Kerry Logistics Network : Revision of Annual Caps for Continuing Connected Transactions for the Year Ending 31 December 2019 and Renewal of Continuing Connected Transactions

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

(Incorporated in the British Virgin Islands and continued into Bermuda

as an exempted company with limited liability)

Stock Code 636

REVISION OF ANNUAL CAPS FOR

CONTINUING CONNECTED TRANSACTIONS FOR THE YEAR ENDING 31 DECEMBER 2019 AND

RENEWAL OF CONTINUING CONNECTED TRANSACTIONS

REVISION OF ANNUAL CAPS

Reference is made to the announcements of the Company dated 28 July 2014 and 9 December 2016 in relation to the continuing connected transactions under the 2014 Framework Agreement and the 2016 Framework Agreement entered into between KPL and the Company, pursuant to which, (i) the Group agreed to provide services including delivery, local courier, freight, freight agency, insurance brokerage and related services, and services relating to management and operation of warehouse facilities to the KPL Group, (ii) the KPL Group agreed to lease the Leased Premises to the Group, and (iii) the aggregate total amount payable per annum by the Group to the KPL Group for the Leased Premises and by the KPL Group to the Group for the services under the KPL Transactions shall not exceed the aggregate annual caps as provided in the 2014 Framework Agreement and 2016 Framework Agreement respectively.

Due to inclusion of more Leased Premises and the recent disposals of the two warehouses in Chai Wan and Shatin by the Group that transformed the transactions originally between KLN's subsidiaries into continuing connected transactions between KPL and KLN, the transaction amounts for the year ending 31 December 2019 is expected to be higher than the amount as envisaged at the time of entering into the 2016 Framework Agreement.

On 29 August 2019, the Company entered into the Supplemental Agreement with KPL to revise the transaction amounts for the year ending 31 December 2019. Save for the revision of the 2019 Existing Annual Caps, all other terms and conditions under the 2016 Framework Agreement remain the same.

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RENEWAL OF CONTINUING CONNECTED TRANSACTIONS

The 2016 Framework Agreement and the annual caps of the transactions under the 2016 Framework Agreement will expire on 31 December 2019. On 29 August 2019, the Company entered into the 2019 Framework Agreement with KPL for a fixed term of three years. The Company proposes to set the New Annual Caps for the KPL Transactions for the three years ending 31 December 2020, 2021 and 2022.

KPL is a substantial shareholder and a controlling shareholder of the Company, and is therefore a connected person of the Company under the Listing Rules. As such, the transactions contemplated under the KPL Transactions constitute continuing connected transactions of the Company under Chapter 14A of the Listing Rules.

As one or more of the applicable percentage ratios in respect of the proposed annual caps of the transactions under the KPL Transactions are, on an annual basis, more than 0.1%, but all the applicable percentage ratios are less than 5% in accordance with the Listing Rules, the transactions contemplated under the KPL Transactions are subject to the reporting, annual review and announcement requirements and are exempt from the independent shareholders' approval requirements of the Listing Rules.

REVISION OF 2019 EXISTING ANNUAL CAPS

On 29 August 2019, the Company entered into the Supplemental Agreement with KPL to revise the 2019 Existing Annual Caps. Save for the revision of the 2019 Existing Annual Caps, all other terms and conditions under the 2016 Framework Agreement remain the same.

Set out below are the principal terms of the Supplemental Agreement:

1. Date
   29 August 2019
2. Parties
3. 1. the Company; and
   2. Kerry Properties Limited (a controlling shareholder and substantial shareholder of the Company)
4. Subject matter
   Pursuant to the Supplemental Agreement, the maximum aggregate values payable by the Group to the KPL Group per annum and receivable by the Group from the KPL Group per annum in connection with the KPL Transactions for the year ending 31 December
   2019 are amended as follows:

	Payable by the Group	Receivable by the Group
	under the KPL Transactions	under the KPL Transactions
	for the year ending	for the year ending
	31 December 2019	31 December 2019
	(HK$)	(HK$)
2019 Existing Annual Caps	12.4 million	11.5 million
2019 Revised Annual Caps	75.0 million	20.0 million

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REASONS FOR REVISING THE 2019 EXISTING ANNUAL CAPS AND THE BASIS FOR DETERMINING THE 2019 REVISED ANNUAL CAPS

Pursuant to the 2016 Framework Agreement, the existing annual caps for the KPL Transactions for the two years ended 31 December 2017 and 2018 and the year ending 31 December 2019 payable by the Group to the KPL Group were HK$11.6 million, HK$12.0 million and HK$12.4 million and receivable by the Group from the KPL Group were HK$9.9 million, HK$10.5 million and HK$11.5 million respectively.

