores for delivery within one hour or within half a day, depending on the customers’ choices and actual location. In order to meet the delivery requirement, the Group shares its inventory system with Tmall, a business-to-consumer online retail platform operated by the Alibaba Group, on a real-time basis.

During the trial period, the Group began test runs for introducing the shared inventory system and has not begun supplying products to the Alibaba Group under the arrangement. Based on the implementation plan of the shared inventory arrangement pursuant to the Master Supply Agreement, the Group expects its stores under its two banners to begin selling their products on Tmall by batches by the beginning of August 2019 and to begin full scale selling by all stores in September 2019. This arrangement combines the parties’ respective online and offline capabilities in providing timely delivery of products to customers. Given the positive result from trial of this arrangement, the Board of the Company anticipates that the Original Annual Caps will no longer be sufficient and proposes to further revise the annual caps for the transactions contemplated under the category “Sale of goods and services by the Group to the Alibaba Group” subject to the independent Shareholders’ approval at the EGM.

HISTORICAL FIGURES

The aggregate of the transaction amounts under the category of the “Sale of goods and services by the Group to the Alibaba Group”, being the aggregate of the transaction amounts received by the Group from the Alibaba Group for year ended on 31 December 2018 and the six months ended on 30 June 2019 amounted to approximately RMB11 million and RMB62 million, respectively.

REVISION OF THE ORIGINAL ANNUAL CAPS

In view of the anticipated further growth of the transaction amount of the transactions contemplated under the category “Sale of goods and services by the Group to Alibaba Group”, the Board has resolved to revise the Original Annual Caps, subject to the approval by the Independent Shareholders.

The table below sets out the Original Annual Caps and the Revised Annual Caps under the category “Sale of goods and services by the Group to Alibaba Group”, respectively:

			For the	For the	For the
			year ending	year ending	year ending
			31 December	31 December	31 December
			2019	2020	2021
Original	Annual	Caps	2,342,000,000	2,473,000,000	2,628,000,000
Revised	Annual	Caps	3,762,000,000	13,023,000,000	16,108,000,000

– 13 –

LETTER FROM THE BOARD

Notwithstanding the proposed revision of the Original Annual Caps, the terms of the Supply Agreements remain unchanged.

The above Revised Annual Caps are not intended, and do not purport, to be an indication of the Group’s future performance or profitability and investors should not rely on the Revised Annual Caps in deciding whether to invest in the Shares of the Company.

BASIS FOR THE REVISED ANNUAL CAPS

In determining the Revised Annual Caps under the category of the “Sales of goods and services by the Group to Alibaba Group”, the Board took into account the following factors:

(a) the anticipated number of stores of the Group participating in the shared inventory arrangements pursuant to the Master Supply Agreement after conducting a trial run in June 2019. Based on the number and locations of the Group’s stores as at the Latest Practicable Date, the Group expects that a total of 480 stores will begin to adopt the one hour delivery arrangement pursuant to the shared inventory arrangements by the end of 2019. For the half day delivery arrangement, the Group expects that such model will be adopted by 110 stores by the end of 2019 as a first stage and, will be adopted by a total of 282 stores by the end of 2020;
(b) the estimated number of orders and amount per order for each of the participating stores referred to in (a) above. The estimated number of orders and amount per order are determined based on the Group’s experience in operating one hour delivery on its own platform, historical transaction amounts under such arrangements and its market development strategy, and also take into account Alibaba’s past experience in operating online sales platforms and proposed delivery arrangements (including factors such as the number of registered members of Tmall, customer numbers of and customer preferences particular to each store and historical customer conversion rates);
(c) the implementation timeline of the shared inventory arrangement under the Master Supply Agreement. The one hour delivery arrangement will be implemented across 480 stores in 2019 as indicated in (a) above. 2020 will be the first full year in which sales transactions under the shared inventory arrangement will be conducted, and as a result, a significant increase in the volume of business is expected in 2020. The half day delivery arrangement will begin to be adopted by some of the Group’s stores in 2019. By the end of 2020, the half day delivery arrangement will be implemented across 282 stores;

– 14 –

LETTER FROM THE BOARD

(d) the anticipated number of the products and services that the Group will supply to the Alibaba Group under the Supply Agreements will increase gradually along with the development of the shared inventory arrangement under the Master Supply Agreement. As the variety of products offered under this arrangement increases, the average number of products purchased by a single customer in a single purchase is also expected to increase, thus increasing the amount per order. The promotional activities and building of reputation of the Group will also increase the number of effective users and thus increasing the average number of orders per store; and
(e) the anticipated increase in the scale of operation of Group due to the extended delivery area and expected increase in number of stores.

REASONS FOR AND BENEFITS OF THE REVISED ANNUAL CAPS

The Company believes that the growing business cooperation between the Group and the Alibaba Group will enable the Group to promote and increase sales of its products through various distribution channels, including online platform which is essential in the growing PRC retail market.

The Directors (including the independent non-executive Directors) are of the view that (i) the Revised Annual Caps are fair and reasonable and are in the best interests of the Company and its Shareholders as a whole, and (ii) the entering into of the Supply Agreements and the transactions contemplated thereunder were on normal commercial terms or better, in the ordinary and usual course of business of the Group and in the interests of the Company and the Shareholders as a whole.

INFORMATION OF THE PARTIES

The Group

The principal activity of the Group is the operation of hypermarkets and E-commerce platforms in the PRC.

Alibaba

Alibaba is a company incorporated in the Cayman Islands and its American depository shares are listed on the New York Stock Exchange.

Alipay (Hangzhou)

Alipay (Hangzhou) is a company incorporated under the laws of PRC.

– 15 –

LETTER FROM THE BOARD

Taobao China

Taobao China is a company incorporated in Hong Kong. Taobao China is the direct holding company of certain PRC subsidiaries relating to Taobao Marketplace, China’s largest mobile commerce destination, and Tmall, China’s largest third-party platform for brands and retailers, in each case in terms of gross merchandise volume in 2017.

Shanghai Runhe

Shanghai Runhe is a company incorporated under the laws of PRC and is principally engaged in the operation of Hema Stores.

Qingdao Ruentex

Qingdao Ruentex is a company incorporated under the laws of PRC and is principally engaged in operation of hypermarkets in the PRC.

Guangdong Ruenhua

Guangdong Ruenhua is a company incorporated under the laws of PRC and is principally engaged in operation of hypermarkets in the PRC.

Hainan Hema

Hainan Hema is a company incorporated under the laws of PRC and is principally engaged in operation of the Hema Stores in Hainan region in the PRC.

INTERNAL CONTROL PROCEDURES ON THE PRICING BASIS OF THE CONTINUING CONNECTED TRANSACTIONS

The following procedures apply to all of the Supply Agreements and transactions entered into pursuant to the Supply Agreements.

