Kuke Reports Second Quarter 2022 Unaudited Financial Results

BEIJING, Aug. 19, 2022 /PRNewswire/ -- Kuke Music Holding Limited ("Kuke" or the "Company") (NYSE: KUKE), a leading classical music service platform, today announced its unaudited financial results for the second quarter ended June 30, 2022.

Second Quarter 2022 Financial Highlights

• Total revenue was RMB54.4 million (US$8.1 million), compared to RMB84.1 million in the same period of 2021.
• Total gross profit was RMB28.9 million (US$4.3 million), compared to RMB49.7 million in the same period of 2021.
• Net profit was RMB3.4 million (US$0.5 million), compared to net loss of RMB11.4 million in the same period of 2021.
• Non-IFRS net profit^[1] was RMB16.9 million (US$2.5 million), compared to a Non-IFRS net profit of RMB18.3 million in the same period of 2021.

Second Quarter 2022 Business Developments

• During the second quarter of 2022, the Company added nearly 4,000 tracks of traditional classical music. The Company's copyrighted classical music content included over 2.9 million music tracks as of June 30, 2022. This is comprised of more than 2 million tracks of traditional classical music, more than 360 thousand tracks of jazz, world, folk and other genres of music, as well as over 1000 video titles, more than 470 thousand spoken content tracks and more than 5000 volumes of sheet music. These contents span across more than 95 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.
• With regard to the subscription business segment, the aggregated institutional subscribers increased to 812 from 809 across China.
• The 25^th Beijing Music Festival ("BMF") will commence in the month of September, 2022

Mr. He Yu, Chief Executive Officer of Kuke, commented, "Despite, firstly, the negative impact of local COVID-19 resurgence and subsequent lockdowns in certain cities in China, including where our clients are based, secondly, the smart music learning business is in the process of transiting from private kindergarten subscription model to public school model, which has impacted our revenues and revenue mix, we still recorded a total of revenues of RMB54.4 million during the second quarter of 2022, and achieved IFRS-based positive net income of RMB3.4 million.

Going forward, in view of the challenges presented by macroeconomic environment during the second quarter, we will continue to focus on strengthening our existing product and service portfolio, and executing cost saving initiatives to help us achieve a more optimized cost structure going forward."

Second Quarter 2022 Financial Results

Total Revenue

Total revenue decreased by 35.2% to RMB54.4 million (US$8.1 million) from RMB 84.1 million in the same period of 2021.

• Total licensing and subscription segment revenue decreased by 14.2% to RMB33.9 million (US$5 million) from RMB39.6 million in the same period of 2021. Specifically, licensing revenue decreased by 15% to RMB29.0 million (US$4.3 million) from RMB34.2 million in the same period of 2021, due to the adverse impact from the COVID-19. Subscription revenue decreased to RMB4.9 million (US$0.7 million) from RMB5.4 million in the same period of 2021, mainly due to the decrease in sales of hardware products.
• Total smart music learning solutions segment revenue decreased by 59% to RMB8.5 million (US$1.3 million) from RMB20.7 million in the same period of 2021. Specifically, smart music learning solutions sales revenue from public schools and commercial clients decreased by 71.5% to RMB4.1 million (US$0.6 million) from RMB14.4 million in the same period of 2021, mainly due to the decreased sales to commercial clients. Smart music learning solutions subscription revenue from kindergarten students decreased by 30.1% to RMB4.4 million (US$0.7 million) from RMB6.2 million in the same period of 2021, due to the strategic contraction of our private kindergarten business starting from 2022.
• Total live music events segment revenue decreased to RMB11.9 million (US$1.8 million) from RMB23.8 million in the same period of 2021, due to the decreased revenues of live music events service due to the adverse impact by COVID-19.
• Total one-time disposal of obsolete inventory revenue was RMB0.1 million, as a result of the strategic contraction of our private kindergarten business.

