NetDragon Websoft Inc. Announces Third Quarter 2013 Financial Results 3Q Revenue up 65.7%YoY; Net Profit up 49.6% YoY

HONG KONG, Nov. 28, 2013 /PRNewswire/ -- NetDragon Websoft Inc.("NetDragon", Stock code:777.HK), a leading developer and operator of online games and mobile Internet platforms in China, today announced its unaudited financial results for the third quarter ended 30 September, 2013 and is scheduled to hold a conference call and live webcast on 28 November, 2013 at 7:00pm Hong Kong Time (6:00am Eastern Daylight Time) to review the Company's performance and recent business developments.

Third Quarter 2013 Financial and Operational Highlights

  • Total revenues were RMB 480.9 million, up 12.8% over the second quarter of 2013 ("QoQ") and up 65.7% over the third quarter of 2012 ("YoY");
  • Revenue from Continuing Operations was RMB 219.4 million, down 2.1% QoQ and up 7.5% YoY;
  • Revenue from Discontinued Operations[1] was RMB 261.5 million, up 29.5% QoQ and up 203.8% YoY;
  • Gross profit was RMB 431.6 million, up 2.0% QoQ and up 70.7% YoY;
  • Operating profit was RMB 199.3 million, down 2.4% QoQ and up 57.0% YoY;
  • Non-GAAP operating profit[2] was RMB 247.9 million, up 4.8% QoQ and up 87.5% YoY;
  • Profit attributable to the owners of the Company was RMB 97.2 million, down 22.0% QoQ and up 1.9% YoY;
  • Non-GAAP profit attributable to the owners of the Company was RMB 147.7 million, down 5.8% QoQ and up 29.4% YoY;
  • Profit from continuing operations was RMB 37.0million, down 52.8% QoQ and down 58.2% YoY; 
  • Profit from discontinued operations was RMB 105.6 million, up 39.0% QoQ and up 1451.1% YoY;
  • Profit for the period was RMB 142.6million, down 7.6% QoQ and up 49.6% YoY; 
  • Non-GAAP profit for the period was RMB 193.0million, up 3.5% QoQ and up 69.3% YoY;
  • Basic earnings per share ("EPS") from continuing and discontinued operations were RMB 19.14 cents, diluted EPS from continuing and discontinued operations were RMB 19.02 cents; 
  • Basic EPS from continuing operations was RMB 7.27 cents, diluted EPS from continuing operation was RMB 7.22cents;
  • Basic EPS from discontinued operations was RMB 11.87 cents, diluted EPS from discontinued operations was RMB 11.80 cents;
  • Peak concurrent users ("PCU") for online games were 510, 000, up 9.0% QoQ and down 2.9% YoY.
  • Average concurrent users ("ACU") for online games were 270,000, up 5.9% QoQ and down3.9% YoY

1. During the period, the mobile Internet segment has been classified as discontinued operations as a result of the disposal of the entire equity interest of 91 Wireless Websoft Limited and its subsidiaries.


2. 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, "In the third quarter of 2013, NetDragon maintained growth momentum in total revenues, which increased to RMB 480.9 million, representing 12.8% quarter-over-quarter and 65.7% year on year. The management is confident in the growth prospect of the Company as we enter our next stage of development following the sale of 91 Wireless.

"During the quarter, our core online game business continued to generate stable revenue and strong profitability for the Company. Several of our games including "Conquer Online" and "Way of Five" launched new expansion packs during the quarter. In respect of Web Game, "Caliber of Spirit", a 3D MOBA webgame based on NetDragon's in-house developed S3 game engine, conducted the official open beta testing in July. The latest expansion pack "Gods Recovery[3]'' of "Eudemons Online" is currently in official open beta testing.  The timely development and release of expansion packs of our core games continues to represent our efforts to increase the interest of our existing players and stimulate new players to play our games.

"As for the mobile Internet business, we will shift our strategic focus to research & development and operation of original mobile games, a field where we have gained core competitiveness from our long history of game development expertise. In addition to the mobile games that were previously launched, we have successively launched a series of high quality mobile games, including "Age of Egmont", "War of Gods", "Crazy Horde" and "The Celestial Saga", further enriching our mobile game portfolio. We believe that, by leveraging our experiences accumulated in research & development and operation of games, as well as our open minding seeking win-win cooperation with operators, our mobile Internet business will move into a new stage of growth and become an increasing revenue contributor to NetDragon.

