NetDragon Announces 2020 Interim Financial Results
HONG KONG, Aug. 27, 2020 /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 2020. NetDragon's management team will hold a conference call and webcast at 10:00am Hong Kong time on 28 August 2020 to discuss the results and recent business developments.
Mr. Dejian Liu, Chairman of NetDragon, commented, "We are excited with our overall achievements in the first half and the unique opportunities that are ahead of us. Our revenue reached RMB2,822.9 million with 5.6% year-over-year growth, and at the same time we achieved a 25.7% year-over-year increase in operating cashflows. While the Covid-19 global pandemic has presented short-term challenges, it has put the world in a position to embrace the adoption of education technologies in a way that has never been seen before."
"Our education business recorded revenue growth of 8.5% year-over-year in the first half, as our subsidiary Promethean continued to build on its global market leadership position to gain further market share([1]), resulting in 25.6% panel volume shipment growth year-over-year despite global school closure. The growth that we have achieved in this market is a testament to our differentiated product value proposition and our unique sales network. The pandemic also led to accelerating demand of blended learning solutions around the world, and to further capitalize on this opportunity, we have launched Edmodo Enterprise, a fully-integrated blended learning platform designed with a SaaS monetization model. In the past few months, the go-to-market of Edmodo Enterprise has scaled quickly, leading to country or state-wide adoptions in Egypt, Ghana, Thailand and the US. We are also excited to announce that in August, we signed an MOU with the Ministry of Education of Egypt with a mutual commitment to deliver a customized country-wide blended learning solution that integrates our Promethean and Edmodo offerings which will generate sizable multi-year revenue stream."
"In China, we continued to strengthen user coverage and monetization foundation. With over 1 million of monthly active users of our flagship teacher-facing lesson preparation and delivery platform 101 Education PPT, we are aggressively developing premium services with the platform to expand use cases and drive user engagement. Meanwhile, our One-Stop Learning platform, a platform that enables teachers and students to communicate, teach and learn, recorded increased average monthly active users of over 10 times compared to second half of last year, with peak MAU of 5 million. With higher traffic and broader user coverage, we are in discussion with multiple provincial educational authorities to pilot different services with a SaaS monetization model."
"Our gaming business maintained its growth trajectory with 4.5% year-over-year revenue growth in the first half. We continued to see rising players' activities and engagement in our flagship IP Eudemons, leading to a 41.4% year-over-year increase in DAU which provides us with a solid foundation to build our future growth. We are also pleased with the performance of our overseas games that generated very strong revenue growth year-over-year, as our targeted marketing aiming at overseas new users has paid off. Looking forward, we have a robust pipeline of exciting new games to be launched within the next several months across multiple IPs. In addition, we are introducing IP rejuvenation initiatives for the Eudemons IP to expand to young gamers as part of our growth strategy to maximize IP values."
[1] Based on report issued by
Futuresource Consulting dated 10
August 2020, incorporating
actual shipment volumes
(excluding China) of the
Company.
2020 First Half Financial Highlights
-- Revenue was RMB2,822.9 million, representing a 5.6% increase
year-over-year.
-- Revenue from the gaming business was RMB1,647.3 million, representing
58.4% of the Company's total revenue and registering a 4.5% increase
year-over-year.
-- Revenue from the education business was RMB1,137.9 million, representing
40.3% of the Company's total revenue and registering an 8.5% increase
year-over-year.
-- Gross profit was RMB1,869.3 million, representing a 0.2% increase
year-over-year.
-- Core segmental profit([2]) from the gaming business was RMB943.6
million, representing a 0.5% decrease year-over-year.
-- Core segmental loss([2]) from the education business was RMB377.3
million, representing a 33.6% increase year-over-year. The increase was
due partly to increased staff salaries on a stable headcount, and higher
hosting charge as our active users ramped up significantly during the
Covid-19 school closure.
-- Cash inflow from operating activities was RMB528.4 million, representing
a 25.7% increase year-over-year.
-- Non-GAAP operating profit([3]) was RMB509.2 million, representing a 6.2%
decrease year-over-year.
-- Non-GAAP profit attributable to owners of the Company([3]) was RMB449.5
million, representing a 5.5% decrease year-over-year.
-- The company declared an interim dividend of HK$0.25 per share for the
six months ended 30 June 2020.
