数字王国(00547) - 2019 - 中期财报

Financial Summary and Performance Overview The group's financial performance for the six months ended June 30, 2019, showed a narrowed loss despite a revenue decline, driven by improved gross profit and strategic financial adjustments Condensed Consolidated Statement of Profit or Loss For the six months ended June 30, 2019, group revenue decreased by 17% to HK$284.43 million, but gross profit increased by 38% to HK$56.60 million, narrowing the loss for the period by 28% to HK$165.71 million Condensed Consolidated Statement of Profit or Loss Key Data (For the six months ended 30 June) | Indicator | 2019 (HK$ thousand) | 2018 (HK$ thousand) | Year-on-year Change | | :--- | :--- | :--- | :--- | | Revenue | 284,429 | 342,405 | -17% | | Cost of sales and services provided | (227,832) | (301,255) | -24.36% | | Gross Profit | 56,597 | 41,150 | +37.54% | | Other income and gains | 73,237 | 13,881 | +427.61% | | Selling and distribution expenses | (10,238) | (12,803) | -19.99% | | Administrative expenses and other net operating expenses | (245,659) | (259,512) | -5.34% | | Finance Costs | (42,117) | (9,403) | +347.91% | | Loss Before Tax | (167,264) | (233,127) | -28.25% | | Loss for the Period | (165,712) | (229,112) | -27.67% | | Loss Attributable to Owners of the Company | (161,625) | (225,620) | -28.37% | Condensed Consolidated Statement of Comprehensive Income For the six months ended June 30, 2019, the group's total comprehensive loss narrowed by 12.28% to HK$216.12 million, influenced by positive currency translation differences and fair value changes of equity instruments Condensed Consolidated Statement of Comprehensive Income Key Data (For the six months ended 30 June) | Indicator | 2019 (HK$ thousand) | 2018 (HK$ thousand) | Year-on-year Change | | :--- | :--- | :--- | :--- | | Loss for the Period | (165,712) | (229,112) | -27.67% | | Exchange differences on translation | 6,897 | (4,368) | Turned from negative to positive | | Fair value changes of equity instruments measured at fair value through other comprehensive income | (57,382) | – | New loss | | Total Comprehensive Income for the Period | (216,116) | (246,374) | -12.28% | | Total Comprehensive Income Attributable to Owners of the Company | (212,667) | (241,038) | -11.77% | Condensed Consolidated Statement of Financial Position As of June 30, 2019, total group assets increased to HK$1.985 billion, net assets rose to HK$1.651 billion, and net current assets turned positive, indicating an improved financial position Condensed Consolidated Statement of Financial Position Key Data | Indicator | 30 June 2019 (HK$ thousand) | 31 December 2018 (HK$ thousand) | Change | | :--- | :--- | :--- | :--- | | Non-current Assets | 1,818,900 | 1,752,052 | +3.82% | | Current Assets | 586,763 | 264,304 | +122.08% | | Assets of a disposal group classified as held for sale | – | 208,483 | -100% | | Current Liabilities | 420,493 | 556,077 | -24.39% | | Liabilities of a disposal group classified as held for sale | – | 95 | -100% | | Net Current Assets / (Liabilities) | 166,270 | (83,385) | Turned from negative to positive | | Total Assets Less Current Liabilities | 1,985,170 | 1,668,667 | +18.97% | | Non-current Liabilities | 334,308 | 358,711 | -6.79% | | Net Assets | 1,650,862 | 1,309,956 | +25.90% | | Total Equity | 1,650,862 | 1,309,956 | +25.90% | Condensed Consolidated Statement of Changes in Equity For the six months ended June 30, 2019, total equity attributable to owners increased to HK$1.576 billion, primarily due to a HK$553.56 million capital injection from share subscriptions, despite period losses and fair value changes of financial assets Condensed Consolidated Statement of Changes in Equity Key Data (For the six months ended 30 June) | Indicator | 2019 (HK$ thousand) | 2018 (HK$ thousand) | Change | | :--- | :--- | :--- | :--- | | Equity attributable to owners of the Company at 1 January (restated) | 1,230,452 | 1,377,473 | -10.79% | | Shares issued on subscription, net of expenses | 553,556 | 409,139 | +35.29% | | Loss for the period | (161,625) | (225,620) | -28.37% | | Fair value changes of equity instruments measured at fair value through other comprehensive income | (57,382) | – | New loss | | Equity attributable to owners of the Company at 30 June | 1,576,173 | 1,551,282 | +1.60% | Condensed Consolidated Statement of Cash Flows For the six months ended June 30, 2019, net cash and cash equivalents increased by HK$196.60 million, driven by net cash inflows from financing (HK$282.57 million) and investing (HK$115.26 million) activities, offsetting operating cash outflows Condensed Consolidated Statement of Cash Flows Key Data (For the six months ended 30 June) | Indicator | 2019 (HK$ thousand) | 2018 (HK$ thousand) | Change | | :--- | :--- | :--- | :--- | | Net cash used in operating activities | (201,225) | (276,194) | Loss narrowed | | Net cash generated from / (used in) investing activities | 115,264 | (356,803) | Turned from negative to positive | | Net cash generated from financing activities | 282,565 | 619,643 | -54.39% | | Net increase / (decrease) in cash and cash equivalents | 196,604 | (13,354) | Turned from negative to positive | | Cash and cash equivalents at 30 June | 271,603 | 203,484 | +33.58% | Loss Per