ANNUAL REPORT 2020 Corporate Information
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CONTENTS 2 Corporate Information 4 Chairman’s Statement 7 Management Discussion and Analysis 29 Directors and Senior Management 36 Environmental, Social and Governance Report 51 Directors’ Report 83 Corporate Governance Report 94 Independent Auditor’s Report 99 Consolidated Statement of Profit or Loss and Other Comprehensive Income 100 Consolidated Statement of Financial Position 102 Consolidated Statement of Changes in Equity 103 Consolidated Statement of Cash Flows 105 Notes to the Financial Statements 193 Financial Summary 194 Definitions and Glossaries CORPORATE INFORMATION DIRECTORS AUTHORIZED REPRESENTATIVES Executive Directors Ms. ZHAI Fang Mr. LIU Xiaofeng (Chairman) Mr. WONG Keith Shing Cheung Ms. ZHANG Qiuchen Mr. CHEN Chen REGISTERED OFFICE Ms. ZHAI Fang Harneys Fiduciary (Cayman) Limited Non-Executive Directors 4th Floor, Harbour Place Mr. WANG Xiaohui 103 South Church Street Mr. WANG Jun P.O. Box 10240 Grand Cayman KY1-1002 Independent Non-executive Directors Cayman Islands Mr. MA Zhongjun Mr. ZHANG Senquan HEADQUARTERS IN THE PRC Mr. CHUNG Chong Sun Room 2508, Building A AUDIT COMMITTEE Wanda Plaza, No. 98 Jiangdong Zhong Road Mr. ZHANG Senquan (Chairman) Jianye District Mr. WANG Jun Nanjing, Jiangsu Mr. CHUNG Chong Sun PRC REMUNERATION COMMITTEE PRINCIPAL PLACE OF BUSINESS IN HONG KONG Mr. MA Zhongjun (Chairman) 40/F, Dah Sing Financial Centre Mr. LIU Xiaofeng 248 Queen’s Road East Mr. CHUNG Chong Sun Wanchai Hong Kong NOMINATION COMMITTEE PRINCIPAL SHARE REGISTRAR AND Mr. MA Zhongjun (Chairman) TRANSFER OFFICE Mr. LIU Xiaofeng Mr. CHUNG Chong Sun Harneys Fiduciary (Cayman) Limited 4th floor, Harbour Place JOINT COMPANY SECRETARIES 103 South Church Street P.O. Box 10204 Ms. ZHAI Fang Grand Cayman, KY1-1002 Mr. WONG Keith Shing Cheung Cayman Islands 2 STRAWBEAR ENTERTAINMENT GROUP ANNUAL REPORT 2020 Corporate Information HONG KONG SHARE REGISTRAR HONG KONG LEGAL ADVISOR Tricor Investor Services Limited William Ji & Co. LLP Level 54, Hopewell Centre in Association with 183 Queen’s Road East Tian Yuan Law Firm Hong Kong Office Hong Kong Suites 3304-3309, 33/F Jardine House PRINCIPAL BANKERS One Connaught Place Central, Hong Kong Bank of Nanjing Co., Ltd. Nanjing Chengdong Sub-branch COMPLIANCE ADVISER No. 99-1 Zhongshanmen Avenue Xuanwu District Messis Capital Limited Nanjing, Jiangsu Room 1606, 16/F, Tower 2 PRC Admiralty Centre 18 Harcourt Road East West Bank (China) Ltd. Hong Kong 33/F, Jin Mao Tower No. 88 Century Boulevard STOCK CODE Pudong New Area, Shanghai PRC 2125 AUDITOR COMPANY’S WEBSITE Ernst & Young www.strawbearentertainment.com Certified Public Accountants Registered Public Interest Entity Auditor 22/F, CITIC Tower 1 Tim Mei Avenue Central Hong Kong ANNUAL REPORT 2020 STRAWBEAR ENTERTAINMENT GROUP 3 CHAIRMAN’S STATEMENT Dear Shareholders, On behalf of the Board, I am pleased to present you the annual report of the Group for the year ended December 31, 2020. THE LISTING The Shares of the Company were successfully listed on the Main Board of the Stock Exchange on January 15, 2021. The Listing was a recognition for the Group’s past efforts in performance growth and an important milestone in the Group’s history. FINANCIAL HIGHLIGHTS Our revenue for the year ended December 31, 2020 amounted to approximately RMB952.4 million, representing an increase of 24.5% from approximately RMB765.1 million for the year ended December 31, 2019; our gross profit for the year ended December 31, 2020 amounted to approximately RMB259.8 million, representing an increase of 141.4% from approximately RMB107.6 million for the year ended December 31, 2019; our profit for the year ended December 31, 2020 amounted to approximately RMB18.2 million, representing a decrease of 63.9% from approximately RMB50.4 million for the year ended December 31, 2019; our adjusted net profit* for the year ended December 31, 2020 amounted to approximately RMB130.9 million, representing an increase of 100.1% from approximately RMB65.4 million for the year ended December 31, 2019; our net assets as of December 31, 2020 amounted to approximately RMB224.6 million, representing an increase of 15.5% from approximately RMB194.5 million as of December 31, 2019. BUSINESS REVIEW 2020 was a successful year for the Group. We kept on exploring our platform business model and expanding the industrial chain resources. Benefiting from our close cooperation with online video platforms, the implementation of our business development strategies of “self-produced drama series as the core, development of made-to-order drama series as the focus” has achieved sound outcomes, resulting in significant increase in our revenue. We broadcast a total of 12 drama series in 2020, among which, self-produced drama