Huanrui Century's performance frequently rides a "roller coaster" and the hidden operating risks cannot be underestimated

The domestic film, television and entertainment industry has developed greatly in recent years, and listed film and television companies have always been "hot cakes" in the eyes of investors. But recently, a listed film and television company called Huanrui Century has encountered some trouble.

Original title: Film and television small fresh meat "harvester" Huanrui Century's performance frequently rides a "roller coaster". How many secret

achievements are hidden and the instability of cash flow have added a lot of uncertainty to Huanrui Century's control of profits, liabilities, etc. The company will also bear a lot of pressure in its operations, and the hidden operating risks cannot be underestimated.

Due to the great development of the domestic film, television and entertainment industry in recent years, listed film and television companies have always been "hot cakes" in the eyes of investors. But recently, a listed film and television company called Huanrui Century has encountered some trouble.

The film and television company, which has popular "little fresh meat" actor Li Yifeng and Yang Zi, who is well known to the audience for starring in the sitcom "Family with Children", has not only been questioned by the China Securities Regulatory Commission recently, but also issued an announcement saying that it is expected to lose 30 million yuan in the first half of 2017.

What happened to Huanrui Century?

The ups and downs of performance

Huanrui Century has struggled hard in the past two years. In November 2016, it just completed a major asset reorganization and divested its original main communications business and transformed it into the film and television industry. On April 7 this year, it announced the 2016 annual report after the transformation, saying that the company's operating income in 2016 reached 739 million yuan, a year-on-year increase of 55%, and net profit reached 265 million yuan, a year-on-year increase of 54%. In this way, Huanrui Century's transformation seems to be quite effective.

However, the good times did not last long. On April 28, the company disclosed its first quarter report for 2017. In just three months, the company turned from excellent performance to a net profit loss. The report stated that in the first quarter of 2017, the company's operating income was 31.11 million yuan. Although it increased by 367% year-on-year, the net profit lost 28.95 million yuan. On the evening of July 13, the company released another semi-annual performance forecast for 2017, saying that from January to June this year, Huanrui Century is expected to lose more than 30 million yuan, which has disappeared for a while.

Why are there so many fluctuations in a short period of time? The company explained that during the reporting period, operating income decreased compared with the same period last year, and costs and expenses were large. For example, Huanrui Marketing was named and specially broadcast in the 2017 Weekly Theater of Beijing Satellite TV and Anhui Satellite TV, which increased the amount of advertising costs., coupled with the superposition of previous losses.

However, not only did the first three months of 2017 fluctuate greatly, but if you look closely at Huanrui Century's four quarters in 2016, you can also find that its performance and cash flow in each quarter have been fluctuating.

Huanrui Century's revenue in the four quarters of 2016 was 6.65 million yuan, 246 million yuan, 76.54 million yuan, and 409 million yuan respectively, and its net profit was-12.11 million yuan, 59.46 million yuan, 33.62 million yuan, and 184 million yuan respectively. However, from the figures, the company's revenue and net profit are like riding a roller coaster.

In addition, cash flow during the same period was also very unstable. Data shows that in the four quarters of 2016, Huanrui Century's net cash flow was: -66.32 million yuan, 45.23 million yuan,-107 million yuan and 168 million yuan respectively.

In the first quarter of this year, it dropped again to-662 million yuan. Huanrui Century's ups and downs have also made investors nervous. In the past year, its share price has been falling, from 15.8 yuan in July last year to 9.5 yuan now.

Although some industry insiders say that large fluctuations are one of the characteristics of the film and television industry, because the production and income of film and television dramas are certain random. However, this also shows to a certain extent that even in the film and television industry, Huanrui Century's ability to control profits and cash flow still needs to be strengthened, and the hidden business risks cannot be underestimated.

