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China Animation (1566.HK) Announces 18/19 Annual Results

Profit for the Year Attributable to the Owners of the Company Surged by 180.8% YoY to HK$58.4 Million;
Asset-light Model Accelerates Core Business Development;
Profitability of Multimedia Animation Entertainment Maintains Sustainable Growth;
IP Business, CA SEGA Theme Parks and "5G . VR eSports" are Well-positioned for Growth


HONG KONG, Jul 17, 2019 - (ACN Newswire) - China Animation Characters Company Limited ("China Animation" or "the Group"; stock code: 1566), a leading multimedia animation enterprise in the PRC, has announced its audited annual results for the year ended 31 March 2019 ("the year").

Result Highlights
Business Highlights Review:
1. Asset-light Model to Accelerate Business Layout of Indoor Theme Park in the PRC: with the adoption of asset-light model, the Group cooperated with the property developers in the PRC to introduce two world-renowned indoor theme parks - CA SEGA JOYPOLIS and Wonder Forest ("CA SEGA Entertainment Park") to the commercial and residential projects of first-tier and second-tier cities in the PRC. The adoption of such business model enabled the Group to fasten capital inflow and enhance the brand effect of the Group.

2. Multimedia Animation Entertainment Business Becomes Profit Driver: identified and introduced quality animation characters IP and VR entertainment business. Proprietary business maintained growth momentum which gradually contributed profit to the Group and further strengthened the synergies among core businesses.

3. Orderly Adjustment on the Trading Strategy of Animated-derived Products: The Group implemented premium client strategy and has moved some of the trading business from Mainland China to Cambodia, which in turn resulted in a temporary drop in sales revenue. But it will enable sustainable and stable business in the long term.

4. China Animation "Red eSports x Red Cultural Tourism": the Group has self-owned VR eSports game "Huang Yangjie Battle" to promote "Red Cultural Tourism" and preliminary cooperation in the cities of Jinggangshan, Shaoshan and Yan'an will be kicked off.

5. Established National Cultural Industrial Base: the Group has put its effort to promote cultural industry and signed MOU with Shenzhen Media Group (SZMG) in May 2019, to introduce multimedia entertainment technologies to SZMG's new building in Luohu, including indoor theme park, VR game technology and animation-derived products and more to leverage its commercial and residential as well as investment values.

Overall Financial Performance: Due to the strategic upgrade of the core businesses as well as the implementation of asset-light model on CA SEGA Entertainment Park business, there were temporary drop on the Group's annual revenue and profit. Annual revenue dropped by 21.0% year-on-year to approximately HK$632.9 million, gross profit decreased by 28.6% to HK$158.7 million, while gross profit margin slightly increased 2.6 ppt year-on-year to 25.1%. The multimedia animation entertainment business performed well and its annual revenue boosted 978.1% year-on-year to HK$49.4 million, partially offset the loss in revenue due to the adjustments of the other two core businesses. Profit attributable to owners of the Company also experienced impressive growth and surged by 180.8% year-on-year to HK$58.4 million. The Board recommended payment of a final dividend of HK2.3 cents per share to express its sincere gratitude to the support of its investors and shareholders.

CA SEGA Entertainment Park Business: "Low-cost, High-efficiency" Asset-light Operation Model Optimizes Business Layout
The Group introduced asset-light strategy by licensing proprietary and providing operational solutions to cooperate with the property developers and government officials to operate CA SEGA JOYPOLIS and Wonder Forest and manipulate business model to different first-tier and second-tier cities in the PRC, the Group enabled fasten capital inflow and enhance brand effect of the Group.

As for Wonder Forest business, since the space needed to install children's entertainment facilities of Wonder Forest is relatively smaller, it is easier to meet the property's condition in terms of area. During the year, the Group has operated Wonder Forest in Shenzhen Bookmall. Wonder Forest in Jiangmen, Longhua Shenzhen and Inner Mongolia have also started operations with licensed proprietary.

As for CA SEGA JOYPOLIS business, the Group is currently operating three CA SEGA JOYPOLIS indoor interactive entertainment parks located in Shanghai and Qingdao and Tokyo Japan, respectively. During the year, the Group has signed two agreements to license its large CA SEGA JOYPOLIS business in the PRC and preliminary work will be kicked off soon. The Group adjusted its business strategy by moving the indoor theme park in Osaka to Shibuya, Tokyo, to operate a new CA SEGA JOYPOLIS VR theme park to reach its target youth market. But since the park is still in trial operation, the revenue contribution of the Group is not fully reflected.

Multimedia Animation Entertainment: Introduces Quality Animation Entertainment Resources
The Group adhered to introduce quality multimedia animation entertainment business, including super IPs and eSports games to further enhance the synergies among the business segments. During the year, the revenue contributed by multimedia animation entertainment business was up 978.1% year-on-year from HK$4.59 million in the previous financial year to HK$49.4 million. Gross profit has reported a turnaround from a HK$14.1 million loss in the previous financial year to a gross profit of HK$90.9 million, partially offset the loss in revenue due to the adjustments of the other two core businesses during the business strategic adjustment.

