Behind the capitalization of Huayi Stars: Zhejiang Changsheng's half-year revenue is now blank

Three years after the acquisition of Zhejiang Changsheng, the company faced a report with a revenue gap. Behind this, what happened to Huayi Brothers? Although Huayi Brothers continues to encounter challenges from rookies in its main film business, it has always been at the forefront of capital actions. Most of the few acquisition cases of star companies in the China market occurred at Huayi Brothers.

Original title: Behind Changsheng's blank revenue in the first half of the year: Huayi Star Capitalization Black Box

Three years after the acquisition of Zhejiang Changsheng, the company ushered in a report with blank revenue. Behind this, what happened to Huayi Brothers? Although Huayi Brothers continues to encounter challenges from rookies in its main film business, it has always been at the forefront of capital actions. Most of the few acquisition cases of star companies in the China market occurred at Huayi Brothers.

According to reporters 'statistics, Huayi paid a total of 2.058 billion yuan in cash to complete these three star company acquisitions from Zhejiang Changsheng to Dongyang Haohao and then to Dongyang Meila. Taking the 2015 fiscal year as an example, Huayi Brothers 'annual net profit (before deduction) was 976 million yuan, and the profit attributable to the parent company of the three companies was 94.458 million yuan, accounting for nearly 10%. As early as September 2013, Huayi Brothers, through its wholly-owned subsidiary Zhejiang Huayi Brothers Film Investment Co., Ltd.(hereinafter referred to as "Huayi Films"), transferred an equity of RMB 252 million to participate in Zhejiang Changsheng Film and Television Production Co., Ltd.(hereinafter referred to as "Zhejiang Changsheng"), and Zhang Guoli is the controlling shareholder and actual controller of the company. After the acquisition was completed, Huayi Pictures held 70% of Zhejiang Changsheng, which became the grandson of Huayi Brothers. Zhang Guoli used 152 million yuan of the transfer money to purchase Huayi Brothers 'shares held by actual controllers Wang Zhongjun and Wang Zhonglei.

Questions such as "reducing holdings and cashing in","only three months after establishment", and "shell company" were once rampant. Huayi Brothers had to issue a supplementary announcement after the acquisition, explaining that the transaction was based on Zhejiang Changsheng's estimated after-tax net profit in 2013. A valuation determined by 12 times.

At that time, Zhejiang Changsheng promised a net profit after tax of approximately 30 million yuan in 2013, so the valuation was 360 million yuan. Huayi's consideration for purchasing a 70% stake in Zhejiang Changsheng was 252 million yuan.

The announcement also disclosed that Zhang Guoli's performance commitment period to Huayi Brothers is 5 years.

In March 2016, in an interview with the media, Zhang Guoli bluntly said that it has been difficult to make profits in the TV drama market in recent years. "With current prices and actors 'prices, the investment and income from filming a drama are no longer proportional. In addition, TV stations can't insert advertisements in the middle of the drama, so they can't afford so much money to accept the drama, which makes it difficult for the current drama without IP and fresh meat." He admitted that an episode of IP dramas can sell for more than 9 million yuan, but we only have more than 1 million yuan, but in fact they all belong to "losing money and making money."

On the one hand, there is a severe TV drama market situation, and on the other hand, there are serious gambling agreement requirements. Three years have passed, has Zhejiang Changsheng, which spent 252 million yuan to acquire, met the performance requirements of Huayi?

Behind the blank revenue

Looking back on Zhejiang Changsheng's financial performance after being transferred to Huayi, the reporter found that Zhejiang Changsheng has seen two important financial indicators of revenue and net profit for two consecutive years, with two disclosure periods at the middle of the year and the end of the year. There was a big jump.

In the first half of 2014, Zhejiang Changsheng's revenue was 3.8868 million yuan, net profit was 2.9334 million yuan, and cash flow from operating activities was-8.9502 million yuan. However, in the 2014 annual report, its revenue was 111 million yuan, net profit was 34.3023 million yuan, and cash flow from operating activities was 33.5283 million yuan. In the second half of the year, Zhejiang Changsheng's net profit increased tenfold, and its cash flow increased by more than 40 million yuan."Running" fulfilled the agreement.

Also in the first half of 2015, Zhejiang Changsheng's operating income was 358,500 yuan, net profit was-2.6734 million yuan, and cash flow from operating activities was-23.2396 million yuan. By the time the 2015 financial report was disclosed, Zhejiang Changsheng's operating income jumped to nearly 137 million yuan, net profit jumped to 37.795 million yuan, and cash flow from operating activities was 4.6331 million yuan. Within half a year, Zhejiang Changsheng's revenue increased by 137 million yuan and net profit increased by 40.46 million yuan. It completed the promised gambling agreement in a "Great Leap Forward" manner.

