NetDragon Websoft Inc. Announces First Quarter 2014 Financial Results - CW15 - OMAHA

NetDragon Websoft Inc. Announces First Quarter 2014 Financial Results

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SOURCE NetDragon Websoft Inc.

Operating Profit up 86.7% Year on Year; Online Education Business on Track

HONG KONG, May 28, 2014 /PRNewswire/ -- NetDragon Websoft Inc. ("NetDragon"; Stock Code: 777), a leading developer and operator of online games and mobile Internet platforms in China, today announced its financial results for the first quarter ended March 31, 2014. A conference call and webcast is scheduled for May 28, 2014 at 8:00 pm Hong Kong time (8:00 am U.S. Eastern Time) to review the Company's financial results and recent business developments.

First Quarter 2014 Financial and Operational Highlights

  • Revenue was RMB217.1 million, a decrease of 5.2% over the fourth quarter of 2013 ("QoQ"), and an increase of 2.4% over the first quarter of 2013 ("YoY");
  • Gross profit was RMB196.0 million, a decrease of 4.8% QoQ and an increase of 1.9% YoY;
  • Operation profit was RMB114.4 million, an increase of 86.7% YoY;
  • Non-GAAP operating profit [1] was RMB121.1 million, an increase of 968.7% QoQ and a decrease of 31.0% YoY;
  • Profit attributable to owners of the Company was RMB79.7 million, a decrease of 98.6% QoQ and a decrease of 28.7% YoY;
  • Non-GAAP profit attributable to owners of the Company was RMB85.0 million, a decrease of 37.6% YoY;
  • Profit for the period from continuing operations was RMB77.8 million, an increase of 44.4% YoY;
  • Non-GAAP profit for the period from continuing and discontinued operations was RMB83.1 million, a decrease of 41.0% YoY;
  • Basic earnings per share was RMB15.70 cents, diluted earnings per share was RMB15.61 cents;
  • Peak concurrent users ("PCU") for online games were 472,000, a decrease of 1.0% QoQ and an increase of 6.1% YoY;
  • Average concurrent users ("ACU") for online games were 239,000, a decrease of 10.2% QoQ and an increase of 0.8% YoY.

[1] See "Non-GAAP Financial Measures" section for more details on the reasons for presenting these measures

Mr. Liu Dejian, Chairman and Executive Director of NetDragon, commented: "For the first quarter of 2014, total revenue reached RMB217.1million, up 2.4% year on year. For the online game business, the performance of the flagship games remained stable. We introduced several new expansion packs for existing titles to consolidate our domestic market. Also, we strengthened our development in overseas markets in order to cope with the increasingly fierce competition by launching the new expansion pack for English and Arabic versions of 'Conquer Online' to meet the new demand of players for game experiences on the target markets. As a result, revenue from overseas game business grew 23.2% quarter on quarter in the first quarter. Meanwhile, we continued to develop our pipelines of quality online games. 'Caliber of Spirit', NetDragon's first magic-style sports MOBA webgame containing science fiction and fantasy elements, achieved more than 150,000 peak concurrent players with 560,000 daily active players and more than 3,000,000 monthly active players during the testing in May, evidencing the game's popularity."

"We will maintain the stable operation of our existing games, while release more high-quality games and expand our product portfolio to ensure the sustainable growth of our game business."

"Regarding the mobile games business, we strengthened our R&D standards after considering the explosive growth of China's mobile games market since 2014. We put more effort on the mobile games in testing including "Blade & Sword", "Fatal Fight" and "Waku & Maou" in order to stand out from others in such a competitive market after the formal release. In addition, the mobile version of "Eudemons Online", our trial version for migrating players from PC to the mobile platform, is continuously improved and is expected to become a new hit for us in the mobile games market based on the sizable players' base and popularities in the MMORPG segment. Leveraging the wealth of experience we have accumulated over years in operating the overseas markets, we strengthened our effort in development of the overseas mobile game markets. "The Pirate" has gained popularity among the Arabic players in the Middle East and North Africa following the release of an update in Arabic during the first quarter. In addition to the online game business, NetDragon will continue its expansion into both domestic and overseas mobile game markets. We will take the advantages of our competencies and resource to increase the revenue from mobile games and cater the demands of players worldwide in the mobile era."