In order to ensure that the selling prices of the products and/or services under the category of “Sales of goods and services by the Group to Alibaba Group” are set in accordance to the pricing policy and are no less favourable to the Group than those offered to independent purchasers, and to ensure that the transactions contemplated under the Supply Agreements are on normal commercial terms, the Group adopts the following internal control procedures:

(1) the centralised commodity system maintained by the Group will generate the costs of the relevant products and/or services automatically and will add a margin rate on top of the such cost to arrive at the selling price;

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LETTER FROM THE BOARD

(2) the applicable margin rates vary according to the different products and sales models and are determined according to factors including prevailing market prices and prices offered to independent customers to ensure that the pricing terms for each of the transactions under the Supply Agreements are no less favourable to the Group than those offered to independent customers, and that the transactions are on normal commercial terms. The prevailing market prices and prices offered to independent customers are collected through daily online research on competitors’ online platforms and market research carried out at the Group’s stores;
(3) the designated personnel will review and approve the selling prices under the Supply Agreements;
(4) the respective managers and senior managers of each of the products and sales models responsible for different transactions will review the gross profit margin report on a daily basis and will adjust the selling prices under the Supply Agreements if they deviate from a reasonable range of prices based on the considerations set out above.

LISTING RULES IMPLICATIONS

Taobao China holds approximately 20.98% of the total issued Shares of the Company as at the date of this announcement and is therefore a substantial shareholder and a connected person of the Company under the Listing Rules. Taobao China is an indirect wholly-owned subsidiary of Alibaba, Alibaba is therefore also a connected person of the Company under the Listing Rules. Accordingly, the Master Supply Agreement and the transactions contemplated thereunder therefore constitute continuing connected transactions of the Company under Chapter 14A of the Listing Rules.

Alibaba controls 49% of the equity interests in Shanghai Runhe and Shanghai Runhe is therefore an associate of Taobao China and connected persons of the Company under the Listing Rules. Accordingly, the Northeast China Hema Supply Agreement and the transactions contemplated thereunder therefore constitute continuing connected transactions of the Company under Chapter 14A of the Listing Rules.

As of the date of this announcement, Hainan Hema is an indirect subsidiary of the Company which is not an associate of Taobao China. Subject to completion of the Equity Transfer Agreement, Alibaba will control 49% of the equity interest in Hainan Hema and will therefore become an associate of Taobao China and a connected person of the Company under the Listing Rules. Accordingly, the Hainan Hema Supply Agreement and the transactions contemplated thereunder will constitute continuing connected transactions of the Company under Chapter 14A of the Listing Rules upon completion of the Equity Transfer Agreement.

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LETTER FROM THE BOARD

As Alipay (Hangzhou) is a subsidiary of Ant Financial, which, together with its subsidiaries, were deemed as connected persons of the Company by the Stock Exchange in August 2019 under Rule 14A.19 of the Listing Rules, the Promotional Goods Supply Agreement and the transactions contemplated thereunder constitute continuing connected transactions of the Company under Chapter 14A of the Listing Rules.

As one or more of the applicable percentage ratios as defined under Rule 14.07 of the Listing Rules for the Revised Annual Caps under this category of the Sale of goods and services by the Group to Alibaba Group exceeds 5%, the continuing connected transactions under the Supply Agreements are subject to the reporting and announcement requirements, annual review and the Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

GENERAL INFORMATION AND EGM

Pursuant to Rule 13.39(4) of the Listing Rules, the vote of the Independent Shareholders at the EGM will be taken by poll. A notice of the EGM is set out on pages 39 to 40 of this circular. The resolution in relation to the Revised Annual Caps will be put to vote by the Independent Shareholders at the EGM by way of poll. Alibaba Group (through its subsidiaries and/or associates indirectly holds 2,482,122,874 Shares, representing approximately 26.02% of the total issued Shares of the Company, in aggregation), being considered to have material interests in respect of the relevant resolutions in connection with the entering of the Supply Agreements and the Revised Annual Caps, shall abstain from voting on the relevant resolutions as stated above at the EGM.

A form of proxy for use at the EGM is enclosed with this circular and are also published on the website of the Stock Exchange. Whether or not you are able to attend the EGM (or any adjournment thereof), you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon not less than 48 hours before the time fixed for holding the EGM or any adjournment thereof (as the case may be) to the office of the Company’s registrar and transfer office, Computershare Hong Kong Investor Services Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong. Completion and return of the form of proxy will not preclude you from attending and voting in person if you so wish, and in such case, the form of proxy previously submitted shall be deemed to be revoked.

Both Mr. Zhang Yong and Mr. Chen Jun, are non-executive Directors appointed by Taobao China and therefore they are considered to have material interests in respect of the relevant board resolutions in connection with entering into of the Supply Agreements and the Revised Annual Caps.

For good corporate governance, Mr. Zhang Yong and Mr Chen Jun had voluntarily abstained from voting on the relevant board resolution in connection with entering into of the Supply Agreements and the Revised Annual Caps.

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LETTER FROM THE BOARD

Save for the aforesaid and to the best knowledge, information and belief of the Company, none of the Directors have any material interest in entering into of the Supply Agreements and the Revised Annual Caps for which they would be required to abstain from voting on the relevant board resolution approving such documents pursuant to the articles of association of the Company.

RECOMMENDATION

After taking into account the view of the Independent Board Committee as set out in this circular and the reasons for and benefits of entering into the Supply Agreements, the Directors consider that the Revised Annual Caps are fair and reasonable and in the interests of the Company and its Shareholders as a whole, and the entering into of the Supply Agreements and the transactions contemplated thereunder were on normal commercial terms or better, in the ordinary and usual course of business of the Group and accordingly recommend the Independent Shareholders to vote in favour of the ordinary resolution approving, confirming and ratifying the entering into of the Supply Agreements and the transactions contemplated thereunder and the Revised Annual Caps at the EGM.

An Independent Board Committee, comprising all the independent non-executive Directors, has been established to advise the Independent Shareholders in respect of the entering into of the Supply Agreements (including the Revised Annual Caps), and Alliance Capital has been appointed as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in this regard. Your attention is drawn to the advice of the Independent Board Committee set out in its letter on page 20 of this circular. Your attention is also drawn to the letter of advice from Alliance Capital to the Independent Board Committee and the Independent Shareholders in respect of the same set out on pages 21 to 30 of this circular. None of the members of the Independent Board Committee has any interest in the Supply Agreements and the transactions contemplated thereunder.

The Independent Board Committee, having taking into account the advice of Alliance Capital, considers that the entering into of the Supply Agreements and the transactions contemplated thereunder (including the Revised Annual Caps) is in the ordinary and usual course of business of the Group, on normal commercial terms and in the interests of the Company and the Shareholders as a whole. The Independent Board Committee also considers that the terms of the Supply Agreements and the transactions contemplated thereunder (including the Revised Annual Caps) are fair and reasonable so far as the Independent Shareholders are concerned and recommend the Independent Shareholders to vote in favour of the ordinary resolution approving, confirming and ratifying the entering into of the Supply Agreements and the Revised Annual Caps at the EGM.

By Order of the Board Sun Art Retail Group Limited Mr. HUANG Ming-Tuan Chief Executive Officer

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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SUN ART RETAIL GROUP LIMITED 高鑫零售有限公司

(Incorporated in Hong Kong with limited liability)

(Stock code: 06808)

10 September 2019

To the Independent Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTION REVISION OF ANNUAL CAPS

We refer to the circular of the Company to its Shareholders dated 10 September 2019 (the “ Circular ”), of which this letter forms part. Unless otherwise defined, capitalised terms used herein shall have the same meanings as those defined in the Circular.

Under the Listing Rules, the transactions contemplated under the Supply Agreements will constitute continuing connected transactions for the Company are subject to the approval of the Independent Shareholders at the EGM.