Segmental Financial Highlights
2020 First Half 2019 First Half
Variance
(RMB
'
000)
Gaming Education
Gaming
Education
Gaming
Education
(restated)
(restated)
---
Revenue 1,647,334 1,137,941 1,575,849 1,048,529 4.5% 8.5%
---
Gross Profit 1,583,529 285,208 1,513,024 351,916 4.7% -19.0%
---
Gross Margin 96.1% 25.1% 96.0% 33.6%
+0.1 ppts
-8.5 ppts
---
Core Segmental 943,605 (377,294) 948,701 (282,425) -0.5% 33.6%
Profit (Loss)[2]
---
Segmental Operating
Expenses
---
- Research and (305,790) (258,219) (255,204) (239,038) 19.8% 8.0%
development
---
- Selling and (178,765) (242,625) (160,730) (251,962) 11.2% -3.7%
marketing
---
- Administrative (157,773) (141,526) (147,376) (128,330) 7.1% 10.3%
---
[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, finance
cost and exchange loss of financial
instruments, intercompany finance
cost, impairment loss (net of
reversal), impairment of goodwill and
intangible assets, fair value change
of convertible preferred shares and
interest expenses and exchange loss of
convertible and exchangeable bonds.
[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 and impairment of
goodwill and intangible assets and
fair value gain of financial assets at
fair value through profit or less.
Gaming Business
Our gaming business revenue increased by 4.5% year-over-year to RMB1,647.3 million in the first half.
Covid-19 has impacted players' in-game spending to a certain extent, as well as the development and testing of our gaming contents. Despite these challenges, our flagship IP Eudemons continued to record solid revenue growth driven primarily by substantial increase in number of active players in the first half as we focused our effort on generating more traffic, higher user engagement, and stronger IP recognition, which will serve to build a solid foundation to sustain our future growth. In the overseas markets, our revenue growth was its strongest in recent years driven by our implementation of aggressive targeted marketing to bring in new users, as well as sales channels and pay points optimization.
We are also pleased with the performance of our other two major IPs. Conquer Online performed well in the first half, as its ninja-themed new expansion pack with enhanced graphics and new game features has stimulated engagement and spending among gamers. Heroes Evolved also continued to focus on strengthening its IP value in the first half. During the period, we ran IP crossovers with popular anime OVERLORD to drive user engagement.
Looking forward, we will continue to drive revenue and profit growth by maximizing our IP values, as well as expanding our IP portfolio. In addition, we will continue to implement our strategy to expand our overseas revenue, which represented 11.9% of our revenue in the first half with significant room for future growth given the strength of our IPs and our development capabilities. Further, as part of our strategy to maximize IP values, we are introducing rejuvenation initiatives for the legendary Eudemons IP to increase the IP's appeal to young gamers, in both China and overseas.
Last but not least, our pipeline is robust with multiple new games ready to be launched by the end of this year. Our upcoming new titles include Legends of Eudemons, Eudemons II, Eudemons Storm II, and Under Oath, all of which have obtained regulatory licenses.
Education Business
For the first half of 2020, our education business recorded revenue of RMB1,137.9 million, up 8.5% year-over-year. To capitalize on the opportunities presented by Covid-19, we are making strong progress in leveraging our core competencies of being able to provide best-in-class classroom learning and distance learnings solutions - the result is a unique blended learning model, a model that educators around the world are embracing as we transitioned into the new normal of learning.
Under that backdrop, Promethean performed exceptionally well by gaining significant market share amid a challenging market which saw a significant drop in market volume in the second quarter. The market challenges also provided us with an opportunity to solidify our market leadership position, as Promethean's panel shipment outgrew the market growth in the first half by 20.5%([1]). Its performance was particularly strong in emerging markets, highlighted by a sizable tender order in Egypt during the first half.
As a result of unprecedented demand for distance learning under Covid-19, our Edmodo learning platform has seen substantial uptick in its users, with our monthly active users ("MAU") reaching a record high of over 17 million during the first half([4]). Such growth was driven by the launch of our Edmodo Enterprise platform in the first quarter. Edmodo Enterprise is a fully-integrated blended learning platform that enables educational authorities to drive top-down adoption of a unique blended learning experience across an entire school, district and country, implemented with a SaaS or subscription monetization model. Since its official rollout, we have quickly built and scaled the sales and marketing network as well as the operating infrastructure, and are now in a strong position to scale the commercialization of this platform at a global scale. Edmodo will also leverage the existing strong sales network of Promethean as we continue to pursue a 2G and 2B go-to-market model with this new platform. In the past few months, we have seen country- or state-wide adoptions in Egypt, Ghana, Thailand and the US. With this traction, we are excited about the prospect of significantly scaling up our Edmodo monetization in the second half.
