Annual Report 2017 Characteristics of the Gem of the Stock Exchange of Hong Kong Limited (The “Stock Exchange”)
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China Digital Culture (Group) Limited 中國數碼文化(集團)有限公司 (Incorporated in the Cayman Islands and continued in Bermuda with limited liability) (Stock Code: 8175) ANNUAL REPORT 2017 CHARACTERISTICS OF THE GEM OF THE STOCK EXCHANGE OF HONG KONG LIMITED (THE “STOCK EXCHANGE”) GEM has been positioned as a market designed to accommodate small and mid-sized companies to which a higher investment risk may be attached than other companies listed on the Stock Exchange. Prospective investors should be aware of the potential risks of investing in such companies and should make the decision to invest only after due and careful consideration. Given that the companies listed on GEM are generally small and mid-sized companies, there is a risk that securities traded on GEM may be more susceptible to high market volatility than securities traded on the main board of the Stock Exchange and no assurance is given that there will be a liquid market in the securities traded on GEM. Hong Kong Exchanges and Clearing Limited and the Stock Exchange take no responsibility for the contents of this report, 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 report. This report, for which the directors (the “Directors”) of China Digital Culture (Group) Limited (the “Company”) collectively and individually accept full responsibility, includes particulars given in compliance with the Rules Governing the Listing of Securities on GEM of the Stock Exchange (the “GEM Listing Rules”) for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this report is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this report misleading. Annual Report 2017 1 CONTENTS 3 CORPORATE INFORMATION 4 FINANCIAL HIGHLIGHTS 5 CHAIRMAN’S STATEMENT 6 MANAGEMENT DISCUSSION AND ANALYSIS 16 CORPORATE GOVERNANCE REPORT 22 ENVIRONMENTAL, SOCIAL AND GOVERNANCE REPORT 30 DIRECTORS’ PROFILE 34 DIRECTORS’ REPORT 43 INDEPENDENT AUDITOR’S REPORT 50 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 51 CONSOLIDATED STATEMENT OF FINANCIAL POSITION 53 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 55 CONSOLIDATED STATEMENT OF CASH FLOWS 57 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2 CHINA DIGITAL CULTURE (GROUP) LIMITED CORPORATE INFORMATION BOARD OF DIRECTORS HONG KONG LEGAL ADVISER Executive Directors Guantao & Chow Solicitors and Notaries Hsu Tung Sheng (Chairman) Suites 1604-06, 16th Floor Hsu Tung Chi (Chief Executive Officer) ICBC Tower Chang Ching Lien (resigned on 19 October 2017) 3 Garden Road Zhang Jing Central Lai Kwok Fai, Franki Hong Kong Independent Non-executive Directors Kwok Chi Sun, Vincent REGISTERED OFFICE Wong Tak Shing Canon’s Court Gou Yanlin 22 Victoria Street Hamilton HM 12 AUDIT COMMITTEE Bermuda Kwok Chi Sun, Vincent Wong Tak Shing HEAD OFFICE AND PRINCIPAL Gou Yanlin PLACE OF BUSINESS Room 2801A, Tower 1 REMUNERATION COMMITTEE Lippo Centre Kwok Chi Sun, Vincent 89 Queensway Hsu Tung Chi Hong Kong Gou Yanlin NOMINATION COMMITTEE BERMUDA PRINCIPAL SHARE REGISTRAR Kwok Chi Sun, Vincent AND TRANSFER OFFICE Hsu Tung Chi Estera Management (Bermuda) Ltd Wong Tak Shing Canon’s Court 22 Victoria Street COMPANY SECRETARY Hamilton HM 12 Chan Kin Ho, Philip Bermuda COMPLIANCE OFFICER HONG KONG BRANCH SHARE Hsu Tung Chi REGISTRAR AND TRANSFER OFFICE Tricor Standard Limited AUTHORISED REPRESENTATIVES Level 22, Hopewell Centre Hsu Tung Chi 183 Queen’s Road East Chan Kin Ho, Philip Hong Kong AUDITOR Elite Partners CPA Limited (appointed on 27 March 2018) PRINCIPAL BANKERS Certified Public Accountants Standard Chartered Bank (Hong Kong) Limited 10/F, 8 Observatory Road Nanyang Commercial Bank Tsim Sha Tsui Bank of Communication Kowloon Hong Kong WEBSITE ADDRESS www.cdculture.com Mazars CPA Limited (resigned on 27 March 2018) Certified Public Accountants 42/F, Central Plaza STOCK CODE 18 Harbour Road 8175 Wanchai Hong Kong Annual Report 2017 3 FINANCIAL HIGHLIGHTS For the year ended 31 December 2013 2014 2015 2016 2017 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Restated) RESULTS Revenue 48,623 115,384 90,046 206,214 349,816 Profit for the year attributable to: Equity holders of the Company 5,294 24,890 23,957 5,103 22,917 Non-controlling interests 1,707 7,753 4,934 161 (1,047) Profit for the year 7,001 32,643 28,891 5,264 21,870 ASSETS AND LIABILITIES As at 31 December 2013 2014 2015 2016 2017 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (Restated) Total assets 329,530 404,760 555,938 1,192,365 1,703,381 Total liabilities (46,622) (47,076) (72,113) (350,271) (806,612) Non-controlling interests (14,023) (21,274) (26,290) (24,336) 1,180 Net assets attributable to equity holders of the Company 268,885 336,410 457,535 817,758 897,949 Note: The Company was incorporated in the Cayman Islands on 10 October 2002 and continued in Bermuda on 19 December 2012. The Company has become the holding company of the Group on 15 January 2003 as a result of the Group Reorganisation. 