Share For the six months ended June 30, 2019, basic loss per share attributable to owners narrowed to 0.556 HK cents, with diluted loss per share being the same due to anti-dilutive effects Loss Per Share (For the six months ended 30 June) | Indicator | 2019 | 2018 | Change | | :--- | :--- | :--- | :--- | | Basic loss per share | (0.556) HK cents | (0.874) HK cents | Loss narrowed | | Weighted average number of ordinary shares | 29,068,472,612 | 25,827,980,414 | +12.55% | - Diluted loss per share is identical to basic loss per share due to the anti-dilutive effect of unexercised share options and shares issued to former option holders for subsidiary acquisitions in prior periods[52] Changes in Accounting Policies and Standards The group's interim financial statements are prepared under HKAS 34, with the first-time adoption of HKFRS 16 Leases significantly impacting accounting policies and requiring adjustments to accumulated losses Basis of Preparation and Accounting Policies These unaudited condensed consolidated interim financial statements are prepared in accordance with HKAS 34 and Listing Rules disclosure requirements, using a historical cost basis and incorporating initial adoption of HKFRS 16 Leases with an adjustment to accumulated losses - These unaudited condensed consolidated interim financial statements are prepared in accordance with Hong Kong Accounting Standard 34 "Interim Financial Reporting" issued by the Hong Kong Institute of Certified Public Accountants and the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited[13] - This is the group's first financial statement after adopting Hong Kong Financial Reporting Standard 16 Leases ("HKFRS 16"), with details of accounting policy changes provided in Note 2[14] Changes in Hong Kong Financial Reporting Standards The group's initial adoption of HKFRS 16 Leases significantly altered financial statements, primarily by recognizing most leases as right-of-use assets and lease liabilities, with an accumulated impact adjustment to the opening balance of accumulated losses without restating comparative data - HKFRS 16 significantly changed lease accounting, primarily for lessees, with most leases now recognized as right-of-use assets and lease liabilities on the statement of financial position[18] - The group adopted HKFRS 16 using the cumulative effect method, recognizing the full cumulative impact as an adjustment to the opening balance of accumulated losses on the date of initial application[18] Impact of Adopting HKFRS 16 on the Statement of Financial Position (1 January 2019) | Indicator | Increase / (Decrease) (HK$ thousand) | | :--- | :--- | | Right-of-use assets | 120,337 | | Deferred tax assets | 15,093 | | Other payables | (5,450) | | Lease liabilities (current) | 41,956 | | Lease liabilities (non-current) | 126,145 | | Finance lease obligations (current) | (13,982) | | Finance lease obligations (non-current) | (11,873) | | Accumulated losses | 1,022 | | Non-controlling interests | (344) | Application of Judgements and Estimates Significant management judgments and sources of estimation uncertainty in preparing the interim financial statements remain consistent with the 2018 annual financial statements, except for new significant judgments related to HKFRS 16 application - The key sources of significant judgments and estimation uncertainties made by management in applying the group's accounting policies are the same as those applied in the 2018 annual financial statements, except for new significant judgments related to the application of HKFRS 16 as described in Note 2[35] Business Segment Performance The group operates primarily in media entertainment and property investment, with the former dominating revenue but both segments facing challenges, including overall revenue decline and segment losses Revenue and Segment Reporting The group primarily operates in media entertainment and property investment, with media entertainment contributing 99% of total revenue as of June 30, 2019, despite an overall 17% revenue decrease and a 97% decline in property investment revenue - The group determines its operating segments based on reports reviewed by the chief operating decision-maker for decision-making and performance assessment, including Media Entertainment (visual effects production, post-production, 360-degree panoramic digital capture technology application, hardware sales, and solutions services) and Property Investment[36] Group Revenue by Major Business (For the six months ended 30 June) | Business Type | 2019 (HK$ thousand) | 2018 (HK$ thousand) | Year-on-year Change | | :--- | :--- | :--- | :--- | | Visual Effects Production Services | 211,479 | 285,224 | -25.86% | | Post-Production Services | 11,506 | 9,212 | +24.90% | | 360-Degree Panoramic Digital Capture Technology Application, Hardware Sales and Solutions Services | 61,379 | 45,647 | +34.49% | | Rental Income | 65 | 2,322 | -97.20% | | Total Revenue | 284,429 | 342,405 | -16.93% | Revenue Analysis Total group revenue decreased by 17% year-on-year to HK$284.43 million, primarily due to a significant decline in visual effects production services, partially offset by growth in post-production and 360-degree panoramic digital capture technology application services Group Revenue