We are also excited to announce that in August, we signed an MOU with the Ministry of Education of Egypt with a mutual commitment to deliver a customized country-wide blended learning solution that integrates our Promethean and Edmodo offerings which will generate sizable multi-year revenue stream. The implementation of this contract is expected to commence in the near term, and we will also aim to replicate this country-wide model as we continue to scale our "Country Strategy" globally.
In China, our strategy is to strengthen both user coverage monetization foundation. Similar to our overseas business, the rising demand for distance learning under Covid-19 has resulted in sharp uptick in user traffic for our learning products. With over 1 million of monthly active users of our flagship teacher-facing lesson preparation and delivery platform 101 Education PPT, we are aggressively developing premium services with the platform to expand use cases and drive user engagement. On the other hand, our One-Stop Learning platform, a learning platform that enables teachers and students to communicate, teach and learn, recorded increase in average monthly active users by 10 times compared to second half of 2019, with peak MAU of 5 million. In view of high user coverage, we are exploring SaaS monetization opportunities with multiple provincial educational authorities on delivering 2G, 2B and 2C services. Lastly, we rolled out services and resources in July for the National Center for Educational Technology ("NCET") VLAB Teaching Service System. In the fall semester of this year, NCET will launch pilot projects of virtual experimental teaching in primary and secondary schools in nearly 70 schools in 6 provinces across the country. It is expected that after the completion of the pilot, the service will be promoted to primary and secondary schools across the country through a SaaS model and generate revenue.
Looking forward, as blended learning becomes a global new normal, we believe that our unique capabilities and our integrated product offerings will put us in the strongest position to capitalize on the opportunities ahead, and as such, we are excited about our outlook in the second half as we focus on addressing exactly what the market needs with a sustainable monetization model.
[1]
Based on report
issued by Futuresource
Consulting dated 10 August 2020,
incorporating actual shipment
volumes (excluding China) of the
Company.
[4]
Highest level
since acquired by NetDragon in
April 2018.
Management Conference Call
NetDragon's management team will hold a conference call and webcast at 10:00am Hong Kong time on 28 August 2020 to discuss the results and recent business developments.
Details of the live conference call are as follows:
International
+852 2112 1888
Mainland China
4008 428 338
HK (China)
+852 2112 1888
US
1 866 226 1406
UK
0800 032 2849
Passcode
6142028#
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 "2020 Interim 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 with a long track record of developing and scaling multiple internet and mobile platforms that impact hundreds of millions of users, including previous establishments of China's first online gaming portal, 17173.com, and China's most influential smartphone app store platform, 91 Wireless NetDragon was included in the Hang Seng TECH Index on 27 July 2020.
Established in 1999, NetDragon is one of the most reputable and well-known online game developers in China with a history of successful game titles including Eudemons Online, Heroes Evolved and Conquer Online. In recent years, NetDragon has also started to scale its online education business on the back of management's vision to create the largest global online learning community, and to bring the "classroom of the future" to every school around the world.