"During the period under review, the disposal of our subsidiary, 91 Wireless, to Baidu has become a major milestone in the history of the Internet and mobile industry and in the wake of completion of this disposal; we believe NetDragon will enter another exciting phase of development. After the payout of the special dividend of HK$7.77 per share to reward the shareholders for their long-term support, the remaining proceeds from disposal of 91 Wireless will provide strong financial support to NetDragon to continue to incubate our game business and new strategic emerging businesses, as well as lay solid foundation for us to develop new Blue Ocean projects. We have noted that, with the rapid social and economic development in China as well as the popularization of mobile Internet and other information technology, China' market for online education is expanding rapidly. After over two years of development, we have completed the initial stage of business model exploration and resources accumulation in online education and going forward, the Company will focus on ramping up our business volume in this space. Recently, we have announced the establishment of a joint venture company with Hon Hai and Vision Knight Capital to specialize in the research & development and promotion of related products."

Business Highlights for the Third Quarter of 2013

Game Business
- MMO Series

  • Launched a new EP of "Way of Five" called "Catastrophe in Fairland" in July.
  • "Tou Ming Zhuang Online"'s new EP "Ce Ma Tian Xia[3]'' was released in August.
  • Launched multilingual versions of new EP of "Conquer Online" called "Jianghu: Era of Chaos" with English, French, Spanish and so forth in succession.
  • With integration of various subjects such as science fiction, fantasy, mystique and so forth, "Caliber of Spirit" , the world's first 3D next-generation MOBA webgame based on the Company in-house developed S3 engine, conducted the official open beta testing on Tencent's QQGAME platform in July and completed the optimisation of functional versions in August.

- Mobile Games

  • The first fantasy style ARPG "Age of Egmont" of the Company commenced closed beta testing in August.
  • In August, Changyou.com, under an exclusive arrangement with NetDragon, launched "War of Gods", NetDragon's self-developed anime style cultivated strategic game, on App Store in mainland China.
  • "The Pirate", NetDragon's first in-house developed role-play turn-based mobile game, was officially launched in August.  
  • "The Celestial Saga", NetDragon's in-house developed 2.5D action role-play mobile game, was officially released in July.
  • Launched the updated versions of our self-developed cross-platform mobile games such as "Warring States", "Chaos Hero" and "Legend of Emperor" in order to enhance the game quality and attract new players.

Others

  • On 9 September, NetDragon was selected as a constituent stock of Hang Seng Family Index, are cognition for the Company's strength, brand, corporate governance and influence in the capital market.
  • On 19 September, the Company distributed 2013 interim dividend of HK$0.20 per share to shareholders, with an aggregate amount of cash dividends of RMB81, 329,000.
  • During the review period, the number of shares repurchased by the Company was 5,685,500, accounting for 1.1% the shares of the Company in issue, while the total consideration paid was approximately HK$104,000,240.

3. Working title

Recent Developments and Business Outlook

Game Business
- MMO Series

  • The new EP for "Eudemons Online" called "Gods Recovery" commenced internal testing in September and official open beta testing on 31 October.
  • The overseas version of "Conquer Online" will be subject to a comprehensive revision and upgrade in the fourth quarter, which will significantly enhance game perspective and controls for the players, so as to further consolidate the game's leading position in the overseas market.

- Mobile Games

  • In October, the traditional Chinese version of "Crazy Horde", the Company's first ARPG mobile online game, was officially launched in Hong Kong, Macao and Taiwan markets where traditional Chinese characters are used. On the first day of the release, the game ranked the first on the list of free games on App Store in the traditional Chinese markets and the top three on the list of hot free iPhone App. Currently, the version for Android has started internal testing.
  • The mobile version of "Eudemons Online" has been undergoing closed beta testing and will carry out internal testing within the year. The game is estimated to operate online 1H 2014. It is believed that the sizable number of players and popularity accumulated in the online version of this game will greatly facilitate the growth of this mobile game.
  • "Fatal Fighter", the Company's self-developed "beat-em-up" side scrolling mobile game, with the theme of travelling through time with extra-sensory powers, entered stress testing in October. It is expected that testing will be conducted on the 91 platform in December and official release is expected to be in the beginning of 2014.
  • The mobile version of English version of "Conquer Online" is planned to be launched in the fourth quarter and will be inter-compatible with the iPad version. This will provide more playing options for the players overseas. 
  • "War of Gods", independently developed by the Company, is a fostering strategic type of mobile game integrating leisure strategy, instantaneous fighting and social group mutual interactions with Chinese myths as background. The iOS version will be launched in the Vietnam market in the fourth quarter and the Android version of the game is planned to be released in the Chinese mainland market in the beginning of 2014.

