[4] Segmental operating expenses exclude unallocated expenses such as depreciation and amortisation 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
The Company's gaming business delivered another exceptional quarter with record high revenue at RMB440.2 million in the third quarter, registering a 53.6% increase year-over-year, and core segmental profit at RMB179.1 million, a 123.5% increase year-over-year. The robust performance was attributable to overall revenue growth of games under our flagship IPs, Eudemons Online and Heroes Evolved, as well as increasing contribution from mobile games as mobile gaming revenue increased by 124.1% year-over-year. We achieved our revenue growth with a broad-based uptick of key operating metrics including 51.7% increase in ARPU and 38.4% increase in APA on a year-over-year basis. In addition, Monthly Active Users ("MAU") and Daily Active Users ("DAU") also increased significantly by 86.7% and 19.0% respectively on a year-over-year basis.
Our dual strategy of IP value maximization and mobile extension continued to pay dividends. Our flagship IP Eudemons Online continued to produce outstanding result as the PC version delivered six consecutive months of monthly gross billings over RMB100 million, while the pocket version reached a record high monthly gross billing in September and was ranked as the 'top ten most outstanding app by billings' on Tencent Open Platform in August and September. A new Eudemons Online browser-based game with IP licensed by the Company also went open-beta launch in September with monthly gross billing of RMB27.1 million. Our long-awaited flagship Eudemons Online Mobile (launched in partnership with Kingsoft) was officially launched in October and produced a gross billing of over RMB100 million in the first month of operation.
Heroes Evolved, another flagship IP, continued to expand on its user base as MAU under this IP increased by 33.4% quarter-over-quarter and 140.9% year-over-year. Mobile monetization gained significant traction in the quarter as revenue of the pocket version increased by 181.3% quarter-over-quarter. To date, this game has already been downloaded by over 100 million players, and has been ranked as the 'top three downloaded mobile games' on Tencent Open Platform for nine consecutive months.
Looking forward, we expect momentum to carry on as we build on this initial success of our IP and mobile strategy with an exciting pipeline of new games which we are confident will bring our gaming business to another level.
Education Business
Our education business delivered another strong quarter both in China and in overseas markets. Promethean, our international education subsidiary, achieved revenue of RMB525.9 million, a 56.2% increase year-over-year, and a second consecutive quarter of operating profitability. This is on the back of our proven success in major markets including the U.S., Europe, Middle East and Central Asia, as we remain as the K-12 market share leader in international markets1.
We have seen the U.S. market pick up significantly in Q3 as total K-12 market shipment volumes in the U.S. increased by 48.8%1 year-over-year, while Promethean's shipment volume exceeded the market growth by growing 107.2% year-over-year. As the K-12 space continues to embrace interactive classroom technologies with increasing traction, we expect this trend will bode well for (1) higher adoption by emerging countries as they follow the lead of the U.S., and (2) increasing need of internet platforms to work with the hardware, which plays into the strength of NetDragon with our internet and platform capabilities.
We continued to see fruitful results along the Belt and Road Initiatives as revenue from our partnership in the City of Moscow materialized during the year as we prepare ourselves for upcoming opportunities. Meanwhile, we also see significant opportunities in other emerging countries, particularly in Turkey and Malaysia. Overall, our progress in the emerging markets is strong and on track.
In China, our contracted sales reached a record-high of RMB150 million in the third quarter as we won over 100 tenders in the quarter, more than three times year-over-year. As of end of Q3, our China sales backlog, representing signed sales order to be delivered to or validated by the customers, was RMB344 million. We believe the increasing traction that we are seeing in our sales orders is a testament to the market receptiveness of our software products.
As at the end of November, we achieved our year-end goal of reaching one million installed teachers of our flagship software platform 101 Education PPT. This is on the back of our successful user acquisition strategy of launching teacher training programs nationwide across a large span of cities and provinces, and working closely with education bureaus. With this critical mass of installed teachers in China, we will focus on developing our engagement with these teachers and the stickiness of our platform, as we aim to make 101 Education PPT the platform of choice for delivery of digital classroom and content distribution in China.
Looking forward, with our leading interactive classroom and internet platform technologies, we expect the rapid digitization of classrooms around the world will be conducive to not only our revenue growth, but also adoption of our software platform which we aim to become the world's largest learning community.
Management Conference Call
NetDragon will host a management conference call with a PowerPoint presentation and webcast to review its third quarter financial results on 6 December 2017 at 6:30 p.m. Hong Kong time.
Details of the live conference call are as follows:
International Toll +65-6713-5090
US Toll Free +1-866-519-4004
Hong Kong Toll Free 800-906-601
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 . Participants in the live webcast should visit the aforementioned website 10 minutes prior to the call, then click on the icon for "3Q 2017 Results Conference Call" and follow the registration instructions.
About NetDragon Websoft Holdings Limited
NetDragon Websoft Holdings Limited (HKSE: 0777) is a global leader in building internet communities. Established in 1999, NetDragon is a vertically integrated, cutting-edge R & D powerhouse with a highly successful track record which includes the development of flagship MMORPGs including Eudemons Online, Heroes Evolved (formerly known as Calibur of Spirit) and Conquer Online. The company also established China's number one online gaming portal, 17173.com, and China's most influential smartphone app store platform, 91 Wireless, which was sold to Baidu in 2013 in what was at the time the largest Internet M & A transaction in China. Being China's pioneer in overseas expansion, NetDragon also directly operates a number of game titles in over 10 languages internationally since 2003. In recent years, NetDragon has emerged as a major player in the global online and mobile learning space as it works to leverage its mobile Internet technologies and operational know-how to develop a game-changing learning ecosystem. For more information, please visit .