"For the online education business, we made a steady progress in the first quarter. We will drive on the full implementation of related key strategies with the recent focus on K-12 education. Our agreement with Foxteq and Vision Knight Capital (China) Fund I has given us the advantages in technology, fund and resource for the development of the flagship tablet project designed for students. With the contributions on the R&D, manufacturing and operation by NetDragon and its partners as well as the state-of-the-art design, strict production standard and built-in education resource, we believed that the tablet will provide the users with new interactive learning experience following the formal launch. Meanwhile, the development of a national remote vocational public service system is also under way. We signed the letters of intent with several well established vocational education providers, allowing us to have the first mover advantage in the market. Looking forward, we plan to establish a national lifelong education system based on the mobile Internet platform and complemented by our product series in K-12, vocational, non-academic credential and lifelong education, based on the idea of "gaming, mobile and big data" and the independently developed core technology such as 3D engine. Our management is highly confident the success of NetDragon's online education business."

First Quarter 2014 Business Highlights

Games

- MMO Series

  • The English and Arabic versions of "Conquer Online" launched a new expansion pack ("EP") "Wrath of the Trojan" on 20 March 2014 in a move to cater the demands of overseas players for new game experiences, further raised the game's popularity in overseas markets.
  • "Way of the Five" rolled out a new EP "Demon is coming" in March 2014, with many new classes and properties significantly increased the game play ability.
  • "Tiger Knight", NetDragon's self-developed new action strategy online game, was released on the well-known Steam platform for testing in January 2014 and has been widely recommended by the platform's community of players since then.

-Mobile Games

  • "Blade & Sword", NetDragon's self-developed 2.5D martial arts role-play mobile game, carried out the non-file-deleted internal testing in January 2014.
  • "Fatal Fight", NetDragon's self-developed landscape-based combat mobile game, released an update in January, with contents optimized during the internal testing. The game will carry out its open beta testing in the second quarter of 2014.
  • "Waku & Maou", NetDragon's strategy mobile game combining the features of both card and landscape turn-based games, conducted the first closed beta testing in March 2014. The game will be formally released in the second half of this year.
  • The Arabic iOS version of "The Pirate", NetDragon's first voyage role-play turn-based mobile game developed in-house, ranked Top 1 in the daily download list of RPG games in 21 regions across the Middle East and North Africa. The newly update in first quarter 2014 highly refined the game and raised the popularity of the game among the target players.

Education business

  • On January 24, 2014, NetDragon BVI entered into an agreement with Foxteq and Vision Knight Capital (China) Fund I, whereby, the three companies plan to establish a wholly foreign-owned enterprise and a limited liability company for the exploration and business operation in the Chinese online education application and related market.
  • NetDragon signed the letters of intent with several well established vocational education providers for the development of China's first national remote vocational public service system. We plan to have a trial testing in Fujian province and expand it across China. The product design of the project has been improved with reference to the Company's vocational operation in Fujian and a study of the demand by established institution and we plan to launch a new version of the system in the second quarter of this year. In addition, the preparation of a 3D simulation laboratory, a key component of the national remote vocational public service system, has been completed by accumulating the technology, process and human resource. We have the ability to establish a national standard simulation laboratory.

Recent Developments and Business Outlook

Game Business

- MMO Series

  • The new EP of "Eudemons Online", "Dragon Knight - Apocalypse" commenced the official beta testing in April 2014. This expansion pack again enriched the class system within the game, while optimized the game's balance.
  • The Spanish and French versions of "Conquer Online" will launch a new EP "Wrath of the Trojan" in the second quarter. The Company expects to increase the market share of the flagship products in overseas markets via the release of more EPs in multi-languages coupled with the enhanced efforts in R&D and operations.
  • "Caliber of Spirit", a 3D MOBA next-generation webgame developed in-house, will commence official beta testing in the second half of 2014. To date, the game achieved more than 150,000 peak concurrent players, with 560,000 daily active players and more than 3,000,000 monthly active players, evidencing the game's popularity among the players. Furthermore, the development of "Caliber of Spirit" in multi-languages and mobile versions is under way and the upcoming versions are expected to bring remarkable game experiences to players worldwide.

