| (c) | Termination and other terms |
The HBYS Brand License Royalty Agreement will terminate upon (i) the change of name of Hutchison Baiyunshan and its subsidiary undertakings to names that do not include the “Hutchison Whampoa” names, (ii) the earlier of (a) the termination of the trade mark license agreements between HWEL (on the one hand) and Hutchison Baiyunshan and its subsidiary undertakings (on the other hand) and (b) the complete cessation of the use of the HWL Trade Marks by Hutchison Baiyunshan and its subsidiary undertakings and (iii) the termination of the HBYS SPA.
The aggregate fees payable by HCMH under the HBYS Brand License Royalty Agreement (including any renewal thereof) shall not be more than HK$120 million, even if the HBYS Brand License Royalty Agreement is not terminated and continues to be renewed after 10 years.
(2) | Historical transaction amounts |
The fees paid by HCMH to HWEL for the financial years ended December 31, 2021 and 2022 and the financial year ending December 31, 2023 are as follows:
| FY2021 | FY2022 | FY2023 |
| | | |
Annual fee | HK$12 million | HK$12 million | HK$12 million |
The annual fee payable by HCMH under the HBYS Brand License Royalty Agreement for each financial year ending December 31, 2024, 2025 and 2026 will be HK$12 million.
The annual fee was determined by reference to (i) the historical sales volume of Hutchison Baiyunshan products and expected future growth, (ii) the portion of Hutchison Baiyunshan jointly branded products which uses the HWL Trade Marks and “Baiyunshan” trade marks, (iii) the expected future trend in and period of such use of the HWL Trade Marks in jointly branded products, (iv) market royalty rates for the use of a brand in a jointly branded product, and (v) arm’s length negotiation between the Group and HWEL.
C. | REASONS FOR, AND THE BENEFITS OF, THE CONTINUING CONNECTED TRANSACTIONS |
(1) | Framework Sinopharm Products Supply and Purchase Agreement |
Hutchison Sinopharm, a consolidated joint venture of the Company, focuses on providing logistics, distribution and marketing services for prescription drugs in China. As of December 31, 2022, Hutchison Sinopharm had a dedicated team of over 40 commercial staff that focus on marketing over 900 third-party prescription drug and other products directly to about 730 public and private hospitals in the Shanghai region and through a network of approximately 55 distributors to cover all other provinces in China.
As of December 31, 2022, Hutchison Sinopharm had over 860 customers of which approximately 13% were distributors, and the revenue generated from these distributors accounted for approximately 25% of the revenue of Hutchison Sinopharm for the year ended December 31, 2022.
The supply of products by Hutchison Sinopharm to Sinopharm, a leading distributor of pharmaceutical and healthcare products and a leading supply chain service provider in China, under the Framework Sinopharm Products Supply and Purchase Agreement, is in line with the business of Hutchison Sinopharm and enables Hutchison Sinopharm to utilize the distribution network of Sinopharm.
The purchase of products by Hutchison Sinopharm from Sinopharm under the Framework Sinopharm Products Supply and Purchase Agreement enables Hutchison Sinopharm to secure a stable source of the relevant products.
(2) | The HBYS Brand License Royalty Agreement |
On March 24, 2021, HBYSGH and GL Mountrose Investment Two Limited entered into the HBYS SPA pursuant to which HBYSGH agreed to sell the entire issued share capital of HCMGIL (which indirectly held 50% interest in Hutchison Baiyunshan) to GL Mountrose Investment Two Limited. To facilitate the HBYS Disposal, HBYSGH agreed pursuant to the HBYS SPA and as a condition to the completion of the HBYS Disposal that it would procure HWEL to continue to grant the relevant license to Hutchison Baiyunshan to use the HWL Trade Marks. In order to satisfy the condition and for HWEL to continue to grant the license, HCMH entered into the HBYS Brand License Royalty Agreement. The Group had taken into consideration the amount payable under the HBYS Brand License Royalty Agreement when the Group evaluated the commercial aspects of the HBYS Disposal. Please refer to the section headed “Connected Transactions – B. Non-Exempt Continuing Connected Transactions - 6. HBYS Brand License Royalty Agreement” in the prospectus of the Company dated June 18, 2021 for further details.