In view of the inclusion of more Leased Premises and the recent disposals of the two warehouses in Chai Wan and Shatin by the Group that transformed the transactions originally between KLN's subsidiaries into continuing connected transactions between KPL and KLN, it is expected that the services to be required by members of the Group from members of the KPL Group and vice versa will increase, and accordingly, the 2019 Existing Annual Caps provided for in the 2016 Framework Agreement will not be sufficient to meet the Group's requirements for the year ending 31 December 2019. Hence, the Company entered into the Supplemental Agreement with KPL on 29 August 2019 to revise the 2019 Existing Annual Caps.

The 2019 Revised Annual Caps have been determined with reference to: previous transactions conducted and the historical transaction amounts under the KPL Transactions, fees charged by independent third party service providers, the total value of the right‐of‐use assets involved in the leasing of the Leased Premises from the KPL Group to the Group, as well as other factors including: (a) historical, current and projected rental for the Leased Premises; (b) the prevailing and projected market rates for rental and building management fees for comparable properties in the nearby area; (c) historical, current and projected management fees and fees for operation of warehouse facilities provided under the KPL Transactions; (d) historical, current and projected market rates for insurance brokerages for comparable insurance products; (e) historical, current and projected rates on delivery, local courier and freight services; and (f) inflation and expected expansion and development of the businesses of the Group and the KPL Group.

CONTINUING CONNECTED TRANSACTIONS

The Board (including the independent non‐executive Directors) considers that the Supplemental Agreement and the 2019 Revised Annual Caps are entered into in the ordinary and usual course of business of the Group and are on normal commercial terms or better, which are fair and reasonable and in the interests of the Company and the Shareholders as a whole, and that the Supplemental Agreement and the 2019 Revised Annual Caps are fair and reasonable. The chairman of the Company and executive Director, Mr KUOK Khoon Hua, has declared that he together with his Associates hold more than 5% interest in KPL and therefore he has abstained from voting on the board resolution approving the 2019 Framework Agreement, the KPL Transactions and the New Annual Caps. Apart from the foregoing and to the best of the knowledge, information and belief of the Directors after having made all reasonable enquiries, as at the date of this announcement, none of the Directors has a material interest in the KPL Transactions nor was required to abstain from voting on the board resolution approving the 2019 Framework Agreement, the KPL Transactions and the New Annual Caps under the Bye‐ laws.

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RENEWAL OF CONTINUING CONNECTED TRANSACTION

The 2016 Framework Agreement and the annual caps of the transactions under the 2016 Framework Agreement will expire on 31 December 2019. On 29 August 2019, the Company renewed the 2016 Framework Agreement by entering into the 2019 Framework Agreement with KPL for a fixed term of three years. The Company proposes to set the New Annual Caps for the KPL Transactions for the three years ending 31 December 2020, 2021 and 2022.

THE 2019 FRAMEWORK AGREEMENT

Pursuant to the 2019 Framework Agreement:

