NetDragon Announces 2021 Interim Financial Results

HONG KONG,Aug. 26,2021 -- NetDragon Websoft Holdings Limited ("NetDragon" or the "Company"; Hong Kong Stock Code: 777),a global leader in building internet communities,today announced its financial results for the first half of 2021. NetDragon's management team will hold a conference call and webcast at 10:00am Hong Kong time on 27th August 2021 to discuss the results and recent business developments.

Mr. Dejian Liu,Chairman of NetDragon,commented,"We are excited about our overall achievements in the first half of 2021 and the strong momentum of both our gaming and education business. Our revenue increased by 18.9% year-on-year ("YoY"),reaching RMB3.4 billion,and at the same time we achieved a 59.2% YoY increase in operating profit. The outstanding operating performance is a testimony to our unique core competencies built over years of investment in our people,technologies and infrastructure."

"Our education business recorded one of our strongest growth performances in recent years. Riding on its global market leadership position,our flagship classroom technology subsidiary Promethean continued to gain further market share,resulting in a 25.2% YoY revenue growth on the back of fast-growing market demand for classroom technology. We also continued to make progress with the execution of our country strategy with the recent signing of a MOU with the Ministry of Education in Thailand to launch the English Smart Classroom Lab project,where we will deliver a unique blended learning solution targeting the English-learning use case. In addition to Egypt and Thailand,where we see our largest near-term revenue opportunities,we are in discussion to pursue multiple opportunities in several other countries. Given our strong business performance and our confidence in the outlook,we have also recently started to commence the planning work for the public listing of our education business[2]."

"Our gaming business returned to double digit growth in both revenue and core segmental profit. We continued to see rising players' activities and engagement in our flagship IP Eudemons,with the MAU for the IP increasing by 5.5% YoY,which led to strong revenue growth for the IP. Our flagship game Eudemons Online achieved yet another record high in monthly revenue of over RMB290 million. Our two flagship mobile games,Eudemons Online Pocket Version and Eudemons Online Mobile,also saw significant increase in their MAU and DAU. Meanwhile,we continued to execute various growth initiatives for our two other flagship IPs,Conquer and Heroes Evolved,with the objective of building a solid foundation to drive long-term growth. Looking forward,we have a robust pipeline of new gaming titles which will further expand and diversify our portfolio."

"We are also committed to maximizing the capital return for our shareholders and at the same time be able to invest in our future. To follow through on this long-term commitment,we would like to take the opportunity to announce that our board has authorized (1) a committed 3-year share buy-back program[1] with a total repurchased amount of up to US$300 million,and (2) the increase of our interim dividend by 60% to HK$0.40 per ordinary share. Our decision to commit to this share buy-back program and increasing our cash dividend underscores our confidence in the long-term business outlook and our future cash generation abilities. We will implement these measures while maintaining a strong balance sheet and liquidity profile,as we expect our free cash flow generated each year will be more than sufficient to fund the share buy-back and dividends combined. Meanwhile,our net cash as of end of the first half sits at RMB4.1 billion,which will enable us to capitalize on strategic and acquisition opportunities going forward."

[1] 3-year share buy-back program is up to a total repurchased amount of US$300 million and subject to the buy-back mandate approved by the Shareholders at the annual general meeting in each year,being 10% of the issued share capital,the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and the Hong Kong Codes on Takeovers and Mergers and Share Buy-Backs.

[2] Shareholders of NetDragon and potential investors should note that the possible public listing of NetDragon's education business as mentioned is still at preliminary stage; and if it proceeds,it will be subject to approvals from,among others,the relevant regulatory authorities including but not limited to the Hong Kong Stock Exchange,the final decision of the Board,market and other conditions. There is no assurance that the aforementioned possible public listing will proceed or as to when it may take place. Shareholders of NetDragon and potential investors are reminded to exercise caution when dealing in the securities of NetDragon.

2021 First Half Financial Highlights

Revenue was RMB3,356.2 million,representing an 18.9% increase YoY.

Revenue from the gaming business was RMB1,847.5 million,representing 55.0% of the Group's total revenue and registering a 12.2% increase YoY.

Revenue from the education business was RMB1,407.6 million,representing 41.9% of the Group's total revenue and registering a 23.7% increase YoY.

