CONTENTS PAGE Corporate Information 2 Chairman’s Statement 3 Management Discussion and Analysis 6 Biographical Information of Directors and Senior Management 13 Directors’ Report 16 Corporate Governance Report 46 Environmental, Social and Governance Report 72 Independent Auditor’s Report 85 Consolidated Statement of Profit or Loss 95 Consolidated Statement of Comprehensive Income 96 Consolidated Balance Sheet 97 Consolidated Statement of Changes in Equity 99 Consolidated Statement of Cash Flows 101 Notes to the Consolidated Financial Statements 102 Financial Summary 192 1 CORPORATE INFORMATION BOARD OF DIRECTORS PRINCIPAL BANKERS Executive Directors China CITIC Bank International Limited Mr. Yu Yongfu (Chairman & Chief Executive Officer) China Merchants Bank Co., Ltd. Mr. Zhang Qiang (Co-President) Bank of Communications Co., Ltd. Ms. Zhang Wei (Co-President) The Hongkong and Shanghai Banking Mr. Fan Luyuan Corporation Limited Hang Seng Bank Limited Non-Executive Directors Mr. Li Lian Jie REGISTERED OFFICE Mr. Shao Xiaofeng Clarendon House, 2 Church Street Hamilton HM 11, Bermuda Independent Non-Executive Directors Ms. Song Lixin HEAD OFFICE AND PRINCIPAL PLACE Mr. Tong Xiaomeng OF BUSINESS IN HONG KONG Mr. Johnny Chen 26/F Tower One, Times Square, 1 Matheson Street Causeway Bay, Hong Kong EXECUTIVE COMMITTEE Telephone : (852) 2215 5428 Mr. Yu Yongfu (Chairman) Facsimile : (852) 2215 5420 Mr. Zhang Qiang Ms. Zhang Wei BEIJING OFFICE Mr. Fan Luyuan 18-20/F, Building 2, World Profit Center, No. 16 Tianze Road, Chaoyang District, Beijing, China REMUNERATION COMMITTEE Postal Code : 100125 Mr. Tong Xiaomeng (Chairman) Telephone : (86) 10 5911 5566 Mr. Yu Yongfu Facsimile : (86) 10 5911 5599 Ms. Song Lixin PRINCIPAL SHARE REGISTRAR AND AUDIT COMMITTEE TRANSFER OFFICE Mr. Johnny Chen (Chairman) MUFG Fund Services (Bermuda) Limited Ms. Song Lixin The Belvedere Building, 69 Pitts Bay Road Mr. Tong Xiaomeng Pembroke HM08, Bermuda NOMINATION COMMITTEE HONG KONG BRANCH SHARE Mr. Yu Yongfu (Chairman) REGISTRAR AND TRANSFER OFFICE Mr. Tong Xiaomeng Tricor Secretaries Limited Mr. Johnny Chen Level 22, Hopewell Centre 183 Queen’s Road East, Hong Kong COMPANY SECRETARY Mr. Ng Lok Ming, William SINGAPORE SHARE TRANSFER AGENT Boardroom Corporate & Advisory Services Pte. Ltd. AUDITOR 50 Raffles Place, #32-01 Singapore Land Tower PricewaterhouseCoopers Singapore 048623 WEBSITE STOCK CODE www.irasia.com/listco/hk/alibabapictures Stock Code on The Stock Exchange of Hong Kong Limited: 1060 Stock Code on the Singapore Exchange Securities Trading Limited: S91 2 CHAIRMAN’S STATEMENT Dear Shareholders, Having joined the Board of Directors of Alibaba Pictures Group Limited (the “Company” or “Alibaba Pictures”, together with its subsidiaries, the “Group” or “we” or “us” or “our”) in November 2016, I was appointed as CEO in December. Given the continuous investment in its platform infrastructure and business foundation over the last several years, the Group is about to enter into a phase of development characterized by robust business expansion. I feel greatly confident and excited about the prospects of the Group. The continual rise of the middle class in China poses significant implications on the current and future consumption structure. It is expected that a larger portion of the population’s rising disposable income is likely to be spent on products and services for entertainment purposes. According to data from the State Administration of Press, Publication, Radio, Film and Television in China (“SARFT”) and National Association of Theatre Owners in the U.S., the number of cinema admissions in China have surpassed that of North America for the first time in 2016. Given the rising consumer demand, the domestic media and entertainment industry is expected to continue its growth. As a macro trend, management is aware that the film industry, both in terms of content and marketing channels to the users, is experiencing a transformation from digitalization to networked, and further to intelligence stage. Particularly, in China, such transformation is progressing rigorously. In view of the rapid evolution of industry structure and consumer behavior, the Group will continue to formulate its business layout and upgrade its services around the entertainment ecosystem in the long run. Relying on data and technological strength, and tapping opportunities that arise from movement of the film industry towards digitalization, networked and intelligence, the Group intends to build a new infrastructure for the film industry. From the user end (C end), the Group is committed to becoming a new infrastructure for distributing movie contents to users. Currently, the Group has established a solid business foundation in terms of film promotion, distribution and