by Major Business (For the six months ended 30 June) | Business Type | 2019 (HK$ thousand) | 2018 (HK$ thousand) | Year-on-year Change | | :--- | :--- | :--- | :--- | | Visual Effects Production Services | 211,479 | 285,224 | -25.86% | | Post-Production Services | 11,506 | 9,212 | +24.90% | | 360-Degree Panoramic Digital Capture Technology Application, Hardware Sales and Solutions Services | 61,379 | 45,647 | +34.49% | | Rental Income | 65 | 2,322 | -97.20% | | Total Revenue | 284,429 | 342,405 | -16.93% | Disaggregation of Revenue from Contracts with Customers Media entertainment segment customer contract revenue primarily stems from visual effects production services, with China and Canada as key markets, while US revenue declined, and most revenue is recognized over time Media Entertainment Segment Customer Contract Revenue Disaggregation (For the six months ended 30 June) | Classification | 2019 (HK$ thousand) | 2018 (HK$ thousand) | Year-on-year Change | | :--- | :--- | :--- | :--- | | Type of goods or services | | | | | Visual Effects Production Services | 211,479 | 285,224 | -25.86% | | Post-Production Services | 11,506 | 9,212 | +24.90% | | 360-Degree Panoramic Digital Capture Technology Application, Hardware Sales and Solutions Services | 61,379 | 45,647 | +34.49% | | Geographical markets | | | | | China | 91,897 | 69,762 | +31.72% | | United States | 86,927 | 109,748 | -20.80% | | Canada | 99,251 | 130,582 | -24.00% | | United Kingdom | 2,964 | 29,418 | -89.92% | | Timing of revenue recognition | | | | | At a point in time | 59,990 | 35,069 | +71.07% | | Over time | 224,374 | 305,014 | -26.44% | Analysis of Business Segment Revenue, Results, Assets and Liabilities The media entertainment segment accounts for most group revenue but remains loss-making, while the property investment segment experienced significant revenue and profit declines, turning from profit to loss, and media entertainment assets and liabilities both increased Business Segment Revenue and Results (For the six months ended 30 June) | Segment | 2019 Revenue (HK$ thousand) | 2018 Revenue (HK$ thousand) | 2019 (Loss) / Profit (HK$ thousand) | 2018 (Loss) / Profit (HK$ thousand) | | :--- | :--- | :--- | :--- | :--- | | Media Entertainment | 284,364 | 340,083 | (110,014) | (131,184) | | Property Investment | 65 | 2,322 | (230) | 1,789 | | Consolidated | 284,429 | 342,405 | (110,244) | (129,395) | Business Segment Assets and Liabilities (As of 30 June) | Segment | 30 June 2019 Assets (HK$ thousand) | 31 December 2018 Assets (HK$ thousand) | 30 June 2019 Liabilities (HK$ thousand) | 31 December 2018 Liabilities (HK$ thousand) | | :--- | :--- | :--- | :--- | :--- | | Media Entertainment | 1,893,018 | 1,659,970 | 653,192 | 589,041 | | Property Investment | 79 | 208,483 | – | 95 | | Consolidated | 1,893,097 | 1,868,453 | 653,192 | 589,136 | Reconciliation of Reportable Segment Profit/Loss, Assets and Liabilities The group's consolidated loss before tax was HK$167.26 million, primarily influenced by segment losses, impairment loss on amounts due from associates, finance costs, and unallocated corporate expenses, with both total assets and liabilities increasing Reconciliation of Loss Before Tax (For the six months ended 30 June) | Item | 2019 (HK$ thousand) | 2018 (HK$ thousand) | | :--- | :--- | :--- | | Reportable segment loss | (110,244) | (129,395) | | Impairment loss on amounts due from an associate | (93,289) | – | | Finance Costs | (42,117) | (9,403) | | Gain on disposal of subsidiaries | 99,293 | – | | Consolidated loss before tax | (167,264) | (233,127) | Reconciliation of Assets and Liabilities (As of 30 June) | Item | 30 June 2019 (HK$ thousand) | 31 December 2018 (HK$ thousand) | | :--- | :--- | :--- | | Total consolidated assets | 2,405,663 | 2,224,839 | | Total consolidated liabilities | 754,801 | 914,883 | Geographical Information The group's revenue primarily originates from China, the United States, and Canada, with China experiencing significant growth while revenue from the US, Canada, and UK markets declined Revenue from External Customers by Geographical Area (For the six months ended 30 June) | Region | 2019 (HK$ thousand) | 2018 (HK$ thousand) | Year-on-year Change | | :--- | :--- | :--- | :--- | | Hong Kong | 65 | 2,488 | -97.39% | | China | 91,897 | 69,762 | +31.72% | | United States | 86,927 | 109,748 | -20.80% | | Canada | 99,251 | 130,582 | -24.00% | | United Kingdom | 2,964 | 29,418 | -89.92% | | Other countries / regions | 3,325 | 407 | +716.95% | | Total | 284,429 | 342,405 | -16.93% | Revenue-Related Assets and Liabilities As of June 30, 2019, trade receivables and contract liabilities increased, while contract assets decreased, with contract assets primarily relating to completed but unbilled visual effects and post-production services Revenue-Related Assets and Liabilities (HK$ thousand) | Indicator | 30 June 2019 | 1 January 2019 | Change | | :--- | :--- | :--- | :--- | | Trade receivables | 81,528 | 51,679 | +57.79% | | Contract assets | 5,269 | 7,731 | -31.84% | | Contract liabilities | 30,831 | 28,892 | +6.71% | - Contract assets primarily relate to the group's right to consideration for work completed but not yet invoiced as of the reporting date, involving revenue from visual effects production