Gross profit was RMB2,233.9 million,representing a 19.5% increase YoY.

Core segmental profit[3] from the gaming business was RMB1,069.2 million,representing a 13.3% increase YoY.

Core segmental loss[3] from the education business was RMB265.8 million,representing a 29.6% improvement YoY.

EBITDA was RMB892.1 million,representing a 42.4% increase YoY.

Non-GAAP operating profit[4] was RMB753.9 million,representing a 48.1% increase YoY.

Profit attributable to owners of the Company was RMB430.7 million,representing a 28.0% increase YoY.

Non-GAAP profit attributable to owners of the Company[4] was RMB566.7 million,representing a 26.1% increase YoY.

Net cash balance was RMB 4.1 billion as at 30 June 2021.

The Company declared an interim dividend of HK$0.40 per ordinary share for the six months ended 30 June 2021,representing a 60% increase YoY.

[3]Core segmental profit (loss) figures are derived from the Company'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,finance costs of financial instruments,intercompany finance costs,impairment loss (net of reversal),impairment of intangible assets and interest in an associate,fair value change and exchange loss on financial assets at fair value through profit or loss ("FVTPL"),fair value change and exchange difference on derivative financial instruments and interest and exchange difference on convertible and exchangeable bonds.

[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 acquisition of subsidiaries,fair value gain of financial assets at FVTPL,fair value change on derivative financial instruments,finance costs,interest income on pledged bank deposits and exchange difference on financial assets at FVTPL,bank borrowings,convertible and exchangeable bonds and derivative financial instruments.

Segmental Financial Highlights

2021 First Half

2020 First Half

Variance

(RMB '000)

Gaming

Education

Gaming

Education

Gaming

Education

Revenue

1,847,548

1,407,641

1,647,334

1,137,941

12.2%

23.7%

Gross Profit

1,765,923

431,055

1,583,529

285,208

11.5%

51.1%

Gross Margin

95.6%

30.6%

96.1%

25.1%

-0.5 ppts

+5.5 ppts

Core Segmental

Profit (Loss)[3]

1,069,173

(265,772)

943,605

(377,294)

13.3%

-29.6%

Segmental Operating

Expenses[5]

- Research and

development

(322,611)

(272,141)

(305,790)

(258,219)

5.5%

5.4%

- Selling and

marketing

(200,100)

(235,190)

(178,765)

(242,625)

11.9%

-3.1%

- Administrative

(170,948)

(172,155)

(157,773)

(141,526)

8.4%

21.6%

[5] Segmental operating expenses exclude unallocated expenses/income such as depreciation,amortization 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

During the period,our gaming business continued the momentum from the second half of last year with both revenue and core segmental profit returning to double digit growth. Revenue of gaming business increased by 12.2% YoY to RMB1,while core segmental profit increased by 13.3% YoY to 1,069.2million.

Eudemons,our flagship IP,continued to achieve strong performance with revenue growing 14.1% YoY and 5.3% sequentially. The growth was driven primarily by new gameplay techniques,enriched contents and implementation of effective localized operations in overseas markets. During the period,Eudemons Online Pocket Version and Eudemons Online Mobile achieved combined MAU and DAU increase of 25.7% and 20.1%,respectively,as we finetuned our user acquisition strategy,enhanced the quality of user engagement and launched three new expansion packs together with robust marketing activities. We also continued to run IP crossovers including a partnership with the movie "Godzilla vs. Kong'' to boost players' spending.

Conquer Onlinerecorded a revenue growth of 3.7% YoY. We continue to see tremendous global opportunities for the Conquer IP as we aim to replicate the successful model in Egypt to multiple countries. This started to bear fruit in countries such asthe Philippines,the US,Canada and Saudi Arabiain the first half,and while we scale our revenue in these markets,we expect to enter into more countries,particularly in Latin America and Southeast Asia,in the second half of the year.

We continued to implement our growth initiatives for Heroes EvolvedIP,including increasing our investment in hero skins as well as enriching the RPG gameplay,resulting in a 24.5% YoY revenue increase for the Heroes Evolved PC Version. We have also made positive progress with our mobile strategy for this IP,including strengthening the gameplay and monetization of Heroes Evolved Pocket Version,as well as developing a PC-mobile cross platform version.

