Annual Report 2018 Digital Domain Holdings Limited
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DIGITAL DOMAIN HOLDINGS LIMITED CONTENTS Corporate Information ........................................................... 2 Chairman’s Statement ........................................................... 4 Chief Executive Officer’s Review ............................................. 6 Corporate Governance Report ................................................ 36 Directors’ Report .................................................................. 47 Independent Auditor’s Report ................................................. 69 Consolidated Income Statement ............................................. 74 Consolidated Statement of Comprehensive Income ................... 75 Consolidated Statement of Financial Position ........................... 76 Consolidated Statement of Changes in Equity .......................... 78 Consolidated Statement of Cash Flows ................................... 80 Notes to the Consolidated Financial Statements ....................... 82 Five Years Financial Summary ................................................ 207 Particulars of Properties ........................................................ 208 CORPORATE INFORMATION BOARD OF DIRECTORS REGISTERED OFFICE Executive Directors Clarendon House, 2 Church Street Mr. Peter CHOU (Chairman) Hamilton HM11, Bermuda Mr. WEI Ming (Vice Chairman) Mr. SEAH Ang (Chief Executive Officer) HEAD OFFICE AND Mr. Amit CHOPRA (Chief Operating Officer) PRINCIPAL PLACE OF BUSINESS 9/F., Henley Building Non-executive Directors No. 5 Queen’s Road Central Mr. PU Jian Central, Hong Kong Dr. SONG Alan Anlan PRINCIPAL SHARE REGISTRAR AND Independent Non-executive Directors TRANSFER OFFICE IN BERMUDA Mr. DUAN Xiongfei MUFG Fund Services (Bermuda) Limited Ms. LAU Cheong The Belvedere Building, 69 Pitts Bay Road Mr. WONG Ka Kong Adam Pembroke HM08, Bermuda Mr. John Alexander LAGERLING BRANCH SHARE REGISTRAR AND AUDIT COMMITTEE TRANSFER OFFICE IN HONG KONG Mr. DUAN Xiongfei (Chairman) Computershare Hong Kong Investor Ms. LAU Cheong Services Limited Mr. WONG Ka Kong Adam Shops 1712-1716, 17th Floor, Hopewell Centre 183 Queen’s Road East, Wanchai, Hong Kong REMUNERATION COMMITTEE Mr. DUAN Xiongfei (Chairman) PRINCIPAL BANKERS Mr. SEAH Ang Bank of China Limited Ms. LAU Cheong Bank of China (Hong Kong) Limited Mr. WONG Ka Kong Adam China CITIC Bank International Limited China Construction Bank (Asia) Corporation Limited NOMINATION COMMITTEE Citibank India Mr. DUAN Xiongfei (Chairman) East West Bank Mr. SEAH Ang EverTrust Bank Ms. LAU Cheong Industrial and Commercial Bank of China Limited Mr. WONG Ka Kong Adam Royal Bank of Canada COMPANY SECRETARY INDEPENDENT AUDITOR Ms. Fok Lai Yan BDO Limited Certified Public Accountants STOCK CODE 547 SOLICITOR Reed Smith Richards Butler digitaldomain.com Digital Domain Holdings Digital_Domain DigitalDomain 數字王國 2 ANNUAL REPORT 2018 DIGITAL DOMAIN HOLDINGS LIMITED music videos and virtual reality experiences. Staff artists have won more than 100 major awards, including Academy Awards, Clios, OTHER BAFTA awards and Cannes Lions. SHAREHOLDERS Digital Domain has offices in Los Angeles, Vancouver, Montréal, Hyderabad, Beijing, DIGITAL DOMAIN Shanghai, Shenzhen, Taipei and Hong Kong. The following is a simplified chart of major CREATES TRANSPORTIVE businesses of the Group. SOFTBANK EXPERIENCES THAT ENTERTAIN, CHINA INFORM AND INSPIRE. The company is a pioneer in many fields, including visual effects, livestreaming landmark DD INDIA events in 360° virtual reality, building situational CITIC awareness applications, creating “virtual humans” for use in films and live events, and developing interactive content. A creative force in visual effects and media applications, Digital Domain and its predecessor entities have INVESTMENT 3 brought artistry and technology to hundreds of DD USA/ PROPERTIES BUSINESS motion pictures, commercials, video games, CANADA MANAGEMENT CO- PRODUCTION DD GREATER (FEATURE FILMS CHINA AND TV DRAMA SERIES) DD HK NEW MEDIA AND EXPERIENTIAL BUSINESS (HARDWARE / SOLUTION / CONTENT) AND VIRTUAL HUMAN BUSINESS VISUAL EFFECTS PRODUCTION AND POST- PRODUCTION For details and full names of these businesses/projects/companies, please refer to “Chief Executive Officer’s Review” section of this annual report on pages 6 to 35. Note: CHAIRMAN’S STATEMENT 4 ANNUAL REPORT 2018 DIGITAL DOMAIN HOLDINGS LIMITED CHAIRMAN’S In the global studio’s 26th year, Digital Domain continues its rich history of creating world-class premium visual effects, post-production and animation. STATEMENT Digital Domain leads the capture for many blockbuster feature Thank you to everyone in the Digital entertainment industry by combining films including Steven Spielberg’s Domain family, including