Others

  • The Company is currently actively building a new Changle campus of Fuzhou Software Technology Vocational College, covering an area of 536 Mu. The preliminary planning and design of the project and the task of site selection have been accomplished thus far, and the new campus is planned to be completed and come into service by the end of 2014. In the future, the enrollment scale of the college will be approximately 8,000 students.
  • On 30 October, NetDragon BVI, Foxteq Holding Inc., a indirectly wholly owned subsidiary of Hon Hai Precision Industry Co., Ltd. and Vision Knight Capital (China) Fund I, L.P. entered into a Memorandum of Understanding to jointly operate and explore the online education market.
  • On 1 October, the disposal of 57.41% interest in 91 Wireless, NetDragon's subsidiary, to Baidu was completed, with total consideration of US$1,060.9 million (approximately HK$8,231 million). 50% of the net proceeds has been used as special dividend to existing NetDragon shareholders. The Company ceased to hold any interest in 91 Wireless and each member of 91 Wireless Group ceased to be a subsidiary of the Company.
  • On 6 November 2013, the Company distributed special dividend to shareholders whose names appeared on the register of members of the Company at the close of business on 29 October 2013 of HK$7.77 per share.

Appointment of Chief Financial Officer

Since October, Mr. Ben Yam joined NetDragon as Chief Financial Officer to be responsible for financial management, corporate finance and investor relations. Mr. Yam has over 15 years of professional experience in financial services spanning private equity, corporate finance and auditing, and has served as an active board member of several venture-capital backed portfolio companies. He holds a Bachelor of Commerce Degree from the University of British Columbia with majoring in accounting. He is also a Chartered Accountant, a member of the Hong Kong Institute of Certified Public Accountants and CFA charter holder.

Financial Highlights:

RMB('000)

3Q 2013

2Q 2013

3Q 2012

QoQ(%)

YoY(%)

Revenue

480,864

426,116

290,144

12.8%

65.7%

- Continuing Operations

219,364

224,159

204,067

-2.1%

7.5%

- Discontinued Operations*

261,500

201,957

86,077

29.5%

203.8%

Gross Profit from continuing and
     discontinued operations

431,588

385,483

252,786

12.0%

70.7%

GPM from continuing and discontinued
     operations

89.8%

90.5%

87.1%

-0.7%

2.7%

Operating Profit from continuing and
     discontinued operations

199,299

204,293

126,958

-2.4%

57.0%

Non-GAAP Operating Profit from
     continuing and discontinued 
     operations

247,898

236,468

132,231

4.8%

87.5%

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

97,230

124,614

95,399

-22.0%

1.9%

Non-GAAP profit attributable to the
     owners of the Company from 
     continuing and discontinued
     operations

147,702

156,732

114,133

-5.8%

29.4%

Profit for the period from continuing and
     discontinued operations

142,547

154,288

95,285

-7.6%

49.6%

Non-GAAP Profit for the period from
     continuing and discontinued
     operations

193,019

186,406

114,019

3.5%

69.3%

NPM from continuing and discontinued
     operations

29.6%

36.2%

32.8%

-6.6%

-3.2%

Basic EPS from continuing and
     discontinued operations

(RMB cents)

19.14

24.65

18.95

-22.4%

1.0%

Diluted EPS from continuing and
     discontinued operations

(RMB cents)

19.02

24.48

18.87

-22.3%

0.8%

Basic EPS from continuing operations

(RMB cents)

7.27

15.49

17.60

-53.1%

-58.7%

Diluted EPS from continuing operations

(RMB cents)

7.22

15.38

17.53

-53.1%

-58.8%

*Note: During the period, the mobile Internet segment has been classified as discontinued operations as a result of the disposal of the entire equity interest of 91 Wireless Websoft Limited and its subsidiaries.

Metrics

Online Games


3Q 2013

2Q 2013

1Q 2013

4Q 2012

3Q 2012

2Q 2012

PCU

510,000

468,000

445,000

521,000

525,000

582,000

ACU

270,000

255,000

237,000

287,000

281,000

307,000

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 payment 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 and finance costs.

Management Conference Call

NetDragon will host a management conference call and webcast to review its 2013 third quarter financial results for three months ended September 30, 2013 on Thursday, November 28, 2013 Hong Kong time.

Details of the live conference call are as follows:

Time:

7:00 PM Beijing / Hong Kong Time / 6:00 AM Eastern Standard Time, November 28, 2013

International Toll

65-6723-9381

US Toll Free

1-866-519-4004

Hong Kong Toll Free

800-930-346

China Toll Free (for fixed line users)

800-8190-121

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 "3Q 2013 Results Conference Call" and follow the registration instructions.

About NetDragon

NetDragon Websoft Inc. (777.HK) 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. Established in 1999, NetDragon has always been devoted to research and development and committed to promoting the development of online gaming industry. We launched our first self-developed online game Monster & Me in 2002, followed by multiple titles including Eudemons Online, Conquer Online and Zero Online. 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 a 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 various well-known mobile Internet platforms, such as 91 Assistant and HiMarket, the largest third party application distribution platform.

