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Digital Domain Remains on the Sick List

Write-downs, finance and operating costs weigh on troubled VFX house

HONG KONG — Visual effects group Digital Domain does not look much healthier than it did a year ago, when it was given a back door share listing in Hong Kong.

The VFX businesses were largely responsible for pushing the listed company, previously called Sun Innovation, and now renamed Digital Domain Holdings, into the red.

DDH announced a loss of HK$58.2 million (US$7.51 million) for the six months to June 30, on revenues of HK$429 million (US$55.4 million).

A stock market filing revealed that while the group’s scrap metal and property businesses edged ahead, the Digital Domain VFX businesses incurred losses of HK$41.2 million (US$5.32 million) on revenues of HK$253 million (US$32.6 million).

Finance costs relating to the acquisition of Digital Domain in July 2013 pulled the group down by a further HK$20 million (US$2.58 million).

The VFX unit figures included amortization of intangible assets worth HK$30.5 million (US$3.94 million) and a further write down of the value of its participation rights in “Ender’s Game”. Stripping out all depreciation and amortization, VFX made a small loss of HK$1.6 million (US$207, 000).

While part of the logic of selling Digital Domain to a listed company was to enable the VFX house to show its clients that it has strong financial backing, the group failed to sound many upbeat notes. DDH said that Digital Domain supplied VFX to “Maleficent,” and “X-Men: Days of Future Past” in the reporting period, but it did not name any prestige projects it is currently working on.

Instead, it said that the VFX industry is “fiercely competitive,” and that projects are irregular. It discussed cost control measures, including outsourcing of work to third party contractors, and said that “results for the second half of 2014 are expected to remain volatile.”

Somewhat mysteriously, in its section on the VFX unit’s prospects, DDH also added: “Besides, the group is also exploring other business opportunities in order to maximise the value of the shareholders of the company.”

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