© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Dear friends, good morning. Thank you for joining us for NetDragon Websoft Holdings Limited 2022 Interim Results Presentation. [Foreign Language]
Our presentation PPT will be broadcast on the live streaming platform, and the PPT is also available for download on our company website at www.nd.com.cn, under the Investor Relations tab in IR Webcast section. [Foreign Language] Before the start of our presentation, please allow me to introduce the management who are joining us today. [Foreign Language] We have Dr. Simon Leung, Group Vice Chairman and Executive Director [Foreign Language]; we have Mr. Ben Yam, Group CFO [Foreign Language]; we have Mr. Lin Chen, Group Senior VP [Foreign Language]; we have Mr. Vin Riera, CEO of Promethean. [Foreign Language] Now let's pass our time to Dr. Simon Leung to host the presentation today. [Foreign Language]
Okay. Good morning, good afternoon to some of you. So that we have the same cartoon character about 6 months ago. We're going to be talking to you about our business again.
So let me first very quickly give you a highlight of what happened in the last 6 months, and then we'll go into some financials. And Vincent will talk about their own businesses. I'm going to come back and talk about 2 areas. One is on the Metaverse. I was at the CNBC earlier this morning, a lot of conversation around the Metaverse. I'm happy to take some questions, and I certainly will talk a little bit about it. And especially our AI CEO, TANG Yu, is actually getting quite a bit of attention. And then I'll talk briefly about our business for the second half of the year. So very quickly, if you look at our result, it's actually -- it's a good result. I mean it's actually revenue growth, profit growth but we need to kind of look underneath the blanket a lot of it, if you will. So it's still very encouraging, but we do have some challenges we need to manage, nothing very specific to our company. It's more around the macroeconomic situation.
Let me touch on each of the different businesses, and then I'll have the rest of the team going into the details. I could not ask for more on the education business, and that's why Ben has this big smile on his face. So 71% growth year-over-year, which is something very impressive. That said, I mean, this business, we have been growing in double digits for the last 6 years, but 71% is actually very impressive.
Gaming, we declined a little bit, just like we are in line with the challenges that everybody is facing, not only companies in China but around the world. Actually, it's the macroeconomic headwind, which again we'll talk a little bit about it.
For the last 6 months, we did do a lot around the Metaverse, including building the platform, investing, launch again. So we will talk in more detail later on.
Last but not least, is actually our continued commitment to return equity back into our shareholders. So Ben will talk very specifically about what we are doing is actually we're going to do another special interim dividend on top of our interim dividend.
So with that, I'm going to turn it over to our CFO, Ben, and he's going to take you through the details of the numbers.
Okay. Thank you, Simon. Okay. I'm going to first go over our financial performance for the first half, and then I'll give you all an update on the implementation of our capital return measures, right? So let's dive into the financial statement.
Okay. Well, first of all, again, top line growth overall was 26%, which was actually one of the highest top line growth we've seen in recent years. As Simon mentioned, our education business delivered record growth in the first half. And that growth is actually a 71% year-over-year on the back of a fast-growing market and also strong execution, and that's the expansion of our market share.
And on the gaming side, our revenue decreased by 3.9%, which is largely a result of the macro impact in China, and Lin Chen is going to talk about that and break it all down for you.
And now on the expense side, you can see that all of the SG&A items all went down as percentage of the revenue as we continue to manage our costs effectively.
In terms of the bottom line, our net profit increased by over 30% year-over-year. And then on a non-GAAP basis, which we feel is a much better reflection of our true operating performance, you can see that all of the line items are increasing double digits, including EBITDA, operating profit as well as net profit.
Okay. So let's talk about the segmental financial statements. Okay. First, on the education business, to go along with our strong top line growth, we also saw over a 40% increase in gross profit. You can see that there's a little bit of a decrease in the gross margin, and Vin is actually going to talk about that later on.
And then in terms of the core segmental loss, you can see that our loss actually reduced to CNY 36 million in the first half as a result of operating leverage as we continue to implement a very effective cost control measures.
And then on the gaming side, real quick. We continue to invest in R&D to grow our pipeline, also enhance our existing games as R&D expense increased by 9.5%. And then on the -- in terms of the other line items in OpEx, you can see that we continue to look for opportunities to streamline our operations. And as a result, you can see that -- we can see a reduction in selling and marketing as well as the administrative expenses. And then overall, in terms of the bottom line, our core segmental profit for gaming maintained at over CNY 1 billion in the first half.
