NetDragon Announces Fourth Quarter and Fiscal Year 2017 Financial Results
NetDragon Announces Fourth Quarter and Fiscal Year 2017 Financial Results
Returned to Non-GAAP Full Year Profitability
HONG KONG, March 22, 2018 /PRNewswire/ -- NetDragon Websoft Holdings Limited ('NetDragon' or the 'Company'; Hong Kong Stock Code: 777), a global leader in building internet communities, today announced its financial results for the fourth quarter and Fiscal Year 2017. NetDragon's management team will hold a conference call and webcast at 6:30pm Hong Kong time on 22 March 2018 to discuss the results and recent business developments.
Mr. Dejian Liu, Chairman of NetDragon, commented: "We are excited that NetDragon's endeavour in building online communities has started to bear fruits in 2017. Our full year results spoke for itself as not only did we return to non-GAAP profitability, we also experienced substantially improved operating cash flow as it reversed to positive RMB336.9 million from negative RMB270.3 million last year, supported by the robust performance in both gaming and education businesses. Our gaming business had a record year as its revenue increased by 38.2% year-over-year to a historical high RMB1,672.9 million. Mobile games were the major growth driver, with revenue increasing 92.2% year-over-year, as the mobile versions of our two flagship IPs, Eudemons Online and Heroes Evolved, were well-received by gamers during the year."
"We are also pleased by the remarkable growth of our education business. Our education business recorded revenue of RMB2,105.3 million for the year, up 37.9% year-over-year. In overseas markets, our revenue increased by 32.0% year-over-year to RMB1,775.8 million on the back of solid performance in both the US and emerging markets as Promethean further solidified its global market leading position(1) in K12 interactive classroom technologies. In China, our revenue surged by 82.2% year-over-year to RMB329.5 million as we scaled quickly across major provinces and cities. On the user front, the installed base of our flagship platform 101 Education PPT in China exceeded 1.2 million as at the end of 2017, as a result of our aggressive rollout throughout the year. Looking forward, we expect to see substantial increase in our number of users as we continue to execute our strategies such that we will be one step closer to becoming the largest learning community globally."
2017 Q4 Financial Highlights
-- Revenue was RMB1,031.8 million, representing a 39.4% increase
year-over-year.
-- Revenue from the gaming business was RMB430.2 million, representing
41.7% of the Company's total revenue, registered a 25.5% increase
year-over-year.
-- Revenue from the education business was RMB575.3 million, representing
55.8% of the Company's total revenue, registered a 53.8% increase
year-over-year.
-- Gross profit was RMB561.6 million, representing a 33.4% increase
year-over-year.
-- Core segmental profit(2) from the gaming business was RMB161.9 million,
representing a 65.4% increase year-over-year.
-- Core segmental loss(2) from the education business was RMB126.3 million,
representing a 20.0% decrease year-over-year.
-- Non-GAAP operating profit(3) was RMB8.1 million, compared to non-GAAP
operating loss(3) of RMB67.2 million for the same period last year.
-- Loss attributable to owners of the Company was RMB51.7 million, compared
to loss attributable to owners of the Company of RMB94.4 million for the
same period last year.
Fiscal Year 2017 Financial Highlights
-- Revenue was RMB3,867.6 million, representing a 38.5% increase
year-over-year.
-- Revenue from the gaming business was RMB1,672.9 million, representing
43.3% of the Group's total revenue, registered a 38.2% increase
year-over-year.
-- Revenue from the education business was RMB2,105.3 million, representing
54.4% of the Group's total revenue, registered a 37.9% increase
year-over-year.
-- Gross profit was RMB2,179.8 million, representing a 37.1% increase
year-over-year.
-- Core segmental profit(2) from the games business was RMB675.1 million,
representing a 81.6% increase year-over-year.
-- Core segmental loss(2) from the education business was RMB423.3 million,
representing a 12.7% decrease year-over-year.
-- Non-GAAP operating profit(3) was RMB68.3 million, a significant
turnaround compared to non-GAAP operating loss(3) of RMB239.8 million
for last year.
-- Loss attributable to owners of the Company was RMB20.8 million, compared
to loss attributable to owners of the Company of RMB202.7 million for
last year.
-- The Board of Directors proposed a final dividend of HK$0.10 per share,
subject to approval by shareholders at the coming Annual General
Meeting.
