Thursday, November 26, 2020
Financial Results News

China Literature Announces 2020 Interim Results, Operating Loss Was USD502.2 million

China Literature Limited (“China Literature” or “the Company”, stock code: 0772), a leading online literature platform in China, today announced the unaudited consolidated results for the six months ended June 30, 2020.

Results Highlights(1)

  • Total revenues increased 9.7% year-over-year to RMB3,260.2 million (USD460.5 million).
  • Gross profit increased 6.8% year-over-year to RMB1,731.3 million (USD244.6 million).
  • Operating loss was RMB3,555.6 million (USD502.2 million), as compared to an operating profit of RMB527.7 million in the prior corresponding period.
  • Loss attributable to equity holders of the Company was RMB3,295.9 million (USD465.6 million), as compared to a profit attributable to equity holders of the Company of RMB392.7 million in the prior corresponding period.
  • Basic loss per share was RMB3.30. Diluted loss per share was RMB3.31.
  • On a non-IFRS basis:
    – Operating loss was RMB56.7 million (USD8.0 million), as compared to an operating profit of RMB517.1 million in the prior corresponding period.
    – Profit attributable to equity holders of the Company was RMB21.7 million (USD3.1 million), as compared to RMB390.0 million in the prior corresponding period.
    – Basic earnings per share were RMB0.02. Diluted earnings per share were RMB0.02.

Revenues increased 9.7% year-over-year to RMB3,260.2 million (USD460.5 million).

Revenues from online business increased 50.1% year-over-year to RMB2,495.4 million (USD352.5 million). Online business revenues from our self-owned platform products increased 101.9% year-over-year to RMB1,989.7 million (USD281.1 million), primarily driven by the expansion of distribution channels and users’ growing willingness to pay for our reading content during the first half of 2020. Online business revenues from our self-operated channels on Tencent products decreased 24.8% year-over-year to RMB324.3 million (USD45.8 million), primarily due to the continued decline in paid reading revenues from our self-operated channels on certain Tencent products. Online business revenues from third-party platforms decreased 26.2% year-over-year to RMB181.4 million (USD25.6 million), primarily due to the decrease in revenues from certain third-party platform partners.

Revenues from intellectual property (“IP”) operations and others decreased 41.5% year-over-year to RMB764.8 million (USD108.0 million). Revenues from IP operations decreased 40.8% year-over-year to RMB719.2 million (USD101.6 million), primarily due to the decrease in revenues from New Classics Media (“NCM”) during the first half of 2020. Revenues from others decreased 51.1% year-over-year to RMB45.7 million (USD6.4 million), primarily due to the decrease in revenues from the sales of physical books as impacted by the COVID-19 pandemic. In addition, we continued to adjust our physical book business and distribution channels in tandem with our business development strategy.

Cost of revenues increased 13.3% year-over-year to RMB1,528.9 million (USD216.0 million), mainly due to greater platform distribution costs resulting from expansion of online reading channels and our self-operated online game, which led to an increase in revenues. The increase in cost of revenues was partially offset by a decline in the production costs of TV, web and animated series and films along with a decrease in revenues.

Gross profitincreased 6.8% year-over-year to RMB1,731.3 million (USD244.6 million). Gross margin was 53.1%, as compared to 54.6% in the prior corresponding period.

Interest income decreased 27.5% to RMB62.0 million (USD8.8 million), reflecting lower interest income from bank deposits.

Other losses, net were RMB3,529.7 million (USD498.6 million), as compared to net other gains of RMB269.6 million in the prior corresponding period. The other losses in the first half of 2020 consisted mainly of i) the impairment provision of goodwill and trademark rights related to the acquisition of NCM of RMB4,405.7 million (USD622.3 million), ii) a fair value gain on consideration liabilities of RMB1,240.3 million (USD175.2 million) due to an expected saving of earn-out consideration under the earn-out mechanism set upon the acquisition of NCM, and iii) the impairment provision of the Company’s long-term investments related to certain investee companies of RMB252.0 million (USD35.6 million).

Selling and marketing expenses increased 30.1% year-over-year to RMB1,270.3 million (USD179.4 million), primarily driven by greater marketing expenses to promote our online reading content during the first half of 2020. As a percentage of revenues, our selling and marketing expenses increased to 39.0% in the first half of 2020 from 32.9% in the first half of 2019.

General and administrative expenses decreased 25.9% year-over-year to RMB350.7 million (USD49.5 million), primarily attributable to the reversal of compensation costs of RMB116.7 million (USD16.5 million) related to the service expense of certain employees and former owners of NCM as the Company expects that the performance of NCM in 2020 will be below expectation. As a percentage of revenues, general and administrative expenses decreased to 10.8% in the first half of 2020 from 15.9% in the first half of 2019.

Net provision for impairment losses on financial assets reflected the provision for doubtful receivables. In the first half of 2020, the provision for doubtful receivables was RMB198.3 million (USD28.0 million), mainly related to TV and film projects.

Operating loss was RMB3,555.6 million (USD502.2 million), as compared to an operating profit of RMB527.7 million in the prior corresponding period.

Income tax benefit was RMB201.3 million (USD28.4 million), as compared to an income tax expense of RMB123.5 million for the same period last year. In the first half of 2020, the recognition of deferred income tax assets and the reversal of deferred income tax liabilities from the accrual of asset impairment losses exceeded the income tax expenses that incurred during the first half of 2020, resulting in a net gain from income taxes.

Loss attributable to equity holders of the Company was RMB3,295.9 million (USD465.6 million), as compared to a profit attributable to equity holders of the Company of RMB392.7 million in the prior corresponding period.

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