The China Securities Regulatory Commission's detailed inquiries into

various aspects of Huanrui Century's instability attracted inquiries from the China Securities Regulatory Commission, and the questions were very detailed and clear. For example, sensitive and critical questions in the annual report such as details of accounts receivable, details of the top 5 operating income, details of inventory, and details of the top 5 customers were all asked. This also caused some panic among listed film and television companies. Because of the special nature of the film and television industry, in the usual statements of previous annual reports, in order to conceal sensitive information such as the selling prices of some film and television works, these data have always been handled in a general manner. For example, in its 2016 annual report, Enlight Media used the total revenue of the top five film and television dramas to be generally stated as a statement.

However, since the China Securities Regulatory Commission has made clear inquiries, Huanrui Century has to further disclose some data.

For example, the revenue situation of the top 5 film and television dramas in revenue, the detailed composition of costs (ranging from screenwriter fees to filming and production fees), future film and television drama shooting plans, specific methods for revenue recognition and cost carry-forward, the number one The specific unit of the customer and the proportion of the amount sold to it in the past three years and the reasons for the large change.

The disclosure of these data has to a certain extent shattered the mystery of the film and television drama industry, and also confirmed the previous speculations of some industry insiders about its drama revenue. For example, among the top 5 revenue announcements announced by Huanrui Century, the TV series "Qing Yun Zhi" brought in revenue of 292 million yuan, and "Tang Dynasty Glory" brought in revenue of 285 million yuan, which is similar to the previously rumored revenue.

In addition, under pressure from the China Securities Regulatory Commission, Huanrui Century disclosed that its largest customer is Tencent. According to the annual report, the company's sales to Tencent in 2016 were 368 million yuan, accounting for 47% of the total annual sales. In 2014 and 2015, this ratio was 14% and zero respectively.

This also explains to a certain extent why the company's performance fluctuates greatly and there is too much uncertainty in its reliance on major customers. It is also worth noting that Huanrui Century also disclosed various costs. In 2016, its labor cost for on-site personnel including actors, directors, producers, props, art, etc. was approximately 122 million yuan, but the cost of shooting and production fees was as high as 142 million yuan, accounting for 50%, and only 14% in 2015. It seems that the quality of shooting and production has gradually become the focus of attention, which is a good phenomenon for the improvement of film and television works.

From the information disclosed by Huanrui Century on the settlement status of units and customers in arrears of accounts receivable, and the reasons why the unit's accounts receivable exceeded one year, it can also be seen that for Huanrui Century, the long collection cycle is a big factor affecting its cash flow and performance.

Looking closely at the accounts receivable and accounts received in advance in its financial statements, Huanrui Century's bills receivable and accounts receivable at the end of 2016 totaled 771 million yuan, an increase of 142 million yuan over the previous year; In 2016, the amount received in advance was 32.49 million yuan, a decrease of 42.22 million yuan from last year. That is to say, in 2016, Huanrui Century not only increased the amount of accounts not collected, but also decreased the amount of accounts received in advance.

In addition, Huanrui Century's 2016 annual report also disclosed that accounts receivable within one year reached 564 million yuan, while accounts aged "1 to 2 years" reached 205 million yuan, which means that compared with the annual revenue of 739 million yuan, most of the company's operating income forms accounts receivable. To put it bluntly, the proportion of credit sales is obviously too high. At the same time, the company's accounts receivable of more than one year have not yet been recovered. It also takes up more of the company's operating capital, which is not conducive to the development of the company and increases the risk of bad debts of the company.

The companies with which it does business appear on the list of accounts receivable disclosed by Huanrui Century at the request of the China Securities Regulatory Commission, including Enlight Media, Hunan Satellite TV, etc., which also fully reflects the industry characteristics of the film and television industry's long payment cycle.

In any case, the China Securities Regulatory Commission's detailed inquiry into Huanrui Century is very beneficial to investors. It not only provides investors with more reference, but also allows advance risk management and control in the volatile film and television industry to a certain extent.

Editor: Mary