NetDragon Announces Fiscal Year 2019 Financial Results, Record High Revenue and Profit

Segmental Financial Highlights


FY2019

FY2018

Variance

(RMB '000)

Gaming

Education

Gaming

(Restated)

Education
(Restated)

Gaming

Education

Revenue

3,299,626

2,395,398

2,367,405

2,565,556

39.4%

-6.6%

Gross Profit

3,165,500

713,009

2,262,355

766,057

39.9%

-6.9%

Gross Margin

95.9%

29.8%

95.6%

29.9%

+0.3 ppt

+0.1 ppt

Core Segmental
Profit (Loss)[2]

1,923,262

(524,458)

1,271,564

(384,929)

51.3%

36.2%

Segmental Operating
Expenses







 - Research and
   development

(557,561)

(491,261)

(458,932)

(449,332)

21.5%

9.3%

 - Selling and
   marketing

(385,921)

(508,088)

(232,099)

(440,704)

66.3%

15.3%

- Administrative

(306,434)

(254,866)

(295,989)

(239,497)

3.5%

6.4%

Gaming Business

Our gaming business revenue increased by 39.4% year-over-year to RMB3,299.6 million. Mobile games revenue surged by 46.8% year-over-year, while PC games revenue growth remained strong at 38.3% year-over-year. We also performed well in the overseas markets and recorded 66.4% increase in revenue year-over-year. As a result of strong top line growth and positive operating leverage, gaming business's core segmental profit jumped by 51.3% year-over-year.

In particular, our flagship IP Eudemons recorded 39.2% year-over-year increase in revenue of the PC and mobile versions combined. During the year, we successfully carried out a series of major marketing initiatives including cross-industry collaboration with Nezha IP and renowned celebrities to enhance the market influence of Eudemons. On the back of our marketing activities and new expansion packs, we managed to increase gamers' loyalty and activities, while at the same time optimizing spending, resulting in significant revenue growth as well as a 38.8% year-over-year increase in monthly active players.

Our other two major IPs, namely Heroes Evolved and Conquer Online, also recorded solid revenue growth of 32.5% and 66.3% year-over-year respectively. In particular, Conquer Online achieved record high revenue after its sixteenth year of history, as we stepped up our effort in enhancing the contents and user experience with multiple expansion packs launched during the year. Heroes Evolved also performed exceptionally well, with its growth attributable to a combination of introduction of new playing methods and effective marketing and promotion campaigns including IP crossovers with two popular anime, OVERLORD and Rakshasa Street, which led to a substantial increase in gross billings.

Looking forward, we are well-positioned to drive consistent, long-term revenue and profit growth for our gaming business by building on the success of our technology knowhow and our IP portfolio to launch new premier quality games of different genre, grow the user base and engagement of our existing games, launch new IP and seek to work with our partners on IP collaboration. Currently, we have a robust pipeline with games of different categories and genres under development or in testing stage, including Vow of Heroes, Eudemons II, Eudemons Legends, Heroes of Ages, Heroes Evolved Thrones and Battle of Giants.

Education Business

Our revenue from the education business was RMB2,395.4 million, down 6.6% year-over-year. Excluding revenue from the large Moscow tender in 2018 (which we exclude for more comparable presentation due to cyclical nature of the tender), revenue from the education business increased by 12.0% year-over-year. Our subsidiary Promethean continued its market leadership by maintaining its number 1 market share position in our key geographical regions including the US and a large number of European countries, resulting in strong growth momentum during the year, particularly in the second half of 2019 on the back of our new ActivPanel Elements Series product launch as shipment of this product started in the second quarter. ActivPanel Elements Series is Promethean's next-generation interactive panel, featuring unmatched ease-of-use, security and manageability. This ground-breaking innovation has earned our team a winner of the prestigious Red Dot Design Award during the year, as well as excellent feedback from customers. Overall, Promethean's unit volume of panel shipment increased by 11.1% year-over-year, while revenue increased 20.0% sequentially from first half to second half of 2019, as a result of the positive reception of our new product launch. We also see strong traction among emerging markets. In January 2019 , we signed an MOU with The Ministry of Education of Egypt with the goal to deliver to Egypt a total of 265,000 sets of intelligent classrooms equipped with our education products including Promethean panels as well as software platforms. Building on our success in Egypt with a unique country coverage model, we are expanding our "country strategy" into other countries as we have initiated discussions on multiple country-level opportunities.

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