3Q Revenue up 65.7%YoY; Net Profit up 49.6% YoY

[28 November, 2013, Hong Kong] 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 Operations¹ 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 profit² 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
• 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
• 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
• Basic EPS from continuing operations was RMB7.27 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 Recovery¹” 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.

1 Working title

“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 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 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.

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:Metrics
Online Games

Non-GAAP Financial Measures
To supplement the consolidated results prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRSs”), the use of certain non-GAAP measures is provided solely to enhance the overall understanding of 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 exclude share-based payments expense, amortisation of intangible assets arising on acquisition of subsidiaries, interest income on pledged bank deposit, exchange on loss pledged bank deposit, secured bank borrowing and convertible preferred shares, net gain on derivative financial instrument, net loss on disposal of held-for-trading investment, net loss on held-for-trading investments and finance costs.

Management Conference Call
NetDragon will host a management conference call and webcast to review its third quarter 2014 financial results ended September 30, 2014 on Tuesday, December 2, 2014, at 8pm 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) 800-819-0121
China Toll Free (for mobile users) 400-620-8038
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://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 “2016 Interim 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 Holdings Limited
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

 

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