In the context of recent regulatory trend in the gaming sector,NetDragon has been actively responding to the regulatory changes,and we have taken all necessary steps to ensure that our gaming business is in compliant with all the relevant regulations. During the first half of 2021,players under 18 years of age contributed less than 1% of our gaming revenue,and therefore the anti-addiction regulatory measures are not expected to have a material impact on our business. In addition,we have also obtained the necessary gaming license approval for new games that we are planning to launch in the near term.

Looking forward,we will continue to drive revenue and profit growth by maximizing our IP value and optimizing our game portfolio through the launch of new games. Our pipeline is robust with multiple new games under development and testing,including Eudemons Mobile 2 and Under Oath (a new IP). In the coming months,we also expect to make meaningful progress in strengthening the Neopets IP through strong marketing initiatives,as well as the planned launch of a new Neopets Match-3game.

Education Business

In the first half of 2021,our education business recorded a YoY growth of 23.7% to RMB 1,407.6 million. The revenue growth combined with our cost management effort resulted in the core segmental loss of the education business to narrow significantly by 29.6% YoY to RMB 265.8 million. Under the backdrop of the Covid-19 outbreak,the demand for blended learning solutions and EdTech continued to pick up during the period. Governments around the world have been on the forefront to promote online education and distance learning to ensure students' learning is undisrupted. We believe that COVID-19 pandemic has resulted in a paradigm shift where a blended learning model to make quality education available anywhere,anytime has become a necessity and this trend will sustain in the long run.

Leveraging the favourable macro trend,Promethean achieved significant sales growth in 1H2021,with a YoY growth of 28.1% in shipment units. Product mix enhancement served to drive ASP growth,which together with cost discipline resulted in increase of our gross margin from 27.1% to 33.0% YoY. Promethean continued to maintain its position as the largest player in the international K-12 interactive panel market[6] as its market share increased by 3.5 percentage points HoH to 24.5%. In particular,Promethean gained market share in its top three major markets including the U.S.,the U.K.,and Germany.[7] With a strong sales backlog at the end of the first half,we are confident in our revenue growth for Promethean in 2H2021 as it further consolidates its leadership position in the market.

We continued to make progress with the execution of our country strategy. Our discussion in Egypt is on track towards securing our first large-scale order under the signed MOU. And in August,we achieved another milestone in bringing our blended learning solutions to a key ASEAN country.We signed a MOU with the Office of the Basic Education Commission under the Ministry of Education Thailand to launch the English Smart Classroom Lab Project. This project will aim to help students in Thailand take advantage of our technologies togain deep understanding of the English language while ensuring that students at rural area get the same quality education as students in big cities. We have also been in discussion to pursue multiple opportunities in several other countries,as well as exploring acquisitions and investment opportunities that would accelerate the expansion of our geographical footprints.

In China,the "Opinions on Further Alleviating the Burden of Homework and After-school Tutoring for Students in Compulsory Education" (the "Opinions") were announced by the General Office of the CPC Central Committee and the General Office of the State Council on 24th July 2021 and have affected many EdTech companies in China. However,NetDragon is not negatively impacted as we have no after-school tutoring business. On the contrary,as our business model focus in China has always been on to-G and to-B markets,the current regulatory environment is expected to bring us new market opportunities as greater emphasis is now put on strengthening in-school education. In the first half,we signed a strategic cooperation framework agreement with the National Center for Educational Technology ("NCET"),a unit directly affiliated to the Chinese Ministry of Education,to develop more education products and projects in the areas of virtual simulation technology,AI,online learning and gamified education for potential rollout in certain regions across the country. Leveraging such in-depth cooperation with NCET,we are in a strong position to capitalize on the market opportunities arising from the new regulatory environment that favours partnership between government and corporates to improve in-school education quality across the country.

Looking forward,we are optimistic about our growth trajectory in 2H2021 as we continue to build on our market leadership position,our broad market coverage,and our ability to execute country-level rollouts. Furthermore,with the continuous growth in our top line and increasing operating leverage,we believe that the core segmental loss of our education business will continue to narrow in 2H2021.