and post-production services[44] Media Entertainment Segment The Media Entertainment segment, contributing 99% of group revenue, recorded a loss primarily due to R&D costs, actively developing new media, visual effects, virtual humans, and co-production businesses while expanding global markets and technology applications Media Entertainment Segment Financial Performance (For the six months ended 30 June) | Indicator | 2019 (HK$ thousand) | 2018 (HK$ thousand) | Year-on-year Change | | :--- | :--- | :--- | :--- | | Revenue | 284,364 | 340,083 | -16.38% | | Loss | (110,014) | (131,184) | -16.14% | | Adjusted segment loss (before interest expense and tax) | (59,401) | (82,640) | -28.13% | - The Media Entertainment segment accounted for approximately 99% of the group's revenue during the review period, with losses including research and development costs recorded for virtual human technology[83] New Media and Experiential Projects Digital Domain offers end-to-end solutions in emerging VR, AR, and new media markets, including VR streaming, interactive toolkits, 360-degree video, and real-time game engine technology, while 3Glasses Group advanced in VR hardware and solutions, increasing market share and launching the new X1 ultra-thin VR glasses - Digital Domain provides customized AR experiences, featuring data visualization and integrated media experiences for the Cubs baseball team and Wrigley Field[88] - Digital Domain created the real-time character for "POKÉMON Detective Pikachu," capable of being "driven" by live performers[88] - 3Glasses Group achieved a 13.1% market share in China during Q1 2019 and globally launched its new generation consumer ultra-thin VR glasses, X1[95] Visual Effects Production and Post-Production Business Digital Domain has garnered multiple international awards and nominations for its visual effects and post-production work, serving numerous Hollywood films, TV series, and commercials, including the Thanos character in "Avengers 3 & 4," while actively expanding in China and India and facing potential indemnity risks from IP litigation - Digital Domain won the Visual Effects Society Award for "Outstanding Animated Character in a Photoreal Feature" for the character Thanos in "Avengers: Infinity War"[99] - Digital Domain provided visual effects services for films including "Captain Marvel," "The Curse of La Llorona," "Shazam!," and "Avengers: Endgame"[102] - A US subsidiary faces potential indemnity liabilities arising from the use of disputed intellectual property, involving multiple lawsuits, and is currently discussing defense cost payments with insurance companies[104][105][106] Virtual Human Business in Greater China The group actively develops its virtual human business in Greater China, including the Teresa Teng virtual human project and collaborations with other celebrities and companies, applying virtual human technology in concerts, TV shows, and product endorsements while continuously investing in R&D for enhanced interactive features - The Teresa Teng virtual human appeared on China Central Television's program "Everlasting Classics" and at the China (Yiwu) Cultural Products Trade Fair[115] - In Mr. JJ Lin's "Sanctuary" world tour, a virtual JJ Lin interacted with the real artist on stage[116] - Digital Domain collaborated with Tencent Charity and the Yao Foundation to create a virtual Yao Ming, who debuted at the China Internet Philanthropy Summit in Guangzhou[116] Co-Production The group participated in co-productions for the film "Ender's Game" and TV series "Ten Years Late" and "The Monkey King," recognizing profits through participating interests and providing visual effects and VR content solutions for the TV series - The film "Ender's Game" continues to generate revenue through non-box office channels, with DD3I's share of profit from participating interests recognized under "Other income and gains"[117] - Digital Domain co-produced the TV series "Ten Years Late" and "The Monkey King" with Talent Television & Film and World Pictures, providing visual effects production and VR content solutions[118] Investment in Handy The group made a strategic investment in Mango International Group Limited (Handy's parent company) to leverage its hardware-as-a-service model for synergies with the group's VR and virtual human expertise, recording a HK$57.38 million fair value loss during the period - The group invested US$25 million (approximately HK$196.21 million) in Mango International Group Limited (flagship product "handy") to create synergistic benefits[119] - During the period, the investment recorded a fair value loss of HK$57.38 million, reflected in the consolidated statement of other comprehensive income[119] Property Investment Segment The group divested its Hong Kong property investment portfolio to realize value and reallocate financial resources to the media entertainment business, resulting in a 97% revenue decrease to HK$65 thousand and a shift from profit to a HK$230 thousand loss for the segment - The group sold its two shops and ten parking spaces previously owned on the ground floor of Citicorp Centre in Causeway Bay, Hong Kong, aiming to monetize the investment and reallocate funds to the media entertainment business[120] Property Investment