NetDragon Announces 2023 Interim Financial Results, Gaming Recovery on Track with Record High Revenue
- NetDragon's gaming business achieved an 8% increase in revenue YoY, exceeding market growth
- The company declared a special interim dividend and an interim dividend for H1 2023
- The education business recorded a 29% decrease in revenue YoY due to market digestion period
Dr. Dejian Liu, Chairman of NetDragon, commented: "As China entered into a new post-pandemic era, we were able to capitalize on the domestic economic recovery as our gaming business resumed its growth trajectory in the first half of 2023, achieving revenue of
"Our education business recorded a decline in revenue along with the broader market, as the industry entered into a digestion period after the Covid-driven demand spike in the last 2 to 3 years. Despite the temporary slowdown in shipment volumes, we maintained our global ex-
"We are proud to report positive progress made on the ESG front. In the first half of 2023, our S&P Global Sustainability Score increased to 40 points, putting NetDragon in the top
"We remain committed to our capital return initiative, and therefore we are pleased to announce that the Board declared a special interim dividend of
2023 First Half Financial Highlights
- Revenue was
RMB3.7 billion , representing a13% decrease YoY. - Revenue from the gaming business was
RMB1.9 billion , representing52% of the Group's total revenue and an8% increase YoY. - Revenue from the education business was
RMB1.7 billion , representing47% of the Group's total revenue and a29% decrease YoY. - Gross profit was
RMB2.3 billion , representing a2% decrease YoY. - Core segmental profit[3] from the gaming business was
RMB1.1 billion , representing a9% increase YoY. - Core segmental loss[3] from the education business was
RMB249 million , compared toRMB36 million in the same period last year. The increase is due to lower revenue and gross profits in the education segment, whereas our total education core segmental operating expenses were largely flat. - Operating profit was
RMB699 million , representing a6% decrease YoY. - Non-GAAP operating profit[4] was
RMB692 million , representing a19% decrease YoY. - EBITDA was
RMB917 million , representing a5% increase YoY. - Non-GAAP EBITDA[4] was
RMB864 million , representing a16% decrease YoY. - Profit attributable to owners of the Company was
RMB500 million , representing a12% decrease YoY. - Non-GAAP profit attributable to owners of the Company[4] was
RMB589 million , representing a28% decrease YoY. - The Company declared a special interim dividend and an interim dividend of
HK and$1.0 HK per ordinary share respectively, for the six months ended 30 June 2023.$0.4
Segmental Financial Highlights
2023 First Half | 2022 First Half | Variance | ||||
(RMB million) | Gaming | Education | Gaming | Education | Gaming | Education |
Revenue | 1,920 | 1,720 | 1,776 | 2,410 | +8 % | -29 % |
Gross Profit | 1,858 | 419 | 1,699 | 610 | +9 % | -31 % |
Gross Margin | 97 % | 24 % | 96 % | 25 % | +1 ppts | -1 ppts |
Core Segmental Profit | 1,094 | (249) | 1,006 | (36) | +9 % | +592 % |
Segmental Operating | ||||||
- Research and | (411) | (225) | (353) | (226) | +16 % | 0 % |
- Selling and marketing | (187) | (238) | (188) | (252) | -1 % | -6 % |
- Administrative | (156) | (192) | (152) | (177) | +3 % | +8 % |
[1] According to the China Game Industry Group Committee ("CGIGC") & Gamma Data <China Gaming Industry Report, Jan-Jun 2023>, Jul 27th, 2023 |
[2] We were ranked the first in global ex-China K-12 IFPD market, according to the Futuresource Consulting <Q2 2023 World interactive Display Report>, Aug 2023 |
[3] Core segmental profit (loss) figures are derived from the Group's reported segmental profit (loss) figures (presented in accordance with Hong Kong Financial Reporting Standard ("HKFRS") 8), but exclude non-core/operating, non-recurring or unallocated items including government grants, intercompany finance costs, impairment loss (net of reversal), impairment loss of intangible assets, write-down of inventories, fair value change and exchange gain on financial assets at fair value through profit or loss ("FVTPL"), fair value change and exchange loss on derivative financial instruments, interest expense and exchange loss on convertible and exchangeable bonds, redundancy payments, legal and professional fees for proposed spin-off, and reversal of impairment loss of intangible assets. |
