Kuke Reports First Half of 2023 Unaudited Financial Results
- Increase in smart music learning solutions segment revenue by 10.1%
- Gross profit increased to RMB42.0 million from RMB29.1 million in the same period of 2022
- Operating expenses decreased by 50.9%
- Total revenue decreased by 22.8% compared to the same period in 2022
- Total live music events segment revenue decreased by 87.1%
- Smart music learning solutions subscription revenue from kindergarten students decreased by 97.5%
Insights
Reviewing the financial highlights from Kuke Music Holding Limited's interim report, a significant recovery is observed. A transition from a net loss to net profit indicates a positive turnaround, which is particularly remarkable given the 22.8% decrease in total revenue. This suggests effective cost management strategies, as evidenced by the 50.9% reduction in total operating expenses and the improvement in gross margin from 36.1% to 67.6%. The shift towards higher-margin businesses, such as classical music licensing with an 87.1% gross margin, is a strategic move that appears to be paying off.
The increase in licensing revenue due to a large contract renewal is a positive development, highlighting the company's ability to secure valuable agreements in its core business. However, the decrease in subscription revenue, particularly from hardware sales, could signal challenges in product diversification or market saturation. Investors should monitor the company's ability to sustain licensing revenue growth and mitigate subscription revenue declines.
The strategic contraction of the private kindergarten business and the live music events segment reflect a focused approach to streamline operations. However, the drastic revenue decrease in these areas could point to a significant shift in the company's business model, which may concern investors seeking stability. The successful management of this transition, coupled with the implementation of further cost-saving measures, will be crucial for Kuke's long-term financial health.
The expansion of Kuke's content library, with an additional 73,000 tracks of classical music and an increase in long-form video offerings, demonstrates the company's commitment to enhancing its competitive edge in the classical music service platform market. This move aligns with the growing global trend of streaming services expanding their content offerings to attract and retain subscribers. As the industry sees an increase in demand for diverse and high-quality content, Kuke's strategy to enrich its classical music library could potentially capture more market share and drive subscriber growth.
However, the decrease in total revenue and the strategic contraction of certain business segments raise questions about the broader market demand for Kuke's offerings. The company's ability to navigate the macroeconomic environment and adapt to changing consumer preferences will be a determining factor in its future success. With the addition of a new CFO with extensive financial management experience, the company may benefit from fresh perspectives on financial strategy and risk management, which could positively influence its market position.
The report suggests that Kuke Music Holding Limited is navigating a complex macroeconomic landscape. The overall decrease in revenue amidst economic recovery indicates that the company may be facing sector-specific challenges or broader consumer behavior shifts. The pivot from physical asset-based operations towards music copyright management is a strategic response to such external pressures, possibly reflecting a broader industry trend towards digital and intellectual property-centric business models.
The company's resilience, as evidenced by its return to profitability, is commendable in this context. However, the reliance on a few significant contracts for revenue generation could expose Kuke to heightened risks should these contracts not be renewed in the future. Diversification of revenue streams and careful management of the company's cost structure will be essential in maintaining financial stability.
From an economic standpoint, the company's decision to compress operating expenses and focus on high-margin segments during a period of economic recovery is a prudent move. However, this approach must be balanced with investments in growth areas to ensure long-term sustainability. The acquisition of KOLO.Market suggests a strategic expansion into Web 3.0, which could open new avenues for revenue and innovation in the classical music domain.
NEW YORK, Dec. 27, 2023 (GLOBE NEWSWIRE) -- Kuke Music Holding Limited (“Kuke” or the “Company”) (NYSE: KUKE), a leading classical music service platform in China, today announced its unaudited interim financial results for the six months ended June 30, 2023.
First Half of 2023 Financial Highlights
- Total revenue was RMB62.1million (US
$8.6 million ), compared to RMB80.5 million in the same period of 2022.
- Total gross profit was RMB42.0 million (US
$5.8 million ), compared to RMB29.1 million in the same period of 2022.
- Net profit was RMB9.0 million (US
$1.2 million ), compared to net loss of RMB31.6 million in the same period of 2022.
- Non-IFRS net profit [1] was RMB21.1 million (US
$2.9 million ), compared to a Non-IFRS net loss of RMB0.2 million in the same period of 2022.