1. the Group agreed to provide services including delivery, local courier, freight, freight agency, insurance brokerage and related services, and services relating to management and operation of warehouse facilities (that is, building management, leasing and licensing management, warrant operations, IT support, human resources, administration and related services) to the KPL Group on normal commercial terms and on an arm's length basis, or on terms no less favourable than those available to the Group from independent third parties, under the KPL Transactions;
2. the KPL Group agreed to lease the Leased Premises to the Group on normal commercial terms and on an arm's length basis, or on terms no less favourable than those available to the Group from independent third parties, under the KPL Transactions;
3. the pricing of each KPL Transaction shall be determined by the parties at the time of the relevant agreement based on applicable market practice and value, with reference to any relevant rules and regulations being effective at the time;
4. in relation to logistics and freight services (that is, delivery, local courier, freight and freight agency services), the service fee shall be determined by the parties at the time of entry into the relevant agreement with reference to the weight and type of cargo, mode of shipment, freight rate of the carrier, type of storage space required and the service fee charged by independent third party logistics and freight services providers;
5. in relation to insurance brokerage and related services, the service fee shall be determined by the parties at the time of entry into the relevant agreement with reference to the insurance brokerage fee charged by independent third party insurance companies from time to time for comparable type of insurance;
6. in relation to services relating to management and operation of warehouse facilities (that is, building management, leasing and licensing management, warrant operations, IT support, human resources, administration and related services), the service fee shall be determined by the parties at the time of entry into the relevant agreement with reference to the type, size and location of the premises, the relevant party/customers' specific requirements and the service fees charged by independent third party warehouse services providers;
7. in relation to the Leased Premises and such further premises (if any) that KPL Group will lease to the Group during the subsistence of the 2019 Framework Agreement, the rental shall be determined by the parties at the time of entry into the relevant agreements based on the prevailing market rent for comparable properties in the nearby area; and
8. the aggregate total amount payable per annum by the Group to the KPL Group and by the KPL Group to the Group for the services provided under the KPL Transactions shall not exceed the New Annual Caps during the term of the 2019 Framework Agreement.

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The 2019 Framework Agreement will commence on 1 January 2020 and expire on 31 December 2022. The 2019 Framework Agreement can be extended for a further term of three years with the mutual written agreement of the Company and KPL.

It is envisaged that from time to time and as required, individual agreements will be entered into between the Group and KPL Group with respect to specific services covered by the 2019 Framework Agreement. Each agreement will set out the specific services requested by the relevant party. These agreements shall only contain provisions which are in all material respects consistent with the guidelines and terms and conditions set out above.

HISTORICAL TRANSACTION AMOUNTS AND ANNUAL CAPS

1. The aggregate amounts paid or to be paid by the Group under the KPL Transactions, together with the relevant annual caps, are as follows:

For the year ended /	Total amount paid / to be paid	Historical Annual Caps
ending	by the Group to the KPL Group
31 December	at year end
	(HK$)	(HK$)
2017	8.7 million	11.6 million
2018	8.6 million	12.0 million
2019	11.0 million1	12.4 million

1. the aggregate amounts received or to be received by the Group under the KPL Transactions, together with the relevant annual caps, are as follows:

For the year ended /	Total amount received / to be	Historical Annual Caps
ending	received by the Group from the
31 December	KPL Group at year end
	(HK$)	(HK$)
2017	7.7 million	9.9 million
2018	8.7 million	10.5 million
2019	9.7 million1	11.5 million

ACCOUNTING IMPLICATIONS TO THE TENANCIES

As Hong Kong Financial Reporting Standard 16 "Leases" has become effective on 1 January 2019 and applied to financial years beginning on or after 1 January 2019, with respect to the continuing connected transactions in 2019 for which the Group as the lessee, the Group will be required to set annual cap on the total value of right‐of‐use assets relating to the leases which it entered into in accordance with the requirements of the Stock Exchange.

In accordance with the Hong Kong Financial Reporting Standards applicable to the Group contemplated under the KPL Transactions in relation to the Leased Premises comprise different components, and hence, different accounting treatments may be applied. The rental payment to be made by the Group under the relevant tenancies may be capital in nature and recognized, among others, as assets of the Group from the respective commencement dates of the tenancies.

• This estimated amount is for the period ended 29 August 2019.