Okay. And the next section is going to be on the capital return measure. Okay. So first of all, as we have noted in previous earnings calls, so we are committed to providing capital returns to our shareholders through a combination of share buyback and also dividends. So up to now, we have completed USD 38 million of share buyback since we announced the USD 300 million of share buyback program about 1 year ago. So this year, starting in January, we actually paused our share buyback in order to comply with the listing rules because we cannot do any buyback if we possess material insider information.
So to fulfill our commitment in lieu of the buyback, which we were not able to perform for the most part of the first half, so we have declared a special dividend of $0.50 per share on top of kind of our regular interim dividend of $0.40. And we also want to highlight that we continue to maintain a very strong net cash balance of HKD 4 billion, which will enable us to continue to invest and also capitalize on our future strategic opportunities.
Okay. And the final slide of this session is a chart where we just want to highlight our track record of kind of giving back to our shareholders through a combination of share buyback, recurring dividends and also a special dividend. As you can see, through the past few years, we continue to consistently increase our cash return to shareholders through all 3 measures. And especially in the last past couple of years, we have really stepped up our effort as we already declared special dividends twice within this year. And going forward, we're going to continue to deliver on our capital return commitment.
So with that, I'll pass the stage to Vin and talk about our education business. Vin?
Great. Thanks, Ben. My name is Vin Riera. I am the CEO of Promethean, and I'm going to talk to you about our education business. If we go to the next slide, please. First half of the year was very strong for our business. We looked at 3 main metrics. We look at our overall revenue growth, our volume growth and where we are from a market share perspective. From a revenue growth perspective, it was great first half on a half-over-half basis, we are up by 42.1%. On a year-over-year basis, we are up by 74.3%.
Volume growth was very strong as well. We grew faster than the market. If you look at the market growth in the first half of the year, was at 23.9%, we grew 47.3%; on a year-over-year basis, we increased from 71.5% to 82.3%. It's important to note in the first half of the year, we did not have any large tenders, in-country tenders. So that's growth that we're seeing on a global basis throughout all the geographies [indiscernible].
And then from a market share perspective, in the second half of 2021, we finished at 21.9% market share; in the first half of 2022, we finished at 26% market share. Next slide, please. I talk a lot about the importance of being #1 globally. It's important for our brand. It's important for our products focused to make sure that we're delivering products that our customers want and our partners want to sell. And what I'm very pleased is that we remain #1 in our top 5 markets. We're #1 in the U.S., we're the #1 in the U.K., in Germany, France and Italy.
What's important to point out on this slide is in each one of these regions, they have different mix of products. They have different funding streams. They had different resellers and distributors that we work. This really speaks to our global presence and our excellence in understanding what's needed in the classrooms around the world. Next slide. We're continually looking at execution. We did see our ASPs drop 4.5% from the first half -- on a half-over-half basis. The ASP reduction comes from 2 areas. The first was we reduced some cost. We reduced price on AP7 to do a sell-down before our launch of AP9. I'm going to talk about a launch of our new product shortly. And then we also had some depreciation of the euro versus the dollar.
The material cost on a per panel basis continues to decrease. Component pricing continues to decline, and we're going to take advantage of that. We saw 1.6% decrease on a half-over-half basis. And then trade really peaked out in Q3 of 2021. We've seen a consistent decrease there. And we also managed that extremely closely. It's a metric that we look at weekly, monthly, and we're down 16.7% on a half-over-half basis.
I'm pleased to report that our gross margin, excluding tariff, is up 1.3 points. So it goes from 28.6% in the second half of '21 to 29.9% in the first half of 2022.
Next slide. All right. I am thrilled to announce the release of our B9 ActivPanel. This is our first new product that we've launched in the market in the last 3 years. I'm even more pleased to talk about how successful B7 was and how we maintained and took market share with the product that was in the market for 3 years. It speaks to how we build our products and how we look at the future state and what we need today but also what we need in the future.
There's 5 elements that were critically important in this release, and it's connectivity, longevity, adaptability, simplicity and security. I'm going to talk a little bit about each of these to give you a sense of what the focus was.