[6] International K-12 interactive panel market excluding China

[7] Based on the FutureSource Consulting Q2 2021 Interactive Display Global Report,incorporating actual shipment volumes (excluding China) of the Company

Stock Buy-Back Program

The Board of the Company has authorized a committed share buy-back program of up to US$300 million to be carried out within three years. The objective of the program is to maximize the capital return for our shareholders and at the same time maintain the cash we need to invest in our future,including mergers and acquisitions,and to provide flexibility of responding effectively to strategic opportunities. With the announcement of this program,we aim to return a substantial portion of our free cash flow to investors in the next three years via a combination of share buy-back and dividends. Meanwhile,our net cash as of June 30,2021 is RMB4.1 billion,which will enable us to capitalize on future acquisition,investment and strategic opportunities.

The detailed execution of the buy-back program will be on the open market carried out on the Hong Kong Stock Exchange in accordance with (and subject to limits prescribed by) NetDragon's general mandate to buy back Shares granted by its shareholders at the annual general meeting for the relevant year,the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and the Hong Kong Codes on Takeovers and Mergers and Share Buy-Backs and in accordance with applicable securities laws. The extent to which the Company repurchases its shares,the number of shares and the timing of any repurchases will depend on general market conditions,regulatory requirements,and other considerations.

Management Conference Call and Webcast

NetDragon's management team will hold a conference call and webcast at 10:00am Hong Kong time on 27 August 2021 to discuss the results and recent business developments.

Details of the live conference call and webcast are as follows:

International

+852 2112 1800

Mainland China

4008 423 888

HK (China)

+852 2112 1800

US

1 866 212 5567

UK

0800 068 8186

Passcode

7209327#

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 "2021 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 China's first online gaming portal,17173.com,and China's most influential smartphone app store platform,91 Wireless.

Established in 1999,NetDragon is one of the most reputable and well-known online game developers in China with a history of successful game titles including Eudemons Online,Heroes Evolved and Conquer Online. In recent years,NetDragon has also started to scale its online education business on the back of management's vision to create the largest global online learning community,and to bring the "classroom of the future" to every school around the world. For more information,please visit ir.netdragon.com.

For investor enquiries,please contact:

NetDragon Websoft Holdings Limited

Ms. Maggie Zhou

Senior Director of Investor Relations

Tel: +852 2850 7266 / +86 591 8390 2825

Email: maggiezhou@nd.com.cn

Website: ir.netdragon.com

CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER

COMPREHENSIVE INCOME

FOR THE SIX MONTHS ENDED 30 JUNE2021

Six months ended 30 June

2021

2020

(Unaudited)

(Unaudited)

RMB'000

RMB'000

Revenue

3,356,174

2,822,858

Cost of revenue

(1,122,299)

(953,587)

Gross profit

2,233,875

1,869,271

Other income and gains

86,859

105,907

Impairment loss under expected credit loss model,net

of reversal

(4,237)

(15,242)

Selling and marketing expenses

(437,997)

(427,022)

Administrative expenses

(485,206)

(441,632)

Development costs

(594,854)

(568,906)

Other expenses and losses

(94,341)

(84,054)

Share of losses of associates

(7,828)

(2,043)

Share of losses of joint ventures

(4,636)

(1,850)

Operating profit

691,635

434,429

Interest income on pledged bank deposits

819

1,595

Exchange gain(loss) on financial assets at fair value through

profit or loss,convertible and

exchangeable bonds and derivative financial instruments

7,522

(22,726)

Net gain on financial assets at fair value through

profit or loss

12,052

14,930

Fair value (loss) gain on derivative financial

instruments

(21,319)

6,971

Finance costs

(91,039)

(64,677)

Profit before taxation

599,670

370,522

Taxation

(216,042)

(92,728)

Profit for the period

383,628

277,794

Other comprehensive (expense) income forthe period,

net of income tax:

Item that may be reclassified subsequently to profit or loss:

Exchange differences arising on translation of foreign

operations

(3,403)

9,145

Item that will not be reclassified to profit or loss:

Fair value (loss) gain on equity instruments atfair value

through other comprehensive income

(2,504)

1,390

Other comprehensive (expense) income for the period

(5,907)

10,535

Total comprehensive income for the period

377,721

288,329

Profit (loss) for the period attributable to:

- Owners of the Company

430,732

336,499

- Non-controlling interests

(47,104)

(58,705)

383,794

Total comprehensive income (expense) attributable to:

- Owners of the Company

425,338

346,368

- Non-controlling interests

(47,617)