-Mobile Games

  • "The Celestial Saga", NetDragon's 2.5D action role-play mobile game, launched a new EP called "Dark Side Rises" in April.
  • "Crazy Horde", NetDragon's self-developed ARPG mobile game, launched the first EP in May.
  • The mobile version of "Eudemons Online" will carry out its first open beta testing in May and is scheduled for official launch in the second half of 2014. The mobile game developed by NetDragon's core development team with a focus on feeding phantom beasts interspersed with PK gang fights is expected to become a new hit in the mobile games market based on high popularity in the MMORPG market for years.
  • "Hero Cut", an original leisure action mobile game, is scheduled for testing in the second quarter.
  • "The Pirate", NetDragon's first voyage role-play turn-based mobile game developed in-house, will launch the Arabic Android version in June 2014 following the success of Arabic iOS version launched in December 2013.

Education Business

  • The Company will continue to drive its efforts for the target of establishing a national lifelong education system based on a mobile platform and complemented by the product series in K-12, vocational, non-academic credential and lifelong education.
  • With its core strength in the Internet world as the basis of the prominent Internet DNA and experience in the development and operation of mobile products, NetDragon plans to make the launch of the pilot tablet especially designed for students in the second half of 2014, combining the power of the world's leading 3C electronic product manufacturers in hardware production with the advantages of smart tablets together with education software and other educational resource.
  • As for industry-specific continuing education, vocational education and examination, the Company will integrate the mobile Internet, hardware and software with games as part of a reform of the education ecosystem. The Company will provide a customized learning plan based on the cloud storage data platform catering to the specific demands of students.
  • Fuzhou Software Technology Vocational College will continue to strengthen its efforts in digital teaching based on established strategies, leveraging its advantages as a result of cultural exchanges between Fujian and Taiwan and consolidating the partnerships in education with Taiwanese organizations in a move to rapidly set up an integrated learning-research-production mutual growth model in line with its ecosystem.

Others

  • NetDragon was awarded as one of the top 30 cultural companies in China during the Sixth Top 30 Cultural Companies Event in May. It is the first time for NetDragon to receive the award and it recognizes the Company's leading role in terms of operating scale, social benefit and exploration into new business.

Financial Highlights:

RMB('000)

1Q 2014

4Q 2013

1Q 2013

QoQ (%)

YoY (%)

Revenue from continuing operations

217,091

229,001

211,994

(5.2%)

2.4%

Gross profit from continuing operations

196,007

205,931

192,328

(4.8%)

1.9%

Gross profit margin from continuing operations

90.3%

89.9%

90.7%

0.4%

(0.4%)

Operating profit (loss) from continuing 
  operations

114,415

(1,707)

61,276

N/A 

86.7%

Non-GAAP operating profit from continuing

  and discontinued operations

121,146

11,336

175,456

968.7%

(31.0%)

Profit (loss) from continuing operations

77,753

(2,732)

53,856

N/A

44.4%

Non-GAAP profit (loss) from continuing and   discontinued operations

83,104

(5,421)

140,840

N/A

(41.0%)

Profit from continuing and discontinued   operations attributable to owners of the   Company

79,662

5,807,145

111,787

(98.6%)

(28.7%)

Non-GAAP profit (loss) from continuing and   discontinued operations attributable to

  owners of the Company

85,013

(7,507)

136,245

N/A

(37.6%)

Basic earnings (loss) per share from

  continuing operations (RMB cents)

15.70

(0.95)

10.71

N/A

46.6%

Diluted earnings (loss) per share from

  continuing operations(RMB cents)