We have been appointed by the Board to consider the transactions contemplated under the Supply Agreements and the Revised Annual Caps and to advise the Independent Shareholders in connection therewith. Alliance Capital has been appointed as the independent financial adviser to advise us in this respect. We wish to draw your attention to the letter from the Board and the letter from Alliance Capital as set out in the Circular. Having considered the principal factors and reasons considered by, and the advice of, Alliance Capital as set out in its letter of advice, we consider that entering into of the Supply Agreements and the transactions contemplated thereunder (including the Revised Annual Caps) is in the ordinary and usual course of business of the Group, on normal commercial terms and in the interests of the Company and the Shareholders as a whole. The Independent Board Committee also considers that the terms of the Supply Agreements and the transactions contemplated thereunder (including the Revised Annual Caps) are fair and reasonable so far as the Independent Shareholders are concerned.

Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolutions approving, confirming and ratifying the entering into of the Supply Agreements and the transactions contemplated thereunder as well as the Revised Annual Caps at the EGM.

Yours faithfully,

For and on behalf of the Independent Board Committee

Ms. Karen Yifen CHANG Mr. Desmond MURRAY Mr. HE Yi Independent non-executive Independent non-executive Independent non-executive Director Director Director

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LETTER FROM ALLIANCE CAPITAL

10 September 2019

To the Independent Board Committee and the Independent Shareholders

Dear Sir or Madam,

We refer to our engagement as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders on terms of the Master Supply Agreement, Shanghai Renhe Supply Agreements and the Promotional Goods Supply Agreement (together the “Supply Agreements”) entered into between the Company and Alibaba and its affiliates including Taobao (together defined as “Alibaba Group”) relating to the transactions between the Group and the Alibaba Group. Under the Master Supply Agreement, the Group had entered into a variety of sales arrangements with the Alibaba Group. As the business relationships between the Group and Alibaba develop, the annual transaction amounts between the two groups under the supply category of transactions are expected to exceed the applicable percentage of 5% under Rule 14.07 of the Listing Rules. As Alibaba Group currently and indirectly has approximately 26.02% of the total issued Shares of the Company and is therefore a connected person of the Company under the Listing Rules, the continuing connected transactions and their relevant cap amounts for the category of sales of goods and services by the Group to Alibaba Group pursuant to the Supply Agreements are subject to independent shareholders’ approval under Chapter 14A of the Listing Rules.

Details of the Supply Agreements are contained in the Letter from the Board as set out in the circular of the Company dated 10 September 2019 (the “Circular”). Capitalized terms used in this letter shall have the same meanings as defined in the Circular unless the context requires otherwise.

An Independent Board Committee comprising all of the independent non-executive Directors has been established to advise the Independent Shareholders on whether the terms of the Supply Agreements and their proposed Revised Annual Caps relating to transaction amounts receivable from the Alibaba Group for the sales of goods and services by the Group to Alibaba Group for the three years to 31 December 2021 are fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Company and Shareholders as a whole.

In formulating our opinion to the Independent Board Committee and the Independent Shareholders, we have relied on statements, information and representations referred to in the Circular as well as information and representations provided to us by the Company. We have assumed that all such information and representations provided by the Company, for which they are solely responsible, are true and accurate at the time when they were made. We have also assumed that all statements of belief, opinion, expectation and intention made by the Company were reasonably made after due enquiry and careful consideration. We have no reason to doubt the truth and accuracy of the information and representations provided to us and have been advised by the Company that no material facts have been withheld or omitted from the information provided and/or referred to in the Circular.

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LETTER FROM ALLIANCE CAPITAL

Apart from normal advisory fee payable to us in connection with our appointment as independent financial adviser to the Independent Board Committee and the Independent Shareholders, we do not have a relationship with, or interest in, the Group and/or the Alibaba Group, including any of their respective associates. In addition, we had not acted as financial adviser to the Company nor had we provided any service to the Company in the past. As such, we are of the opinion that we are independent in relation to our acting as independent financial adviser to the Company in this regard.

For the purpose of this exercise, we have also consulted China Insights Consultancy (“CIC”), an independent consultancy firm based in Shanghai, to advise us on industry practices relating to online to offline transactions of fast moving consuming goods (FMCG) in China.

We consider that we have reviewed sufficient information to reach an informed view and to justify reliance on the accuracy of the information contained in the Circular and to provide a reasonable basis for our advice. We have not, however, for the purpose of this exercise conducted any independent verification of the information included in the Circular and/or those provided to us by the Company nor have we conducted any form of investigation into the businesses, affairs of the Group.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating our opinion on the Supply Agreements (including the proposed Revised Annual Caps), we have taken into account the following principal factors and reasons:

1. Background of the Supply Agreements

The Group is a leading hypermarket complexes operator in China. It operates hypermarkets under two well-recognized banners “Auchan” (歐尚) and “RT-Mart” (大潤發). As of 31 December 2018, the Group had 484 hypermarket complexes covering 233 cities across 29 provinces, autonomous regions and municipalities in China with a total gross floor area of approximately 13 million square meters and had more than 143,000 employees. In November 2017, Alibaba Group Holding Limited (“Alibaba”) and the Company announced a strategic alliance that brings together their respective online and offline expertise to explore new retail opportunities in China’s retail sector. As part of this strategic alliance, Alibaba Group acquired 26.02% interest in Sun Art Retail Group Limited. Following the establishment of such alliance, Sun Art started to supply various products and services to Alibaba Group and its associates. Initially, FMCGs were delivered by the Group to Alibaba Group’s godowns or its designated customers throughout the country for the fulfillment of Alibaba’s orders of such products, under agreements entered into pursuant to the Master Supply Agreement, the Northeast China Hema Supply Agreement and the Hainan Hema Supply Agreement (together defined as the “Shanghai Runhe Supply Agreements”). The Shanghai Runhe Supply Agreements allow the Group to promote and increase the sale of the Group’s products to Shanghai Runhe and Hainan Hema and their respective retail stores operated under the “Hema” or “Hema Fresh” banners. As businesses between the two groups develop, the parties have actively explored online to offline (O2O) cooperation allowing the Group to fulfill Alibaba’s online FMCG orders under the Master Supply Agreement.

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LETTER FROM ALLIANCE CAPITAL

Master Supply Agreement

On 11 April 2019, a Master Supply Agreement governing the sale of goods and services by the Group to Alibaba Group was entered into. As announced, basic terms under the Master Supply Agreement are as follows:

Term:

Three years commencing 1 January 2019 and ending on 31 December 2021, unless at any time prior to the expiry of the Master Supply Agreement either party gives the other party not less than one month’s prior notice to terminate the Master Supply Agreement.

Type of Products:

1. Relevant Products:

Fresh food products, pre-packaged food products, other food products, grocery products, household products, computer, communications and consumer electronic products, and any other merchandise customarily sold in campus retail outlets, hypermarkets operated by the Group.

Others:

Any other products to be confirmed and agreed by both Parties in writing from time to time.

Relevant services:

Any services to be confirmed and agreed by both Parties in writing from time to time.

Pricing:

The selling price for the products (including any value-added tax) will be determined at the time of the particular sale based on arm’s length negotiations with reference to (i) the selling price charged for the same category of services and/or products offered to independent purchasers at the time; (ii) the gross profit margin expected by the Group in respect of the Relevant Supply Products and/or Relevant Supply Services of the same categories; and (iii) the price of products and services of the same categories as the Relevant Supply Products and/or Relevant Supply Services generally offered on the market by independent third parties.