(1) Based on report issued by
Futuresource Consulting dated 19
February 2018, incorporating actual
shipment volumes (excluding China)
of the Company.
(2) Core segmental profit (loss)
figures are derived from the
Company's reported segmental profit
(loss) figures (presented in
accordance with Hong Kong Financial
Reporting Standard 8 ("HKFRS 8") but
exclude non-core/operating, non-
recurring or unallocated items
including government grants, fair
value change and finance cost of
financial instruments and fair value
change of convertible preferred
shares.)
(3) To supplement the consolidated
results of the Company prepared in
accordance with Hong Kong Financial
Reporting Standards ("HKFRSs"), the
use of non-GAAP operating profit
(loss) measure is provided solely to
enhance the overall understanding of
the Company's current financial
performance. The non-GAAP operating
profit measure is not expressly
permitted measure under HKFRSs and
may not be comparable to similarly
titled measure for other companies.
The non-GAAP operating profit of
the Company excludes share-based
payments expense, amortisation of
intangible assets arising on
acquisition of subsidiaries,
impairment loss on available-for-
sale investment, write off of
inventories, impairment loss on
property held for trade, impairment
of property, plant and equipment and
the extraordinary provision in
relation to discontinued product.
2017 Q4 Gaming Operational Metrics
-- Monthly Average Revenue Per User ("ARPU") was approximately RMB424, a
14.9% increase year-over-year.
-- Average Concurrent Users ("ACU") were approximately 335,000, which was
flat year-over-year.
-- Peak Concurrent Users ("PCU") were approximately 762,000, a 3.0%
increase year-over-year.
-- Active Paying Accounts ("APA") were approximately 752,000, a 27.2%
increase year-over-year.
-- Monthly Active Users ("MAU") were approximately 13,321,000, a 37.8%
increase year-over-year.
Segmental Financial Highlights
2017 Q4
2017 Q4 2017 Q3 2016 Q4
------- ------- -------
(RMB '000) Gaming Education Gaming Education Gaming Education
--------- ------ --------- ------ --------- ------ ---------
Revenue 430,224 575,278 440,229 595,935 342,711 374,029
------- ------- ------- ------- ------- ------- -------
Gross Profit 400,189 148,328 409,997 168,175 317,256 101,256
------------ ------- ------- ------- ------- ------- -------
Gross Margin 93.0% 25.8% 93.1% 28.2% 92.6% 27.1%
------------ ---- ---- ---- ---- ---- ----
Core Segmental 161,946 (126,266) 179,061 (107,850) 97,898 (157,737)
Profit (Loss)(2)
---------------
Segmental
Operating
Expenses4
---------
- Research and development (124,006) (95,779) (112,645) (107,346) (107,229) (109,949)
-------------------------------- -------- ------- -------- -------- -------- --------
- Selling and marketing (49,015) (115,668) (53,838) (107,673) (44,623) (93,710)
----------------------------- ------- -------- ------- -------- ------- -------
- Administrative (73,111) (47,601) (70,675) (42,753) (73,307) (41,584)
---------------------- ------- ------- ------- ------- ------- -------
Full Year 2017
FY2017 FY2016 Variance
------ ------ --------
(RMB '000) Gaming Education Gaming Education Gaming Education
--------- ------ --------- ------ --------- ------ ---------
Revenue 1,672,858 2,105,290 1,210,034 1,526,298 38.2% 37.9%
------- --------- --------- --------- --------- ---- ----
Gross Profit 1,565,359 589,675 1,127,851 455,431 38.8% 29.5%
------------ --------- ------- --------- ------- ---- ----
Gross Margin 93.6% 28.0% 93.2% 29.8% 0.4% -1.8%
------------ ---- ---- ---- ---- --- ----
Core Segmental 675,117 (423,340) 371,678 (485,176) 81.6% -12.7%
Profit (Loss)(2)
---------------
Segmental
Operating
Expenses4
---------
- Research and development (439,811) (386,916) (357,916) (384,904) 22.9% 0.5%
-------------------------------- -------- -------- -------- -------- ---- ---
- Selling and marketing (199,971) (415,392) (155,098) (358,431) 28.9% 15.9%
----------------------------- -------- -------- -------- -------- ---- ----
- Administrative (277,695) (159,156) (262,403) (152,195) 5.8% 4.6%
---------------------- -------- -------- -------- -------- --- ---
4 Segmental operating expenses
exclude unallocated expenses
such as depreciation and
amortisation that have been
grouped into SG&A categories on
the Company's reported
consolidated financial
statements but cannot be
allocated to specific business
segments for purpose of
calculating the segmental
profit (loss) figures in
accordance with HKFRS 8.
