China Literature Announces 2023 Annual Results
Source: Market Screener
HONG KONG, March 18, 2024 /PRNewswire/ -- China Literature Limited ("China Literature" or "the Company", stock code: 0772), a leading online literature and intellectual property ("IP") incubation platform in China, today announced the audited consolidated results for the year ended December 31, 2023.
Mr. Hou Xiaonan, Chief Executive Officer of China Literature, commented, "In 2023, China Literature continued to build a comprehensive IP development framework encompassing a variety of content formats and covering every stage of the content lifecycle. Additionally, we equipped creators with cutting-edge AI tools to enhance our content ecosystem. The number of literary works that newly reached 100,000 average subscribers per chapter across the platform increased 125% year-over-year, and our MPUs increased 10.1% year-over-year to 8.7 million. With operational efficiency steadily improving, operating profit increased 12.8% from a year earlier to RMB709 million. Profit attributable to equity holders of the Company rose 32.3% to RMB805 million year-over-year, while its margin expanded from 8.0% to 11.5%.
Over the course of the year, China Literature continued to make significant progress in both the visualization and monetization of its IP, offering users a strong lineup of high-quality works, including dramas series such as 'In Spite of the Strong Wind (纵有疾风起),' 'The Road to Ordinary (平凡之路),' 'Sunshine by My Side (骄阳伴我)' and 'The Infiltrator (潜行者),' as well as new animation seasons for classic IP franchises including 'Battle Through the Heavens (斗破苍穹),' 'Stellar Transformations (星辰变),' 'Almighty Mage (全职法师)' and 'Martial Universe (武动乾坤).' Within our comics business, we announced the acquisition of the assets of Tencent Animation and Comics, which will expand our IP portfolio to include top Chinese comic titles such as 'The Outcast (一人之下)' and 'The Fox Spirit Matchmaker (狐妖小红娘).' This transaction will also strengthen our pipeline of comic adaptations and increase our production capacity for animated series. Furthermore, we are actively exploring new forms of content and venturing into the high-quality short drama vertical where we are achieving initial success.
2023 was a pivotal year for innovation and breakthroughs in AI technology. We launched the first Large Language Model designed specifically for the online literature industry, 'Smart Pen,' and the 'Smart Pen Edition for the Author Assistant Application,' making it available to all contracted writers. The AI features have generated weekly engagement rates of 30%, underscoring their attractiveness and usefulness. China Literature also plans to leverage AI to enhance the adaptation of online literature into animated series and comics, accelerating the process of converting text-based IPs into visual formats. Additionally, we have made significant progress in AI translation, which has been instrumental in expanding our online literature business globally. In December 2023, AI-translated works accounted for 21 of the top 100 bestsellers on our foreign language online reading platform. Looking ahead, we firmly believe that 'Smart Pen' and various other AI tools will unlock additional possibilities for creators, users, and partners. This will accelerate the release of IP value and enhance commercial efficiency, directly supporting our mission to create good stories that will live forever."
i) Online business revenues from our self-owned platform products decreased slightly from RMB3,482.9 million in 2022 to RMB3,413.9 million (USD482.0 million), mainly due to our continuous efforts to move away from low-ROI distribution channels and improve the operational efficiency of our online reading business. In addition to narrowing our distribution channels, we focused on producing high-quality content, implementing effective anti-piracy measures, and improving core product operations. These efforts drove solid performance in a number of areas; for example, Qidian Reading, one of our flagship products, saw revenue growth of approximately 40% year-over-year;
ii) Online business revenues from our channels on Tencent products were RMB341.7 million (USD48.2 million), compared with RMB591.0 million in 2022, partly due to steps we took to refine our content distribution practices as we chose to distribute more content through our core pay-to-read products with higher ROI, leading to a decrease in advertising revenues. The decline was also influenced by initiatives we took to optimize distribution channels on Tencent products; and
iii) Online business revenues from third-party platforms were RMB192.6 million (USD27.2 million), compared with RMB290.2 million in 2022, primarily due to the suspension of collaboration with certain third-party distribution partners.