Payments:

Settlement on monthly basis in accordance with relevant subsidiary agreements.

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LETTER FROM ALLIANCE CAPITAL

Shanghai Runhe Supply Agreements

Basic terms of the Shanghai Runhe Supply Agreements are as follows:

Term: Commencing from 31 May 2019 and ending on 31 December 2021, unless at any time prior to the expiry of the Shanghai Runhe Supply Agreements, the respective associates of Alibaba Group gives the Group not less than thirty (30) days’ prior notice to terminate the agreements.

Type of Products: Food, groceries, confectionaries, beverages, wines, household products, baby care products, pet care products, electrical compliances, clothing and other products.

Pricing: The Group shall provide quotation of the selling prices for the Relevant Products (inclusive of any value-added tax, customs duties, other relevant taxes, packaging costs, insurance delivery costs included) and the quoted selling prices are final once they are agreed by Shanghai Runhe or Hainan Hema under their respective Shanghai Runhe Supply Agreements.

The selling price for the Relevant Products of the particular sale is determined based on arm’s length negotiations with reference to (i) the selling price charged for the same category of services and/or products offered to independent purchasers at the time of a particular transaction; (ii) the gross profit margin expected by the Group in respect of the Relevant Products of the same categories; and (iii) the price of products and services of the same categories as the Relevant Products generally offered on the market by independent third parties.

Payments: Settlement on monthly basis in accordance with the respective agreements.

Promotional Goods Supply Agreement

Basic terms of the Promotional Goods Supply Agreement are as follows:

Term: Ending upon the promotional goods having been fully distributed to Alipay (Hangzhou)’s customers pursuant to the promotional events in August 2019 but may be extended to end upon the promotional goods having been fully distributed pursuant to the promotional events in September 2019.

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LETTER FROM ALLIANCE CAPITAL

Supply:

Supply of promotional goods by the Group in the form of tissue paper packs to customers upon presentation of e-coupons issued by Alipay (Hangzhou).

Prices:

Alipay (Hangzhou) shall pay to the Group a fixed price for each e-coupons, which price is arrived at after arm-length negotiation. Customers of Alipay (Hangzhou) may exchange each e-coupon for a specified number of tissue paper packs from any of the Group’s physical retail stores under the RT Mart and Auchan banners.

Payments: The parties shall settle accounts according to the actual verified quantity of tissue paper packs redeemed. The Group shall issue value added tax invoice to Alipay (Hangzhou) for payment within 30 days of confirmation of verified quantity of tissue paper packs redeemed.

For the six months to 30 June 2019, total sales amounts achieved under the Supply Agreements were approximately RMB62 million. However, with the Group’s new business model with Tmall described below, the Group’s transaction amounts with Alibaba Group is expected to increase significantly going forward.

2. Development of the “Shared inventory” (共享庫存) business model with Alibaba Group under the Master Supply Agreement

Apart from the sale of the Group’s products to Alibaba Group under existing supply agreements, the Group plans to expand its business scope with Alibaba Group under the Master Supply Agreement by enabling Alibaba’s online customers to order FMCGs (excluding electrical products and garments) currently available at the Group’s physical stores for delivery within one hour or within half a day, depending on where they reside.

This business model is new for both Sun Art and Alibaba Group for supply of goods and services from the Group to Alibaba Group and involves Sun Art sharing its inventory system with Tmall (Alibaba’s business-to-consumer online retail platform) on a real time basis. Such collaboration allows Tmall to know exactly the quantity of each type of goods available at each Sun Art’s physical stores on a real time basis.

Once Tmall’s online customer places an order, Tmall will notify Sun Art to pack the products at its stores and Tmall shall arrange delivery of the order within one hour if such online customer is situated within a 5km radius from Sun Art’s store or within half a day if such online customer is situated within 5km and 20km radius from Sun Art’s store. From Sun Art’s standpoint, products are offered to their store customers and to Alibaba Group on a first-come, first-serve basis. In the event the quantity of the product at the store is insufficient to fulfill its online orders, Tmall’s app will show the product is out of stock.

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LETTER FROM ALLIANCE CAPITAL

To both Sun Art and Alibaba, the main advantages of this shared supply chain is that, from Sun Art’s perspective, it allows Sun Art to reach additional customers by tapping into Tmall’s vast online retail network without the need for additional investments in physical stores, staff and inventory (the latter to be explained below); whereas, from Tmall’s standpoint, this business model allows it to tap into the existing inventory of a physical store chain without the need to keep its own inventory. Under this business model, Sun Art will be able to increase its sales and avoid putting additional resources to drive new customers via app, whereas Tmall can save inventory operation cost and other costs by making use of the extensive network of Sun Art’s physical stores throughout the country.

Sun Art’s supply chain cooperation with Alibaba Group also allows it to increase its bargaining power in merchandise procurement, improve inventory turnover rate, increase sales volume/revenue, and expand their customer base, while Alibaba Group will be able to provide its online consumers with a wide product portfolio and a more convenient shopping experience.

According to CIC, the online retail market in China has grown rapidly from RMB2.8 trillion in 2014 to RMB9 trillion in 2019, representing a compound annual rate of growth of 34%. This was mainly attributable to online penetration of China’s retail market, made possible by a well-developed internet infrastructure, online payment system, increasingly sophisticated logistics system as well as a rising number of online shopping platforms. Given this development, it has become increasingly important for Sun Art to find ways to have access to online consumers in China.

Remuneration

For the supply of the Group’s FMCGs to Tmall under this business model, a profit margin (“Profit Margin”) will be added to the cost of the goods to be sold to Tmall. We understand this profit margin is arrived after arm’s length negotiation between the parties. Currently, credit terms offered by a majority of the Group’s suppliers are longer than that of the credit terms offered by the Group to Alibaba Group including Tmall. Consequently, from Sun Art’s standpoint, sales under the Shared inventory business model with Tmall is additional business in which Sun Art does not have to bear any significant additional ‘cost’, other than product costs.

According to CIC, there are similar supply chain cooperation between e-commerce platform and offline retailer in China and that the e-commerce platform offers similar Profit Margin to its offline retailer supplier for FMCG orders routed to it.

Having considered (i) sales transactions with Alibaba Group under the Supply Agreements are conducted on normal commercial and arm-length terms; (ii) transactions under the Shared Inventory business model with Tmall under the Master Supply Agreement is expected to increase the Group’s business volume significantly going forward; and (iii) such business model is not expected to strain the Group’s financial resources, we are of the view that the proposed sales transactions with Alibaba Group, particularly those with Tmall under the Shared Inventory business model, are in the Group’s ordinary and usual course of business and are in the interests of the Company and its Shareholders as a whole.

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LETTER FROM ALLIANCE CAPITAL

Internal control

We understand the Company has adopted the following internal control procedures to ensure the Group’s transactions with Alibaba Group (including those with Tmall) are conducted at arm’s length terms with sales at prices no less favourable to Sun Art than those offered by independent purchasers or, in the case of transactions conducted under similar Shared Inventory business model described above, by third party e-commerce retailers.

