Recently, a number of listed companies in China’s Film and Television industry have announced their 2020 earnings forecasts one after another. As far as the announced earnings forecasts are concerned, most of the film and TV companies in China with losses in 2020 are accounted for, among which Wanda Film is the film and TV company with the most losses among the 2020 earnings forecasts.
According to the 2020 earnings preview disclosed by Wanda Film, the company expects full-year revenue of 5.9-6.7 billion yuan and a net loss of 6.15-6.95 billion yuan attributable to the mother company, compared with a loss of more than 4.7 billion yuan in 2019, China News reported on Feb. 2.
Wanda Film said in the performance preview that there are two main reasons for last year’s loss. One, the CCP virus Epidemic in 2020 caused a huge impact on the entire film industry, with more than 600 domestic cinemas under Wanda Film shutting down for nearly half a year and a significant decline in overall revenue compared with the same period in 2019. The fixed costs such as theater depreciation, rent, employee compensation and finance costs are also high, resulting in a large loss in the company’s operating results in 2020.
Secondly, Wanda Film intends to make goodwill and asset impairment provisions of RMB 4 billion to RMB 4.5 billion for the pre-acquisition of studio, Time.com, New Media Sincere, HUI Interactive and Shanghai Galloping Asia Pictures. If goodwill impairment is not considered, the net loss attributable to Wanda Film in 2020 will be RMB2.15-2.45 billion.
Goodwill impairment refers to the recognition of a corresponding impairment loss after impairment testing of goodwill formed by a company in a merger. In the media, an asset-light industry, many companies have accumulated huge amounts of goodwill through mergers and acquisitions.
Tianfeng Securities has said in a report that in 2018 and 2019, the overall profit of the media industry dropped sharply, with concentrated impairment as the main impact in addition to factors such as industry regulation and deleveraging.
Wanda Film’s huge amount of goodwill comes from several large mergers and acquisitions. from 2014 to 2018, Wanda Film has acquired Australian movie theater Hoyts, Time.com, Wanda Media and Wanda Film and Television, expanding its own business map while also forming a large amount of goodwill.
At the end of 2018, Wanda Film’s goodwill reached 13.491 billion yuan, accounting for 43.32% of total assets and 70.84% of net assets in that year, ranking first in the film and television industry.
In 2019, Wanda Film carried out a goodwill impairment of up to 5.91 billion, the highest goodwill impairment loss in the film and television industry that year. After this impairment, Wanda Film still has up to 8.112 billion yuan of goodwill.
And after another 4-4.5 billion yuan of goodwill impairment in 2020, Wanda Film still has an estimated remaining goodwill of 3.612-4.112 billion yuan, which means that Wanda Film’s goodwill impairment pressure is still to be further released.
Wanda Film is not the only film and television company in China that has suffered losses.
China Film Corporation expects its 2020 results to show the first loss since the company went public, with net profit attributable to shareholders of listed companies for fiscal 2020 of -465 million to -675 million yuan.
Hengdian Film & TV expects net profit attributable to shareholders of listed companies for 2020 to be -450 million to -490 million yuan.
Huayi Brothers expects net profit attributable to shareholders of the listed company to be a loss of 780 million to 980 million yuan in 2020. It is worth mentioning that, compared to the loss of nearly 4 billion yuan in 2019, the company has narrowed its loss, although its net profit still has not turned positive.