Segment Financial Performance (For the six months ended 30 June) | Indicator | 2019 (HK$ thousand) | 2018 (HK$ thousand) | Year-on-year Change | | :--- | :--- | :--- | :--- | | Revenue | 65 | 2,322 | -97.20% | | Loss / (Profit) | (230) | 1,789 | Turned from profit to loss | | Revenue as % of Group Total Revenue | Approximately 1% | - | - | Interests in Associates The group, in partnership with Poly Capital and Hony Capital, established Digital Domain Space (Beijing) Media Technology Co., Ltd. to develop and operate VR cinemas in China, with CITIC Press Group as a strategic investor, and the associate's loss narrowed - Digital Domain, in collaboration with Poly Capital and Hony Capital, established Digital Domain Space (Beijing) Media Technology Co., Ltd., dedicated to developing and executing innovative virtual reality experiences and opening multiple VR cinemas in China[123] Share of Loss of Associates (For the six months ended 30 June) | Indicator | 2019 (HK$ thousand) | 2018 (HK$ thousand) | Year-on-year Change | | :--- | :--- | :--- | :--- | | Share of loss of associates | (5,787) | (10,262) | -43.61% | Financial Position and Liquidity The group's financial position improved with a better current ratio and reduced gearing, supported by diverse financing sources and strategic asset disposals, despite increased finance costs Finance Costs For the six months ended June 30, 2019, group finance costs surged by 347.91% to HK$42.12 million, primarily due to increased interest on bank and other loans and newly recognized lease liabilities Finance Costs (For the six months ended 30 June) | Item | 2019 (HK$ thousand) | 2018 (HK$ thousand) | Year-on-year Change | | :--- | :--- | :--- | :--- | | Interest accrued: contingent consideration payable | 1,817 | 948 | +91.67% | | Interest accrued: lease liabilities | 8,447 | – | New | | Interest: bank and other loans | 31,164 | 4,592 | +578.65% | | Interest: secured notes | 689 | 1,190 | -42.10% | | Interest: finance leases | – | 2,673 | -100% | | Total | 42,117 | 9,403 | +347.91% | Loss Before Tax and Taxation For the six months ended June 30, 2019, the group's loss before tax narrowed by 28.25% to HK$167.26 million, with a HK$1.55 million deferred tax credit recorded for the period, primarily due to the positive impact of deferred tax Loss Before Tax and Taxation (For the six months ended 30 June) | Indicator | 2019 (HK$ thousand) | 2018 (HK$ thousand) | Year-on-year Change | | :--- | :--- | :--- | :--- | | Loss Before Tax | (167,264) | (233,127) | -28.25% | | Staff costs (including directors' emoluments) | 268,742 | 342,413 | -21.49% | | Depreciation of property, plant and equipment | 22,712 | 30,418 | -25.33% | | Depreciation of right-of-use assets | 16,545 | – | New | | Amortisation of intangible assets | 49,871 | 41,961 | +18.85% | | Taxation | 1,552 | 4,015 | -61.34% | | Taxation for the period - overseas tax | 1,758 | 1,390 | +26.47% | | Deferred tax | (3,310) | (5,148) | Loss narrowed | - Hong Kong profits tax was not provided as the group's estimated tax losses carried forward are sufficient to offset estimated assessable profits[49] Assets and Liabilities of a Disposal Group Classified as Held for Sale The group disposed of its wholly-owned subsidiary, Sun Innovation HK Properties Holdings Limited, and its subsidiaries, primarily engaged in property investment, thus reclassifying their related assets and liabilities from held for sale - During the period, the Board disposed of 100% equity interest in the group's wholly-owned subsidiary, Sun Innovation HK Properties Holdings Limited, and its subsidiaries (collectively, the "Disposal Group"), which primarily engaged in property investment[53] Assets and Liabilities of a Disposal Group Held for Sale (31 December 2018) | Item | HK$ thousand | | :--- | :--- | | Investment properties | 208,300 | | Trade receivables, other receivables and prepayments | 79 | | Bank balances and cash | 104 | | Total assets | 208,483 | | Trade payables, other payables and accruals | 95 | Intangible Assets As of June 30, 2019, the group's intangible assets' carrying value slightly decreased to HK$1.416 billion, primarily due to reduced virtual human technology and IP licenses from subsidiary disposals, alongside period amortization Intangible Assets Carrying Value (HK$ thousand) | Item | 30 June 2019 | 31 December 2018 | Change | | :--- | :--- | :--- | :--- | | Goodwill | 854,546 | 854,831 | -0.03% | | Trademarks | 152,716 | 147,739 | +3.37% | | Proprietary software | 84,948 | 68,520 | +23.98% | | Participating interests | 60,768 | 81,913 | -25.81% | | Patents | 244,451 | 259,963 | -5.97% | | Virtual human technology | – | 21,295 | -100% | | Unfulfilled contracts | 6,060 | 10,604 | -42.85% | | Intellectual property licenses | – | 14,876 | -100% | | Other licenses | 12,803 | 1,112 | +1051.35% | | Total | 1,416,292 | 1,460,853 | -3.05% | - The disposal of subsidiaries led to significant reductions in both the cost and accumulated amortization of virtual human technology and intellectual property licenses[57] Financial Assets Measured at Fair Value Through Other Comprehensive Income As of June 30, 2019, the fair value of unlisted equity investments decreased to HK$108.59 million, with a HK$57.38 million fair value loss recognized during