(a) The Group’s procurement department comprising managers and senior managers of each of the products and sales models is tasked to collate, on a daily basis, prices for the Relevant Products in order to ensure that the transactions under the supply arrangements under Alibaba Group are conducted on normal commercial terms. More specifically, the Group maintains a centralised commodity system that generates the costs of the relevant products and/or services automatically and will add a margin rate on top of such cost to arrive at the selling price. The applicable margin rates vary according to the different products and sales models and are determined according to factors including prevailing market prices and prices offered to independent customers to ensure that the pricing terms for each of the transactions under the Supply Agreements are no less favourable to the Group than those offered to comparable independent customers, and that the transactions are on normal commercial terms. The prevailing market prices and prices offered to independent customers are collected through daily online research on competitors’ online platforms and market research carried out at the Group’s stores. A dedicated personnel is tasked to review and approve the selling prices under the Supply Agreements.
(b) The responsible person for different transactions will review the gross profit margin report on a daily basis and will adjust the selling prices under the Supply Agreements if they deviate from a reasonable range of prices based on the considerations set out above.
(c) The Group’s finance department will also monitor transaction amounts with Alibaba Group on a continuous basis. In the event the relevant Cap amount (as referred to below for each year) is likely to be exceeded within the following four months, it will immediately notify Alibaba Group and shall agree with it the Revised Annual Cap amount for that year and any subsequent year during the term of the Master Supply Agreement.

We had randomly sampled more than 110 transactions with Alibaba Group during the period from January 2019 to August 2019 and noted that, during the above period, products were supplied to Alibaba Group at prices which command comparable profit margins when compared to other independent third parties, having taken into consideration size of their orders.

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LETTER FROM ALLIANCE CAPITAL

We also note in the Company’s 2018 Annual Report, KPMG, the Company’s auditors, had confirmed to the Company that, in respect of the continuing connected transactions with Alibaba Group carried out in 2018:

(a) Nothing had come to the auditors’ attention that caused the auditors to believe that the above-mentioned continuing connected transactions had not been approved by the Company’s Board; and
(b) nothing had come to the auditor’s attention that caused the auditor to believe that the continuing connected transactions were not, in all material respects, in accordance with the relevant agreements governing such transactions and the Group’s pricing policies.

Accordingly, we consider that the terms of the Master Supply Agreement (including the Group’s transactions with Tmall as contemplated under the Shared Inventory business model) are fair and reasonable and in the best interest of the Company and Shareholders as a whole.

3. Annual Caps

The table below sets out the Revised Annual Caps for the continuing connected transactions under the Supply Agreements for the three years to 31 December 2021:

	For year end	For year end	For year end
(RMB million)	31 Dec 2019	31 Dec 2020	31 Dec 2021
Revised Annual Caps	3,762	13,023	16,108

We note the Original Annual Caps for the sale of goods and services by the Group to the Alibaba Group under the Supply Agreements were RMB2,342 million, RMB2,473 million and RMB2,628 million for the three years to 31 December 2021 respectively. The Revised Annual Caps represent an increase of 61%, 427% and 513% from the Original Annual Caps in their respective years. This increase is primarily due to the expected increase in sales amounts derived from the Shared Inventory arrangement under the Master Supply Agreement.

In assessing the reasonableness of the proposed Revised Annual Caps for the sale of goods and services by the Group to the Alibaba Group under the Supply Agreements, we have reviewed and discussed with the management such Revised Annual Caps (including its basis) provided by the Group and have been advised that the Revised Annual Caps for the three years ending 31 December 2021 are mainly determined based on the following factors:

(a) With respect to the Shared Inventory business model under the Master Supply Agreement, transactional amounts were estimated based on the number of Sun Art stores participating in this new business model starting from August 2019 (in which

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LETTER FROM ALLIANCE CAPITAL

18 stores participated) after trial run started in June 2019. Of the 18 stores that participated in the trial run in August 2019, 14 of them were involved in one-hour delivery and four of them were involved in half-day delivery.

Based on the number and locations of the Group’s stores as at the Latest Practicable Date, the Group expects that a total of 480 stores will start the one-hour delivery arrangement by end of 2019. Consequently, 2020 will be the first full year in which sales transactions under the Shared Inventory arrangement will be conducted, and as a result, a significant increase in the volume of business is expected in 2020. For the half-day delivery arrangement, the Group expects that such model will be adopted by 110 stores by the end of 2019 as a first stage and, will be adopted by a total of 282 stores by the end of 2020.

(b) Estimated number of orders and amount per order for each type of participating stores as mentioned above. We understand these estimations are worked out between Sun Art and Alibaba, as the latter has database on its customers’ spending habits, order type and size and patterns in different cities where Sun Art has physical stores. In this regard, the estimated number of orders and amount per order are determined based on the Group’s experience in operating one-hour delivery on its own platform and also take into account Alibaba’s past experience in operating online sales platform considering the number of registered Tmall customers and their preferences particular to each store location.
(c) The anticipated number of products that the Group will supply to the Alibaba Group under the Supply Agreements will increase along with the development of the Shared Inventory arrangement. As the variety of products offered under this arrangement increases, the average number of products purchased by a single customer in a single purchase is also expected to increase, thus increasing the amount per order. The promotional activities by the Group is expected to increase the number of effective users and bring about an increase in the average number of orders per store. The scale of operation of Group is also expected to increase as a result of an extended delivery area and expected increase in number of stores.
(d) 2020 will be the first full year in which sales transactions under the Shared Inventory arrangement to be conducted with the Alibaba Group. We note the 2021 Revised Cap of RMB16,108 million represents a 23.7% increase from that in 2020. In assessing the reasonableness of this increase, we have considered the research result by CIC which indicated that sales under Tmall grew from RMB1,565 billion in 2016 to RMB2,612 billion in 2018, representing a compound annual rate of growth of approximately 29% over the above two-year period. Consequently, we are of the view that the expected growth rate of 23.7% for the 2021 Revised Cap amount is fair and reasonable.

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LETTER FROM ALLIANCE CAPITAL

Based on the above, we are of the opinion that factors taken consideration by the Board in estimating the proposed Annual Caps are fair and reasonable so far as the Group and the Shareholders are concerned.

RECOMMENDATION

Having considered the above principal factors and reasons, we consider that (i) the Master Supply Agreement with Alibaba Group (including the transactions as contemplated under the Shared Inventory business model with Alibaba) are in the ordinary and usual course of business of the Company, on normal commercial terms, and on terms which are fair and reasonable and in the interests of the Company and the Shareholders as a whole; and (ii) the basis for determining the proposed Revised Annual Caps relating to the sale of goods and services by the Group to the Alibaba Group are fair and reasonable. Consequently, we advise the Independent Board Committee to recommend the Independent Shareholders to vote in favour of the ordinary resolutions to approve the proposed Revised Annual Caps as mentioned above at the upcoming EGM.

Yours faithfully, For and on behalf of

Alliance Capital Partners Limited David Tsang Responsible Officer SFC CE No. ACH258

Mr. David Tsang is a SFC licensed person and a responsible officer licensed to carry out Type 1 (Dealing in securities) and Type 6 (Advising on corporate finance) activities and has over 30 years of advising listed companies in corporate finance transactions.