all of our the best digital artistry talent with the “Ready Player One,” Ava DuVernay’s partners around the globe and the most advanced technological “Wrinkle in Time,” Ryan Coogler’s thousands of artists and innovators innovations. “Black Panther,” “Ant-Man and the whom call Digital Domain home. It is Wasp,” “Aquaman,” and “Shadow.” truly an honor to create more We are very excited to formally For episodics, we completed work chapters of the Digital Domain announce our global expansion on several episodes of STARZ’s legacy with each and every one of plans, with the opening of Montréal, “Outlander” and Netflix’s “Lemony you. Québec. It will be the ninth studio Snicket’s A Series of Unfortunate location for Digital Domain, alongside Events.” Los Angeles, Vancouver, Beijing, Shanghai, Shenzhen, Hong Kong, Digital Domain also completed visual Taipei and Hyderabad. effects and post-production work for some of the world’s largest brands, Digital Domain further cemented including Google, Dollar Shave Club, strong studio partner relationships Bud Light, NBA and NBC. Our with all the big entertainment groups, games work is unparalleled, with Peter CHOU including Warner Brothers, Disney, many major video game publishers Chairman DC Comics, Marvel Studios, Dark calling us for post-production work Horse Entertainment, Netflix, STARZ for their in-game cinematics and Hong Kong, 29 March 2019 and SONY. marketing materials, including Ubisoft for “Assassin’s Creed Our digital humans, animation and Odyssey”, Activision for “Destiny 2: visual effects teams received Forsaken,” and “Call of Duty: Black international attention for work on Ops 4,” and “Command & Conquer: Josh Brolin’s Thanos character in Rivals” for Electronic Arts. Marvel Studio’s hit film, “Avengers: Infinity War” with BAFTA and VES Globally, Digital Domain continued to award nominations and stories from lead the VR industry in the creation major publications. Digital Domain of premium content for Samsung, led visual effects, previsualisation, London Fashion Week, SyFy postvisualisation, virtual productions, Network, Redbull, Google and post-production and/or motion Discovery Network. 5 CHIEF EXECUTIVE OFFICER’S REVIEW 6 ANNUAL REPORT 2018 DIGITAL DOMAIN HOLDINGS LIMITED FINANCIAL AND BUSINESS REVIEW During the year ended 31 December 2018, the Group achieved a revenue of HK$600,679,000 (2017: HK$703,004,000), showing a decrease of approximately 15% compared to that of the previous year. The gross profit of the Group amounted to HK$52,956,000 (2017: HK$81,778,000) during the year under review. The decrease in turnover and gross profit were mainly attributable to the media entertainment segment. As at 31 December 2018, the total assets of the Group amounted to HK$2,224,839,000 (as at 31 December 2017: HK$1,893,029,000). The loss attributable to the owners of the Company for the year was HK$518,030,000 (2017: HK$524,893,000). The loss for the year was approximately HK$525,497,000 (2017: HK$544,141,000). The loss for the year was mainly caused by: (i) the recognition of non-cash outflow expenses, including: (a) equity-settled share-based payments for the share options granted between 2014 and 2017 to the value of HK$7,782,000 (2017: HK$57,428,000); (b) additional amortisation and depreciation expenses from the acquisition of 3Glasses Group of HK$30,025,000 (2017: nil); (c) additional amortisation expenses from the investment in TV drama series (grouped under “Participation Rights”) of HK$40,512,000 (2017: nil); (d) other amortisation and depreciation expenses (besides the two items mentioned above) to the value of HK$80,364,000 (2017: HK$60,219,000); and (ii) administrative and other project expenses, comprising mainly legal and professional fees (including those incurred in relation to the acquisitions, collaborations and business development in the Greater China region, business development in India, and investor and public relations); and (iii) operating losses from the media entertainment segment. MEDIA ENTERTAINMENT SEGMENT During the year under review, this segment recorded a revenue of approximately HK$595,917,000 (2017: HK$694,718,000). The revenue from this segment accounted for approximately 99% of the Group’s revenue for the year under review. This segment incurred a loss of approximately HK$287,858,000 (2017: HK$277,545,000). The loss included the content development and research and development costs incurred during the year under review relating to virtual reality content and games, 360° and interactive virtual human functionality. The adjusted segment loss (before interest expenses and taxation), taking into account adjustments due to (i) depreciation of property, plant and equipment and (ii) amortisation of intangible assets, was HK$184,573,000 (2017: HK$223,317,000). 7 MEDIA ENTERTAINMENT SEGMENT A. VIRTUAL