the period, reflecting changes in this strategic medium-to-long-term investment Financial Assets Measured at Fair Value Through Other Comprehensive Income (HK$ thousand) | Item | 30 June 2019 | 31 December 2018 | Change | | :--- | :--- | :--- | :--- | | Unlisted equity investments, at fair value | 108,594 | 165,976 | -34.69% | - During the period, a fair value loss of HK$57.38 million was recognized in other comprehensive income[59] - This investment represents unlisted equity instruments held for medium-to-long-term strategic purposes, which the directors believe provides a more meaningful presentation for such strategic investments[59] Trade Receivables, Other Receivables and Prepayments As of June 30, 2019, the group's total trade receivables, other receivables, and prepayments increased to HK$303.39 million, with significant rises in trade receivables and prepayments reflecting increased business activity Trade Receivables, Other Receivables and Prepayments (HK$ thousand) | Item | 30 June 2019 | 31 December 2018 | Change | | :--- | :--- | :--- | :--- | | Total trade receivables | 81,528 | 51,679 | +57.79% | | Other receivables | 138,299 | 67,506 | +104.87% | | Prepayments | 69,417 | 42,207 | +64.47% | | Total | 303,391 | 176,979 | +71.43% | - The group generally grants an average credit period of 30 days to trade customers[65] Trade Payables, Other Payables and Accruals As of June 30, 2019, the group's total trade payables, other payables, and accruals decreased to HK$126.78 million, primarily driven by a reduction in other payables Trade Payables, Other Payables and Accruals (HK$ thousand) | Item | 30 June 2019 | 31 December 2018 | Change | | :--- | :--- | :--- | :--- | | Total trade payables | 37,040 | 33,692 | +9.93% | | Other payables | 31,141 | 47,715 | -34.73% | | Accruals | 58,600 | 57,034 | +2.75% | | Total | 126,781 | 138,441 | -8.30% | Disposal of Subsidiaries During the period, the group completed two subsidiary disposals: a 70% interest in its Greater China virtual human business, yielding HK$92.57 million gain, and a property investment subsidiary, generating HK$6.72 million gain, both aimed at monetizing investments and optimizing resource allocation - On January 31, 2019, the group disposed of a 70% equity interest in its subsidiary engaged in the virtual human business in Greater China, realizing a gain on disposal of HK$92.57 million[67] - On March 19, 2019, the group disposed of a group of subsidiaries engaged in property investment, realizing a gain on disposal of HK$6.72 million for a cash consideration of HK$215.80 million[69] - The disposal of the property investment business aimed to monetize the group's investment in the property market and reallocate its financial resources to the media entertainment business[69] Share Capital As of June 30, 2019, the company's total issued shares increased to 32.056 billion, primarily due to the issuance of 5.324 billion shares from subscriptions and 1 million shares from share option exercises Changes in Share Capital (HK$ thousand) | Item | Number of Shares | Amount (HK$ thousand) | | :--- | :--- | :--- | | At 31 December 2018 | 26,731,511,340 | 267,314 | | Shares issued on exercise of share options | 1,000,000 | 10 | | Shares issued on subscription | 5,323,600,000 | 53,237 | | At 30 June 2019 | 32,056,111,340 | 320,561 | Liquidity, Financial Resources, Group Asset Pledges and Gearing Ratio The group's current ratio improved to 1.4 and gearing ratio decreased to 21%, indicating enhanced financial health, supported by diverse financing sources including bank facilities, other loans, and equity investments, with several loans repaid and new bank facilities secured during the period Liquidity and Gearing Ratio | Indicator | 30 June 2019 | 31 December 2018 | Change | | :--- | :--- | :--- | :--- | | Current Assets | HK$586,763,000 | - | - | | Current Liabilities | HK$420,493,000 | - | - | | Current Ratio | 1.4 | 0.9 | Improved | | Gearing Ratio | 21% | 47% | Improved | | Total cash and bank balances | HK$271,603,000 | - | - | - The group has diverse funding sources, including internal funds, secured general banking facilities, unsecured non-bank loans, and ad-hoc investments from shareholders and other potential investors[132] - The company secured a US$13 million (approximately HK$101.55 million) banking facility from a Hong Kong bank, partially collateralized by time deposits[132] Foreign Exchange Fluctuation Risk and Related Hedging The group's revenue, expenses, assets, and liabilities are primarily denominated in HKD, USD, CAD, RMB, and INR; currently, no hedging is planned for RMB, CAD, and/or INR exchange rate fluctuations, but the group will continuously review and consider future hedging measures - The group's revenue, expenses, assets, and liabilities are primarily denominated in Hong Kong Dollars, US Dollars, Canadian Dollars, Renminbi, and Indian Rupees[139] - Currently, the group does not intend to hedge against exchange rate fluctuations involving Renminbi, Canadian Dollars, and/or Indian Rupees; however, it will regularly review economic conditions, business segment developments, and the overall foreign exchange risk portfolio, considering appropriate hedging measures as needed in the future[139] Contingent Liabilities As of