[4] To supplement the consolidated results of the Group prepared in accordance with HKFRSs, the use of non-GAAP measures is provided solely to enhance the overall understanding of the Group's current financial performance. The 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 measures of the Group exclude share-based payments expense, amortisation of intangible assets arising on acquisitions of subsidiaries, impairment loss of intangible assets, write-down of inventories, fair value change on financial assets at FVTPL, fair value change on derivative financial instruments, finance costs, reversal of impairment loss of intangible assets and exchange loss on financial assets at FVTPL, convertible and exchangeable bonds and derivative financial instruments. |
[5] Segmental operating expenses exclude unallocated expenses/income such as depreciation, amortisation and exchange difference 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
Our gaming business achieved record high revenue of
During the first half, our domestic gaming business achieved revenue growth of
We continued to generate revenue growth from a combination of our existing games and new games. During the first half, our existing gaming portfolio generated the bulk of our revenue growth as we continued to execute our strategy to leverage upon the large base of players within our existing games with ultra-strong retention period, and to consistently strengthen communities and coming up with quality content updates and innovation within the games. This strategy has resulted in sustainable revenue growth that is evident in the operating history of our flagship games.
Our Eudemons IP delivered a solid first half as our flagship Eudemons PC game achieved revenue growth of
We continued to make progress in revitalizing our Heroes Evolved IP as we achieved a turnaround with HoH revenue increase of
We also made progress in the application of generative AI (aka. AIGC) in the operations of our gaming business. We have seen the application of AIGC leading to significant increase in our efficiency in gaming content production, and we expect that we will continue to ramp up the efficiency curve. We also initiated multiple projects on AIGC with the objective of optimally utilizing AI to enhance our players' experience, including projects in the areas of intelligent NPC and AI gaming companion.
Looking forward, we expect a solid second half of the year ahead of us as we build on our accomplishments in the first half. We expect to make substantial progress with the development of new games in the pipeline, including multiple MMORPG and MOBA games that leverage our core development capabilities, as well as games that provide new experience for our gamers including an idle card game and a casual board game.
[6] According to the China Game Industry Group Committee ("CGIGC") & Gamma Data <China Gaming Industry Report, Jan-Jun 2023>, Jul 27th, 2023 |
[7] Revenue of Chinese self-developed games from overseas market, according to the China Game Industry Group Committee ("CGIGC") & Gamma Data <China Gaming Industry Report, Jan-Jun 2023>, Jul 27th, 2023 |
Education Business
Revenue from our education business was
During the period, we maintained our global ex-
As we started shipment of the product following the May product launch, revenue from ActivPanel LX only represented
Our adjusted gross margin (ex-tariff) for our Promethean subsidiary in the first half was 28.4%, a 2.5 ppt increase compared to the second half of 2022 as we sold down most of our ActivPanel 7 panels in 2022, hence allowing our overall margin to benefit more significantly from the higher ASP of ActivPanel 9 due to the more favorable product mix. During the period, the blended gross ASP of our panels was
We continued to heavily invest in research and development to enable AI monetization on our panels with the goal of generating recurring software revenue at scale. We were able to accelerate the development effort thanks to our acquisition of Explain Everything in November 2022, which provides the foundational platform that many of our future tools and features will be built on. Our plan is to generate subscription revenue by providing tools that not only seamlessly integrate with our hardware for the best user experience, but also address the true needs of teachers leveraging our understanding of our large user base. We currently expect to release the first software subscription package with integration of Promethean panels by the end of the year. We are also in active discussion with our partners to explore collaboration in large language models.