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GENERAL INFORMATION

APPENDIX

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Group. The Directors, having made all reasonable enquiries, confirm that, to the best of their knowledge and belief, the information contained in this circular is accurate and complete in all material aspects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

2. DIRECTORS’ INTERESTS

As at the Latest Practicable Date, the interests and short positions of each of the Directors and chief executives of the Company in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provision of the SFO); or which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or which were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies contained in the Listing Rules, to be notified to the Company and the Stock, were as follows:

				Approximate
				percentage
				shareholding
Name of director/	Name of	Nature of	Total number	of the relevant
chief executive	corporation	interest	of shares(1)	entity
Edgard, Michel,	Auchan Retail	Beneficial	1(L)(4)	0.0000%
Marie, BONTE(2)	International	owner
	S.A. (3)
	(“Auchan
	Retail”)
Xavier, Marie, Alain	Auchan Holding	Beneficial	736(L)(6)	0.0025%
DELOM de	S.A.(5)	owner
MEZERAC
	Oney Bank	Beneficial	1,078(L)(8)	0.0744%
	S.A.(7)	owner
Desmond MURRAY	Company	Beneficial	55,000(L)	0.0006%
		owner

– 31 –

GENERAL INFORMATION

APPENDIX

				Approximate
				percentage
				shareholding
Name of director/	Name of	Nature of	Total number	of the relevant
chief executive	corporation	interest	of shares(1)	entity
HUANG Ming-Tuan(9)	Company	Interest of	77,590,702(L)	0.81%
		spouse(10)

Notes:

(1) The letter “L” denotes the person’s long position in the shares.
(2) Mr Edgard, Michel, Marie, BONTE has been appointed as Non-executive Director on 17 May 2019.
(3) Auchan Retail is a company incorporated in France which is wholly-owned by Auchan Holding S.A. A-RT is 55.74% directly owned by Auchan Retail, therefore Auchan Retail is deemed to be interested in all the shares in which A-RT is interested in by virtue of Part XV of the SFO.
(4) This represents 1 ordinary share in Auchan Retail allotted on 10 October 2018.
(5) Auchan Holding S.A. (formerly “ Groupe Auchan S.A. ”) is a company incorporated in France and comprises various companies controlled by Gerard Mulliez and the other members of the Mulliez family through which they conduct or pursue their various business interests in hypermarkets operations, supermarkets operations, real estate development, banking and e-commerce. Auchan Holding S.A. is one of our two ultimate controlling shareholders. Auchan Holding S.A. has adopted various share incentive plans pursuant to which share-based awards are granted to eligible directors and employees of Auchan Holding S.A. and its subsidiaries. These share incentive plans include the following:
(i) Stock Option Plan (2018) relating to the grant of options to subscribe for shares in Auchan Holding S.A. with a vesting period from 29 August 2018 to 30 September 2018.
(ii) Stock Option Plan (2019) relating to the grant of options to subscribe for shares in Auchan Holding S.A. with a vesting period from 28 August 2019 to 30 September 2019.
Note: With effect from 9 May 2012, the only class of shares issued by Auchan Holding S.A. is ordinary shares, the restricted shares and Class S shares were converted to ordinary shares on 9 May 2012. The issued share capital of Auchan Holding S.A. is 29,210,091 shares as at 30 June 2019.
(6) This represents stock options in respect of 736 shares in Auchan Holding S.A. granted pursuant to the Auchan Holding S.A. Stock Option Plan (2019).
(7) Oney Bank S.A. (formerly “Banque Accord S.A.”) is a company incorporated in France and a subsidiary of Auchan Holding S.A.. The major business of Oney Bank S.A. includes financial products and services as well as electronic banking provided to clients; and tailor-made solutions on payment and customer portfolio management provided to business partners. The issued share capital of Oney Bank S.A. as at 30 June 2019 is 1,449,749 shares.
(8) This represents 938 free shares and 140 free shares in Oney Bank S.A. exercised on 25 August 2018 and 24 January 2019 respectively.
(9) Mr. Huang Ming-Tuan has been appointed as Chief Executive Officer on 17 May 2019.
(10) Ms. LEE Chih-Lan is the spouse of Mr. HUANG Ming-Tuan. Ms. Lee holds 76,039,464 shares through Unique Grand Trading Limited and 1,551,238 shares under her name. Accordingly, Mr. HUANG Ming-Tuan is deemed to be interested in all of the shares held by Ms. LEE Chih-Lan.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or chief executives of the Company or their respective associates had any interests or short positions in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which would have to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO

– 32 –

GENERAL INFORMATION

APPENDIX

(including interests or short positions which they are taken or deemed to have under such provision of the SFO); or which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or which were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies, to be notified to the Company and the Stock Exchange and to be disclosed under the Takeovers Code.

Names of Shareholders

Directors

Names of Shareholders Directors Employees A-RT Retail Holding Limited Mr. Zhang Yong N.A. Mr. Chen Jun Mr. Edgard, Michel, Marie, Bonte Mr. Xavier, Marie, Alain Delom de Mezerac Mr. Benoit, Claude, Francois, Marie, Joseph LECLERCQ Auchan Retail International Mr. Edgard, Michel, Marie, Mr. Edgard, Michel, Marie, S.A. Bonte (Chairman) Bonte (Chief executive Mr. Benoit, Claude, Francois, officer) Marie, Joseph LECLERCQ Ms. Isabelle Claudine, Françoise Blondé ép. Bouvier Auchan Holding S.A. Mr. Edgard, Michel, Marie, Mr. Xavier, Marie, Alain Bonte (Chairman) Delom de Mezerac Mr. Xavier, Marie, Alain Delom de Mezerac New Retail Strategic Mr. Chen Jun N.A. Opportunities Investment 1 Limited New Retail Strategic Mr. Chen Jun N.A. Opportunities Fund GP, L.P. Alibaba Group Holding Limited Mr. Zhang Yong N.A.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors was a director or employee of a company which had, or was deemed to have, an interest or short position in the shares or underlying shares which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO.

– 33 –

GENERAL INFORMATION

APPENDIX

3. INTERESTS OF SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, so far as is known to the Directors and chief executives of the Company and based on 9,539,704,700 ordinary Shares in issue as at the Latest Practicable Date, the following persons (other than Directors and chief executives of the Company) had an interest or short position in the Shares and underlying Shares of the Company, which would fall to be disclosed to the Company and the Stock Exchange pursuant to the provisions of Divisions 2 and 3 of Part XV of the SFO, or, who were, directly or indirectly, interested in 5% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group:

Long positions on the Shares and underlying shares of the Company:

			Approximate
	Nature of	Number of Shares	percentage of
Name of Shareholders	interest	Interested(1)	issued Shares
A-RT Retail Holding	Beneficial owner	4,865,338,686 (L)(11)	51.00%
Limited(2)
Auchan Retail	Interest in a	4,865,338,686 (L)(11)	51.00%
International S.A.(3)	controlled
	corporation
Auchan Holding S.A.	Interest in a	4,865,338,686(L)(11)	51.00%
(formerly known as	controlled
Groupe Auchan	corporation
S.A.)(4)
Au Marché S.A.S(5)	Interest in a	4,865,338,686(L)(11)	51.00%
	controlled
	corporation
Mulliez Family(6)	Interest in a	4,865,338,686(L)(11)	51.00%
	controlled
	corporation
Taobao China Holding	Beneficial owner	2,001,753,643(L)(12)	20.98%
Limited(7)
Taobao Holding	Interest in a	2,001,753,643(L)(12)	20.98%
Limited(8)	controlled
(“Taobao Holding”)	corporation