(58,039)

377,329

RMB cents

RMB cents

Earnings per share

- Basic

77.45

60.93

- Diluted

77.39

60.84

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2021

30 June 2021

31 December 2020

(Unaudited)

(Audited)

RMB'000

RMB'000

Non-current assets

Property,plant and equipment

1,943,925

1,992,708

Right-of-use assets

452,628

455,011

Investment properties

78,200

76,529

Intangible assets

747,956

625,771

Interests in associates

22,098

49,659

Interests in joint ventures

11,927

16,563

Equity instruments at fair value through other

comprehensive income

8,437

10,808

Financial assets at fair value through profit or loss

281,670

281,194

Loan receivables

8,836

10,421

Other receivables,prepayments and deposits

77,892

62,841

Deposits made for acquisition of property,plant and

equipment

864

3,630

Goodwill

239,125

241,332

Deferred tax assets

42,942

43,437

3,916,500

3,904

Current assets

Properties under development

296,808

263,915

Properties for sale

210,588

253,367

Inventories

396,251

316,909

Loan receivables

22,248

22,042

Trade receivables

611,384

525,353

Other receivables,prepayments and deposits

441,856

399,537

Contract assets

17,625

12,236

Amount due from a related company

47

47

Amounts due from joint ventures

992

974

Tax recoverable

11,976

14,035

Financial assets at fair value through profit or loss

2,920

5,781

Restricted bank balances

13,611

15,611

Pledged bank deposits

1,062

146,073

Bank deposits with original maturity over three months

762,862

33,021

Bank balances and cash

3,619,985

4,114,410

6,410,215

6,123,311

Current liabilities

Trade and other payables

1,089,092

1,091,369

Contract liabilities

379,690

405,483

Lease liabilities

64,263

56,224

Provisions

78,521

71,501

Derivative financial instruments

61,717

40,894

Amount due to an associate

757

3,484

Amount due to a joint venture

752

593

Convertible and exchangeable bonds

15,000

15,351

Bank borrowings

291,796

154,597

Dividend payables

115,870

99

Tax payable

148,975

121,083

2,246,433

1,960,678

Net current assets

4,163,782

4,162,633

Total assets less current liabilities

8,080,282

8,032,537

Non-current liabilities

Other payables

4,972

5,409

Convertible preferred shares

-

-

Convertible and exchangeable bonds

1,022,756

976,765

Bank borrowings

-

191,073

Lease liabilities

114,505

116,453

Deferred tax liabilities

85,409

90,907

1,227,642

1,380,607

Net assets

6,852,640

6,651,930

Capital and reserves

Share capital

40,622

40,951

Share premium and reserves

7,020,345

6,766,393

Equity attributable to owners of the Company

7,060,967

6,807,344

Non-controlling interests

(208,327)

(155,414)

6,930

UNAUDITED RECONCILIATIONS OF GAAP AND NON-GAAP RESULTS

Six months ended 30 June

2021

2020

(Unaudited)

(Unaudited)

RMB'000

RMB'000

Operating profit

691,429

Add:

Share-based payments expense

6,673

15,404

Amortisation of intangible assets acquired through business

acquistions

33,010

33,288

Impairment of interest in an associate and intangible assets

22,570

28,165

Less:

Others

-

(2,076)

Non-GAAP operating profit

753,888

509,210

Profit attributable to owners of the Company

430,499

Add:

Share-based payments expense

6,670

15,398

Amortisation of intangible assets acquired through business

acquistions

25,038

25,521

Impairment of interest in an associate and intangible assets

20,339

17,864

Fair value loss on derivative financial instruments

21,319

-

Exchange losson financial assets at fair value through profit or

loss,convertible and exchangeable bonds

and derivative financial instruments

-

20,682

Finance costs of financial instrument[8]

82,423

58,852

Less:

Net gain on financial assets at fair value through profit or loss

(12,505)

(14,854)

Fair value gain on derivative financial instruments

-

(6,971)

Exchange gainon financial assets at fair value through profit or

loss,convertible and exchangeable bonds

and derivative financial instruments

(6,480)

-

Interest income on pledged bank deposits

(819)

(1,595)

Others

-

(1,877)

Non-GAAP profit attributable to owners of the Company

566,717

449,519

[8]Substantially non-cash