For investor enquiries, please contact:
NetDragon Websoft Holdings Limited
Ms. Maggie Zhou
Senior Director of Investor Relations
Tel.: +852 2850 7266 / +86 591 8754 3120
Email:
Website: ir.netdragon.com
CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED 30 SEPTEMBER 2017
Three Months Ended
30/09/2017
30/06/2017
30/09/2016
(Unaudited)
(Unaudited)
(Unaudited)
RMB'000
RMB'000
RMB'000
Revenue 1,060,602
1,061,808
694,544
Cost of revenue (475,716)
(474,332)
(309,579)
Gross profit 584,886
587,476
384,965
Other income and gains 9,315
26,999
12,406
Selling and marketing expenses (163,252)
(146,452)
(122,819)
Administrative expenses (186,571)
(172,600)
(172,074)
Development costs (224,661)
(202,445)
(191,788)
Other expenses and losses (20,222)
(12,647)
(16,041)
Share of losses of associates (144)
(211)
(184)
Share of loss of a joint venture (98)
(46)
-
Operating (loss) profit (747)
80,074
(105,535)
Interest income on pledged bank deposits 925
706
-
Exchange (loss) gain on secured bank borrowings and convertible preferred shares (84)
1,630
(5,733)
Net gain on convertiblepreferred shares 5,545
1,744
37,276
Net loss on disposal of held-for-trading investment -
(36)
-
Net gain on held-for-trading investment -
-
5,656
Finance costs (2,804)
(2,538)
(1,927)
Profit (loss) before taxation 2,835
81,580
(70,263)
Taxation (13,370)
(15,599)
(4,082)
(Loss) profit for the period (10,535)
65,981
(74,345)
Other comprehensive (expense) income for the period, net of income tax:
Items that may be reclassified subsequently to profit or loss:
Exchange differences arising on translation of foreign operations 1,953
8,427
(5,359)
Fair value loss on available-for-sale investment (3,110)
(8,328)
(3,131)
Other comprehensive income (expense) for the period (1,157)
99
(8,490)
Total comprehensive (expense) income for the period (11,692)
66,080
(82,835)
Profit (loss) for the period attributable to:
- Owners of the Company 5,094
71,443
(65,435)
- Non-controlling interests (15,629)
(5,462)
(8,910)
(10,535)
65,981
(74,345)
Total comprehensive income (expense) attributable to:
- Owners of the Company 3,173
69,921
(73,095)
- Non-controlling interests (14,865)
(3,841)
(9,740)
(11,692)
66,080
(82,835)
RMB cents
RMB cents
RMB cents
Earnings (loss) per share
- Basic 1.02
14.40
(13.18)
- Diluted 1.02
14.40
(13.18)
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 SEPTEMBER 2017
30 September 2017
31 December 2016
(Unaudited)
(Audited)
RMB'000
RMB'000
Non-current assets
Property, plant and equipment 1,355,154
1,284,494
Prepaid lease payments 526,352
509,018
Investment properties 62,280
57,964
Intangible assets 757,838
722,498
Interests in associates 16,233
16,783
Interest in a joint venture 17,849
-
Available-for-sale investments 17,194
17,883
Loan receivables 19,867
20,477
Trade receivables 7,741
11,490
Deposits made for acquisition of property, plant and equipment 5,554
14,585
Goodwill 381,253
338,237
Deferred tax assets 3,591
3,445
3,170,906
2,996,874
Current assets
Properties under development 108,544
55,429
Property held for sale 11,009
-
Inventories 139,219
125,285
Prepaid lease payments 6,303
6,003
Loan receivables 5,273
13,712
Trade receivables 468,174
351,693
Amounts due from customers for contract work 15,226
10,640
Other receivables, prepayments and deposits 228,188
121,564
Amounts due from related companies 1,770
1,704
Amounts due from associates 1,879
8,561
Amount due from a joint venture 69
-
Tax recoverable 393
3,281
Held-for-trading investment -
151,783
Restricted bank balance 13,611
-
Pledged bank deposits 145,280
411
Bank deposit -
55,496
Bank balances and cash 1,743,471
876,532
2,888,409
1,782,094
Current liabilities
Trade and other payables 824,090
531,757
Amounts due to customers for contract work 2,148
988
Provisions 45,183
45,876
Deferred income 99,409
84,567
Promissory note 46,966
-
Amount due to a related company 10
978
Amounts due to associates 1,827
4,558
Convertible preferred shares 87,091
104,101
Secured bank borrowings 141,234
29,000
Income tax payable 31,856
18,364
1,279,814
820,189
Net current assets 1,608,595
961,905
Total assets less current liabilities 4,779,501
3,958,779
Non-current liabilities
Other payables 2,732
5,582
Provisions 893
1,702
Secured bank borrowings 32,351
-
Deferred tax liabilities 144,241
123,218
180,217
130,502
Net assets 4,599,284
3,828,277
Capital and reserves
Share capital 39,201
36,571
Share premium and reserves 4,610,240
3,817,258
Equity attributable to owners of the Company 4,649,441
3,853,829
Non-controlling interests (50,157)
(25,552)
4,599,284
3,828,277
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SOURCE NetDragon Websoft Holdings Limited
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