Revenues from IP operations and others were RMB3,063.6 million (USD432.6 million), compared with RMB3,261.6 million in 2022.
i) Revenues from IP operations were RMB2,973.8 million (USD419.9 million), compared with RMB3,160.2 million in 2022. The decrease was mainly due to reduced revenues from NCM, as fewer total number of drama series and film projects were released in 2023 compared with 2022. Excluding the impact of NCM, revenues from IP operations grew over 10% year-over-year, mainly driven by increased revenues from our licensing of copyrights, self-operated online games, and animated series; and
ii) Revenues from the "others" category, consisting mainly of sales of physical books were RMB89.8 million (USD12.7 million), compared with RMB101.4 million in 2022.
Cost of revenues increased slightly by 1.2% year-over-year to RMB3,640.3 million (USD514.0 million), mainly due to an increase in content costs as we boosted investment in high-quality content during 2023, which was mostly offset by a reduction in production costs related to drama series and films, lower platform distribution costs, and a decrease in amortization of intangible assets.
Selling and marketing expenses decreased 14.1% year-over-year to RMB1,719.5 million (USD242.8 million), as a result of i) reduced promotion and advertising expenses for our online business as a part of our cost control and efficiency improvement initiatives; and ii) a decrease in marketing expenses associated with drama series and film promotion, due to the lower total number of releases in 2023. As a percentage of revenues, selling and marketing expenses decreased to 24.5% in 2023 from 26.3% in 2022.
General and administrative expenses decreased 6.2% year-over-year to RMB1,161.0 million (USD163.9 million), primarily attributable to reduced expenses associated with employee benefits. As a percentage of revenues, general and administrative expenses were 16.6% in 2023, compared with 16.2% in 2022.
Net reversal of impairment losses on financial assets was RMB40.6 million (USD5.7 million) in 2023, primarily due to the collection of doubtful receivables associated with IP businesses which were impaired in prior years.
- Average MAUs on our self-owned platform products and self-operated channels were 205.6 million, a decrease of 15.7% year-over-year from 243.9 million. A further breakdown of MAUs is as follows:
i) MAUs on our self-owned platform products decreased 4.7% year-over-year from 110.0 million to 104.8 million, mainly due to our decision to cut marketing spending on low-ROI user acquisition channels as part of our overall efforts to improve operational efficiency. At the same time, we intensified our efforts to engage our core user base, as evidenced by the continued year-over-year growth in MAUs of our flagship reading product, Qidian Reading; and
ii) MAUs on our self-operated channels on Tencent products decreased 24.7% year-over-year from 133.9 million to 100.8 million, primarily due to our efforts to optimize content offerings and distribution channels to enhance our operational efficiency.
- Average MPUs on our self-owned platform products and self-operated channels increased 10.1% year-over-year from 7.9 million to 8.7 million in 2023. In particular, MPUs on our self-owned platform products increased over 20% year-over-year, reflecting the positive results of our ongoing and effective anti-piracy measures, enhanced product operation capabilities, and consistent delivery of high-quality content.
- Monthly ARPU for our pay-to-read business was RMB32.5, decreasing 14.0% year-over-year from RMB37.8 in 2022, due to i) changes in revenue mix from various product offerings, and ii) lower user spending from some newly converted paying users at the initial stage of the payment cycle.
* Free cash flow: operating cash flow deducts payments for lease liabilities and payments for capital expenditures.
Our online reading business continues to make significant progress, adding 380,000 writers, 670,000 literary works, and more than 39 billion Chinese characters of content in 2023. New writers in particular are making a significant impact. The number of new writers whose books generated more than RMB100,000 in annual revenue increased by 60% in 2023 year-over-year. Among the new books with over RMB1 million in revenue in 2023, nearly a third were written by our new writers. In addition, the number of works written by writers born after the year 2000 with more than 10,000 average subscribers per chapter soared by 230% year-over-year.