So the first major improvement is in connectivity. Our customers expect to operate -- expect all their devices to operate well together and intuitively when directly connected our network together. Our ActiveSync innovation addresses this need by allowing a more seamless integration between ActivPanel 9 and a connected device like a teacher laptop or OPS. This allows content to be more easily shared between devices. With ActivPanel 9, we've also upgraded the network, Bluetooth and charging capabilities to be best-in-class.
Our customers need longevity. As technologies in the hardware and software space continue to advance, schools need the confidence that their investments are going to continue to support their evolving instructional methods through in combination future paradigm shifts. The ActivPanel 9 has upgraded hardware. It has expandable storage and ActiveSync that allows us to solve for future needs.
Of course, they expect adaptability. One of the lessons from the pandemic if schools are preparing for a wide range of scenarios where students and teachers may or may not be in the classroom. Teaching technologies must be adaptable to delivering engaging lessons, wherever they may occur, and ActivPanel 9 now includes screen recording tool, making recording and sharing with lessons easier for teachers.
We always focus on simplicity. Technology in the classroom should be inviting to use. It should be simple to get started and easy to manage. Straightforward operation of the teacher and IT managers are important to instilling confidence, satisfaction and successful outcomes. The ActivPanel 9 enhances our Element Series, unifying many by online, more customization of menus, roaming cloud profile bringing the teachers customized experience to any ActivPanel 9 and multiple ways to quickly log in to a panel and take advantage of the custom startup.
And then finally and potentially most important is security. Security is absolutely paramount. This is a protection of personal and sensitive information through the implementation of industry best practices for hardware and software assignments.
First of all, the ActivPanel 9 is a trusted platform module, which brings industry-standard hardware-based security to the ActivPanel. We've also improved security and ActivPanel 9 by having multiple ways for a teacher to log into the panel with the profile by giving teachers and admins more control over the locking and unlocking of an ActivPanel 9. And by cleaning up any data left in the system after the session is completed.
So I'm thrilled that this product is in market. It's in all of our regions today, and we're shipping it and selling it as we speak.
Next slide, please. When we take a look at growth, of course, we're going to continue to focus on taking market share on a global basis, but there's also other things that we're looking at. And I want to make sure that I'm sharing those with you.
The first is we're always looking for partnerships that we feel have been strongly differentiated us in the market and give our users better experience. We announced a partnership last year with Radix. They're a leading device management software that helps IT administrators to keep track of how those panels are installed and used. And I'm very pleased to report that in June, we started exclusively distributing Merlyn Mind, which is a classroom-based AI tool to simplify teachers user experience.
From a building standpoint, we're always looking at new products that we can build, not only in hardware but in software. We see multiple applications that we're investing in that are going to enhance the user experience and bring recurring revenue streams into the business. And then from an acquisition standpoint, there is a short list of businesses that we're working very closely with, as we speak. They're all SaaS-based, and they're all in closely adjacent markets to fund classroom displays that will, again, enhance the user experience and create a seamless teaching experience for students and teachers.
Next slide, please. And then the final update that I want to give everybody is we've put a tremendous amount of focus on Edmodo in the first half of the year. We made a decision that we're going to close down the B2C platform this September, and the closure of the B2C platform is going to result in savings of approximately USD 20 million. What we are going to do is continue to focus and monetize the global country rollout opportunities. We've talked in the past about lots of opportunities at the country level, and we feel very confident that we're going to be able to bring the Edmodo platform, Edmodo World platform and those opportunities. This is consistent with what we've been talking about, the long-term blended learning strategy, and we continue to focus on building the pipeline with countries where we do countrywide rollouts and include all of our products and services.
And with that, I will hand it over to Lin Chen.
[Foreign Language]
So what I'm going to do is actually I'm going to talk about our effort in Metaverse, and then I'll move on to talk about the outlook. Before I go into a little bit of the details, we as a company are embracing Metaverse in more ways than one, being even having virtual CEOs as one of our experiments into the Metaverse because we do believe if we don't embrace it, as an entire company, we won't be successful.
So what we are doing is actually we believe in the trend. We believe in blockchain decentralization and crypto. A lot of people will ask what happened with the recent kind of fluctuation of the market. We see that as a long-term play is actually quite healthy is that the market adjustment is actually good for our long-term growth.
