Annual Report

This annual report, in both English and Chinese versions, is available on the Company’s website at www.huayitencent.com (the ‘‘Company Website’’) and the website of the Hong Kong Exchanges and Clearing Limited at www.hkexnews.hk. Registered Shareholders who have chosen (or are deemed to have consented) to receive the corporate communications of the Company (the ‘‘Corporate Communications’’) via the Company Website, and who for any reason have difficulty in receiving or gaining access to the Corporate Communications posted on the Company Website will promptly upon request be sent the annual report in printed form free of charge. Registered Shareholders may request for printed copy of the annual report and/or change their choice of language and means of receiving Corporate Communications by providing a reasonable prior notice in writing to the Company c/o the Hong Kong branch share registrar of the Company, Tricor Tengis Limited at Level 54, Hopewell Centre, 183 Queen’sRoad East, Hong Kong or by sending an e-mail to [email protected]. CONTENTS Pages Corporate Information 1 Chairman’sStatement 2 Management Discussion and Analysis 4 Corporate Governance Report 20 Biographical Details of Directors and Senior Management 34 Report of the Directors 39 Independent Auditor’sReport 49 Consolidated Income Statement 55 Consolidated Statement of Comprehensive Income 56 Consolidated Balance Sheet 57 Consolidated Cash Flow Statement 59 Consolidated Statement of Changes in Equity 60 Notes to the Consolidated Financial Statements 62 Financial Summary 142 CORPORATE INFORMATION BOARD OF DIRECTORS SOLICITORS Executive Directors Woo Kwan Lee & Lo Guantao Law Firm Mr. WANG Zhongjun (Chairman) Mr. CHENG Wu (Vice Chairman) REGISTERED OFFICE Mr. WANG Zhonglei Mr. HU Junyi Cricket Square, Hutchins Drive Mr. YUEN Hoi Po Huayi Tencent Entertainment Company Limited P.O. Box 2681 Independent Non-Executive Directors Grand Cayman KY1-1111 Cayman Islands Dr. WONG Yau Kar, David, GBS, JP Mr. YUEN Kin PRINCIPAL OFFICE IN HONG KONG Mr. CHU Yuguo Suite 908, 9/F COMPANY SECRETARY & Tower Two, Lippo Centre QUALIFIED ACCOUNTANT 89 Queensway | Hong Kong Annual Report 2019 Mr.HAUWaiMan,Raymond SHARE REGISTRAR AND INDEPENDENT AUDITOR TRANSFER OFFICE IN HONG KONG PricewaterhouseCoopers Tricor Tengis Limited Certified Public Accountants Level 54 Hopewell Centre PRINCIPAL BANKERS 183 Queen’sRoadEast Hong Kong DBS Bank Ltd., Hong Kong Branch Hang Seng Bank The Hongkong and Shanghai WEBSITE Banking Corporation Limited www.huayitencent.com 1 CHAIRMAN’S STATEMENT I am pleased to present the annual results of Huayi Tencent Entertainment Company Limited (the ‘‘Company’’) and its subsidiaries (hereinafter collectively referred to as the ‘‘Group’’) for the year ended 31 December 2019. While the global economic growth in 2019 was lower than projected, the pace of development of the Chinese film market also slowed down. The total box office proceeds, approximately RMB64.266 billion, represented a year-to-year growth of approximately 5.4% which was lower than the growth in 2018 (9.06%), with the attendance of the urban cinemas rising year-to-year by 0.64% to around 1.727 Huayi Tencent Entertainment Company Limited billion. Amidst such deceleration the market had however embraced a new landscape during the year. Theatre attendances during the Lunar New Year, summer holiday and the National Day holiday have once again been on the rise. In particular, the total box office receipts in the People’sRepublicof China (the ‘‘PRC’’) during the Lunar New Year reached RMB5.84 billion, leading the box office receipts in February to surpass the RMB11 billion mark. This makes up almost 20% of the total box office proceeds for 2019 and also sets the world record of the highest box office proceeds in a month for a single market. It shows that cinema going has gradually established itself as an indispensable form of entertainment in the PRC during festive periods, demonstrating that the Chinese film market can offer promising growth prospects in the future. Meanwhile, animation and science fiction films have become the centrepiece of the box office, with ‘‘Ne Zha’’ and ‘‘The Wandering Earth’’ racking up RMB5 billion | Annual Report 2019 and RMB4.6 billion respectively in box office receipts. In the past few years, the Group has been endeavouring to identify the finest deals across the globe. In the light of the change in the audience’s taste towards the movies’ themes and the fact that the market trend is dominated by premium content, the Group has already participated in financing projects in North America, Europe and South Korea with various subjects, including the investment in and co- production of ‘‘Space Sweepers’’ (Korea’s first science-fiction space featurefilmproject,starringSong Jung-ki and Kim Tae-ri), ‘‘Cherry’’ (the first movie directed by the Russo Brothers since ‘‘The Avengers’’ series, starring Tom Holland who featured in the ‘‘Spiderman’’ series) and ‘‘Moonfall’’ (a Hollywood science-fiction and disaster epic directed by Roland Emmerich), etc. As these films will be screened in succession from 2020 onwards, the Group expects a significant boost in revenue from the Entertainment and Media Operations and anticipates the fame of the Group in domestic and overseas markets to take off. 2 CHAIRMAN’S STATEMENT On the other hand, Korean movies and television dramas have been making inroads into winning the favour of the Asian and even the worldwide audience, and have on many occasions attained success in global box office. The Group has been a first mover in making deployment in the Korean market during the past few years. All four television dramas produced by HB Entertainment, in which the Group holds a stake of 31%, have achieved commendable results in 2019, in particular ‘‘Sky Castle’’ (debuted in late 2018) and ‘‘Beautiful Love, Wonderful Life’’ (debuted in September 2019). The former set the then highest-ever Korean national average viewership rating of 23.8%, whilst the latter not only scaled new heights with a national viewership at 31.5% at its peak but also took the 2019 KBS Drama Awards by storm, winning the Best Actor in a Serial Drama, the Best Actress in a Serial Drama and the Huayi Tencent Entertainment Company Limited Newcomer Actor Award. Judging from their outstanding outputs, HB Entertainment’sabilityin production of films and TV dramas and market acumen will help the Group in the continuous exploration and consolidation of its position in the market of the film and television industry of South Korea and generate revenue with potential growth to the Group. Looking ahead to 2020, the Group will forge ahead into the season of harvest in as much as the projects which it had developed and produced in the past few years will be screened successively. In order to enhance its revenue and growth in profit, the Group will continue developing and financing film projects with top-rate quality in North America, Europe, South Korea and the PRC, striving to introduce | to the audience more prime and ingenious movies and television dramas, and actively looking for Annual Report 2019 collaboration opportunities with elite and world-renowned film studios. The theatrical release of films in the PRC and some other countries/regions is currently affected by the outbreak of COVID-19. The Group will closely monitor the latest development of the epidemic and coordinate with the global distributors to set appropriate theatrical release slots in the PRC and other countries/regions. It is not expected that there will be long-term material adverse impact to the Group’s global production and distribution of films. May I also take this opportunity to, on behalf of the Board, express heartfelt gratitude to the shareholders, investors and business partners for the unfailing trust and support, and to all our staff for their diligence and contribution towards the advancement of the Group over the past year. WANG Zhongjun Chairman Huayi Tencent Entertainment Company Limited Hong Kong, 26 March 2020 3 MANAGEMENT DISCUSSION AND ANALYSIS BUSINESS REVIEW AND PROSPECTS Financial Performance Major indicators of the financial results for the year ended 31 December 2019 are summarized in the table below: 2019 2018 Huayi Tencent Entertainment Company Limited HK$’000 HK$’000 Continuing operations: Total revenue 99,326 109,168 Gross profit 39,011 38,214 Loss before net finance costs and taxation (27,384) (66,314) Loss for the year from continuing operations (28,770) (66,455) Loss attributable to equity holders of the Company (28,770) (67,026) | Profit for the year from discontinued operation – 140,763 Annual Report 2019 (Loss)/profit for the year (28,770) 74,308 Business Review Revenue Segment Results 2019 2018 2019 2018 HK$’000 HK$’000 HK$’000 HK$’000 Continuing operations Entertainment and media operations 2,736 1,139 5,476 (21,118) Offline healthcare and wellness services 96,590 108,029 (12,132) (15,254) Total 99,326 109,168 (6,656) (36,372) 4 MANAGEMENT DISCUSSION AND ANALYSIS BUSINESS REVIEW AND PROSPECTS (Continued) Financial Performance (Continued) During the year ended 31 December 2019 (the ‘‘year under review’’), the revenue from the Entertainment and Media Operations was approximately HK$2,736,000 (2018: HK$1,139,000) due to the lack of theatrical release of new films by the Group in the year. Meanwhile, the revenue from the offline healthcare and wellness services dropped by 11% to approximately HK$96,590,000 (2018: HK$108,029,000) as the Group had disposed of its equity interest in Beijing Si Hai Jun Tian Trading Huayi Tencent Entertainment Company Limited Company Limited (‘‘SHJT’’) to an independent third party in May 2018. As a result, during the year under review, the Group’s revenue from continuing operations amounted to approximately HK$99,326,000, representing a year-on-year decrease of about 9%.

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