4 CHINA DIGITAL CULTURE (GROUP) LIMITED CHAIRMAN’S STATEMENT Dear Shareholders, On behalf of the board of Directors (the “Board”), we hereby present the annual report of China Digital Culture (Group) Limited (the “Company”) and its subsidiaries (together, the “Group”) for the year ended 31 December 2017. RESULTS PERFORMANCE For the year ended 31 December 2017, the revenue of the Group was approximately HK$349,816,000, representing an increase of approximately 70% as compared with approximately HK$206,214,000 for the year ended 31 December 2016. For the year ended 31 December 2017, the profit attributable to equity holders of the Company increased by approximately 349% from approximately HK$5,103,000 in 2016 (as restated) to approximately HK$22,917,000. The adjusted net profit attributable to equity holders of the Company (excluding interest on convertible bonds and fair value loss on contingent consideration of convertible bonds) was approximately HK$68,648,000, representing an increase of approximately 12% from approximately HK$61,308,000 in 2016 (as restated). The increase in revenue is primarily attributable to better performance from the entertainment segment resulting from the planning and design of concerts for Mr. Jay Chou (周杰倫) and the licensing and sales of television content. The increase in profit attributable to equity holders of the Company from 2016 to 2017 was primarily attributable to better performance from the entertainment segment. LATEST DEVELOPMENT The Company has continued to develop the E-sports business through the use of celebrity endorsement. In 2017, the Group developed an E-sports team with Mr. Wayne Lim (林俊杰) and signed an endorsement contract with Mr. Jam Hsiao (蕭敬騰). SMG Team, the Group’s E-sports team with Mr. Wayne Lim, won the championship for the Arena of Valor International Championship: Asia 2017. In addition, at the end of 2017, the Company acquired 100% equity interest in The Players Limited (“Players”) in order to expand our E-sports presence in the education sector. OUTLOOK Looking ahead at the rest of 2018, the Group will continue to expand the E-sports business. Besides producing quality E-sports content from the intellectual property of the four celebrity E-sports teams (Mr. Jay Chou, Mr. Jeremy Lin(林書豪) , Mr. Wayne Lim and Mr. Jam Hsiao), the Group will also focus on establishing or acquiring streaming and video platforms to capitalise on the Group’s E-sports fan base. In addition, due to the aggressive expansion of the E-sports industry in the People’s Republic of China (the “PRC”), the Group will continue to increase its efforts in expanding our E-sports businesses to include education, e-commerce, event operations and E-Sports related real estate development. The Group will continue to invest in establishing an ecosystem that surrounds the E-sports industry and perfect the Group’s plans for the entire E-sports business. Finally, on behalf of the Board, I would like to express my heartfelt thanks to all our shareholders, investors and customers for their support, and all members of the Board and staff for their dedication and contribution to the Group. Hsu Tung Sheng Chairman Hong Kong, 26 June 2018 Annual Report 2017 5 MANAGEMENT DISCUSSION AND ANALYSIS BUSINESS REVIEW During the year ended 31 December 2017, the Company recorded revenue of approximately HK$349,816,000 (2016: HK$206,214,000) and a profit before taxation of approximately HK$33,547,000 (2016: HK$24,040,000). The increase in revenue is primarily attributable to better performance from the entertainment segment resulting from the planning and design of concerts for Mr. Jay Chou (周杰倫) in the PRC and the licensing and sales of television content. SPORTS SEGMENT The sports segment includes the sale of athlete’s agency agreements, licensing and sale of sports content and marketing and promotional activities for professional athletes which are operated by Nova Dragon International Limited (“Nova Dragon”) and Socle Limited (“Socle”). During the year ended 31 December 2017, the sports segment recorded revenue of approximately HK$59,897,000 (2016: HK$55,444,000) and a profit before taxation and unallocated income and expenses of approximately HK$26,756,000 (2016: HK$24,428,000). Nova Dragon is principally engaged in assisting professional athletes with marketing and promotional activities worldwide. Socle is principally engaged in the business of licensing and sale of sports content and is one of the foremost providers of sports and entertainment content in the PRC.