In
In April 2023, we reached a key milestone with our announcement of the signing of a merger agreement to spin off our overseas education business for listing on NYSE. Based on the agreement, NetDragon, through its subsidiary, will merge its core overseas education business with Gravitas Education Holdings at a valuation of
Going forward, we are well positioned to drive revenue growth for our education business with our enhanced product segmentation. Our complete product line from low to high end will enable us to capture a much larger revenue opportunity in the IFP market. Last but not least, we remain highly committed to our path to provide AI-enabled tools to be integrated with our panels to put us in position to generate recurring subscription revenue.
[8] Shipment values in global education IFPD market, according to the Futuresource Consulting <Q1 2023 World Interactive Displays Market Report>, Apr 2023, and <Q1 2022 World Interactive Displays Market Report>, June 2022 |
[9] Shipment volume in global ex-China K-12 IFPD market, according to the Futuresource Consulting <Q2 2023 World Interactive Displays Market Report>, Aug 2023 |
[10] According to the Futuresource Consulting <Q1 2023 World Interactive Displays Market Report>, Apr 2023 |
[11] Over |
Management Conference Call and Webcast
NetDragon's management team will hold a conference call and webcast at 10:00am
Details of the live conference call are as follows:
International | +852 2112 1888 |
Mainland | 4008 428 338 |
HK ( | +852 2112 1888 |
US | +1 866 226 1406 |
UK | 0800 032 2849 |
Passcode | 9504031# |
A live and archived webcast of the conference call will be available on the Investor Relations section of NetDragon's website at http://ir.nd.com.cn/en/category/webcast. Participants in the live webcast should visit the aforementioned website 10 minutes prior to the call, then click on the icon for "2023 Interim Results Conference Call and Webcast" 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
Established in 1999, NetDragon is one of the most reputable and well-known online game developers in
For investor enquiries, please contact:
NetDragon Websoft Holdings Limited
Ms. Maggie Zhou
Senior Director of Investor Relations
Email:maggiezhou@nd.com.cn / ir@netdragon.com
Website:ir.netdragon.com
CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE | |||
FOR THE SIX MONTHS ENDED 30 JUNE 2023 | |||
Six months ended 30 June | |||
2023 | 2022 | ||
(Unaudited) | (Unaudited) | ||
RMB million | RMB million | ||
Revenue | 3,681 | 4,240 | |
Cost of revenue | (1,394) | (1,917) | |
Gross profit | 2,287 | 2,323 | |
Other income and gains | 120 | 44 | |
Impairment loss under expected credit loss | - | (9) | |
Selling and marketing expenses | (443) | (442) | |
Administrative expenses | (570) | (464) | |
Research and development costs | (641) | (586) | |
Other expenses and losses | (50) | (112) | |
Share of results of associates and joint ventures | (4) | (9) | |
Operating profit | 699 | 745 | |
Exchange loss on financial assets at fair value through | (35) | (42) | |
Fair value change on financial assets at fair value | 35 | (32) | |
Fair value change on derivative financial instruments | 15 | 8 | |
Finance costs | (135) | (99) | |
Profit before taxation | 579 | 580 | |
Taxation | (126) | (38) | |
Profit for the period | 453 | 542 | |
Other comprehensive income (expense) for the period, | |||
Item that may be reclassified subsequently to profit | |||
Exchange differences arising on translation of foreign | 61 | 17 | |
Item that will not be reclassified to profit or loss: | |||
Fair value change on equity instruments at fair value | (1) | (1) | |
Other comprehensive income for the period | 60 | 16 | |
Total comprehensive income for the period | 513 | 558 | |
Profit (loss) for the period attributable to: | |||