The reporter reviewed Huayi's 2016 semi-annual report released on August 25. From January to June, Zhejiang Changsheng's operating income financial items were left blank, with net profit of-3.0852 million yuan and cash flow from operating activities of-38.1711 million yuan.

Regarding the problem of Zhejiang Changsheng's revenue blank, the reporter consulted several financial professionals. They believe that there are no rigid requirements for the disclosure of financial data of Sun Company, a general listed company, but since it has been disclosed, it will be fully disclosed. Broadly speaking, a blank space in revenue means zero, that is, Zhejiang Changsheng's revenue in the first half of 2016 was zero. There are two possibilities for this situation. One is that there has been a major change in the company, and the other is that the company may have used the money to make other investments, which will be reflected in the accounts at the end of the year.

It can be seen that in the three years since it was merged into Huayi Brothers, Zhejiang Changsheng's financial performance has formed a pattern-that is, there has been obvious rapid growth in revenue and net profit in the first half of the fiscal year and the second half of the fiscal year, ranging from a dozen times to dozens of times. As its controlling parent company, Huayi Brothers did not disclose the relevant reasons for why Zhejiang Changsheng had this phenomenon and why revenue in the first half of 2016 was zero.

So, is the company's business significantly affected by the season, resulting in a difference in profits in the first and second half of 2016 and zero revenue in the first half of 2016?

In the first half of 2016, Zhejiang Changsheng did not obtain a new film and television drama distribution license. Throughout 2015, Zhejiang Changsheng obtained distribution licenses for two TV series,"Golden Blood Road" and "Atonement Gate"(later renamed "Track of Love"). Among them,"Tracking of Love" premiered on Anhui and Hubei Satellite TV in May 2016, and was on-demand on video websites such as iQiyi, Youku, and Tencent. "Golden Blood Road" was broadcast on Sichuan terrestrial channels in June 2016 and was on-demand on iQiyi and other video platforms in August. Huayi had prepaid 20 million yuan for the production of "Golden Blood Road" in 2013. In 2014, Zhejiang Changsheng obtained distribution licenses for four TV series.

In addition, Zhejiang Changsheng obtained a radio and television program production and operation license in 2015 and began to get involved in the field of variety show production. The variety show "Let's Travel", one of the producers, began to be broadcast on the Sichuan Satellite TV platform in July 2015 and has been broadcast for two seasons. It is unclear how much Zhejiang Changsheng's investment amount and revenue share ratio in this variety show, and whether it will have a significant impact on Zhejiang Changsheng's operations.

Zhu Ying of Zhejiang Radio and Television Group once wrote that "TV dramas purchased by TV stations are generally paid in installments. For example, a deposit is made in advance after signing the contract, a second payment is made after the master tape is accepted, and the final payment is paid after the actual broadcast." An industry insider who did not want to be named said that although the operating time chain of TV series is long, the billing period of TV stations is long, and the sharing time of video websites may be even longer, judging from other listed companies engaged in film and television production, there has not been such a large performance fluctuation, and the time points are so similar. "Zhejiang Changsheng has at least one TV series that has been broadcast in the first half of 2016. According to common sense, at least part of the refund has been received, which should also be reflected in its operating income."

In

addition to Zhejiang Changsheng, Huayi Brothers "followed suit" in 2015 and completed two other acquisitions of high-premium star companies.

On October 22, 2015, Huayi Brothers acquired a 70% stake in Zhejiang Dongyang Haohan Film and Television Entertainment Co., Ltd.(hereinafter referred to as "Dongyang Haohan") for 756 million yuan in cash. Dongyang Haohan's main shareholders include six artists including Angelababy, Li Chen, Du Chun and Chen He.

On November 19, 2015, Huayi Brothers acquired 70% of the equity of Zhejiang Dongyang Meila Media Co., Ltd.(hereinafter referred to as "Dongyang Meila") for 1.05 billion yuan in cash, of which director Feng Xiaogang held 99% of the equity.

The national enterprise information disclosure system shows that Dongyang Haohao's establishment and approval date is October 21, 2015, which indicates that the company was acquired by Huayi one day after its establishment. The establishment and approval date of Dongyang Meila was September 2, 2015. When it was acquired, it was only more than two months after its establishment.

In terms of assets, according to Huayi Brothers 'acquisition announcement, Dongyang Haohao's net assets are only 10 million yuan; Dongyang Meila's total assets as of November 19, 2015 were 13,600 yuan, total liabilities were 19,100 yuan, and owner's equity was-55 million yuan.