First Half of 2023 Operational Highlight
- During the first two quarters of 2023, the Company added an additional nearly 73,000 tracks of classical music to its content offering. The Company’s copyrighted classical music content now includes over 3.06 million music tracks as of June 30, 2023. This is comprised of more than 2.17 million tracks of classical music, more than 890 thousand tracks of jazz, world, folk and other genres of music, as well as over 2,900 video titles, more than 4200 spoken content albums and more than 5,750 volumes of sheet music. These contents span across more than 410 thousand musicians, more than 2 thousand musical instruments and more than 200 countries and regions.
- In addition, the company has added more long-form videos including opera, live concert, ballet, documentary, master class, international competition, live streaming to further enrich its classical music library and capture the growth opportunities in the market.
- Regarding the subscription business segment, our aggregated institutional subscribers increased to 863 as of the end of the second quarter of 2023 from 846 as of the end of 2022 across China.
Mr. He Yu, the Chief Executive Officer of Kuke, stated, “First and foremost, as the economic climate gradually improves, we are steadily overcoming past challenges. In response to these shifts, we have strategically restructured our business, moving from a reliance on physical asset-based operations such as childhood musical education to a greater focus on music copyright management. At the same time, we compressed the operating expenses. In the first six months of 2023, we achieved a total revenue of RMB62.1 million and a net profit of 9.0 million RMB.
Looking ahead, despite the challenges presented by the broader macroeconomic environment, we remain committed to enhancing our portfolio of music rights-related products and services. Simultaneously, we are implementing further cost-saving measures to achieve an even more efficient cost structure. These steps are crucial for our continuous growth and maintaining resilience in an ever-changing market environment.”
First Half of 2023 Financial Results
Total Revenue
Total revenue decreased by
- Total licensing and subscription segment revenue increased by
7.5% to RMB41.3million (US$5.7 million ) from RMB38.4 million in the same period of 2022. Specifically, licensing revenue increased by11.2% to RMB33.5 million (US$4.6 million ) from RMB30.1 million in the same period of 2022, due to renew a large contract. Subscription revenue decreased to RMB7.8 million (US$1.1 million ) from RMB8.3 million in the same period of 2022, mainly due to the decrease in sales of hardware products.
- Total smart music learning solutions segment revenue increased by
10.1% to RMB17.5 million (US$2.4 million ) from RMB15.9 million in the same period of 2022. Specifically, smart music learning solutions sales revenue from public schools and commercial clients increased by228.0% to RMB17.2 million (US$2.4 million ) from RMB5.3 million in the same period of 2022, mainly due to the increased sales to commercial clients. Smart music learning solutions subscription revenue from kindergarten students decreased by97.5% to RMB0.3 million (US$0.0 million ) from RMB10.6 million in the same period of 2022, due to the strategic contraction of our private kindergarten business starting from 2022.
- Total live music events segment revenue decreased to RMB3.3 million (US
$0.5 million ) from RMB25.7 million in the same period of 2022, due to the strategic contraction.
Gross Profit and Gross Margin
Gross profit in the first half of 2023 increased to RMB42.0 million (US
- The gross margin of classical music licensing and subscription segment was
70.7% , compared to71.0% in the same period of 2022. Specifically, the gross margin of classical music licensing increased to87.1% from79.4% in the same period of 2022. The gross margin of classical music subscription decreased to0.4% from40.7% in the same period of 2022, due to the higher linear amortization costs of royalty payments.
- The gross margin of smart music learning solutions segment was
73.1% , compared to (4.1) % in the same period of 2022. Specifically, the gross margin of smart music learning solution sales increased to79.0% from41.4% in the same period of 2022, due to higher-margin business representing a larger percentage of our revenue mix compared to the previous year. The gross margin of smart music learning solution subscriptions from private kindergarten students was (310.3) %, compared to (26.6) % in the same period of 2022 due to business strategy contraction revenues are falling faster than costs are falling.
Operating Expenses
Total operating expenses in the first half of 2023 decreased by
- Selling and distribution expenses in the first half of 2023 decreased by
2.9% to RMB13.9 million (US$2.0 million ) from RMB14.0 million in the same period of 2022. The increase was mainly due to compressed related operating expenses.
- Administrative expenses in the first half of 2023 decreased by
60.2% to RMB17.5 million (US$6.1 million ) from RMB44.0 million in the same period of 2022, due to reduced management costs.