- Owners of the Company | 500 | 565 | |
- Non-controlling interests | (47) | (23) | |
453 | 542 | ||
Total comprehensive income (expense) for the period | |||
- Owners of the Company | 557 | 582 | |
- Non-controlling interests | (44) | (24) | |
513 | 558 | ||
RMB cents | RMB cents | ||
Earnings per share | |||
- Basic | 92.61 | 104.42 | |
- Diluted | 92.61 | 104.40 |
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION | |||
AS AT 30 JUNE 2023 | |||
30 June 2023 | 31 December 2022 | ||
(Unaudited) | (Audited) | ||
RMB million | RMB million | ||
Non-current assets | |||
Property, plant and equipment
| 1,945 | 1,936 | |
Deposits made for acquisition of property, plant and | 5 | 5 | |
Right-of-use assets | 356 | 380 | |
Investment properties | 61 | 59 | |
Goodwill | 302 | 287 | |
Intangible assets | 822 | 739 | |
Interests in associates and joint ventures | 35 | 34 | |
Equity instruments at fair value through other | 55 | 56 | |
Financial assets at fair value through profit or loss | 432 | 404 | |
Loan receivables | 10 | 8 | |
Other receivables, prepayments and deposits | 80 | 89 | |
Deferred tax assets | 391 | 347 | |
4,494 | 4,344 | ||
Current assets | |||
Properties under development | 394 | 343 | |
Properties for sale | 303 | 303 | |
Inventories | 581 | 807 | |
Financial assets at fair value through profit or loss | 105 | 84 | |
Loan receivables | 54 | 4 | |
Trade receivables | 854 | 654 | |
Other receivables, prepayments and deposits | 528 | 549 | |
Amounts due from joint ventures | 6 | 5 | |
Tax recoverable | 33 | 29 | |
Restricted bank balance and pledged bank deposits | 13 | 1 | |
Bank deposits with original maturity over three months | 515 | 207 | |
Cash and cash equivalents | 3,645 | 3,701 | |
7,031 | 6,687 | ||
Current liabilities | |||
Trade and other payables | 1,284 | 1,513 | |
Contract liabilities | 403 | 406 | |
Lease liabilities | 60 | 67 | |
Provisions | 123 | 94 | |
Derivative financial instruments | 16 | 31 | |
Bank borrowings | 941 | 737 | |
Convertible and exchangeable bonds | 17 | 16 | |
Dividend payables | 197 | - | |
Tax payable | 112 | 100 | |
3,153 | 2,964 | ||
Net current assets | 3,878 | 3,723 | |
Total assets less current liabilities | 8,372 | 8,067 | |
Non-current liabilities | |||
Other payables | 16 | 19 | |
Lease liabilities | 35 | 50 | |
Bank borrowings | 1 | 2 | |
Convertible and exchangeable bonds | 1,452 | 1,317 | |
Convertible preferred shares | - | - | |
Deferred tax liabilities | 79 | 80 | |
1,583 | 1,468 | ||
Net assets | 6,789 | 6,599 | |
Capital and reserves | |||
Share capital | 39 | 40 | |
Share premium and reserves | 7,093 | 6,859 | |
Equity attributable to owners of the Company | 7,132 | 6,899 | |
Non-controlling interests | (343) | (300) | |
6,789 | 6,599 |
UNAUDITED RECONCILIATION OF GAAP AND NON-GAAP MEASURES | |||
Six months ended 30 June | |||
2023 | 2022 | ||
(Unaudited) | (Unaudited) | ||
RMB million | RMB million | ||
Operating profit | 699 | 745 | |
Share-based payments expense | 2 | 3 | |
Amortisation of intangible assets arising on | 30 | 27 | |
(Reversal of impairment loss) impairment loss of | (43) | 55 | |
Write-down of inventories | 4 | 24 | |
Non-GAAP operating profit | 692 | 854 | |
Profit attributable to owners of the Company | 500 | 565 | |
Share-based payments expense | 2 | 3 | |
Amortisation of intangible assets arising on | 24 | 21 | |
(Reversal of impairment loss) impairment loss of | (43) | 55 | |
Write-down of inventories | 4 | 22 | |
Exchange loss on financial assets at fair value | 30 | 36 | |
Finance costs | 122 | 90 | |
Fair value change on financial assets at fair value
| (35) | 32 | |
Fair value change on derivative financial instruments | (15) | (8) | |
Non-GAAP profit attributable to owners of the | 589 | 816 |
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SOURCE NetDragon Websoft Holdings Limited