ticketing through its online ticketing platform, Tao Piao Piao, with such platform gradually upgrading from a ticketing platform to a social platform revolving around movie contents, the Group is providing various studios with more content marketing tools with direct access to users. Such ongoing business upgrade has effectively increased Tao Piao Piao’s market share, and currently, Tao Piao Piao has become a leading online ticketing platform that has access to more than 6,000 cinemas in China. From the studios and cinemas end (B end), the Group will, through its digitalized, networked, and intelligent product innovation and systematic solutions, facilitate cinemas and studios to enhance their production, operation, promotion efficiency, such that, the Group’s products and services could become industry-wide infrastructure, and thus be able to serve a wider range of customer groups. We will continue to enrich the overall attractiveness of Tao Piao Piao for the users, as well as deepen the partnership between Yueke and cinemas through its value-added services. Together with the enhancement of on-the-ground promotion and distribution capabilities, the Group will accomplish the offline-to-online transition. In the future, the Group will increase user loyalty and usage duration on its platform by bringing together more content and social features to its products, and continue to grow its App (Tao Piao Piao), while strengthening its traffic linkage with Alibaba Group through multiple entry points, with the aim to create a “marketing service platform” that feeds movie content directly to users. 3 CHAIRMAN’S STATEMENT After years of extraordinary growth in domestic box office, China’s film industry has gradually matured. According to statistics published by SARFT, total revenue generated from box offices in China reached RMB45.7 billion in 2016, recording a growth of 4% year-on-year, compared to a growth of 48.7% in the previous year. Going forward, it is expected that China’s box office will gradually return to a cycle of normalized growth. In terms of content distribution, online video streaming sites exhibited strong growths, as was evident from the increase in viewing hits and the number of paid memberships. Therefore, in addition to its continuous investment in blockbuster film projects such as Once Upon a Time (三生三世十里桃花) and Gujian Qitan 2 (古劍奇譚2), the Group will also allocate sufficient resources to the creation and production of drama series, aimed to be released through online video streaming sites or TV stations. During the year, the Group’s former Entertainment e-commerce business (including Yulebao business and copyright licensing business) had been upgraded into the Group’s Integrated Development Department. In addition to improving the existing financing function for entertainment projects, the Group will establish a comprehensive copyright operation team. Focused on the comprehensive development of copyright values, the Group will seek to integrate copyrights owned by Alibaba Group’s media and entertainment segment, and provide a comprehensive series of copyright-related professional services ranging from financing, business placement, promotion and distribution to the development of related merchandise, offering an innovative service model for integrated copyright development. During 2016, in addition to strengthening the Group’s operating assets, the Group continued to utilize its financial resources to grow its business profile through investments and acquisitions. Domestically, the Group invested in Dadi Cinema Group and further invested in BONA Film Group. Internationally, the Group invested in Amblin Partners (led by Steven Spielberg), with whom it will work together to co-produce and invest in film projects that aim to provide quality movie contents to the global and Chinese audiences. Based on the online promotion and distribution platform developed by the Group, the Group will continue to make bolt-on investments in quality businesses that could create value for the entire entertainment ecosystem. The Group has been collaborating with Hollywood’s first tier studios since 2015. Access to international projects and global leading talents will serve to strengthen the Group’s overall production and distribution capabilities. As innovative ideas often derive from exposure to different cultures and perspectives, we will continue to work with our global partners in bringing more original and exciting contents to our users. As the Group further develops its businesses, adopting a data driven approach is critical in business decision-making. In the digital age, data not only brings insights into business enhancement and improves business decisions, it also contributes to the artistic creation of entertainment