- Impairment losses on financial assets in the second quarter of 2023 decreased by
79.6% to RMB1.8 million (US$0.2 million ) from RMB8.8 million in the same period of 2022. This was mainly due to the collection of accounts receivable having improved.
Operating Profit
Operating profit in the first half of 2023 was RMB11.6 million (US
Net Profit for the Period
Net profit was RMB9.0 million (US
Non-IFRS Net Profit for the Period
Non-IFRS net profit was RMB21.1 million (US
Net Profit per ADS and Non-IFRS Net Profit per ADS
Basic and diluted net profit per American Depositary Share (“ADS”) were both RMB0.25 (US
Balance Sheet
As of June 30, 2023, cash and cash equivalents were RMB3.0 million (US
Recent Developments
Appointment of New CFO
Mr. Li Li, aged 41, joined the Company in October 2023 as Chief Financial Officer. Mr. Li has over 20 years of financial management and audit working experience. Mr. Li had worked as audit and risk advisory manager for several CPA firms for more than 10 years, such as Deloitte, EY and Grant Thornton. Since then, he served as Finance Director for Secoo and Yuanzhi Technology Group. Mr. Li received a bachelor’s degree in accounting from Zhongnan University of Shanghai for Science and Technology and a bachelor’s degree in economics from Wuhan University in 2003.
Closing of KOLO Purchase
On August 25, 2023, the Company completed the acquisition of a
About Kuke Music Holding Limited
Kuke is a leading classical music service platform in China encompassing the entire value chain from content provision to music learning services. By collaborating with its strategic global business partner Naxos, the largest independent classical music content provider in the world, the foundation of Kuke’s extensive classical music content library is its unparalleled access to more than 900 top-tier labels and record companies. Leveraging its market leadership in international copyrighted classical music content, Kuke provides highly scalable classical music licensing services to various online music platforms and classical music subscription services to over 800 universities, libraries, and other institutions across China. In addition, it has hosted the Beijing Music Festival (“BMF”), the most renowned classical music festival in China.
For more information about Kuke, please visit https://ir.kuke.com/ The Company routinely provides important updates on its website.
Exchange Rate Information
This announcement contains translations of certain RMB amounts into U.S. dollars (“US$”) at specified rates solely for the convenience of the reader. Unless otherwise stated, all translations from RMB to US$ were made at the rate of RMB7.2513 to US
Forward-looking Statements
This announcement contains forward looking statements. These statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as “will,” “expects,” “anticipates,” “aims,” “future,” “intends,” “plans,” “believes,” “estimates,” “confident,” “potential,” “continue” or other similar expressions. Statements that are not historical facts, including but not limited to statements about Kuke’s beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including those in Kuke’s registration statement filed with the Securities and Exchange Commission. Further information regarding these and other risks is included in Kuke’s filings with the SEC. All information provided in this press release is as of the date of this press release, and Kuke does not undertakes any obligation to update any forward-looking statement, except as required under applicable law.
Use of Non-IFRS Financial Measures
The Company uses non-IFRS profit for the period, which is a non-IFRS financial measure, in evaluating its operating results and for financial and operational decision-making purposes. The Company believes that non-IFRS profit helps management to analyze trends in the Company’s business that could otherwise be distorted by the effect of certain expenses that the Company includes in its profit or loss for the period.
Non-IFRS profit for the period should not be considered in isolation or construed as an alternative to net profit for the period or any other measure of performance or as an indicator of its operating performance. Investors are encouraged to review non-IFRS profit for the period and the corresponding footnote explaining the calculation of such measure together. Non-IFRS profit for the period presented here may be different to similarly titled measures presented by other companies. Other companies may calculate similarly titled measures differently and should not be compared to the measure adopted by the Company’s data. The Company encourages investors and others to review its financial information in its entirety and not rely on a single financial measure.
Non-IFRS profit for the period represents profit or loss for the year excluding the combined effect of amortization and depreciation, share-based compensation, impairment losses on financial assets, net, and the corresponding income tax effects of these non-IFRS adjustments.
Investor and Media Contact:
Kuke Music Holding Limited
Email: ir@kuke.com
| [1] | Non-IFRS profit/loss of the Company was calculated after excluding the combined effect of amortization and depreciation, share-based compensation, impairment losses on financial assets, net, and the corresponding income tax effects of these non-IFRS adjustments. |
FAQ
What are the financial results reported by Kuke Music Holding Limited for the first half of 2023?
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