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NEW ANNUAL CAPS

The Directors have been closely monitoring the continuing connected transactions under the 2016 Framework Agreement, and proposes to set the New Annual Caps, details of which are set out below:

		Year ending 31 December
	2020	2021					2022
Annual cap payable by the Group					(HK$)
under the KPL Transactions................		100 million			120 million	140 million
		Year ending 31 December
		2020	2021					2022
Annual cap receivable by the Group					(HK$)
under the KPL Transactions................		35 million			50 million	55 million

The New Annual Caps for the three years ending 31 December 2020, 2021 and 2022 are determined by reference to previous transactions conducted and the historical transaction amounts under the KPL Transactions, fees charged by independent third party service providers, the total value of the right‐of‐use assets involved in the leasing of the Leased Premises from the KPL Group to the Group, as well as factors including: (a) historical, current and projected rental for the Leased Premises and such further premises (if any) that KPL Group will lease to the Group during the subsistence of the 2019 Framework Agreement; (b) the prevailing and projected market rates for rental and building management fees for comparable properties in the nearby area; (c) historical, current and projected management fees and fees for operation of warehouse facilities provided under the KPL Transactions; (d) historical, current and projected market rates for insurance brokerages for comparable insurance products; (e) historical, current and projected rates on delivery, local courier and freight services; and (f) inflation and expected expansion and development of the businesses of the Group and the KPL Group.

REASON FOR AND BENEFITS OF THE KPL TRANSACTIONS

The Group operates as a leading logistics service provider in Asia principally engaged in the integrated logistics and international freight forwarding businesses. As a logistics service provider, the Group has been providing logistics related services including insurance brokerage and related services to the KPL Group historically and will continue to do so in order to enhance the operational scale of the Group. In relation to the provision of services relating to management and operation of warehouse facilities, the Group can leverage on its existing set‐ up and resources to generate revenue. In addition, due to the continuing growth in the Group's operations in Hong Kong and the Mainland China, the Group requires to lease additional premises for its business operations.

The Board considers that due to the long‐term relationship between the Group and KPL Group, it is beneficial to the Company to continue to enter into the KPL Transactions as these transactions have facilitated and will continue to facilitate the operation and growth of the Company's business.

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The Board (including the independent non‐executive Directors) also considers that the 2019 Framework Agreement and the KPL Transactions are entered into in the ordinary and usual course of business of the Group and are on normal commercial terms or better, which are fair and reasonable and in the interests of the Company and the Shareholders as a whole, and that the New Annual Caps for the transactions under the KPL Transactions are fair and reasonable. The chairman of the Company and executive Director, Mr KUOK Khoon Hua, has declared that he together with his Associates hold more than 5% interest in KPL and therefore he has abstained from voting on the board resolution approving the 2019 Framework Agreement, the KPL Transactions and the New Annual Caps. Apart from the foregoing and to the best of the knowledge, information and belief of the Directors after having made all reasonable enquiries, as at the date of this announcement, none of the Directors has a material interest in the KPL Transactions nor was required to abstain from voting on the board resolution approving the 2019 Framework Agreement, the KPL Transactions and the New Annual Caps under the Bye‐ laws.

LISTING RULES IMPLICATIONS

KPL is a substantial shareholder and a controlling shareholder of the Company, and is therefore a connected person of the Company under the Listing Rules. As such, the transactions contemplated under the KPL Transactions constitute continuing connected transactions of the Company under Chapter 14A of the Listing Rules.

As one or more of the applicable percentage ratios in respect of the proposed annual caps of the transactions under the KPL Transactions are, on an annual basis, more than 0.1%, but all the applicable percentage ratios are less than 5% in accordance with the Listing Rules, the transactions contemplated under the KPL Transactions are subject to the reporting, annual review and announcement requirements and are exempt from the independent shareholders' approval requirements of the Listing Rules.

INFORMATION ON THE GROUP AND THE KPL GROUP

The Group's core business encompasses integrated logistics, international freight forwarding and supply chain solutions. With headquarters in Hong Kong, the Group has a far‐reaching global network that stretches across six continents, and includes one of the largest distribution network and hub operations in Greater China and the ASEAN region.

KPL was incorporated in Bermuda with limited liability, the shares of which are listed on the Stock Exchange. The principal activity of KPL is investment holding and the principal activities of KPL's subsidiaries, associates and joint ventures comprise property development, investment and management in Hong Kong, the PRC and the Asia Pacific region; hotel ownership in Hong Kong, and hotel ownership and operations in the PRC; and integrated logistics and international freight forwarding.