Gross Profit and Gross Margin

Gross profit in the second quarter of 2022 decreased to RMB28.9 million (US$4.3 million) from RMB49.7 million in the same period of 2021, which was largely attributable to the decreased revenues. Gross margin was 53.1%, compared to 59.1% in the same period of 2021.

• The gross margin of classical music licensing and subscription segment was 81.7%, compared to 86% in the same period of 2021. Specifically, the gross margin of classical music licensing slightly improved to 89.1% from 87.4% in the same period of 2021. The gross margin of classical music subscription decreased to 37.6% from 77.4% in the same period of 2021, due to the higher linear amortization costs of royalty payments.
• The gross margin of smart music learning solutions segment was (5.0)%, compared to 63.8% in the same period of 2021. Specifically, the gross margin of smart music learning solution sales decreased to 43.0% from 89.0% in the same period of 2021, due to lower-margin business representing a larger percentage of our revenue mix compared to the prior quarter. The gross margin of smart music learning solution subscriptions from private kindergarten students was (50.3)%, compared to 5.5% in the same period of 2021 due to higher depreciation costs as a result of the strategic contraction of the private kindergarten subscription business.
• The gross margin of live music events segment increased to 15.9% compared to 10.4% in the same period of 2021.
• The gross margin of one-time disposal of obsolete inventory was (287.7)%, due to the strategic contraction of the private kindergarten business.

Operating Expenses

Total operating expenses in the second quarter of 2022 decreased by 53.2% to RMB27.8 million (US$4.2 million) from RMB59.5 million in the same period of 2021.   

• Selling and distribution expenses in the second quarter of 2022 decreased by 53.9% to RMB6.0 million (US$0.9 million) from RMB13.0 million in the same period of 2021. The decrease was mainly due to decreased expenses in relation to kindergarten business.
• Administrative expenses in the second quarter of 2022 decreased by 48.5% to RMB19.3 million (US$2.9 million) from RMB37.5 million in the same period of 2021, due to the deceased stock-based compensation costs that incurred in the second quarter of 2021.
• Impairment losses on financial assets in the second quarter of 2022 decreased by 75.5% to RMB2.2 million from RMB9million in the same period of 2021. This was mainly due to increased impairment losses on accounts receivable.

Operating Profit

Operating profit in the second quarter of 2022 was RMB4.4 million (US$0.65 million), compared to operating loss of RMB8.4 million in the same period of 2021.

Net Profit for the Period

Net profit was RMB3.4 million (US$0.5 million), compared to net loss of RMB11.4 million in the same period of 2021.

Non-IFRS Net Profit for the Period 

Non-IFRS net profit was RMB16.9 million (US$2.5 million), compared to non-IFRS net profit of RMB18.3 million in the same period of 2021.

Net Profit per ADS and Non-IFRS Net Profit per ADS

Basic and diluted net profit per American Depositary Share ("ADS") were both RMB0.13 (US$0.02) in the second quarter of 2022, compared to basic and diluted net loss per ADS of RMB0.42 in the same period of 2021. Basic and diluted non-IFRS net profit per ADS were both RMB0.57 (US$0.09) in the second quarter of 2022, compared to basic and diluted non-IFRS net profit per ADS of RMB0.62 in the same period of 2021. Each ADS represents one Class A ordinary share of the Company.

Balance Sheet

As of June 30, 2022, cash and cash equivalents were RMB18.8 million (US$2.8 million). 

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 24 consecutive years. Through KUKEY, the Company's proprietary AI music learning system, Kuke aims to democratize music learning via technological innovation, bring fascinating music content and professional music techniques to more students, and continuously improve the efficiency and penetration of music learning in China.

For more information about Kuke, please visit https://ir.kuke.com/ 

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 RMB6.6981 to US$1.00, the noon buying rate in effect on June 30, 2022, in the H.10 statistical release of the Federal Reserve Board. The Company makes no representation that the RMB or US$ amounts referred could be converted into US$ or RMB, as the case may be, at any particular rate or at all. For analytical presentation, all percentages are calculated using the numbers presented in the financial statements contained in this earnings release.

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 undertakes no 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.

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