Gaming Business
In the fourth quarter, the Company's gaming business revenue grew by 25.5% year-over-year to RMB430.2 million, primarily driven by the strong 85.2% year-over-year growth in mobile gaming revenue. On the other hand, we saw a broad-based uptick of key operating metrics including 14.9% increase in ARPU, 27.2% increase in APA and 37.8% increase in MAU on a year-over-year basis.
On a full year basis, our gaming business revenue increased by 38.2% year-over-year. The above-industry growth rate was driven by our dual strategy of IP value maximization and mobile extension. This strategy has led to thirteen consecutive growing quarters on a year-over-year basis for our gaming revenue. During the year, our flagship IP Eudemons Online had another record year as its revenue reached a historical high of RMB1,367.3 million, up 48.2% year-over-year, on the back of new launches, new gaming modes as well as refined monetization strategies. In particular, the PC version delivered eight months of monthly gross billings over RMB100 million during the year, while the pocket version reached a record high monthly gross billing in September and was ranked as the 'top ten most outstanding app by billings' on Tencent Open Platform in August and September. With respect to new launches, our long-awaited flagship Eudemons Online Mobile (in partnership with Kingsoft) was officially launched in October 2017 and produced a gross billing of over RMB100 million in the first month of operation. The game did not disappoint as it was ranked as one of the "top five most outstanding app by billings" on Tencent Open Platform for four consecutive months from October 2017 to January 2018.
Heroes Evolved, another flagship IP, sustained its strong momentum. Following our rapid user ramp-up of the pocket version in the first half of the year, we accelerated monetization in the second half as the revenue of the pocket version more than doubled in the second half of 2017 versus the first half. Since launch in December 2016, this game has been downloaded by over 150 million players and was ranked as one of the "top three downloaded mobile games" on Tencent Open Platform for nine consecutive months in 2017.
Looking forward, the Company will continue to maximize our IP values by introducing new games and new game-play features. After launching several new games in 2017, we expect to launch multiple new games in 2018, with focus on mobile games. Finally, we will leverage our cutting-edge VR and AR technologies in order to bring unique gaming experience to gamers.
Education Business
For the fourth quarter of 2017, revenue from the education business was RMB575.3 million, a 53.8%
increase year-over-year. In overseas markets, we recorded revenue of RMB380.4 million during the quarter, up 31.4% from the same period of last year. We solidified our number one international market share leadership position(1) in K12 interactive technologies as we continued to gain market share in our major markets, particularly in Americas and EMEA regions.
Our traction along One Belt One Road countries remained strong. On top of materializing the phase one order of the City of Moscow during the year, we are pleased to be the chosen partner again for the second phase of the multi-year Moscow Online School project. The second phase of the project is set to equip over 13,000 classrooms throughout the City of Moscow with our interactive learning technologies, a substantial increase compared with 7,600 classrooms in phase one. In addition, we are also the front runner of several multi-phase tenders in other emerging countries as they embrace the latest education technologies. In particular, we continue to see Turkey and Malaysia presenting significant revenue opportunities. Most importantly, Promethean achieved positive EBITDA of RMB53.0 million in 2017, a remarkable turnaround from the negative EBITDA of RMB50.6 million in 2016, as a result of our ongoing effort to drive revenue growth and rationalize costs aggressively following our acquisition in November 2015.
In China, we recorded revenue of RMB194.9 million in Q4 2017, more than doubled from the same period of last year, as a big portion of our contracted sales in previous quarters were recognized during the quarter. As at the end of Q4 2017, our China sales backlog, representing signed sales orders to be delivered to or validated by the customers, was RMB279.3 million. Of which, RMB99.8 million of contracted sales covering 31 provinces or cities were signed during the fourth quarter. We believe the rising traction is a validation of our products in the domestic market.
On the other hand, we are also pleased to see the tremendous progress in terms of user scaling. As at the end of 2017, we had over 1.2 million installations for our flagship software platform 101 Education PPT in China. This is on the back of our successful user acquisition strategy which adopts various ways of scaling users, including launching teacher training programs nationwide, hosting courseware contests in targeted cities and provinces, as well as working closely with education bureaus. With this critical mass of installed teachers in China, we will focus on increasing user engagement and stickiness, as we aim to make 101 Education PPT the platform of choice for delivery of digital classroom and content distribution in China.