June 30, 2019, the group had no other significant contingent liabilities apart from those related to intellectual property litigation disclosed under "Potential Indemnification" within the "Media Entertainment Segment" - Except for those disclosed under "Potential Indemnification" in the "Media Entertainment Segment" above, the group had no other significant contingent liabilities as of June 30, 2019[140] Corporate Governance and Outlook The group maintains competitive remuneration policies for its 950 employees, actively pursues growth in media entertainment through R&D and strategic partnerships, and generally adheres to corporate governance codes despite some exceptions Employees and Remuneration Policy As of June 30, 2019, the group employed 950 people, with a remuneration policy designed to maintain competitive salaries, adjusted for performance, and offering discretionary bonuses, share option schemes, and pension plans Number of Employees | Indicator | 30 June 2019 | | :--- | :--- | | Total Employees | 950 people | - The group's remuneration policy maintains competitive salary levels for employees, with promotions and salary adjustments based on performance, and other benefits including discretionary bonuses, a share option scheme, and a pension scheme[141] Outlook The group will leverage its VFX expertise to expand visual effects, VR, CG, virtual human, and immersive entertainment businesses in Greater China and India, establishing a Montreal studio to boost production capacity and reduce costs, while continuously investing in R&D, seeking financing and strategic partnerships, and attracting global talent for future growth - The group will continue to explore opportunities to develop visual effects, virtual reality, computer graphics, virtual human, and immersive entertainment businesses in the Greater China and India markets[142] - In 2019, the group also established a production studio in Montreal, Quebec, Canada, to enhance production capacity and benefit from tax and other preferential treatments[142] - The group will continue to invest significant financial and human resources in the ongoing research and development of virtual human and virtual reality technologies, and seek financing and collaboration opportunities with strategic partners/investors[144] Share Option Scheme The group's share option scheme aims to reward directors and employees for their contributions, with 130 million options granted by June 30, 2019, most immediately vested, and 1 million options exercised during the period - The company's share option scheme, adopted on April 27, 2012, and amended on April 3, 2014, aims to grant share options to any directors, employees, and individuals who have contributed or will contribute to the group[146] Overview of Share Option Movements (For the six months ended 30 June 2019) | Indicator | 1 January 2019 | Granted | Exercised | Cancelled / Lapsed | 30 June 2019 | | :--- | :--- | :--- | :--- | :--- | :--- | | Total Share Options | 1,664,353,349 | 130,000,000 | (1,000,000) | – | 1,793,353,349 | - On April 24, 2019, 130,000,000 share options were conditionally granted to the group's employees, with 109,999,999 of these options immediately vested on the grant date[150] Directors' and Chief Executive's Interests As of June 30, 2019, Mr. Peter Chou and Mr. Anthony Choy held substantial shares through controlled corporations, while Mr. Anthony Choy and Mr. Wang Weizhong also held share options, with all interests disclosed per the SFO and Listing Rules Directors' and Chief Executive's Interests and Short Positions in Shares and Underlying Shares (30 June 2019) | Director Name | Capacity | Total Interests (Long / Short Position) | Approximate % of Issued Share Capital | | :--- | :--- | :--- | :--- | | Peter Chou | Interest of controlled corporation | 2,176,041,324 (Long Position) | 6.79% | | | Interest of controlled corporation | 602,561,746 (Short Position) | 1.88% | | Anthony Choy | Interest of controlled corporation and beneficial owner | 2,108,531,324 (Long Position) | 6.58% | | | Interest of controlled corporation | 502,134,789 (Short Position) | 1.57% | | Wang Weizhong | Beneficial owner | 5,000,000 (Long Position) | 0.02% | - Mr. Anthony Choy holds 100,000,000 share options granted under the share option scheme[153] - Mr. Wang Weizhong holds 5,000,000 share options granted under the share option scheme[153] Major Shareholders' and Other Persons' Interests As of June 30, 2019, Poly Culture Group Corporation Limited and Jetlink Holdings Limited were major shareholders, holding 16.61% and 15.71% of shares respectively, while individuals like Peter Chou, Anthony Choy, Amit Chopra, and Zhou Jian also held significant shares and options directly or through controlled corporations Major Shareholders' and Other Persons' Interests and Short Positions in Shares and Underlying Shares (30 June 2019) | Name | Capacity | Total Interests (Long / Short Position) | Approximate % of Issued Share Capital | | :--- | :--- | :--- | :--- | | Poly Culture Group Corporation Limited | Beneficial owner | 5,323,600,000 (Long Position) | 16.61% | | Jetlink Holdings Limited | Beneficial owner | 5,037,200,000 (Long Position) | 15.71% | | Peter Chou | Interest of controlled corporation | 2,176,041,324 (Long