(Yicai Global) Aug. 12 -- China's largest e-book platform China Literature posted a net loss of CNY3.31 billion (USD476 million) in the first half from its subsidiary New Classics Media’s goodwill impairment, the company said in a statement yesterday. This is the company's first loss since its listing in November 2017.

New Classics Media had revenue of CNY130 million (USD1.65 million) and a net loss of CNY97.1 million in the first half. The firm’s recoverable amount of the goodwill and trademark rights was lower than its book value, and the provisions for goodwill and trademark rights impairment were CNY4.016 billion and CNY389 million, respectively, China Literature said. It predicted that New Classics Media’s performance will be lower than expected this year.

China Literature's stock [HKG:0772] closed 9.29 percent down at HKD45.90 (USD5.92).

China Literature bought New Classics Media for CNY15.5 billion in installments in 2018 and it pledged at that time to realize net profits of at least CNY500 million, CNY700 million and CNY900 million, respectively, from 2018 to this year, with the consideration China Literature paid to it to be deducted in proportion to the shortfall if these targets went unmet. New Classics Media did not fulfill its performance commitments in 2018 and last year.

China Literature reeled in total revenue of CNY3.26 billion in the first half in a 9.7 percent rise over the year before.

The company’s free reading movement failed to take off as expected in the first half, it later said on its WeChat account. The free reading app Feidu released last year did not match the company’s overall performance as a leader in the online literature sector. Also, China Literature tried to systematically adapt its leading intellectual properties into TV series and movies by integrating New Classics Media and its leading domestic film and television production capabilities.

The two firms’ integration has been a far from complete success and has not progressed as expected since China Literature lacks a team familiar with both the online literature business and film and television production.

Goodwill impairment happens when a company pays more than book value to acquire an asset whose worth then declines. The difference between the amount paid for the asset and its book value is known as goodwill. The company lowers the book value of the goodwill if it is thus impaired, but does not amortize or otherwise depreciate the goodwill as it would a regular asset.

Editor: Ben Armour