Following the introduction of international VR shooting games "Zero Latency" and "Mortal Blitz", "Terminator", the Group has launched another ground-breaking multi-players VR eSports shooting game "Tower Tag" which was developed in Germany. It was showcased in Tokyo JOYPOLIS and Animation-Comic-Game Hong Kong respectively. It has also become the game in the Group's first VR eSport competition, China Animation Cup (Hong Kong District) and instantly gained attention from the eSports industry.

Animation-derived Products Trading Business: Adjustments on Trading Strategy to Maintain Stable Development
Thanks to the good relationships with clients and quality products and services, the Group enjoys better bargaining power and stable, long term client relationships. During the year, the Group has adopted premium client strategy and has moved some of the trading business from Mainland China to Cambodia to minimize effect caused by the trade war, which in turn resulted in a temporary effect on sales revenue. But the Group believed that such business layout adjustment will enable sustainable and stable business in the long term.

"Red eSports x Red Cultural Tourism" Created by China Animation
With the two international brand endorsements of "China Animation" and "CA SEGA", the Group has launched its own VR eSports game named "Huang Yangjie Battle" to promote red cultural tourism. The background of this game is based on the history of one of the important battles of the PRC, and was the only VR game awarded two prestigious industry awards named "Chinese Information Consumption Innovation award 2018" and "Gold Award of Chinese eSports Innovative Software 2019" presented by China Information Industry Trade Association. The game will be launched in the cities of Jinggangshan, Shaoshan and Yan'an.

Prospects: IP Business, CA SEGA Theme Park, "5G . VR eSports" Well-positioned for Growth
In the future, "Being proactive and aggressive but not forgetting to maintain stable and healthy growth" will be the Group's management guidelines, with indoor theme park, super IP and "5G . VR eSports" as the Group's future key growth drivers.

CA SEGA Entertainment Park x Property Developers in the PRC, Asset-light Model to Enjoy Profit Share
The Group will use large playground equipment as foundation and VR experience as direction to provide research and development, conceptual planning, construction investment and operation management solutions, with stable development on its animation-derived products trading business as foundation. Its CA SEGA brand will continue to collaborate the property developers and government officials to focus on the Guangdong-Hong Kong-Macau Bay Area and the red cultural tourism areas. With its asset-light model, the Group will introduce CA SEGA Entertainment Park to the developer's property projects, to form complete industrial chain with upstream, middle and downstream segments. It will attract more quality cultural and creative start-up companies to station and leverage the commercial and investment value of the industry park, and thus the Group will be able to enjoy profit share.

Develops Nationwide and even World-classed Renowned IP to Contribute Continuous and Steady Profitability
As for super IP, the Group will cooperate with the international overseas animation group to cultivate and identify more quality IP to create synergy effects from the strategy alliance businesses to bring more sustainable and stable profitability to the Group. Moreover, the Group will proactively explore its VR and eSports businesses, together with media campaigns in both mainland China and overseas, the IP characters can enjoy higher commercial and investment value.

Announces "5G . VR eSports" and "Red VR eSports" Strategic Plan to Promote Business Synergy and Upgrade
The Group will continue to develop the new industry as the first mover to upgrade the Group's VR eSports game. The Group will adopt 5G technology in its dual online and offline strategy and implement its IP into VR eSports to draw market attention of the IP characters, and generate synergies with the animation-derived product business.

With the successful launch of VR eSport game "Huang Yangjie Battle", the Group will continue to develop VR games using red cultural tourism as theme, including collaberate with the national government and partners to launch these games in tourist areas in response to national cultural tourism industry development, at the same time, increase the popularity of the characters in the game to enhance marketing penetration.

About China Animation Characters Company Limited
China Animation Characters Company Limited (stock code: 1566.HK)is the first multimedia animation enterprise in China to list on the Main Board in Hong Kong. The Group operates three industry-leading business segments including CA SEGA Entertainment Park, animation derived-product trading business and the business that covers all aspects, main and peripheral, of the entire IP-protected animated game industrial chain. In 2017, China Animation acquired controlling stake CA SEGA, which owns years of experience in developing electronic entertainment technologies and experience in operating indoor amusement parks. Its CA SEGA JOYPOLIS currently located in key cities such as Tokyo, Shanghai and Qingdao. It is a world-classed indoor theme park which also owns indoor theme park Wonder Forest with the target market segment of for 2-12 years old children.

China Animation owns the intellectual property rights to a number of popular animation characters including two top 10 national cartoon characters - "Han Ba Gui" and "Violet," as well as characters from movies and animated dramas such as "The King of Tibetan Antelope," "Project Egg," "Animal Conference on the Environment" and "Amazing UU." The Group also enjoys close cooperative relationships with many world-leading IP brands such as "Transformers" in the US, SEGA Sonic the Hedgehog, Initial D, etc. The Group also participated as the second largest shareholder in the co-investment and co-production of the animated series "The Reflection" with international famous partners such as Studio Deen from Japan, Stan Lee "Father of Marvel". Virtual artist "Violet" is an animation star and Super IP created by China Animation. The Group has held a number of 3D Holographic Concerts for Violet in Shenzhen and Hong Kong since 2015. Moreover, the Group also introduced several international VR games such as "Zero Latency", "Mortal Blitz", "Terminator" and "Tower Tag" and has become leading company in the VR eSports industry in China.

For enquiry, please contact Ms Karen LI at 852-2180 9699 / karen.li@animatechina.com.



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