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DEFINITIONS

"2014 Framework	the framework agreement entered into between KPL and the
Agreement"	Company dated 28 July 2014
"2016 Framework	the framework agreement entered into between KPL and the
Agreement"	Company dated 9 December 2016, details of which are set out in
	the announcement of the Company dated 9 December 2016
"2019 Existing Annual	the maximum aggregate values of the KPL Transactions for the
Caps"	year ending 2019 under the 2016 Framework Agreement
"2019 Framework	the framework agreement entered into between KPL and the
Agreement"	Company dated 29 August 2019
"2019 Revised Annual	the maximum aggregate values of the KPL Transactions for the
Caps"	year ending 2019 under the 2016 Framework Agreement and as
	revised under the Supplemental Agreement
"ASEAN"	the Association of Southeast Asia Nations
"Associate(s)"	has the meaning ascribed thereto under the Listing Rules
"Board"	the board of Directors
"Bye‐laws"	the bye‐laws of the Company, as amended from time to time
"Company" or "KLN"	Kerry Logistics Network Limited, incorporated in the British Virgin
	Islands and continued into Bermuda to become an exempted
	company with limited liability, the shares of which are listed on
	the Main Board of the Stock Exchange
"connected person"	has the meaning ascribed thereto under the Listing Rules
"controlling shareholder"	has the meaning ascribed thereto under the Listing Rules
"Directors"	directors of the Company
"Greater China"	PRC, Hong Kong, Macau and Taiwan
"Group"	the Company and its subsidiaries
"Historical Annual Caps"	the annual caps under the 2016 Framework Agreement for the
	two years ended 31 December 2017, 2018 and the year ending
	2019
"HK$"	Hong Kong dollars, the lawful currency of Hong Kong
"Hong Kong"	the Hong Kong Special Administrative Region of the PRC
"KPL"	Kerry Properties Limited, an exempted company incorporated in
	Bermuda with limited liability, the shares of which are listed on
	the Main Board of the Stock Exchange
"KPL Group"	KPL and its subsidiaries

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"KPL Transactions"	transactions entered into between the Group and the KPL Group
	on normal commercial terms, or on terms no less favourable than
	those available to the Group from independent third parties,
	under which (i) the Group provides services including delivery,
	local courier, freight, freight agency, insurance brokerage and
	related services, and services relating to management and
	operation of warehouse facilities to the KPL Group, and (ii) the
	KPL Group leases the Leased Premises to the Group
"Leased Premises"	the premises owned by the KPL Group and leased or to be leased
	to the Group from time to time, which include but not limited to,
	office premises, residential premises and warehouses
"Listing Rules"	the Rules Governing the Listing of Securities on the Stock
	Exchange, as amended from time to time
"Macau"	Macao Special Administrative Region of the PRC
"New Annual Caps"	the proposed aggregate annual caps for the KPL Transactions for
	the three years ending 31 December 2020, 2021 and 2022
"PRC" or "Mainland China"	the People's Republic of China which, for the purpose of this
	announcement, excludes Hong Kong, Macau and Taiwan
"Shareholders"	shareholders of the Company
"Stock Exchange"	The Stock Exchange of Hong Kong Limited
"substantial shareholder"	has the meaning ascribed thereto under the Listing Rules
"Supplemental Agreement"	the supplemental agreement dated 29 August 2019 entered into
	between the Company and KPL to amend and supplement the
	2016 Framework Agreement
"%"	per cent
	By Order of the Board
	Kerry Logistics Network Limited
	LEE Pui Nee
	Company Secretary
Hong Kong, 29 August 2019

As at the date of this announcement, the Directors of the Company are:

Executive Directors:

Mr KUOK Khoon Hua, Mr MA Wing Kai William and Mr NG Kin Hang

Non‐executive Director:

Ms TONG Shao Ming

Independent Non‐executive Directors:

Ms KHOO Shulamite N K, Ms WONG Yu Pok Marina, Mr YEO Philip Liat Kok and Mr ZHANG Yi Kevin

This announcement is published on the websites of The Stock Exchange of Hong Kong Limited (www.hkexnews.hk) and the Company (www.kerrylogistics.com).

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