NetDragon Announces 2018 Interim Financial Results
Net Profit Surged more than Sixfold
HONG KONG, Aug. 29, 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 first half of 2018. NetDragon's management team will host an analyst briefing session at 10:00am Hong Kong time at Nathan Room, Lower Lobby in Conrad Hong Kong on 30 August 2018 to discuss the results and recent business developments.
Mr. Dejian Liu, Chairman of NetDragon, commented: "We are excited that NetDragon delivered an excellent first half in 2018. Our revenue reached another semi-annual record-high at RMB2,469.9 million with 39.1% year-over-year growth, while profit attributable to shareholders surged by more than six times to RMB200.7 million from RMB25.8 million last year. These remarkable numbers were underpinned by our strong execution in both gaming and education segments."
"Our gaming business maintained its solid growth momentum in the first half. Mobile games were a major growth driver, with revenue increasing 53.4% year-over-year. PC games also performed well with 25.0% year-over-year growth. We also made great progress in development of our new games as our current pipeline remains very strong. As we continue to execute our strategy to maximize IP values, we are also looking to accelerate our growth further by expanding our IP portfolio, both organically and by working with our partners."
"We are also excited by the tremendous growth of our education business. In overseas, our interactive classroom product offerings continued to expand their penetration rapidly in both developed and emerging countries. As a result, our subsidiary Promethean continued to grow its revenue at a rate faster than the market, and in doing so has maintained its global market leader position([1]) in K-12 interactive classroom technologies during the period. We are also pleased to complete the acquisition of Edmodo in May. With Edmodo joining our family, we are in a unique position to offer a complete product portfolio that covers pre-class, in-class and after-class learning environments, anywhere and at any time. More importantly, our online community has accumulated more than 90 million of registered users, laying solid foundations for future monetization."
"In China, our revenue rose by 35.4% year-over-year to RMB105.6 million as we continued to drive increasing adoption of our software platforms. On the user front, the installed base of our flagship platform 101 Education PPT in China exceeded 2.3 million in June 2018, almost doubled from over 1.2 million at the end of 2017, with coverage of 31 provinces across China."
2018 First Half Financial Highlights
-- Revenue was RMB2,469.9 million, representing a 39.1% increase year-over-year. -- Revenue from the gaming business was RMB1,039.3 million, representing 42.1% of the Company's total revenue, registered a 29.5% increase year-over-year. -- Revenue from the education business was RMB1,384.1 million, representing 56.0% of the Company's total revenue, registered a 48.2% increase year-over-year. -- Gross profit was RMB1,402.1 million, representing a 35.7% increase year-over-year. -- Core segmental profit([2]) from the gaming business was RMB524.4 million, representing a 56.9% increase year-over-year. -- Core segmental loss([2]) from the education business was RMB158.7 million, representing a 16.2% decrease year-over-year. -- Non-GAAP operating profit([3]) was RMB249.3 million, representing a 422.9% increase year-over-year. -- Profit attributable to owners of the Company was RMB200.7 million, representing a 678.8% increase year-over-year. -- The company declared an interim dividend of HK$ 0.10 per share for the six months ended 30 June 2018.
Segmental Financial Highlights
Six months ended Six months ended Variance 30 June 2018 30 June 2017 ------------ ------------ (RMB '000) Gaming Education Gaming Education Gaming Education --------- ------ --------- ------ --------- ------ --------- Revenue 1,039,346 1,384,074 802,405 934,077 29.5% 48.2% ------- --------- --------- ------- ------- ---- ---- Gross Profit 978,499 421,499 755,173 273,172 29.6% 54.3% ------------ ------- ------- ------- ------- ---- ---- Gross Margin 94.1% 30.5% 94.1% 29.2% - +1.3 ppts ------------ ---- ---- ---- ---- --- --------- Core Segmental 524,376 (158,650) 334,110 (189,224) 56.9% -16.2% Profit (Loss)[2] --------------- Segmental Operating Expenses -------- - Research and (222,443) (214,525) (203,160) (183,791) 9.5% 16.7% development ----------- - Selling and (102,609) (224,161) (97,118) (192,051) 5.7% 16.7% marketing --------- - Administrative (143,806) (113,000) (133,909) (68,802) 7.4% 64.2% ---------------- -------- -------- -------- ------- --- ----
[1] Based on report issued by Futuresource Consulting dated 13 August 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.