– 34 –

GENERAL INFORMATION

APPENDIX

			Approximate
	Nature of	Number of Shares	percentage of
Name of Shareholders	interest	Interested(1)	issued Shares
New Retail Strategic	Beneficial owner	480,369,231(L)(13)	5.04%
Opportunities
Investments 1
Limited(9)
(“New Retail”)
New Retail Strategic	Interest in a	480,369,231(L)(13)	5.04%
Opportunities Fund,	controlled
L.P.(9)	corporation
New Retail Strategic	Interest in a	480,369,231(L)(13)	5.04%
Opportunities Fund	controlled
GP, L.P.(9)	corporation
New Retail Strategic	Interest in a	480,369,231(L)(13)	5.04%
Opportunities GP	controlled
Limited(9)	corporation
Alibaba Investment	Interest in a	480,369,231(L)(13)	5.04%
Limited(9)	controlled
	corporation
Alibaba Group Holding	Interest in a	2,482,122,874(L)	26.02%
Limited(10)	controlled
	corporation

Notes:

The letter “L” denotes a long position in the shares.
See note 3 under “Directors’ interests”.
See note 3 under “Directors’ interests”.
Auchan Retail is wholly-owned by Auchan Holding S.A., therefore Auchan Holding S.A. is deemed to be interested in all the shares in which Auchan Retail International S.A. is interested in by virtue of Part XV of the SFO.
Auchan Holding S.A. is 65.73% owned by Au Marché S.A.S, therefore Au Marché S.A.S is deemed to be interested in all the shares in which Auchan Holding S.A. is interested in by virtue of Part XV of the SFO.
Mulliez Family comprises the founder of Auchan Holding S.A., Gerard Mulliez, and other members of the Mulliez family in France. Au Marché S.A.S is wholly-owned by the Mulliez Family through certain intermediate holding companies. No member of the Mulliez Family is solely able to exert a dominant influence over other members in their voting rights in Au Marché S.A.S. The Mulliez Family is collectively represented by a member of the family, who plays an administrative role and is similarly unable to exert a dominant influence over other members of the Mulliez Family and does not control Au Marché S.A.S.

– 35 –

GENERAL INFORMATION

APPENDIX

Taobao China is a company incorporated in Hong Kong with limited liability, and is directly wholly-owned by Taobao Holding, which is in turn owned by Alibaba Group, and as at 31 December 2018 had a long interest of 20.98% in the Company.
Taobao Holding is a company incorporated in Cayman Islands, which is wholly owned by Alibaba Group. Taobao China is wholly owned by Taobao Holding, therefore Taobao Holding is deemed to be interested in all the shares in which Taobao China is interested in by virtue of Part XV of the SFO.
New Retail is an investment vehicle wholly-owned by New Retail Strategic Opportunities Fund, L.P.. New Retail Strategic Opportunities Fund, L.P. is controlled by New Retail Strategic Opportunities Fund GP, L.P. as general partner, and in turn controlled by its general partner, New Retail Strategic Opportunities GP Limited and ultimately controlled by Alibaba Investment Limited (a wholly-owned subsidiary of Alibaba Group).
Alibaba Group is a company incorporated in the Cayman Islands and its American depositary shares are listed on the New York Stock Exchange. Each of Taobao China and New Retail is ultimately controlled by Alibaba Group, therefore Alibaba Group is deemed to be interested in all the shares in which Taobao China and New Retail are interested in by virtue of Part XV of the SFO.
Such 4,865,338,686 shares belong to the same batch of shares.
Such 2,001,753,643 shares belong to the same batch of shares.
Such 480,369,231 shares belong to the same batch of shares.

Save as disclosed above, as at the Latest Practicable Date, there was no other person so far as is known to the Directors and chief executives of the Company (other than the Directors and chief executives of the Company) who had an interest or short position in the Shares and underlying Shares of the Company which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, or, who was, directly or indirectly, interested in 5% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group.

4. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contract with any member of the Group (excluding contracts expiring or determinable by the employer within one year without payment of compensation (other than statutory compensation).

5. LITIGATION

As at the Latest Practicable Date, as far as the Directors are aware, neither the Company nor any member of the Group was engaged in any litigation, arbitration or claim of material importance and no litigation, arbitration or claim of material importance was known to the Directors to be pending or threatened against any member of the Group.

– 36 –

GENERAL INFORMATION

APPENDIX

6. COMPETING INTERESTS

As at the Latest Practicable Date, none of the Directors or their respective associate(s) had any interests in a business which competed or might compete with the business of the Group and had any other conflicts of interests with the Group.

7. DIRECTORS’ INTERESTS IN CONTRACT, ASSETS AND ARRANGEMENT OF SIGNIFICANCE

As at the Latest Practicable Date, none of the Directors is materially interested in any contract or arrangement which is significant to the business of the Group.

As at the Latest Practicable Date, none of the Directors had any direct or indirect interests in any assets which have been acquired or disposed of by, or leased to, or which were proposed to be acquired or disposed of by, or leased to, any member of the Group since 30 June 2019 (being the date of the latest published audited financial statements of the Company).

8. MATERIAL ADVERSE CHANGES

The Directors confirm that, as at the Latest Practicable Date, the Directors were not aware of any other material adverse change in the financial or trading position of the Group since 30 June 2019, being the date of the latest published audited financial statements of the Group.

9. EXPERT AND CONSENT

The following is the qualification of the expert who has given an opinion or advice, which is contained or referred to in this circular:

Name Qualification

Alliance Capital Partners Limited a licensed corporation to carry on type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities as defined under the SFO

As at the Latest Practicable Date, Alliance Capital has given and confirmed that it has not withdrawn its written consent to the issue of this circular, with the inclusion therein of its letter, report, advice, opinion and/or references to its name in the form and context in which they respectively appear.

As at the Latest Practicable Date, Alliance Capital did not have any shareholding, direct or indirect, in any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities which carry voting rights in any member of the Group.

– 37 –

GENERAL INFORMATION

APPENDIX

As at the Latest Practicable Date, Alliance Capital did not have any direct or indirect interest in any asset which had been acquired, or disposed of by, or leased to any member of the Group since 30 June 2019, being the date to which the latest published audited consolidated financial statements of the Group were made up.

10. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be made available for inspection during normal business hours from 9:00 a.m. to 5:00 p.m. on any weekday (other than Saturday, Sunday and public holidays) at the principal place of business of the Company in Hong Kong at Suite No. 02, 22/F, Sino Plaza, 255-257 Gloucester Road Causeway Bay, Hong Kong from the date of this circular up to and including the date of the EGM:

(i) the Supply Agreements;
(ii) the letter from the Independent Board Committee to the Independent Shareholders, the text of which is set out in this circular;
(iii) the letter from Alliance Capital, the text of which is set out in this circular;
(iv) the written consent from Alliance Capital referred to in the section headed “Expert and Consent” in the appendix to this circular; and
(v) this circular.