For investor enquiries, please contact:

NetDragon Websoft Inc.

Ms. Maggie Zhou

Investor Relations Director

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 30 SEPTEMBER 2013)



Three Months Ended


30/9/2013


30/6/2013


30/9/2012


(Unaudited)


(Unaudited and restated)


(Unaudited and restated)


RMB '000


RMB '000


RMB '000

Continuing operations






Revenue

219,364


224,159


204,067

Cost of revenue

(19,837)


(18,853)


(12,505)







Gross profit

199,527


205,306


191,562

Other income and gains

12,476


4,640


16,575

Selling and marketing expenses

(27,935)


(23,106)


(29,199)

Administrative expenses

(87,611)


(54,300)


(45,157)

Development costs

(45,349)


(37,550)


(33,797)

Other expenses

(1,259)


(1,577)


(5,473)

Share of profit of associates

(41)


20


(173)

Operating Profit

49,808


93,433


94,338

Interest income on pledged bank deposit

222


1,896


2,600

Exchange (loss)gain on pledged bank deposit and secured bank loan

(1,769)


7,683


6,827

Net loss on derivative financial instrument

-


(8,015)


(3,085)

Finance costs

(326)


(1,507)


(2,310)

Profit before taxation

47,935


93,490


98,370

Taxation

(10,974)


(15,168)


(9,892)

Profit for the period from continuing operations

36,961


78,322


88,478

Discontinued operations






Profit for the period from discontinued operations

105,586


75,966


6,807

Profit for the period

142,547


154,288


95,285

Other comprehensive (expense)income:






Item that may be reclassified subsequently

to profit or loss:






Exchange differences arising on
translation of foreign operations

(167)


(513)


59

Total comprehensive income for the period

142,380


153,775


95,344







Profit for the period attributable to:






- Owners of the Company

97,230


124,614


95,399

- Non-controlling interests

45,317


29,674


(114)


142,547


154,288


95,285

Total comprehensive income attributable to:






- Owners of the Company

97,063


124,101


95,458

- Non-controlling interests

45,317


29,674


(114)

Other comprehensive (expense)income:

142,380


153,775


95,344








 RMB cents


RMB cents


RMB cents

Earnings per share






From continuing and discontinued operations






- Basic

19.14


24.65


18.95

- Diluted

19.02


24.48


18.87

From continuing operations






- Basic

7.27


15.49


17.60

- Diluted

7.22


15.38


17.53


 

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

(AS AT 30 SEPTEMBER 2013)



30 September 2013

(Unaudited)

RMB '000


31 December 2012

(Audited)

RMB '000

Non-current assets




Property, plant and equipment

447,077


345,415

Prepaid lease payments

187,311


139,678

Investment property

15,857


16,217

Intangible assets

1,311


2,626

Interests in associates

1,366


11,793

Interest in a joint venture

-


18,015

Available-for-sale investments

5,000


5,000

Loan receivables

16,404


9,969

Deposits made for property, plant and equipment

26,898


-

Goodwill

12,534


12,534

Deferred tax assets

54


1,586


713,812


562,833

Current assets




Prepaid lease payments

2,583


2,902

Loan receivables

1,308


3,143

Trade receivables

22,260


61,427

Other receivables, prepayments and deposits

58,876


72,101

Held for trading investment

-


4,939

Amount due from related companies

4,069


3,637

Amount due from a joint venture

3


3,060

Pledged bank deposit

108,268


194,405

Bank deposits

415,000


394,081

Bank balances and cash

800,739


1,142,825


1,413,106


1,882,520

Assets classified as held for sale

1,186,586


-


2,599,692


1,882,520

Current liabilities




Trade and other payables

443,347


222,137

Deferred income

25,740


24,778

Amount due to a related company

-


121

Amount due to an associate

-


5,600

Secured bank borrowing

110,036


183,595

Other financial liability

-


10,679

Income tax payable

25,422


66,355


604,545


513,265

Liabilities associated with assets classified as held for sale

368,486


-


973,031


513,265

Net current assets

1,626,661


1,369,255

Total assets less current liabilities

2,340,473


1,932,088

Non-current liabilities




Redeemable convertible preferred shares

-


195,115

Conversion option derivative liability

-


314,829

Deferred tax liabilities

-


6,141


-


516,085





Net assets

2,340,473


1,416,003





Capital and reserves




Share capital

37,609


37,532

Share premium and reserves

1,893,480


1,356,317

Equity attributable to owners of the Company

1,931,089


1,393,849

Non-controlling interests

409,384


22,154

Total equity

2,340,473


1,416,003

SOURCE NetDragon Websoft Inc.



RELATED LINKS
http://www.netdragon.com/
http://ir.netdragon.com/investor/ir_events.shtml
http://www.nd.com.cn/ir

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