The Stock Exchange defies the giant of the theater Wanda films a huge depreciation

Wanda Film Holding, the largest Chinese cinema operator controlled by billionaire Wang Jianlin, was once again questioned by the stock market about its asset impairment and liquidity after posting its first annual loss in five years as a listed company .

Cinematographic activity was hampered by the Covid-19 pandemic while cinemas were closed and production stopped.

In a letter of inquiry into the company’s financial reports before the pandemic in 2019, the Shenzhen Stock Exchange asked Wanda to disclose information before May 18 on a supply of 5.9 billion yuan ($ 834 million) ) for asset impairment and if the company faced limited liquidity. The exchange also told the theater chain to explain why its statements about box office receipts were inconsistent.

On April 21, Wanda Film declared a net loss for 2019 of 4.7 billion yuan on sales of 15.4 billion yuan. The company attributed the loss to a provision for goodwill impairment of 5.6 billion yuan, including 2.34 billion yuan of impairment of movie theater assets it acquired between 2014 and 2018.

In its annual report, Wanda Film, which operates more than 600 cinemas across the country, said its box office revenue increased 3.06% in 2019 to 9.86 billion yuan and that visits from audience had increased 1.57% to 230 million. But in a separate statement revealing the asset depreciation, the company said the depreciation reflected a sharp drop in audience visits and box office receipts at the cinemas it had acquired.

The stock market asked why Wanda Film had not recorded an asset impairment earlier and told the company to disclose how it calculated the impairment and to justify the large amount.

It was the second time that the stock market had questioned the recognition of the depreciation of theater chain assets. On January 20, after the company issued a loss warning, the exchange requested information about the significant amount of the asset impairment disclosed.

Wanda Film responded at the time that the cinemas it had acquired and its advertising business had suffered losses as the industry reached a turning point. The company’s vice president, Zeng Maojun, told Caixin that the company had chosen a unique and significant write-down because the progressive write-offs had had a worse impact on the market.

Despite losses in its cinemas, Wanda Film did not slow down its investments in film and television production in 2019. The company increased prepayments for these investments and for the purchase of studio equipment from 43% to 1, 2 billion yuan. During this time, the company did not take any depreciation charges on its products in stock, including films and television series.

In 2019, Wanda Film had 2.15 billion yuan in stock, an increase of 72% over the previous year. The company said in its annual report that the increase was mainly due to an increase in production costs.

The exchange asked the company to explain in detail the increase in stocks, including the content of films and TV series, the amounts of investment and the expected release dates.

The exchange also asked if the company had enough cash to pay off its debt and continue operations. At the end of 2019, the company had monetary capital of 2.46 billion yuan and 3.46 billion yuan of short-term debt, including about 1 billion yuan of debt in less than a year.

Wanda Film announced a 250% drop in profits and a 70% drop in year-over-year revenues for the first quarter amidst the foreclosure of China during the Covid-19 pandemic. All theaters in Wandas have been closed since January pending a green light to reopen the regulators.

The company said it plans to raise up to 4.35 billion yuan by issuing more shares to pay down debt and build new theaters.

Contact the journalist Denise Jia ([email protected]) and editor Bob Simison ([email protected])