15.61

(0.95)

10.63

N/A

46.8%

Metrics

Online Games


1Q 2014

4Q 2013

3Q 2013

2Q 2013

1Q 2013

4Q 2012

3Q 2012

PCU

472,000

477,000

510,000

468,000

445,000

521,000

525,000

ACU

239,000

266,000

270,000

255,000

237,000

287,000

281,000

Non-GAAP Financial Measures

To supplement the consolidated results of the Group prepared in accordance with HKFRSs, the use of certain non-GAAP measures is provided solely to enhance the overall understanding of the Group's current financial performance. These non-GAAP measures are not expressly permitted measures under HKFRSs and may not be comparable to similarly titled measures for other companies. The non-GAAP financial measures of the Group exclude share-based payments expense, interest income on pledged bank deposit, exchange gain (loss) on pledged bank deposit, secured bank borrowing and redeemable convertible preferred shares, net gain (loss) on derivative financial instruments, finance costs and profit on disposal of subsidiaries (net of related income tax).

Management Conference Call

NetDragon will host a management conference call and webcast to review its first quarter 2014 financial results ended March 31, 2014 on Wednesday, May 28, 2014, at 8pm Hong Kong time.

Details of the live conference call are as follows:
Time:    8:00 PM Beijing / Hong Kong Time / 8:00 AM Eastern Standard Time, May 28, 2014

International Toll               

65-6723-9381

US Toll Free                         

1-866-519-4004

Hong Kong Toll Free              

800-930-346

Mainland China Toll Free (for fixed line users)     

800-8190-121

Mainland China Toll Free (for mobile users)      

400-6208-038

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://ir.netdragon.com/investor/ir_events.shtml.Participants in the live webcast should visit the aforementioned website 10 minutes prior to the call, then click on the icon for "1Q 2014 Results Conference Call" and follow the registration instructions.

About NetDragon

NetDragon Websoft Inc. (HKSE: 0777) is a leading innovator and creative force in China's online gaming and mobile Internet industries. Established in 1999, we are a vertically integrated developer & operator of MMORPGs and a cutting-edge R&D powerhouse. We launched our first self-made online game "Monster & Me" in 2002, followed by multiple titles including "Eudemons Online", "Conquer Online" and "Zero Online". Meanwhile, leveraging our years of experience in R&D and operation of games, we have successively launched a variety of mobile games, including "Warring States", "War of Gods" and "Crazy Horde". We are also China's pioneer in overseas expansion, directly operating titles in overseas markets since 2003 in English, Spanish, Arabic and other languages. NetDragon has proven track record in incubating online gaming and mobile Internet projects over the years, including the No. 1 Chinese online game portal - 17173.com, and the China's biggest and most influential smartphone service platform - 91 Wireless.

For investor enquiries, please contact:

NetDragon Websoft Inc.
Ms. Maggie Zhou
Senior Director of Investor Relations
Tel.: +86 591 8754 3120
Email: maggie@nd.com.cn / ndir@nd.com.cn
Website: www.nd.com.cn/ir

CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED 31 MARCH 2014



 Three Months Ended


31/03/2014


31/12/2013


31/03/2013


 

(Unaudited)


 

(Unaudited)


     (Unaudited

and restated)


RMB '000


RMB '000


RMB '000

Continuing operations






Revenue

217,091


229,001


211,994

Cost of revenue

(21,084)


(23,070)


(19,666)







Gross profit

196,007


205,931


192,328

Other income and gains

47,348


14,687


13,536

Selling and marketing expenses

(29,130)


(31,692)


(23,467)

Administrative expenses

(56,875)


(140,882)


(83,709)

Development costs

(40,954)


(44,469)


(35,489)

Other expenses

(1,893)


(5,290)


(1,920)

Share of (losses) profit of associates

(88)


8


(3)

Operating profit (loss)

114,415


(1,707)


61,276

Interest income on pledged bank deposit

841


840


1,925

Exchange (loss) gain on pledged bank deposit and

secured bank borrowing

(4,163)