In our overseas markets, we currently have an estimated 2 million teachers using our ActivInspire software. We have embarked on a product effort to develop platform capabilities that will augment ActivInspire with features to drive online engagement. These include new teaching tools, use of mobility as well as collaboration and sharing functions. This additional value will offer compelling reasons for the millions of teachers using ActivInspire to move into an online world where they can easily engage with students and create a rich collaborative learning environment. Together with our award-winning ClassFlow(TM) software, we will bring a truly connected interactive classroom experience to our estimated installed base of over 1.3 million classrooms, therefore enabling teachers and students to interact in an online, collaborative community where we expect to see significant online monetization opportunities. We also launched a closed beta version of our social commerce platform in December 2017 and we received highly positive feedback from teachers.
Looking forward, with our leading interactive classroom technologies and internet platform capabilities, we expect the rapid digitization of classrooms around the world will remain a huge tailwind for our business. We thank all our shareholders for their support and we are excited about the huge potential of value creation for our shareholders in the coming years as we are now one step closer to becoming the world's largest learning community.
Management Conference Call
NetDragon will host a management conference call with a PowerPoint presentation and webcast to review its fourth quarter and annual results ended December 31, 2017 on 22 March 2018 at 6:30 p.m. Hong Kong time.
Details of the live conference call are as follows:
International Toll +65-6713-5090
US Toll Free +1-866-519-4004
Hong Kong Toll Free 800-906-601
China Toll Free (for fixed line users) 800-819-0121
China Toll Free (for mobile users) 400-620-8038
Passcode NetDragon
A live and archived webcast of the conference call will be available on the Investor Relations section of NetDragon's website at http://www.netdragon.com/investor/ir-webcasts.shtml. Participants in the live webcast should visit the aforementioned website 10 minutes prior to the call, then click on the icon for "4Q and Fiscal Year 2017 Results Conference Call" and follow the registration instructions.
About NetDragon Websoft Holdings Limited
NetDragon Websoft Holdings Limited (HKSE: 0777) is a global leader in building internet communities. Established in 1999, NetDragon is a vertically integrated, cutting-edge R&D powerhouse with a highly successful track record which includes the development of flagship MMORPGs including Eudemons Online, Heroes Evolved (formerly known as Calibur of Spirit) and Conquer Online. The company also established China's number one online gaming portal, 17173.com, and China's most influential smartphone app store platform, 91 Wireless, which was sold to Baidu in 2013 in what was at the time the largest Internet M&A transaction in China. Being China's pioneer in overseas expansion, NetDragon also directly operates a number of game titles in over 10 languages internationally since 2003. In recent years, NetDragon has emerged as a major player in the global online and mobile learning space as it works to leverage its mobile Internet technologies and operational know-how to develop a game-changing learning ecosystem. For more information, please visit www.netdragon.com.
For investor enquiries, please contact:
NetDragon Websoft Holdings Limited
Ms. Maggie Zhou
Senior Director of Investor Relations
Tel.: +852 2850 7266 / +86 591 8754 3120
Email: maggie@nd.com.cn
Website: ir.netdragon.com
CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED 31 DECEMBER 2017
Three Months Ended
31/12/2017 30/09/2017 31/12/2016
(Unaudited) (Unaudited) (Unaudited)
RMB'000 RMB'000 RMB'000
Revenue 1,031,771 1,060,602 740,015
Cost of revenue (470,173) (475,716) (318,982)
-------- -------- --------
Gross profit 561,598 584,886 421,033
Other income and gains 49,125 9,315 77,795
Selling and marketing expenses (168,974) (163,252) (139,852)
Administrative expenses (203,136) (186,571) (195,168)
Development costs (223,164) (224,661) (220,982)
Other expenses and losses (63,553) (20,222) (27,620)
Share of losses of associates (272) (144) (148)
Share of loss of a joint venture (416) (98) -