For investor enquiries, please contact:
NetDragon Websoft Holdings Limited
Ms. Maggie Zhou
Senior Director of Investor Relations
Tel.: +852 2850 7266 / +86 591 8390 2825
Email: maggiezhou@nd.com.cn
Website: ir.netdragon.com
CONDENSED
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED
30
JUNE
2020
Six months ended 30 June
2020 2019
(Unaudited)
(Unaudited)
RMB'000
RMB'000
Revenue 2,822,858 2,672,547
Cost of revenue (953,587) (807,554)
---
Gross profit 1,869,271 1,864,993
Other income and gains 105,907 52,753
Impairment loss under expected credit loss model, net of (15,242) (81)
reversal
Selling and marketing expenses (427,022) (421,809)
Administrative expenses (441,632) (431,654)
Development costs (568,906) (502,390)
Other expenses and losses (84,054) (79,080)
Share of losses of associates (2,043) (951)
Share of losses of joint ventures (1,850) (1,418)
---
Operating profit 434,429 480,363
Interest income on pledged bank deposits 1,595 1,513
Exchange (loss) gain on secured bank borrowings, convertible (22,726)
preferred shares, derivative financial instruments and
convertible and exchangeable bonds 123
Net gain on convertible preferred shares 13,436
Net gain on financial assets at fair value through 14,930
profit or loss
Fair value gain on derivative financial instruments 6,971
Finance costs (64,677) (11,374)
---
Profit before taxation 370,522 484,061
Taxation (92,728) (108,575)
---
Profit for the period 277,794 375,486
---
Other comprehensive income (expense) for the period,
net of income tax:
Item that may be reclassified subsequently to profit or loss:
Exchange differences arising on translation of foreign 9,145 (478)
operations
Item that will not be reclassified to profit or loss:
Fair value gain on equity instruments at fair value through 1,390 63
other comprehensive income
---
Other comprehensive income (expense) for the period 10,535 (415)
---
Total comprehensive income for the period 288,329 375,071
===
Profit (loss) for the period attributable to:
- Owners of the Company 336,499 421,026
- Non-controlling interests (58,705) (45,540)
---
277,794 375,486
===
Total comprehensive income (expense) attributable to:
- Owners of the Company 346,368 420,844
- Non-controlling interests (58,039) (45,773)
---
288,329 375,071
===
RMB cents
RMB cents
Earnings per share
- Basic 60.93 79.66
- Diluted 60.84 79.52
===
CONDENSED
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2020
30 June 20
31 December 219
(Unaudited)
(Audited)
RMB'000
RMB'000
Non-current assets
Property, plant and equipment 1,909,854 1,918,697
Right-of-use assets 467,548 467,250
Investment properties 81,476 95,090
Intangible assets 712,243 675,737
Interests in associates 72,612 54,655
Interests in joint ventures 16,496 12,346
Equity instruments at fair value through 5,841 4,514
other comprehensive income
Financial assets at fair value through profit or loss 266,102 -
Loan receivables 11,888 9,573
Prepayments and deposits 55,405 57,829
Deposits made for acquisition of property, 5,676 11,486
plant and equipment
Goodwill 336,390 313,328
Deferred tax assets 48,172 47,317
3,989,703 3,667,822
Current assets
Properties under development 485,979 469,070
Properties for sale 20,640 20,640
Inventories 476,685 237,478
Loan receivables 23,144 27,354
Trade receivables 583,698 689,360
Other receivables, prepayments and deposits 347,926 328,369
Contract assets 14,288 18,333
Amount due from a related company 655 849
Amounts due from associates 2,163 2,262
Amounts due from joint ventures 901 279
Amount due from a director - 400
Tax recoverable 14,936 6,689
Financial assets at fair value through profit or loss 1,596 1,492
Restricted bank balances 15,089 15,089
Pledged bank deposits 145,799 145,787
Bank deposit with original maturity over three months 35,398 -
Bank balances and cash 3,910,220 2,125,637
6,079,117 4,089,088
Current liabilities
Trade and other payables 1,162,691 980,522
Contract liabilities 515,169 529,497
Lease liabilities 59,841 54,603
Provisions 63,906 69,867
Derivative financial instruments 81,941 -
Amounts due to a related company - 105
Amounts due to associates 281 257
Secured bank borrowings 191,796 161,135
Dividend payable 128,780 -
Tax payable 90,223 107,120
2,294,628 1,903,106
Net current assets 3,784,489 2,185,982
Total assets less current liabilities 7,774,192 5,853,804
Non-current liabilities
Other payables 8,640 16,275
Convertible preferred shares -
Convertible and exchangeable bonds 1,001,497 -
Secured bank borrowings 281,861 246,068
Lease liabilities 116,197 108,803
Deferred tax liabilities 114,153 121,610
1,522,348 492,756
Net assets 6,251,844 5,361,048
Capital and reserves
Share capital 41,163 38,822
Share premium and reserves 6,314,455 5,557,499
Equity attributable to owners of the Company 6,355,618 5,596,321
Non-controlling interests (103,774) (235,273)
6,251,844 5,361,048
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SOURCE NetDragon Websoft Holdings Limited