Our growing library of creators and literary works continues to drive content quality to new heights. In 2023, the number of literary works that newly reached 100,000 average subscribers per chapter across the platform increased 125% year-over-year, and various other subscription records were broken. Our enhanced middle office, dedicated to nurturing and supporting our content creation ecosystem, is fueling this surge. This includes:
IP Visualization
In 2023, We continued to advance the visualization of our IP, offering our users a diverse selection of high-quality works.
We have long maintained the conviction that only through innovation can we make true breakthroughs. In 2023, we identified several new opportunities which we will take advantage of.
Outlook
We are confident that 2024 will be a year of blockbusters for China Literature. At present, the number of pre-registration for "Joy of Life 2 (庆余年2)" has exceeded 12 million, making the drama series the first to pass the 10 million pre-registration threshold across all platforms. In Tencent Video's most anticipated list, we have three drama series ranking among the top 10, including "Joy of Life 2 (庆余年2)," "The Legend of Shen Li (与凤行)" and "Dafeng Guardian (大奉打更人)." In an evolving industry, China Literature stands ready, armed with a portfolio of high-quality content, ecosystem partnerships and cutting-edge technologies. Our commitment to our foundational values - content, platform and IP - remains steadfast as we continue to create good stories that will live forever.
About China Literature Limited
China Literature is dedicated to building a deep and immersive intellectual property ("IP") universe for the Mandarin-speaking world. It incubates original IPs from its online literature platform, which are subsequently adapted to a range of digital entertainment mediums, including comics, animation, film, TV series, web series and games. The virtual world created by these digital offerings becomes an inseparable part of a user's daily life. China Literature creates and promotes IPs mainly through Qidian Reading and QQ Reading, its leading online literature platforms, as well as New Classics Media, a renowned film and TV drama series production house in China. China Literature collaborates with Tencent, its shareholder and strategic partner, as well as other third-party partners to distribute and develop IP content and to enhance the value of its IP. Many of the Company's online literature works have been successfully adapted into animation, TV series, web series, films and games, including Joy of Life, Candle in the Tomb, Soul Land, The King's Avatar and My Heroic Husband. China Literature's rich and extensive content library as well as its unparalleled capability and resources to adapt IP into various entertainment formats is a significant competitive advantage that lies at the core of its business model. For more information, please visit http://ir.yuewen.com/.
To supplement the consolidated financial statements of the Company prepared in accordance with IFRS, certain non-IFRS financial measures, namely non-IFRS operating profit, non-IFRS operating margin, non-IFRS profit for the year, non-IFRS net margin, non-IFRS profit attributable to equity holders of the Company, non-IFRS basic EPS and non-IFRS diluted EPS as additional financial measures, have been presented in this press release for the convenience of readers. These unaudited non-IFRS financial measures should be considered in addition to, and not as a substitute for, measures of the Company's financial performance prepared in accordance with IFRS. These unaudited non-IFRS measures may be defined differently from similar terms used by other companies. In addition, non-IFRS adjustments include relevant non-IFRS adjustments for the Company's material associates based on available published financials of the relevant material associates, or estimates made by the Company's management based on available information, certain expectations, assumptions and premises.
Our management believes that the presentation of these non-IFRS financial measures, when shown in conjunction with the corresponding IFRS measures, provides useful information to investors and management regarding the financial and business trends relating to the Company's financial condition and results of operations. Our management also believes that the non-IFRS financial measures are useful in evaluating the Company's operating performances. From time to time, there may be other items that the Company may include or exclude in reviewing its financial results.
Forward-Looking Statements
This press release contains forward-looking statements relating to the industry and business outlook, forecast business plans and growth strategies of the Company. These forward-looking statements are based on information currently available to the Company and are stated herein on the basis of the outlook at the time of this press release. They are based on certain expectations, assumptions and premises, some of which are subjective or beyond our control. These forward-looking statements may prove to be incorrect and may not be realized in future. Underlying the forward-looking statements is a large number of risks and uncertainties. Further information regarding these risks and uncertainties is included in our other public disclosure documents on our corporate website.
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