With that, I'm going to go into a little bit of the detail. What we are doing right now is actually we're developing a platform that allow us to get into Metaverse. So building an ecosystem is something that we believe we can do and we will do. In terms of application, we're going to be focusing on education and also gaming/entertainment. Those are the areas that we will be focusing on.
So let me kind of talk about each one of them so that you know the reason behind it. We have our new virtual CEO AI base. This is a radical approach, but we do believe it speaks very loudly of our commitment to this area. I was on CNBC earlier. I talked about how we approach it, and they say, "Oh, it's not agreement." Certainly, it's not. So hopefully, in the near future, she will be here talking to you instead of me, which is actually a benefit to all of you. She's going to take active role in how we manage the company, how we're going to streamline and make the process more efficient and allow us to take some of the current resources and focus in other areas. So it's something I, personally, and the company very excited about.
Next one, I want to talk about Neopets. Before I go into talk about the Web3 game, I want to go back to the top level. We are very excited about the different development in the Neopets franchise. Lin Chen talked about the Web3 game, which is a casual game. When we look at all the stats, it's very exciting. We have a very active user base in our classic games. We're also experimenting a world builder. And now, last Friday, we did an alpha launch on our Web3 game. The response is actually very good. Of course, it's a very controlled release of our alpha launch, but nonetheless, the feedback is actually very positive.
So we are excited, and we'll continue to commit to the current road map that you're seeing. We are looking forward to the success of this game in the first play and earn game, not play to earn, which is very important. We are working on a lot of partnerships that will make the game even richer than ever before. So I do look forward to those management at the right time.
The next one is actually we are working on our platform. We do believe things like AR and MR and XR is actually going to be integral part of Metaverse going forward. So we decided to invest in this company called ROKID. We're going to invest USD 40 million into this company. They're focusing on producing AR-enabled glasses that can work either with our game, our entertainment or education.
Along the same -- along the line of investment, we also have a strategic partnership with them. We're going to be co-developing our application in the education Metaverse first. We believe it's going to be an integral part and will contribute to the success of our education Metaverse going forward.
Okay. Let me move on to the outlook. Before I talk about the outlook, I want to mention a couple of things. It should maybe one thing. Ben will talk about our focus on capital return to our shareholders. He did talk about buyback of close to $40 million and then our special dividend, $0.50. But I want to remind you, we also gave a special dividend before of -- let me see it, [ $1 ]. I think it's around $100 million. So if you kind of do the math, we have returned close to $200 million back to our shareholders, which is actually followed our commitment that we announced earlier.
In terms of the outlook, we look at the rest of the year, our education is going to be enjoying a record year. Again, I have to reiterate in 2022, but more excitingly is that Ben alluded to in some of our partnerships, not only just with Radix but with Merlyn Mind, which is actually incorporating AI and voice technology into our classroom technology. We're going to be continuing looking at M&A opportunities in that area, allow us to expand our market share in the classrooms. But more importantly, build up our SaaS monetization opportunities. We'll continue to be very careful with our costs actually not only in China but everywhere else, but we're going to focus on streamlining our costs in anticipation of some of the headwinds coming our way.
Last but not least, our gaming franchise even though there's some headwinds, we believe we can get over it just like any other times before. So like Lin Chen said, we're going to be focusing on delivering our new games, including the games overseas, which is actually quite exciting that would kind of reduce our risks and then kind of expand our opportunities.
With that, I'm going to stop and hand the call back to the moderator. Thank you.
Thank you. Thank you, Dr. Leung, and thank you, management for the presentation today. [Operator Instructions] [Foreign Language]
First, we would like to welcome our first question. It's a question for Vin. It's a very impressive result. We have 2 questions for Vin. First, I noticed a very overall market demand in the first half. Can you talk about the drivers behind the strong demand given overall soft macro environment? And do you expect a strong demand to last?
And the second question is when do you expect B2G business to contribute significantly -- significant revenue? And what will be the impact on the margin profile?
Sure. So let's talk about the first question, which is what are the drivers for demand. One of the things that we saw as a result of COVID was that schools put a tremendous amount of technology in the hands of teachers and students. And as they took time off from school and then went back to the classroom, they realized that the classroom technology has -- was not at the same level as the technology that the teachers were not using and the students were not using, and they saw significant funding streams globally to improve that front-of-class-based technology.
