CHINA LIT (00772) issues profit warning, expecting annual net loss of approximately 150 million to 250 million yuan, a change from profit to loss year-on-year.

CHINA LIT (00772) announces that the group is expecting a net loss of approximately RMB 150 million to RMB 250 million in the 2024 financial year in accordance with IFRS (International Financial Reporting Standards), while the net profit under IFRS for the year ended December 31, 2023 was RMB 804 million, primarily due to non-cash impairment of goodwill arising from the acquisition of New Classics Media Holdings Limited in 2018. The group has conducted a preliminary assessment of the goodwill as of December 31, 2024, based on identified indicators of impairment of assets. The Board of Directors believes that the recoverable amount of goodwill related to New Classics Media is lower than its carrying amount, and therefore, the group will recognize impairment of goodwill, estimated to be approximately RMB 1.05 billion to RMB 1.15 billion. Currently, as market dynamics change, there is an increasing demand for high-quality content from viewers. In the television drama sector, video platforms and television stations will focus more on acquiring top-quality content; while in the film sector, only outstanding works can sustainably capture market preference and achieve commercial success. Recognizing this trend, New Classics Media plans to further concentrate on developing high-quality film and television content in the future, aiming to provide works that meet the highest industry standards to viewers through meticulous script development, pre-production, filming, post-production, and other stages. This focus on the business segment may result in longer research and development cycles for new projects in the coming years, as well as an increase in overall production costs, leading to a decline in profit expectations for New Classics Media in the next few years. However, from a strategic perspective, the company believes that this change will solidify its leading position in the premium film and television production industry and ultimately create greater long-term value for the company's IP business. Impairment charges for goodwill are of a non-cash nature, and therefore are not expected to affect the group's cash flow, nor are they included in the group's non-IFRS financial metrics. The Board of Directors expects non-IFRS net profit for the 2024 financial year to be approximately RMB 1.1 billion to RMB 1.15 billion, which is roughly consistent with the RMB 1.129 billion for the year ended December 31, 2023. The company defines non-IFRS net profit as profit for the period adjusted for share-based payments, impairment provisions for goodwill, net (income) losses from investments and acquisitions of certain investees, amortization of intangible assets from acquisitions, and related tax effects. The Board of Directors emphasizes that non-IFRS net profit for the 2024 financial year is not a requirement or presentation under IFRS. The company's management believes that presenting these non-IFRS financial metrics alongside the corresponding IFRS measurements provides useful information on the financial and business trends related to the group's financial condition and operating performance for investors and management. However, the use of non-IFRS measurement standards as an analytical tool has its limitations. Company shareholders and potential investors should not separate them from the company's operating performance or financial condition reported under IFRS, nor consider them as a substitute for analyzing such operating performance or financial condition. Additionally, the definition of non-IFRS measurement standards may differ from similar terms used by other companies, making it difficult to compare with similar measurement standards proposed by other companies.