4,465


(5,786)

Net gain (loss) on derivative financial instrument

4,726


(3,122)


5,656

Gain on disposal of available-for-sale investment

-


5,761


-

Net gain on held for trading investment

1,093


8,756


-

Finance costs

(1,117)


(968)


(1,850)

Profit before taxation

115,795


14,025


61,221

Taxation

(38,042)


(16,757)


(7,365)

Profit (loss) for the period from continuing operations

77,753


(2,732)


53,856







Discontinued operations






Profit for the period from discontinued operations

-


5,811,963


62,526

Profit for the period

77,753


5,809,231


116,382

Other comprehensive income (expense) for

    the period, net of income tax to profit or loss:






Exchange differences arising on translation of

foreign operations that may be reclassified

subsequently to profit or loss

 

 

553


 

 

(338)


 

 

(112)

Total comprehensive income for the period

78,306


5,808,893


116,270







Profit(loss) for the period attributable to:






-Owners of the Company

79,662


5,807,145


111,787

-Non-controlling interests

(1,909)


2,086


4,595


77,753


5,809,231


116,382

Profit (loss) for the period attributable to owners of

the Company:






  -from continuing operations

79,662


(4,818)


53,938

-from discontinued operations

-


5,811,963


57,849

Profit for the period attributable to owners of

the Company:

 

79,662


 

5,807,145


 

111,787







Loss(profit) for the period attributable to

non-controlling interests:






-from continuing operations

(1,909)


2,086


(82)

-from discontinued operations

-


-


4,677

Loss(profit) for the period attributable to

non-controlling interests

 

(1,909)


 

2,086


 

4,595







Total comprehensive income (expense) attributable to:






-Owners of the Company

80,215


5,806,807


111,675

-Non-controlling interests

(1,909)


2,086


4,595


78,306


5,808,893


116,270








 RMB cents


RMB cents


RMB cents

Earnings per share






From continuing and discontinued operations






-Basic

15.70


1,145.41


22.19

-Diluted

15.61


1,138.30


16.91

From continuing operations






-Basic

15.70


(0.95)


10.71

-Diluted

15.61


(0.95)


10.63

 

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 MARCH 2014



31 March 2014

(Unaudited)

RMB '000


31 December 2013

(Audited)

RMB '000

Non-current assets




Property, plant and equipment

653,241


532,684

Prepaid lease payments

185,376


185,819

Investment property

15,861


15,725

Interests in associates

2,219


1,299

Available-for-sale investments

5,000


5,000

Loan receivables

14,111


16,041

Deposits made for acquisition of property, plant and equipment

54,766


16,769

Other receivable

61,521


60,969

Goodwill

12,534


12,534

Deferred tax assets

54


54


1,004,683


846,894

Current assets




Prepaid lease payments

2,583


2,583

Loan receivables

461


713

Trade receivables

44,013


41,718

Other receivables, prepayments and deposits

72,835


69,770

Held for trading investment

21,828


20,735

Amounts due from related companies

3,076


4,564

Amounts due from associates

9


-

Other financial asset

1,604


-

Pledged bank deposit

108,340


107,368

Bank deposits

2,983,317


3,051,289

Bank balances and cash

1,339,205


1,304,355


4,577,271


4,603,095





Current liabilities




Trade and other payables

274,196


152,837

Deferred income

24,019


26,553

Amount due to an associate

135


-

Secured bank borrowing

109,807


104,672

Other financial liability

-


3,122

Income tax payable

471,361


539,927


879,518


827,111





Net current assets

3,697,753


3,775,984

Total assets less current liabilities

4,702,436


4,622,878





Non-current liability




Other payables

2,248


-





Net assets

4,700,188


4,622,878





Capital and reserves




Share capital

37,665


37,664

Share premium and reserves

4,660,686


4,577,478

Equity attributable to owners of the Company

4,698,351


4,615,142

Non-controlling interests

1,837


7,736


4,700,188


4,622,878

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