series including The Love Lasts Two Minds (兩世歡), Inside Man (局中人) and Unbending Will (石頭開花) achieved outstanding performance in terms of market reputation and results contribution. Moreover, we delivered Customer First (獵心者) and Marry Me (三嫁惹君心) to iQIYI and Dating In The Kitchen (我,喜歡你) to Tencent, respectively, all of which are our made-to-order drama series. We further built up our IP reserve in 2020 to satisfy the increasing demand for drama series development and production. As of December 31, 2020, in addition to our drama series that had been broadcast and to be broadcast, we had reserved in aggregate 34 IPs that could be developed into films and dramas, consisting of seven original screenplays based on our own initial ideas and 27 adapted screenplays based on licensed IPs. In March 2020, we entered into an IP co- development agreement with Booky Pictures (博集影業), an affiliate of CS-Booky (博集天卷), one of the top publishing companies in China, pursuant to which we and Booky Pictures will jointly invest in, develop and produce the drama series to be developed from IP, Two Capitals (兩京十五日), a full-length history novel written by Mr. Ma Boyong (馬伯庸), and share half of the net licensing fees. In June 2020, we acquired Nova Film, which focuses on visual effects and virtual photography as well as the research and development of advanced filming and production technologies of films. * We define adjusted net profit as profit for the year adjusted by adding back changes in fair value of financial liabilities at fair value through profit or loss, equity-settled share award expense and/or listing expenses incurred during the respective years. 4 STRAWBEAR ENTERTAINMENT GROUP ANNUAL REPORT 2020 Chairman’s Statement BUSINESS REVIEW (CONT’D) We believe that our platform business model, our close cooperative relationship with online video platforms and abundant IP reserve could bring us continuous and stable drivers for development, enabling us to consolidate our leading position in the industry amidst fierce and complex market competition. OUTLOOK We believe that the market development of the cultural and entertainment industry in China will have a bright prospect with enormous potential under the background of new economic development and an era of culture output. Looking forward, we will continue to adapt to the circumstances with appropriate measures, and take a proactive approach to grasp the opportunities from market development and changes. While continuously deepening our platform business model, we attempt to develop and arrange for innovative new business, and unleash the value of the entire industry chain across the cultural and entertainment industry to extend our business in a timely manner, so as to further complement our overall layout in different verticals of the cultural and entertainment industry. Our development initiatives include: – Deepen our platform business model and foster stable organic growth: We will further strengthen our service capability for “comprehensive middle platform” under our platform business model to enhance the efficiency of excellent content creators and content purchasers. We will optimize a series of standardized production management process from project assessment to quality control, improve our own content production ability and brand influence, and enhance our cohesion with excellent industry players by breaking barriers in multiple aspects and segments in the content ecosystem. These will help to gather quality contents for effective development and industrial production, which will in turn further improve our income scale and profitability and achieve stable organic growth. – Expand our layout of innovative new business in the cultural and entertainment industry and unleash the value of the entire industry chain to extend our business in a timely manner: Leveraging our strength of scale in quality content development and production, we will further explore opportunities arising from content innovation and develop new business in a timely manner to realize diversified monetization opportunities. For example, we will expand content segments, tap into overseas markets and 2C content markets such as online movies and revenue- sharing dramas and provide agency service for artists. In this regard, we have established joint ventures such as Xingyu Yinyue and Beijing Honeybear with excellent agency teams to march into the artists agency market, thus improving the commercial monetization ability of signed artists. – Actively promote external growth through pursuing extensive external cooperation and quality industry resource integration, leveraging our position as a scarce integration platform in the market: As our team possesses comprehensive integration capabilities, we will proactively seek for high-quality partners that match