So part of the demand that was driven was the sheer amount of ed tech products that were bought during 2020 and 2021 and then retrofitting classrooms to be able to work with that new technology and having strong funding sources associated with that.
The second part of that question is, is this something that's going to last? I think one of the biggest trends that we've seen in the last 12, 18 months is that the need for an interactive flat panel that has the computing power and speed and capacity to interact with teacher devices and student devices is pretty important. So I think what we're going to see is we're going to see customers that might have been late to transition to interactive flat panels from interactive whiteboards, making that transition. I also think with the launch of B9, we're going to see demand and interest in people with version 1 or version 2 interactive flat panels upgrading to a significantly improved user experience that's much more secure and just will work much more effectively with teachers devices in classroom. So I think that's going to continue.
As far as other forms of revenue, I think -- I wasn't sure we said B2G or B2C, the primary focus right now is classroom education-based technology with Promethean. We did talk about some of the partnerships that we had in place, and I also talked very briefly about some acquisitions that we're looking at. And in both those instances, there's the ability to work with and monetize products outside of the classroom. And then it's worth noting that relative to Edmodo, Edmodo World is something that we're bringing into countries, and we're selling into MOEs, there's an opportunity there to expand out.
Well, it might, if I may, I'll jump in and make a couple of comments, too. So I think we do see strong demand going forward because I've been alluded to is actually there's a lot of old technology that is planning for replacement. There's still a lot of greenfield. The good news is actually we are a global player. So we can look to other countries for growth in revenue. Now whether we can grow another 71% is we certainly will take on that challenge. But at the end of the day, we will see strong growth with us going forward.
I think the other question is the impact on the margin, right, from the country. Well, I think we can ask this question in 2 front, right? Because for the country projects, we have the hardware and then we have the software. On the hardware side, I think the margin could be a little bit lower compared to our run rate business. But as you can all know, the hardware revenue, the scale part of the revenue for the country project is actually a lot higher.
And then in terms of the software, we're also actually working on kind of generating software revenue from our country projects, and the software revenue comes from not higher margins. So I think net debt, I think we're talking about, we're aiming for a significant benefit to our bottom line from our B2G projects.
Thank you very much. Our next question. [Foreign Language]
[Foreign Language]
[Foreign Language]
Ben, do you want to take that one?
[Foreign Language]
[Foreign Language]
[Foreign Language]
Let's welcome [ Yang Linlin from GongFa Insurance ] to ask questions.
[Foreign Language]
[Foreign Language] Lin Chen?
Okay. [Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language]
Our next question comes from the integrated asset management. So the question is, as we disclosed on our announcement that Promethean entered into U.S.-based exclusive distribution agreement with the leading education AI technology company, Merlyn Mind, as our first step to leverage our sales network to expand beyond hardware sales into SaaS solution, can you please explain more about the SaaS business model that we are planning at the moment?
First of all, it's Merlyn, not Merlin. So it's not an issue. So Vin, go ahead...
Merlyn, okay...
Sure. So one of the unique parts of the Merlyn offering is it's an enhanced user experience based upon AI software. And it's used with classroom technology. It creates a seamless environment for a teacher. And what it allows us to do is create a much more exciting classroom experience for a teacher. It's the same purchaser through the IT administrator. It's the same funding source. And specific to software, there is a piece of hardware that you buy, but there's a recurring revenue stream associated with it that gives the users this enhanced experience. So this is our first partnership in classroom use case SaaS business, and we're super excited about it. We've launched it here in the U.S. at the end of June, and we've already started to get traction in the business pipeline.
Yes, I want to make a comment. It's actually -- this one is actually is not the only opportunity that Vin and his team are looking at. So at the right time, hopefully, in the near future, we will [indiscernible] give you more news in that area, which is actually something that the team has been doing is really strengthening and our capability within the classroom. And we -- at the same time, we maintain our market share leading position and also expand our SaaS offering.
Thank you very much. Due to time constraint, we would like to welcome our last question. [Foreign Language].
[Foreign Language]
[Foreign Language]
[Foreign Language]
[Foreign Language]. Thank you very much. This successfully concludes our presentation today. Once again, I would like to thank you all for joining us. If you would like to communicate with the management further, please contact us for one-on-one meeting. Thank you, and we would like to wish you all have a great day. [Foreign Language]
Okay. Thank you. [Foreign Language] Okay. Thank you.
Thank you.