– 38 –

NOTICE OF EGM

==> picture [154 x 52] intentionally omitted <==

SUN ART RETAIL GROUP LIMITED 高鑫零售有限公司

(Incorporated in Hong Kong with limited liability)

(Stock code: 06808)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN THAT the extraordinary general meeting (the “ EGM ”) of Sun Art Retail Group Limited (the “ Company ”) will be held at Lotus Room, 6/F, Marco Polo Hongkong Hotel, Harbour City, 3 Canton Road, Tsim Sha Tsui, Kowloon, Hong Kong on 27th day, September 2019 at 3 p.m. to consider and, if thought fit, passing, with or without modifications, the following resolutions. Unless otherwise defined, capitalised terms defined in the circular dated 10 September 2019 shall have the same meanings when used in this notice.

ORDINARY RESOLUTIONS

“ THAT
(a) the entering into of the Supply Agreements (dated 11 April 2019, 31 May 2019 and 19 August 2019 respectively, and as defined in the circular of the Company dated 10 September 2019 and a copy of which has been produced to the meeting and marked “A” and initialled by the chairman of the meeting for the purpose of identification) be and is hereby approved, confirmed and ratified;
(b) the Revised Annual Caps (as defined in the circular of the Company dated 10 September 2019) be and are hereby approved, confirmed and ratified;
(c) any director and/or the Chief Executive Officer of the Company be and is hereby authorised to take any step and execute such other documents as they consider necessary, desirable or expedient to carry out or give effect to or otherwise in connection with (a) and (b) above.”

By Order of the Board Sun Art Retail Group Limited Mr. HUANG Ming-Tuan Chief Executive Officer

Hong Kong, 10 September 2019

Registered office : Level 54, Hopewell Centre 183 Queen’s Road East Hong Kong

– 39 –

NOTICE OF EGM

Notes:

All resolutions at the meeting will be taken by poll (except where the chairman decides to allow a resolution relating to a procedural or administrative matter to be voted on by a show of hands) pursuant to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “ Listing Rules ”). The results of the poll will be published on the websites of Hong Kong Exchanges and Clearing Limited and the Company in accordance with the Listing Rules.
Any shareholder of the Company entitled to attend and vote at the meeting is entitled to appoint a proxy to attend and vote instead of him/her. A proxy need not be a shareholder of the Company. If more than one proxy is appointed, the number of shares in respect of which each such proxy so appointed must be specified in the relevant form of proxy. Every shareholder present in person or by proxy shall be entitled to one vote for each share held by him/her.
In order to be valid, the form of proxy together with the power of attorney or other authority, if any, under which it is signed or a certified copy of that power of attorney or authority, must be deposited at the Company’s share registrar, Computershare Hong Kong Investor Services Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before the time appointed for the Extraordinary General Meeting (i.e. not later than 3:00 p.m. on 25th day, September 2019 (Hong Kong time)) or the adjourned meeting (as the case may be). Delivery of the form of proxy shall not preclude a shareholder of the Company from attending and voting in person at the meeting and, in such event, the instrument appointing a proxy shall be deemed to be revoked.
For determining the entitlement to attend and vote at the above meeting, the Register of Members of the Company will be closed from 25th day, September 2019 to 27th day, September 2019, both dates inclusive, during which period no transfer of shares will be registered. In order to be eligible to attend and vote at the Extraordinary General Meeting, unregistered holders of shares of the Company shall ensure that all transfer documents accompanied by the relevant share certificates must be lodged with the Company’s share registrar, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong for registration not later than 4:30 p.m. on 24th day, September 2019.
A circular containing further details concerning item 1(a), (b) and (c) set out in the above notice will be sent to all shareholders of the Company.
References to time and dates in this notice are to Hong Kong time and dates.

As at the date of this notice, the non-executive Directors are Mr. ZHANG Yong (Chairman), Mr. Edgard, Michel, Marie BONTE, Mr. Benoit, Claude, Francois, Marie, Joseph LECLERCQ, Mr. Xavier, Marie, Alain DELOM de MEZERAC, Mr. CHEN Jun, Ms. Isabelle Claudine and Françoise BLONDÉ ép. BOUVIER; and the independent non-executive Directors are Ms. Karen Yifen CHANG, Mr. Desmond MURRAY and Mr. HE Yi.

– 40 –

AI assistant

Sun Art Retail Group Limited — Proxy Solicitation & Information Statement 2019

51042_rns_2019-09-10_a399260e-bfd3-48f3-a28f-ed2a45c656f0.pdf

SUN ART RETAIL GROUP LIMITED 高鑫零售有限公司

CONTINUING CONNECTED TRANSACTION REVISION OF ANNUAL CAPS

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

SUN ART RETAIL GROUP LIMITED 高鑫零售有限公司

(Stock code: 06808)

To the Shareholders

CONTINUING CONNECTED TRANSACTION REVISION OF ANNUAL CAPS

INTRODUCTION

LETTER FROM THE BOARD

CONTINUING CONNECTED TRANSACTION – TERMS OF AGREEMENTS

Master Supply Agreement

LETTER FROM THE BOARD

Shanghai Runhe Supply Agreements

Northeast China Hema Supply Agreement

LETTER FROM THE BOARD

Term

Prices and fees

Hainan Hema Supply Agreement

Term

Prices and fees

Promotional Goods Supply Agreement

LETTER FROM THE BOARD

HISTORICAL FIGURES

REVISION OF THE ORIGINAL ANNUAL CAPS

BASIS FOR THE REVISED ANNUAL CAPS

REASONS FOR AND BENEFITS OF THE REVISED ANNUAL CAPS

INFORMATION OF THE PARTIES

The Group

Alibaba

Alipay (Hangzhou)

Taobao China

Shanghai Runhe

Qingdao Ruentex

Guangdong Ruenhua

Hainan Hema

INTERNAL CONTROL PROCEDURES ON THE PRICING BASIS OF THE CONTINUING CONNECTED TRANSACTIONS

LISTING RULES IMPLICATIONS

LETTER FROM THE BOARD

GENERAL INFORMATION AND EGM

RECOMMENDATION

SUN ART RETAIL GROUP LIMITED 高鑫零售有限公司

CONTINUING CONNECTED TRANSACTION REVISION OF ANNUAL CAPS

To the Independent Board Committee and the Independent Shareholders

Dear Sir or Madam,

PRINCIPAL FACTORS AND REASONS CONSIDERED

1. Background of the Supply Agreements

Master Supply Agreement

1. Relevant Products:

Shanghai Runhe Supply Agreements

Promotional Goods Supply Agreement

2. Development of the “Shared inventory” (共享庫存) business model with Alibaba Group under the Master Supply Agreement

LETTER FROM ALLIANCE CAPITAL

Remuneration

Internal control

3. Annual Caps

RECOMMENDATION

1. RESPONSIBILITY STATEMENT

2. DIRECTORS’ INTERESTS

APPENDIX

Names of Shareholders

Directors

3. INTERESTS OF SUBSTANTIAL SHAREHOLDERS

4. DIRECTORS’ SERVICE CONTRACTS

5. LITIGATION

6. COMPETING INTERESTS

7. DIRECTORS’ INTERESTS IN CONTRACT, ASSETS AND ARRANGEMENT OF SIGNIFICANCE

8. MATERIAL ADVERSE CHANGES

9. EXPERT AND CONSENT

Name Qualification

10. DOCUMENTS AVAILABLE FOR INSPECTION

SUN ART RETAIL GROUP LIMITED 高鑫零售有限公司

NOTICE OF EXTRAORDINARY GENERAL MEETING

ORDINARY RESOLUTIONS

Sun Art Retail Group Limited Proxy Solicitation & Information Statement 2019