Provision for product impairment - - (77,774)
--- --- -------
Operating loss (48,792) (747) (162,716)
Interest income on pledged bank deposits 927 925 -
Exchange gain (loss) on pledged bank deposit, 1,455 (84) (11,942)
secured bank borrowings and convertible
preferred shares
Net (loss) gain on convertible
preferred shares (9,698) 5,545 60,240
Net gain on disposal of held-for-trading - - 253
investment
Net gain on held-for-trading investment - - 8,880
Finance costs (2,878) (2,804) (1,955)
------ ------ ------
(Loss) profit before taxation (58,986) 2,835 (107,240)
Taxation (12,329) (13,370) (10,966)
------- ------- -------
Loss for the period (71,315) (10,535) (118,206)
======= ======= ========
Other comprehensive (expense) income for
the period, net of income tax:
Items that may be reclassified subsequently
to profit or loss:
Exchange differences arising on translation of (4,641) 1,953 (32,058)
foreign operations
Fair value loss on available-for-sale investment (6,335) (3,110) (4,723)
Release of reserve upon impairment of 28,687 - -
available-for-sale investment
Other comprehensive income (expense)
for the period 17,711 (1,157) (36,781)
------ ------ -------
Total comprehensive expense
for the period (53,604) (11,692) (154,987)
======= ======= ========
(Loss) profit for the period attributable to:
- Owners of the Company (51,714) 5,094 (94,413)
- Non-controlling interests (19,601) (15,629) (23,793)
------- ------- -------
(71,315) (10,535) (118,206)
======= ======= ========
Total comprehensive (expense) income attributable
to:
- Owners of the Company (33,837) 3,173 (126,292)
- Non-controlling interests (19,767) (14,865) (28,695)
------- ------- -------
(53,604) (11,692) (154,987)
======= ======= ========
RMB cents RMB cents RMB cents
(Loss) earnings per share
- Basic (9.66) 1.02 (19.01)
- Diluted (9.66) 1.02 (19.01)
===== ==== ======
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2017
31-Dec-17 31-Dec-16
(Audited) (Audited)
RMB'000 RMB'000
Non-current assets
Property, plant and equipment 1,373,026 1,284,494
Prepaid lease payments 515,299 509,018
Investment properties 64,532 57,964
Intangible assets 715,578 722,498
Interests in associates 15,961 16,783
Interests in a joint venture 17,433 -
Available-for-sale investments 10,859 17,883
Loan receivables 18,410 20,477
Trade receivables 3,912 11,490
Restricted bank deposit 5,000 -
Deposits made for acquisition of property, 7,441 14,585
plant and equipment
Goodwill 388,675 338,237
Deferred tax assets 4,160 3,445
----- -----
3,140,286 2,996,874
--------- ---------
Current assets
Properties under development 160,141 55,429
Property held for sale 9,213 -
Inventories 106,430 125,285
Prepaid lease payments 9,866 6,003
Loan receivables 4,662 13,712
Trade receivables 380,072 351,693
Amounts due from customers for contract work 16,522 10,640
Other receivables, prepayments and deposits 255,948 121,564
Amount due from a related company 1,704 1,704
Amounts due from associates 5,264 8,561
Amount due from a joint venture 159 -
Tax recoverable 1,497 3,281
Held-for-trading investment - 151,783
Restricted bank balances 20,332 -
Pledged bank deposits 145,084 411
Bank deposits - 55,496
Bank balances and cash 1,578,477 876,532
--------- -------
2,695,371 1,782,094
--------- ---------
Current liabilities
Trade and other payables 680,736 531,757
Amounts due to customers for contract work 1,691 988
Provisions 41,246 45,876
Deferred income 95,531 84,567
Amount due to a related company 1,400 978
Amounts due to associates 305 4,558
Secured bank borrowings 146,132 29,000
Promissory note 46,226 -
Income tax payable 23,339 18,364
------ ------
1,036,606 716,088
--------- -------
Net current assets 1,658,765 1,066,006
--------- ---------
Total assets less current liabilities 4,799,051 4,062,880
--------- ---------
Non-current liabilities
Other payables 2,693 5,582
Provisions - 1,702
Convertible preferred shares 95,249 104,101
Secured bank borrowings 86,582 -
Deferred tax liabilities 130,466 123,218
------- -------
314,990 234,603
------- -------
Net assets 4,484,061 3,828,277
========= =========
Capital and reserves
Share capital 39,094 36,571
Share premium and reserves 4,510,073 3,817,258
--------- ---------
Equity attributable to owners of the Company 4,549,167 3,853,829
Non-controlling interests (65,106) (25,552)
------- -------
4,484,061 3,828,277
========= =========
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SOURCE NetDragon Websoft Holdings Limited