Gaming Business
Our gaming business revenue grew by 29.5% year-over-year to a record-high RMB1,039.3 million in the first half. Mobile games continued to perform very well with 53.4% year-over-year growth. PC games also remained robust with 25.0% year-over-year revenue growth. With our strong top line growth, gaming's core segmental profit jumped by 56.9% year-over-year.
Our flagship IP Eudemons was a significant contributor to our growth in the first half with 37.8% year-over-year increase in revenue. In particular, its PC version recorded monthly gross billings over RMB100 million in five out of six months during the period, while the newly launched mobile version continued to be well received.
Heroes Evolved, another flagship IP saw revenue of its pocket version more than double in the first half year-over-year as we stepped up our monetization initiative. 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, we will continue to drive revenue and profit growth by maximizing our IP values with new games and new game-play features, as well as expanding our IP portfolio. In particular, we are in discussion to license external IP to augment our own IP portfolio. Our pipeline, on the other hand, remains robust, and we expect to launch multiple new games with different genres in the second half of 2018.
Education Business
For the first half of 2018, revenue from the education business was RMB1,384.1 million, up 48.2% year-over-year. We recorded revenue of RMB1,278.5 million and RMB105.6 million in overseas and China respectively, up 49.3% and 35.4% year-over-year. Core segmental loss declined by 16.2% year-over-year.
During the period, we continued to excel in emerging markets. Not only that we materialized the sizable second phase tender in the City of Moscow, we also laid the foundation for entering the huge African market by gaining new footprints in countries like Egypt and Nigeria. In developed markets, we sustained our growth momentum in various major countries, including the U.S., the UK, Germany and France. As such, we solidified our number one international market share leadership position(1) in K-12 interactive technologies as we continued to gain market share across regions. Underpinned by our solid performance, Promethean's operating profit surged by more than ten times year-over-year to RMB114.4 million in the first half of 2018 as a result of our ongoing effort to drive revenue growth and rationalize costs aggressively.
We also made tremendous progress in building our learning community with our acquisition of Edmodo which was completed during the Period. To date, the total users of Edmodo have exceeded 90 million in over 400,000 schools in more than 190 countries. Combining Edmodo with Promethean's interactive learning technologies, our comprehensive product portfolio will support the full learning process, in and out of the classroom, including lesson preparation, lesson delivery, student collaboration, homework features, teacher-student- parent communications, education content marketplace and resources sharing. By capturing all the major use cases in K-12 learning, our complete product offerings will be in a unique position to drive significant user traffic, with monetization opportunities to follow.
In China, we recorded revenue of RMB105.6 million in the first half, up 35.4% from the same period of last year, as we continued to expand across different regions. As at 30 June 2018, our China sales backlog, representing signed sales orders to be delivered to or validated by the customers, was RMB347.0 million.
We are also pleased to see the continuous traction in terms of user scaling. As at 30 June 2018, we had over 2.3 million installations for our flagship software platform 101 Education PPT in China, almost doubled from over 1.2 million as at the end of 2017. Last but not least, we made strong progress in our product development as well as integrating new and exciting technologies into our offering, including the world's first AI Teaching Assistant which we launched during the period.
Our vision to revolutionize education with advanced technologies remains firm and clear. We possess the best-in-class learning products and technologies across our group and in the near future, our strategy to integrate all these pieces will be vital to our success. In particular, our product portfolio enables users to prepare interesting courseware, deliver interactive lessons, streamline assignments, share and purchase resources, as well as communicate with one another using advanced technologies. Without question, our learning community with integrated functionalities is shaping the future of education.
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.
CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE SIX MONTHS ENDED 30 JUNE 2018 Six months ended 30 June 2018 2017 (Unaudited) (Unaudited) RMB'000 RMB'000 Revenue 2,469,941 1,775,250 Cost of revenue (1,067,810) (741,971) ---------- -------- Gross profit 1,402,131 1,033,279 Other income and gains 39,817 37,525 Impairment loss, net of reversal (13) (96) Selling and marketing expenses (332,584) (292,490) Administrative expenses (409,546) (344,853) Development costs (442,233) (396,251) Other expenses and losses (45,430) (17,110) Share of losses of associates (265) (406) Share of loss of a joint venture (198) (53) ---- --- Operating profit 211,679 19,545 Interest income on pledged bank deposits 1,755 706 Exchange (loss) gain on secured bank (4,172) 1,879 borrowings and convertible preferred shares Net gain on convertible preferred shares 26,953 6,962 Net loss on disposal of property held for sale (68) - Net fair value gain on held-for-trading investment - 58 Finance costs (5,358) (4,727) ------ ------ Profit before taxation 230,789 24,423 Taxation (53,047) (31,510) ------- ------- Profit (loss) for the period 177,742 (7,087) ------- ------ 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 (3,109) 11,862 of foreign operations Fair value loss on available-for-sale investment - (7,940) Items that will not be reclassified to profit or loss: Fair value loss on equity instrument at fair (232) - value through other comprehensive income --- Other comprehensive (expense) income for the period (3,341) 3,922 ------ ----- Total comprehensive income (expense) for 174,401 (3,165) the period === Profit (loss) for the period attributable to: - Owners of the Company 200,740 25,777 - Non-controlling interests (22,998) (32,864) ------- ------- 177,742 (7,087) ======= ====== Total comprehensive income (expense) attributable to: - Owners of the Company 198,055 27,496 - Non-controlling interests (23,654) (30,661) ------- ------- 174,401 (3,165) ======= ====== RMB cents RMB cents Earnings per share - Basic 37.63 5.20 - Diluted 37.55 5.20 ===== ====
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2018 30 June 2018 31 December 2017 (Unaudited) (Audited) RMB'000 RMB'000 Non-current assets Property, plant and equipment 1,552,420 1,373,026 Prepaid lease payments 359,902 515,299 Investment properties 74,361 64,532 Intangible assets 814,341 715,578 Interests in associates 15,696 15,961 Interest in a joint venture 17,235 17,433 Available-for-sale investments - 10,859 Equity instruments at fair value through 10,627 - other comprehensive income Loan receivables 15,786 18,410 Trade receivables - 3,912 Pledged bank deposit 8,555 - Restricted bank deposit - 5,000 Deposits made for acquisition of 10,546 7,441 property, plant and equipment Goodwill 453,063 388,675 Deferred tax assets 4,108 4,160 ----- ----- 3,336,640 3,140,286 --------- --------- Current assets Properties under development 379,922 160,141 Property held for sale - 9,213 Inventories 127,532 106,430 Prepaid lease payments 6,636 9,866 Loan receivables 13,050 4,662 Trade receivables 945,816 380,072 Amounts due from customers for contract - 16,522 work Other receivables, prepayments and deposits 349,108 255,948 30 June 2018 31 December 2017 (Unaudited) (Audited) RMB'000 RMB'000 Contract assets 17,893 - Amounts due from related companies 1,757 1,704 Amounts due from associates 1,953 5,264 Amount due from a joint venture 356 159 Tax recoverable 393 1,497 Pledged bank deposits 147,315 145,084 Restricted bank balances 15,089 20,332 Bank balances and cash 1,074,087 1,578,477 --------- --------- 3,080,907 2,695,371 --------- --------- Current liabilities Trade and other payables 830,354 680,736 Contract liabilities 240,976 - Amounts due to customers for contract work - 1,691 Provisions 49,576 41,246 Deferred income - 95,531 Amount due to a related company 2 1,400 Amounts due to associates 580 305 Secured bank borrowings 277,919 146,132 Promissory note - 46,226 Income tax payable 50,054 23,339 1,449,461 1,036,606 Net current assets 1,631,446 1,658,765 Total assets less current liabilities 4,968,086 4,799,051 30 June 2018 31 December 2017 (Unaudited) (Audited) RMB'000 RMB'000 Non-current liabilities Other payables 1,722 2,693 Convertible preferred shares 136,518 95,249 Secured bank borrowings 93,968 86,582 Deferred tax liabilities 164,814 130,466 397,022 314,990 ------- ------- Net assets 4,571,064 4,484,061 ========= ========= Capital and reserves Share capital 39,029 39,094 Share premium and reserves 4,619,481 4,510,073 --------- --------- Equity attributable to owners of the Company 4,658,510 4,549,167 Non-controlling interests (87,446) (65,106) ------- ------- 4,571,064 4,484,061 ========= =========
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SOURCE NetDragon Websoft Holdings Limited