Position) | 6.79% | | Anthony Choy | Interest of controlled corporation and beneficial owner | 2,108,531,324 (Long Position) | 6.58% | | Amit Chopra | Interest of controlled corporation and beneficial owner | 2,171,531,324 (Long Position) | 6.77% | | Zhou Jian | Interest of controlled corporation and beneficial owner | 2,531,878,527 (Long Position) | 7.90% | - Mr. Peter Chou holds 100% equity interest in Jiabao Limited and Honarn Inc., and is therefore deemed to have an interest in the relevant shares[156] - Poly Culture Group Corporation Limited acquired 5,323,600,000 shares through a subscription[155] Events After Reporting Period Subsequent to the reporting period, the group raised approximately HK$205.73 million net proceeds from a placing of new shares and HK$553.46 million net proceeds from a subscription, both earmarked for the media entertainment segment and general working capital - On July 25, 2019, the company completed the placing of 2,000,000,000 placing shares, raising net proceeds of approximately HK$205.73 million, intended for the media entertainment segment and general working capital[124] - On April 12, 2019, the company completed the allotment and issuance of 5,323,600,000 shares to Poly Culture Group Corporation Limited, raising net proceeds of approximately HK$553.46 million, intended for the media entertainment segment and general working capital[126] Disclosure Pursuant to Rule 13.21 of the Listing Rules A ceased-operation subsidiary of the group previously obtained bank financing with specific performance obligations; despite the subsidiary being in liquidation and no corporate guarantees from the company or other subsidiaries, the outstanding principal amount of this financing remains - A Hong Kong bank previously provided a banking facility with a principal amount of HK$6 million to an indirect subsidiary of the company's entertainment media segment, which ceased operations before the end of December 2010, with specific performance obligations[157] - As of June 30, 2019, the outstanding principal amount of this financing was approximately HK$4.85 million[157] - Provisional liquidators were appointed for the subsidiary on July 11, 2012, and neither the company nor its other subsidiaries provided any corporate guarantees for this financing to the subsidiary or its intermediate holding company[158] Purchase, Sale or Redemption of the Company's Listed Securities Neither the company nor any of its subsidiaries purchased, sold, or redeemed any of the company's listed securities during the review period - Neither the company nor any of its subsidiaries purchased, sold, or redeemed any of the company's listed securities during the review period[159] Corporate Governance The company generally complied with the Corporate Governance Code during the review period, with exceptions including the Chairman not being subject to retirement by rotation, non-executive directors lacking specific appointment terms, and some directors' absence from the AGM - The company has generally complied with the code provisions of the Corporate Governance Code set out in Appendix 14 to the Listing Rules during the review period, with certain exceptions[160] - Mr. Peter Chou, the Chairman of the Board, is not subject to retirement by rotation, and non-executive directors and independent non-executive directors do not have specific terms of appointment[160] - Some directors were unable to attend the company's Annual General Meeting held on May 29, 2019[160] Changes in Directors' Information During the review period, several director changes occurred, including the resignations of Mr. Wei Ming, Mr. Amit Chopra, and Dr. Song Anlan, and the appointments of Mr. Jiang Yingchun, Mr. Cui Hao, and Mr. Wang Weizhong as non-executive directors, while Mr. Pu Jian was appointed Vice Chairman and authorized representative before resigning all positions - Mr. Wei Ming resigned as Executive Director and Vice Chairman of the Board, Mr. Amit Chopra resigned as Executive Director, Chief Operating Officer, and Authorized Representative, and Dr. Song Anlan resigned as Non-executive Director, all effective May 24, 2019[163] - Mr. Jiang Yingchun, Mr. Cui Hao, and Mr. Wang Weizhong were appointed as Non-executive Directors, effective May 30, 2019[163] - Non-executive Director Mr. Pu Jian was appointed Vice Chairman of the Board and Authorized Representative on May 24, 2019, and subsequently resigned from all his positions in the company effective August 2, 2019[163] Directors' Securities Transactions The company adopted the Model Code for Securities Transactions by Directors of Listed Issuers, as set out in Appendix 10 of the Listing Rules, and all directors confirmed compliance during the review period - The company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers, as set out in Appendix 10 to the Listing Rules, as its code of conduct for directors' securities transactions[161] - All directors have confirmed their compliance with the required standards set out in the Model Code throughout the review period[162] Review by Audit Committee The company's Audit Committee has reviewed the company's interim report for the review period - The company's Audit Committee has reviewed the company's interim report for the review period[163]