Similar to the above-mentioned Zhejiang Changsheng, Huayi Brothers also used the original shareholder commitment and gambling agreement to judge the profitability of the two companies. Huayi Brothers 'performance goal for Dongyang Haohao is to achieve an audited post-tax net profit for that year of no less than RMB 90 million in 2015. Starting from 2016, the performance goal for each year is the net profit promised in the previous year. The target will increase by 15% on the basis of the target. If the bet fails, it will be paid to Huayi Pictures in cash that year. Huayi Brothers 'performance target for Dongyang Meila is a net profit of 100 million yuan for the year, and the annual net profit growth thereafter will be 15%.

However, according to Huayi Brothers 'financial report for the first half of 2016, Dongyang Haohao's revenue was 94.2836 million yuan and net profit was 34.1603 million yuan; Dongyang Meila's revenue was 50.9393 million yuan and net profit was 35.356 million yuan. There is still a certain distance from the amount of half of the net profit promised in the above-mentioned gambling agreement.

Among these three mergers and acquisitions, the most criticized by the market is the excessive valuation. The valuation of Huayi's acquisition of Mingxing Company is calculated using the income method, which is based on the company's expected after-tax net profit for the year multiplied by the premium rate. It is based on the annual growth rate of net profit and the failure of the bet is made up with cash. Guarantee.

According to public information, the premium rate when Zhejiang Changsheng was acquired in 2013 was 12 times, and when two companies were acquired in 2015, the premium rate was 15 times. However, if the owner's equity on the date of the acquisition target is used to calculate, Zhejiang Changsheng will premium 36 times. Dongyang Haohao's premium exceeded a hundred times, and Dongyang Meila was in negative assets when it was acquired.

In addition, when Huayi acquired the two companies in 2015, it bet on an annual net profit growth of 15%. Although Huayi did not disclose the agreement requirements for the annual growth rate of Zhejiang Changsheng's net profit in 2013, according to published financial data, Zhejiang Changsheng's average net profit growth rate from 2013 to 2015 was around 10%. The original agreed growth ratio should be close to this figure.

This kind of commitment plan may seem fair but has hidden secrets. Some estimates say that in the most extreme case, assuming that Dongyang Meila's profits are zero for five years, the total cash performance that needs to be compensated for in five years is 675 million yuan. The transferor has already received 1.05 billion yuan in cash.

In response to doubts about the logic of high valuation

, Huayi Brothers has repeatedly stated that such acquisitions of star companies are based on comprehensive consideration of the expected net profit of the year and the brand effect of the star, and are priced through negotiation between both parties based on normal commercial transaction conditions and market prices. Fair.

However, Zhao Shuguang, associate professor at the School of Journalism and Communication at Tsinghua University and senior scholar in media economics, told reporters that using his promised performance as a benchmark and comparing the industry's price-to-earnings ratio, the valuation is not very reasonable. "The valuation of star companies is very difficult. In fact, it is an acquisition of star individuals. This is largely not a valuation of the company, but a valuation of individuals. This kind of valuation is relatively dangerous for listed companies. If it is promoted, the controller of a listed company can collude with the company established by stars." Zhao Shuguang said.

Yue Guangpeng, associate professor at the School of Literature, Journalism and Communication at Minzu University of China, told reporters that the premium for these star companies acquired by Huayi must have a bubble.

"Stars and star companies are different. Stars have influence on the box office of a single movie, but star companies are long-term investments and require calmness and rationality. We should return to rationality and limit a range for star companies 'valuation to prevent some abnormal acquisitions." Yue Guangpeng said.

He Li, fund manager of Jingfu Express Investment Management Co., Ltd., said more bluntly that it is not difficult to see from this gambling agreement that this kind of behavior of a company that acquires stars is actually "bundling artists."

Analyst Huang Guofeng also agrees with this judgment. Nowadays, stars are included in their strategies by many film and television entertainment companies. Especially for Huayi,"big productions, big celebrities, and big IP", star resources are particularly important. If a star becomes a shareholder or is tied to the company, some of his own resources will also be used in later projects. This is also some potential valuations after the acquisition.

When Ge You left Huayi, Huayi's stock fell continuously. After "I am Pan Jinlian", Feng Xiaogang and Huayi only have one movie date. If Feng Xiaogang leaves Huayi one day, what impact will it have? Not long ago, Feng Xiaogang appeared on the list of shareholders of Wentou Holdings, a listed company in which Yaolai participated.

Professor Zhang Huijun, dean of the Beijing Film Academy, told reporters that it is unrealistic to use capital to deeply bind stars to a certain film and television company. Because stars follow content more, it is impossible for film and television companies to tailor content for a certain star for a long time. Once an exclusive and exclusive agreement is signed, it will cause harm to personal future and film and television works.

He also reminded that if it is just to use star companies to add value to listed companies, and then gain greater benefits in the secondary market, it will eventually realize cash reduction. This "addiction and death" approach is likely to consume the potential of China's films in advance and cause harm to the film industry.

Editor: yvette